True?  Maybe, but in general not so much. A good, knowledgeable realtor could be a good referral source in finding a good loan officer.  The key word is good. Check.

Having a “decent” salary and good credit is pretty relative.  And it’s relative to the other risk factors when a loan officer considers your ability to qualify for a loan: income, assets and reserves, credit score and history, appraisal, loan to value, etc. He is correct, though, that you will have to provide documentation to verify the various factors that will qualify you:  pay stubs, W-2s, tax returns (maybe), full, complete statements of your assets accounts, and maybe more. I cover all this in my book.

In the end, it’s not a big deal. For some, I know, who may not be as organized with their current statements and records, it may be a little frustrating.  Nevertheless, it’s all required.

The mortgage process is not a five paragraph process.  Take your time. Think about what’s important. And seek qualified help.

We were discussing the hot topic of the day, month, and year:  the state of the mortgage industry. We eventually got around to the various ways to fix the problems. We all know that the government would get involved, for better or worse. Here in Illinois, for example, the state government passed Public Act 095-0691, and the federal government has passed the Stimulus bill which includes sections about mortgage reform as well as mortgage “fixes.”

The Illinois law would effectively either slow the mortgage process (for someone buying a home) or even possibly stop loans.  Those (in the government) who would be reviewing a loan application would not be consciously or intentionally stop the loan, but the review and time to get the review done might (and this is the key word:  might) cause 1. sellers to find another buyer, or 2. discourage good buyers from moving forward. And thus everyone loses: buyer and seller, seller and buyer realtors, attorneys, loan officers, the city, the state…..

So…what is the point of these laws?  There are many, and it’s complicated. So the realtor and I came to this point and he said, “Well, isn’t it (the law) for us to pause?”

Hmm…let me take a second to think about this………..

The one positive outcome of all the reforms, bills, and laws, for now and just before the borrower signs the application documents, is to take a moment, pause, and think. Is this the right loan program? Will this leave me financially stable and in a position to pay my bills? If something happens for the worse, am I ok?

Hmm…some things to think about?  Thanks Zeke.

Not too long ago our mortgage world as we knew it also changed. Everyone thought that anyone could get a loan.  No reason to meet with a loan officer.  “I can get a loan.  No problem,” was the attitude. And for the most part people were right.  Then the epidemic hit and the world changed.

Many lending institutions have gone out of business and many are barely hanging on.  Many borrowers have lost their homes.  Some are hanging on. Currently, the real estate market is tough, and many programs that once existed have either been eliminated or have been revised considerably. Real estate agents do not know who to trust. Are the pre-approval letters worth the paper that they are written on?  Developers are eager, if not, in some cases, desperate to move units.  Many loan officers have had to look for jobs, and some just do not have the kinds of programs that they need for many of the same kinds of client loans that they had in the past.

And so, to end my little series, here are my thoughts:

1. Be very, very careful and deliberate in deciding whom you will work with: realtor, loan officer, attorney, etc.
2. Do some research and ask a lot of questions.
3. Use common sense about the programs that are offered.
4. Make sure you understand everything.
5. Before signing any documents, have everything in writing.

We are all responsible.  This epidemic may get worse.  But it will get better.  Still, you, a homebuyer who controls your own destiny, can still get caught up in a bad situation.

Control your destiny. Don’t be controlled by others.

I like Dennis Rodkin’s blog for Chicago Magazine. He offers great information about the projects that are being developed. He also had a post in March about the subprime consequences for the Chicago area. A short but very relevant post.

Joe Zekas’ irreverent, intelligent and entertaining YoChicago blog has so much original information that you could spend an afternoon reading current and past posts.

And Jeff Kerr’s ChitownLiving provides some of the the “smaller” bits of informative help that many agents don’t take the time to convey to their clients. Plus, Jeff is just real smart!

There are many other great Chicago blogs. Take some time to see what is out there.

My wife has been golfing for over ten years, and last year I decided to take lessons, practice, and play as often as I could.  I loved playing. I became passionate about playing. It seemed it was all I could think about. I couldn’t remember my wife’s name. And, yes, I became addicted. (OK, I am exaggerating.) My goal:  break 100 at least once. For those who do not play or follow golf, this is the first milestone (the lower your score–the fewer strokes to get that little white devil in the hole–the better). I did it once.  A milestone kind of like:

1. Riding a bicycle without training wheels the first time
2. Baking that apple pie without using the cookbook
3. Your first kiss
4. Driving a car without the parents
5. Bungee jumping (the first time)

These are big-deal events. This year I have planned to break 95. I can do it. I am going to take some more lessons and practice and listen to others’ advice…and play.

In a way, I am planning for my success.  Those home buyers who plan for their home buying and mortgage (financial) success will be happy with their scorecards. The main point is to budget. Take a look at your current budget and then add your projected mortgage payment. What do you want that mortgage payment to be, the most that you want to spend monthly on the total mortgage? And then stick to that number. Not $5.00 higher. Share that information with your loan officer. Make sure he or she pre-approves you for a loan that will keep you at or under those numbers. Once your loan officer has helped with the pre-approval, and you (together) have figured a maximum purchase price for your home, make sure you and your real estate agent view properties that fit the parameters you have just set.

Remember, as in golf, lower is better. It’s better to be $100 under your budget than over. Think about it: if you are $100 over budget, that means in the first year you have spent $1,200 more than you can afford, and in three years that number becomes $3,600.

If you are starting the home buying process, think under 100.   

This morning I was wondering what will be that first word, when will the actual verbal communication start. Then I realized, she communicates perfectly well. She talks through her noises and her hands and her eyes and her various facial expressions.  She communicates through her actions.

As a buyer, choose your home buying team (loan officer, realtor, attorney, etc.) based on their actions.  Anyone can say or promise anything. Yet do they follow through with actions. Calling you back. Documenting information in writing. Verifying rates and programs as promised at the application or on the phone. 

Though I can’t wait until she talks, I love gazing at her talk to me with just her smile.

But for homebuyers, once the weather breaks the plans to buy a home that have been growing all winter now become reality. Everyone is out walking and driving with their real estate agents, pounding the pavement, and, eventually, negotiating terms for the purchase of a property.

Lately, many people have been asking about “the old” fixed rate mortgage versus adjustable rate mortgage debate. I have posted recently about the main ideas, but here’s a thought: what about retirement?

No matter what situation you find yourself in, I am a big believer in starting to save early. Most first time homebuyers think short-term. And this is obviously important. But what if someone told you that if you were to hold the property that you are buying for 30 years, even if you move out, and you would make $70,000? Or $100,000? Or more?

What does this have to do with the mortgage? Fixed rate mortgages allow you to keep the same interest rate and maintain a steady payment no matter what may happen. So, even though a borrower may not anticipate living in the new home for more than, say, three years, it may be prudent to think of the home as retirement income as well. In addition, once you have moved out and you have found a renter, the rental income should, hopefully, balance out a good portion of the mortgage debt.

As you talk with your agent about properties, get their take on long-term buying in the neighborhoods in which you plan to buy a home. Your first little nest could be the foundation of your retirement mansion.

Homebuyers love new construction. Especially new condominiums. They are the first people to live in the unit and, usually, get to choose their amenities and other aesthetic aspects of the unit.

As one of the best Chicago real estate agents mentions in a recent post, the buyer needs to follow certain steps as a precaution when working with the developer.

Stop right here. Before even writing a contract, the buyer (really the real estate agent) should make sure that the loan officer knows if the condo is warrantable or nonwarrantable.

Did you hear that silence? That’s the pause that most borrowers, and many agents, have when I ask them this question. When I first talk to or meet with a borrower, and they tell me that they are purchasing a condo, I always ask, “New construction? OK. Is it warrantable?” Really, what I am asking is a short list of questions about the complex.

Basically, Fannie Mae and Freddie Mac have guidelines for the kinds of condos that they will accept. A lender must warrant (or, certify) that a condo complex follows these guidelines. The most important of the guidelines requires a certain percentage of units must be either under contract or closed (sold). If you think about it, a brand new 200 unit complex is a greater risk than a 200 unit complex that was built 30 years ago and all the units have owners. What if, in the new complex, only 10 units get sold in the first 2 years? And only 15 units total in 3 years?  The developer could have a problem paying his/her bills (loans!) which could cause a problem for the complex itself. Many lenders do not want to take this risk, and so they will only offer programs for warrantable units, where at least 70% (for example) of the units are sold.

But, you are thinking, what if I am the first one to write a contract and close in this bright shining 200 unit complex? You need to make sure that your loan officer has programs for nonwarrantable condos. It’s that simple.

In addition, there is the misconception that programs for nonwarrantable condos bring higher interest rates.  Not necessarily true.  Some lenders do have a limited number of programs for nonwarrantable condos, but in general the rate really should not be higher.  

And ask questions about this. Get a sense that the loan officer understands the concept of warrantability. There’s a little more to know, but your loan officer should be aware of the items to check.

So the punch list starts with the loan program. Then the marble. And thanks Jeff for a great topic.

I was talking with a real estate agent this past weekend who expressed this same idea regarding real estate and, from my perspective, mortgages. Many people expect to show up, one fine day, and look at several house and then pick…..Same with the loan process.  Meet with a loan officer, review a few programs, and then pick….

Buying a home and getting a mortgage takes time. And so managing one’s expectations, right from the beginning, is essential to finding a home and getting a mortgage the right way. It’s a good thing to slow down, meet and consult with your real estate agent and loan officer (and, I would recommend, financial planner, attorney, CPA or whomever else you want to include in this process) and really open up and express your goals. Develop a game plan with them. The people you have chosen are experts and professionals. They will help you follow your head rather than your heart.

Once emotion starts to take over, uncertainty and confusion soon follow.  And there’s nothing more confusing than confusion. Your decisions should not just happen. Let both your thoughts and emotions trickle through, and talk about what you are thinking and feeling with people you trust.

Buying a home and obtaining a mortgage (especially during the pre-approval) is a process that, in the end, should be discussed, planned and made clear.

Clear?….not sure if some of the Picassos are exactly clear to me.

Thanks so much to Steve West, of @Properties, here in Chicago, for his brilliant insight.