Time is of the essence. This phrase seems especially relevant in today’s mortgage industry. The J.D. Power and Associates 2009 Primary Mortgage Origination Satisfaction Study(SM) recently revealed a decline in overall customer satisfaction compared to that of 2008. This has been largely attributed to the increase in time it takes most lenders to get from submission to close on a home loan. The average time required to close a loan has gone from 30 days in 2008 to 47 days in 2009.

Forty-seven days is a long time to have to wait. So, what’s the hold up? Increased lending criteria have weighed down the process for many lenders who are not accustomed to such careful practices. In effect, customers have become dissatisfied by the level of customer service they are receiving due to the lengthened process.

Fortunately, if you are purchasing a home, you do not have to look forward to a 47-day wait to get to the closing table. Despite trends of an increased time span, some lenders are actually decreasing the time it takes to go from submission to close. Shore Mortgage, a direct lender in the business for over 25 years, has reduced their time to an average of 19.8 days to close. That’s less than three weeks! United Wholesale Mortgage has been in the business for over 9 years and boasts the fastest closings in the nation, closing loans submitted by brokers in an average of just 8.4 days, which helps the brokers better service their borrowers. Imagine applying for a loan, then walking into your closing meeting a little over a week later.

Research from this J.D. Power and Associates study revealed, a vital factor in an efficient and satisfying customer experiences is communication. This comes as no surprise, considering Shore Mortgage and United Wholesale Mortgage both recognize the importance of quality communication by offering around-the-clock availability for their customers.

You’ve waited long enough to finally be able to purchase your home. This part of the experience should be enjoyable, not stressful and drawn out. Shouldn’t it?

Source: CNN Money. money.cnn.com

You’ve been preapproved! (…or was it prequalified?) But what does that really mean? Is it the same as prequalifying? The terms ‘preapproved’ and ‘prequalified’ are often confused or used intermittently, but they are not the same thing. Before you go shopping for a house, you should know what each term means what they can do to toot your horn.

Prequalification

A prequalification is simply an estimate of how much money you can borrow. You may get a prequalification from a lender. The process usually involves submitting financial information, such as your income, assets, and debts, and the amount you anticipate having for a down payment. The lender will then evaluate your information and provide you with an estimate of how much they think you can afford to pay for a monthly mortgage.

There is no guarantee from the lender that you will actually be approved for this amount once you apply for the loan, it is just a ballpark number to give you an idea of your price range. Prequalifying through a lender does not indicate a commitment on either side, you to that particular lender or that lender to you. There is also no cost involved in prequalifying (it’s free!).

The best time to get a prequalification is before you even start looking. It will give you a good idea of what you can afford, and let sellers know that you are serious about buying. Because there is no cost or commitment involved, there’s really no reason not to!

Preapproval

A preapproval will provide you with a more serious figure to work with. In order to be preapproved for a loan, you will need to provide the lender with actual documentation of your income, assets, and debts, and hand over your Social Security number. The lender will also need to run a credit check on you so that they can generate a more accurate amount. Unlike a prequalification, a preapproval will generally involve an application fee.

Along with your preapproval, the lender will provide you a letter of commitment, which will include the maximum amount of money they are willing to loan you for a home purchase. This letter, however, is not equivalent to an approval, and you will still need to be approved for a mortgage loan before you are eligible to receive funding so that other factors, like the property appraisal and title search, can be taken into consideration.

A preapproval is very beneficial to have when you are looking to buy a home. Sellers are more likely to accept offers from you if you can show them you are preapproved for financing. Having a preapproval will give you the advantage over other potential buyers who don’t.

Obtaining a preapproval does not bind you to that lender. You will still have the freedom to borrow from whomever you please. However, if you do decide to stick with the lender that preapproved you, the process of applying for a mortgage loan will go much faster.

If you are seriously considering buying a home, you should obtain a prequalification or preapproval beforehand so that you are aware of the price range you can afford.

Photo by: richkidsunite // CC BY 2.0
Source: Mortgage 101. www.mortgage101.com

Ginnie Mae is the name commonly used to refer to the Government National Mortgage Association. Ginnie Mae was established by the Charter Act of 1968, which divided Fannie Mae into two parts; a privately-held corporation, which retained the name of Fannie Mae, and Ginnie Mae, a federal agency responsible for the then-existing special assistance programs. The purpose of doing this was to increase the availability of consistently-priced loans by putting a ceiling on the number of new mortgages that could be issued.

Unlike Fannie Mae and Freddie Mac that both deal with conventional loans, Ginnie Mae guarantees only bonds backed by home mortgages that have been guaranteed by a government agency, mainly the FHA or VA. In fact, Ginnie Mae is the only mortgage-backed security to carry the full faith and credit guaranty of the United State government. Though, like Fannie Mae and Freddie Mac, you can’t obtain a loan directly from Ginnie either.

Here’s a basic example of how it works:

• You acquire a government-insured home loan (FHA / VA / RHS / PIH) from Lender XYZ.

• Lender XYZ can only give out a certain amount in loans, and your loan subtracts from this total amount.

• Lender XYZ sells the rights of your home loan to Ginnie Mae, opening up more funds to loan to other home buyers.

• You make your monthly payments to Lender XYZ and the funds are passed on to Ginnie Mae.

• Ginnie Mae packages your loan with many other home loans in a mortgage-backed security (MBS) or bond, which it sells to investors.

• Ginnie Mae insures the bond for a fee, but does not own the bond.

• If you default on your loan, Lender XYZ can foreclose and collect from the government agency that backed your loan (FHA / VA / RHS / PIH).

• If the agency (FHA / VA / RHS / PIH) insurance does not cover the full amount, Ginnie Mae makes up the difference.

Ginnie Mae works similarly to Fannie Mae and Freddie Mac, only with a huge safety net provided by the government. Ginnie is backed like a Treasury bond, making it one of the safest investments even in difficult times.

Making up just around 10% of the mortgage-backed securities market, Ginnie Mae is much smaller and less diversified than Fannie Mae or Freddie Mac. Also, Ginnie Mae is considered a government acgency, so it is not owned by shareholders, as Fannie and Freddie are.

Source: Ginnie Mae www.ginniemae.gov. Fannie Mae www.fanniemae.com

‘Can you co-sign a loan for me?’

Someone you know is trying to take out a loan, but they don’t qualify. They are asking you to co-sign for them, and it’s got you concerned. You’re putting your credit on the line for them, and you are worried about how to handle the situation.

You don’t qualify for them, you don’t qualify for me
Don’t be afraid to say ‘no’. This may be harder to do with some people than others. The person asking you most likely has low or no credit, which is why they need a co-signer in the first place. If you have doubts about the person you would be co-signing for, tell them you aren’t comfortable with it. If they keep trying to push you, tell them to ‘take a hike’. You are going to be accepting only the risk with none of the return, and this is your credit that they’re asking to piggy back on, so you have every right to refuse them.

Are we a match?
Even though you aren’t taking out the loan yourself, you are taking on the risk of having to pay it off if that person defaults. You will be risking your income and even assets that you own. So, take time to consider this for yourself, and take time to asses the person you are cosigning for. Do you find them reliable? Are they able to make payments on time and are they able to? Will they become major liability?

Be ready for anything
A surprise expense isn’t fun for anybody—and certainly not for you. In the worst case scenario, the person you co-signed for misses a payment and you cannot get in contact with them. The remaining payment will be on your shoulders, and you may not even see anything back for it. If you are co-signing for someone, be sure that you trust them, but also prepare yourself financially in case they happen to default.

Some advice
Make sure to keep in contact with the primary signer. If there is any trouble that arises, you will be able to squash it before it become a big problem. You may also ask the lender to keep you posted on the status of the loan. The lender will be able to notify you as soon as there is a late payment. As with any paperwork that you sign, read it over and keep copies of everything.

The larger the loan, the more concern you should feel. Work everything out between the lender, the primary signer, and yourself. You don’t know what the future holds, but you can take precautions to make everything go a lot smoother for you and your credit.

Have you considered what to do if someone asks you to be a co-signer?

I’ve been in the mortgage industry for over six years and one thing never ceases to amaze me: the minute I tell someone my profession, they always feel compelled to inform me of their “incredible rate” and how they “paid no points” when they obtained their financing.

Nine times out of ten I know right away:

• They are misinformed, since all companies have the same rates.
• They are not telling me their real rate (even though I didn’t ask).
• They shorted themselves out of an even better loan because they didn’t pay points.

I don’t know why American homeowners think paying points is so horrible. It’s one of the best things many homeowners can do for their mortgage and it makes a lot of financial sense. After all, points are nothing more than a bit of upfront interest.

For most places, prepayment penalties are a thing of the past. If a bank is going to lend you money at a very low rate, they want to make sure you have the intention of keeping that loan for a longer period of time, for it to make financial sense to them.

This initial deciding period is called Pull Through, and will last approximately 3-5 years. During this period, the bank will ask you to pay a little more up-front to show them that you are serious and are investing in this loan for more than just a few months. For paying slightly more than you would have otherwise, you are setting yourself up for a lifetime of savings.

Here is an example:

The Loan Company offers Borrower A a $140K loan at 5.5%, with no points on a 30-year fixed mortgage. Borrower B, who also has a $140K loan amount, chooses to roll in an additional $1,400 (or one point, equal to once percent of the loan) and buy his rate down to 5%.

Here is how both loans will look over time:

Total Upfront cost of Loan B: $1,400
Payment difference: $35.83 per month
Interest Difference: $1,892 over three years (or $52 per month)
Difference over ten ten years: $5,736
Difference over thirty years: $15,607

As you can see in the situation above, paying points can really pay off! If you believe that you will be in your home and your loan for a longer period of time, then invest in your rate and buy a couple of points. In a long-term situation, I would highly recommend points, but if you are going to be in your home or the loan itself for less than three years, inform your loan officer of this and don’t pay points or take a look at the FHA ARM.

One other item you should know is that points are tax deductible! If you buy a home, you can write off any discount points you pay during that year. If you refinance, you can write them off over a period of time, or you can write them off that same year if you bring in the cash at closing for the points.

Just remember, each loan and situation will be different, but for most borrowers, investing in a point or two in order to gain lifetime savings is a great idea, and really can help you leverage your largest asset.