Local Lenders May Be Your Best Bet for a Loan

Getting a conventional loan approved for all but the well-to-do with a 700+ credit score can be daunting. To say that Lenders today are risk averse is an understatement. What is a buyer to do if, after having gone to the expense and time of having an appraisal performed on the home they want to purchase, their lender disagrees with the appraisal? What if the property is a farm? What if the buyer, due to a nasty divorce, has poor credit, but has a dependable and good paying job? What if the subject property is a condo that has not been approved by Fannie Mae or FHA? Circumstances such as these are becoming more common place. In most of these cases, the buyer is not likely to get approval from a major out of state bank because decisions about the buyers’ qualifications or the property appraisals are being made hundreds or thousands of miles from the subject property and with no real knowledge of the buyer.

This is why local lenders may be your best option for getting a loan approved. A local lender, equipped with local knowledge, is more likely to apply “common sense underwriting” when making a judgment as to the buyer’s specific qualifications or the true value of a local property. Does this mean that large regional or national lenders are out of the question? Maybe not, but only if the lender’s local affiliate has some degree of autonomy in decision making on loans. Remember that the local lender has a vested interest in their community that a regional or national lender cannot possibly have. The local lender might be willing to consider extenuating circumstances when evaluating the buyer or the property. If necessary, they can even drive by the property and evaluate it, personally.

In my book, Homes Buyers and Mortgages, I discuss the fact that in today’s market, buyers should always have two lenders evaluate their loan application. Due to the fact that many loans are being denied for reasons like those stated above, having a local lender in the mix of potential lenders just makes sense.

Setting False Expectations

One of the key elements in the home buying process is the buyer obtaining a mortgage pre-approval letter from a lender. Today, many prospective homebuyers go online to a website of a lender or real estate professional and use a "mortgage calculator" to tell them how much home they can purchase. The problem is that without knowing their credit score and performing a detailed analysis of their income, assets, work history and other factors, the results will be inaccurate.

Defenders of these calculators say that they give the buyer a "ballpark" estimate of how much home they can buy. In today's market, that ballpark estimate is just not good enough. Such estimates could be hundreds of dollars in error in calculating monthly mortgage payments, which could convert to thousands of dollars in error pertaining to the price of the home they can buy.

Does this mean that buyers should not use these calculators? Yes, that is exactly what it means. BEFORE the house hunting process begins, the buyer should meet with a lender and get that pre-approval.

Are State HFA's Right For You?

In a recent post, I mentioned that a number of loan programs are available with little or no down payment. While most of the programs offered by government agencies apply to low to moderate income applicants, there are major exceptions. Let me review the various options that need to be evaluated by homebuyers.

The loan programs with the broadest applicability nationwide are State Housing Finance (HFA) agencies, which offer any number of fixed and variable loan programs for first time homebuyers, disabled persons, veterans, teachers, police and firefighters and other groups. Some states also offer loan or other assistance programs for existing homeowners, as well. The programs vary from first or second mortgages to down payment assistance to grants, tax credits, rehab loans, urban redevelopment, etc. The point is that there are numerous mortgage and loan assistance offerings available at the State level that should be explored by many aspiring homebuyers. Much of the funding for these State programs is made available by the Federal government through block grants to State and local agencies, State and local government tax exempt bonds or through Federal Housing Tax Credit programs. There is no guarantee that funds will be available for any of these programs at all times. However, potential applicants should contact their State HFA first, to determine their potential eligibility and available funds. Information on these various State programs as well as contact information for their offices can be found in my book, Homes Buyers and Mortgages as well as my website, homesbuyersandmortgages.com.

Jason Kotar, Author

Homes Buyers and Mortgages

The Number of Mortgage Options Just Went Down

Life got a little tougher for mortgage brokers last week as a large wholesale lender was forced to close their doors. The fact is that the number of loans being placed by mortgage brokers is down substantially from last year. The number of major banks that had wholesale operations for mortgage brokers has dropped significantly. With the sharp drop in mortgages being written, many banks do not have the need for the mortgage brokers. These banks are driving the business to their in-house retail operations.

Is the mortgage broker still a viable option for homebuyers? YES, but they should be considered among all other lending options. Homebuyers need to consider more than one lender when shopping for a loan. Not all lenders handle all types of loan programs. More to the point, not all FHA approved lenders process all types of FHA loans.

Until the last year, interest rates were the primary determining factor in shopping for a loan. Now, with declining markets, the appraisal has taken on increased importance in the lending process. The amount of the down payment is also critical in determining which loan program might apply. For many homebuyers a local lender is often a better option when purchasing a home due to their understanding of the local market and “common sense” underwriting.

These topics are discussed at great length in my new book, “Homes Buyers and Mortgages.” Please visit my website at www.HomesBuyersandMortgages.com.

Opportunity in the Midst of Crisis

Foreclosures continue to rise at a record rate and there is no reason to expect that trend to change within the next year. Many Adjustable Rate Mortgages, due to reset in the coming year, will experience a dramatic increase in interest rates. While the Presidents’ efforts to get lenders to renegotiate existing loans prior to foreclosure are gaining some traction, the fact is that you cannot refinance your home without an income. Unemployment is expected to increase to over 10 percent from its present 9.4 percent.

Deutsche Bank recently estimated that nearly half of all mortgages will be underwater by 2011. Based on those statistics, you can assume that the number of existing homeowners looking to upgrade or downsize will substantially decrease. The “buy and bail” phenomenon that occurred last year was stopped once Fannie Mae and FHA modified their lending guidelines, which effectively restricted homeowners from walking away from their current residence and purchasing a new primary residence.

So, what’s the good news out of all of this? According to the National Association of Realtors, half of all homebuyers in the first quarter of this year were first time homebuyers. There are more government loan programs, grants and tax credits available today to first time homebuyers than have been available at any time in recent history.

Investors also have a tremendous opportunity to participate in the “foreclosure market.” The sheer number of properties has forced lenders, including Fannie Mae, Freddie Mac, FHA and even the VA, to make their properties available to investors at favorable interest rates and other terms.

All of these topics are covered in detail in my new book, “Homes Buyers and Mortgages.” Also, check out my new website, www.homesbuyersandmortgages.com, which provides links to these various State and Federal programs.

Florida Legislature Approves Tax Credit

The Florida legislature recently passed legislation allowing for qualified homebuyers, eligible for the Federal Housing Tax Credit, to receive up to $8000 in purchase assistance. This will enable eligible homebuyers access to the funds at the time of purchase, with repayment to the State required at the time of receipt of their Federal tax refund.

The program will be administered through the State Housing Initiatives Partnership (SHIP) program. I have attached the link to SHIP: http://apps.floridahousing.org/StandAlone/FHFC_ECM/AppPage_SHIPLGContacts.aspx

First Time Homebuyer Opportunities

In the first quarter of 2009, approximately 50% of all the homes purchased were by first time homebuyers. The key for these buyers in today’s market is to identify the financing that best suits their needs. The fact is, there are more government loans, grants and tax credits available than in recent history.

The first place to start for those with low to moderate income is the state’s housing finance agency, the Florida Housing Finance Corporation. The types of financing offered are fixed, low interest rate mortgage loans along with down payment and closing costs assistance.

In the next blog I will examine some of the programs available through the Florida Housing Finance Corporation.

Please be on the lookout for my new book, Homes Buyers and Mortgages, which will be released in the coming weeks.