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Understanding Mortgages

Why all the personal questionsOn every mortgage loan application there is a section of questions that can feel a bit uncomfortable to ask and answer. Most people expect to answer questions about how much money they make, how much they have tucked away in a bank account and what their credit card debt looks like. It’s a financial transaction, after all. Financial questions ought to be in there. But race? Ethnicity? Which gender I identify with… what does that have to do with a mortgage approval?

And the answer is: Nothing at all.

Questions about race, gender, age, ethnicity, etc. have nothing to do with the mortgage approval process. Even though the questions are asked and answered right there in the same paperwork as your car payment and income, nothing in that section is used as a factor in evaluating whether you are a good candidate for a mortgage loan.

Why are they there at all? To protect you.

You see, in our country’s efforts to protect citizens from unfair biases in the lending world, it became apparent that we couldn’t fix what we couldn’t see. We needed to be able to track the lending opportunities offered within communities in order to catch unfair practices and do something about it. In 1975 the Home Mortgage Disclosure Act (HMDA) was passed, giving the public and financial regulators information to make sure financial institutions were providing access to residential mortgage loans in their communities. This was expanded to include questions that could help identify discriminatory lending patterns. After the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was passed in 2010, new questions were added to help spot troublesome trends. In January 2018 even more additional questions became a requirement.

What should I do when I come across these questions?

It’s up to you how you choose to respond, and your choice won’t make any difference on whether your mortgage loan is approved. Maybe you take the view that the more accurately these questions are answered, the better the statistics will be, and you’re doing your part to help mortgage lending be as fair as possible. Or perhaps you’re uncomfortable identifying yourself in those terms and would rather not give an answer. This is an option that you’re welcome to choose. Either way is fine. If you do choose to answer, though, please answer honestly.

Here’s a fact that not many people know, going into a mortgage application meeting: If you meet with your Loan Officer in person and decline to answer the HMDA questions, your Loan Officer is required to make a best guess and answer the questions for you.

If you have questions or feel uncomfortable about the HMDA questions, talk to your Loan Officer about your concerns. They’ll be able to talk to you and explain your options.


Understanding Mortgages

american flag

We’re wishing a Happy Birthday to the U.S. Marine Corps today and sending our Heartfelt Thanks to all Veterans tomorrow, on Veteran’s Day. Questions come up from time to time about the VA Home Loan Program, and now is probably a perfect time to take a closer look.

The VA Home Loan Program is a low cost borrowing alternative designed for eligible Active Duty Military, Veterans, National Guard and Reservists. VA Home Loans are provided by private lenders (banks, mortgage companies, etc.). The U.S. Department of Veterans Affairs (VA) guarantees a portion of the mortgage loan, which allows these lenders to offer more favorable terms to help you buy, build, repair, retain or adapt a home for your own personal occupancy.

“I hear there is extra paperwork when you do a VA mortgage loan. Why would I bother with it?”

There are a few extra documents involved in processing a VA Home Loan, such as the DD214 and your Certificate of Eligibility, but the time spent filling out a few extra questions and hunting down an extra document or two may be well worth it.

A VA Home Loan allows you to buy a house with no down payment (up to a $424,100 value), with mortgage interest rates that are typically even better than the popularly attractive “conventional mortgage” rates. And while conventional mortgages require monthly mortgage insurance payments to be added when the down payment falls below 20%, this is not true of VA Home Loans.

“I’ve heard that there is a VA Funding Fee. What is that?”

The VA Funding Fee is your contribution. It is a percentage of the loan amount. That percentage depends on the type of loan, your military category, if you are a first time or subsequent loan user, and down payment (if you choose to make one). You can pay the funding fee at settlement or choose to finance it into your mortgage if you want to keep closing costs down.

“Does everyone have to pay the VA Funding Fee?”

There are exceptions for service-connected disability. If you receive VA compensation for a service-connected disability or would be entitled to receive compensation if you didn’t receive retirement or active duty pay, the VA Funding Fee is waived. This is true as well for a surviving spouse of a Veteran who died in service or from a service-connected disability.

“Can I get help covering closing costs?”

Family members and even the home seller are allowed to help with closing costs, which is not often the case with other mortgage programs. In essence, this is a program designed to make it affordable for our veterans and active duty military to own a home.

Many people think that the VA Home Loan Program is only for purchases, or that these VA mortgage loan benefits can only be used once. Not so.

Did You Know…

  • VA Home Loan benefits can be used more than once
  • Disabled veterans could be eligible for additional benefits
  • Eligibility benefits can be used for purchase or refinance
  • You can use your VA entitlement to finance more than one property
  • Adjustable and Fixed Rate Mortgages are available
  • Jumbo (high dollar amount) programs are available with minimum down payment
  • The Borrower has the right to pre-pay without penalty

Eligibility requirements are based on length of service or service commitment, duty status and character of services, so you’ll want to speak with a loan officer to examine your options. The good news is that with this program many of those options are extremely helpful.


Understanding Mortgages

Choose WiselyAll of the steps you’ve taken so far to turn yourself into a more successful mortgage candidate should leave you in a good position to make your big decision for moving forward. You’ve done your Research, Asked Questions, Accepted Guidance from the professionals and considered Comfort when it comes to making your monthly payments. Now you’re ready to choose where to apply for your mortgage loan.

Step Five: Choose Wisely

As you’ve no doubt guessed by now, you have a lot of options. You can spin yourself in circles trying to ask everyone you know which mortgage company is best to work with, scouring online reviews and testing the temperature of public opinion. You could twist yourself into knots wondering if you have to call the loan officer your real estate agent mentioned in order for things to go smoothly, or if it’s better to go through a dedicated mortgage company instead of a local bank.

Though that mortgage person your friends suggested is “really nice,” that may not mean they have access to all of the options you’d need. That one questionable online review for that loan officer, who seemed to know their stuff when you talked to them, may not tell the whole story. Just because your real estate agent handed you a mortgage company’s phone number, that doesn’t increase your chances of getting the house or obligate you to go through that company for your mortgage. Your local bank and independent mortgage companies may have different loan products and timing for processing mortgage applications. You aren’t going to learn the answer to all of this. What you can focus on is identifying what you’re going to trust.

Trust

You may be a person who takes a look at a company’s technology offerings and decides to work with the company that has done the most to protect their clients’ personal information. Perhaps you’re a person who trusts the companies who spend the most on advertising and their name is the first to come to your mind. Maybe you’re a look in the eye and test the handshake kind of person. Online reviews might be the deciding factor. Any way you slice it, the question of trust boils down to your preference.

Choose Wisely

That said, you might want to factor these in when making your decision:

 

Your Security

You may or may not be aware that sending personally identifying information (info a criminal could use to access your financial accounts or steal your identity) through email or social media messages isn’t considered safe. Make sure your mortgage company is already aware of this and offers secure methods for you to provide your sensitive information to them.

Good News Fast, Bad News Even Faster

You’re going to want to find out quickly when something has not gone according to plan. That gives you and your mortgage team time to look at your options and get things moving forward again. It’s important to work with someone who will communicate with you promptly throughout the process.

Honest Estimations

Everyone wants to hear that a mortgage company can process their mortgage and have approval in their hand inside a week. There are many steps in the mortgage approval process, some within the mortgage company and some with other parties, such as appraisers, insurance quotes and title research. It’s important that each of these steps is done correctly, and in the right order. If a mortgage company is claiming that they think they can have you approved in half the time that other companies are quoting, it’s a good idea to ask questions about how they’re able to make this happen. You may have a better experience working with someone who sets realistic expectations up front than struggle with missed deadlines and disappointment.

The decision is yours. You’ve done your research and have the tools you need. Now get out there and choose wisely.


Understanding Mortgages

eligible versus comfortableComfort is an important and underestimated consideration in the 5 steps to turning yourself into a more successful mortgage candidate. While Research is a somewhat obvious beginning, Asking Questions is the logical next step and Accepting Guidance is generally considered good to do, Eligibility often becomes the focus in the excitement of the home search and mortgage pre-qualification instead of how Comfortably you can meet the new payment expectations.

Step Four: Eligible vs. Comfortable

By now you’ve researched and have a reasonable idea of what kind of home you’re looking for. You’ve even done your homework on mortgage financing. You’ve been pre-qualified for up to a certain amount of money, and with that number, you realize you may be able to set your sights higher than you originally thought!  

Careful

It’s okay to be pre-qualified for more than you’ll need. Pre-qualification is based on information you have provided, and the more accurate information you provide the more accurately your estimated qualification can be assessed. There are limitations, however, and no matter how much of your information is plugged into the equation, you may still have living expenses that don’t get factored in. Ultimately, you are going to be the expert on what you can afford and what you can’t.

Eligibility

Why would a mortgage company pre-qualify someone for more than they could afford? Well, the short answer is that they’re trying hard not to do that. Everybody involved is going to want you to be able to afford the home you’re financing. Rather than calculating everything up at the low end of your price range and then re-calculating every time you find a new property, it often makes the most sense to aim for the high end first, knowing that it’s easy to come down in price from there.

Comfort is Key

This leaves you to be honest with your mortgage lender, your real estate agent, and most importantly with yourself regarding your comfort level with the payment sizes you’re discussing. When looking at your price range, consider such things as how the utility payments may be different from what you’re used to, or if repairs are going to be needed. Leave yourself some room when planning out how your new budget will look. That house that’s just beautiful but just a little out of reach financially may be less fun to live in if you’re struggling to make ends meet.

Prioritize your comfort. You’ll thank yourself down the road. And the final step and topic for next week… Choose Wisely!


Understanding Mortgages

accepting guidanceLooking at the 5 steps to turning yourself into a more successful mortgage candidate we started with research and asking questions to make sure you understand what to expect. Now, let’s talk about accepting the guidance we’ve been given.

Step Three: Accepting Guidance

You researched your questions, became an expert on your specific needs and asked for guidance on anything that remained unclear. You know what kind of mortgage you want. Time to pull the trigger. Jump in. Hit the big red button. Compare companies that offer the mortgage loan product you want and pick a winner. Done.

You absolutely can take that approach, and since you’ve done your research and understand your needs, you’re in better shape for the effort. In asking questions along the way you may have been given bits of guidance from a loan officer, though, and it’s worth taking a look at what they said.

Areas of Expertise

It’s a loan officer’s business to gather as much knowledge as possible on how mortgage products work, what little “quirks” or specific requirements there may be that could cause mischief, and whether there are state specific programs available to help depending on your needs. While you are the expert on your specific needs, a loan officer is going to bring expertise on mortgage loan products to the equation. It’s a good idea to keep an open mind while you’re researching. There may be a solution that didn’t come up in your research that is perfect for your situation.

Try not to get too caught up on one idea or plan. You may be focusing on one way of keeping your costs down while your loan officer is able to see that by shifting your focus to another area you could save much more. If they let you know, take a moment and listen.

Ultimately, the decision is yours. You’re going to be able to choose the path that you want. When you do, try to keep the guidance you’ve received in perspective. There may be an opportunity that didn’t come up in your searches, and who knows. It could be a money saver. And the next step and topic for next week… Eligibility vs. Comfortability!


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