Home Buying in Burnsville>Question Details

Wannabe Buyer, Home Buyer in 55337

Questions for lenders/brokers from a first time homebuyer: dubious about my current lender?

Asked by Wannabe Buyer, 55337 Wed May 13, 2009

My prospective lender, works directly for a bank, has been telling me a few things I am questioning and I am hoping some of you experts can help me. I am a first time homebuyer shopping forclosures:
1) We can approve you for an FHA mortgage or a conventional mortgage but not both, so you have to pick now (just go FHA and don't worry about it)? (Why? Isn't this the same set of variables? What if one would work better for me than the other in a particular situation?)
2) If doing a conventional at 5% down, we have no idea/it is unlikely you'll be approved for MI? (Is MI uw really that tight right now?)
3) I started my application at the end of March and it still isn't fully underwritten yet. I have a pre approval to send sellers, but we haven't talked rates or anything yet. I am making offers on homes and have no idea what my terms will be. Is this normal?

Thanks in advance for your help. I am thinking of switching lenders but I don't know if I am being unreasonable.

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Answers

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Sometimes, there's so much "jargon" that loan officers and real estate agents throw around, we forget how to get down to basics and explain it to people who don't do this kind of thing every day. I speak from experience when I say, YES, mortgage insurance underwriting is VERY tough right now. I had a client with impeccable credit, no debt, owned other properties free and clear, great income. He did a 5% down loan at the beginning of the year and it was questionable whether or not the MI underwriter would approve it. If a buyer like that can't qualify, who would?

I suspect that, even though it felt like the mortgage person was just trying to get you to take his/her word for it about FHA, they were, perhaps, trying to save you from an unnecessarily long explanation about why this would be the best solution for you.

And, speaking as an agent, you do NOT want to change your financing in the middle of a transaction. It's in your best interests to pick one type of financing when you write an offer. The sellers will be potentially suspicious and could accuse you of changing your terms if you're still figuring out what financing you're going to secure during the course of the transaction.

Good luck!
0 votes Thank Flag Link Wed May 13, 2009
Luke answered your question quite well and I would agree with his answer. Also keep in mind that FHA is an assumable loan so you could in theory resell the house down the road to someone else and they could take over your loan @ a phenomenally low interest rate. If rates go back to 6% - 7% that will make your home VERY attractive!

I'd speak to your REALTOR and ask him/her for recommendations. It never hurts to speak to another loan officer to see if you get a better feeling from them.
Web Reference: http://www.AaronSOLD.com
0 votes Thank Flag Link Wed May 13, 2009
This would probably be best to do via a phone call, but I will do my best:

1) Basically you have to choose which loan product you want to run with. FHA loans right now have much looser criteria for approval and the MI is approvable with the loan. Conventional mortgages have strict guidelines for credit requirements by which to obtain mortgage insurance. 1 point on your credit score can make MI invalid. His advice to take the FHA and go with it is not dubious - it is probably the advice that can make your life easier during the underwriting process.

2) The are only 4-5 main companies writing policies for mortgage insurance right now and I do not believe all of them write MI for 95% loans (yes, it is that tight right now). That is why FHA is so much more desirable. Not only do you not have to worry about MI approval, you also have the fact that the MI is cheaper per month plus your fixed interest rate does not suffer the pricing adjustments that a 95% conventional loan does. (FHA rates are around 5.00% while a 95% conventional loan may have a base rate around 5.75%)

3) You will not be able to lock your loan until you are under contract and have a set closing date. You should have a Good Faith Estimate and Truth In Lending Disclosure which will, at the very least, disclose to you your rate as of the day you registered the loan. Rates have not changed too much lately so your rate should be fine for now. However, it will float and adjust with the market until you lock so your safest bet is to get a home under contract.

I hope all that helps. Let me know if you have any questions.
Luke Allison
Bank of America Home Loans
828-777-8828
luke.allison@bankofamerica.com
0 votes Thank Flag Link Wed May 13, 2009
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