From TexAgs Sponsor, Red Pear Realty:
One of the most frequent conversations we have with our clients is about financing and the current mortgage market conditions. This month, we put together a little Q&A with several lenders that we do a lot of business with right here on Texags!
Interviews were conducted over the past several weeks, and answers include opinions of the market conditions at that time.
Q: Tell us about yourself.
A:
Steve Bott: "My name is Steven Bott, Class of '82 degree in Finance. I have been a loan originator for 22 years and the last 10 with Megamerica Mortgage Group based in San Antonio. I offer all the usual loan products but mostly conventional loans."
Brian Bazar: "I have been in the industry for over 38 years. My career consisted of 35 years in corporate America where I managed operations for 20+ years and moved into Operations Risk Management for the last 8 years after my children had graduated from A&M. I activated my mortgage loan officer license when I retired and have focused on purchase money mortgages. I am a proud Papa to six grandchildren and enjoy traveling with my wife of 35 years, gardening and watching the cows."
Jay Hurst: "My company Hurst Lending has been the title sponsor of the Texags.com real estate board since its beginning in I believe 2007. I think that makes the longest running sponsor on this board. I have been lending for 20+ years. We are a broker, banker and a portfolio lender which means we lend our own money so can make our own underwriting decisions as well as the stuff everyone else can do."
Braxton Sherrill: "I'm Braxton Sherrill '06 Founder and Principal of Texas Best Home Loans LLC."
Q: Tell us about the market right now.
A:
Steve Bott: "Ha! It is terrible. These are the highest rates since I have been in the business which I began in 2002. Several macro factors are severely impacting the market but high rates have the most impact. For example many prospective buyers are not in the market due to not wanting to enter a 7%+ new loan while they have a sub 3 on their current home. It also affects purchasing power making it difficult to qualify for the move up homes."
Brian Bazar: "In one word, I would describe the market as "paralyzed". Interest rates combined with housing cost increases have many new homebuyers sitting on the sidelines waiting for the affordability index to move in their direction. Current owners are hesitant to list and move and walk away from a 3 to 5% rate on their current mortgage to trade up and take on an 8% rate."
Jay Hurst: "Still seeing a lot of investor activity on off market deals but the lack of inventory is making it hard on the typical owner occupied market."
Braxton Sherrill: "It has been a wild ride over the last two years. From 30 plus offers on homes, to institutional buyers snatching up typical 1st time buyer inventory left and right, to the surge in interest rates and subsequent screeching halt."
Q: What is a mortgage rate lock and what does that cost the Borrower?
A: "It is a guarantee of an agreed interest rate offered to the client. It has an expiration that varies that the client and I can negotiate. 30 days is common but you can also lock at 15, 45, 60 days or even longer. This allows the lender to lend at upfront agreed terms." - Steve Bott
Q: What are your views on down payment amounts?
A: "A common misconception for first time home buyers is that you have to be able to put down 20% to get a conventional loan. That is not correct, you can put as little as 5% down, in some cases even 3% down for a conventional loan. Of course if you can put down 20% that is preferred but you do not have to." - Jay Hurst
Q: Tell us about a lesser known mortgage loan product you think more borrowers should take advantage of.
A: "Buydowns 3-2-1 or 2-1 or 1-0 For example, a 2-1 buydown allows either the seller or the buyer to pay to have the payment in year one to be based on a 2% lower interest rate and the payment in year two to be based on a 1% lower interest rate. This is a very attractive offer to help sell a home or make the payment more appealing to buyers during this time of higher interest rates. The logic is that rates will go down in the next 12 to 24 months, so rather than paying to have a lower rate for 30 years, pay to have a lower rate for a year or two or even 3 years with the plan to refinance at a lower rate when the rates come back down in the next year or so." - Brian Bazar
Q: What "hidden fees" should borrowers look for when comparing lenders?
A: "Not a hidden fee, but you should shop for rates/terms on the same day and even better when you have a contract as rates/terms move day to day and even during a given day. Mortgage rates are set by mortgage backed securities (MBS). MBS are simply bonds so they move in price during a day, over night and over the weekend just like any other security. So, you want to make sure you are comparing apples to apples. The other thing to understand is that rates are directly tied to fees. So, when comparing options understand any lender can give you any rate you would like, it just depends on how much you are paying for that rate and does that make mathematical sense." - Jay Hurst
Q: How do you assess the credit-worthiness of potential borrowers, and what are some things that borrowers can do to prepare for the mortgage application process with respect to credit?
A: "Mortgage underwriting is looking at FICO scores (typically requiring over 620, the higher the FICO, the lower the rate in most cases), Debt ratio (looking for total monthly payments to be under 45% of the borrowers' gross monthly income, Previous payment history (no derogatory payment history is best, meaning pays monthly payments on time), Stable income sources (2 year history), and Pays required income taxes without delinquent student loan debt. To prepare, try to get credit utilization down under 12% on all credit sources to have higher FICO scores, (credit card balance divided by credit limit = utilization %). Try and get monthly payments down under 45%." - Brian Bazar
Q: Where do you project interest rates in…
A: (anonymous)
Q: What advice would you give a first-time home buyer?
A: "Ask questions!!!! There is no way for you to understand how this process works unless you ask about items that are not clear to you. This is a very involved process with multiple moving parts and multiple people involved that you may never interact with. Do not talk yourself out of trying to qualify just because you don't think highly of your financial situation. I have had several borrowers over the years that we worked for over a year and got them in a financial position to be able to purchase a home." -Braxton Sherrill
Q: What advice would you give to a new investor looking to build a portfolio of income properties?
A: "Treat the purchase of properties like a side business. You will want to have a minimum inventory of 5-6 homes. Preferred in areas you have close access and are already familiar with. Having just 1 or 2 increases your non payment risk." -Steve Bott
Q: What would you change about the lending process vs. how it stands today?
A: "This is a double edged sword because I would love to have some ability to use common sense lending, but it could get out of hand and be abused very quickly. Self-employed borrowers have far too much scrutiny, a w2 borrower could work for a company that is known to be struggling and there is 10 times less scrutiny on them than a self-employed borrower with 20 years in their field." - Braxton Sherill
Q: What is your favorite crazy deal story?
A: "While every loan has a crazy event or two along the way, one that always comes to mind was when the Title company did not mention until the day of closing that there was another person on the title who needed to be added to the contract as a seller. Turns out, this person was out of state, had given no power of attorney to anyone, and could not be reached in "Vegas" for signature. After calls to the title company's corporate office, the issue was resolved and title company accepted the risk and consumated the transaction for our buyer." - Brian Bazar
Q: What would you ask one of our Aggie Lenders or Red Pear Agents?
We Split Commissions. Full Service Agents in Austin, Bryan-College Station, Dallas-Fort Worth, Houston and San Antonio. www.MyRedPear.com
One of the most frequent conversations we have with our clients is about financing and the current mortgage market conditions. This month, we put together a little Q&A with several lenders that we do a lot of business with right here on Texags!
Interviews were conducted over the past several weeks, and answers include opinions of the market conditions at that time.
Q: Tell us about yourself.
A:
Steve Bott: "My name is Steven Bott, Class of '82 degree in Finance. I have been a loan originator for 22 years and the last 10 with Megamerica Mortgage Group based in San Antonio. I offer all the usual loan products but mostly conventional loans."
Brian Bazar: "I have been in the industry for over 38 years. My career consisted of 35 years in corporate America where I managed operations for 20+ years and moved into Operations Risk Management for the last 8 years after my children had graduated from A&M. I activated my mortgage loan officer license when I retired and have focused on purchase money mortgages. I am a proud Papa to six grandchildren and enjoy traveling with my wife of 35 years, gardening and watching the cows."
Jay Hurst: "My company Hurst Lending has been the title sponsor of the Texags.com real estate board since its beginning in I believe 2007. I think that makes the longest running sponsor on this board. I have been lending for 20+ years. We are a broker, banker and a portfolio lender which means we lend our own money so can make our own underwriting decisions as well as the stuff everyone else can do."
Braxton Sherrill: "I'm Braxton Sherrill '06 Founder and Principal of Texas Best Home Loans LLC."
Q: Tell us about the market right now.
A:
Steve Bott: "Ha! It is terrible. These are the highest rates since I have been in the business which I began in 2002. Several macro factors are severely impacting the market but high rates have the most impact. For example many prospective buyers are not in the market due to not wanting to enter a 7%+ new loan while they have a sub 3 on their current home. It also affects purchasing power making it difficult to qualify for the move up homes."
Brian Bazar: "In one word, I would describe the market as "paralyzed". Interest rates combined with housing cost increases have many new homebuyers sitting on the sidelines waiting for the affordability index to move in their direction. Current owners are hesitant to list and move and walk away from a 3 to 5% rate on their current mortgage to trade up and take on an 8% rate."
Jay Hurst: "Still seeing a lot of investor activity on off market deals but the lack of inventory is making it hard on the typical owner occupied market."
Braxton Sherrill: "It has been a wild ride over the last two years. From 30 plus offers on homes, to institutional buyers snatching up typical 1st time buyer inventory left and right, to the surge in interest rates and subsequent screeching halt."
Q: What is a mortgage rate lock and what does that cost the Borrower?
A: "It is a guarantee of an agreed interest rate offered to the client. It has an expiration that varies that the client and I can negotiate. 30 days is common but you can also lock at 15, 45, 60 days or even longer. This allows the lender to lend at upfront agreed terms." - Steve Bott
Q: What are your views on down payment amounts?
A: "A common misconception for first time home buyers is that you have to be able to put down 20% to get a conventional loan. That is not correct, you can put as little as 5% down, in some cases even 3% down for a conventional loan. Of course if you can put down 20% that is preferred but you do not have to." - Jay Hurst
Q: Tell us about a lesser known mortgage loan product you think more borrowers should take advantage of.
A: "Buydowns 3-2-1 or 2-1 or 1-0 For example, a 2-1 buydown allows either the seller or the buyer to pay to have the payment in year one to be based on a 2% lower interest rate and the payment in year two to be based on a 1% lower interest rate. This is a very attractive offer to help sell a home or make the payment more appealing to buyers during this time of higher interest rates. The logic is that rates will go down in the next 12 to 24 months, so rather than paying to have a lower rate for 30 years, pay to have a lower rate for a year or two or even 3 years with the plan to refinance at a lower rate when the rates come back down in the next year or so." - Brian Bazar
Q: What "hidden fees" should borrowers look for when comparing lenders?
A: "Not a hidden fee, but you should shop for rates/terms on the same day and even better when you have a contract as rates/terms move day to day and even during a given day. Mortgage rates are set by mortgage backed securities (MBS). MBS are simply bonds so they move in price during a day, over night and over the weekend just like any other security. So, you want to make sure you are comparing apples to apples. The other thing to understand is that rates are directly tied to fees. So, when comparing options understand any lender can give you any rate you would like, it just depends on how much you are paying for that rate and does that make mathematical sense." - Jay Hurst
Q: How do you assess the credit-worthiness of potential borrowers, and what are some things that borrowers can do to prepare for the mortgage application process with respect to credit?
A: "Mortgage underwriting is looking at FICO scores (typically requiring over 620, the higher the FICO, the lower the rate in most cases), Debt ratio (looking for total monthly payments to be under 45% of the borrowers' gross monthly income, Previous payment history (no derogatory payment history is best, meaning pays monthly payments on time), Stable income sources (2 year history), and Pays required income taxes without delinquent student loan debt. To prepare, try to get credit utilization down under 12% on all credit sources to have higher FICO scores, (credit card balance divided by credit limit = utilization %). Try and get monthly payments down under 45%." - Brian Bazar
Q: Where do you project interest rates in…
A: (anonymous)
Q: What advice would you give a first-time home buyer?
A: "Ask questions!!!! There is no way for you to understand how this process works unless you ask about items that are not clear to you. This is a very involved process with multiple moving parts and multiple people involved that you may never interact with. Do not talk yourself out of trying to qualify just because you don't think highly of your financial situation. I have had several borrowers over the years that we worked for over a year and got them in a financial position to be able to purchase a home." -Braxton Sherrill
Q: What advice would you give to a new investor looking to build a portfolio of income properties?
A: "Treat the purchase of properties like a side business. You will want to have a minimum inventory of 5-6 homes. Preferred in areas you have close access and are already familiar with. Having just 1 or 2 increases your non payment risk." -Steve Bott
Q: What would you change about the lending process vs. how it stands today?
A: "This is a double edged sword because I would love to have some ability to use common sense lending, but it could get out of hand and be abused very quickly. Self-employed borrowers have far too much scrutiny, a w2 borrower could work for a company that is known to be struggling and there is 10 times less scrutiny on them than a self-employed borrower with 20 years in their field." - Braxton Sherill
Q: What is your favorite crazy deal story?
A: "While every loan has a crazy event or two along the way, one that always comes to mind was when the Title company did not mention until the day of closing that there was another person on the title who needed to be added to the contract as a seller. Turns out, this person was out of state, had given no power of attorney to anyone, and could not be reached in "Vegas" for signature. After calls to the title company's corporate office, the issue was resolved and title company accepted the risk and consumated the transaction for our buyer." - Brian Bazar
Q: What would you ask one of our Aggie Lenders or Red Pear Agents?
We Split Commissions. Full Service Agents in Austin, Bryan-College Station, Dallas-Fort Worth, Houston and San Antonio. www.MyRedPear.com