Big Banks May Be Nixing the Pre-Approval Process

As lenders begin to work through the lending guideline changes from January 2010, some bigger banks have discussed eliminating pre-approvals.  Instead, they are opting to wait until a potential borrower is under contract before the bank starts looking at and verifying your income, assets and credit score.  Having a different loan process is not such a huge deal unless the bank you’re working with has decided to cut out the most important part of the process, the pre-approval.

Why Will Big Banks Eliminate Pre-Approvals Upfront?

The main reason big banks want to stop issuing pre-approvals is because of all the added paperwork and disclosures required.  Some bigger banks don’t want to ‘clog up their system with pre-approvals that may not turn into real deals’…which means you as their customer are not important to them until you have entered into a legally binding contract with a seller to purchase a home.  Only then are they willing to spend time pre-approving you for a loan.  Biggest problem with waiting until you are under contract?  You could lose a lot of money!

Why Waiting for a Pre-Approval is a Bad Idea!

The whole point of a pre-approval is to make sure you are a ready and capable borrower that can confidently move forward on a purchase contract to a seller.  What some of the big banks are issuing are glorified pre-qualifications (or estimates) at best as to what you can afford.

You Could Lose a Lot of Money and the House You Want to Buy!

Typically you have 30 days from the time the seller accepts your offer to close your transaction.  Why would anybody want to enter into a legally binding contract, put down up to 3% of the purchase price as a deposit, pay for inspections and appraisals (upwards of a $1000 or more), and to go through the emotional roller coaster of a purchase transaction only to find out at the end that you don’t qualify for financing?

If you would have received your pre-approval at the very beginning, you would you have taken out the unknown factor of “Will I be approved for this loan”?  A genuine pre-approval will save you money, time and the anxiety of not knowing if you are credit worthy.

Smart Sellers and Listing Agents Won’t Accept Your Offer

The fact of the matter is smart sellers and listing agents will not even accept your offer without a genuine pre-approval letter.  Listing agents who are representing their clients best interests will call the lender who issued the pre-approval and ask the Mortgage Advisor just how credit worthy is this buyer. They will also ask if the lender has verified the borrowers income, assets and credit score and has been fully approved for the loan.  If the lender answers no, most listing agents are going to advise their clients not to accept the purchase contract and find another buyer who is genuinely pre-approved.

Your Pre-Approval Letter May Not Be Worth the Paper It’s Written On

If you’re reading this and are relieved because you’ve already received a pre-approval letter from a big bank, the first question you should ask yourself is, “did my lender ask for and review my documentation?”

If you did not supply documentation to a lender and they gave you a pre-approval letter, all they gave you have is a glorified pre-qualification letter.  This means your approval is not worth the paper it’s written on.  So remember….pre-approval letter means verification of income, assets and credit.

When Should I Get Pre-Approved?

You should be fully pre-approved, we call this a “genuine pre-appoval” by a reputable lender BEFORE you start to even look for a house.  You need to know how much you can afford, if there are any mistakes in your credit report that need clearing up and if there is anything you need to work on to get pre-approved for financing before you start looking for a home.

Not Quite Ready to Get Pre-Approved but Want to Learn your Options?

If you’re not quite ready to go through the pre-approval process but want some information about what types of programs may fit your financial needs, we can schedule a time to sit down and talk about your options.  Of course, there is no obligation or charge for this meeting.  Call me at (650) 520-0915 or email me at info@SanMateoMortgageBlog.com to schedule a time to sit down and talk.

Received Something from a Bank and Want to Make Sure It’s a Genuine Pre-Approval?

If you are beginning the loan process or already in the process and want to make sure you have a genuine pre-approval letter, give me a call at (650) 520-0915 or send me an email at info@SanMateoMortgageBlog.com.  I still fully pre-approve all my clients at the very beginning, well before they start looking for a home.  It is the most important piece in the home buying process and will ensure a smoother and successful closing.

Related posts:

1. Biggest Problem with New GFE and How to Avoid It
2. What is a Genuine Pre-Approval and How Long is It Good For?
3. Why It is Imperative to Get a Pre-Approval Before Submitting an Offer
4. What Is and What Is NOT a Pre-Approval
5. New Good Faith Estimate Misses the Mark

If you read Monday’s post about The 5 Secrets of Being a Skilled Home Home Mortgage Shopper, you already know my first two tips. Now, here are the final 3 secrets of being a skilled San Mateo Home Mortgage Shopper.

3. You Get What You Pay For


In the consumer world, deals do exist and finding them can be a gem, but when you are shopping for a San Mateo home mortgage, the cheapest is not always the best. Call or look around on the internet and you can find numerous sources that say they are the cheapest deal out there, but do you really want to place an important and complex process into the hands of the lowest bidder? If you do decide to go the discount route; expect very little advice, little experience and zero personal service. On top of this, expect the real possibility of not closing at all. Losing the home of your dreams and then realizing that the cheapest isn’t the best can be a hard pill to swallow.

4. The Correlation Between Interest Rates and Closing Costs


You can have any rate that you want! Yes you heard me right. You name the rate you want, I can give it to you. Any mortgage advisor can, but you may pay more in costs if the rate is lower than the norm. As you are learning, when it comes to your San Mateo mortgage loan, you have multiple options. You can pay fees to lower the rate, reduced fees or you can pay no fees at all. Paying zero fees will cost you with a higher mortgage interest rate. One of these options may be a better fit for your financial needs and a true mortgage advisor will find the balance between mortgage interest rates and closing costs that best compliment your financial goals.

5. San Mateo Mortgage Interest Rates are in Constant Flux


San Mateo mortgage interest rates change daily and sometimes hourly. This means, that trying to compare lenders rates and fees isn’t feasible. You would have to receive these quotes at the exact same time on the exact same day with the exact same terms and ready to lock the rate in or you are just wasting your time. You must also know the length of time for the lock because this also affects the rate and fees you receive. While this seems frustrating, remember that the mortgage advisor you pick is worth more the any rate you are quoted.

I hope you have enjoyed my San Mateo mortgage shopping posts over the last few weeks. Now that you have the skills and the knowledge to shop effectively, go out there find a bargain (AKA a true mortgage advisor). If you want a complete version of the San Mateo Mortgage Shoppers Guide, feel free to drop me a line. So until then… Be Smart, Ask Questions and Wait for the Right Answers!

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Chris Williamson is a Mortgage Advisor with Mortgage California specializing in San Mateo Mortgage.

Related posts:

1. Part I: The 5 Secrets of Being a Skilled Mortgage Shopper
2. Mortgage Shopaholic Part II: What is the True Bargain When it Comes to Bay Area Mortgage Shopping?
3. How to Read the New Good Faith Estimate
4. Mortgage Shopping Part III: How to Find a San Mateo Mortgage Professional
5. Real Estate Closing Costs and Dating Etiquette: Can You Go Dutch in San Mateo County?

In prior San Mateo mortgage shopping posts, I have explained why you should go beyond shopping for the mortgage interest rate, given you a series of questions to gauge a mortgage advisor’s financial expertise, and explained the real bargain, which is a San Mateo Mortgage Advisor who has earned your trust and confidence. Now it’s time to unveil the five secrets of shopping effectively:

1. If It Seems to Good to Be True, It Probably Is.

Deep down, you know this! If the mortgage interest rate is discounted much lower than the competition, there is a reason. Mortgage money and interest rates all come from the same place. If it seems like you are getting an unbelievable deal, you are right, it is not believable. Ask a lot of questions and discover the hook. Is there a prepayment penalty? Are you being charged two or three points upfront (1 point equals 1% of the loan amount) to obtain said rate? What is the length the quoted rate is locked? An incredibly low interest rate means you need to ask a lot of questions!

2. Make the Correct Comparisons

We all know the biggest concern when it comes to San Mateo mortgage shopping is “What’s the rate?” Comparing interest rate to interest rate is not necessarily an accurate comparison. Again, most San Mateo mortgage rates are a commodity, meaning the rates are set by the market, not the lender. What makes the difference is what a mortgage advisor will charge you upfront and their fees.

Comparing fees is a must, as these are the only costs that a mortgage advisor controls. But beware, sometimes fees are under-quoted upfront to make the bottom line appear lower. Even comparing APR (Annual Percentage Rate, which is your effective interest rate that includes your quoted rate plus all of the costs involved in the loan) is not a cut and dry comparison. APR can also be manipulated as some lenders calculate APR differently.

The best way to make a true comparison is to obtain and compare good faith estimates from your mortgage advisor with all of their costs on the same program at the same rate. Subtract all of the fees independent of the loan, such as home owner’s insurance, title fees, escrow fees, etc. Now add up all of the loan fees. The mortgage advisor that has the lower fees has the cheapest loan.

These are the first two secrets for shopping effectively. Next time, I will round out the top five and arm you with the tools to be a knowledgeable and effective San Mateo mortgage shopper. So until then… Be effective!

Enjoyed this Post? Why Not Subscribe?

If you have enjoyed San Mateo Mortgage Blog, please subscribe to our RSS feed.

Chris Williamson is a Mortgage Advisor with Mortgage California specializing in San Mateo Mortgage.

Related posts:

1. Part II: The 5 Secrets of Being a Skilled Mortgage Shopper
2. Mortgage Shopaholic Part II: What is the True Bargain When it Comes to Bay Area Mortgage Shopping?
3. New Good Faith Estimate Misses the Mark
4. Mortgage Shopping Part III: How to Find a San Mateo Mortgage Professional
5. Shop for a San Mateo Mortgage Advisor First to Get the Best Interest Rate

Last time, I gave you the first two questions to ask your Bay Area Mortgage Professional. Here are the final two questions to help gauge your Mortgage Professional’s financial understanding and the affect the current financial market will have on your financial situation.

1. When the Fed changes rates, what does this mean for mortgage interest rates?
   You may be surprised, but when the Fed changes the Fed Funds Rate, mortgage interest rates often move in the opposite direction due to the dynamics within the financial markets. However the Fed Funds Rates will have an affect on short term rates such as credit lines, credit cards, auto loans etc.
   
2. What is happening in the market today and how do you see rates in the near future?
   This question has the biggest impact on the borrower. Having the ability to explain how mortgage bonds and interest rates are performing at the present time as well as any foreseeable market events that could affect interest rates will determine if locking in your rate today is advisable. Again, we cannot predict the future, but we can help you make logical decisions based on where the market is today and where we see it going.
   

In this rapidly changing real estate market, it is more important than ever to choose a Mortgage Professional who has a solid understanding of the financial markets. The person you choose will make a considerable impact not only on how successful your transaction will be, but also on your financial future.

My next post will continue to explore the art of mortgage shopping. Until then………….Keep asking questions!

If you have enjoyed San Mateo Mortgage Blog – Bay Area Mortgage Broker, please subscribe to our RSS feed.

Related posts:

1. Part I: Four Questions to Ask Your Bay Area Mortgage Professional
2. Mortgage Shopping Part III: How to Find a San Mateo Mortgage Professional
3. Mortgage Shopaholic Part II: What is the True Bargain When it Comes to Bay Area Mortgage Shopping?
4. 9 Questions to Ask When Financing a Condo with FHA
5. Top 10 Questions about the Extended and Expanded Home Buyer Tax Credit Part II

A true Mortgage Professional will reveal their value from your very first interaction. By taking the time to understand your short and long term financial objectives, Mortgage Professionals will structure a loan program tailored to your specific financial goals. Mortgage Professionals will also have a true understanding of financial markets and what affects the markets will have on your overall financial. Here are two of the four simple questions that your Mortgage Professional must be able to answer:

1. What are Mortgage Interest Rates based on?
   The only correct answer is Mortgage Backed Securities or Mortgage Bonds. You may also hear the 10-year Treasury note. The 10 year Treasury note can move in the same direction as Mortgage Bonds, but it is not uncommon to see them move in the complete opposite direction either. In helping judge where rates are headed, you do not want to work with a mortgage person who is keeping watch on the wrong market indictors.
   
2. What is the next Economic Report or event that could cause interest rate movement?
   A true Mortgage Professional should have this answer for you without hesitation. Mortgage Professionals are not fortune tellers, but having the market knowledge to know where rates are expected to move is one of the most important job requirements of being a Mortgage Professional.
   

Next time, I will give you the last two questions to ask your Bay Area Mortgage Professional. Until then….keep asking questions!

If you have enjoyed San Mateo Mortgage Blog – Bay Area Mortgage Broker, please subscribe to our RSS feed.

Related posts:

1. Part II: Four Questions to Ask Your Bay Area Mortgage Professional
2. Mortgage Shopping Part III: How to Find a San Mateo Mortgage Professional
3. Mortgage Shopaholic Part II: What is the True Bargain When it Comes to Bay Area Mortgage Shopping?
4. Mortgage Market Update Week of Feb 23
5. Top 10 Questions about the Extended and Expanded Home Buyer Tax Credit Part II

It’s not hard to find a Mortgage Consultant, Loan Originator, Mortgage Advisor or whatever we call ourselves these days. In San Mateo County, you can find one of these mortgage people on every corner, and, if you take a quick glance around, probably right behind you.

With so many Mortgage Consultants and/or Loan Originators and/or Mortgage Advisors vying for your business, how do you know who you can turn over one of your largest financial decisions? First of all, you are not shopping for a Mortgage Consultant, Loan Originator or Mortgage Advisor. You are shopping for a Mortgage Professional, which begs the question, what is a Mortgage Professional and how do I find one?

A Mortgage Professional is somebody that will take the time to understand your financial needs and goals. They will not just quote rates over the phone because they sound pretty or get into a bidding war after you tell them the last mortgage person they talked to said they could get a 0.25% lower rate. A Mortgage Professional stays on top of the market so they can advise you properly. A Mortgage Professional should be just that, Professional!

How do you find one? You find one by taking the time to properly interview your Mortgage Professional. I know once you pick up the phone, you’re going to have a burning desire to ask, what are your rates? Don’t! Even though the mortgage person at the other end is already reaching for the rate sheet because they know the question is coming, don’t ask the question. Instead start the interview process.

The first step of the interview process is to see how the Mortgage Professional interviews you. See if they ask you more questions than, how much do you want to borrow, how is your credit and how much do you make? Although these financial and credit related questions are important, there should also be additional questions that explore your goals and what you are trying to accomplish with your new loan. Even if you do not get these questions in the first interview, it doesn’t mean that you are not talking to a true mortgage professional. There are four questions YOU can ask that will make things a little more cut and dry. I will reveal those four questions in my next post. Until then………..keep interviewing!

If you have enjoyed San Mateo Mortgage Blog – Bay Area Mortgage Broker, please subscribe to our RSS feed.

Related posts:

1. Mortgage Shopaholic Part II: What is the True Bargain When it Comes to Bay Area Mortgage Shopping?
2. Part II: Four Questions to Ask Your Bay Area Mortgage Professional
3. Part I: Four Questions to Ask Your Bay Area Mortgage Professional
4. Shop for a San Mateo Mortgage Advisor First to Get the Best Interest Rate
5. Part I: The 5 Secrets of Being a Skilled Mortgage Shopper

Delving further into the mind of the mortgage shopaholic, we explore the one thing the shopaholic can’t resist … the bargain. What is the bargain? Most would think the bargain is the lowest rate. Some skilled shoppers would think the bargain is the lowest rate plus low closing costs! Getting past rate for most borrowers is a difficult task. That is why I’m not asking you to take rate completely out of the equation. I just want you to add a few factors into the equation.

Rate only equals bargain when the mortgage program, loan structure, and closing costs are factored into the equation. Most mortgage rates are set by the market and not the lenders. Consequently the mortgage program, the loan structure, and your closings costs become the bigger factors when searching for ‘The Bargain’. Maybe an even bigger factor is the person that you are trusting with one of your biggest financial decisions of your life, your Mortgage Professional.

When it comes to mortgage shopping, the true equation is right in front of you! Instead of shopping for the lowest rate, try shopping for expertise. As we all know by now, the lowest rate does not equal the best bargain. Highly skilled Mortgage Professionals who present mortgage programs that meet your personal and financial goals and that are structured to accommodate your ever-changing lifestyle equals bargain.

No more early morning online rate shopping. Stop calling random lenders to ask the silly question, “What are your rates?” Instead, get some referrals from people you trust that have recently went through the process of obtaining a loan. Maybe do a little online research of your friendly neighborhood Mortgage Pro. Hey, you could even read a few blogs along the way. How do you determine if you are talking to a “True Bargain” Mortgage Professional? In the next post, we will give you a few probing questions to ask to help you get started………………So until Friday, keep shopping!

If you have enjoyed San Mateo Mortgage Blog – Bay Area Mortgage Broker, please subscribe to our RSS feed.

Related posts:

1. Mortgage Shopaholic Part I: Shop It ‘Til You Drop It…The Rate that Is
2. Mortgage Shopping Part III: How to Find a San Mateo Mortgage Professional
3. Part I: The 5 Secrets of Being a Skilled Mortgage Shopper
4. Part I: Four Questions to Ask Your Bay Area Mortgage Professional
5. Part II: The 5 Secrets of Being a Skilled Mortgage Shopper

According to the Merriam-Webster online dictionary, the definition of a shopaholic is someone who is extremely or excessively fond of shopping. Another online dictionary defines a shopaholic as someone who can never resist a bargain. These two definitions may sum up the essence of a person who lives by the motto “the one that dies with the most toys wins,” but when it comes to mortgage shoppers, the definition is slightly different.

The definition of a mortgage shopaholic is someone who excessively shops for a bargain. The motto of the mortgage shopaholic is “the one that gives me the lowest rate wins.” It sounds like a nice motto, but that motto should also come with a disclaimer, “the rates in the rearview mirror may be larger than they appear.”

Before we go further, let’s clear something up, the point of the post is not to attack the mortgage shopper, rather to empower the mortgage shopper with the knowledge to shop the right way. I encourage you to shop, but I want you to shop for the true bargain and trust me, the true bargain isn’t the lowest rate. Over the next few posts I am going to give you the inside scoop on how to shop for your mortgage correctly. I want you to shop beyond the rates and instead shop for expertise. Instead of calling lenders and brokers at random simply asking “what is the best rate you can get me?” start by asking “how are you going to structure my loan program to best serve my financial needs?”

Stay tuned for my next few posts as we uncover the symptoms, cause, consequences and cure of a mortgage shopaholic.

If you have enjoyed San Mateo Mortgage Blog – Bay Area Mortgage Broker, please subscribe to our RSS feed.

Related posts:

1. Mortgage Shopaholic Part II: What is the True Bargain When it Comes to Bay Area Mortgage Shopping?
2. Shop for a San Mateo Mortgage Advisor First to Get the Best Interest Rate
3. Part II: The 5 Secrets of Being a Skilled Mortgage Shopper
4. Part I: The 5 Secrets of Being a Skilled Mortgage Shopper
5. Post Election Mortgage Rate Predictions