To Infinity And Beyond-My Apologies to Buzz Lightyear

  If you watch The Big 10 Channel lately (as well as the Super Bowl) you have seen commercials for an online lender that feature this little guy. The commercials are touting the speed of qualification for a mortgage of the space ship mortgage that is offered. It's fast-like a Titan Rocket. The showing of the ad during the Super Bowl has elicited a twitter war that even the CFPB (Consumer Financial Protection Bureau) got into - “When it comes to ‪#‎mortgages‬, take your time, ask questions and ‪#‎knowbeforeyouowe‬,” Maybe not such bad advice. While the Space Ship mortgage company is highly technologically evolved as far as automated systems go, obtaining a mortgage isn't quite the same transaction as purchasing a pair of shoes online. Shoes in the wrong size can be returned in most cases. Mortgages cannot.

  When I was a mortgage broker one of our investors was the aforementioned Space Ship Mortgage Company. I can attest to the fact that they are a highly automated company. The particular process that they are advertising actually allows them to view your assets, taxes and income (you check off that 's ok) through automation so that you aren't hassled with getting those items to a real live person upfront. Or asking that real live person to wing it. I presume you do have to provide hard copies at some point-that was the case when I had transactions with them. And that is where it can all break down. Garbage in, garbage out. While income, assets, and credit are a huge part of the story, it's the details that aren't apparent with just that information that hang a loan process up or kill it all together. Things like child support that add or subtract from income, the fact that someone quit their job a year ago and then was rehired six weeks later, thereby changing their hire date and tossing out the possibility of using any overtime to qualify since the use of overtime funds is a two year average from hire date. This speedo qualifying doesn't pick up nuances of credit. Your loan might not qualify due to credit issues, but maybe your issue can be easily solved. What you know is that you are declined-not what you need to do to fix it. For reasons such as those, I think having a person is good. Someone who knows the mortgage industry and how things work. Of course that is my job- I would prefer to keep my job so in the interests of full disclosure, I have a dog in the hunt. And I am all for automation. Hands down my company does a great automated gig. However, there is a human being on the front end.

  This is the most important financial transaction you will probably ever be involved in. Service from a person you can go see-isn't that worth a little bit of time?

HOW ARE CREDIT SCORES DETERMINED?

Here is a very instructive graphic from MGIC (the mortgage insurance company) illustrating what factors go into creating your credit score. This is a brilliant example of how you can increase yours because if you want a mortgage, you score has everything to do with mortgage eligibility, your interest rate, and the amount of mortgage insurance you will pay

Trendy?  2016?

pointit.com

Trends-cultural, political, social - - trending seems to be what everyone seems to be interested in. Catching the wave as it goes by, or better yet, being ahead of the wave and reaping the benefits.
Zombies, super heros, and dystopian societies are all trends that are manifesting themselves in entertainment, farm to table in fine dining; so are there trends to be found in housing and mortgages?

Of course there are. From those who are in the know I am learning that open concept is on the way out, as is granite for every flat surface. Mortgage lending can be trendy too - -so for the mortgage hipster, here is what is trending for 2016.

Interest Rates: The trend currently is down. While rates are not expected to hit the lows of a couple years ago,t he short term trend is rates hovering around or just below 4%. However, that trend is expected to reverse itself in 2016 and by the end of the year we could be close to 5%.

Credit Scoring: There are a couple of lenders on the West Coast that are experiencing with doing away with credit scoring in their loan approval process. The idea is to evaluate the history of payments and open debt, rather than assign a number to it. How this plays out with Fannie Mae and Freddie Mac and selling mortgages on the secondary market was not clear to me as loan sales are credit score driven-but it will be interesting to watch. In the meantime, for most of us, there seems to be a trend towards a relaxation of some credit rules which should help more buyers obtain mortgages.

Increasing Rents: There is a definite upswing in the cost of rent according to Fortune Magazine - - 8% for 2016. The reason being increased demand and decreased supply nationwide.

http://fortune.com/2015/10/07/rents-rise-housing/

And that leads us to this trend:

Millennials getting into the housing market. The biggest group will be the older millennials-those that are 35-40 years old, but we should also see large numbers of 25-30 somethings seriously considering purchasing their first home this year. In fact the millennial generation will be the largest percentage of home buyers this year.

Housing Prices: Nationwide should increase 3%

1.5 million new households are expected to be formed.

Sounds like a good year to jump on the trend and buy.

Closing Costs? What Are Those?

home-mortgage-center.com

The topic today is closing costs. If you are a first time home buyer, this may be the first time you have heard the phrase. Closing costs are the fees charged by the lender and other service providers in order to get your mortgage closed. "What the heck," you might say. Isn't the down payment enough? The down payment actually benefits you, the buyer. That goes towards the purchase price of the home. However, in order to close a home legally, there is lengthy list of things that have

to happen such as underwriting, appraisal, credit reporting, title searches, upfront mortgage insurance or funding fees etc. These all factor into closing costs which can add significantly to the acquisition cost of the house.

I like to divide closing costs into three parts:

1) Lender fees-the lender fees are for underwriting and processing-the fees the lender requires to actually process and approve your loan. These are the only fees that the lender actually controls. In most cases these fees run around $800-$900

2) Third party fees: These are fees charged by third parties but required by lending such as the appraisal, credit report, up front mortgage insurance or funding fees, title fees. and recording fees. It is hard to quantify these fees as some of them are dependent on the size of the mortgage.

3) The last classification of fees is what is known as pre-paid fees. These fees are to set escrow accounts for the payment of insurance and taxes, and one year of home owner's insurance. Again, depending on taxes and the cost of insurance the cost of this portion of closing fees can vary wildly.

However, the good news is that your lender should be able to give you a fairly solid estimate of how much these fees will run This can be done based upon a specific loan amount with out an actual property using estimates for taxes and insurance . Once a property is identified and the loan process begins a form called the Loan Estimate is issued with the total fees disclosed. If any fees change during the course of the processing of the loan the borrower is notified by the receipt of a new loan estimate. Typically once fees are disclosed, there are no significant changes unless the loan program has to change for one reason or another. The final dollar amount that the borrower brings to closing should pretty closely resemble the dollar amount shown on the Loan Estimate.

As a part of the purchase negotiation, the borrower can ask the seller to pay for some or all of the closing costs. In many cases the seller is willing to do so, however, that could potentially add to the purchase price of the home.

The other thing that buyers need to be aware of is that closing costs don't vary widely from lender to lender. With increased scrutiny from the Consumer Financial Protection Bureau, the costs for these services can't have wild swings, either on the borrower's behalf (such as the lender paying for their costs without disclosure) or undisclosed increases in costs.

For the first time home buyer, familiarity with these costs and a plan to cover them is a critical part of the pre-approval process. Do not hesitate to call your lender for answers to any questions you may have.

Pennywise, Dollar Foolish

angie'slist.com

Whoops! It happened again. A buyer decided to save some money by declining the opportunity to have a whole house inspection and got stuck with a wheezing, broken furnace. "The seller must have known," may be a true statement, but prove it and then try to get them to pay for repairs. That is an expensive endeavor often involving courts and lawyers. I don't recommend it.

What I do recommend is doing everything you can to know what you are buying. Buying a home is the most expensive financial investment that most people will make. If you don't have enough money to have the home properly inspected, you probably aren't financially ready to purchase a home.

The home is only five years old, you might say. What could possibly be wrong? Why bother with an inspection? Unless you can see through walls, are versed in how a breaker box should be wired, and are willing to crawl into the crawl space to verify that the property has no termites or standing water around the foundation, you need an inspection.

Wiring issues, termite damage, and water penetration concerns are the items that we see the most. Indiana is a state in which mold thrives. A window that is sealed improperly can leak moisture into the walls. Moisture can create mold, mold spreads. Toxic homes exist. I have known folks that have purchased homes that they can't live in due to mold. The remediation of mold is an expensive proposition-much more expensive than that inspection you chose to skip.

Another potential health hazard is radon. Radon is an odorless gas that is naturally occurring in Tippecanoe County. There are areas of the county where it is more prevalent than other areas. Radon has been linked to instances of lung cancer. Particularly with the more energy efficient windows and doors of new homes or a basement that will be used as living space it is probably a good idea to consider radon testing as well. Adding additional tests for mold, radon, well, and septic could increase the cost of your inspection by several hundred dollars. But...if it keeps you from buying a home that you have to make thousands of dollars in repairs it is well worth the expense.

Managing Expectations

cross15.edublogs.org

  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.

A Whirling Ball of Credit Confusion

dianekress.wordpress.com

I run into this every year. Confusion about credit; what it means, what is allowable, what it can do or can't do. Good credit is needed to buy a home these days. Not necessarily blemish free credit, but there needs to be evidence that you are in the habit of paying your bills on time. And by bills, we are talking about credit cards, vehicle payments, student loans, as well as personal loans. There is a direct connection between how a borrower pays their credit cards and installment loans with how they will pay their mortgage loan; past behavior being the best predictor of future behavior. It isn't too far a stretch to conclude that someone who never met a bill they liked to pay, isn't going to like that mortgage payment any better.

So, while mortgage lenders can be forgiving of negative credit, even past bankruptcies and foreclosures, there is a standard that most look for with regard to credit. Generally speaking the floor of that standard is a 640 credit score.

And when I say 640-I mean the middle credit score has to be a 640 or above. And by middle score, I mean the middle score of the lowest scoring borrower. Does that makes sense? Here's how it works:

If the borrower is purchasing the house with no co-borrower we will pull credit from three bureaus-Transunion, Experian, and Equifax. Whichever bureau posts the middle score, that is the one we use. IF we have two borrowers, a husband and wife, let's say- we pull credit on both and we use the lowest middle score. So if husband's Transunion is the middle score and it is a 675 and wife's Equifax is her middle score and it is 653, we will go with the wife's score as the score that determines eligibility for the loan. The only way we can use the husband's middle score as the determining score is if the wife is not on the mortgage.

Often I have young buyers who have a parent who is willing to be a co-borrower to offset low or no credit situations. We used to be able to do that. No more. There is no escaping a credit score that is ineligible for a mortgage to obtain a mortgage.

And why is it that my credit report is 20 points lower than what I just pulled off of Credit Karma? The answer is algorithms. Mortgage lending uses a different set of criteria for calculating credit-so that Experian "Kiss My Credit" ad with the blonde sticking her boots up on the desk? It doesn't necessarily work for mortgages.

The other thing about credit scoring is that lenders want to see accounts on credit reports. That is after all what creates credit scores, accounts that are working for you because you pay them on time and accounts that are working against you because you don't pay them on time...or at all. If there is a body of good credit reporting, it can offset to a degree, any bad credit that might be reporting. It's not a cure all. A credit card and a car payment that are paid on time for 6 months isn't going to help if the remaining 25 pages of the credit report are filled with negative credit. What determines credit are these factors:

1) How much you owe compared to how high your balances are. (keeping balances at 1/3 of the limit will obtain optimal credit on revolving accounts)

2) Timely payments

3) Number of open accounts

4) Diversity of type of account (revolving, installment, student loan etc)

5) Length of time accounts have been open

6) Existing negative credit-this includes late payments, collections, charge-offs, tax liens, and judgments

7) Credit inquiries. Anytime credit is pulled it is noted on the credit report for 120 days. One or two pulls don't make a huge amount of difference, but if someone has their credit pulled seven or eight times in a 60 day period scores can drop significantly. Car dealerships in particular hammer credit as they shoot out credit reports to many different finance companies. I have seen as many as nineteen or twenty credit pulls from one dealership for one transaction. It isn't advisable to shop for a car at the same time you shop for a mortgage unless you plan to finance the car through your bank or credit union who will be much gentler with the credit inquiries.

Your credit score will ultimately affect the interest rate. One of our programs has a 620 minimum score. It is a good FHA program-30 year fixed rate loan. But there is a significant interest rate difference between that program and and FHA loan with a borrower whose score is in the low 700's.

The sooner borrowers develop good credit habits the better if there is a mortgage loan in the future. Remember, the lender is taking the majority of the risk in the process. It's their money on the line and they are betting you will pay it back. Give them a reason to bet on you.