Managing Expectations

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  As with most years, I anticipate that this year I will meet and work with a number of first time home buyers. So today I would like to discuss managing expectations. The subject of purchasing a home is often an emotional one. The idea of "home" being very personal. As with anything dealing with emotions, sometimes dreams and reality part company along the route, so it is important to understand what is possible and what is not.

   When dealing with mortgage financing, we are talking about a fairly black and white subject. When i first began originating mortgages in 2001, a well written letter could sometimes make the difference as to whether or not a loan would be approved. Underwriters still had discretion in making decisions. A person with a difficult story that anyone could relate to often was approved for a mortgage. Today, not so much. Mortgage decisions are based on specific quantifiable facts.

  What we look at is what is true and quantifiable. I.E., how much you actually make today, right now, your current debts today, right now. If I am giving a pre-approval I can't take into account what may happen in three months, I have to use the information that is available currently. So the raise, the bonus, the inheritance, the payoff of debt, are factors that could make a difference, but only once they are a reality.

  Often folks think they can buy more than what they actually can buy. The rent you pay for instance, isn't ratio tested to fit a formula as your house payment will be tested. So what you are paying in rent, may or may not be what you can pay in house payment. Online loan calculators don't always take into account the factors that affect interest rate, taxes, insurance or private mortgage insurance. So what you think your payment in a particular price range will be could be way off.

Many folks think that if they pay their utility bills on time that will ensure a good credit score. Since the utilities don't report to the credit bureaus unless the bill goes bad, you will need something else to establish credit. The days of awarding loans to folks with no credit scores are gone. (There does seem to be the beginning of a trend to not use scores in credit evaluation-rather to use payment history and absence of negative issues as a method of gauging credit-but I don't look for that to take over the industry in the near future.)

  Buyers often forget about deferred student loans when they are contemplating what they can afford. Sooner or later student loans have to be paid. Lenders have recognized this and now require those payments to be factored into debt ratio whether or not the loans are in repayment.

  The potential buyer has just begun a great new job. So then the question is-what was he doing prior to this job? School? Was the school work related to the job? Is the job with a temporary agency that supplies workers to various factories in the area. The rules are a bit different with that situation.

  Today's buyers were brought up in the information age. They are used to learning what they need to know on line. But the question is-are mortgages like any other product or commodity that can be purchased over the internet? I mean, you don't need a college degree to originate mortgages. It's not exactly rocket science. No, the mortgage business isn't rocket science. But it is highly regulated and subject to hundreds if not thousands of rules that change frequently.

  What I am here to tell you is, talk to a mortgage lender before you let your dreams get away from you. Find out what you can actually buy - then do your dreaming.