I spent yesterday afternoon chatting it up with one of my favorite lenders, David Umsted of Merchants & Planters Bank. David is the Vice President of the Home Loans Divison at M&P Bank. He's been in the business since 2002, closing over $110 million in mortgage volume (!), so he's already a seasoned veteran in the biz. Remember the salad days at the beginning of the 21st century? He does, too. Remember how things got crazy over the past couple of years? Yep, so does he. And now that we're (hopefully) heading into a recovery period, David is still helping folks secure and stay in the house that's right for them (please note that I didn't say the house of their dreams - he and I both agree that might have been where some of the craziness all began). He was kind enough to sit down with me and answer some questions and help demystify what so many folks think is a painful, complicated process.
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| This guy knows what he's doing. |
David: When you're ready to buy, before you even start looking for a house, start saving for a down payment. Those 100% loans are practically non-existent and it's likely you'll need at least 3.5% of the purchase price of your home to secure a loan for purchase. It's also smart to save above and beyond that figure: prospective homeowners often don't think about needing reserves in case the air conditioning goes out or the garage door quits on you. I recommend having at least 3 to 6 months living expenses in savings. Ultimately, lenders are looking to make sure you have three things:
- Income to support your debts and your mortgage - the formula here is to make sure your total debts (mortgage, car payment, student loans, etc.) don't exceed 45% of your gross income
- The required down payment for the loan program and several months' worth of living expenses beyond that in savings
- Good credit score - you want 740 and above for the best rates
Me: How should folks pick a lender?
David: Definitely shop around for good rates and to compare closing costs. It really doesn't matter if you get the best rate if your closing costs end up being $15,000. Look for experience, knowledge and closing volume. Lending rules can change on a daily basis, so it's important to work with someone who knows what's going on. Also, be sure and ask how long it will take to process the loan. A lot of lending institutions are backed-up with new home loans, foreclosures, and refinances and could take up to 90 days to close. A lot of sellers may not be willing to wait on buyers who take 3 months or more to seal the deal. (Author's note: I asked David to clarify a common questions borrowers have. Some folks are afraid to shop around because they think each time a lender pulls their credit, it's a ding and pulls down their score. David says 4 or 5 mortgage inquiries in one week roughly equals one ding. So, no real penalty for being savvy, y'all!)
Me: What should people expect when they work with a lender?
David: First, there's an initial consultation where we figure out what type of monthly payment fits into the overall budget for the prospective buyer. This makes the entire buying process so much easier: knowing what you can afford before you go house-hunting saves the buyer, the agent, and the lender a lot of grief. (Author's note: AMEN!) Then, when the buyer writes an acceptable offer, here at Merchants & Planters they should expect a 30-day process from then until closing. Unlike some other loan institutions, we have an in-house underwriter and we've got the staff to make sure we're not overwhelmed processing other loan applications and refinancings, so that gives us a bit of an advantage. Also, buyers should expect to pay for an appraisal (approximately $450) during this loan-processing period. The appraisal is a requirement, but it protects the buyer and the lender, making sure the house is at least worth what they're paying for it. When it's all said and done, I usually attend the closing with my client. Most of what we do is over the phone or via email, so it's nice to put a face with a name. The closing can be kind of intimidating, so I'm there to explain any figures the closing attorney may put in front of my client that they don't understand. Getting those house keys for the first time is pretty exciting and I like to be there to show my support for all they've been through to get there.
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| He was trying to work and I kept asking questions... |
David: I think rates will continue to stay at all-time lows for a bit longer, or at least until we see unemployment numbers improve. In many cases, the interest rate is more important than home prices. Think about it: a rate increase of 2% could have a bigger impact on a buyer's overall costs than a housing price increase of 2%. I also think there will continue to be conservative lending qualifications. That's a good thing, though! Having to clear more hurdles than just having a pulse will protect buyers in the long run. And it's unlikely there will be a return to the days of kooky, patchwork lending. Those 80-20, 90-10 days are behind us. Lenders want buyers to have some skin in the game to help offset some of the risk of foreclosure. However, if you are financially ready to buy a house, there is no doubt that right now is a great time to purchase because of the combination of really low rates and pricing discounts some sellers are offering.
Me: Any great horror stories?
David: We often re-pull credit throughout the loan process just to make sure everything's on the up-and-up. Once, after qualifying, a guy bought a plane! We found a new monthly payment of $2,000 on his credit report! That could have thrown his debt-to-income ratio out of whack, big time. I think we ended up closing the loan, though; he made a lot of money and could actually afford the plane, but it was a last minute hoop we had to jump through. Oh, and always be up front and honest with your lender about any financial changes. We always call to re-verify employment on the day of closing. Once, we called only to discover our client had been laid off a week or two before. He played it off like it was no big deal, but we couldn't close the loan. You have to have income! If he had been up-front with us when it happened, he might have been able to get his earnest money back. As it was, a lot of people were left disappointed that day.
Me: What are some common misconceptions out there?
David: Despite what the media would have you believe, banks are still lending! You don't need 30, 40% to buy a house. When it comes to refinancing (a LOT of our business these days), you don't have to go with who currently holds your mortgage. You can start the entire process over, just like you're buying a house for the first time: shop around for the best rates, compare closing costs, look for lender-compatability, and check on the timeline. Also, some folks think you need to have paid off all your credit card debt before you can qualify for a home loan. That's simply not true. I mean, having a big gap between your outstanding credit and your overall line of credit is key to your credit score so definitely work on that, but you don't have to eliminate all of your debt. Oh, and I can't fix anyone's credit. For borderline cases I can often give advice and we can retry in a month or so; but otherwise, there's no magic bullet.
Me: Anything else you want our readers to know?
David: Getting a home loan isn't nearly as hard as folks might think it is. It's not a painful, scary ordeal, especially when you've got a professional guiding you through the process. Remember, buying a home is a big decision! Do your homework and be financially prepared.
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Big, big thanks to David for answering all my questions. I also learned something else about David I didn't know: he's in a band! David, his brother, his dad, and a cousin play as The Archives and have written and recorded original stuff (he describes their tunes as Beatles-y, pop-y fare) and have played locally at the P&H, the downtown Flying Saucer, and the Delta Fair. If you see them playing at your favorite local haunt, be sure and give them a listen.
Do you want to talk to David about a home loan or refinance? Do you have any other questions about the process? He'd love to hear from you! Just shoot him an email at David.Umsted@MPBankHomeLoans.com or give him a call at (901) 746-5311.
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