Mortgage Loans

Home equities, up till only a few years ago, were historically the way parents made major home improvements, sent kids to college, took retirement cruises, or just paid off bills. For many families taking out a home equity loan was an expected rite of passage for many of life’s occasions that essentially would drain a normal bank account.

Today’s needs haven’t changed, but the entire process for mortgage loans and applications has taken a dramatic turn for the worse when it comes to people to who have planned for the past 15 years or so to use their equity to put Junior through Dartmouth College.

Once the housing bubble burst along with most of the financial market responsible for insuring and guaranteeing mortgage loans, home values plummeted to the point that over half the population found themselves “upside down” on their mortgages. There was no equity. In many cases, junior was sent to a local college and needed repairs remained unfinished.

However, if you are one of the luckier homeowners who actually has equity in his home, rest assured there are lenders who are happy to talk to you! Although negative rumors abound about how difficult or impossible it is to obtain a home equity loan, the truth is that anyone with enough equity who can withstand the new financial background vetting process used by the rest of the solvent financial institutions is almost guaranteed to be approved.

The problem many homeowners do face, nevertheless, is that even if their home is worth more than they owe (which is key here), it is probably worth far less than it would have been prior to the real estate bubble burst a few years ago. Recovery may or may come! An owner who had planned on taking out perhaps $100,000 in equity in order to buy a condo near a golf course may be looking at a paltry $40,000 in equity which might only help with a time share nowhere near the golf course.

In this situation it is vital to compare mortgage loans to determine the best mortgage rates. The old term “jumbo loan” has been redefined and many lenders have diverse ideas as to what that definition is. If you can find a lender that believes “jumbo” might be that $40,000 you want, you could be looking at a much better rate than you would otherwise get.

When it comes to applying for a mortgage, you can’t be too prepared! Different lenders want different documents and even then, their individual requirements will vary. For instance, if you are looking into refinancing mortgage loan options you will be required to produce fewer documents than if you are looking into obtaining mortgage loans for investment property.

Things have changed drastically over the past few years, and anyone hoping to find a real “no doc” loan will be sadly disappointed. Lenders not only want the docs, they want lots and lots of docs, with lots and lots of details. If you happen to be one of those people whose idea of “filing” is throwing everything somewhere in the vicinity of anything that resembles a desk, and leaving it there until you move, you have a rude awakening in front of you!

For a typical mortgage, lenders used to ask for two months of income/W2 verification, a few bank statements to show a steady income, and maybe a few copies of investment statements.
Those days are gone! If you want to qualify for any type of mortgage loans today, be prepared to provide a variety of documents ranging from statements to notarized letters from your CPA stating you have the financial means to afford the house you are trying to buy.

At a minimum, a typical lender wants at least one full year of bank statements; others want two. They want to track your average monthly income. If you happen to work for yourself, or if you have a job where commission is really what you depend on, you may have a more difficult time than in the past in trying to convince the bank you can afford your new home.

No matter what, the lender will pull a credit report. Even if you paid money to get your 47 page credit report on line, the lender is still going to want to pull his own, and ultimately charge you for doing this. But, you should see your credit report before the lender does in case you have some issues that need addressing. Don’t get blindsided at the worst possible time.

Lenders are very interested in where huge sums of money come from, too. If you make $65,000 a year but you have a CD for half a million dollars, you’d better be ready to explain where it came from if you want it considered for your new mortgage application.

They also want your Purchase and Sales Agreement – especially for deals that don’t involve a real estate broker. And, they check the information on this!

Before talking to any lender about any kind of mortgage loans, get your documents ready! Don’t waste valuable time finding them at the last minute! Borrowers who are prepared tend to get the better deals.

There’s nothing more discouraging perhaps than spending weeks and weeks filling out paperwork, answering questions, faxing documents and waiting by the phone – only to find out you didn’t get approved for your much anticipated home loan.

You do have some options, depending on where and how you applied for your mortgage loan. If you are dealing with a local lender and actually met someone in person, ask for the specific reason as to why you were denied.

Often, generic letters are sent out listing a few reasons why you were denied; sometimes they don’t even check off which ones apply to your particular case. It’s up to you to push the issue and get specific answers. Even if you are told it is because of information from your credit report, you have a right to know what information is in question. Your FICO score? A late payment? Ask for clarification.

If you do request a meeting for a follow up discussion, you need to meet with a decision maker. This is not going to be the loan processor who helped you fill out your application. However, do call this person and ask with whom you can speak. Many applications are turned down for either the wrong reason, incorrect interpretation of data, or simply because the lender has made its risk and financial quota for that time period. (Yes, that happens!) Sometimes just offering to discuss higher mortgage rates will at least get you a return phone call.

If you run into a wall and people stall regarding giving you a specific reason for your denial for your home mortgage loan, you can file a formal complaint with your state attorney general’s office and/or the banking regulation commission. You will need to fill out forms explaining the problem at hand; be detailed in documenting phone calls you placed and if they were answered, what was said, etc.

The reason you need to pursue you exact reasons for being denied is to be able to correct a problem. This could be a problem with your credit report, or it could be a problem with how the lender is interpreting information they have.

This is where you might be able to negotiate. Being denied doesn’t necessary mean you aren’t getting a mortgage. It means you need to determine what the problem is in order to fix it.

Up till a few years ago when interest rates were dropping rapidly and housing values were skyrocketing, banks and other lenders could barely keep up with the demand for refinance mortgage loans. If you had good credit, income and equity you were almost guaranteed to get refinanced at a considerably lower rate. Typically, borrowers with fixed rates were the ones flocking to lenders looking to find a way to stabilize their payments at a significantly lower amount.

During that time period, one of the most common types of mortgage loans was the five year ARM – adjustable rate mortgages. Some we approved at levels hovering around 5%, which was an excellent rate when the mortgage was written.

The borrowers, however, are now reaching the maturity of that adjustable rate and are once again flocking to lenders to take advantage of even lower APRS. However, if you fall into this group with the an upcoming adjustment right around the corner, you may not need to anything besides wait.

Why? Don’t assume that all ARMS adjust UP. Sure, that’s usually the case, but that’s because historically things have been always been different in the financial marketplace. In today’s economy, interest rates are hovering around 2%. Even people looking for mortgage loans for bad credit can get approved in the under 10% range.

Before spending money on closing costs and application fees, sit tight and see what your rate adjusts to. Worst case? It goes up. But if it does, it most likely will because you have an amount already written into your mortgage note, or something has happened to your personal finances that showed up when the lender pulled a last minute credit report.

However, if these two scenarios don’t play out in your personal situation, mortgage rates will most likely go down considerably. You don’t need to apply for anything, you don’t need to pay for anything. You simply wait for your lender to send you a letter stating how your mortgage loan will be handled when the final payment on your original five year ARM is made.

Many people are actually shocked to see their payments go down a few hundred dollars a month, and yet they didn’t need to do a thing to make it happen.

No matter what type of mortgage you are interested in, having bad credit might not be as bad as you’d think. Have you ever wondered how people who never pay their bills on their time, and even had a car repossessed ever managed to buy that big gorgeous home? Simple. Banks look way past your FICO score as they decide whether you are a good risk or not for a home loan.

In today’s market, it’s actually difficult to find someone who is perfectly current on all his bills, including rent and mortgage payments. Lenders have needed to readjust their way of thinking when it comes to approving their home mortgage loans because if they denied everyone with a track record of late payments, they’d never make a loan and never make any money.

Let’s look at it through their eyes. A thirty year old with a FICO score of 820, earning $90,000 a year and still living at home with his parents is, believe it or not, a higher credit risk than perhaps his neighbors who have owned their home for 15 years, filed bankruptcy six years before, and had some trouble with car and mortgage payments over the past few years.

Why? Because the 30 year old has no track record of doing anything except finding a decent job, building a little investment portfolio, and paying his Visa bill on time every month. He’s never even rented an apartment under his own name. Mortgage loans aren’t going to be floating his way any time soon.

On paper this person looks great, right? Lenders don’t see it that way. They’d rather take their chances with someone who has a track record, albeit a bit shaky. They know what it takes to keep their home and they make every effort to do so. Their FICO score might be hovering around 630, but the banks don’t particularly care about the Macy’s bill or their son’s student loan they co-signed and got stuck paying a few times.

Lenders care about how they handle their mortgage payments. These and all related bills such as house insurance and taxes are what they pay close attention to.

Even if you haven’t paid a credit card in six months, you may still qualify for fairly decent mortgage rates.