Getting a Mortgage Today Is a Whole New Landscape
By Bill Primavera
The Home Guru
It’s a very interesting time in the housing market, with home prices at seductively low levels and still negotiable, and with tax credits extended from first-time homebuyers to current home owners who have been in their homes for five of the past eight years.
Buyers are coming out again, albeit in the lower price ranges, and prospective sellers should know that, if priced right, some homes are even receiving multiple bids. Add historically low interest rates for mortgages to the mix, and you have a perfect window in which to buy a home before interest rates escalate, which they are poised to do.
But just since January 1, the landscape for financing the purchase of a home has changed significantly in response to the mortgage crisis of the past year, and the key word to describe that change is “slower.”
“It was possible in the past to obtain a mortgage with modest or no information,” says Sol Skolnick, mortgage broker with The Asset Center in Armonk, “but, today, most lenders require that borrowers come as wage earners with full documentation of their employment, their income for the past two years, and some level of assets that would allow them to maintain and sustain their home once purchased.”
The reason for today’s more precise documentation process, as Sol explains it, is that the government has had to step in to make sure that potential borrowers are better protected. Now all the potential costs of getting, closing and maintaining the mortgage are disclosed in a new and uniform good faith estimate. It’s a document that existed before, but not every lender used it and if they did, it could be tailored to an individual institution’s style. Now, all lenders must use a uniform form so that there is no room for creative interpolation.
The time frame in which borrowers (and sellers) must wait for a mortgage commitment has been slowed down for this and other reasons as well. Workers for lenders are taking more time to process the new information required by the good faith estimate, and borrowers must take additional time to absorb what is being revealed and what the implications are. Also borrowers need extra time to complete more paperwork and to gather more documentation.
“The main benefit of the new good faith estimate is that it has many of the costs locked in, and those that are not locked in have a pre-defined tolerance for change upward,” Sol says.
Another factor in the changed mortgage landscape is that the government has made it less easy for the appraisal of a home to take place as early in the process. It can no longer be done in the first conversation or even when the application is first filled out.
Further, in 2009, new regulations were adopted that prohibit most lenders from selecting a particular appraiser for a property. Mortgage brokers must now go through a third party vendor so that there is little or no contact between the broker and appraiser, to assure that there is the maximum amount of objectivity in the process to ultimately protect the purchaser.
Some of the portfolio lenders have different regulations where they can still allow the broker to select an appraiser, but they must be on an approved list of appraisers that the bank has determined have the highest professional and ethical standards. This delayed process for appraisals, combined with more disclosure, has also added time to the transaction process.
How much more time does it take as the borrower and seller wait anxiously for a mortgage commitment? “It’s difficult to tell because it’s early in the process. In the past, one might expect 30 day locks, but at the moment those are unrealistic,” according to Sol. “It’s more like 45 to 60 days now. And if you go past the lock date, there are costs involved with extensions that would have to be absorbed by the lender or borrower.”
Yet another challenge in the purchase transaction is that it’s more difficult to secure a property with a down payment of less than 20 percent. “It’s true that you can still purchase a property with an FHA loan with as little as a 3.5 percent down payment,” says Sol, “but I have seen indications in the industry that this may be changing. Lenders feel that if borrowers do not have a big enough investment in the property, there is more likelihood that, if things go wrong, they can walk away.”
Sol notes that you can still get some conventional loans with less than 20 percent down, perhaps with only 10 percent down, but that requires mortgage insurance. “And that is more difficult to get because property values have declined or at best stayed steady, and the mortgage insurance companies are insuring the portion that is most likely to diminish,” he explains. “Their risk has increased, and their requirements for that insurance have become more expensive. That involves a heavier monthly cost which can become a burden on a new homeowner.”
Just this month, I had the personal experience of re-financing my mortgage to secure a lower interest rate, and Jennifer Maldonado, the senior mortgage advisor at Coldwell Banker Loans, advised me that the same more demanding procedures described here are required for re-finance as well. “Bank statements have to be reviewed . . . larger than a typical deposit must be documented . . . it all takes more time,” says Jennifer.
Indeed, what seemed to be endless documentation required on my part had me running past the lock date. But, happily, my broker made up the difference in the resultant fees.
Jennifer pointed out that another benefit of the new good faith estimate is that the borrower is encouraged to shop around with it. “There is even a comparison grid at the bottom of the document,” she noted.
In closing, Sol Skolnick advises, “Because of the tax credit deadlines, those planning to purchase a property would do well to get themselves pre-approved for a loan now so that part of the process can be in place as they’re looking.”
Sol Skolnick can be reached at The Asset Center at 914-273-6666 and Jennifer Maldonado can be reached at Coldwell Banker Home Loans at 914-564-6904.
Bill Primavera is a licensed Realtor® (PrimaveraHomes.com), affiliated with Coldwell Banker, and a marketing practitioner (PrimaveraPR.com). He can be emailed at bill@PrimaveraHomes.com or reached directly at 914-522-2076.
Follow him on Twitter for housing market updates at Twitter.com/HomeGuruNY.