5 Secrets to finding a great mortgage deal

When it comes to homeownership, there are people who think it's “an escalator to wealth” and others who claim it's “the American nightmare” Well, what is it? I am going to attempt to answer this question the same way Washington University’s professors responded to most of our questions… “It depends…” 

Americans say buying a home is the most stressful event in modern life and 30% reduced to tears while buying first home. In fact, many say that going on a job interview, hosting Thanksgiving dinner and applying for college are all less stressful life events than buying a home. About 38% of first-time homebuyers said the whole process took much longer than they expected. Most homebuyers did not approach the process with confidence as only one in five felt confident while looking for their home. 

The good news is that you can take a few actionable steps to buy your home with confidence. 

“Homeownership continues to provide real social and economic benefits and remains a high priority for most American families”

Step #1. Build your credit. Bad credit loans: How much does bad credit cost me?

As you can imagine, the cumulative effect of a lower score over a lifetime adds up. Some could find themselves down a hundred thousand dollars over that period. If you’re a big borrower, make that hundreds of thousands. For instance, the national average borrower ($200,000 with a 30-year, fixed rate mortgage) with the lower score would throw away over $70,000 in extra credit charges over the lifetime of her loan.

3 Fastest Ways to Build Credit

1. Secured Credit Cards – this is a great option that comes with some rules to it. If the borrower has never had a credit card in their life, expect up to 180 days to register a score. If the borrower has had a card but does not now, about 90 days to register a score. Some local banks promise quicker but many check credit or require 600 score, even for Secured CC’s.
2. Pay down your credit card(s) – A lot of people think the sweet spot is to have a 30% utilization when in fact you really want a 10% utilization. Example, $1,000 limit, never spend more than $100.00 per month on the card. And, wait to pay until after the reporting date so the card shows usage.
3. Authorized User – Getting added to someone (family, friend, co worker, etc..), who you trust implicitly. The older the card, the better, never been late and a very low utilization. If you go this route you must be added to a Mastercard or Visa. AMEX and others use the date added as Authorized User so it doesn’t help the length of credit history. Word of caution: authorized user, needs to be someone who maintains good credit habits.

Step # 2. Find the right lender / broker

How to discover a lender that delivers on their promise? 

"My word is my bond"

Use Social Media. Interviewing different brokers at the start can help find the right fit of personality, professionalism, responsive communication and trust. Talk to family, work colleagues and friends to find out about their broker experiences. Use the Internet and social media platforms to find out more about the broker and their business. Pay attention to the quality and quantity of online reviews. “Let another praise you, not your own lips.” Ask the right questions and read the fine print. 

1. Did the lender/broker promptly return your phone calls or emails?
2. Was the lender friendly and patient, not rushing through the conversation in hopes of quickly securing another customer?
3. Are they a solutions provider outside of just the loan application? Do they know good title and real estate and insurance agents who they can recommend?
4. How long have they been in business?
5. What’s their expertise, their specialty and unique differentiators? Is it first home buyers, investors, debt consolidation, etc
6. Is the broker/lender understanding your full financial situation and completing a thorough needs analysis, identifying areas where they can provide solutions to help make your life easier by potentially helping save you time and/or money?

Before you head to a big bank, credit union or private lender, here's what you need to know about collaborating with a mortgage broker.

Are you visiting a bank to get a mortgage in 2019? You’re in the minority. Among those people who do find houses to buy or a reason to take out a different mortgage, more are using “non-banks” or brokers than old-fashioned deposit-taking institutions. As of the end of last year, 59% of all mortgages were made by non-banks, according to Urban Institute data.

What Do Mortgage Brokers Do?

Mortgage brokers are licensed and regulated financial professionals who act as the bridge between borrowers and lenders. They originate loans and help you connect with a variety of lenders who best fit your financial situation and rate requirements.

A good mortgage broker anticipates hiccups before they occur. Their expertise is knowing what kinds of issues, like closing on time, will come up on loans that might make it not work at one lender, but may make it work at another.

A win for mortgage brokers is very often a win for consumers, too, according to data from Thomson Reuters. Because mortgage brokers generally have relationships with dozens of lenders, they can pair borrowers with the perfect lender program for their particular case and save consumers 1% to 4% on their interest rate on average. That adds up to about $10,000 on a median-priced U.S. home loan.”

Here’s how mortgage brokers create value:

• They are mortgage experts who provide access to a number of lenders, and loan programs. They typically close on your home faster than a traditional bank.

Secret differences:

Mortgage products on average are very similar. The biggest way mortgage companies can stand out is not their products, it’s their Interest rates and broker fees.

Larger mortgage companies simply cannot be profitable unless they charge extra fees (such as broker, application, processing, etc). Company’s structure, incentives, and overhead play a huge role on how much value they can offer to their clients. Thus, pick the one that’s lean (low overhead).  

Magic question:

Please ask your lender ”What are total fees that you are charging for this specific rate and what is the credit (if any) that this lender (not the seller) will provide? Ask the lender to provide you with a Loan Estimate. 

Step #3. Get pre-approved well in advance of purchasing a home

The biggest limiting factor is going to be your budget. To save yourself an immense amount of time and heartache, it makes sense to only look at houses in your price range. And to do that, you have to determine what your price range really is.

6 Myth busters:

Myth #1. Having A Mortgage Company Pull Your Credit Hurts Your Credit Score!?

• In general, credit inquiries have a small impact on one’s FICO Scores. For most people, one additional credit inquiry will take fewer than five points off their FICO Scores. For perspective, the full range for FICO Scores is 300-850. Inquiries can have greater impact if you have few accounts or a short credit history.
• 45 day rate-shopping allowance: This rule counts multiple similar ‘rate shopping’ inquiries within a 45 day period as just one inquiry. Examples would be when you are applying for multiple mortgages or auto loans to see which offered you the best rate. Credit card applications do not apply.

Myth #2. You Need to Put at Least 20% Down to Qualify for a Mortgage

• Qualified borrowers today can secure home financing through many different programs with minimal down payments such as 3.5% (FHA) or 5% (Conventional) or even 0.0% down payment (VA loans). Moreover, all of our lenders can accept a monetary gift from a close family member that can go toward down payment. The trade-off is that if you can’t put 20% down to buy a home, you will likely have to pay for a private mortgage insurance (PMI) that protects the lender in case you fail to pay the mortgage. 

Myth #3. Obtaining a lender paid mortgage insurance (LPMI) always a good idea to save money 

• LPMI means that you will accept a higher interest rate and the lender will pay for your mortgage insurance so you don’t have to. It is not a good idea in high interest rate environment because LPMI will cost more. High income earners may benefit from it they receive a greater tax deduction because of the higher interest rate.  

Myth #4. I have a new job offer letter and starting my employment in a month or 2, I can’t purchase a home until my first new paycheck?

• You can get a home even before you start your new employment as long as you first paycheck is within 90 days of closing. 

Myth #5. I can get a mortgage in a middle of divorce, law suit or a bankruptcy

• No you cannot get a conventional mortgage until your divorce is final, there’s no low suit, and enough years passed by after your Bankruptcy discharge. (Please contact us for specifics)  

Myth #6: I’m fresh out of school so I can’t get a mortgage until I have enough experience.

• You can get a mortgage as long as your job reflects your degree 

Step #4 Negotiate like a pro

Collaborate win-win negotiations where most value created for both parties. Remember, today you are a buyer and tomorrow you may be a seller. For instance, you need to know if you’re in buyers’ or sellers’ market in order to know how much leverage you have. 

“Approach negotiations from a collaborative, not competitive, standpoint (which means win-win, not war).”

Step #5 Sustain American dream and avoid mortgage nightmare 

7 Mistakes to Avoid after your Mortgage Pre-Approval

1. Do not apply for new credit
2. Do not make any late payments
3. Do not co-sign for others
4. Do not pay off debt or close any accounts
5. Do not make any large credit purchases
6. Do not make large deposits or transfers between accounts
7. Do not switch jobs

If you’re not sure, ask

Asking for help is a strength, not a weakness

It’s important to understand that any major changes in personal income, assets or debt can change the terms of your mortgage, or result in loan denial. If you’re not sure how a certain action can affect your application, please ask your loan officer for advice.

Is simplifying complexity just like fighting for peace?

Today, your smartphone is millions of times more powerful than all of NASA’s combined computing in 1969. There are tons of complex information on the internet giving more power to the consumer and at the same time adding confusion.

Importance of clarity and cutting through noise and hype.

New York Plumber tale

New York plumber observed that hydrochloric acid was highly effective for opening clogged drain pipes. He enthusiastically passed on his discovery and public safety concern to the United States Bureau of Standards, which informed him, accurately but stiffly, that "The efficacy of hydrochloric acid is indisputably established but the corrosive residue is incompatible with metallic permanence"

The plumber misunderstood this rejection as praise and thanked the bureau for approving of his method. The bureau tried again, writing, “We cannot assume responsibility for the production of toxic and noxious residues with hydrochloric acid, and suggest that you use an alternate procedure.” The plumber again said that he was glad the bureau agreed with him.

At this stage, another scientist was called in. His solution: “Don’t use hydrochloric acid. It eats the hell out of pipes.” This message was understood.

Perhaps it was the same guy who said: “I always impress my landlord with my water bill. Every month he messages me and says it’s ‘outstanding’ and I always message him back, ‘thanks!’”

The story is an amusing example of importance of using clear, non-technical language for effective communication. Pick a broker who can simplify the process and help you navigate mortgage financing with confidence and with a level of understanding you desire.

Absence of clear simple words superficially restating the obvious while applying a heaping portion of buzz words takes on the appearance of high level thinking. For instance, the fundamental strategy of one major retail bank they offered “Customer-centric intermediation”. Intermediation means that simply that they take deposits and lend them to others and customer centric means that they focus on the customer. Their fundamental strategy is simply be a bank. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise.

There’s a West Coast-based Bank, which has been recognized by Fortune magazine on its "100 Best Companies to work for" takes transparency and communication to the next level. All of its so-called bank "stores" are equipped with a silver-colored phone that offers customers direct access to its CEO.

Here's your blueprint for a great mortgage deal:

1. Build your credit
2. Find the right lender / broker
3. Get pre-approved well in advance 
4. Negotiate like a pro
5. Sustain your American Dream

I would love to hear your thoughts on home-buying experience.