The Mortgage Pre-approval Process

The Mortgage Pre-approval Process
The mortgage pre-approval process is probably the most important thing to a buyer's success in purchasing a home for several reasons.  The first thing this does is let the buyer know whether or not he or she is qualified to buy a home.  It also let's him know the maximum amount he qualifies to buy.  Knowing these things is important so that the buyer doesn't waste his time or the Realtor's time looking at homes he won't be able to afford.  From an emotional aspect, it also helps to only look at homes a buyer can afford rather than possibly falling in love with something he can't and then being disappointed with the homes in his price range.

Getting pre-approved is more than just answering a loan officer's questions so that he can fill in the blanks on the loan application.  It is extremely important to provide the income and asset documentation, along with any other special documentation (HUD settlement statement for prior short sales - read about the short sale, foreclosure and bankruptcy guidelines, bankruptcy discharge papers if the buyer had a bankruptcy, divorce decree for those who are divorced) so that the loan officer can verify the information provided on the loan application and issue a proper mortgage pre-approval.  Income documentation to be verified includes the last two years of tax returns (including business returns for self-employed borrowers) and W-2s and the most recent full month of pay stubs.  If the borrower is retired, proof of pension or investment income should be provided along with Social Security award letters.

Proof of asset documentation requires the potential borrower to provide the last two months of bank statements (all pages) for all accounts along with the most recent quarterly statement for retirement accounts like a 401(k) or a Roth IRA.  The more assets a loan officer can verify, the better.

Once a loan officer has verified all of the necessary documentation, they can provide a letter to the buyer's Realtor stating that the buyer is pre-approved for a given amount AND that the income and asset documentation (along with any and all other pertinent documentation) has been verified.  By providing an approval like this, the seller and his agent will know that there shouldn't be any surprises throughout the process, at least as it pertains to the buyer.  A strong approval letter where the income and assets have been verified is much more likely to get the offer accepted than one where no verification has occurred.  The process is the same for FHA, VA and conventional loans.

The Mortgage Bond Market
The mortgage bond market is up slightly on the day with the benchmark FNMA 3.5 up 16 basis points as of this writing.  The Michigan Consumer Sentiment Index came in at 85.1 after a reading of 84.1 last month and an expectation of 84.2.  All else being equal, rates are better on Mondays than on Fridays since the market has a hedge for what may happen over the weekend.  The next big thing to look for that could move the market is the employment report from the BLS next Friday morning.  It has surprised to the good side the last few times; in fact, on July 5th, it surprised so strongly that the benchmark bond fell 200 basis points on that day - this is a huge move that is equal to about .5% in rate.  We have recovered nicely since then but I would be very cautious about floating a rate into this report.  My recommendation would be to lock it if you have a loan that is far enough along in the process that will allow you to do that.

Please feel free to share this with anyone who may be looking for a loan or needing to go through the mortgage pre-approval process.  I'd be honored to help them obtain financing for their home purchase.  I can be reached at 702-812-1214.  I'd love to see what your thoughts are relative to any of this content - feel free to comment below.

The mortgage bond market, mortgage interest rates and how to avoid mortgage insurance

What's happening in the mortgage bond market:
For the 3rd day in a row the mortgage bond market is down. It climbed 28 basis points from its low yesterday but still finished down 53 basis points or about a .125% increase in rate. One thing we saw was a reminder of the impact Europe has had on the mortgage bond market and the bond market in general. When Europe was reporting bad news, there was a flight to safety by investors to bonds in the US. Europe reported a PMI of 50.4 which shows the economy is expanding - this is the first such report in 18 months. Part of the sell-off in the bond market is due to this report. 

Initial jobless claims came in higher than expected which is good for rates - last month's was 336K, expected was 340K and actual was 343K. Durable goods orders (ex-transportation) also came in lower than expected at 0. The market is shrugging this news off and is currently down 29 basis points. The advice is to lock on any loan closing within 30 days if you are able. 

Why are conventional mortgage rates higher than FHA and VA?
One question that I get asked a lot is why are conventional rates higher than FHA and VA rates.  The answer is that FNMA / FHLMC have guarantee fees which were instituted a few years ago with all of the new legislation that we've seen.  These fees have increased a number of times since they were instituted and I've heard rumblings of another impending increase.  The guarantee fees are why the interest rates are typically about .375% - .5% higher for a conventional loan than for an FHA or VA loan.  On a case by case basis, conventional loans are much more credit score-driven than FHA or VA so a person with a credit score between 680 and 720 may see an even bigger disparity in rate relative to an FHA or VA loan than someone with a score over 720.

General mortgage recommendation:
If you served our country in the armed forces, you may qualify for a VA loan.  If you do, my recommendation is to use that to finance the purchase of your home.  With a VA loan, you don't need to put any money down - you do need money to pay for closing costs but this money can come from a gift.  As mentioned above, VA loans have interest rates close to what FHA rates are and better (in most cases) than rates on conventional loans.  The best thing about a VA loan is that it allows you to put nothing down and you still don't have to pay mortgage insurance.  Mortgage insurance can be a big part of a monthly mortgage payment so having a loan without it means you can qualify for a bigger loan / house or just have a smaller payment which means more cash for savings - we all need to put more money away for retirement.  

An FHA loan, for example has a mortgage insurance payment of $225 on a $200,000 loan and it doesn't offer an option without mortgage insurance.  Conventional loans typically have better mortgage insurance rates than FHA but it's very dependent on your credit score and the best rates (mortgage insurance and interest rates) require a score of 720 or higher.  Conventional loans do have two options that don't require mortgage insurance:  1) a down payment of 20% or more or 2) lender paid mortgage insurance in the form of a higher interest rate - typically about .375%. 

Please feel free to comment or contact me if I can help in any way:  702-812-1214 or jed.wunderli@noblehomeloans.com.    

The Wunderli Team Introduction

I am beginning my new blog under The Wunderli Team and want to start of by introducing myself.  I have lived in Henderson, NV since 1997.  I moved here from Salt Lake City with a wholesale mortgage company and soon became a retail loan officer for a broker.

As a loan officer, I have helped many clients finance their homes with FHA, VA, conventional and Jumbo loans.  I have helped several clients with the FHA 203(k) loan so that they could finance remodeling work.  As a Certified Mortgage Planner, I extend my responsibilities as a loan officer by helping the client choose the best financing for them and their financial goals.  My understanding of the mortgage bond market is due in large part to the training that I had when I worked for Fidelity Investments as a Series 7 licensed representative trading stocks, bonds, mutual funds and options for people on their accounts.  

My goal is to educate clients and referral partners as to loan programs and the current state of the mortgage bond market so that thy can understand their choices and get a feel of when to lock their loan.  Check out The Wunderli Team facebook page for almost daily information regarding the mortgage bond market and what interest rates are doing.  Please like the page so that you don't miss any of the updates and feel free to comment on it and share it with your friends so that they can benefit from this valuable information.

If you would like to know more about renovation loans and how you can finance repairs and improvements in your mortgage, check out The Wunderli Team YouTube channel.  You will find videos that help you understand exactly how the FHA 203(k) works along with videos that share some of the home renovations that have been completed with this great loan.  Additionally, you will find videos of me discussing the mortgage bond market along with my lock / float recommendations.  

For potential clients who are reading this, I want to help you get the right loan with the best terms.  If you have any questions or would like me to provide you with a recommendation for your specific situation, please feel free to call me at 702-812-1214.  

For potential Realtor partners, I want to help you have smooth closings by providing good (honest and timely) communication throughout the process.  I also want to help you grow your business by sharing and implementing some strategies that will help generate new business.