The Worst Thing to Ask When Shopping for a Mortgage

I was talking with my favorite loan officer last week and she told me that many people make a huge mistake when shopping for a mortgage for their new home or when refinancing their old one. What is that mistake? According to Mona Campos at Waterstone Mortgage, the first question they ask is, “What is your rate?”

Well that seemed like a pretty sensible question to me, so I asked her what she meant. She explained that there’s a lot that goes into determining your personal rate, and any answer you get to that question isn’t a good one until you’ve had a thorough discussion of your situation with the loan officer. The loan officer will need to ask you about your credit, the amount you’re putting down, your debts and cash reserves, and the stability of your income before determining a true and accurate rate.

There are other important factors to consider in addition to the rate. For example, what fees are charged by the lender? Not all fees are negative and paying a little more now can sometimes save money later, but you have to know what the fees are and understand them. Another consideration is the variety of programs that are available from the lender. While many homebuyers just want the lowest rate possible there are many who are looking to pay off that mortgage as soon as possible. A mortgage with a 20-year term may be more advantageous if your goal is to build equity as quickly as possible.

Finally Mona advises that it’s important to know who you are dealing with when shopping for home financing. You should know not only the mortgage company, but also the qualifications of the person who’ll be taking you through the process. If your loan officer can’t put your loan request together in the right way, it is more likely that something could happen to create stress in the process, change your rate quote, or even cause the loan not to go together.

A rate quote may make you feel good, but it would be better if you had the right information to help you achieve your short and long-term goals.

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Something to Cheer About

Several factors surfaced this past week that support the case that the housing market may be better than commonly reported:

Household Worth – The Federal Reserve reports that household net worth in the US soared $2.1 trillion during the last quarter of 2010.

Delinquent Mortgages – The MBA reports that last month the overall delinquency rate for single-family mortgage loans dropped to 8.22% at the end of 2010.

Late Mortgages (one payment late) – The MBA reports that on late payment mortgages have fallen to 3.25% of all outstanding home loans and are now at the pre-recession levels of 2007.

Debt Loads – Zillow reports the US families have shaved down their debt load in 2010 to the lowest level in six years – this could mean more sustained spending in the near term. Since a healthy housing market depends on consumers’ ability to borrower, so a cash rich household and available credit are good signs. However, the tight credit environment will keep a recovery tepid and make it difficult for many households to qualify for a mortgage. Zillow reports that it will be impossible for the one-third of Americans with credit scores below 620 to qualify.
Today’s household are now well below the household debt peak in 2007, but still above historic levers. However, in 2010 household debt fell to 116% of disposal income, from 130% in 2007.

Home Are Undervalued – Capital Economics just released a study, based on the Case-Shiller home price index. They calculate that in the Q4 2010, housing as 21% undervalued when compared with disposable income per capital. When measuring values against the FHFA index housing in Q4 was 15 percent undervalued when compared the same way.
Both measures show that home prices in 29 states dipped to a new cycle low in Q4 2010.
The same study says that the recent “de-valuing” housing inventory is attracting cash buyers and investors back into the housing market. This will have a stabilizing effect on home prices and create a more affordable market.

From the Economic Focus newsletter sent out weekly by the Fidelity National Title Company.