PRESIDENT'S CORNER: A Look at Today’s Mortgage Process
Dorothy Botsoe | July 2017
The foundation of all successful real-estate deals is the finance package. This is where everything you have worked so hard for to help close your deal can get derailed. I thought this was a good time to take a look at mortgages with one of Westchester’s most knowledgeable mortgage specialists, David Valcich of Associated Mortgage Bankers of Purchase.
DB: Let’s have a discussion about financing and some topics of concern for Realtors and the consumers in our business. Let’s start with the issues surrounding Dodd Frank.
DV: Dodd Frank was put into place to prevent what happened back in 2009 from happening again. The real estate bubble burst, so therefore Congress enacted Dodd Frank, which put a lot of regulations in place. This handcuffed us in terms of what we are allowed to do and reduced the amount of money on the streets that is available to lend, also cutting back the programs that are available. Before the bubble burst there were a tremendous amount of programs for people to choose from.
DB: Now what?
DV: Well, once the bubble burst and Congress initiated Dodd Frank, there’s only really two places to borrow money, both are government programs, so you pick which one you qualify for—so basically what happens is it’s very difficult for people to qualify for a loan; a lot more paperwork is required to qualify in every aspect of this process now. And it’s gotten more difficult for the buyers.
DB: Okay, so you don’t have as much flexibility as before—and what about credit scores, are they still important to the process?
DV: Yes, credit scores are still very important because we use automated underwriting—which is basically a computer program developed by Fannie Mae, which almost every loan needs to be submitted to and receive an approval before the lender can underwrite the loan. One of the major criteria is a certain credit score, so if your score is not where it needs to be within a certain range, there is a good chance you may not get approved for the loan.
DB: What’s the range?
DV: Depending on the program the score really needs to be higher than 620.
DB: So, FHA?
DV: FHA, it does go down to 580 but when it goes below 620 it gets really difficult to get the automated approval on the loan.
DB: So now when dealing with Realtors, when we are working with loan officers, what is your best advice to us?
DV: The best advice I can give is to communicate early and often. Stay in contact with the lender—don’t assume that the borrower or the person buying the house, has been pre-approved properly. Verify the accuracy of the information with the loan officer.
DB: Now when you say pre-approval what are you talking about?
DV: We’re talking about somebody that has actually been in my office, sat down with me and provided their personal documents—financials, tax returns, pay stubs, bank statements, also that their credit has been run. Therefore, when I issue a pre-approval, you, Dorothy, as a real estate agent, can feel confident moving forward with an offer. You’ll say okay this looks good—now I’m going to pick up the phone and call David and I’m going to ask him, “Hey, have you sat with the potential buyers, is their paperwork in order, when did you speak to them last, do you have all their documents, can they afford a house in this price range?” All those details are necessary to ensure that the deal is solid… so it’s important that you stay in communication with the lender.
DB: So, in terms of the financing, do you think there needs to be any changes within the financing process?
DV: I think Congress needs to roll back some of the Dodd Frank regulations.
DB: For example?
DV: Congress needs to somehow figure out how to get more money into the system. Wall Street has a lot of money to lend and they’re willing to lend it if they think they’re going to be able to make a return on their investment and won’t be overcome by regulation and compliance costs. So, right now I think they’re sitting on the sidelines because they’re afraid of the compliance that Dodd Frank has created. The only ones who are not afraid of the Dodd Frank compliance are the government lenders because they created Dodd Frank. So there’s a lot of trepidation out there with getting more money into the system and I think until Congress rolls back Dodd Frank it’s going to be difficult, we are going to continue to see a lot of stagnation. We have a lot of smart people in this country that can figure out how to get the money in the system and still have safeguards in place to prevent what happened in the past.
DB: Now as a person who’s looking to purchase a home in this market, what sort of advice can you give me–if I came to you?
DV: I would say be prepared because there’s a lack of inventory out there and there’s a lot of people fighting for the same house. So unless you’re prepared to pull the trigger and you’ve got your pre-approval in place knowing exactly what you can afford; if you have that all in place you’re going to be ready and that’s important. Preparation is key in this market.
DB: One of the things that we hear a lot as Realtors is that the taxes are too high. Does that factor into your pre-approval process in the beginning. Let’s say I come to you and I do not know exactly where I want to buy, if you are going to qualify me for purchase and I’m not sure which community I want to be in since taxes vary from community to community. How would you qualify me looking to purchase a home in let’s say Hartsdale?
DV: That’s a good question and the fact that you know what municipality you want to be in will help us. Because then we can use a range. We can say O.K.,, if the taxes are between $12,000-$15,000, then you are going to qualify for this amount. If you come to me and you don’t know where you want to live, then it’s a bigger issue, then I will use an estimate like let’s say $12,000. Once a buyer identifies a house, they will call me back and we review the numbers before we put an offer in for that house. Again, it’s all a part of communication and you must talk about all of this with the borrower up front. Being available seven days a week to review numbers could be the difference between getting the house and not.
DB: So in terms of making sure I am properly qualified when I come to you, and if I don’t know where I’m going to live, you can still help me and give me a guide as to what I can afford to buy?
DV: Yes, we can set some parameters and a foundation knowing that taxes need to be between a certain range and the house needs to be between a certain price range also. Credit will be run and all other aspects verified. Once a home is identified the buyer can call me back and I will make sure the numbers still work for this particular house.
DB: David, looking at your personal business, are you seeing more in regular financing or creative financing in regards to loans people are applying for in this market?
DV: Some would say all loans are creative. I will tell you that all loans are unique because everyone has their own story. That’s what I think will always make us in our business, a necessity. Because I have to paint the picture to an underwriter about why this person should get approved and having done thousands of these over my 25 years’ experience, I’ve learned how to properly present the file to underwriting so that it has the best chance of getting approved.
DB: Do you have your underwriting process in house?
DV: We do. We are located in New York and everything is done here—we are a direct lender so we approve our own loans and we fund our own loans.
DB: Do you ever sell them?
DV: Yes, we do sell them after they have closed.
DB: So how do you handle that buyer who sees the rate listed very low in an advertisement and they come to you thinking this is going to be a great deal?
DV: Well, there’s always someone who is going to try to lowball rates and if it seems too good to be true, then it usually is—rates are attractive right now and historically at an all-time low. Even though rates may be a little higher than they were a few years ago; I don’t think that a higher interest rate or rates where they are now are really affecting the market. I just think people don’t have a house to buy, it’s the lack of inventory.
DB: So it is still a challenge out there?
DV: Yes, like I said, every file is unique and is its own story. There are so many factors and guidelines that go into determining whether a person will qualify for a loan. Acquiring this knowledge and applying it properly comes from 25 years of experience and thousands of loan applications that I have seen. I believe that is what sets me apart from other loan officers.
As we move into the remainder of the summer, remember to stay in touch with your financing contacts and continue to help your buyers feel comfortable and confident that you are providing them with the best information to help finance their new home.
We will have another conversation in August.
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