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Friday, June 11, 2004

Mortgage Maps

by David Reed

One of the neatest things about being in the home loan business is seeing the faces of first time homebuyers when you tell them they're approved. You know that "oh my gosh, I'm buying my first home" sort of look. That's the fun part. But there's also a not fun part; telling someone they're not approved.

It's disappointing, I know. After all the paperwork and interviews with a loan officer and hoping and praying that your home wish comes true the whole thing stops dead in its tracks. No home, no loan. It's a sad thing, but if your loan officer is doing his or her job right it doesn't have to be so sad. In fact, it can be some good news for you later on down the road. Unfortunately, too many loan officers simply give you the bad news and move on to the next loan file. Instead, you should have been given a road map on how to get a home loan in the future.

Most every mortgage is evaluated using an automated underwriting system. These systems review your request, review your credit and calculate your debt ratios automatically. All without having to provide any upfront documentation. Instead, your approval is issued on a "theoretical" basis. That means your approval is issued but only on the assumption that you can prove what your put on your application. If you want an approval with 5 percent down and don't get it, all the loan officer has to do is enter 10 percent down to see if that will work.

Are your debt ratios too high? Your loan officer merely needs to adjust the interest rate until an approval is granted. If you don't get an approval at 7 percent, then try 6.50 percent. Or 6.25 percent. If your ratios are too high, then try borrowing less money either by putting more down or buying a less expensive house. Maybe it's a combination of several factors. Buy a less expensive home, put 10 percent down and get a lower start rate. But if you get none of these suggestions from your loan officer then you're getting short-changed. A good loan officer will tell you, "I can't get an approval based upon a $150,000 house, but I can get you one at $130,000."

All too often, potential homeowners are left at the altar when their dream house doesn't materialize. Instead, those homeowners should look at their situation as a guide to a loan approval. If you can't get approved with 5 percent down but you can with 15 percent down, then all you need to do is wait and save more money. Or you can get a raise at work, or you can get some gift funds from a relative or from a down-payment assistance program.

Whatever the case, if your initial attempt at homeownership falls short, keep trying various scenarios until you get your approval. Then get to work. Use your "decline" as a mortgage map and follow that map until you get where you originally wanted to be … in your very own home.

Published: June 11, 2004

David Reed, author of the The Hip and the Hype, a guide for lenders to the Internet, is also a columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Mr. Reed, based in Austin, TX, is the Director of Internet Lending for SouthTrust Mortgage, a subsidiary of SouthTrust Bank, one of the 20 largest banks in the United States.
Reed is a member of the Mortgage Speakers Bureau, and addresses consumer and industry groups nationwide regarding technology and mortgage lending issues.

Copyright © 2004 Realty Times. All Rights Reserved.

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