Living in an Alternate World

I set out early this morning with the well-meaning intention of making life easier for first-time home buyers then… BAM …it hit me that nearly anyone who hasn’t purchased a home in the past 2 or 3 years is going to experience some major market shock. Just incase you’ve been in a coma, the real estate and mortgage industries have done a complete 180 since the height of our country’s financial bubble. If there were an alternate universe for the American home buyer this would be it.

Quickly… a valuable history lesson. In the early to mid 2000’s there existed, among other choices: “piggyback” loans designed to eliminate mortgage insurance by combining a first and second mortgage, often equaling 100% financing,  “interest-only” payment options (pretty self explanatory), “no doc” and “stated income” loans that allowed you to bypass any proof that you even had an income at all. And then we have the real estate market itself. It was not uncommon for there to be 2, 3, 10 offers on a property that you were interested in. You may have had to submit a dozen or more offers before one was accepted. You see where I’m going with this? Enter: the recession.

In our (current) alternate universe, the theoretical possibility of owning a home is at a generational high. In some cases home prices have slipped to half, or even 2/3 in many locations, and interest rates are remarkably low. It would appear to be a veritable smorgasbord for the first-time buyer. However far fewer people now qualify for a mortgage. Credit scores are trashed, incomes have been reduced, appraisals are conservative to say the least, and as if on a bungee cord banking and federal regulations are now... dare I say… over the top.

Here are a few questions to consider that may trip you up when applying for a mortgage. I ask you these things not in discouragement, but simply so that you'll be prepared

- Have you ever made a rent payment late?

- Do you have unidentified cash deposits in your bank accounts?

- Is your work history continuous, in the same industry, and at least 2 years long?

- Do you have sufficient funds to close? Do you know how much you’ll need?

- How closely can you estimate your credit score? Do you even have a credit score?

   Are you married and if so what is your spouse’s credit score?

- Do your tax returns match your W2s or 1099s? How much do you write off each year?

These are not just questions for the first time buyer, everyone, without exception must provide this information and more. None of these are insurmountable issues but times are changing! And the sign of these times is CAUTION.

As always, if you have a mortgage question, call or e-mail me, I have a mortgage answer!

Don't do ANYTHING out of the ordinary!

I am certain this will end well. But a note of caution can never be bad, right?

There are so many things that can go awry in the short 30 days that it takes to close a mortgage loan. We've all become fairly adept at predicting the signs of inertia and heading them off at the pass. But occasionally one or more parties to the transaction will throw a totally perplexing wrench in the works and we're forced to get a little creative. Don't get me wrong, we're more than capable of being creative, it's just that these things should be avoidable. We caution our borrowers, we caution the agents, and we caution again just to be sure they heard us... and yet here we are.

You have to know that when you’re borrowing money to buy a home, there are a few things (more than a few I’ll admit) that you need to do; provide proof of employment, adequate collateral (appraisal of the property), enough liquid cash to cover all of the provisions in your contract and all of the associated fees. What people seem to forget is the short list of things they should NOT do! These are the ones that seem to get us in trouble. These are the things everyone should be aware of while their mortgage is being approved:

-          DO NOT quit your job. Now, you’d think this would be a no-brainer but it would appear that it just doesn’t occur to some people, so Don’t Do It!! Do Not Quit Your Job. Your income is the foundation on which your entire approval rests.

-          DO NOT make any major purchases. This situation is a little more subtle so I’ll explain. When you’re being approved for a mortgage, all of your debt is taken into consideration. Every time credit card balances go up, or account balances go down by any substantial amount, not only does your ability need to be reassessed, but you may exceed allowable ratios (the delicate relationship of debt to income).

-          DO NOT make any payments late. Again this should be obvious. A late payment of any kind is a huge red flag indicating that you may not be a reliable borrower.

I say this stuff all the time, to every client, at every application;  If you’re thinking about buying a car or a house full of furniture, if you’re determined to switch jobs or fire your boss, if you’re unhappy with your credit card company or you disagree with the yearly fee on your checking account, WAIT 30 DAYS! That’s it, just 30 days. You’ve probably already waited a lot longer that that so just don’t do it now, wait 30 days. Once your mortgage has closed… have at it! (with caution of course)
Suffice to say that one of these things happened today. We will fix it and all will be ok. A year from now everyone will forget that it happened, but for today I feel the need to reissue this admonishment: if it’s on the DO NOT DO list, don’t do it.