The Rental Girl agents met with three local lenders: Joe Parisi with Prospect Mortgage, Richard White with Arcstone Financial and Scott Groves with Movement Mortgage to get the skinny on lending and to address many of the fears and concerns of first time home buyers.
THE RENTAL GIRL: We are surprised at how many qualified renters we meet who have no idea they are qualified to get a loan to buy their first home. In our opinion, it doesn’t hurt to give a lender a call and have a quick chat about the possibilities. What do you have to say to renters who are just beginning to think about buying?
- SCOTT: It’s NEVER too early to start. I have clients who are on a 90 day, 6 month, 1 year and 2 year plan to buy a home. Evaluating a buyer’s income, credit and assets – no matter how far away the dream of ownership is – is an absolute MUST. We can gameplan on how to get a client into a home and ensure it’s an easy journey. Start with a lender early.
- RICHARD: I show them a report on renting versus owning that details how much it’s costing them to rent instead of buy. I show how rent is money gone. You’re building equity in a house payment and that turns to a positive asset. You’re owning and not renting and that brings on certain privileges. There’s no landlord who can tell you how to behave or terminate your lease so you have freedom as a property owner that you don’t have as a renter.
- JOE: I highly recommend they get pre-approved. There’s nothing to lose. We run the credit check for free. It gives you an idea of what you can buy and gives you a framework for making a decision. A pre-approval is good for 90 days and can be extended for 90 day increments for as long as you want. I’ve had clients who took a year and a half from preapproval to the loan.
THE RENTAL GIRL: We meet a lot of renters who are “thinking of buying in a year.” At what point should they contact you?
- SCOTT: ASAP. Clients need to check and ensure there are no credit surprises. They also need to ensure that they aren’t writing off so much income on their taxes that they will have a hard time qualifying for a loan. Meeting with a client today is very important, even if he or she isn’t going to be buying for a year.
- RICHARD: The first person they should contact is the mortgage professional. Most people have no idea of how much money is in checking accounts or on their credit that allows them to qualify for a home. They make the mistake of shopping for a home first and then seeing what it takes to buy. You don’t shop like that for groceries. It’s important to know how much money you have available and know what options are available. Like specialty programs and limitations on those programs. I’ve met clients who were pre-approved by other lenders for programs that no longer exist. Get a full pre-approval and it makes the home shopping experience easier and less frustrating. In most cases, I’m having a talk on the phone and I’m always open for the conversation. For people who came to me initially and weren’t ready to buy I was able to help them get ready and improve their credit. I helped them see they needed to pay down debt and get credit worthy.
- JOE: It’s good to start early because a first time buyer doesn’t know what kind of surprises will show up on a credit report and won’t know the income situation for the future. For people who are not qualified, we can develop a plan of action to pay off debts and maybe they’re expecting a future promotion or job change. If they wait until it’s time to buy a house they risk not getting approved and missing out on the chance to buy a home they like.
THE RENTAL GIRL: We find that when most renters start thinking of buying, the first thing they think to do is to talk to their bank and to see if their bank can give them a loan. What are some of the differences of working with a larger bank like Chase, Bank of America, Wells Fargo, or with you?
- SCOTT: Smaller lenders, brokers and mortgage banks (like Movement Mortgage) are, by definition, not deposit banks (like Wells, B of A and Chase). We don’t have other streams of income such as deposit accounts, investment accounts and credit cards as sources of revenue. Everything Movement Mortgage does has to revolve around providing top notch service that delivers the end product – a mortgage. Unfortunately, large banks have tended to set up their appraisal delivery, processing centers and point of sale operation systems strictly as an addition to a larger business. This business is designed to turn a profit, have the fewest variations in process and deliver the same product nationwide in all markets. As we know, no business is more local than Real Estate. By using a business model that is designed nationally, to create the cheapest cost of delivery for an appraisal or loan done on tract-housing, large banks are not as equipped to appraise nuanced areas. Many areas like Silverlake, Echo Park, Highland Park and Atwater Village are best served by local appraisers who are plugged into a service oriented model, NOT a business model.
- RICHARD: I’ve recently returned to the banking world so I’m a broker-banker with many available packages to service client needs. A bank will be limited in product offerings. The banker-broker has more options. I have access to at least 30 different lenders. There are niche products available.
- JOE: With the larger banks, you’ll be limited to their programs and rates. They’re not bad but they won’t have the full gamut we have access to as a mortgage banker or broker. Their underwriting guidelines can be more restricted, too. To accomplish the same thing on your own you’d have to call 30 or 40 different banks. We know the ins and outs of different lenders and each person’s need can be different.
THE RENTAL GIRL: If a buyer comes to us already approved with a major lender, we like to encourage them to shop around. They already have all their documentation together so it’s easy to apply with another lender. But many buyers object because they are worried about multiple lenders running their credit. They don’t want to lower their credit score which could hinder them getting a good rate. Do you think it is a good idea to shop around for the best rate and/or get approved with a back up lender? When you pull a borrowers credit, is the hit a major ding on their credit report?
- SCOTT: This is one of my favorite Urban legends – the part about the credit. Call me and I can explain how credit inquiries work, why clients should have a local or back-up lender and how rates factor into the process. The dirty little secret is that most lenders have the same the exact same rates – what the client really needs is better service and communication during what is going to the be the biggest transaction of their life.
- RICHARD: Your credit can be pulled as many times as needed for the same purpose within a 30 day period and it will not affect your credit score. If you’re shopping for cars they can all pull your credit and the same with mortgages. You’re encouraged to shop lenders, but it shouldn’t be just focused on the rate. Look at the service you receive. When you start talking about rates, unless you’re talking about a niche product, rates are not going to be any more than 1/8% different from one place to another. It’s coming down to the cost. You can try to get the cheapest, lowest rate and you may give up on service. I don’t intend on being a rate quoter. It’s more about providing service. If buyers enjoyed the service I’ve given them then we lock on the rates as part of the process. Shop around for service and the value you receive from the loan originator. Have confidence the person can get you through the transaction and that has to be factored in to your decision to choose a lender.
- JOE: Check out two different sources. I tell clients that. If nothing else, for peace of mind. You know you’ll get the same rate if not better by applying with us. We may have a program for you to get a higher approval or a better rate so do a cursory application somewhere. The FICO system doesn’t harm you for looking for mortgages with lending companies. In a 30-day period all mortgage inquiries are counted as one. Even after that period, it won’t hurt you much. I send my clients to Myfico.com and they can see there another inquiry won’t hurt you at all. If you apply for 5 or 6 credit cards that’s different and could affect the score.
THE RENTAL GIRL: What advice do you have to offer to 1st time home buyers?
- SCOTT: Get pre-approved early. LOOK at your financial paperwork and keep track of spending. Set a budget alongside your loan officer and know what you can afford before you start looking at property.
- RICHARD: Home ownership has benefits. I was a loan processor and processed thousands of loans. I had clients who didn’t put money in a 401K but they had a house. It’s shelter and can build equity and wealth. A client was actually buying a family house. She’s buying the house she grew up in to keep it in the family. Look at your budget. Know what you can afford and look at your lifestyle. Pre-approval is based on a certain ratio. It’s not based on a lifestyle. Make sure you can afford certain expenses each month. One thing I will always share with potential buyers is that home repairs and work around the house may come to thousands of dollars. You need to have a cushion. You want to have reserves of money to do repairs and maintenance.
- JOE: Get pre-approved early on so you have a plan of action. Look at the numbers including your monthly payments as a homeowner and property tax and homeowners insurance. Then there’s property maintenance. I may approve clients at $500,000 and they may be comfortable at a lesser range after all costs are included. After you see those numbers make sure you have money left in the bank as reserves. As a homeowner, you need a cushion. The tax benefits of homeownership versus renting is one of the best things of owning a home. It’s an added benefit.
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