In Advance of National Mortgage Brokers Day, We’re Answering Real Estate-Related Questions from Financial Advisors by an Expert Panel of Top Mortgage Brokers
The competitive nature of today’s housing market is shining a light on the importance of the human element of complex financial transactions – like getting a mortgage – and how mutually beneficial it is for consumers and fiduciaries to have established collaborative referral networks at the ready.
Technology is great, but nothing replaces the comfort and confidence that a prospective homebuyer feels by communicating directly with a mortgage expert. Likewise, financial advisors, tax advisors and wealth managers across the country really benefit from being able to refer their clients with independent mortgage brokers for their guidance and care in purchasing or refinancing their home in such an opportunistic market.
In the mortgage industry, July 18 is the annual recognition of National Mortgage Brokers Day, which was created by the Association of Independent Mortgage Experts (AIME) to drive awareness of the benefits of working with an independent mortgage broker.
To mark this event, I’ve aligned answers from independent mortgage brokers we support with a few of the top real estate questions from the financial advisor readers of Wealth Solutions Report.
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- Phil Shoemaker, President of Originations, Homepoint (one of the nation’s largest wholesale mortgage lenders, with over 6,000 affiliated mortgage brokers across the country)
Q: Given the current interest rate environment, should first-time homeowners look at fixed or adjustable-rate mortgages when it comes to maximizing home affordability?
A: Darren Copeland, President at Summit Lending in Lee’s Summit, Missouri, reachable via email at darren@summitlendingkc.com:
Prior to the past five years, if your first-time homebuying clients were interested in buying a starter home and planned to moveout within the next five to seven years, adjustable-rate mortgages, or ARMs, would be a better fit. ARMs used to be much lower in recurring costs compared to fixed rate loans.
But these days, fixed rates are so low that the disparity between fixed rate mortgages and ARMs is minimal for most borrowers.
And with home prices as high as they are today, what happens if you can’t afford to trade up in homes in the next five to seven years?
Put simply, fixed rate mortgages are probably a better fit with first-time homebuyers today than ever before. At a minimum, your first-time homebuyer clients should seriously consider both options – and mortgage brokers can talk them through that decision.
Q: When you have an experienced homebuyer who is looking to acquire a vacation home or investment property, do you recommend fixed rate or adjustable-rate mortgages?
A: Biju Paul, President/Sr. Loan Officer at Prime Choice Lending Inc in Frisco, Texas, reachable via email at bijumortgage@gmail.com:
When it comes to second homes – whether we’re talking about a vacation home or an investment property – I lean towards ARMs over fixed rate mortgages, even though the cost differential between the two types of loans isn’t as great as it used to be.
The simple reason why is because most of the time, in our experience, people tend not to hold onto these properties for longer than five years or so, especially if the property is geographically distant from the primary residence of the buyer.
More often than not, people don’t keep these homes for very long. Sometimes it’s because they or their children outgrow the property if it’s for vacation purposes, and other times it’s because the logistics and costs of upkeep just become tiresome.
And if this isn’t a primary residence and the chances are high that ownership won’t last longer than five to seven years, you’re probably best off with an ARM.
Q: I’ve had homeowner clients ask this more and more, given how favorable the interest rate environment is: Should we do a partial refinancing and pay off a larger part of the principal of the mortgage?
A: Amber VanAssche, Sr. Loan Originator at Fieldstone 1st Mortgage in Utica, Michigan, reachable via email at ambervan@fieldstone1st.com:
It really depends on the long-term goals of the client with their house.
If your client is somewhat closer to retirement and he or she views paying the entire mortgage off within the next 10 to 15 years as a core part of the bigger financial plan, then this approach makes sense in terms of their home finance strategy.
It really comes down to the individual’s specific situation and preferences. The client may not be eligible or want the higher payment that comes along with a 15-year term. If they can afford the higher payment, then yes, the 15-year term makes more sense. But if they can’t afford the higher payment, it would make more sense to pay the extra on the principal.
Q: My clients are in the market for a new home, their financials – assets, income and credit score – are all very strong. With that said, they’re not all-cash buyers, and they’d like guidance on what their price range should be as they hunt for their new home. What are best practices from the mortgage broker’s perspective?
A: Maria Looney, President of Elite One Mortgage in Los Alamitos, California, reachable via email at maria@eliteonemortgage.com:
Under federal standards, home buyers using mortgage financing need to come in at under a 50% debt-to-income (DTI) threshold.
But it’s important not to get so caught up with the competitiveness of any bidding process where you don’t carefully envision what you want your lifestyle to look like once you are a homeowner.
If you tend to live frugally already, and you’re happy doing so, then following the federal standards will probably be fine.
But if you like to have some disposal income – if you enjoy going out, leisure travel, etc. – I would say you should come in at or under a 43% debt to income threshold.
Financially sustainable, happy homeownership can be one of the best things to happen to any person’s financial life.
Feeling financially trapped in a homeownership structure that prevents you from enjoying multiple other aspects of your life? That’s way less desirable.
Q: What kind of challenges are contingent homebuyers facing compared to all-cash buyers, and what are some tips for making their offers more competitive?
A: Carrie D Gusmus, President, CEO at Aslan Home Lending in Denver, CO, reachable via email at carrieg@aslanhlc.com:
In this hyper-competitive market, a buyer may be well-qualified, preapproved, and capable of making a significant down payment but they are passed over for a buyer who represents that they are paying cash. These buyers can even resort to asking that their qualification is represented in a different light than reality.
The challenge is that a seller may feel the cash buyer is the “sure thing” and sometimes will take less from a cash buyer than an extremely well-qualified buyer obtaining a loan.
Buyers in this market have to be very patient and understand they will likely be writing multiple offers. A high-quality real estate agent is imperative. The lender can’t negotiate an offer on behalf of a buyer, but an exceptional real estate agent can often negotiate a non-cash buyer into a successful contract.
Another way that non-cash buyers can make their offers more competitive is to offer closings as fast as cash. The right lender can close in as little as 10 days in some cases. Many cash offers come with fast close dates. Buyers with loans can absolutely compete on speed to closing much of the time.
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