Five Steps to Help You Navigate the New Mortgage Landscape

Haven’t Applied for a Mortgage Since 2008?

The 2008 mortgage crisis changed the mortgage application process by extreme measures, so whether your last loan was before 2008 or you’ve never applied for a mortgage, this article will arm you with the knowledge required to help land you the best loan while enduring the fewest headaches in 2014. These are simple steps that will help place you with the best lender, decrease paperwork requirements, get you the best interest rate, and ensure a timely closing. A mortgage loan originator will provide you with advice on any immediate action you should be taking when considering purchasing or refinancing a home, so your first task is to select a loan originator to work with.

1.Select your mortgage loan originator.

Selecting the best loan originator will depend on whether you are purchasing or refinancing, among other factors. Purchasing a home triggers the need for money to be delivered to a seller on or before a specific date written in a signed contract, while refinancing doesn’t. This means that a faster application process and more predictable ability to receive final underwriting approval are more important factors when you’re buying rather than refinancing. If you’re buying a home or you have a complex refinance scenario, you need to work with an experienced mortgage loan originator supported by an organized bank. If you’re refinancing and you think you’re a great borrower, then you may be better off sacrificing experience and speed for pricing by working with a mortgage broker that can pass along labor savings to you in the form of better rate and less fees (keep in mind that, just like any industry, better employees get paid more, so if you want the best loan originator working on your loan then don’t expect to get the lowest interest rate or closing costs). For buyers and refinance borrowers with complex scenarios, your current or previous REALTOR® is a great resource for names of experienced loan originators since they see lender performance on purchase transactions on a regular basis as part of their job. Ask your REALTOR® to give you the names of three mortgage loan originators, but don’t call or email these people yet. Visit www.nmlsconsumeraccess.org, type in the names of each of these three people, and click “View Self Reported Employment History”. If any of these loan originators has not been at their current employer for at least six months or been employed by a mortgage company for the past two years, then cross them off the list because it takes at least two years of lending experience to acquire the knowledge it takes to guide you into the most suitable loan and ensure that you will end up receiving final underwriting approval, and it takes six months with the same company to establish relationships and master the software within a company to ensure a swift and efficient process. If you have now crossed everybody off your list then either get more names or speak to a different REALTOR® that actually knows lenders that fit these minimum criteria. Once you have two loan originators left on this list, do not contact them just yet. Your next step will be to get a general idea of where market interest rates and fees are for your particular scenario.

2.Find out what the competition would offer you for your specific scenario.

Your personal risk factors will directly affect interest rates and closing charges offered to you, so please remember that many mortgage quoting websites and ads assume a high credit score, large down payment, and high loan amount. Visit www.creditkarma.com to get a free credit score, but please keep in mind that this is just one credit score, it’s calculated differently than a mortgage inquiry credit report, and that mortgage companies will use your median credit score between all three credit bureaus. You will only use this one (free) credit score to give you a ballpark number. Then, visit www.ratebid.com to anonymously post your specific information (estimated purchase price, loan amount desired, loan term desired, estimated credit score, occupancy intention, and zip code), and submit the information. Multiple loan originators will manually analyze your information and compete for your business by posting quotes that display interest rates, closing costs, and payments within the website, often resulting in bidding wars that drive down rates and fees. You’ll receive an email notification each time a new quote has been posted. Take a look at the lowest rate and fee quotes, and save that information by “liking” those quotes. Now that you have armed yourself with realistic interest rate and closing cost quotes, the next step will be to contact the two originators that the REALTOR® recommended.

3.Contact mortgage loan originators and receive written offers (Good Faith Estimates).

Call the two loan originators on your list that your REALTOR® had recommended in the morning and tell them that you wish to take a loan application. It is important that you make sure and give them the six pieces of information that constitutes a loan application:

1.Your name

2.Your estimated gross monthly income

3.Your Social Security number (so they can obtain your full credit report)

4.The property address of any property that you’re interested in buying or refinancing

5.The estimated value of any property that you’re interested in buying or refinancing

6.The loan amount you're seeking

Be aware that until the loan originator receives all six pieces of that information, legally you have not applied for a loan, and without a loan application, mortgage loan originators are not required to send you any type of written and binding offer (a “Good Faith Estimate” is the name of the only document that gives you any type of written and binding offer from a lender regarding interest rate and closing costs). Some unethical or lazy loan originators will “conveniently avoid” receiving all six pieces of information so they can avoid the paperwork and the requirement to give you a binding interest rate and closing cost offer. With purchase loans, the most common method of doing this is to avoid knowing a property address, claiming you are still shopping for a home and that the address is still “to be determined”, so make sure that you tell them an address of at least one home “of interest” that’s in your price range. Before you get off the phone, politely tell both originators that you are shopping around, ask them what your credit score is, and ask if they could you a good faith estimate (GFE) today (this is why you contacted them in the morning). Next, you’ll analyze each GFE and compare with the quotes you got on www.ratebid.com.

4.Passively negotiate your mortgage terms.

Now that two mortgage loan originators have each sent you a GFE, you have two binding offers in writing. Even if you are not under contract or even made an offer on a home, taking these exact steps to receiving these documents will increase the chances that you will ultimately end up with better loan terms. Compare the GFE from each lender by first examining the “Important dates 1.", which displays how long your initial interest rate is available through. If you are not under contract or have not discussed locking a rate in, then that date will likely be today’s date (meaning the interest rate is only available until the end of the day, and only if you decide to lock in that rate). If you are under contract and have discussed locking your rate in, then this date may be a future date that is on or after the closing date written in your contract. It is very important to note that an unlocked rate is only good for one day, so the unethical lender may place a very low and unrealistic rate in the GFE, avoid discussions about locking a rate in or even advise against it until you are under contract and have paid for an appraisal, home inspection, deposit, and ultimately have so much time and money invested into the transaction that you have no choice but to proceed with a higher “market” interest rate that has (conveniently) increased once you lock the rate in. The next thing to examine is the initial interest rate and closing costs on each GFE. The most important closing costs are located in box A at the bottom of each GFE labeled “Your Adjusted Origination Charges”, which displays fees that the lender is charging you, as well as box 3 on page 2 of each GFE labeled “Up-Front Mortgage Insurance” or “Funding Fee” which are fees paid to the government that typically allow lenders to grant you a lower rate. If you applied for the same type loan amount and term, then all else should be similar and less relevant to examine, so simply add together the number in box A and any applicable Up-front Mortgage Insurance or Funding Fees and use that to compare closing costs between the two GFE's. Log back onto www.ratebid.com and compare the quotes. If the credit score that both loan originators told you was significantly different than the credit score that you used to get quotes onwww.ratebid.com, then make a new mortgage quote request on the website using the same data but the correct estimated credit score to get new quotes. Finally, compare the lowest quotes that you got online along with the each GFE. If the rate and fee quotes you got online are significantly lower or higher than what is in either GFE, then print the quotes and scan them over to the respective loan originator. This will give the loan originator actual documentation that you have been mortgage shopping online and have received much better quotes than are in the GFE, which will allow the loan originator to forward the attachment to management and potentially match the quotes. If either loan originator can at least come close to matching the quotes you received online, then it’s best to proceed since there is some value when the REALTOR® and loan originator have a prior business relationship and when it comes time to lock in your rate, you can use the same comparison process to ensure fair pricing since you are now working with a lender that is willing and able to negotiate after displaying competitor online mortgage quotes. If neither loan originator is willing to attempt to match significantly better online quotes that have been documented via an emailed attachment, then it’s time to initiate contact with the lenders that provided you with the better quotes online. The loan originators who have provided you with quotes will also display their names, contact information, and years of experience. Again, use www.nmlsconsumeraccess.org to weed out the people that have less than two years of recent mortgage experience or less than six months with their current employer if the loan will be a for purchasing or if it’s a complex refinance scenario. Initiate contact with at least two of originators and repeat the process beginning with a phone call and ending with a two more GFE’s to compare.

5.Commit to your originator and send documentation.

Select the best deal and then proceed with that originator. Expect documentation requests that may not make sense, but trust that they are required for a reason and send legible copies of all requested documentation. Such documentation often includes:

1.Driver license

2.Social Security card

3.Most recent W-2s for the past two years for all jobs

4.Most recent pay stubs covering at least 30 days of consecutive pay

5.Most recent federal tax returns for the past two years, all pages

6.Most recent bank statements for all accounts, all pages

7.Divorce decree if applicable

8.Bankruptcy petition, all pages if applicable

9.Bankruptcy discharge order, all pages if applicable

10.Child support order, all pages if applicable

11.Most recent Social Security benefits statement, both pages if applicable

12.Most recent pension awards statement, all pages if applicable

13.Mortgage, tax, and home insurance statement(s) for any other properties you own, if applicable

14.1099s for any retirement or pension earnings, if applicable

15.College transcripts or high school diploma if you were not employed for the past two years because you were in school, all pages if applicable

16.Letters of explanation for previous bankruptcy, collections, previous foreclosure, or extended unemployment during the past two years

17.Contact information for your home insurance agent

18.Cancelled rent checks for the past 12 months, if applicable

19.Landlord contact information

20.Documentation for any large deposits that are not described on your bank accounts to prove where the money came from (you may have to contact your bank to get images of deposit slips and check images, which is the first step to providing a paper trail for such large deposits)

We hope this guide will help you navigate through the new mortgage landscape in 2014 and hope this information is ultimately more helpful than frightening. In closing, although an experienced mortgage loan originator should recommend taking or avoiding any immediate action, we’d like to leave you with a five tips that can help improve your credit score and decrease mortgage paperwork:

1.Without sacrificing your down payment savings, pay down any small consumer shopping credit cards to 30% of their limits.

2.If you get a tax refund in 2014, arrange for it to be direct deposited into your bank account.

3.Avoid making any large cash deposits or even multiple small cash deposits, if possible.

4.If your employer does not offer direct deposit, then make sure and deposit your paychecks in full without taking cash out at the time of the deposit.

5.If you have a previous bankruptcy or foreclosure, keep in mind that the waiting requirements are not based off of the date you want to close on the house. They are based off of the date of the loan application.

Blake Alexander

Mortgage Loan Originator

NMLS #265208

Founder and President of RateBid.com, LLC