THE PERILS OF THE HOME MORTGAGE PROCESS
The following applies to mortgages called “jumbo” or over the standard Fannie Mae size that you hear adds for such as “rocket mortgages”.
If you are in a position of considering a refinance to help you purchase a home you most likely know someone who has gone through this process already. If you have then you probably know that refinancing (especially with a “jumbo” mortgage’) is going to be painful. In this blog I am going to give you some details that many don’t learn about until they are knee deep in the process. I am hoping that I can pass on this information to forewarn you of the difficulties you may encounter so that you may be able to prevent them.
This process, unfortunately, can be costly and you may start to feel like you have no control.
Five realities that become apparent once you enter into the process:
- The system is structured to favor the wealthy. The more money you have, the easier it will be to get a mortgage and the lower your interest rate will be.
- As with any commission based field, the lending agents will make big promises to entice you but may not be able to follow through on the offers they have made. Once you are embedded in the process the pitfalls that raise your costs will become apparent, but only one at a time.
- The process is somewhat unpredictable and there is no roadmap as to the next steps required.
- You will be paying for expenses along the way, such as appraisals. So have some cash available.
- Most likely there will be a need to put in cash at closing. You will not be able to anticipate how high these costs are so be prepared to pay more than what you were originally told.
This is an arduous and frustrating process thus it is important to know as much as you can so you will be prepared for a long process that can be quite difficult to navigate. There are a few things you will probably not have a lot of control over that will affect you directly.
- Your credit scores, (which determine the interest rate): Typically the fewer credit cards and loans you have the better your score will be. However, if you don’t have at least 3 credit lines, and you don’t use them, your score will be lower than if you actively use credit.
- Be on guard that your loan sales agent or broker does not seek too many sources of funding which will individually run a credit check on you. Apparently two or three close together is not too harmful, but beyond that any further checks will cause your credit score to drop like the ball at Times Square at New Years.
- Appraisals of your property: These can vary widely and rise and fall with the mood of the housing market. In addition you will not be able to choose the appraiser, the loan officer will assign you one of their choice. This could result in an appraiser from out of the region where you live which can result in them being significantly off in their perception of value.
- Let’s say that you are assigned an appraiser that puts your house at “market Value” or gives an assessment that seems reasonable to you; unfortunately you are not out of the woods yet. There will be a second appraisal done called a “desk appraisal”. This in an appraisal done by someone who has not seen your home but they set guidelines for the secondary market. The lenders do this because they intend on selling your loan about twice down the line and they are the ones that give a value of your property.
- Cash needed at closing: Not all expenses may fit into the loan, so you will have to come up with cash for taxes and a long list of costs at closing. You will not know this amount until a few days prior to needing it.
Percentage rate for interest on your loan directly affects your monthly payment amount. Every strike against you such as your credit score, or the amount of reserves you have affect this rate.
What I found disturbing is that I could not get a roadmap as to the steps involved in this process, and the amount of time each will take. It seems there is always a rush because there is a constant set of surprising discoveries along the way.
It is important to remember (albeit frustrating) that when you are applying for these loans you are at the mercy of the lender. They are able to handle these loans however they like. The housing crash in 2007 made banks rethink how they give home loans. The end result was creating this process that leaves the lender in power and the lendee in a position where they have no control.
It is my hope that you will not experience all of these roadblocks during your mortgage process and that you use a broker that will make you feel like they are invested in you. Hopefully some of these thoughts above result in an outcome where you end up with a decent mortgage on your great property.
Once you have completed the mortgage loan process and have the amount of money you need to make improvements on your home you will have the power back in your hands and can start the process of hiring a team to help you with renovations. Please refer to my older blogs for tips and advice on how to make the rest of your renovation or home improvement process organized, easy and puts you in charge.