Conrad Eberhard - Mortgage Lender

Last year most investors started requiring a minimum credit score of 620 to be eligible for a FHA Mortgage. Some investors such as Bank of America have now increased that minimum credit score requirement to a 640 to be eligible for FHA Financing. Chances are other investors will follow suite as early as November 01, 2010 and increase their minimum credit score requirements to a 640.

If you a have buyer that is on the fence and they have between a 620 - 639 credit score. It is time for them to decide if they want to be a home owner or if they want to work on improving their credit score.

On Friday, 10/08/2010 the 30 Year Fixed FHA Mortgage Rates fell to 3.75%. This is a historical mile marker. The lowest 30 Year Fixed Rate Mortgage’s have ever been. Yet, for some they do not know a good deal when it hits them in the face.

Here is what happened Friday. I received a call from a person that had a contract to purchase a home. They wanted to know what FHA rates are, so I quoted our 3.75% rate with a 1% origination. The only other fee our bank charges is the $399 underwriting fee.

He then proceeded to tell me that he was shopping rates, which is fine. However he also told me that he was taking all the rate info he was receiving and giving it to his Financial Advisor for them to determine what would be the best deal. I informed him that day Mortgage Bonds have broken through their resistance causing bond prices to be the highest they have ever been, which in turn puts mortgage rates at their lowest level ever. In addition I informed him that the last time we had a break through dip, the rates were only here for 30 minutes then started moving up. Still he wanted to have time to think, again still fine.

Here is how the day played out. At about 11:30 am CST we received our first rate increase from that mornings bottoming of rates. At 4:30 we received our second rate increase for the day after the market has closed. That same 3.75% rate now costs 1.60% origination and is loosing ground fast. The articles I read later that day projected that Tuesday when the market opens (Monday is a holiday) rates would more then likely increase again. This is due to the major sell off in bonds continuing. At the end of the day he was still gathering information. Not to mention all the info he had gathered on rates earlier in the day was invalid due to the rate increase.

We can only wait and see what will happen Tuesday. I am hoping that I will be eating my words and rates dip back down for him, but I will not hold my breath.

Lesson to learn here.

1) Pick your lender before you make an offer on a house.

2) Know where rates are at and where they have been. This will let you know what a great rate is when you see it.

3) Change Financial Advisors. A good Advisor would know where rates are at since rates are determined by Mortgage Bond prices. Plus that advisor should have already told him to pick a lender out and been ready to lock due to the historical lows.

Again, I really hope I get to eat my words and rates come back down next week. Tell me what you think…

A Realtor of mine gave me this a while back and I always thought it would go perfect in a frame on my desk for buyers to see when applying for a mortgage.

1. Thou shalt not change jobs, become self-employed or quit your job.

2. Thou shalt not buy a car, truck or van (or you may be living in it)!

3. Thou shalt not use credit cards excessively or let your accounts fall behind.

4. Thou shalt not spend money you have set aside for closing.

5. Thou shalt not omit debts or liabilities from your loan application.

6. Thou shalt not buy furniture.

7. Thou shalt not originate any inquiries into your credit.

8. Thou shalt not make large deposits without first checking with your loan officer.

9. Thou shalt not change bank accounts.

10. Thou shalt not co-sign a loan for anyone

Feel free to give this to your buyers.

I cannot tell you how many times I have had a buyer sitting in my office telling me their story of why they went with another lender. They are upset because they got declined right before closing or can not get that lender to call them back. It always starts out as “they told me it would not be a problem”. My follow up question to that is. “Did they have your credit pulled, and did you provide them with your income and asset information prior to them telling you it would not be a problem”? Majority of the time, that answer is NO.

Anytime you are working with a lender and they keep telling you what you want to hear and it just seems way to easy. Think twice, especially if you have not provided any of the above info. Now granted there are times that perfect borrower comes in and has great credit, the income is solid along with their assets. Those are the slam dunk deals that are easy. However, when those same borrowers come in I always ask probing questions so that I can get a better understanding of their situation before I start promising anything. I want to know how long the funds have been in the account. If the funds have been there less then 60 days, where did they come from? I want to know exactly how they get paid, how often, is it salary or hourly. If hourly what is the base and do they get a guaranteed 40 hours a week. These are all very important questions as any of these that are not understood at application can change the outcome of a loan.

Example, a buyer has been working with their employer for about 1 year now. They get paid a salary and commission. When they told me their income up font they included the commission in their total income. Unfortunately, in order to use commission as qualifying income it needs to of been received for the past 2 years. Then the commission is averaged over the past two years in order to project what it may be for the next 3 years (there are exceptions to this rule but this is the general guideline).

These questions are the difference between a Mortgage Professional and just someone selling mortgage loans. Remember watch out for the Yes Man and welcome questions, as those questions let you know you are dealing with a seasoned mortgage lender.

When a buyer gets pre-approved one question I always ask is how much of a payment can they afford? Not how much we will approve you for, as that may be a different number.

The affordability of a payment is made up between the loan amount, interest rate, down payment, taxes, and insurance. In the current market we have rates that are running along the all time low levels. Along with these all time low rates we have depressed housing prices, which are the lowest most of us have seen in our career. Couple these two and you have an AMAZING deal! However there are some buyers that want rates to be lower and housing prices to be lower. Will that happen??? Only time will tell. There is a better chance of these rates and prices bouncing off the bottom levels then there is with them going even lower.

So, what would happen if rates increased a full 1%? A good rule of thumb is for every 1% increase in rates, in order to keep your payments the same a buyer would have to lower the loan amount by 10%. For a person buying a home with a loan amount of $200,000 with a rate of 4%. If rates went up to 5% then the loan amount would need to decrease by 10%, which would be $180,000 loan to keep the same payment. That is a HUGE purchasing power difference in a house!

Now keep in mind that once the government announced that we were in a recession we had already been in it for 1 year. A bottom in the market is never realized until it is no longer attainable.

Next time you have a buyer wanting to wait a little longer because they do not think the bottom is here. Run these numbers by them and see what they say. Rates are not going to stay here forever and nor are housing prices.