Mortgage Professionals–What’s the Difference?

Finding funding for your new home purchase can be very confusing–should I go through my current bank or credit union? What is a mortgage broker versus a mortgage banker.  Here are a few tips and definitions.

Retail Lender–This would be your local bank or credit union and you would typically work with a loan officer.

Mortgage Broker–The broker is an intermediary who will look at your finances and find a lender who is a good fit for you and will come up with the best terms and rates.  For instance, if you have had past credit issues, they will have a list lenders who are willing to finance cases such as yours.  If you are a VA buyer, they will have a list of VA lenders.

Mortgage Banker–A mortgage banker will fund your loan initially but then sell the loan to secondary lenders. Fannie Mae and Freddie Mac are secondary lenders.

Your realtor can help you with finding possible sources of financing but it ultimately up to you as the Buyer.  Your realtor should not push you toward any particular person as the lender.  Do your own research, don’t be afraid to ask lots of questions.  You will pay for the services of the various types of mortgage people discussed here but many will also be paid by the lender who ultimately has the loan.

Most Important–Get Pre-qualified before starting the home search process!  This will save you and your realtor lots of time and heartache.  You need to know how much you qualify for and if you have any issues in your employment or credit history that should be addressed before making any offers.

Buying in a Seller’s Market

Are you looking to buy a home and have been told its a Seller’s Market?  That means there are more people looking to buy than there are available homes.  Typically, this means a short supply of homes with prices moving up.  If you are on the buying side, you need to be prepared. Hopefully, you are working with a realtor who can get you the real statistics on unsold houses and the time it is typically taking homes to sell.  If the average time to sell is less than 4 months, it is usually a Seller’s Market.  What can you do as the Buyer?

  •  Determine your priorities.  Is it location, size, number of bedrooms, two-story or one-story, size of lot, garage? You can make your and your realtor’s search a lot more efficient if you and your mate have already come to some agreement about priorities. Too often couples start looking at houses and find they have totally different ideas about the house that would work for them.
  • Have your financing in order.  Not only get pre-approved by a lender but also get all of your other paperwork together and submitted.  This will help avoid any nasty surprises. Be honest with your realtor about the price range you that makes you comfortable and what your real maximum price is. Sometimes, if you are willing to go up even a small amount it will open up a lot of other housing possibilities.
  • Be prepared to make decisions quickly.  In a Seller’s Market there may be other buyers who are looking at the same properties.  If you wait several days to make a decision, the property may already by under contract.

Tips on Getting Your Home Ready to Sell

getting your home ready to sellWhen conversing with real estate agents, you will often find that when they talk to you about buying real estate, they will refer to your purchase as a “home.” Yet if you are selling property, they will often refer to it as a “house.” There is a reason for this. Buying real estate is often an emotional decision, but when selling real estate you need to remove emotion from the equation.

You need to think of your house as a marketable commodity. Property. Real estate. Your goal is to get others to see it as their potential home, not yours. If you do not consciously make this decision, you can inadvertently create a situation where it takes longer to sell your property.

The first step in getting your home ready to sell is to “de-personalize” it.

De-personalize the House

The reason you want to “de-personalize” your home is because you want buyers to view it as their potential home. When a potential homebuyer sees your family photos hanging on the wall, it puts your own brand on the home and momentarily shatters their illusions about owning the house. Therefore, put away family photos, sports trophies, collectible items, knick-knacks, and souvenirs. Put them in a box. Rent a storage area for a few months and put the box in the storage unit.

Do not just put the box in the attic, basement, garage or a closet. Part of preparing a house for sale is to remove “clutter,” and that is the next step in preparing your house for sale.

Removing Clutter

(Even though it may not be clutter to you)

This is the hardest thing for most people to do because they are emotionally attached to everything in the house. After years of living in the same home, clutter collects in such a way that may not be evident to the homeowner. However, it does affect the way buyers see the home, even if you do not realize it. Clutter collects on shelves, counter tops, drawers, closets, garages, attics, and basements.

Take a step back and pretend you are a buyer. Let a friend help point out areas of clutter, as long as you can accept their views without getting defensive. Let your agent help you, too.

Kitchen Clutter

The kitchen is a good place to start. First, get everything off the counters. Everything. Even the toaster. Put the toaster in a cabinet and take it out when you use it. Find a place where you can store everything in cabinets and drawers. Of course, you may notice that you do not have cabinet space to put everything. Clean them out. The dishes, pots and pans that rarely get used? Put them in a box and put that box in storage, too.

You see, homebuyers will open all your cabinets and drawers, especially in the kitchen. They want to be sure there is enough room for their “stuff.” If your kitchen cabinets, pantries, and drawers look jammed full, it sends a negative message to the buyer and does not promote an image of plentiful storage space. The best way to do that is to have as much “empty space” as possible.

For that reason, if you have a “junk drawer,” get rid of the junk. If you have a rarely used crock pot, put it in storage. Do this with every cabinet and drawer. Create open space. If you have a large amount of foodstuffs crammed into the shelves or pantry, begin using them – especially canned goods. Canned goods are heavy and you don’t want to be lugging them to a new house, anyway – or paying a mover to do so. Let what you have on the shelves determine your menus and use up as much as you can.

Beneath the sink is very critical, too. Make sure the area beneath the sink is as empty as possible, removing all extra cleaning supplies. You should scrub the area down as well, and determine if there are any tell-tale signs of water leaks that may cause a homebuyer to hesitate in buying your home.

Closet Clutter

Closets are great for accumulating clutter, though you may not think of it as clutter. We are talking about extra clothes and shoes – things you rarely wear but cannot bear to be without. Do without these items for a couple of months by putting them in a box, because these items can make your closets look “crammed full.” Sometimes there are shoeboxes full of “stuff” or other accumulated personal items, too.

Furniture Clutter

Many people have too much furniture in certain rooms – not too much for your own personal living needs – but too much to give the illusion of space that a homebuyer would like to see. You may want to tour some builders’ models to see how they place furniture in the model homes. Observe how they place furniture in the models so you get some ideas on what to remove and what to leave in your house.

Storage Area Clutter

Basements, garages, attics, and sheds accumulate not only clutter, but junk. These areas should be as empty as possible so that buyers can imagine what they would do with the space. Remove anything that is not essential and take it to the storage area.

Or hold a garage sale.

Business Cycles and Buying a Home

Home buyers working with a local real estate agent

Recession and Expansion

buying_home_cycleThe current state of the economy is always important in big financial decisions. There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and they buy new homes.

Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell or buy. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment – perhaps because of a layoff in the family.  So the state of the economy is one factor, but your personal situation is usually the most important factor.

Supply and Demand

When the supply of available houses is greater than the supply of buyers, appreciation may slow and prices may even fall, as happened in the early eighties, the early to mid-nineties and more recently in the 2008-2011 time frame.
If you are lucky enough to purchase a home during a slow period, you can be reasonably certain the economy will begin to show strength again. At times, real estate values may even surge drastically. In many regions of the country, this is precisely what occurred in the period leading up to the 2008 recession.

Should You Try to “Time the Market”?

One problem with attempting to time your purchase to the business cycle is that no one can accurately predict the future. Another challenge is that interest rates are generally higher during a depressed market and income may not be keeping up. For that reason, fewer people can qualify for a home purchase than in more prosperous times.

Why You Should Not Wait

Plus, this strategy generally works best for first-time buyers. People who already have a home usually need to sell it in order to buy their next one. If a “move-up” buyer wants to buy a home during a depressed market, that means they usually have to sell one during the slow market, too. If a seller wants to sell his home to take advantage of a “hot” market when prices are fairly high, they generally have to buy their next home during that same hot market.
It tends to equal out.

My husband and I sold our central Tucson house for a higher price than we could get now but we also were able to buy a Northwest house that we love but did not buy it at the low price.

The Effect Changing Jobs Has on Buying a Home

changes-signFor most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.

How Changing Jobs Effects Buying a Home

Salaried Employees

If you are a salaried employee who does not earn additional income from commissions, bonuses, or over-time, switching employers should not create a problem. Just make sure to remain in the same line of work. Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage.

Hourly Employees

If your income is based on hourly wages and you work a straight forty hours a week without over-time, changing jobs should not create any problems.

Commissioned Employees

If a substantial portion of your income is derived from commissions, you should not change jobs before buying a home. This has to do with how mortgage lenders calculate your income. They average your commissions over the last two years.

Changing employers creates an uncertainty about your future earnings from commissions. There is no track record from which to produce an average. Even if you are selling the same type of product with essentially the same commission structure, the underwriter cannot be certain that past earnings will accurately reflect future earnings. Changing jobs would negatively impact your ability to buy a home.

Bonuses

If a substantial portion of your income on the new job will come from bonuses, you may want to consider delaying an employment change. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. Then they will average your bonuses over the last two years in calculating your income.

Changing employers means that you do not have the two-year track record necessary to count bonuses as income.

Part-Time Employees

If you earn an hourly income but rarely work forty hours a week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job, so no way to accurately calculate your income. If you remain on the old job, the lender can just average your earnings.

Over-Time

Since all employers award overtime hours differently, your overtime income cannot be determined if you change jobs. If you stay on your present job, your lender will give you credit for overtime income. They will determine your overtime earnings over the last two years, then calculate a monthly average.

Self-Employment

If you are considering a change to self-employment before buying a new home, don’t do it. Buy the home first.
Lenders like to see a two-year track record of self-employment income when approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a home loan.

If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.