The Mortgage Therapist

About the Mortgage Therapist


I’ve been originating mortgages since 2003 and although closing 80+ loans a year keeps me quite busy, I do attempt to “have a life.” While I enjoy horseback riding, long walks on the beach, reading picture books, listening to live music, playing with puppies and occasionally participating in, but mostly watching soccer, basketball and football, my favorite thing to do when I’m not working is bake and consume mass quantities of scrumptious cookies! And as a licensed pilot with a Bachelor’s Degree in Aviation, I am especially well trained in handling the occasional turbulence of the mortgage process. I look forward to assisting you on your journey to home ownership.

Preparing For Therapy - the 4 parts of the process


Question Yourself

Since you are thinking about buying a home, it is important that you strongly consider the four following questions


1. What is the highest monthly mortgage payment you are comfortable making including homeowner’s insurance, property taxes, common charges and/or maintenance?


2. How long do you expect to own and/or occupy your home?


3. Do you anticipate an increase in your income (raise/promotion) or expenses (kids, new car, etc.) in the near future?


4. How would you describe your current financial situation?

Credit is Everything...

As you probably know, having good credit is vital. Here are some tips to improve your credit scores


Pay all of your bills on time, even if you have to make the minimum payment. This is the most influential factor in your credit score. If you are currently behind on any of your bills, it is crucial that you get current as soon as possible.


Pay in full or settle all collections, charge offs & judgments and then request a letter verifying that it’s been paid. Send copies of that letter to all three credit bureaus so that your credit report can be updated.Keep all credit card and credit line balances at 30% of the credit limit or less.


Keep 3-5 credit cards or lines of credit open at all times. If you need to add accounts to your credit profile, the best way is to be added as an authorized user to a friend or family member’s already existing credit card or line of credit as long as they have never been late on the account and the account has a balance of 0-30% of the credit limit. If you are unable to arrange this, please look into getting secured credit cards.


Do not close unused credit cards or lines of credit. This can actually hurt your credit score.




A Summary of the Process

Pre-Qualification

The pre-qualification process starts with a review of your credit report and overall financial fitness, to help determine how much you can comfortably afford. It is especially important that you focus on the overall monthly payment and not just the price because a $200,000 home with $12,000 in annual property taxes has the same total monthly payment as a $300,000 home with $5,000 in annual taxes.


Application

Once you find the right home and the purchase contracts are signed by you and the seller, the mortgage application process begins. A complete application includes A LOT of paperwork to verify your income, assets, credit worthiness and identity. When that information is received, an appraisal will be ordered to determine the value of the home and to ensure that it’s in decent condition.


Submission

The appraisal, contracts and your documentation will then be thoroughly reviewed by an underwriter and if all is well, the loan will be approved and a mortgage commitment will be issued. The loan approval normally has a few conditions that must be met in order to close. Typical conditions include updated paystubs and bank statements, proof of homeowner’s insurance and the title report.


Closing

When all of the conditions are received, the file can then be cleared and a closing scheduled. At the closing, lawyers, real estate agents, the title closer, and the seller will sit and watch you spend a lot of money in a very short period of time. Your hand will ache but your signature will be well practiced and you will walk away a homeowner.



Rates, Closing Costs, & Other Fun Stuff...

Here are some morsels of mortgage knowledge that I hope you find useful:


Interest Rates

Your interest rate is determined by 26 different factors including credit score and history, debt to income ratio, amount of the downpayment, property type, the county and state the property is located in, how long it will take you to close, the loan amount and program, how you intend to use the home (primary, vacation or investment) and the blood type of the primary borrower on the loan! For marketing purposes, most lenders assume the best case scenario for all 26 factors and advertise the resulting rate. The reality is that most people will end up with a slightly higher rate so it is important that you get a rate quote that is specific to you so you avoid any unpleasant surprises.


Closing Costs

When comparing closing costs from lender to lender, it is important that you do not rely on the lender to give you the overall closing costs for the loan, and instead ask each lender to provide their fees. As much as 90% of the closing costs come from fees that are not controlled by the lender. These include state and county regulated transfer taxes and recording fees, attorney and title company fees, the homeowner’s insurance premium and property taxes. Unfortunately, lenders are required to give you an estimate of everyone else’s fees and buyers are commonly mislead into thinking that lender #1’s closing costs are lower than lender #2’s because lender #1 “forgot” to include certain required fees that you will be billed for at the closing regardless of which lender you choose.


Mortgage Calculators

I am not a huge fan of the mortgage calculators that you can find online. These calculators often do not include the property taxes, homeowner’s insurance, condo dues or maintenance charges and most importantly, private mortgage insurance (PMI). PMI is required if you are putting down less than 20%, and depending on how small your downpayment is and other factors like your credit score and income, PMI may cost as much as a few hundred dollars a month. Please keep that in mind.


Appraisal vs. Home Inspection

In short, the home inspection is primarily for your benefit. You are paying the home inspector to tell you everything that he/she can find wrong with the house so that you know what you are getting into. The appraisal is primarily for the bank’s benefit. It provides the bank with an estimated value based on the sales prices of similar homes in the area. The appraisal will also notify the bank of any obvious repairs, but that is not his/her primary concern.

In Treatment - Things to Consider


Your Options:


First Time Homebuyers

In my humble opinion, the best programs for the first time homebuyer with a limited down payment are the FHA and USDA programs. The FHA program has relaxed credit, income and asset guidelines, allows the buyer to put down as little as 3.5% while letting the seller pay the buyer’s closing costs. Unfortunately, FHA will not finance co-ops and most condos. The USDA programs allows for no downpayment while still allowing the seller to pay the buyer’s closing costs. Unfortunately, USDA will only finance homes that are in rural areas and the buyer’s income must be below a county specific income limit. Both programs offer extremely competitive rates.


Conventional

Conventional mortgages require a minimum of 5% down but can require up to 20% down depending on the property type, credit score or income. The credit, income and asset guidelines are more conservative, so this program is ideal for buyers that are financially secure. While conventional rates are often higher than FHA or other programs, the total monthly payment is consistently less due to lower mortgage insurance requirements.


Renovation Mortgages

With the increase of foreclosures and short sales in the market, renovation loans are becoming more common. The FHA 203k loan is almost always the best way to go. This program allows for almost any type of repair to be financed and like the FHA program, the downpayment is only 3.5% of the total cost (purchase price plus renovation costs) and the guidelines are equally relaxed. The Fannie Mae HomePath mortgage is also a great option but this program is only available on specific Fannie Mae foreclosures. Because this program does not require an appraisal or mortgage insurance, minor repairs can be overlooked and fast closings are common.


Fixed Rate vs. Adjustable Rate Mortgages

The interest rate on a fixed rate mortgage will not change for the life of the loan. The initial interest rate on an adjustable rate mortgage is usually lower than a fixed rate mortgage but the rate will change after a predetermined amount of time, which is usually 3-10 years. From my experience, adjustable rate mortgages are ideal for a very small segment of the population. Usually, these people are certain that their income will increase and their expenses won’t or that they will own the property for a period of time that is shorter than the initial fixed rate period. Regardless of your circumstances, we suggest that you strongly consider a fixed rate mortgage. Life has a way of surprising us all…


Beware of Deed Restriction Programs

There are several other programs out there that cater to first time homebuyers and allow for a small downpayment. If it is not the FHA or USDA program, please check to see if there are any deed restrictions. These programs often require that your income remains below a certain level and that you occupy the property and do not sell or refinance it for a predetermined number of years. If these conditions are not met, the buyer may be forced to pay a penalty, a recapture tax or worse. Fortunately, the FHA and USDA programs do not have these restrictions and in my opinion they are wiser options.


It’s a good idea for you to immediately start preparing for the inevitable financial colonoscopy that is more commonly referred to as underwriting. Due to the foreclosure crisis and subsequent changes in federal mortgage regulations, underwriting guidelines have become extremely conservative and uncompromising. Here are a few tips for you to take into consideration:


Credit

Please avoid applying for any new credit. This includes credit cards, car, student and furniture loans. Continue to pay all of your bills on time and it is imperative that you do not increase any of your credit card or line of credit balances. If you are an authorized user on someone else’s account, please be sure that the account holder continues to pay the account on time and that the balance remains the same or decreases. Your credit report may need to be updated during the transaction and we want to make sure that your credit scores and profile remain the same or improve.


Income

Please do your best to work your regularly scheduled hours and ideally as much overtime as possible. We may need to explain any paystubs that show you working less than your regular hours or any significant time off from work.


Assets

Your last two months bank statements will be reviewed once your file is submitted to underwriting and you may have to provide an additional bank statement or two prior to closing. These statements will be reviewed to confirm that you have sufficient assets and that these assets are from legitimate sources. We will need to show the source of any non-payroll or easily identifiable deposits. Please keep a “paper trail” of any deposits/transfers, since we will be asked to provide proof of where these funds came from. We will also be asked to provide a detailed letter of explanation for any insufficient funds/overdraft transactions, so please avoid these at all costs.


Rental History

If you are currently renting, please pay your rent by check or bank/wire transfer. Proving that you pay your rent on time each month is a huge compensating factor if any issues come up during the underwriting process.


In short, don’t take any vacations or buy anything other than gas or groceries without my explicit written permission! In all seriousness, follow the above guidelines as closely as possible from now until you close on your new home and you will enjoy a quick and smooth transaction.


Underwriters and federal prosecutors share one thing in common, they both assume that you are guilty until proven innocent! As your defense team, here is a list of the documents we will need to help prove that you are one of the good guys who will actually pay your mortgage every month:


  • 30 days of paystubs. If you are paid bi-weekly, provide your two most recent paystubs. If you are paid weekly, provide your four most recent paystubs.

  • Last two years’ W2 & 1099 forms

  • Last two years’ Federal Tax Returns with all schedules, forms and attachments. If you are self-employed, please also provide your business returns.

  • Last two months’ bank statements. Please send every single page of the actual mailed statement, including “Pages Intentionally Left Blank”. Online activity/history printouts are generally not accepted. You can usually print an exact copy of your mailed monthly statement when you sign on to your bank’s website. Just look for a “statement” link.

  • Last retirement/investment statement(s) with all pages

  • A clear (scan or picture) copy of your driver's license and social security card

  • Most Important - Favorite type of cookie!

  • Child Support/Adoption/Foster Care Income - Please provide evidence of receipt for the past three months (bank statements showing deposits, copies of the checks, etc.), a copy of the divorce decree, child support order or adoption/foster care paperwork, and proof of each child's age (birth certificate).

  • SSI/Disability/Workmen's Comp/Pension - Please provide evidence of receipt for the past three months (bank statements showing deposits, copies of checks, etc.) and a copy of the awards letter.

  • If you are not a US citizen, please provide a copy of your permanent residency or employment authorization card

  • If you are refinancing, you will also need to provide the following:

  • Copy of your Homeowner’s Insurance Policy or the policy # and contact info for your insurance agent/company

  • Copy of your current Mortgage Statement

  • Most recent Maintenance/HOA Dues statement (if applicable)

  • If your taxes and insurance are not included in your monthly payment, please provide evidence of the amounts for your annual taxes and homeowner’s insurance


Once your loan is approved, the underwriter will request a final list of documents that we must provide in order to close. This list normally includes proof of homeowner’s insurance, the title report, any necessary appraisal corrections and an updated paystub and bank statement to ensure that you are still employed and have the necessary funds to close. It is important that you keep all of your paystubs and bank statements so there are no delays. We must receive all requested information at least ten days before the anticipated closing date. The underwriter may also update your credit report right before closing to verify that your credit score hasn’t decreased and you haven’t taken out any additional credit or missed any payments. As such, please continue to be on your best financial behavior. This means no financing a new car, furniture or applying for a Home Depot credit card until after your closing! Once all of the final conditions are reviewed and cleared, the closing can then be scheduled.


 

Outpatient - Happily Ever After...


Now that you’ve been through the patent-pending Mortgage Therapist process, there are three things that we require of you:


1. Feedback

In our unyielding quest for perfection, nothing is more important than your constructive criticism. Please call, email or write us a letter with your opinions and what you believe needs improvement. If you thought the process went well, we also like being flattered by testimonials.


2. Housewarmings

Sometimes the mortgage process can be a bit impersonal. Since we are stuck looking at your paystubs, bank statements, contracts and blood samples throughout the process, it’s enjoyable and strangely fulfilling to actually meet you in person, see your new home and meet your friends and family. And in return for the honor of being invited to your home, we promise to behave and bring gifts!


3. Referrals

If you know of someone who is having a less than pleasant mortgage experience or looking for a competent mortgage professional, please feel free to pass them my information and I promise to give them the best service I possibly can.


 

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