What Does a Mortgage Underwriter Do?

A mortgage underwriter is the person at the mortgage company who takes all the information related to your mortgage file and reviews it. Then, based on lender requirements, the underwriter makes a decision as to whether the lender will extend a loan to you.

To complete this process, the underwriter reviews documents such as bank statements and tax returns. He or she also looks at credit reports, property surveys, titles, and appraisals.

Just as important, the underwriter is also making sure that the loan is compliant with federal regulations. Keep in mind that, by law, your lender has to provide you with certain disclosures within certain time frames, and you must acknowledge in writing that you received them.

If any of this information is missing, or if documents were dated outside of the allotted timeline, then the loan is out of compliance. If this isn’t caught by the underwriter, it could cause significant issues for the lender if this were to be discovered after the loan is sold.

Selling loans to investors after the loan is closed is a common lender practice, so these details are crucial. When the lender sells a loan, they receive money from investors that they can then use to write new loans.

Borrowers are often surprised by how much detail that mortgage lenders and their underwriters ask for when the borrower’s loan is being processed. The list of items can often seem overwhelming, but the many details provided are used to demonstrate to potential investors that everything that needs to be there is accounted for.

The last thing that any lender wants is what is called a defective loan. Depending on the nature of the defect, the lender may have to repurchase this loan from the investor. To avoid these costly mishaps and keep the process moving smoothly for everyone, the underwriter ensures all the buyer’s and lender’s ducks are in a row for each transaction.

Do you have additional questions about underwriting? Contact your mortgage professional for more details.

What’s the Highest Mortgage Rate in History?

Mortgage interest rates have been steadily increasing over the past year, and they may continue to do so through 2019. However, looking back over the past few decades, we discover that today’s rates are minimal compared with the heights they’ve reached in the past.

Less than 40 years ago, home buyers saw rates that would be inconceivable to today’s mortgage consumer. Let’s take a quick trip back in time and see what we discover.

The Past: February 1982. Home buyers seeking to obtain a 30-year fixed rate mortgage paid an interest rate of 17.60%. This is after giving their lender 2.5% of the loan amount to get this rate. A loan of $150,000 for 30 years set them back $2,211.70 per month. Within a year of this peak rate, interest rates dropped into the 13% range. While still extreme in the face of today’s much lower rates, this drop allowed consumers to borrow quite a bit more money.

The Present: Coming back to today’s market, let’s compare those historical rates with what we saw in 2018. In November, home buyers could obtain a 4.87% rate for that same 30-year fixed rate mortgage. The payment for a loan of $150,000 would have been just $793.36.

The Future: Will fixed mortgage rates ever get that high again? With government regulation in place to control economic growth, it would be unlikely.

The takeaway from all of this is that rates fluctuate, and no one can predict for sure where the market is headed. If you’re thinking about financing a home, now may be a good time to look into your options. Contact your mortgage professional for more details.

Why Does My Lender Need My Bank Statement?

When you think of tools that lenders use to determine your qualifications as a buyer, the first thing that may come to mind is a credit report.

This is an invaluable tool for lenders, since it shows patterns, and lenders are very interested in borrower patterns. They want to see trends of successful management of payments month to month. They also want to know how much debt you currently have. The credit report will provide all of this information.

Still, it doesn’t provide all the data the lender needs. Another tool they use to evaluate buyers is the bank statement. This offers a day-to-day window into how you manage your finances. The lender is specifically looking for overdrafts and proper accounting for all deposits that appear on the statement.

Overdrafts: Overdrafts, especially when there are a lot of them on a regular basis, will draw the attention of lenders. The lender will have several questions about these occurrences: Are you short of funds each month, or do you need to balance your checkbook better? How are you recovering from the overdrafts? What will keep this from happening in the future, once we lend you our money?

Deposits: All deposits on a bank statement must be accounted for. Electronic payroll deposits normally need no explanation, as the dates and amounts can be cross-checked with pay stubs. Other infrequent or large deposits will need to be explained and documented.

Lenders are looking for specific things regarding these deposits. They want to confirm steady sources of income that can be used for future mortgage payments. They also want to check for any gifts you may have received to help you secure a mortgage. If this occurs, the funds must have come from an eligible source. The lender may require a letter of explanation to confirm the legitimacy of any such gifts that show up on your bank statement.

To learn more about this process and how your bank statement affects your buying power, contact your mortgage professional.

Is There a Best Time of the Month to Close on a Home?

The answer to this question depends partly on whether you are paying off an existing mortgage at the time of closing. Let’s look at an example to illustrate this process.

In our sample scenario, you are purchasing your first home, and the closing date is set for May 10. At closing, you’ll pay interest charges from that date through the end of the month (May 31). That means you’ll pay 22 days of interest at closing. Your tax assessment will also be based on this date. Thus, the nearer to the end of the month you close, the lower your out-of-pocket charges are for this closing expense.

After closing on May 10, your first mortgage payment will be due July 1. Contained in that July payment will be interest charges for the month of June. The August payment will then cover the interest charges for the month of July, and so on. Interest charges for any given month will be paid at the beginning of the following month.

If you are refinancing or paying off an existing mortgage, the date of closing is less important. If you close on the 27th of the month, you will have a lower interest expense on the new mortgage than if you close earlier in the month, but you are still going to be paying interest on the prior loan for the first 26 days of the month.

In short, you will always be paying interest charges to one lender or another. There will never be a gap when no interest is due to anyone.

Do you have additional questions about this process? Contact your mortgage professional for more information.

Stop! Are You Really Ready to Shop?

Are you thinking about buying a home in the near future? If so, you should take one crucial step before all others: determine what you can afford.

Purchasing a home is one of the most significant transactions you’ll ever make. With this in mind, you should carefully evaluate what will work for you before you dive into the process. Even before you contact your lending professional or real estate agent, ask yourself a few key questions.

What are your needs for living space, both now and in the future? What resources will you be able to utilize for down payment and closing costs?

Beyond this, what do you realistically think you’ll be able to afford each month? What additions to your family do you anticipate, and what impact will they have on your family budget, both in terms of monthly expenses and household income?

Lastly, how much will you be able to save each month for the proverbial rainy day, in case you experience a reduction or gap in income?

Once you answer all of these questions, then you can start talking to people who are in a position to help you finance and purchase a home.

Your first stop is your mortgage professional in order to get some tangible numbers. Here, you’ll take all of the guesswork out of what you think you’ll be able to afford.

Next, with solid numbers and a preapproval in hand, you can contact a real estate agent. This agent will show you appropriate properties based on what you learned with the mortgage professional.

Buyers who don’t use this method often search for homes randomly and end up falling in love with one that is ultimately out of reach. Save yourself time and heartache by using this due process to find the perfect home for your needs and budget.

Have you carefully considered the questions listed? When you’re ready for the next step, contact your mortgage professional to get started.

Deed vs. Title: What’s the Difference?

While these terms are related, they are not one and the same. A deed is the legal document that transfers ownership of a property from one party to another. Title represents the ownership of that property (what rights a person has to it).

Titles and deeds can also take on different forms. For example, a common type of deed is a quitclaim deed.

This deed can be used in the case of a married couple who purchases a home together. If they would prefer that only one of them have ownership interest in the property, they can use a quitclaim deed. The person who will have no ownership interest uses this deed to sign away their rights to the other party. This might be done for financial or legal reasons.

If, at some point in time, a spouse needs to be added, they would use a quitclaim to make this change as well.

Regarding titles, once a person is added to a title, they may “hold title” in one of several ways. This holding refers to what legal rights each person on the title has.

A common example is “tenants by the entirety.” This is often used by married couples. In this situation, if one of the parties passes away, the other automatically becomes sole owner of the property.

There are other ways title can be held, especially for nonmarried couples. Each version gives each party specific rights as to what they are able to do with the property, both while they are alive and after they pass.

For more details on these variations, contact your mortgage professional.

Subordination Agreement – What’s That?

Subordination agreements apply to mortgage customers who have more than one mortgage on a property.

For example, if you had a mortgage on your home, then decided to get either a home equity loan or a line of credit, the new mortgage would be subordinated to the first mortgage.

In mortgage terminology, the subordination agreement would put the original mortgage in what is called first position. This means if the owner of the property defaults and the property must be sold, the lender in first position would be paid back first. The lender of the second mortgage would be paid back second, if the property sale generates enough funds.

This is why the mortgage rate on a second mortgage is often higher than the rate on the first. The second lender is taking a risk that there might not be enough funds available to pay back the loan in a default situation.

To take this a step further, if a homeowner has two mortgages and wants to refinance just the first mortgage, the homeowner would have to get a new subordination agreement signed by the original second lender before doing so.

This is to keep the second mortgage in second position. Otherwise, the once-in-second-position mortgage would move to first position, and no first mortgage lender would ever allow themselves to become subordinated under a second mortgage.

If you have additional questions about this agreement or the process for obtaining a second mortgage, contact your mortgage professional for details.

Help! There’s a Mistake on My Credit Report!

It’s a good rule of thumb to check your credit report regularly, even if you’re not currently applying for a mortgage or any other type of credit.

Why? If the report contains incorrect information, it’s better to know sooner than later, especially if you do plan to apply for credit at some point. This will give you time to correct the error before it affects a transaction.

If you discover a mistake, you can approach correcting it in one of two ways.

The first and most basic approach is to contact, in writing, the credit bureau that reported the information you believe to be incorrect. The three primary credit bureaus are Experian, Equifax, and TransUnion.

Send each of these reporting bureaus a certified letter, providing as much detail as you can, including account numbers as they appear on the credit report, all relevant dates, and why you think that the information is incorrect. There are online resources to assist with drafting this letter.

The bureaus will then go to the agency that provided the information to get details of what happened. If that agency is unable to provide documentation that the debt is legitimate, it then must come off the report.

Keep in mind that the credit bureaus are not required to remove legitimate negative data from a credit report.

The second option is to go to a credit repair agency, which will do some of this work for you. However, keep in mind that these agencies charge a fee. They may also take longer to get back to you than if you did it yourself, since they will be servicing multiple clients who each demand part of their time.

If you decide to go this route, check out whomever you want to use. As with any other type of service you are shopping for, check the company’s status with the Better Business Bureau.

Additionally, your mortgage professional may have referral partners in the credit repair business to whom they can refer you. Contact this expert for more details.

What Costs Can I Expect When Buying a Home?

You know the purchase price of the property, but what other costs might be required in order to make that home your own?

If you plan to finance your purchase, you can expect the following costs during the transaction or at the closing table.

Lender Fees. You pay these fees directly to your lender to process your loan. They include origination fees and processing fees. If you are taking out an FHA loan, you also have to pay an upfront mortgage insurance premium. Though this loan is financeable, you also have the option of paying out of pocket at closing.

Third-Party Fees. These fees are paid directly to people and organizations outside of the mortgage company who perform the necessary tasks to close your loan. These include appraisers, surveyors, and title companies.

Attorney fees are another example of common third-party fees. Some states require that attorneys be present and review documents at closing. Even if this isn’t a requirement in your state, it’s a good idea to hire a real estate attorney when purchasing a home.

The same holds true for a home inspection. While you aren’t required to get one, it’s always a good idea to do so. In most real estate contracts, you will be given a window of opportunity to have an inspection completed. Take this opportunity. Paying for this, along with having an attorney on your home-buying team, could well be the smartest money you spend in the transaction.

Reserves. Your lender may require you to put money into what is called an “escrow account.” This account is funded both at closing and each month as part of your mortgage payment. Your mortgage servicer (which may also be your lender) will pay out recurring expenses such as property taxes and homeowner’s insurance from this account when they become due. This is one way that the lender protects itself from losses.

To get an idea of exact costs in your area, or for a specific price range, contact your mortgage professional.

Why Lining Up Financing Is the Home Buyer’s #1 Job

Talking to a mortgage professional before you start looking for a home, even if you are just thinking about looking for a home, is a good idea. Why?

Your best strategy for going into the home purchase process is to get yourself in a ready-to-buy position. This is especially true as interest rates continue to rise.

You may have checked your credit score and discovered that it is great, but there is still more to the story, such as income and assets. It’s important to be on top of all aspects of your credit.

For example, you may be timely in making all the payments on your debt each month, but your lender may recommend that you pay down or pay off some of the debt to improve your debt ratios. This may take time, and the sooner you know what needs to be done, the sooner you’ll be able to start taking care of it.

This process is also important for setting your search parameters. The last thing you want to do during the home purchase process is guess what you think you can afford and get your hopes up on a property that may be a little (or a lot) out of reach.

Another variable to consider is your real estate agent. If you plan to work with one, he or she will want to see some type of pre-qualification letter. This lets the agent know you have the means to purchase a home and in what price range he or she should help you look.

Are you ready to start home shopping?

To get started on this preapproval process, contact your mortgage professional.