Getting loan from the web

It seems everyone thinks the web is the be all and end all of mortgage
lending. But, there are significant differences in how the use
of the web is perceived. There are those who think the web will
be the demise of all mortgage lenders as we know them. All loans
will be submitted through a web site with a faceless, and sometimes
voiceless, lender. Or, the lender will speak to you, and may
even send you friendly emails. No more going into a lender’s office
and wasting precious time. In a perfect world, this could happen.
Of all the loans I originate each year, about one-fourth to
one-third are perfect-world loans. And most of those still need
some type of tweaking and guidance that can only be provided by
an experienced mortgage lender.

Others think the web is a fad, and borrowers will ultimately
come back to the comfort of dealing with a friendly face. The truth
lies somewhere in between. The World Wide Web is here to stay,
and it is a major tool in the mortgage lending industry. Just how it
is used is still evolving. My company has, in my humble opinion,
the best combination. We have branch offices in many states, but
not everywhere. We are always upgrading our technology to provide
the borrower with the best advances in lending. We take loan
applications face-to-face, over the telephone, and through our
web site. The big advantage is that we will always have an experienced
loan officer handling the loan. The borrower and Realtor
know where to find me. Or, as one Realtor told me recently, she
knows where to come if I mess up the loan and cause the borrower,
and her, any pain. This comment came after a web lender
delayed one of her sales significantly and the borrower ultimately
went to a local lender. Even if I take the loan by telephone or
through our web site, I will be in contact by telephone, mail, and
e-mail. If the borrower is buying locally and applying from afar,
they know I will be available in person after they move.

The website is a great tool for the borrower who does not have time, or is
too far away, to come into the office. They can apply in the middle
of the night, naked. Once the loan is downloaded, I will call them
to confirm and to get any additional information necessary for the
approval. And to make sure they are applying for the best loan to
serve their needs.

At the very least, anytime you use an on line lender, they
should meet certain standards:
1. They should be well-known, established, and wellfunded.
2. They should provide all fees and costs up front before
the borrower applies for the loan.
3. They should have experienced people handling all the
loans.
4. They should be readily accessible by telephone, at the
very least, and preferably at a local or regional office.
5. They should be familiar with the area or have a local contact
who does know the area.
6. They should have enough variety of loan products to
make sure all possible ways to finance the property are
available. And the lender needs to know how to use
them.
7. Their application site should be very user-friendly and
capable of answering basic questions. It also should have
a toll-free number to call if the borrower wants to talk to
a person before making any type of application.

There are other services that should be offered, but if they
meet the aforementioned standards the borrower will at least have
a reasonable chance of getting the best loan. But I wouldn’t count
on it. Even lenders where you can go right to the office have a hard
time getting good knowledgeable people. A lender far away and
handling a large volume of loans from a central site will not be able
to have anywhere near enough experienced personnel. I don’t
know anything about the markets in California, other than the fact
the state is slowly slipping into the Pacific. Why would you expect
someone in California to know anything about the markets in Virginia,
or the costs associated with closing a loan there?

At the time this book was revised in 2000, several on line
lenders had failed, leaving many borrowers to frantically search for
another lender. One Realtor friend of mine who lists several builder’s
houses told me he had a large number of purchasers who decided to
apply on line, and every one of the loans had been a nightmare. Of
course, most of the worst ones will eventually be weeded out. You
just want to make sure your lender has staying power.

Kind of accounts for down payment

Down payments must be your very own blood, sweat, and tears. Lenders want your down payment to come from your own savings or checking accounts. Other people can’t make your down payment for you, though they can help by giving a gift. Otherwise it has to come from you. There are programs that require no down payment whatsoever, or loan programs that you let you borrow your down payment, but most every loan available will require some type of down payment, which needs to come from you or a family member.

First and foremost will be the money in your bank or savings accounts. Your lender will typically ask for account statements for the preceding three or more months to verify your funds to close the deal. Why three months? A lender wants to see a pattern or history of an account. If suddenly $20,000 pops into your bank account, the lender wants to know where it came from. Did you borrow it from someone else? Are you obligated to pay it back? By providing three or more months of statements the lender can determine that the funds you’ve saved came from you and you only. Some home buyers know this and are in fact advised by some loan officers to simply ‘‘put some money in the bank and call me back in three months,’’ assuming that the lender won’t care where the funds came from if in fact they’ve been in an account for that period. Quite true. It’s also quite true that lenders can ask for more than three months. They can mostly ask for whatever they want if they think they’re having the wool pulled over their eyes.

Your funds can come from your job, a bonus, your regular savings, selling something, or borrowing against an asset. Your paycheck can certify that you’re getting a certain amount each month and you can verify that it’s going into a bank account. Same with any bonus or commission income. It’s documented as you make it. Some people have assets they can sell for down payment money. Do you have a car you can sell? Artwork? Stocks? The key to selling an asset is first, you need to document the transaction, and second, the object sold must be an appraisable asset.

An appraisable asset is an item whose value can be determined by a third party expert. That car you want to sell? It’s an appraisable asset. Its value is independently appraised by a variety of automobile pricing schedules or even classified advertising. Do you have an expensive watch or heirloom jewelry? If the item can be appraised, in this instance by a gemologist or jeweler, and sold then you can use those funds to buy the house.

Another form of down payment can come from a ‘‘pledged asset.’’ A pledged asset is typically a stock or investment account that you can borrow against for a down payment. The stocks aren’t cashed in, you simply pledge the asset as collateral for down payment funds. If it can’t be appraised, the lender may not be able to use those funds for a down payment.

If you can’t document where your down payment money is coming from, many loans won’t allow for that. Lenders want to be absolutely certain that the money you used to buy the house is not borrowed from another source. Borrowing from another source will affect your debt ratios and your collateral. It also affects your equity in the property and increases the risk in the loan. That’s why people can’t take out cash from their credit cards for down payments. That money’s borrowed. Lenders want to see you save your down payment.

Wholesale Lenders Can Pay Brokers to Send Them Loans

Mortgage brokers don’t lend money; they find money. And they find money from a group of mortgage companies called wholesale lenders. Wholesale lenders don’t make loans to consumers directly. Instead, they make loan programs available to mortgage brokers, who in turn ‘‘mark up’’ the interest rate to the retail level. The difference between the wholesale rate and the marked-up rate is how much money the broker makes. It’s not unlike any other wholesale/retail consumer product: Buy low, sell high.

Brokers can make more money on your loan with something called a yield spread premium, or YSP. Each morning, all wholesale lenders publish their interest rates for that business day. And while most of these rates will be the same, there might be a difference in how much each interest rate ‘‘costs’’ the mortgage broker.

For example, a mortgage broker will begin comparing interest rates from various wholesale lenders. The forte of a mortgage broker is that the broker has the ability to ‘‘shop’’ for the best mortgage rate by comparing the hundreds of lenders that the broker is signed up with.
But what the broker may really be doing is not finding you the best rate but finding himself the most money.

A broker can peruse the daily wholesale rate offerings and find three lenders offering a 15-year fixed-rate mortgage at 5.50 percent. The difference is not the rate; the difference may be the YSP. Lender A might offer a 1.00 percent YSP, Lender B might be offering
a 1.375 percent YSP, while Lender C is offering only 0.875 percent that day, all on the very same 15-year fixed-rate mortgage program. Remember, it’s the YSP that typically goes to the mortgage broker as its profit. So which lender do you think the broker is going to choose? Lender B.

On a $400,000 loan, Lender A pays the broker $4,000, Lender B pays $5,500, while Lender C can muster only $3,500 that day. Lender B gets your loan because the broker makes more money from it while you get the rate you were promised.

Is that mortgage broker going to give you back some of that money? No. Should she? I don’t think so, but others may disagree. If you agreed to a 5.50 percent interest rate and your broker locked you in at that rate, then you got what you wanted. Of course, a mortgage broker who picks up a few extra bucks because she found a slightly better deal at one of her wholesale lenders could certainly offer to give you some of that ‘‘extra’’ money, but she is not obligated to. Compare it to a retail store. If the store can cut its costs on a product, it can pass along the savings to you, but it is not obligated to do that.