Government

Government Shutdown Ends

The Government Shutdown is over.

The IRS is processing 4506-T transcripts on a first come, first serve basis.

The USDA website is back online. They are working on conditional commitments so we should see those USDA loans start to move through the pipeline.

It could be a week or more before the backlog clears out.

10-22 UPDATE USDA does not have appropriated funds. This means they are issuing comments subject to the availability of funds.

Some investors are moving forward with closing fully anticipating funds availability. Others refuse to close without it.

So the USDA is processing commitments but will not issue loan guarantees until funds are available.

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Loan Application, Your Mortgage File

To Lock or Not To Lock . . .perhaps float?

Undoubtedly, the interest rate is the single most important factor associated with shopping for a mortgage.  Even more important than closing costs, the interest rate can cost you hundreds of thousands of dollars over the term of the loan.  It will also determines how much your monthly payment will be.

So, it’s important to understand the terminology associated with interest rates.  To start with, asking for an interest rate quote from your bank does not guarantee you that rate.  Rates change daily, if not hourly because they are subject to the jitters of the broader economy. Also, there are no guarantees.

Rates are not fixed by your lender!

Most quotes are generic and are rates published by the banks marketing department so it stands to reason it will be the lowest rate they offer. In order to get an accurate rate, you will have to formally apply for a mortgage.

Why?

Rates are subject to the factors of your personal financial situation such as credit score, the value of your home, your loan term and many other factors.  Your lender will be unable to determine the rate until you give them those facts.

Just because you’ve taken your application and given the lender your financial information, you still might not have a commitment from them.

Locking in a rate

Getting a commitment from your lender means you must ‘lock’ in your rate. Locking in your rate has broad implications to your bank and so they are cautious until they have a good idea that you can and will go through with the loan.

When you agree to lock in a rate you are commonly agreeing to a few other things.

  • The length of time the rate is locked for
  • Any discount points involved.

The topic of discount points is one for another blog.  In short, a discount point is an additional charge (above the origination charge) associated with securing that rate.

Beware! Your loan is not locked indefinitely . 

As I’ve said above, rates are chaining constantly so your lender is unable to lock in your rate indefinitely. Typically, your rate is locked in for 30, 45, or 60 days.  They can be locked in for other periods but these are standard. Make sure you know how long your rate is locked for.  If you do not close on your loan before the rate expires, you may be subject to a higher rate or additional charges. 

Locking is not the only option.  If you have a higher appetite for risk, you can ‘float’ your rate. Floating means your rate is subject to change with the financial markets. You are ultimately responsible in this scenario (although a good loan officer will help you determine when it’s best to lock). If rates decrease, you will be able to take advantage of the lower rate.  If rates increase, you may end up with a higher rate. Consult with your loan officer about the best strategy.

With a better understand of the rate locking process, you will be better able to ensure you get the rate you want. This knowledge will enable you to make the best choice for you.

Good luck!

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Assets

Gifts

If you are like me, I’m more than happy to take money you are just going to give away, no questions asked. If you are my underwriter, that wouldn’t be the case. You see, assets are a crucial element in analyzing risk so the source of the money used towards a down payment is carefully considered (If you want to know the reason behind this, leave a comment and I’d be happy to blog more about it).

If you are fortunate enough to have a family member provide you with a money, the first thing we are going to question is whether it’s a gift or a loan. A loan would imply that there is a payment.  And a payment would need to be considered in the borrowers debt-to-income.  A gift, however, suggests no repayment and has no strings attached. Our guidelines tell us that gifts can only come from family members since a gift from a non-family member smells

Gift Letter

more like a loan. It may not make sense but again, I just follow the guidelines, I don’t make them.

If the funds are truly a gift, you must produce a letter signed by all parties that details the following:

  • The name and relationship the donor (family member)
  • The donor’s address and phone number
  • The amount of gift
  • Verbiage that clearly states the money is a gift where not repayment is expected

Now, be careful on how you receive the gift. Since everything has to be documented, you can avoid a paper trail by following this advice. Ask your donor to have their bank prepare a certified cashiers check with their name clearly identified as the remiter. Give a copy of this check to your lender and then hold it for safekeeping until your closing date.

Otherwise, if they write you personal check you will need a copy of that cleared check,and  proof it was deposited into your bank account (bank statements).  In some cases, the bank may even want pro of the donor had the funds available to give.

Avoid receiving a gift in cash!  Cash is not document-able and as far as the lender is concerned, unacceptable assets.

*Again, speak with your lender about this subject and get their opinion on the best way to handle a gift. It can vary depending on loan product and more information might be required.  This will at least give you some insight on what the industry typically wants.

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Loan Application

Changes To Your Financial Profile

The mortgage process can often take up to thirty days or more. It’s difficult to keep your life on hold while the process is being completed. As such, you are likely to make changes that affect your financial profile. You might need to buy a new car, renew a lease, open a credit card for unexpected expenses, start a new job and so on. As routine and casual as it is, you must remember to keep your loan officer or processor in the loop regarding any change. In fact, it would be wise to seek their counsel prior to making these changes. 

change blog

The reason is obvious to me because I’ve been in the industry for years. The slightest change in your financial profile can cause a great disturbance to your loan approval, or cause further delay because each change must be documented. Please try to remember that the mortgage company has regulations and guidelines that require them to document many facets of your financial profile.  Exclusion of these changes constitutes a violation of these regulations.

For example, I worked with a borrower for over 40 days to get her loan approved. As required by the regulations, I called her employer ten days prior to her close date only to discover that she had quit her job. Upon talking with her, she informed me that she had started a new job but had been there less than a month, which is what’s typically required. This caused us to delay the closing several more weeks until I could get a paycheck stub that complied with my guidelines.
So remember, any change, no matter how small or casual should be communicated with your lender first so they can explain the repercussions and offer advice.

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Loan Application

What Does Your Lender See?

Professionals in the mortgage industry rely heavily on information that you provide. Although burdensome,  providing accurate and complete information will prevent unnecessary delays. Despite any previous relationship with your lender, don’t assume they have what they need. The mortgage industry follows a different set of rules and may require a deeper look at your financial profile than had you applied for an auto or credit card loan.

Makes sense? A mortgage loan can be hundreds of times larger than your credit card. The larger the loan, the more your lender will inquire.

The purpose of a mortgage application is to gather data which will be used to assess the probability you will repay the loan – or, the level of risk you pose to the lender. If information is missing the loan officer or processor must follow up and request it from you.

Pretend you are painting a financial picture for your lender. An abstract and undefined scene will raise questions and cause hesitation while a realistic portrait will allow the lender to clearly see the necessary details.

As you paint, remember that each detail of your loan application must be validated through documentation. They won’t believe it unless they see it!

Good luck!

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