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5 Financial Benefits of Owning Your Home

Home calls to mind family, community, friends, relationships, and a shared history. Where we live affects our self-esteem, the control we have over our environment, and our perceptions over financial security. Being a homeowner is seen by most as a sign of accomplishment and success. Buying a home takes a lot of thought, hard work, and sacrifice.

Whether you are a single person or have a family, you need to decide whether or not owning a home is right for you. There are many things to consider, including where you want to live, how much you can reasonably afford, and what you are willing to do to make sure your new home maintains its value.   Aside from the important psychological benefits of homeownership, there are many financial benefits to consider:

(1) Mortgage payments are a sort of forced savings with a portion of your monthly payment going to reduce the principal balance,

(2) The U.S. tax code allows homeowners to reduce mortgage interest from tax obligations (limits apply),

(3) Real estate property taxes paid are also fully deductible from tax obligations,

(4) If you live in the home for more than two years and then decide to sell it, up to $250,000 of the profit gained from the sale is excluded from capital gains taxes for single persons and up to $500,000 for married persons, and

(5) Price appreciation helps build home equity, which is the difference between the market price of the house and the remaining mortgage payments.

Careful consideration of all applicable benefits to your particular situation can be reviewed with a certified public accountant.

 

Sylvia M. Gutiérrez is author of Mortgage Matters: Demystifying the Loan Approval Maze. RealWorks Press: 2015. Available at Amazon, Barnes & Noble, iTunes, and independent booksellers everywhere. Distributed by Ingram.
Licensed and registered mortgage loan officer with NMLS id: 372427
Diversity & Inclusion Co-chair, NAMB – Association of Mortgage Professionals
Government Affairs Chair, South Florida Mortgage Bankers Association
Associate Member, National Association of Real Estate Editors

trid jigsaw loan documents

Under TRID, Can A Lender Review Loan Documents Prior to Issuing a Loan Estimate?

As part of the implementation of the final rules of the Dodd-Frank Act, one of the most contested issues regarding the changes under the Truth-In-Lending and Real Estate Settlement and Procedures Act  Integration Disclosure (aka TRID) is the question of whether or not a lender can review loan documents prior to issuing a Loan Estimate. The Consumer Financial Protection Bureau has issued clarification on this and many other questions that lenders, realtors, closing agents, and borrowers have through the Federal Reserve System’s audio conference series on consumer compliance issues that can be found here:  Index of TRID Questions Addressed During Webinars-2.

The short answer to the above question is yes.  A lender CAN review loan documents prior to issuing a Loan Estimate if the borrower volunteers the information.

Borrowers:  When shopping for a home loan, ask your loan officer for a Pre-Application Cost Estimate for any loan program you wish to consider.  This is non-binding to the lender and allows you to view different options prior to deciding which loan program, rate, and terms are best for you.  Information quoted is based on many assumptions including:  loan amount, intended occupancy, credit score, property type, valuation, timing of rate lock, and whether or not your debt-to-income ratio falls under 43%.  Changes to any of these assumptions may result in changes to quoted terms or access to loan programs.

Lenders:  If you haven’t programmed Pre-Application Cost Estimates for your loan officers to assist borrowers in their selection process, you’re behind the 8-ball and may be exposing yourself to unnecessary compliance and fair lending risks.   Also, take a moment and remember when you were buying your first home.  Didn’t you want to see all the closing costs in writing before you made your buying decision?  Before you gave a stranger your social security number?   Allow your LOs to provide the proper tools for borrower decisioning and train your LOs to go over the above mentioned assumptions.  With a clear explanation of risks, an educated borrower will appreciate the lesson and identify you’ve earned their business.

Sylvia M. Gutiérrez is author of Mortgage Matters: Demystifying the Loan Approval Maze. RealWorks Press: 2015. Available at Amazon, Barnes & Noble, iTunes, and independent booksellers everywhere. Distributed by Ingram.
Licensed and registered mortgage loan officer with NMLS id: 372427
Diversity & Inclusion Co-chair, NAMB – Association of Mortgage Professionals
Government Affairs Chair, South Florida Mortgage Bankers Association
Associate Member, National Association of Real Estate Editors

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The CFPB Has Confirmed What Loan Officers Have Always Known

In a January 2015 study, the CFPB has confirmed what loan officers and mortgage brokers have always known, the first provider to engage with the borrower has the highest likelihood of acquiring the loan transaction. For about 77% of borrowers, the mortgage shopping process stops after their first application. That is significant.

The interest rate on a mortgage is one of the key components of the mortgage’s total cost, and offered mortgage interest rates vary across lenders, implying that consumers can potentially save a significant amount of money if they shop effectively. But interest rates are only one component of finding the right lender match. To shop effectively, a consumer must must know what features and benefits are available and what eligibility standards are applicable. Not all lenders offer the same loan products and not all lenders follow the same credit criteria.

Key findings from the National Survey of Mortgage Borrowers include:

      1. A sizable share of borrowers report that factors not directly related to mortgage cost, including the lender or broker’s reputation and geographic proximity, are very important in their decision making. Borrowers who express such preferences are much less likely to shop.
      2. Almost half of consumers who take out a mortgage for home purchase fail to shop prior to application; that is, they seriously consider only a single lender or mortgage broker before choosing where to apply. The tendency to shop is somewhat higher among first-time homebuyers.
      3. The primary source of information relied on by mortgage borrowers is their lender or broker, followed by a real estate agent.
      4. Consumers who report being unfamiliar with the mortgage process are less likely to shop and are more likely to rely on real estate agents or personal acquaintances.

 

The study goes on to ask consumers what characteristics – besides interest rates or other mortgage terms – may play an important role in their choice of lender or broker. While none of these characteristics were considered very important by a majority of the borrowers, these characteristics were very important for a sizable minority of consumers:

  • Having an established banking relationship
  • Reputation of the lender/broker
  • Having a local office or branch nearby
  • Recommendation from a real estate agent/home builder

 

For those consumers who had a tendency to shop, these are the primary characteristics that motivated them:

  • Lender/broker operates online
  • Recommendation from a lending website
  • Reputation of the lender/broker
  • Recommendation from a real estate agent/home builder
  • Recommendation from a friend/relative/co-worker
  • Spoke my primary language, which is not English
  • Having a local office or branch nearby

 

The bottom line is this… Consumer education on the mortgage lending process is critical for potentially saving thousands of dollars over the life of the loan.

Real Estate Agents Demand Local Lenders

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In an article dated August 22, 2014, Inside Mortgage Trends reports results from the latest Campbell/Inside Mortgage Finance Housing Pulse Tracking Survey to show that real estate agents strongly prefer local lenders and a Florida real estate agent was quoted as suggesting to the seller a requirement for all offers with financing contingencies to go through a local lender.

Agents report that closing delays are more common from a call center lender than from a lender with a local office due to a general lack of responsiveness, underwriting delays, lack of knowledge of local lending laws, and inaccessibility of lender contacts with settlements taking place after hours. When the time requirements of the sales contract are not respected, buyers are at risk of losing their earnest money deposits.

Tom Popik, research director of Campbell Surveys confirms, “Agents crave information and certainty of closing.” A Michigan real estate agent is reported to contact the buyer’s lender for access to information regarding the timeline of the underwriting process and expectations for meeting closing dates. To leverage against delays, he includes a contract addendum leaving his seller’s with “an out after a certain period.”

Selling agents are said to encourage potential buyers to avoid call center lenders altogether or as a safety net, submit a second loan application to a local lender. Additionally, when a listing receives multiple offers, sellers are encouraged by their agents to “shy away from offers financed by a call center lender.”

How can call center lenders do a better job upfront of calming all parties? By issuing true pre-approvals where credit, income, and assets have been reviewed and approved by a decision maker and by communicating clear closing expectations once a property appraisal has been received and reviewed.