My industry has seen more changes in the last 20 months than I have seen in the last 20 years. I just take all of the changes that come down the pike and I roll them into my business and move on. I usually have a pretty sunny disposition but sometimes it just gets to me....
A big question these days is what loan to use and why. There is a basic rule of thumb here that if you want to put less than 10% down, then FHA is a better loan for you and if you want to put 10% down or more, than a conventional loan is a better deal. Rules of thumb are guidelines and I find myself feeling like a ping pong ball sometimes in conversations with clients. In order to avoid this feeling, I try and gather as much information as I can before giving advice. Here are some subtle differences:
FHA is an insurance program; if you meet the criteria then your loan is approved and able to be insured by FHA. This means that you pay an upfront Mortgage Insurance Premium (UFMIP) and monthly MIP as well. FHA loans allow you to have lower credit scores, lower down payment, higher debt ratios and one set of guidelines and one underwriter on your loan. A special FHA loan even allows you to finance the fix up costs on that home that the Realtors advertise as "Needs TLC" or "Contractor Special".
Conventional loans are stricter on debt ratios, credit scores and down payment. If you put between 10% and 20% down then you will have Private Mortgage Insurance (PMI) and that is managed by another company with their own stricter guidelines than the loan itself. This makes sense because PMI insures the lender against losses just like FHA but they are a private company and they decide what they will and won't accept. Many times we are able to approve a conventional loan but not able to obtain a PMI approval and so we either have to have the client put 20% down and avoid PMI altogether or switch to FHA. Are you feeling like a ping pong ball yet?
As a mortgage professional I need to analyze my client's needs and qualifications and match them to the right loan program. If I don't choose the right mortgage program from the outset, we may lose a lot of time and money. If we get a conventional appraisal and we have to switch to an FHA loan, somebody ends up buying two appraisals. Of course, I don't' want to charge clients for appraisals they don't need at $400 a pop but I also don't want to pay for unnecessary appraisals myself (it's just bad business).
So when a client calls me and asks me "What is your rate?" and I tell them that is the wrong question to ask, usually the next question is "What is the right question?" and the answer changes depending on what I have been dealing with that day and my general mood but usually the answer is something along the lines of; " Can you help guide and educate me through the loan process in this day and age?" or "How many purchase transactions have you closed in the last 90 days?". The bottom line is that you want someone who is a full time professional who is closing loans in this market and someone who comes highly recommended by real estate agents and someone that you feel has your best interest at heart and is working from a place of honesty and integrity.
So to find the right home, it is always Location, location, location and to find the right home loan it is always question, question, question.
Happy House Hunting.
Please email or call me with any real estate and mortgage related questions. I am happy to answer you and it may become the topic of a future article.