Here is our list of recommended mortgage professionals.
Why do I need to do this before looking?
Listing agents will throw your offer in the garbage unless your offer is attached to proof of funds. No exceptions. Proof of funds is either a recent bank statement or a lending approval letter. You could be the Dalai Lama with a brief case full of Benjamins and they will not look at your offer. Getting an approval letter from a lending institution can take weeks and by the time you get that letter, there is a 95% change your favorite property is no longer available. If you are paying cash, you just need to show a screen shot of your bank statement OR get a statement of funds from your banking institution.
Should I get a loan or pay cash?
This is a very complex answer and corresponds to your philosophy of building wealth. Leveraging money can help you build wealth faster. However, there are obvious ramifications of getting a loan: you are on the hook to make payments on time. Many Americans got themselves in a pickle by making commitments that depended on their income. If your future income is sketchy, we recommend that you get a loan that is extremely modest if at all. The worst mistake you can make is to tie up all your credit availability into your primary home.
Isn’t cash king in the foreclosure market?
Sometimes. If the property is owned by Wells Fargo or Bank of America, your cash is not king. If a competing offer has a Bank of America loan letter and you have cash, you will be beaten by the buyer who has the loan. The reason is because Bank of America makes more money on the loan than the sale of the asset. The same is true with Wells Fargo. Your agent will assist you in guiding you to the houses that give your financing ability the most leverage.
Who offers the best lending rates?
Generally Bank of America, Wells Fargo and Chase banks are best unless you are a local who belongs to a credit union. If you have a job (get a yearly W-2) you should try Bank of America, Wells Fargo or Chase. If you are self employed and/or have a dubious credit score, you will have to get financing from a mortgage broker. Our preferred mortgage professionals are listed on our site so you can get more detailed rates and information from them.
What if my income / credit is dubious?
Hard money is expensive. Generally these are at about 5 points up front and 10% interest only with a principal balloon at the end of 3 years. These “bridge” loans are not recommended unless you are very experienced and/or have a large lump sum payment coming due. The recommended path to take is to pay cash for something much more modest and then move up over time.
How about getting an owner-carry (OWC) property?
There are a few available and many of these are available from our pool of existing investors. HOWEVER, you will pay a premium on the purchase and a higher interest rate. Since there are so few available, this type of transaction rarely occurs.
WHAT TO AVOID DURING THE LOAN PROCESS
DO NOT CHANGE JOBS. A job change may result in your loan being denied, particularly if you are taking a lower paying position or moving into a different field. Don’t think you’re safe because you’ve received approval earlier in the process, as the lender may call your employer to re-verify your employment just prior to funding the loan.
DO NOT PAY OFF EXISTING ACCOUNTS UNLESS THE LENDER REQUESTS IT.
If your Loan Officer advises you to pay off certain bills in order to quality for the loan, follow that advice. Otherwise, leave your accounts as they are until your escrow closes.
AVOID SWITCHING BANKS OR MOVING YOUR MONEY TO ANOTHER INSTITUTION.
After the lender has verified your funds at one or more institutions, the money should remain there until needed for the purchase.
DON’T MAKE ANY LARGE PURCHASES.
A major purchase that requires a withdrawal from your verified funds or increases your debt can result in your not qualifying for the loan. A lender may check your credit or re-verify funds at the last minute, so avoid purchases that could change your financial picture. Do not use credit cards if your DTI (debt to income ratio) is high.
Types of Loans
Conventional Loan. This simply describes a loan that is not obtained under any government-insured program. It could be any type: fixed rate, adjustable, balloon, etc.
FHA Loan. This program is beneficial for buyers who don’t have large down payments. The loan is insured by the Federal Housing Administration under Housing and Urban Development (HUD) and offers easier qualifying with less cash needed upfront but the condition of the property is strictly regulated. The Seller will pay a portion of the closing costs that would typically be paid by the buyer in a conventional loan program.
Fixed Rate Loan. This loan has one interest rate that is constant throughout the loan.
Graduated Payments. This is a mortgage that has lower payments in the beginning that increase by a pre-determined amount, usually on an annual schedule for a specific number of years. This is not based on interest rate fluctuations as with an adjustable mortgage.
No-Qualifying. A no-qualifying loan may be an option for those who can afford a larger down payment, generally 25% to 30% or more. Since the risk for the lender is virtually eliminated, the borrower doesn’t have to meet normal lender requirements such as proof of income.
VA Loan. People who have served in the U.S. armed forces can apply for a VA loan which covers up to 100% of the purchase price and requires little or no downpayment. The seller pays much of the closing costs but those fees are added to the sales price of the home.
More Financing Tips
Get lender approval before traveling.
It can take weeks for a major bank to issue a letter of credit. If you want to go scouting before getting a letter of credit you are wasting your time. Your lender will be driving the bus and you are wasting your time looking at properties before your financing is determined.
Start with a major lending institution and then work your way down.
We describe major lending instutions like Bank of America, Wells Fargo and Chase as “A” paper. “B” paper would be third party lenders usually represented by mortgage brokers. “C” paper is hard money at usually 10% and 3+ points up front. We do not recommend getting multiple letters of credit. This approach can have a negative impact on your credit score. Start with “A” paper; if you can’t get “A” paper, move down the ladder. Using a shotgun approach to picking a lender usually backfires.
NOTE: There will be drama with “A” paper.
The chance that “A” paper will close on time is less than 5%. The good news is that all listing agents know this. The bad news is that there will be a lot of last minute desk pounding, threats and drama at the last minute. There is a possibility that you will have to pay fines for not closing on time. “A” paper mortgage brokers are generally young adults who are overwhelmed with loans, and don’t care about you or if you close on time. All you need to do is mentally brace yourself for idiotic last minute requests for some random piece of paper that needs to get faxed. Plan on camping out at your fax machine.
Get a loan with your current bank.
You will get better rates and probably better service if you start with the bank you currently use. However, if you are out of state, confirm that your local bank can write mortgages in Nevada. Not all lenders are licensed in all states.
Stick to one lender once an offer is accepted.
Switching horses after your offer has been accepted will delay your closing time. Delays in closing are expensive and can possibly blow the deal. It is possible to lose your earnest money and all the time you have spent appraising / inspecting this property if you can’t close on time.