Mortgages in 2020

Anatomy of a Mortgage in 2020

Check out Chicago loan originator, Gene Mundt’s, excellent post on the changes the year 2020 has brought on mortgage applications and what is yet to come:

The year 2020 has been like no other …

In many ways, because of all the challenges and upheaval, time has felt like it was moving at a snail-like pace. Frustratingly slow and perhaps at times, seemingly standing still.

Yet, here we. It’s September and Fall 2020 has officially begun.

All that has already taken place in the year thus far brings to mind the old saying,

“that one thing you can always count on is change”mortThe year 2020 has certainly delivered in that respect in many ways. The real estate and mortgage industries are a real reflection of that, as both have been affected and experienced a large number of changes.

And if the rumors prove true, even more changes are on tap for the remaining part of the year. For those consumers currently borrowing money via a mortgage, those changes that have taken place earlier in 2020 are being experienced in a variety of ways, both collectively and individually now.

Here’s a sampling of some of those changes that have taken place so far this year and those that are yet to take place shortly:

Private Mortgage Insurance is now being quoted individually, based upon a consumer’s vital financial information (Credit, Loan-To-Value or downpayment percentage, Number of Borrowers on the Loan, Money in the bank, Money left over, Property Type, and more)
Lenders must VERBALLY reconfirm that a Borrower is working. This confirmation must take place within 3 days before the Closing Date. (This is performed in that time period because of the large number of job layoffs being experienced)
In some real estate markets, Appraisals are taking longer to be conducted/submitted, sometimes up to two weeks
Self-Employed Borrowers are now required to provide even more current year Profit and Loss Statements, current Business Bank Statements, and an affidavit within 10 days of Closing. This documentation must prove/verify that their business is still viable, active, and profitable
The costs of Refinancing (Conventional Loans, backed by Fannie Mae/Freddie Mac) will be going up an average of $1,250 based upon an average loan amount of $250,000, beginning November 1st, 2020

Right now, there’s just a lot of “moving parts” for consumers to be aware of and juggle during their mortgage application and mortgage processing. Lots to remember, lots to understand, lots of decisions to be made. It can all seem a bit overwhelming for them.

And because of that, many borrowers understandably have a knee-jerk reaction. Hoping to simplify the process, they begin to fixate on just one or two specific details of the process.

This reaction can be risky though, as a more broad view and thorough participation are needed in order for them to make sound decisions. Decisions that are beneficial to their larger goals and long-term needs.

The following is a scenario that I run into with new prospective mortgage clients fairly often …

It showcases just why it’s so very important for applicants to retain a broader view during the entire mortgage process. Why it’s to their benefit to remain open-minded as they compare interest rates and mortgage options … and how it can pay off to do so.

Example:

A recent caller asked me for a “quote” on an interest rate. As often happens, they’d already been provided a rate by their agent’s preferred lender and were looking for a comparison quote.

The caller was laser-focused on beating the previously lender’s rate quote. There was no doubt that the rate quote received was low.

However, the Closing Costs associated with that quote were extremely high.

For me, that was a real red flag. Closing Costs typically go hand-in-hand with Interest Rates and that was definitely not the case in this particular situation.

In order for me to determine what financing options would best meet the needs of the caller (and if the previous quoted rate and mortgage options met that need), I needed more information. Questions followed.

It quickly became quite apparent that while the interest rate previously quoted to my caller was a good rate, the mortgage program quoted was an ill-fit for them. It would also financially handcuff them pretty severely on a monthly basis.

Plus, I also had grave doubts that they would even be approved for the loan, as previously quoted. A conversation thoroughly explaining the menu of options available to them was called for and conducted.

That conversation described in detail the larger array of mortgage options available to them … and the pros and cons of each. It helped broaden the client’s perspective and also helped them understand that substantial savings could be found if they looked beyond interest rates alone.

My caller ultimately chose an interest rate and mortgage option that would be more beneficial (both in the short and long term) for themselves. And they opted to pass on the previous lender’s quote.

What information helped them most?

During that conversation together I found that:

Real Estate Taxes
Homeowners Insurance
Private Mortgage Insurance
Homeowners Association Dues (HOA)
More …

… had NOT been previously discussed with my caller.

Each of the above, along with the interest rate, helps determine the principal and interest payment. Each must be calculated and factored into monthly mortgage payments.

They all must be kept in mind and weighed when choosing a home. Buyers must take into consideration far more than Sales Price alone when viewing homes. Our conversation informed them of this reality and better prepared them for their home search.

The changes that have occurred so far in the year 2020 have had ramifications on buyers and mortgage applicants. Ramifications that trickle down to home sellers and housing markets, changing them as well.

The prognosis for what lies ahead for the rest of the year and beyond appears positive at this time. Time will tell.

While borrowers may have a bit more documentation to tackle and closing times may be stretched out a bit more because of high volume, the very low interest rates continue to make the extra work and attention demanded worthwhile. The financial savings can be monumental over time and make that true.

Change is constant and inevitable. As evidenced by the savings found in current low interest rates, it can also be very positive and welcomed …

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