Smoothing The Way To A Home MortgageLaurel Touby and Caty Bartholomew
Tantalized by current rock-bottom interest rates, home buyers have been swarming into the housing market. But at the sametime, foreclosure-wary banks have been setting more rigid lending rules. The result: A lot of near-buyers are stalking away from dream homes disappointed.
Buyers new to the mortgage game -- and even those reentering the market after many years -- may not realize they have an ally at hand. Rather than risk a thumbs-down from their local bank, they should hightail it to a mortgage broker.
ADVOCATE. Mortgage brokers can't help every person who applies for a loan. But they can often tip the scales in your favor. Since most mortgage brokers maintain relationships with numerous lenders -- each with its own set of underwriting guidelines and credit requirements -- you automatically multiply your chances of getting a loan. The broker acts as your advocate, walking you through the application process so you're not rejected or held up on minor technicalities. Brokers may even secure you more favorable loan terms with waived fees or reduced points.
Creative mortgage brokers can figure ways to untangle a buyer's qualifying snags, such as poor credit or a too-short work history. "If your credit history was marred because of a medical problem or divorce, or if the bad credit was limited to a specific time frame, all you may need is a well-documented explanation letter," says Deborah Reyes, president of Capital American Mortgage in Miami.
Possibly the most impressive thing a mortgage broker can do is to humanize the lending process, which has evolved into a marathon for number crunchers. "If I think a buyer who doesn't quite meet the guidelines deserves a loan, I'll put my reputation on the line to sell a package to a lender," says Pat Tenney, president of MidWest Financial Mortgage Services in Lake Havasu City, Ariz.
Leslie Mauer and her fiance, Greg Keefer, both 20, had trouble getting a lender even to look at their loan application. New to Lake Havasu City, neither had a substantial work history. To complicate matters, a high percentage of their downpayment came from selling assets which they had trouble proving they owned.
HORSE TRADE. In the end, voluminous documentation -- and mortgage broker Tenney's dogged efforts to convince the lender of the couple's dependability -- won the day. "Where they really got hung up was on the source of the downpayment," says Tenney. "Leslie's portion of the downpayment was from the sale of a horse she had owned but had no receipt for, since she had purchased it when she was a young girl." To prove the horse was hers, Mauer got her trainer to write a letter and sent the bank press clips mentioning her and the horse.
Mortgage brokers can also speed up the loan process for regular folks with unexceptional applications. A broker saves you time initially by giving you a candid assessment of what you can afford. And since the broker has kept abreast of the latest loan packages and interest rates nationwide, he or she can identify an array of products available to you. Then, the broker packages your application with the necessary backup documentation so the transaction proceeds as smoothly as possible. The broker also identifies rough spots so you can be ready with answers or gather additional documentation for the bank.
CAVEATS. Even when you get turned down, a mortgage broker hastens the process of reapplying. The broker can get the application package back and take it somewhere else for you, saving you the hassle of tracking down new verifications, new credit reports, and new title histories.
While most mortgage brokers are on the up-and-up, buyers should be wary of whom they choose. The mortgage-brokerage industry has only been regulated within the past five years, and unscrupulous operators, who misrepresent or oversell their services, exist. "Be sure you understand the implications of each loan package you apply for," warns Keith Gumbinger, media coordinator with HSH Associates, a mortgage-data concern in Butler, N. J. "Just because someone says they can get you a loan, that doesn't mean that's the type of loan you want."
The best way to find a mortgage broker is through referrals by real estate agents and other home buyers. A call to licensing departments in the 30 states that have them, the Better Business Bureau, or the local mortgage brokers association, will let you know whether the broker you've chosen is reputable. While there is no national certification required, many mortgage brokers have earned the title "certified mortgage consultant" from the National Association of Mortgage Brokers (NAMB).
Normally, mortgage brokers collect their fees -- a percentage of the points on the loan -- directly from the bank. In certain cases -- for example, when there are no points -- the buyer pays the broker directly. But you should never do that before the loan closes. An NAMB spokesman advises: "If someone asks you up front for money and promises that you'll get a loan, walk right out."
CHOOSING A MORTGAGE BROKER
-- Get advice from real estate agents and other buyers
-- If you have a spotty credit history or other problem, make sure the broker
has handled cases like yours successfully
-- Pick someone who asks probing questions so you're not rejected or held up by
the bank on minor technicalities
-- Make sure the broker can offer you a range of banks
-- Beware the broker who guarantees you'll get a loan; you might end up with
the wrong kind for your needs
-- Have your attorney go over any contract with the broker or any mortgage
before you sign