Planning To Get A Mortgage? Know Your Options

Approximately a third of the nation’s home buyers obtain their loans through mortgage brokers, rather than direct from a bank or other source of funding. In the current marketplace, with increasingly complicated regulations governing mortgage lending, the benefits of working with a broker extend beyond having multiple options to choose from before making a final decision on the source and terms of the loan.

“The most compelling reason for working with a mortgage broker has always been our ability to ‘shop’ for a loan among our various resources to come up with the best fit for the client,” said Miles Kimhan, president and owner of Mortgage Masters, a mortgage brokerage he established 12 years ago. “Now, for example, with new regulations affecting property appraisals, the mortgage broker’s role in representing the client becomes even more critical. Appraisals are now ordered only by the lender, so, should the loan be denied, the applicant is nevertheless responsible for payment of the appraisal fee.”

Kimhan noted that the Real Estate Settlement and Procedures Act requires total disclosure of all fees and closing costs to the home buyer within established time frames…three days for the broker’s estimate and ten days for the lender’s. “Getting two sets of disclosures can be confusing to the client, but the intent of the new regulation is good…to reassure borrowers that they know exactly what they are paying for before they finalize the transaction. The problem is that a lot of terms can change between the time the contract is signed and the final closing takes place. For example, the seller may agree to give a credit to the buyer after a property inspection reveals some previously undetected and/or undisclosed problem with the property. The interest rate and the points, which is actually the cost of the loan, could change if the loan has not been locked in or closed in a timely manner. Based on just a few of these potentialities, the mortgage companies are hard pressed to make even a preliminary disclosure of what the final cost to the client will be.”

Another issue that borrowers need to consider is their possible eligibility for various types of government subsidized loan programs, such as VA, FHA, and USDA. These programs can mean low or even no down payment terms. Kimhan points out that not all mortgage brokers are approved to handle transactions involving these specialty loans and that Mortgage Masters is among only about five percent on Oahu who have received such approval from the governing agencies, i.e., the Veterans Administration, HUD, and U.S. Department of Agriculture Rural Loan Program. “If both the loan applicant and the subject property can qualify for one of these specialty loans, then it’s incumbent on the broker to so advise them and not simply put them in a conventional loan because of his own company’s limitations.

“When it comes to the popular 30 year fixed conventional loans, we are still able to accommodate borrowers who have good credit, realistic goals as to how much house they can afford, employment stability, and the required down payment which these days could be as much as twenty percent. It’s simply a myth that the banks are not lending and providing mortgage money for home purchases…with all these things in place, we have a number of lenders we go to for funding for our clients. Granted this is not 2005 or 2006 when even borderline applicants were readily approved, but qualified borrowers can certainly obtain mortgages at this point.”

What does Kimhan see for 2010? Based on his own experience in buying, selling, and developing residential real estate for two decades, and as the president of Realty Experts Hawaii, a general brokerage firm, he believes in the Hawaii real estate market and feels that it is now turning with the low inventory and record low interest rates. “The one potential problem that could put the market in a reversal would be action by the Federal Reserve to control inflation by raising interest rates. We know these low interest rates and some of the most affordable home prices we’ve seen in years can’t last forever. Once we see action by the Fed on the horizon, I believe there will be an unprecedented rush to buy while conditions are still favorable.”