WHAT'S THE MATTER WITH THE MORTGAGE MARKET?
From what I see, NOTHING. FHA, Conventional Conforming and VA loans are still being approved at about the same rate as before the Sub-Prime meltdown.
THE TROUBLE STARTS WITH REAL ESTATE AGENTS
Real estate practitioners are often not sufficiently familiar with qualifying borrowers. It's become routine to simply refer a buyer to a mortgage loan officer. But, do you really know what was discussed? Do you really know how that buyer was qualified?? Of course, many real estate agents and brokers are well experienced in evaluating a buyer's ability to get financing. BUT, many are not. Real estate school doesn't teach real estate financing. Real estate school teaches enough for a student to figure out the correct multiple choice answer.
Broker training is not what it once was. More complicated and sophisticated loan instruments are offered to less and less qualified borrowers. Worse yet, the buyers are responding to mortgage company advertising without having any advice from an experienced buyer's agent. The "chicken and the egg" argument is interesting. Which does the buyer contact first, the agent or the mortgage company? FHA says the mortgage company. I say that is wrong. I believe that we wouldn't be in the trouble we are in now if real estate agents took the personal and responsible interest in the buyer's ability to buy that we once did. Before the home buying frenzy in the years 2002-2005, when we referred a home buyer to a mortgage company, it was to get financing for a contract on a house the buyer wanted to buy. Today, real estate agents and brokers have relinquished the
responsibility of qualifying buyers to the mortgage company. Buyers agents don't qualify their buyers and listing agents don't make sure that buyers are qualified to get financing on their listing. That's is a formula for failure. Many agents work for brokers that hold their license but little else. Training is a matter of Continuing Education Hours and that's minimal.
Where does the buyer get the financing referral? From the agent? Not always. Today, buyers have often contacted a mortgage representative from a web site. Perhaps they heard a radio or television advertisement. If the buyer was already working with an agent, at least there is a chance that the agent would refer them to a lender who would approve them for a reasonable loan. If the buyer didn't meet reasonable guidelines, the loan officer would tell them how to prepare to qualify, not take them to exotic loan instruments that sound wonderful but aren't. How is the buyer supposed to know the difference?
HOME BUYERS CANNOT IDENTIFY GOOD MORTGAGE COMPANIES OR SAFE LOANS.
Buyers do not know whether or not a loan fits their income, expenses and future financial picture. I believe that it is the responsibility of the buyer's agent to qualify the buyer and know their buyer's financial picture. Further, I believe that it is the responsibility of a listing agent to qualify a buyer to make sure the contract on their listing will close. Why have we relinquished this responsibility to loan officers that we don't even know?
Should the buyers be looking at $650,000 homes or $450,000 homes?
Realistic expectations could save home buyers future disappointment.
Guidelines help buyers understand the risks with creative financing.
THE GUIDELINES THAT I USE AND TEACH INCLUDE BUT ARE NOT LIMITED TO:
Conventional Conforming Loans
Your buyer has a regular salaried job with pay stubs.
Your buyer has been on the job or same line of work for a couple of years or more.
Your buyers has credit scores in the high 600s or better.
Your buyers have no late payments showing on their credit report for at least a year.
If there was a bankruptcy, the discharge was at least 3 years ago.
The buyer has a 5% of their own money for a down payment for conventional loans up to $417,000.
Your buyer is using an ARM product, they are qualified the first or second step in the ARM.
Your buyer is buying a home in a price range that will provide for loan to debt ratios of about 28/36%.
Your buyer is not spending their last dollar to pay closing costs and has a moderate reserve.
FHA Loans
Your buyer has a regular salaried job with pay stubs.
Your buyer has been on the job or same line of work for about 2 years or has been in school with transcripts.
There are no late payments or other credit problems that are unsatisfied.
There was a bankruptcy and the discharge was at least 2 years ago.
FHA buyers have a 3% down payment and the loan amount is within the FHA loan limit.
The buyer is using the FHA ARM, they qualify at the 2nd year rate, have margins of no more than 2.5%.
The buyer is buying a home in a price range that will provide for loan to debt ratios of about 29/31%.
Your buyer is not spending their last dollar to move in and has a few dollars set aside.
VA Loans
VA buyers have a valid VA Cert. of Eligibility
The buyer has Military Orders and is assigned to the area for at least 3 years or they should rent.
If newly separated, the new job starts soon. The buyer may not be able to settle until they receive a paycheck.
If the buyer is VA eligible and out of the service, that they have a salaried job.
That the buyer is not counting on income to qualify other than spouse.
The buyer has sufficient income to meet the VA "residual income" guidelines.
The buyer has sufficient income to qualify with an income to debt ratio of about 41% including the funding fee%.
The buyer has sufficient savings to pay moving, etc. expenses.
That's how buyers are pre-qualified. If these criteria are met, the buyer will be approved and the contract will settle.These loans all follow the FANNIE MAE GUIDELINES. These loans are all sold on the secondary market and mortgage companies who can sell loans don't have a "liquidity" problem.
ACTIVE RAIN members who are mortgage loan officers can jump all over me for the above. This works for me
and my buyers are approved. Am I a control freak?? Sure, and my buyers rely on me controlling and managing
their transaction all the way to settlement.
TOMORROW: What's the matter with the Jumbo and Super-Jumbo mortgage
market, through the eyes of a real estate broker.
COMING SOON:
Why aren't homes selling?
Why are mortgage companies in trouble?
Why is the stock market dropping and what has it to do with the housing market?
Why are we having so many foreclosures?
Courtesy: Homefinders.com
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