Member Perspective

Advice for qualifying for a mortgage

Some would-be buyers in today's market might think that mortgages just aren't available to them in today's tighter lending climate,  but buyers who are reasonable credit risks have more financing options than they might think.

For starters, Federal Housing Administration loans are back. According to NAR data, FHA loan originations saw nearly a 60 percent increase in 2007, and in 2008, the program's temporary loan limits for the Columbus area was increased to a maximum of $341,250.

In addition, tax law changes have made private mortgage insurance more attractive. PMI premiums have been deductible on federal  taxes since 2006, and last year, Congress enacted a three-year extension on PMI deductibility. This helps buyers who would otherwise  be financing with piggyback loans, which are harder to get in today's market.

So, how have your recent buyer clients financed their home purchase? Have you seen a rise in seller financing or lease-option purchases? What advice would you give to buyers who want to buy but are not sure they can qualify for a mortgage?

Vicki Owens, ABR, CRS, GRI
Andy & Associates, REALTORS®
When I meet with buyers, whether first time or with a home to sell, I explain that it is more difficult to qualify for a mortgage today than it was a year or so ago. With the state of the market, most seem to understand this without further explanation.

What I do explain to them is that I do not want to disappoint them by showing them homes that they could not qualify for or would not be comfortable with a payment for. It is important to me that they are not "house poor" living on mac and cheese and peanut butter sandwiches. I provide them with a list of 3-4 loan officers that I have had good success with. Before we look at homes, I have them meet with a loan officer. Further, I explain that I could take their information all day long, but I am not the one deciding on whether or not I will fund them for a loan.

Generally, they are cooperative in setting up an appointment with a loan officer before touring. Once they have that information, we know what to look for. This makes them confident and educated in the process and going to look knowing that they have the maximum negotiation power when they find "the one". If they must move or are especially committed, I will ask them to pick house 1, 2 and 3 (sometimes 4). When they write on the first, I always question, "If this one does not work out, what is plan B? Will we counter offer or move on?" This strategy also gives them the maximum power in negotiations.

With the expense of doing business today, this plan makes more sense for everyone conserving resources. If the buyer will not speak with a lender, I generally do not consider them a hot prospect unless they are insistent that they can prove they would have the cash reserves to buy without a loan. There are nice ways to put requesting prequalification from your prospective buyer that really makes sense that will not come off as "I will not waste time with you if you will not get approved for a mortgage".

Eric Ransom
Keller Williams Capital Partners
In considering the purchase of a home a Buyer should always begin with financing. Today, more than ever, loan programs and rates are changing quickly and often. I have found over the years that often a Buyer will get excited about the home buying process but be unwilling to take the steps necessary to obtain a pre-approval. Sometimes this indicates a shaky financial situation, but it can also come from a lack of information about the process, misunderstanding about standards for qualifying or a fear of committing to a lender out of the gate. I always tell clients that talking with a lender and going through the pre-approval process cannot hurt. The worst-case scenario would be being turned down. Even if that happens, at least the client gets a true picture of the barriers to obtaining financing and what needs to be done to position them to obtain financing. Had they waited 6 months or a year to talk with a lender they would likely be in the same situation, only that much further behind the ultimate goal of purchasing a home. A good mortgage professional will act as an advisor and fiduciary and is critical to a successful home purchase experience. Just like REALTORS®, when the job is done properly people remain loyal to their lender and value their financial guidance and input for years to come.

Mark E. Murphy SCLS, SCSM
Vice-President, The Hadler Companies

My advice never changes no matter what the market does. Get with a qualified reputable lender and get pre-qualified. This not only indicates what you can afford but also is a "chip" when you make your offer, along with the pre-qual letter from you lender. All else being equal, you will get the contract. The lender will verify your income, run your credit, assess your debt load, and give you a mortgage product that is right for you.

Marianne Collins
Insight Bank
Borrowers should never think that they don't qualify until they have applied for a preapproval. They would be surprised how many do qualify. The so called "credit crunch" applies mostly to conventional jumbo loans, those not purchased by Freddie Mac and Fannie Mae, and $0 down products which are still available in outlying areas using the USDA Rural Development Loan.

We have seen a large increase in rates for jumbo programs because the pool of investors for those mortgage back securities has gotten much smaller.

The PMI companies have tightened up on guidelines for conventional conforming loans, due to losses they have suffered in the Alt-A and subprime arena. Fannie and Freddie have done the same. But all that means is that if a conventional buyer doesn't have a high credit score or a large down payment, they are going to pay a bit higher rate. The very low down payment borrowers are much better off, from a rate standpoint, turning to a FHA loan. They will get a much better rate.

FHA lost a big market share when Fannie and Freddie came out with their $0 down products. Those have now gone away, and FHA is back as a big player. $0 down financing is still available for 1st time homebuyers though the OHFA bond program. The borrower can get either a conventional or FHA loan with 3% down and a grant for the 3% down payment. The program is income and sales price limited.

Michael Sliemers
Real Living HER
With the increase of FHA limits and competitive interest rates, many of my buyers are going FHA. Seller financing has become an option for buyers who are encountering difficulty securing financing along with a seller who is open to the option (if in a strong financial position on the property and/or extremely motivated to have property occupied). Though not all potential buyers are able to purchase immediately, there are a number of benefits in moving forward with the pre-approval process. First, if they are able to move forward with purchasing a property: interest rates are still rather low, selection is high and the equity many are securing on their properties puts them in a great position for future financial growth. Second, the tax incentives are very attractive; one is able to depreciate their property on their taxes and PMI premiums being deducted on their federal taxes. Lastly, in the worse case scenario in which one is not able to move forward purchasing a property, speaking to a lender and reviewing their current credit and financial position is a benefit to them in understanding how their credit is scored, how to increase it and most importantly putting them in a position to purchase a home in the future through a detailed game plan!

Shelly Cates
Keller Williams Capital Partners
Yes, I have seen a rise in lease to purchase options and it appears that leases are easier than finding the lending for some buyers due to the "tightening" in the lending world. Lease options are great for some sellers as it will help them keep their property as an investment but move on to their next dream home.

I always suggest to my first-time homebuyers to give several lenders a call to see what programs are available to them. I also suggest OFHA, Ameridream or even areas with a tax abatement to help them with creative ways to make their payment lower, rates lower, taxes lower or down payment assistance. I really enjoy working with first-time homebuyers and they just need your assistance and guidance for this awesome house journey! If the buyer does not qualify I would suggest to them that they lease or rent and work on their credit and SAVE as much money as possible each month. I would stay in contact with them helping and guiding them through this process so they never lose sight of their goal... their first home!

Jon Sadler
Countrywide Bank
This is a good time to buy as rates are still quite low, and there are many options for clients that have good credit and a downpayment, even as little as 5 percent down. In fact, many can qualify to buy a new home without the sale of their existing home due to their good financial position.

As we all have read, lenders and PMI companies have tightened the rules, but an experienced lender can help clients find a program that fits their goals. FHA loans are a wonderful option for buyers who want to put only 3 percent down (even if it is a gift from a relative). And the FHA limit of $341,250 in our area allows many people numerous home choices with a low down payment.

Paul Rockwell
RZ Realty
The first thing I suggest is to qualify a mortgage broker and get them on your team first and foremost. This will give you all your financial options up front and will help in negotiations as you move forward. Secondly, There are so many flexible sellers out there trying to sell their homes, so don't be afraid of suggesting lease to purchase or other flexible purchasing options to sellers to get the house you want. Having a team of professionals well versed in today's' market, combined with having an open, motivated attitude, you will find your dream home and get the financing required to make it happen.

Nancy Poss
Keller Williams Capital Partners Realty
All of us on our team are pretty emphatic with potential buyers that they need to communicate with a lender at the beginning of the process so that they completely understand what is involved. Even people who have had mortgages before are finding it more difficult to qualify. They are also finding out how important it is to have a good credit score. We provide a list of lenders who can help them with the process and can provide a pre-qualification letter for them.

Rick Lemmons
Coldwell Banker King Thompson
The most obvious answer is "Call or visit a lender and obtain a pre-approval letter." However, if they verbalize that they are not sure if they qualify they may truly be saying they don't understand the home buying process.

Rather than overwhelm the buyer with the complete process, I find out how much they are paying for rent. I convert the rent payment to a mortgage payment and share with them how much house they could afford based on the monthly payment. Then I add on taxes and insurances and see if they are comfortable with that payment. Then I ask if they are comfortable increasing the size of their monthly investment. If so, I recalculate the amount of house they can afford based on a monthly payment.

Now I inquire about how much they have for a down payment. If it's zero or less than 5 percent I will explain FHA financing and down payment assistance programs. If they are still excited about investing in a home I arrange a meeting with a lender and further explain the home buying process (qualifying, looking at homes, contract negotiation, request to remedy, final loan approval and closing).

Many buyers are scared or uneducated about the buying process. Their basis for the information is the media citing national statistic, not local numbers. To counter act the media, we (REALTORS®) need to be our own PR firm and educators. A Buddhist proverb says, "When the student is ready, the teacher will appear." Are you ready to be the teacher/REALTOR® when the student/Buyer appears?

Patricia Eiland
Guardian Real Estate
I would explain that the first process in purchasing a home is making sure their finances are in order. There is no point in previewing homes without understanding your situation. That begins with taking time to review an updated credit report with all three major bureaus. Making sure information is accurate and handling any derogatory information that may affect them getting a loan, or even their interest rate. Explaining their options whether to work with a bank or mortgage broker to provide the loan, it all depends on their preferences and specific needs. I like to assure buyers that there are many programs available to first-time homebuyers even in a changing market and the first part of the process is learning what amount they will qualify for. Once you have that information, then begin working with a REALTOR® to help find a home within your budget and that will fit your specific needs.