Mortgage Advice for a Changing Market

Provided by the Builders Association of the Twin Cities

By David Welsch

What a difference a year makes.
As most people know, the mortgage industry has undergone some dramatic changes over the past nine months. Gone are the days of easy credit as the industry is returning to a more conservative standard, much like in the past before the housing boom.

In reality, the changes lie with the underwriting process as lenders are back to more traditional aspects of qualifying borrowers according to income and debt levels. But contrary to popular belief, there still are a variety of home loan programs available today that allow for a low down payment and even jumbo loan products.

Today’s challenge is being prepared from a financial perspective. Lender products and programs are changing almost daily. Some lenders are no longer in business or facing financial challenges unforeseen in past years. Add in the factors of mortgage insurance agencies and soft market designations, and you can see how the landscape has changed dramatically.

Conversely, one can argue that there has never been a better time to purchase a new home: Home prices are moderating. We are entering a new economic cycle with respect to real estate. Mortgage rates are near their record lows, and homebuilders are offering more incentives than ever before—leading the prospective buyer to a variety of opportunity at all price levels.

When preparing to purchase a home in today’s market, keep the following in mind:

Meet with a mortgage lender

Given the changes in the mortgage industry, it is important to talk with a mortgage consultant early in the process—before you even begin shopping for a home. Meeting with a mortgage professional early in the home buying process will help you understand the range of loan options available in today’s market. It also allows you to select the program or product that suits your payment needs as well as your risk tolerance.

By taking a proactive financial stance, you will know in advance about any issues that need your attention or explanation. Understanding your loan amount and monthly payment total helps determine your price range and how much house you can buy. I cannot emphasize enough the importance of meeting with your mortgage professional early in the process.

And, it can pay to shop around. Not all lenders offer the same loan products and interest rates, so check with your builder to see if he or she offers any special-financing incentives through a preferred lender.

Obtain a good faith estimate/truth in lending disclosure

How does one determine what loan works for their individual financial situation? There are a number of tools available, and all are required of the lender when you apply for a loan.

A good faith estimate, or GFE, and the truth in lending disclosure are the most important tools used in evaluating the cost of the loan options. Not all lenders are the same; the good faith estimate allows you to compare the transaction costs between lenders, thus allowing you to make an educated decision.

The truth in lending disclosure outlines the cost of obtaining credit presented as a function of interest rate. Confused? Don’t be. Ask your lender to fully explain the details; we are required to do so by federal law.

If your lender cannot explain the details to your satisfaction, find another lender. Remember, those of us who work in the mortgage industry work for you. In addition, there are a number of books and websites that can help you understand the terms and mathematics involved.

Seek full mortgage approval

Once you have decided on your home purchase and have chosen your lender, let your mortgage professional know you want the loan fully approved. This means that the entire loan file has been underwritten, subject to closing conditions.
Why? Because there is a big difference between being pre-qualified and having a fully-underwritten loan approval.

Pre-qualified can be described as “I have spoken with a mortgage lender.” This does not mean you have been approved for the loan product you are seeking. A pre-approval is a letter explaining that a mortgage lender will lend you a certain amount of money to buy a home, subject to a property appraisal and other stated conditions. With a pre-approval letter, you’ll be able to look for a home with the security of knowing exactly how much you can borrow, and it shows a builder that you have the financing you need to buy a home.

Live within your comfort level

Being able to manage your payments has never been more obtainable, given the current interest rate environment, as well as the broad number of financing options that remain for the consumer.

But you need to remember that the ability to pay the monthly mortgage payment is the sole responsibility of the borrower. Make sure you fully understand the type of mortgage you are qualifying for, and understand how the loan payment may increase or decrease over the term of the mortgage commitment.

If you do not feel comfortable or have further questions, ask your mortgage professional to fully explain the terms, conditions, and ramifications before you sign the final documents.

David Welsch is a regional manager with Wells Fargo Home Mortgage in Minneapolis.

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