Taking the mystery out of the mortgage process

English: Mortgage Backed Security

English: Mortgage Backed Security (Photo credit: Wikipedia)

The home buying process can seem complicated and overwhelming for the average buyer. Helping your customers better understand the different phases in the mortgage loan process early on – and what is expected of them at each step – can help make the process less intimidating and reduce frustration.

Phase 1 – Origination:
This begins the mortgage process and is actually several steps. The loan officer will help the customer learn what their mortgage financing options are through a pre-qualification process, and assist with filling out a loan application and gathering the necessary documents.

Customers should know: They’ll need to provide income, asset and debt information, and their Social Security number to allow the lender to pull their credit report.

Phase 2 – Processing:
The loan processor will then collect, verify and review all required documentation provided by the buyer, order appraisals, order a title search and send all this information in a complete package to underwriting.

Customers should know: Processors will be checking for errors, discrepancies and possible missing information, so customers need to understand how critical it is to provide accurate, complete information in a timely manner.

Phase 3 – Underwriting:
The underwriter analyzes the documentation for accuracy and evaluates the customer’s ability to repay the loan based on their credit and employment histories. An appraisal and title review is completed to ensure the loan program guidelines are met, the title is clear, and to determine risk acceptability.

Customers should know: This is “decision time” as the underwriter weighs the risk of lending money and approves or denies the loan – so customers may be asked for additional financial information even at this stage.

Phase 4 – Closing (or Escrow):
The loan processor coordinates all aspects of the closing with the buyer and the closing agent and/or attorney. The closing agent conducts the closing, ensures that all necessary documents are signed, assures closing fees and escrow payments are made, and confirms that all documents are sent out to be recorded according to state and local requirements.

Customers should know: Before closing they should receive information explaining the closing costs, including a standardized Good Faith Estimate (GFE) of how much cash they will need at closing.

With keys in hand, the process is completed for the homebuyer, but there are still a number of steps that take place behind the scenes after closing.

  • Warehousing: About 10 days after closing, the lender uses their warehouse line [line of credit] to finance the new loan until it is “sold” to an investor on the secondary market.
  • Secondary market: Allows lenders to sell mortgages to investors, providing them [the lender] with new funds to offer home loans to new borrowers. Your customers’ mortgage rates are influenced by the yields demanded by these investors.

Typical investors of mortgage-backed securities in the secondary market include:

  • Shipping and delivery: Once an investor is secured, the loan is packaged with other loans,, and applicable documentation, and becomes part of a mortgage-backed security (MBS). These mortgage-backed securities are then delivered to the investor.
  • Loan administration/servicing: A loan servicer takes care of the administrative duties once the mortgage-backed securities are delivered to the investor. This includes: customer support, collection of mortgage payments, management of escrow accounts and fund recovery efforts.
Thanks to  Coldwell Banker Home Loans



Relationship Management: First-Time HomeBuyers

3 Ways a First-Time Home Buyer Can Drive You Nuts!

Learn how to overcome three common challenges of working with first-time home buyers.
Working with first-time home buyers can present its own unique challenges. If their indecisiveness doesn’t drive you crazy, their meddling parents just might.

Some first-time home buyers can be your best clients—eager to learn more about the housing market and soak up every ounce of your wisdom. But others won’t let being novices at home buying get in their way, and they may send you on an endless search for that perfect house.

First-time home buyers are the largest group of buyers, making uWelcomep 32 percent of the home buying market. They can generate extra business for you for years to come, too, so they may be worth the trouble.

How can you overcome some of the biggest challenges to working with first-time home buyers? Experts weigh in.

Problem No. 1: Buyers who bring in their parents.

First-time home buyers are often young and they may want to bring in some reinforcements to help find the perfect house.  “There is no more dreaded phone communication from the first-time home buyer to his agent than the ‘I’d like my parents to stop by and take a look’ call or e-mail,” says Richard Courtney, a real estate broker with French, Christianson, Patterson and Associates in Nashville and author of Buyers are Liars & Sellers Are Too (Fireside, 2006). “At that point, regardless of any and all conditions, the deal is most likely dead. While the buyers have not heeded a word of advice from their parents since they were 11 years old, now they want the folks to share in the biggest decision of their lives.”

And you’re stuck in the middle.

When the parents enter the picture, they often play the game of “see who can find the most wrong” with a property. As Courtney notes, parents are great at spotting a “nail hole from 70 feet and through two sets of windows” or they can “hear a floor squeak at a noise level otherwise audible only to bats.” [You think he’s kidding! =SA]

What You Can Do:

  • Don’t argue. Resist the urge to blurt out: “Your father’s an idiot; you shouldn’t listen to him!” Nor do you want to argue with ma and pa. Instead, let the parents meddle and involve them in the process as much as your client wants them in, Courtney says. Thank the parents for their extra insights. And if the parents misstate something, correct them gently when they are wrong, but do it respectfully.
  • Educate the parents too. Share comparable sales, financial information, and inspection reports with the parents too — assuming your client approves. Share all your accumulated knowledge and data with the parents so that they feel involved in the process and aren’t advising their child when they’re uninformed about the realities. [Please note, the Parents may well have a different agenda than seeing that their child makes a good decision.  They may not want the child to yet purchase anything.  It will become clear by the second showing.  When this happens, kindly tell your client that you think they may want to take some time to determine what they wish to do and you will be available when they are ready.  Do not look for them to get back with you.  Move on. =SA]

Problem 2: The uninformed buyer who doesn’t realize it.

Some first-time home buyers know they’re novices with real estate and defer to you as their expert. But some will take on the know-it-all role, even though they don’t have a clue about the real estate market.

Maybe the buyer wants a move-in-ready beachside home, with every upgrade money can buy — and they want it all for a fraction of what it really costs. Or they may find a home they love and want to submit a ridiculously lowball offer.

Educating buyers about the market may take some extra time, but it’s worth it. After all, educated buyers tend to make better offers with fewer contingencies, agents say.

What you can do:

  • Talk about the home buying process. Counsel your client about the process of buying a home before anything else. “They need to understand how the home buying process works from beginning to end,” says Leroy Houser, a real estate coach and trainer who leads seminars and courses.Discuss home inspections, appraisals, and some of the terminology in the business (such as HUD, short sales, easements, surveys, and so on). Include up-front discussions about common stumbling blocks, like when does their lease expire if they’re renting, and will they be prepared to break their lease? Talk about market conditions: Are prices going up or down?
  • Make sure they get a financial reality check. Have the buyers get prequalified for a loan so they know what they can afford before they start falling in love with homes that aren’t in their budget. Use a mortgage calculator to determine monthly mortgage payments plus estimated utility costs, property taxes, and maintenance costs.
  • Let them make a mistake. With some stubborn buyers, you sometimes have to let them make a mistake before they get in the right psychological mind-frame, Courtney says. Against your advice, they may insist on doing too many counteroffers in a deal or submitting too low an offer. As a result, they may end up losing a house they really wanted. “Let them experience the loss of something they wanted,” Courtney says. Next time, they’ll listen more closely to your advice.

Problem 3: The indecisive buyer.

Some buyers just can’t seem to commit. The search for that perfect house is endless, and after about the 15th home you’ve shown them, you may lose hope that they’ll ever choose one!

First-time home buyers love to search for homes, and “they know how to find houses,” Houser says. “But their problem is they don’t know how to buy them. The more you look, the more confused you can get. They want to do more looking because they don’t have enough information to make an informed decision.”

What you can do:

  • Have them complete a questionnaire. Do this at the very beginning of the home search to learn what they’re looking for and to get them to more carefully consider their “must haves,” “nice to haves,” and “avoidables” too. Get a sense of the house styles they prefer, the number of bedrooms, home designs, neighborhoods, and so on. What are their main motivations for finding a home? Do they want to have a shorter commute, be in a certain school district, or have increased security?“The questionnaire is much like a doctor would do for a new patient,” Houser explains. “A doctor uses a questionnaire before you even meet. The doctor then looks it over to talk about what the issues are. In real estate, it should be the same thing.”
  • Use “preframing” to guide the search. Get the buyer to focus on part of the market rather than the entire market. For example, say something like, “There are two distinct groups of homes in the marketplace that fit your criteria. One group we call ‘opportunities,’ which include some new homes and resales we consider good values because they are priced to sell, in excellent condition, and move-in ready. They are close to perfect, and I have four of those to show you,” Houser explains at his Web site about using “preframing” with first-time home buyers. “In addition, we have three homes we call ‘Deal Homes’ because they are outstanding deals. They need some repair, so they are priced below the market.”  You narrow the market for them to seven homes and carefully frame and prepare them for what they’re going to view.
  • Create urgency. Mortgage rates and housing prices won’t stay this low forever. Your buyers may need more drive to buy now rather than wait until later. Show them what home prices have been doing in your area. Mortgage rates are at ultra-lows right now, but what can your clients afford if rates return to the 6 percent range, as they were a few years ago?
  • Be frank. You want to encourage buyers to be open and straightforward with you about what they want, and you also may need to heed your own advice. After the millionth house showing, you may need to confront your buyer point-blank on his or her indecisiveness. As Courtney says, you may need to say: “If you want to buy a house, I can help you do that. If not, we can’t look at houses forever.”First-time home buyers require plenty of patience, but if you’re able to help them successfully navigate the process, you may not have just produced one sale, but a bunch of future sales, such as:

    “The buyer may have been single when you sold him that first house. After marriage, he wants to move again,” Courtney says. “Then he and his wife have children, and they need to move. First-time home buyers could easily produce five sales in a short period. They’re a good market to work with and cultivate. But just remember, you’ll need to educate and nurture them through the process.”

Melissa Dittmann Tracey is a contributing editor for REALTOR® magazine.

Real Estate Financing: Recipe for Success

For homebuyers today, the paperwork involved in securing a loan is often more painstaking than actually qualifying for a mortgage.

In an effort to avoid substandard loans and underwriting practices, Fannie Mae and Freddie Mac have cracked down on “bad,” or poorly documented and underwritten loans of the past. As a result, most mortgage lenders began greater enforcement of thorough underwriting guidelines and procedures, understanding that the key to avoiding future loan repurchase or buyback losses is to create the “perfect” loan file, as discussed by Mark Greene of Forbes.

Proper documentation is vital to developing a borrower loan file that meets today’s stringent credit and underwriting guidelines. Providing all required documentation requested will help facilitate a smoother mortgage process and help avoid unwelcome surprises.

Borrowers will have to disclose everything about their financial lives, from how much money they have in checking, savings, investments and retirement accounts, to gifts received to help with the purchase of the home. Full disclosure of credit as well as previous home ownership must also be captured to eliminate any potential obstacles to closing.

The mortgage approval process is rigorous for a reason – to avoid defaults and loan buybacks for lenders. [And consequently, should protect the buyers.-SA] These higher standards and strict guidelines are required by mortgage investors (e.g. Fannie Mae and Freddie Mac). Not having a “perfect” loan file can ultimately result in the lender having to buy back the loans at a loss from the investor – a scenario all lenders strive to avoid.

Courtesy of Coldwell Banker Home Loans

What Is A HERS Score?

What Is A HERS Score? photo   With an increasing focus on green home building there is also a greater interest in knowing just how energy efficient an already-built home is. The HERS score is a way of quantifying that information.

Like it or not HERS scores will be entering our mainstream home sales market and you will start seeing more and more of them, but just what is a HERS score? The Home Energy Rating System or HERS, is a numerical value for the efficiency of a home.  A HERS score takes into account the home’s insulation levels, orientation (with North-South exposure being more efficient), the number and kind of windows, the efficiency of the HVAC unit(s), leaks in the home envelope (your home’s barriers to outside elements), leaks in ducts, and electricity generation such as solar panels.

A RESNET (Residential Energy Services Network)-certified professional uses performance testing such as a blower door test in addition to energy-modeling software to give you a numeric score. The lower the score the better.

A new home built to standard 2006 international codes would have a score of about 100. ENERGY STAR homes have HERS scores of 85 or lower, meaning they are built 15% more efficiently than required by code. Average existing homes may be around 130, though some homes score well over 200.

Net-zero energy homes score zero or lower. A Habitat for Humanity “Legacy Home” in 2010, had a -16 HERS because the home produced more energy than it used.

What Is A HERS Score? photo    The rating shown here is from a 1954 block-construction home, renovated in 2005. Apparently, the previous owners did a pretty good job when retrofitting and didn’t skimp on insulation. This this rating was done, the owner has installed PV solar panels.

HERS scores may be required to be posted in future home sales as a good indicator of how much it may cost to operate the home. The cost to conduct a HERS rating varies, so it’s important to shop around. Quotes may run between $250-$450. Qualified professionals can be found at: resnet.us/trade/find-raters-auditors.

Thanks to:   

Realtor Melisa Camp, Phoenix, AZ

‘Stigmatized’ Properties Can Offer Big Bargains

Daily Real Estate News | Monday, August 06, 2012

Home buyers who can stomach some misfortune in a home’s past may be able to find big discounts. For example, buyers can expect to pay 10 percent to 25 percent off the regular market home price for a stigmatized home, according to real estate consultant Randall Bell of Bell Anderson & Saunders. And depending on how bad the crime was that occurred at the home, the more a home buyer can expect in discount to the price.

“In large, it all comes down to finding the right discount to entice a buyer to accept the property along with its tainted history,” Bell told AOL Real Estate.

But for some, the crime that happened may be too much to stomach, regardless of the big discount. Some buyers worry about the resale value and what others will think too. Also, homes where crimes took place tend to linger on the market from two to seven years longer than they would without a tainted past, according to Bell.

Creepy House

For example, a Southern California mansion that was the place where 39 cult members from Heaven’s Gate killed themselves sold for $668,000 two years following the suicides, which was less than half of the $1.6 million list price before the suicides occurred. Also, the home where O.J. Simpson’s ex-wife Nicole Brown Simpson and her friend Ronald Goldman was killed lingered on the market for two years before selling for $590,000—$200,000 less than the initial asking price.

However, some buyers say they are willing to overlook a home’s shady past. “It may have a terrible history,” says Chris Butler, who purchased a split-level ranch nestled in a forest in Akron, Ohio, that once belonged to serial killer Jeffrey Dahmer and was the site of Dahmer’s first murder. “But the house didn’t kill anybody.”

Source: “Jeffrey Dahmer, Andrea Yates, the Lemp Family: Life Inside Homes Where Grisly Deaths Took Place,” AOL Real Estate (Aug. 2, 2012)


This week’s MORTGAGE TIPS: The FHA 203(k) Mortgage

Purchase and Renovate: Recapture the American Dream

Pick appropriate ladders

Often times home shoppers will come across a fixer-upper property that just fits the bill; perfect in every way except that it needs just too many costly repairs to bring it up to acceptable condition. And what’s worse, the buyer has little or no money to pay for the needed renovations. Now there is a way to make it all possible: It’s the FHA 203(k) mortgage. With a 203(k) loan, your buyer can purchase a property in need of repairs and refurbishing and roll the renovation costs into one, easy mortgage loan based on the home’s post-improved value.

For example, if they wanted to buy a house in which the kitchen had been torn out, they could include in the mortgage loan, the cost of new cabinets, counter tops, flooring, a refrigerator, stove, oven, microwave, sink, dishwasher, garbage disposal, and the cost to design and install it. Plus, get up to six months of mortgage payments included in the loan to cover the mortgage payments while they’re renovating.

Floor plan before kitchen renovation

And the down payment terms are extremely favorable too – they only have to come up with 3.5% of the home’s purchase price and repair costs. For example, if they were buying a house that cost $150,000 and the repairs cost $15,000, their down payment would be just $5,775.

If you have a buyer shopping for a home and seriously considering a property in need of repairs and updates, the 203(k) mortgage can really simplify their purchase. Just make sure that you work with a mortgage lender who is experienced with the 203(k) program.

You can learn more about the 203(k) loan and other FHA loans by contacting an FHA-approved lender. To find a qualified lender in your area who is experienced with FHA 203(k) mortgages, visit online at http://www.hud.gov

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April 13, 2012

Do pre-emptive purchase offers work?

   image via Shutterstock
Do pre-emptive purchase offers work?     | Inman News          http://www.inman.com

The home-sale market has come to life this spring for the first time in years. Inventories of homes have dropped, interest rates are near all-time lows, and buyers feel the market has hit bottom and they’d be wise to buy now before prices rise.

There are low-inventory niche housing markets around the country, which is good for sellers and tough on buyers. Reminiscent of the bubble of 2005 and 2006, buyers often have to make offers on more than one listing before they have an offer accepted.

Sellers in a low-inventory market may list their home on the low side of market value hoping to stimulate multiple offers and a higher price. In this case, a date is often set for offers to be heard. The date is usually after the house has received market exposure; giving the sellers more of a chance that more than one buyer will make an offer.

Some sellers don’t feel their property has received enough exposure until it has had two public open houses. They might decide to hear offers a few days after the second open house.

HOUSE HUNTING TIP: Buyers competing in a market that’s short of inventory have the option of trying a pre-emptive offer. A pre-emptive offer is one that is made before the seller’s predetermined offer date.

Let’s say that you, like the sellers, feel that a home you want to buy will receive more than one offer. You want the house badly enough that you’re willing to make an offer before even knowing if there will be multiple offers or not.

Even though the sellers have told their real estate agent that they don’t want to hear an offer before a certain date, some do. There is no guarantee that your early offer will be accepted or even reviewed by the seller. Some sellers will stick to their word and wait until the official offer date.

There’s also no guarantee that you will successfully avoid competition by making an offer before the due date. Recently, sellers who said they would wait until after the second Sunday open house to entertain offers changed their mind when they were told that an offer had been written before the first open house.

This buyer made a full-price offer and gave the seller until 2 p.m. the next day to respond. That night the listing agent received a call from another buyer’s agent who wanted to know when offers would be presented. Upon hearing that an offer had already been made, the second buyer made an over-asking-price offer that was accepted.

If you’re going to make a pre-emptive offer on a property that you think is well priced, you might want to offer over the asking price to make a positive impression on the sellers. Your offer should be good enough that the seller will be encouraged to carefully consider it even if there isn’t another offer.

Your financing should be in order, and include a strong preapproval letter from a lender. To maximize your chances of acceptance, make sure that your offer isn’t littered with contingencies.

THE CLOSING: Keep it simple and back it up with confirmation of your sincerity and ability to perform.

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”