If you don’t read another one of my blogs this year,
please read this one! –Kate Wilson
As a result of the mortgage crisis, many layers of fact-checking have been added into the mortgage process by regulators, and by Fannie Mae, Freddie Mac and FHA & VA (the national authorities who finance the majority of mortgage loans in this country). There is a Zero Tolerance policy in place for errors in data integrity, changes to a file between approval and closing, and the result is that we will be asking people for documentation many more times during the process than was the case just a few years ago. My surveys this month tell me that we need to do a better job telling you this and telling the consumer this. We are not WAITING until the last minute to request documents. We are required to re-document at the last minute. There’s a big difference.
Here’s an outline of when in the process the consumer may be asked to provide additional information, documentation or clarification. There are 5 distinct steps in the process:
1 – Pre Approval. At this stage the Loan Officer will require that the consumer provide all income and asset documentation to determine mortgage qualification. This includes:
• A credit report
• Pay stubs
• Most recent 2 years Federal Tax returns
• 2 Months of bank and investment statements
Credit will be reviewed. The loan data will be put through underwriting and a pre-approval will be issued. Because it can be weeks or even months from the time the borrower is pre-approved to the time there is an accepted offer on a property the loan officer should address anything that comes up on the credit or in other documentation and educate as to what will be required once the loan is going “live”.
2 – Full Application. Now the loan is official, we have an address and the Loan Officer will update any documentation already submitted (documents cannot be older than 90 days). The borrower will be asked to address:
• Any credit inquiries or issues on the credit report,
• Deposits other than payroll, that appear on bank statements, will require source documentation
• A full mortgage application package will be completed by loan officer and borrower.
3 – Submitted to Processing. At this time the Mortgage Processor will review the package submitted by the loan officer. The processor will order:
• A title examination/legal work
• An appraisal
• If needed, a condominium questionnaire to be sent to the appropriate party for completion.
If the Processor sees something that the Loan Officer missed, they will request this documentation now. Because of the complexities of the mortgage process a second set of eyes is very important to ensure that no documentation is missing, and that all necessary information is obtained.
4 – Submission to Underwriting. Once the appraisal report is back the processor is required to order a “Fraud Guard” report. This report often runs 25 or more pages and reviews everything and everyone involved to ensure that no party engaged in the sale has been involved in fraudulent activity in the past. This includes:
• The borrower and their background,
• Property and real estate professionals involved in the transaction
The processor will also review the appraisal, the condo information and all documentation prior to submitting for full underwriting approval.
At this time any one of those reports may spur a request for additional documentation from the borrower.
5 – Underwriting. The underwriter is responsible for reviewing the entire loan package and issuing an approval. Once again another set of eyes is reviewing all the details for compliance to all regulations and guidelines as established by Fannie/Freddie/HUD and state and national regulators.
If questions or concerns arise the underwriter can approve the loan but make that approval subject to additional documentation. Sometimes the loan can be approved and is ‘clear to close’ at first look.
Even after the loan is approved, there are several more steps in the process where additional paperwork may be required.
1. After Underwriting – One week prior to closing the lender is required to conduct a ‘verbal verification of employment’ to insure that the employment status of the borrower/s has not changed. Of course any discoveries at this stage that differ from the mortgage application as approved will require documentation and verification and could delay a closing.
2. Days prior to closing the lender is required to run a ‘credit refresh’ to insure that no new debt or credit has been obtained by the borrower that may impact their mortgage qualification. The credit refresh may require additional ‘last minute’ documentation from the borrower.
3. If any of the documents at the time of closing are beyond 90 days old the borrower will be asked to provide updated documentation such as a pay stub or bank statement. If the credit report is beyond 90 days old it will be re-pulled which could also require a request for additional documentation or clarification.
4. After Closing – the loan is re-reviewed internally and by the end investor and at this time there could be another request for documentation.
The mortgage process is complicated and intrusive and there are many times throughout the process when a borrower could be asked to produce more and more information. This can be very frustrating and annoying and make the borrower feel like the lender is at fault.
It’s important for consumers to be educated about the process and understand the reasons behind them to relieve potential frustration. It’s equally important that Realtors, Builders and the consumer work with a thoughtful, thorough, smart and efficient lender to insure a quality experience and happy closing. We hope you’ll continue to choose our team.
The gap between current and year-ago listing activity continues to widen, as anticipated. Expect the supply-side numbers to show sizable year-over-year declines due to the high baseline set during the spring 2010 tax credit. It should be noted that we are now approaching a period where we’ll be comparing the 2011 non-tax credit market to the 2010 tax credit market at its peak level.
For the week ending February 19, there were 690 signed purchase agreements, which made for a 12.1 percent decline from the same week last year. There were 1,367 New Listings for the week, representing a 25.4 percent decline from a year ago. Active Listings, at 21,642, have been holding steady since the beginning of the year due to subdued seller activity coupled with fairly reliable sales volumes. That marked a 3.3 percent decline from year-ago inventory levels.
A more meaningful comparison is to look back at 2009 and 2008 and avoid tax credit stimulated activity. This week’s 690 Pending Sales fall right in between 2008 and 2009 numbers. While that is less buyer activity than we would like, it does provide hope for
As reported by the Minneapolis Area Association of Realtors .
This post is courtesy of one of the lenders I utilize, Kate Wilson, of Fairway Independent Mortgage. She and her team work with all buyers and are especially knowledgeable about first-time buyer programs. .
Guest Author: Kate Wilson of Fairway Independent Mortgage
We have a magazine rack for our clients in our lobby. I was really hesitant to put out the September 6th edition of Time Magazine because the front cover read: Rethinking Homeownership: Why Owning a Home May no Longer Make Economic Sense.
I can think of a lot of things that don’t make much economic sense but I sure wouldn’t put buying a house in that category. I have some pretty strong convictions about why homeownership is important and a lot of them start with common sense. I take the long-term view:
There are tax advantages to homeownership that you don’t get when you rent. Once you have a fixed rate mortgage, the principal and interest payment will not change over time. Your rent will and you have no control over just how much those rent increases might be. Both the interest and the property taxes are deductible but only your landlord gets to deduct them when you rent.
At the end of the day, a house is a forced savings account. If you pay all of the payments, at the end of the loan term, you own the asset. You can save yourself a lot of interest and get there faster by making one extra Principal and Interest Payment a year. It’ll take about 7 years off of a 30 year loan. If you pay rent for 30 years, your landlord will own the asset and use it to pay for his Long Term Care, not yours.
Your mortgage should not outlive your retirement age even if you’re buying up. Mortgages come in terms of 10, 15, 20, 25, and 30 years. Consider this: If you’re buying up, keep your mortgage in sync with your overall financial plan and objectives. If you’re considering a move, take the age you want to retire and subtract from it your current age and see how much you’ll qualify for using that amortization period. There’s no prepayment penalty for first mortgages these days so even if you take out a 30-year mortgage to protect against a ‘what if’ scenario, figure out how much extra principal it takes to repay it according to your retirement timeline and just do it.
Home equity lines of credit for vacations or the purchase of cars are a bad idea. You’ll be paying for that vacation long after the memories have faded. The car started to depreciate the minute you drove it off the lot and you’ll be paying for the old one even after it’s eligible for vintage plates. In the meantime, you will probably have to buy another car and pay for it while you’re still paying for the trade in.
The most common sense reason I can think of for homeownership has nothing to do with it making economic sense. When you own your home, you are free to make it fit your lifestyle and a reflection of who you are. Landlords call such changes ‘damages’ and keep your deposit or kick you out. If the landlord decides to sell and you have to move, you can lose years of accumulated emotional net worth.
Other than graduating from college, having my kids, and marrying my sweetheart, I can’t think of a better decision I’ve made in my life than becoming a home owner. Your thoughts?
I agree with what Kate has written here which is why I asked her if she was agreeable to my posting her thoughts here. We’d both be interested to know your thoughts. Share them by adding a comment below. (The typeface color for Leave a Comment is green so it doesn’t stand out immediately but it’s at the end of the list of tag words at the bottom of this entry.)
The Edina Housing Foundation (EHF) is a non-profit corporation that provides financial assistance, up to $60,000, to Edina home buyers. This below market rate housing program has been in place for over 20 years and can possibly lower your total housing payments due to the lower interest rate on the loan assistance. The program is geared toward anyone who wants to live in Edina and is not just for first-time buyers. Here’s a short overview of the program:
The program is known as Come Home 2 Edina 2nd Mortgage Program.
The term of the loan is identical to the term of the first mortgage.
The rate of the loan is the lesser of 5% simple interest or the first mortgage loan interest rate minus 1%.
There are two payment options: monthly payments or deferral of all payments until sale, refinance or maturity of loan.
The subordinate loan is assumable with the approval of the Edina
The purchase price cannot be more than $325,000.
The borrower shall pay not less than $1,000 towards down payment, closing costs and/or prepaid expenses.
There are assets and income eligibility requirements.
The above information is an overview of the program only. Contact me for more detailed information regarding your specific situation and needs.
If you’re considering purchasing a condo in Edina, this program is especially helpful for buildings that are not FHA approved, such as my listing on York Avenue by Southdale: 6415 York Ave S #204
Kate Walsh, Realtor®
Lakes Area Realty