Ken: I know a lot of homeowners struggled during the financial crisis and the housing industry collapse. Is it about seven years that people wait after a bankruptcy that they’re able to qualify, or are there some easing of those restrictions now?
Kim: It depends. The most prohibitive event that could have happened was a foreclosure. With a foreclosure, if you want to go back into conventional, it’s seven years unless there’s an extenuating circumstance that you can prove after four years. To do that involves a lot of documentation, but it can be done. I’ve gotten the exception on two, three occasions, based on the circumstance of what caused the foreclosure.
Bankruptcies, short sales, are a little less stringent with conventional FHA, USDA, and VA loans are three to four years after bankruptcies and foreclosures, depending upon the scenario.
With conventional, if you file bankruptcy and your home was foreclosed on through the bankruptcy, then you only go with the bankruptcy date, which is four years. It’s the “if this, then that” world that I live in.
Ken: I can see how having someone like you, an expert in the field, would be a real benefit to someone looking for a mortgage or looking for lending for commercial or residential property. What are some of the mistakes you see your clients making when they’re starting to shop for a mortgage?
Kim: First of all, especially in the refinance market, a lot of people want to have that lower interest rate. That’s really important to them. “Oh, my rate’s at 5 percent, and I know the rates right now are at 4 percent. I really, really, really want that 4 percent loan.”
Nine times out of ten, the average loan officer who looks at it and says, “Oh yeah, that makes sense. You’re going to save a hundred dollars a month,” but did they look at the whole picture and find out, if they stayed in the 5 percent loan and paid their payments until the loan is paid off, versus taking the 4 percent and starting a whole new 30 years of payments, which is truly beneficial in the big picture?
I think that’s where most consumers don’t do their own math, and some of the loan officers don’t do that math either. It’s really important for me to make sure that my clients are fully disclosed on how their mortgage is going to work, and that there’s true benefit for them. I will tell someone, if they call me just to do a refi, and I do the math and there’s no real sense for them to do it, I will tell them.
Ken: We talked last week about how a lot of mortgage brokers used to do things that weren’t always in the best interest of the buyer. They would tell a buyer they could give them a particular interest rate when, in fact, they could give them an even better interest rate, and the broker would pocket the difference. Do you still see that common in the industry?
Kim: It’s completely eliminated due to the new guidelines for TILA and RESPA. You can’t do that anymore. It’s been removed from the industry. Any lender credit due to a rate, so if they decide to go with 5 percent instead of 4.35 and there’s a lender credit, what’s called the yield spread, that automatically goes to the borrower now. The one good thing that the FED did when they revamped all the guidelines and the compliance, was to take that out of the mix.
Ken: That’s a lot better for the buyer, right?
Kim: Oh, incredibly. There are no hidden fees, there’s no increased rates; it’s total transparency.
Ken: I know a lot of people think the economy’s improving and money is freeing up. What are the three most important things a person can do when they’re looking to get a loan?
Kim: First thing they need to do, and I tell this to everybody, if you’re thinking about buying a home six months from now, the best thing to do is to consult with a lender right away. Have them do a preliminary application, verify your income, verify your credit. That way, in the event that there’s anything that needs to be corrected or fixed, balances paid down to increase or improve credit scores, you have the time to do it.
If you’re self-employed, make sure your taxes are in to your loan officer or anybody you’re going to work with so there’s no surprises on the income.
Ken: Really, getting pre-qualified well in advance to make sure there isn’t anything that you don’t know about, and getting anything fixed up so that you’re in a really prime position to qualify for the mortgage you’re looking for.
Kim: Exactly, making sure that there is nothing that’s going to stop you from just moving through a smooth closing.
Buying a home, getting a mortgage, even refinancing, these are all objectives that should make your life better, and it shouldn’t be a horrible experience. It’s a process. You go from A to Z, and generally things will happen right around O. I start at Z and work backwards, so that there’s none of those surprises.
Ken: Besides talking to a lender or a mortgage banker early on, what are some of the other things? Obviously they shouldn’t go out and buy a new car or anything like that.
