Interesting question! Especially since more data is collected nowadays than ever before. Here is a list of personal information that lenders collect and the reasons why.
8 Things Your Lender Will Ask When You Apply for a Mortgage
1) Age. A person must be at least 18 years old to qualify for a mortgage. It is illegal to discriminate based on age. Thus, a 95-year old can get a 30-year loan. It is illegal to charge young borrowers or old borrowers more based solely on age.
2) Race/Ethnic origin. It is illegal to discriminate or charge certain races/ethnic groups more than others. In Mortgage Rip-Offs and Money Savers (p. 211), I tell how some lenders get around that regulation and why minorities often pay more–as well as how you can prevent that from happening to you.
On the loan application, there are boxes to check for your race/ethnicity. One of the boxes says you prefer not to give that information. However, if you check the non-reveal box, the loan officer is required by law to take a guess and check one of the boxes. For people who are of mixed race, loan officers often get it wrong. Or if the loan officer isn’t good at telling whether you are Italian, Hispanic, or a Pacific Islander, you could easily have incorrect personal information in your file. Maybe you don’t care; it is up to you to decide whether to let the loan officer take a guess or to state the information yourself.
3) Marital status. This information is required, because in community property states it is illegal for a married person to sign for a mortgage loan without the spouse knowing about it. The non-borrowing spouse must sign documents of acknowledgement and consent, even if he or she is not on the loan contract or title.
4) Sex. On the loan application, there is a box for male or female. The purpose is for government agencies to verify that lenders are not charging women more than men. Lenders do not ask or care whether you are straight, gay, or other. So when you see an ad that says, “All people accepted here,” that is not special to that institution. The law says all people are accepted at all lending institutions.
One of my coaching clients said his Realtor told him and his partner to go to a certain mortgage bank “because they accept gays.” The Good Faith Estimate he received was an over-priced loan. I told him that all lenders accept gays; and in fact, they don’t ask and they don’t care. Knowing this enabled him to go get a better priced mortgage.
5) Number of dependents. This refers to number of dependents under age 18. If you’re supporting an elderly relative or a 22-year old college student, you need not include that person as a dependent, because it is considered voluntary. On the other hand, children must be cared for, and the number of dependents you support is a factor is determining the allowed debt-to-income ratio. A family of ten needs more money for groceries than a family of three, so more disposable income is required.
6) Income Verification. You must show you have enough income to handle all your current obligations plus a new mortgage with taxes, insurance, and the monthly mortgage insurance fee, if applicable. The current guidelines say your debt-to-income ratio should be no more than 43%; however, there are exceptions.
7) Two-year employment history. Income stability is an issue. For self-employed people, your business license must be at least two years old. If you’re thinking of quitting your salary job and making a go of your own business, buy a home first or wait two years. It is acceptable to change jobs within that two-year period, so don’t pass up an opportunity for advancement. The “No Employment Required” loans of the sub-prime era are gone.
8) Asset Verification. Lenders require two to three months’ statements showing assets. You must verify where your down payment money is coming from. If it is gift money, that must be verified. No secret side loans for your down payment! No taking a cash advance on a credit card for your down payment! And, you’ll need to have some cash reserves left in your account after your loan closes, so you can’t use every last dollar you have.
In addition, a lender may ask for anything and everything else they believe they need.
Sometimes borrowers ask, “Do they really need that?” And, “Why do they need that?” Or, “Can they ask for that?”
Those are valid questions, and you have the right to know. Feel free to ask your loan officer why. A good, experienced loan officer should be able to answer your questions. If they don’t know the answer, they should offer to ask the underwriter and then let you know. Underwriters don’t speak with borrowers directly; that is your loan officer’s job.
If you have more questions or comments on this topic, feel free to ask. I promise to answer. You’ll see the comment button at the top right of this column.
“What are your lender fees?” I asked the loan officer (LO) at the credit union. I was shopping for a mortgage for one of my coaching clients, and I explained the scenario: No cash out refinance, 15-year fixed rate, 80% loan-to-value, A credit.
“We don’t have any fees,” said Ms. LO.
I thought that was impossible, so I replied, “I am not talking about having no points. I need to know what your lender fees are, such as underwriting, processing, and any other fees.”
Then to be crystal clear, I added, “I need to know the dollar amount that will show on the Good Faith Estimate, page 2, #1, ‘Our Origination Fee’.”
“Just a minute, let me go check with my manager,” she said.
I waited. When she came back, she said, “My manager says we don’t have an origination.”
“Wow, that’s great! I’m going to have my client call you,” I said. I proceeded to tell her my client would call in the morning, because it was just a few minutes to closing time. Ms. LO thanked me and said she’d look forward to helping her.
You can imagine my shock and surprise when my client emailed me the Good Faith Estimate she received from Ms. LO at the credit union the next day. Take a look for yourself:
YOUR ADJUSTED ORIGINATION CHARGES
1. Our origination charge 1,954.00
This charge is for getting this loan for you.__________
Instead of a zero charge, there was a $1,954, almost two thousand dollars!
Outraged, I called Ms. LO to ask about this switcheroo.
“You remember quoting me a zero origination fee,” I reminded her. “So why does the GFE show a $1,954 origination fee?”
Long pause. Then, “I don’t know.”
“That is a very big different, almost two thousand dollars,” I said.
“Yes it is. Hold on while I go ask my manager,” she said.
After several minutes, she was back. “My manager says we changed the fee yesterday.”
“You changed the fee from zero to $1,954 all in one day? From 4:00 p.m. to the morning, it changed that much, all at once? I don’t think so,” I said.
“Unfortunately, it changed,” she said.
“Changed, as in bait-and-switch?” I asked.
What is bait-and-switch? It is when a company baits you with one cost and then changes it to something else when you try to get it.
Bait-and-switch is illegal. But it is still happening.
The new lending laws have not extinguished all the liars. Liars are lurking in all institutions: banks, brokers, and yes, also in credit unions.
This is why I tell people they cannot choose a mortgage by the type of lending institution. I don’t name names on my public blog, but if you would like to know the name and location of this credit union and the loan officer, send me an email via my Ask a Question page (in the toolbar above), and I’ll be happy to tell you so that you can avoid this crooked institution.
If anyone tries pulling a bait-and-switch on you, I would encourage you to report them to the Consumer Financial Protection Bureau. That is what they are here for, to protect you. The handy online complaint form is here.
“How soon after a short sale can I buy a house again?” is a question I’ve received a lot in the past week, so I will answer it now. It is a simple question, but the answer is somewhat complex. Without getting too complicated for a blog, here is what you need to know.
A Short Sale is Not a Foreclosure
A short sale is when the property is returned to the lender in exchange for canceling the loan. In a short sale, the home is sold, but the sales price did not cover the amount owed.
Getting an FHA Loan After a Short Sale
If you had no mortgage late payments in the 12 months leading up to the short sale, and if the short sale was a result of an acceptable extenuating circumstance, then you can get an FHA loan (3.5% down payment) one year after the completed short sale. However, if your short sale was on an FHA loan, then you will not qualify for this scenario.
FHA will grant a mortgage three years and one day after a short sale, providing you have good credit between then and now. You cannot have any outstanding debt with a Federal agency that is in delinquent status.
Getting a VA Loan After a Short Sale
You can get a VA loan two years from the close of the short sale.
There is no waiting period if you had zero late payments on anything — not on your mortgage nor on any credit cards, auto loans, or other consumer accounts, AND if the short sale was not a result of you taking advantage of declining market conditions. So if you chose to walk away because you were upside down on your mortgage, that disqualifies you for the no waiting period and you’ll need to wait out the two years.
Getting a Conventional Loan After a Short Sale
For a conventional loan, the waiting period is partly determined by your down payment. The more cash you can offer the lender as security, the less risk you are and the sooner you can buy another home.
20% down payment: two years after the close of the short sale to the new owner.
10% down payment: four years after the close of the short sale to the new owner.
5% down payment: seven years after the close of the short sale to the new owner.
Note that the waiting period does not start on the day that the lender agreed to the short sale. It starts on the day the short sale closed and the property ownership was transferred to the new owner. Thus, it could be months or even a year after the short sale was first started or agreed upon.
I have not forgotten about my promise to reveal a rip-off that some lenders, including credit unions, are doing now. I plan on writing about that in my next blog. I would have done it today had not so many people emailed me asking for the short sale rules.
Thank you for reading my blog and my books. If you’d like to comment, the click on comment at the top of this article.
We are getting ready to buy a house and want to get pre-approved. Do you recommend going to a bank or a credit union?
That is a good question, especially since one of my coaching clients came to me last week with Cost Estimates from a large national bank, a small community bank, and a local credit union.
Because each lender used a different format for their upfront cost estimate, it wasn’t clear to her which was the best choice; and that is precisely what my Estimate Review and Consultation Service is for. Curious about how the numbers came out?
I’ll show them to you below, but first, it is important to know that these numbers are for these particular lending institutions only. Not all of the three Big Banks (Bank of America, Chase, Wells Fargo), not all community banks, and not all credit unions are the same. Some banks and some credit unions are better or worse than others, so no “lender profiling” allowed.
For my client’s loan, a 15-year fixed rate refinance, 80% Loan-to-Value, no extra cash out, here is what she was offered:
3.5% 15-yr fixed rate
$1,854 points & lender fees
3.75% 15-yr fixed rate
$1,400 lender fees, no points
4.25% 15-yr fixed rate
$2,007 lender fees, no points
The credit union showed $1,954 on one line and then hid three additional lender (junk) fees in another spot. I call them junk fees, because when you’re charging $1,954 to process and underwrite a loan, there is no reason to tack on additional fees. It is nonsense and garbage. It seems they didn’t want to put a number beginning with a 2 on the lender fee line, so they scattered $53 in three fees elsewhere on the form.
Are you surprised to see that the credit union had both the highest rate and highest fees?
Personally, I am not thrilled with any of these three offers, because all the fees are too high.
On the other hand, the interest rates that start with a 3 are excellent.
Soon — possibly my next blog post — I am going to expose a brand new scam, a bait-and-switch. You won’t want to miss it, so please consider subscribing to the blog. I post only once a week (occasionally twice) so that your email is not inundated with messages.
Interest rates are down today! In the past two months, we’ve seen rates go from 4.75% down to 4.375%. Some aggressive lenders might even offer 4.25% to their best borrowers with high scores and large down payments today. So what’s going on?
Why did economists predict higher rates for 2014 when we’ve seen this drop in January? Does this mean they were all wrong and that rates are headed down again? There are good answers to those questions.
First, mortgage interest rates do not go up in a straight line. On a graph, rising rates will look like an upward zigzag. Right now, we have a dip. This does not mean rates won’t turn around and go up again. That could happen very fast on Friday, which I’ll explain in just a moment.
Second, there are many factors that go into interest rates. This recent rate drop is largely due to December’s weaker than expected jobs report that came out in January. Investors try to anticipate what will happen, so if the unemployment report ends up being worse than expected — even if it is improved over the previous month — then that is bad economic news and rates drop.
Will Mortgage Interest Rates Go Up or Down From Here?
Friday, February 7, the January Jobs Report will be released. The results will be influential in which direction rates go. On the days between now and Friday, investors will be speculating, so we could see some volatility in rates. If the report shows a stronger hiring economy than expected, rates will go up — and that could happen very quickly. On the other hand, if the report shows a weaker hiring economy than expected, rates will go down. No one can say with absolute certainty what will happen.
My philosophy on rate locking is this: Lock the dips and be happy. If you see a rate you like, lock it and be happy. Even if rates go lower after, you still got a rate you liked, so remain happy. Once you lock in, stop watching rates. Why drive yourself crazy? But until you lock, watch rates and keep in touch with your loan officer on a daily basis.
A Few Rules About Rate Locks
Once your interest rate is locked in, you don’t have to worry if rates go higher. You are locked. A rate lock is a commitment from an investor to give you a certain loan amount at a certain rate, with certain points (or no points).
The rate lock is tied to a property address, so you cannot lock in your rate before you have a purchase contract. If you are refinancing, then you can lock at any time.
Once your rate is locked in, you have a commitment. That commitment cannot be broken if rates go down the next day. That would be like a husband asking his wife for a divorce the day after the wedding because a more attractive girl came along. That said, there are some lenders that will compromise if rates go down significantly. For example, if rates drop by .5%, they are willing to drop your rate by .25%. But if rates go down by .125% or .25%, don’t expect to get a lower rate. That is not a change that is worthy of a compromise.
The loan officer should never decide when to lock in the interest rate. It is your financing and your decision. Don’t stick your head in a bag and expect your loan officer to predict the future of rates for you. You must be the one to tell your loan officer when to lock in your rate.
After your interest rate is locked, GET IT IN WRITING. Failure to do so is a mistake on your part. How do you know the loan officer actually locked in your rate if you don’t get it in writing? What about the many people who were told their rate was locked, but then, to their horror, found out later that the loan officer failed to do so, and now they were stuck with a higher rate? Learn from their mistake and get your rate lock in writing.
For other vital tips like this, see Mortgage Rip-Offs and Money Savers. I suggest the paperback over the Kindle version, because the Good Faith Estimates cannot be read on the Kindle version. In this book, I put at least eight different (actual, real) Good Faith Estimates from banks and brokers with my comments on their junk fees, hidden fees, lender credits, and more.
If you found this information on mortgage interest rates to be useful, please pass it on by clicking the social media icons and/or emailing the URL to those who might be interested. Thank you.
My answer is, “No, not always; but in some instances, yes.” I’ll explain.
YSP (Yield Spread Premium) is extra money (a premium) that the wholesale lender gives to the mortgage broker for selling you a higher interest rate than par rate. That difference between par and the rate you get is the “yield spread.” Par rate is the lowest rate you can get without paying extra in points to buy down the rate. If you don’t want to pay any points, then you want par rate.
Back in the Wild West days of mortgage lending (pre-2010), mortgage brokers could make extra commissions by selling borrowers a higher interest rate than par rate. The higher the rate they were able to sell, the bigger their premium commission was. Thus, it became the goal of greedy loan officers to sell you as high a rate as they could, and a lot of smooth double-talk ensued.
This led a lot of folks — after they realized they had been taken advantage of — to ask, “How can they sleep at night?”
And their answer was, “I sleep very well at night, because I’m making a ton of money, thanks to naive people like you.”
Of course, the savvy borrowers who took the time to read Mortgage Rip-Offs and Money Savers could not be taken advantage of.
So back to the question, “Is YSP illegal now?”
To answer, I refer to the Press Release by the U.S. Federal Reserve in regard to the law enacted April 1, 2011. In short, it says:
* Individual loan officers cannot be paid a higher commission by the lender they work for if they sell a higher interest rate to the borrower. (This takes away the incentive to sell higher priced loans.)
* A mortgage broker cannot collect both an origination fee and YSP. (If the lender charges you an administration fee, application fee, underwriting fee, processing fee, origination fee, or any other lender fees, then it is illegal to collect YSP. Any YSP would therefore have to be given to you, the borrower, as a credit.)
* If the mortgage broker is not charging any origination fee or lender fees whatsoever, then there is nothing in the law that prohibits them from making YSP.
In this last case, YSP is not illegal, according to the interpretation accepted by most lenders.
Mortgage brokers have a choice: get paid by lender fees or YSP, but no more “double dipping” like before.
BUT WAIT, THERE’S MORE TO THE STORY!
Banks and direct lenders love to say, “We are a bank; we don’t have YSP.” True enough, but that is also deceptive. Instead of having YSP, they have SRP!
SRP stands for Service Release Premium. It is money the bank or direct lender gets paid when they sell your loan after closing. Federal law does not require them to disclose it, and they never will. If you ask, the loan officer will say, “I don’t know what it is.” Which may or may not be true, depending on the bank and the loan officer.
Mortgage brokers say the law isn’t fair. It targets them, forcing them to disclose and credit their YSP whereas banks and direct lenders get to deny and keep their extra profit hidden.
Another question people ask me is, “Is there still par rate?”
My answer is, “Yes. If you don’t need money credited to you by the lender to help pay closing costs, then ask for par rate. Also, if you don’t want to pay points (or a partial point) to buy down your rate, then ask for par rate.”
Where to Get More Information
For more information on YSP, how it is directly tied to the interest rate you get, and charts showing actual rates with YSP, see Homebuyers Beware. Also, you will read the one thing you should never say to a loan officer, how to ask for a cost estimate upfront without giving out your social security number, and how to negotiate the best priced loan.
Home buyer Ilya A. Mazo said, “I feel empowered after reading this book.” As the saying goes, knowledge is power.
Thank you for reading my blog. My purpose in writing is to help people avoid rip-offs and get the best loan possible.
Did your property receive an inaccurate appraised value? Were you low-balled? Did the appraiser neglect to take into account home improvements or neighborhood qualities? Was your home value unfairly dragged down by the empty, neglected, foreclosed property down the street? If so, I have good news for you.
For the first time, lenders are now required to disclose to you ALL the information they base their underwriting valuation on, including the appraisal report. But that’s not all. Lenders use much more than the appraisal for their final judgment on a property value.
Common Considerations in Determining Property Value
The following are often used to determine value and loan-to-value ratio:
- The Automated Value Model (AVM). For example, CoreLogic provides more than one billion AVM reports monthly to lenders and other clients. These reports estimate property value without having a human go out to see the actual house. Freddie Mac has their version, called Home Value Explorer (HVE). There are others as well.
- Broker Price Opinions. For a fee, some real estate brokers will provide a value opinion to lenders.
- Appraisal Reviews. This is when the lender pays a second appraiser to take a look at the first appraiser’s report and weigh in. You might have noticed an Appraisal Review Fee on your Fee Worksheet or Good Faith Estimate if the lender passes on this cost to their customers.
- The Appraisal Report. Before now, this is the only document that has been provided to you, the borrower.
You now have the right to receive all this information. The law dictates that the lender is to provide it to you “promptly” (however that vague term might be interpreted) after receiving it, and no later than three days before closing.
WARNING: If you sign the waiver form that is included in your initial disclosure packet, then you give permission for the lender not to provide you with this information before closing. So pay attention to what you sign. You can also ask your loan officer where this is in the packet if it’s not clear and obvious to you.
If your property value is inaccurate, unfair, and bogus, you should share the disclosures with your real estate agent and ask for his or her assistance in making a list and including good comparable properties. Then you have the right to dispute the value, using this list. Personally, I’ve found that lists are a more effective and efficient way to get a decision reversed than a long essay-type letter.
I would be interested in hearing about your experience with this new law, so please feel free to email me via my “Ask Carolyn Warren a Question” page in the blue banner at the top.
“The burden of trying to comply with the (new) regulation is just overwhelmingly costly for a small financial institution,” she said.*
Her credit union is not the only one who is being strangled to death by the new laws. Last Friday, the government agency set up by the White House — ironically called the Consumer Financial Protection Bureau — enacted yet another new rule that favors the Big Banks and forces more little guys out of the mortgage business. These are the small, local, squeaky-clean lenders that are honest, efficient, competitively priced, and help keep their communities employed.
Look at Michigan Mutual, a company that employes 300 citizens. They, too, are feeling the squeeze. “There are going to be loans that we did in 2013 that we are not going to be able to do in 2014,” said chief executive Mark Walker. “We’re going to be very conservative just to make sure that we’re in compliance and don’t get into trouble.”
I’ll explain what he’s talking about.
Under the brand new “qualified mortgage” standards, approval guidelines will be more strict. The debt-to-income ratio is being lowered, which will negatively impact the following types of borrowers:
– Self-employed people.
– People who rely on tips for income.
– People with income from Internet sales, such as eBay and Etsy.
– People who do side jobs, such as child care, fixing cars, and yard work.
– People who do home party type of sales.
– and others who have income outside the W-2 box.
So forget what you’ve read about underwriting guidelines becoming more reasonable. They’re actually going in the other direction now. The new rules have got lenders scared that their loans won’t be accepted by Fannie Mae and Freddie Mac, even if the borrowers have excellent credit and a history of paying what they owe.
The new standards — not set by people who are experienced in mortgage lending, but by the CFPB committee — make it more difficult for lenders to sell loans to investors such as Fannie Mae and Freddie Mac. The wealthy Big Banks, such as Wells Fargo and Bank of America, can afford to keep a portion of their loans for 30 years on their own books without selling them in order to free up money to make more loans. In fact, those two banks have already said they plan to continue to issue loans outside of the new CFPB standards and keep them in-house. But the little guys cannot afford to do that. Therefore, making loans has just become riskier for them. So risky, that some are quitting mortgage loans altogether and others are significantly cutting down on the loans they will do.
Why is the government agency favoring the Big Banks over small lenders who, by the way, have a cleaner history of mortgage lending with fewer foreclosures?
Peter Carroll, CFPB’s assistant direction for mortgage markets had this to say about the new “qualified mortgage” rule: “I think we got the rule right.”
Really? That’s what you think, Mr. Carroll? Perhaps you should talk with Linda Sweet and Mark Walker and then think again.
* Big Valley Federal Credit Union of Sacramento, CA, is not closing for all business. President Linda Sweet said they will mostly stop making mortgage loans in 2014.
Source for quotes: REALTOR Magazine
The Home Equity Protection Act, just like it sounds, is supposed to prevent lenders from gobbling up your precious home equity with high fees. It is a law that limits how much banks and other mortgage lenders can charge you. This is especially relevant when the loan is small, such as the popular Home Equity Loan that many home owners use for remodeling or making home improvements.
Now the Consumer Financial Protection Bureau is raising the limit banks can charge you. Makes you wonder who this government agency is really protecting, doesn’t it?
The fee limit for a home equity loan in 1994 was $400. Last year in 2013, the limit was $625. All loan applications received on or after January 10, 2014 will have an increased fee limit of $1,000.
Of course, it is up to the individual bank and lender to decide whether or not to charge the limit. When shopping for a home equity loan, be sure to ask what the fee is. If they say $1,000, you know they are charging the maximum allowed by law. I advise shopping three lenders before deciding.
For a home equity or other small loan, I would look at a mid-size or small local bank, a credit union, and the bank I currently do business with. Don’t make the mistake of blindly taking the first loan offered.
In addition to the fee charged for a home equity loan, you also need to find out the following:
* Is there a prepayment penalty? If so, what are the terms?
* How does the adjustable rate work? What is the maximum the rate can go up to at the first adjustment? At each adjustment thereafter? The lifetime max?
* Is there an annual fee?
For more valuable information about home mortgage loans, please see Mortgage Rip-Offs and Money Savers.
I recommend the paperback copy over the Kindle, because the Good Faith Estimate forms are too difficult to read in the ebook format.
“If you’re considering getting a mortgage, read this to see what’s going on behind the scenes.” Posted November 8, 2013 by Lovelylight, user name
(FHFA was established by the White House after the mortgage meltdown. Their mission is to ensure a safe mortgage market by setting rules for government sponsored enterprises. Think Fannie Mae and Freddie Mac.)
There are two mortgage fees they said would increase in 2014:
1) The Guarantee Fee. This is a fee charged by Fannie Mae and Freddie Mac for bundling, servicing, and selling mortgage-backed securities to investors. More detail is here. This fee increase was going to be passed on to mortgage borrowers, home buyers.
2) Credit related fee increase. A fee for having a credit score below the top tier. In other words, a charge to offset the risk of lending to you if you don’t have “A” credit. Currently, top tier credit in the mortgage world is 740, but they have proposed raising that to 800.
After the announcement, the Mortgage Bankers Association sprung into action in protest. They are actively working with policy makers to prevent a pricing increase for home buyers that could hurt our fragile housing market.
Just because we have seen some recovery, it doesn’t mean the market is robust and can withstand a punch in the gut like a major fee increase. So the issue is being reviewed now. We’ll have to wait to see how it all plays out.
What is the Loan Limit in Your County?
In the meantime, some counties with higher median home prices than average have suffered a loan limit reduction. I blogged about this possibly happening earlier this year, as you might recall. In the highest-cost areas where the loan limit was $729,750, the limit has been reduced to $625,500. Here is the link to the look-up table for FHA loan limits by county.
You are invited to sign up to this blog to receive important information about mortgages and home buying in 2014. I blog once a week, usually on Tuesday, so you aren’t flooded with too much in your in-box.