Wanna know the inside scoop on mortgage financing? Im going to teach you how to get really cheap mortgage terms. Just dont tell them where you heard about it.
The secret is this; organize your documentation BEFORE you call around. If you follow these seven steps and compile a package that you can e-mail to mortgage originators, you can effectively play us off one another and get smoking great terms for a home loan.
1- Fill out a uniform residential loan application (Form 1003). Be truthful ! Regardless of what your buddies tell you, Sister Anastasia from Little Flower Grammar School was correct; neatness does count.
2- Get a copy of your credit report but make sure that its a tri-merged credit report.
3- Organize your two year income and employment history. That means you should copy the first two pages of your 1040 income tax form for the last two years, your W-2 or 1099 forms supporting these tax forms, and your last 30 days worth of pay stubs. Be certain that your employment history, written on the loan application, matches up with your dates of employment. Make sure that the work phone number on your loan application goes to the person who performs the employment verifications at work.
4- Gather up your asset statements: checking account, savings account, securities account, IRA, 401(k), and any annuities you have. The lender will require that you show ALL of the pages of the statements. Compile the last 60 days worth (so two monthly statements or one quarterly statement). More is better as the more money you have, the more likely it is that you'll pay back the loan.
6- Now, get six sheets of paper. In BIG magic marker, PRINT, the following:
- MISC SUPPORTING
These are your dividers. Put the 5 page loan application behind the first sheet, the credit report behind the second sheet, the tax returns, W2 forms, and paystubs behind the third sheet, the bank and other statements behind the fourth sheet, and all the rest behind the fifth sheet.
7- Scan the package, IN ORDER, to a pdf format. If you dont have a scanner, sign up for a pfax number for four bucks a month and fax the package to yourself. Now you can e-mail the credit/income package to a mortgage broker to get your quote.
I'm not saying youll get your mortgage for free, hardly. If you have all of your documentation, you stand a much better chance to get the best terms.
I have always stated that you should be shopping mortgage consultants not loan programs but this double-barreled article will help you do both. Understand this first. You are NEVER going to get the absolute best rate offered on a home loan; it's impossible to determine what "best is:
Instead, you should be shopping loan originators. You should spend some time online and on the phone getting to know the originator before you give her a copy of your "credit" package to receive a quote.
You should get a list of 5-6 loan professionals and spend 10-15 minutes on the phone with them. Where do you find these people? Here are some sources for "leads' on good loan originators:
1- Call Brian Brady immediately 858-777-9751! Okay, I'm sort of kidding but I can be a source for you because you have enough interest to read my article this far. My point is that you've already met one originator online.
2- Ask your Realtor for a loan originator whom she trusts. If you don't have a Realtor, yet, use that as leverage in your hiring process. Explain to the 2-3 Realtors you're interviewing that you consider their recommendation of a loan source to be an integral part of their service offering; you'll get a great response.
3- Go into your local bank and tell the teller that you are thinking of buying property. That teller gets paid $25 to refer their in-house mortgage salesperson so he'll be all worked up.
4- Call your CPA or tax preparer and announce that you need a home loan. If the CPA offers to help you with it, get a new CPA. There is a growing trend among tax professionals to provide financial services like mortgages and investments. I can't speak too intelligently about the investments side but there are two problems with CPAs offering home loans: (a) they offer horrible advice. (b) their inexperience usually ends up costing more.
5- Stockbrokers and financial planners are usually good sources. These guys understand investments and leverage so they know a few of us who can integrate your mortgage into your financial plan. I have found that when I work with a stockbroker, the client gets great advice and a loan that makes sense. if you don't have a stockbroker, ask the richest person you know for a name (I'm not kidding about this). Some stockbrokers offer mortgages; again, stay away from that for the same reasons as CPAs.
6- Ask someone who owns more than one property who their mortgage gal is.
7- Ask a small businessperson (with whom you're friendly) who their mortgage source is.
8- Ask your brother or sister (or cousin or parents).
Cool! Now you have a list of 6-8 mortgage originators. Should you print off your package and send it to them? Should you e-mail each of them and ask for a quote? Hold on, amigos ! Remember I said to shop for loan originators and not loan programs? The loan terms shopping comes after you've isolated 2-3 originators with whom you want to do business.
Start off by Googling everyone's name on your list in the Google Blog Search. So many of us are writing articles like this online so we can give you, the consumer, good information. If the originator isn't writing a weblog, then just Google them. Searching online can give you some insight into their philosophy about mortgage financing. It is also one indication of their experience level and commitment to the profession. It is not a prerequisite that they have an online presence but it does help.
Now, armed with a little intel, let's make the calls to the originators. Certainly start off with a little small talk; sales people like to talk but keep it under 3-4 minutes.
Here are 7 questions you want answered in your phone interview:
1- What is your philosophy in as much as it relates to Strategic Equity Management?
2- What makes mortgage rates go up and down?
3- What's the next big economic event that can move mortgage rates?
4- When the Fed raises rates, how does that affect mortgage rates? (they can come down)
5- What's going to happen in the near future to mortgage rates?
6- Can I get a pre-approval if I give you a credit report, income, and asset package?
7- Will you lock my rate/terms, give me a good-faith estimate, truth-in-lending form, and written rate lock confirmation if I elect to use you?
Each phone call should take 10-15 minutes. If you call all eight names on your list, some originators may not return your call until the next day. That's okay as we are sometimes busy servicing clients. Be certain to leave messages with specific times when you'll be available. Certain originators may not call you back. Again, you're trying to whittle down that list to 2-3 people so you can get competitive quotes. These interview questions should help you "find' those lucky few.
You should be down to 2-3 people with whom you are comfortable. You probably have a favorite at this point but you need to see who is going to give you a fair loan. Notice that I didn't say the cheapest at this point; I said a fair deal. Shopping for the "cheapest" loan can be counterproductive. We're going to drop that bunker buster on the select 2-3 originators but we're going to , as Tony Soprano might say,
"Leave a little something on the table so all can eat"
That little something on the table should be about 1%-1.5% of the loan amount. Originators are paid four ways:
1- A processing fee (line 810 of the good faith estimate)
2- An origination fee (line 801 of the good faith estimate)
3- Discount Fees (or points) (line 802 of the good faith estimate) and
4- Yield Spread Premium (you must click this link to understand)- there is no line item for this; it is disclosed towards the bottom of the page and should read "COMPENSATION TO BROKER (not paid out of loan proceeds)"
Explain that you will be adding up all of the fees and expect that they won't exceed 1.5% of the loan amount but it would be better if it was closer to 1%. In California, that amount should be around $4,000.
Now, some smart fella might suggest that he is a mortgage banker or federal bank and is not required to disclose yield spread premium. That is 100% correct. This is where you drop the bunker buster and explain that you'll be showing his quote to an independent mortgage broker to discern his pricing. Be polite but explain that you want to be certain that your are being treated fairly. If he runs for the hills, so be it.
Announce that you'll be e-mailing each originator your credit and income package within the next hour; you'd appreciate a reply e-mail confirming receipt. Set up an appointment for 48 hours later to spend 15 minutes on the phone with them. Request that they have the following documents to you (via e-mail) at the end of the next business day:
1- A mortgage loan commitment (or conditional loan approval)
2- A good faith estimate of fees and rate
3- A truth-in-lending statement
4- A two paragraph summary of the reason for the recommendation in the e-mail
You will have blown that originator away ! You have demonstrated your willingness to do a home loan but have asserted your familiarity with the home loan process. One of them might decline the offer claiming that he is too busy. No problem, cross them off the list and thank them for their time.
When the "quotes' come in the next evening, you will probably know which one you want. One of them should be glaringly better than the next and all three should be competitively priced. If two of the offers come in and you feel comfortable with both originators, deflect to price. You can always tell your first choice that you liked her offer but it was priced $600 too high (be prepared to back it up with documentation). That leverage may help you get the home loan you love, funded by the originator you like, at a price you can afford.
Call each originator back and explain why you chose them or didn't choose them. We appreciate the feedback. I wish you luck on your home loan search and hope you'll consider me on you short list. I am not for everyone but for those whom I am the right choice I certainly enjoy doing business with.