6 Don't After You Apply for a Mortgage

I learned a long time ago that "common sense is NOT common practice“. This is especially the case during the emotional time that surrounds buying a home, when people tend to do some non-commonsensical things. Here are a few that I’ve seen over the years that have delayed (and even killed) deals:


1. Don't deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer.

2. Don't make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios…higher ratios make for riskier loans…and sometimes qualified borrowers are no longer qualifying.

3. Don't co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios, as well. Even if you swear you won't be making the payments, the lender will be counting the payment against you.

4. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.5.Don't apply for new credit. It doesn't matter whether it's a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.

6. Don't close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more approvable. Wrong. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.

Yes.....we've had it happen. A first time home buyer was so excited about her first time purchase that she went out and bought all new appliances for the kitchen on her credit card BEFORE the closing took place. When the lender pulled her credit again before closing and saw that there was now another $3000 in debt she no longer qualified. Don't let this be you.

The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light.




 
KCM Blog - Steve Harney

How much money do I need to buy a house?

If you're thinking of buying a house, you may have taken the first step which is to get prequalified for a mortgage; however, there are some other factors to consider ... like how much money/cash you may need upfront. From contract to close, there are a few numbers you should know about and be prepared for:

• Down payment: ...the obvious! Depending on what type of loan you're pursuing, you may need a down payment anywhere from zero (yes, you read that right - think USDA loan), $100 (FHA loan on a HUD property), 3.5% of the purchase price (FHA loan) to 5-20+% of the purchase price for conventional products. This is due at closing but typically must be available in your account a few days/weeks prior to closing so that the lender can confirm that you have the cash needed to close. The good news is that some loan products (FHA) allow gift funds but check with your lender for the specific requirements on this.
• Earnest Money:  In the local market, earnest money is typically anywhere from $500-$1000 for majority of properties but can be higher depending on the purchase price. Typically the rule of thumb is "the higher the purchase price, the higher the earnest money". This is totally negotiable and can vary greatly. What is earnest money? Earnest money is a deposit to show that you're serious about buying the house (if there was no such thing as earnest money and buyers didn't have any monetary interest, you can imagine that contracts would be broken all the time!). The good news is that earnest money is your money and it comes back to you at closing in the form of a credit towards your closing costs, down payment, or credit to the sales price so long as you follow the terms of the contract and close as scheduled. If you default or terminate after due diligence/inspection periods/contingency periods, etc, then you risk losing your earnest money. In some unique situations, it can be negotiated that earnest money is non-refundable or is paid to the seller - be sure you understand your contract! Prepare to write an earnest money check when you write the offer, although sometimes it can be negotiated to be paid upon a binding agreement or within so many days of the binding agreement date.
• Closing Costs & Prepaids: If you're obtaining financing for the purchase of a property, you will incur several fees/costs/etc. that are collectively known as "closing costs" and "prepaids." These fees include things such as the lender's origination fee, attorney's fees, credit report fees, initial deposits into escrow to cover hazard insurance and taxes, etc. In the current market, it is typical that the seller contribute towards buyer's closing costs; however, this contribution doesn't always cover 100% of the costs. It just depends on how the deal is negotiated. When shopping for a mortgage, be sure that the lender provides an estimate of how much cash is needed to close. This should include your down payment, closing costs, and prepaids. Some lenders try to sneak by by just telling the client about the down payment amount and never mentioning the closing costs amount upfront. Be sure you know how much you will need to close the deal so that you can prepare ahead of time!
• Home Inspection: While a home inspection is optional, it is HIGHLY (notice the capitalization, bold, italics, underline ... you get how we feel about this, right?) recommended. Home inspections in this area typically run anywhere from $250-450 depending on the size of the house and what all the inspection includes. Some inspectors can also do termite, radon, mold inspections, etc. Either way, you'll want to budget for this ahead of time. You'll need to pay for the home inspection at the time of the service - just depends on when you have your home inspection, but be sure to do it during your inspection/due diligence period.
• Appraisal: Majority of lenders these days collect this fee upon contracting on a property while others may collect it at closing as part of the closing costs. Go ahead and budget for this as an upfront fee. Typically it's around $400-500 in this area.

These are the main items that you will need money for; however, there are always optional items like home warranties. Many first time home buyers have limitied cash reserves and don't know exactly what to expect when it comes to purchasing a home. You may be prequalified to purchase a home, but be sure that you have the funds to move forward if you're considering making an offer!

...now, to cover our rear ends, please know that the information above is specific to our location (perhaps in many areas, earnest money needed is much more!). Every situation is different and should be discussed with the Realtor or lender that you are working with. Some of this information is subject to change ... like the $100 down payment that HUD offers buyers pursuing an FHA loan - this is a current promotion that could end at anytime. Questions? please call or email us!

Why Real Estate Deals Fall Apart

I have seen estimates stating that 29% of deals that go to contract and require a mortgage, don't close. That number boggles my mind. It means that even after a buyer and seller come to terms on a sale (not an easy feat these days), 3 out of 10 transactions fall apart. What are some of the more common reasons?

■ Appraisal issues – In many markets, we are still seeing declining values. Appraisers are in a difficult position, and with so many transactions (including seller's concessions to assist buyers with closing costs) values aren't always coming in at sales prices.

■ Short Sales not being approved by the current lender – With so many sellers owing more than their home is worth, buyers’ proposals need to be sanctioned by the lender (who will be receiving less than they are owed). Some of the offers are too low, but often, the lender isn't local and they really don't know what the property is worth today.

■ Bad pre-approvals from the loan officer – Today, loan officers who are not reviewing tax returns, analyzing bank statements, and asking for detailed explanations and documentation on credit blemishes, are truly hurting the customers. Issuing pre-approvals based on the representations of the customer is reckless and a cause for dismay later.

■ A lack of transparency – Whether it's a seller or agent not disclosing property issues, or a buyer trying to sneak things by an underwriter, too many people think they can cut corners. That is not the world we live in anymore. Everything is uncovered. Being honest in the beginning, gives you the best chance to overcome obstacles.

It is clear by the numbers that closing loans can be more difficult today. However, with proper planning and integrity, many of the challenges can be dealt with early and successfully. Agents documenting values of the homes, loan officers doing complete reviews of the loan profile up-front, and everyone telling the truth helps get deals to a successful conclusion and avoids horror stories.

It helps to have a good agent, or two of them, for that matter (HINT HINT)! Give us a call or send us an email. We have a 95% contract to close ratio!


Article from KCM Blog, Steve Harney