Real Estate Financing and Investing/Lend a Hand With Paperwork
Be ready to interpret financial terms if they are a foreign language to buyers. A home is the biggest investment most people make, so buyers are anxious to finance it on the best terms possible. Today, more loan choices than ever face the would-be borrower. Once you`ve prequalified a buyer, the next step is usually answering the buyer`s questions about mortgage loans. It`s here that your knowledge of real estate finance can help you stand out from other salespeople. You must be thoroughly familiar with the mortgage market in your town. You must also know what loans are available and on what terms, and you must be ready to help buyers get through the application process.
Get to Know Lenders
To be proficient, you need to know which mortgages work best in a variety of market conditions. Keeping up with real estate finance can take some time and effort, but it`s time well spent.
Lenders are ready to cooperate in the learning process. They, too, operate in a competitive marketplace, so they`re ready to help you.
Although lenders all have their own products to sell, they`re also good sources of general information about the field. To take advantage of this expertise, several salespeople advised, "Take a lender to lunch." Get to know the local lenders, and make it a habit to keep in touch with what`s going on in the local and regional lending business. Even experienced salespeople need to learn continually because consumer demands shift and loan features change. After buyers have asked about loan types, they`ll probably ask about rates. To illustrate the changes in interest rates, you can show buyers what has happened in the recent past. Remember, however, that lenders will be providing the buyer with specific rate and loan information as required by federal law. Since October 1988, lenders have been required to disclose to buyers applying for a loan how that particular program works. For example, if buyers choose one of the many adjustable-rate mortgage (ARM) products available, they`ll get substantial information about interest rates.
Although you can`t advise buyers on which loan to choose, you can direct them to sources of mortgage information.
Learn the Loan Market
To give buyers the big picture, you can explain that almost all loans fit into one of two categories: fixed-rate or adjustable-rate. Even experienced move-up buyers may know that fixed-rate loans have recently appeared in equity building varieties. Borrowers can choose intermediate terms, such as 10, 15, and 20 years, as well as the traditional 30-year mortgage.
Now well accepted, the ARM was a significant innovation. It let buyers take advantage of a low initial rate and payment and offered them the possibility of a downward adjustment in the future, depending on the performance of the index to which it was tied. Among the popular indexes, the 11th District average cost-of-funds index has been gaining in popularity because it has been less volatile and, therefore, a better buy for borrowers concerned with interest rate risk.
Learning the ARM loan means learning to compare not only initial rates but also indexes, margins, rate caps, and life-of-the-loan caps.
The convertible ARM is a relatively new mortgage product that combines features of adjustable- and fixed-rate loans. For those who want to hedge their bets, the convertible ARM is a fantastic product. It`s adjustable, but it`s conservative because it can convert to a fixed rate during a window period.
Note: There are different variations of ARMs you may opt for, such as 1-year (fixed) ARM, 3-year ARM, 5-year ARM, 7-year ARM, and 10-year ARM.
A Point About Points
As important as knowing interest rates is knowing the lender`s policies about the other key elements of a loan. What`s tough on buyers is if they have a 90-day lock-in for the rate and the points, say, two points. You have to tell them it`s a gamble. They can save some money or lose some in a volatile market. It makes a difference whether they float with the points or lock them in. If you make buyers aware of points at the outset of their mortgage search, it helps them prepare. What you get for a dollar with points is a determining factor.
Points and closing costs can raise the true cost of a loan significantly. These fees assume a variety of names: fees for recording of mortgage, lender`s inspection fee, lender`s points, and prepaid interest. If you prepare buyers for such fees and familiarize them with their purpose, they can be better shoppers and find out for themselves the true cost of a loan -- the actual annual percentage rate (APR).
The Loan Application
Once you've discussed loan types with the buyers and given them the data they need to find financing, you should follow up to keep the loan process moving.
Guiding the buyers through the loan application process is easy if you've prequalified them properly. Loan applications themselves are no big deal.
Providing the basic personal information takes little of the buyers` time; amassing the financial data and credit history is what takes time and maybe some help from you as well. A typical loan application asks for employer, earnings, bank accounts and investments, debts (such as installment debts, charge accounts, auto loans, and alimony), and credit history.
The application process is now easier. For instance, lenders are more willing to accept paycheck stubs from the borrower as evidence of income instead of a written letter from the employer, along with W2 forms for the past two years to verify income stability. They`re also more willing to accept a photocopy of a savings account statement instead of a letter from the buyer`s bank. With this kind of documentation and photocopies of mortgage payments for 12 months of canceled checks for 6 months of rent payments, some lenders will now issue an approval within two weeks. The approval is contingent on an acceptable appraisal establishing value and on an acceptable source of down payment and closing costs.
Quick-approval loans that promise 15-day processing from application to approval are more common when lenders are competing for business. The salesperson can help buyers link up with a good lender. At this point, the application is in the lender`s hands. But even so, you should be ready to follow up with the buyer and the lender to help ensure that a qualified buyer perseveres through the loan application process.
Watch the Finance Scene
Your assistance during the long wait between choosing a home and getting a loan can help close the sale. Remember, you`re the link between the lender and the buyer. Keep in touch with the lender and alert the buyer to any missing documents or problems. You can also reassure the buyer who`s unnecessarily anxious about loan approval. Working closely with a good lender is the key to successful financing. That`s not all there is to a mortgage loan, however. Credit reports and appraisals are also crucial to the process, and you`ll need to work just as closely with allied professionals in those fields. But if you keep pace with the financial side of real estate, you`ll be a step ahead of the game.