With Elysia Stobbe, Author of How to Get Approved for the Best Mortgage Without Sticking a Fork in Your Eye: A Comprehensive Guide for First Time Home Buyers and Home Buyers Getting a Mortgage Since the Mortgage Crisis of 2008
Steve spoke with Elysia Stobbe, a mortgage broker of 13 years, mortgage coach, and the author of “ Elysia talked about how difficult getting a mortgage can be, and then shared some tips that homebuyers can use to make the process go as smoothly as possible.
The Difficulty Of Getting A Mortgage
Since the mortgage crisis of 2008, all applicants are being held to the lowest common denominator in terms of mortgages, meaning that most aren’t getting the best possible deal. Before you begin the process, it helps to have a solid understanding of the requirements. Knowing what lenders are looking for and how to prepare for the necessary paperwork are a few of the issues that Elysia Stobbe covers in her book, How to Get Approved for the Best Mortgage Without Sticking a Fork In Your Eye.
Steve asked Elysia about the best first steps for someone looking to apply for a mortgage loan. In response, she noted how important it is to be both an educated buyer and a grounded buyer. One of the most common—and monumental—money mistakes to avoid is rushing out to buy a home without taking the time to determine what kind of home you can afford. People often get confused about their financial situation, forgetting about things like tax deductions and how they flow through an income tax return. This isn’t usually done on purpose, but that’s exactly why it’s vital to be fully educated on what you can afford. That puts you in a position to come up with a list of homes that meets your desires AND that falls within your financial range.
Getting Pre-Approval For A Loan
One of the best ways to make sure you get the best loan and one that you can afford is to get pre-approved for a mortgage loan—not just pre-qualified but actually pre-approved. Have your lender review all of your documents to make certain that you are shopping within your means, so to speak. Because it is a buyer’s market right now, new buyers have many loan options available, some with down payments as low as 3%. Knowing your loan options and your buying power, what you can actually afford to spend, are two key weapons to have in your arsenal before you walk out the door to go house shopping.
Shopping For The Right Mortgage
It’s a good idea to shop around for the right mortgage, just as you’ll shop around for the right home. Elysia offers a checklist of things that a smart buyer should be looking for or asking the lender. References are very important, and it’s very easy to research multiple lenders online through websites such as Trulia, Zillow, or the Better Business Bureau. Asking what type of licenses lenders and realtors have is important, too. The bottom line is don’t be afraid to ask questions.
Much of loan pricing is commoditized, one lender is interchangeable with another; however, subtle differences do exist. The FHA has standards that differ from other lenders. And major lenders, the giants such as Fannie Mae or Freddie Mac, can sometimes bump their interest rates way up. (This is usually done as a response to an overwhelming number of mortgage applications. They try to slow the flow by making their rates “uncompetitive”.)
You want to go into the process of shopping for a home with your eyes wide open, and you don’t want to get any bad surprises. Ask lenders what their closing ratio is, how many loans are actually following all the way through to closing. Unfortunately, at the moment, the national average is less than 50%. Buyers put their hard-earned deposits down and are in jeopardy of losing them if the loan never closes. They also may have already taken the steps to move out of where they currently live, hired moving trucks, and be all prepared to enjoy their new home…and then the loan falls through. For this reason, it’s critical to investigate lenders and make sure they have good references, good rates, and a high closing ratio.
Fixed Versus Adjustable Rates
Mortgage interest rates are at historical lows (hence, it’s a buyer’s market!), and though people keep mentioning the fact that rates are sure to go up, they haven’t yet. In terms of what’s the better way to go (a 30-year fixed rate or a variable rate that resets in 5 or 7 years), it really depends on the needs of the borrower. If, for example, you know that you’re for sure only going to be in the home for 5 to 7 years, then an adjustable rate loan might be the way to go. However, if you plan on keeping the home for the rest of your life, with rates as low as they are right now, a fixed rate is the best way to go. It also depends on how comfortable you are with risk. An adjustable rate mortgage is far riskier and, therefore, best suited to borrowers who have a high-risk threshold. A lot of people have made the mistake of not really understanding or appreciating how drastically rates can change with a variable rate mortgage. They don’t understand the huge impact that just a 1-2% increase in rates is going to have on their monthly payment. With a fixed rate, you know it’s locked in; it’s not going to change.
To learn more about the best loans and what steps to take to get them, check out more from Elysia Stobbe. You can find her and her book at https://elysiastobbeinc.com/, read her blog at https://bestmortgagebook.blogspot.com/, or find her by name on LinkedIn, Twitter, or Facebook!
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: How’s this for a book title, How To Get Approved For The Best Mortgage Without Sticking A Fork In Your Eye? Well, that’s a book that we really wanted to talk about because sometimes getting a mortgage is like staking a folk in your eye. And I’ve got the person to talk right about it. This is the author of the book, Elysia Stobbe, and she’s with me right now.
Hi, Elysia, welcome.
Elysia Stobbe: Hello, thanks for having me, Steve.
Steve Pomeranz: So let’s just into the process now of getting a mortgage, why does it seem so difficult?
Elysia Stobbe: Well, it’s a pendulum swung to the opposite direction since the mortgage crisis of 2008 and everybody’s being held to the lowest common denominator, unfortunately, that’s the bad news.
So there’s a lot of paperwork. The good news is rates are still low, rates are still in the high threes, depending on the loan type, and you can get approved for a mortgage. My book walks people through what to expect, so people aren’t shocked because we can’t change, obviously, what the bank and the government is now requiring since all the mortgage regulation.
But the people have an understanding of it, it makes the whole process easier. And they also understand why the lenders are asking for what they’re asking for and how to give it to them in a timely manner. And it does make the process through their end easier, and so people can close on time on their new home.
Steve Pomeranz: We talk to mortgage brokers all the time, and one of them said to me the other day because people complain so bitterly about all of the paperwork. And his response was I don’t want to do the paperwork either. [LAUGH] Don’t blame me. So it’s like, yeah, he just has to do what he has to do, it’s really not his fault.
You’re a mortgage broker, am I correct?
Elysia Stobbe: Correct, correct, I’ve been in the industry for 13 years.
Steve Pomeranz: All right, so you’re doing every single day, and you’re seeing all kinds of borrowers and all kinds of properties. And what would be some of the first steps someone should do in order when they know that they’re going to need a mortgage?
How can you help, what kind of advice can you give them?
Elysia Stobbe: Well, I strongly believe that an educated consumer is always our best client. So when it comes to doing the research, I have three monumental money mistakes to avoid. And the first thing that people don’t do is they rush out and they just go shopping.
And some realtors would take them out, and I believe that’s a grave mistake. Because when it comes to tax deductions and income and how it flows through an income tax return, what people think they make may not actually be what they claim they make. And again, that may not be on purpose at all, but often people don’t always have the same understanding of how the numbers are looked at by underwriters.
So I strongly encourage people to actually get approved, not pre-qualified but rather pre-approved, and have the lender review the documents so they actually are shopping in their correct price range. And they know what they’re looking for when it comes to payment, whether that be for a single-family home or a condominium because those can vary and there are different loan programs for each of those.
I believe also it’s very important for the borrower to understand their loan options. So especially right now for first-time home buyers, they have plenty of options, which conventional goes as little as 3% down, you can go as they say, three and the half percent. And even though that seems like a minor thing, only a half percent difference in the down payment.
Those two loan types are very different and has very different fees involved when it comes to upfront funding as well as on a monthly basis. And it’s very important for the borrower to understand their options and how their payments can change with that.
Steve Pomeranz: So if you go for the house first and you fall in love with something, you may find that you don’t qualify for a mortgage for whatever reason.
So your advice is best go for the mortgage first. Now, there’s a difference between being pre-qualified and pre-approved, right? What is the difference?
Elysia Stobbe: Correct, yes, the difference between pre-qualified is basically you do your loan applications either over the phone or online with a lender. They pull your credit, you run through all of the questions in the loan application.
But you’re not really having a lender review your document, your income tax return and your savings and your checking. And so they don’t really have a true picture of what your finances really look like.
Steve Pomeranz: Yeah, there’s a lot of confusion there.
Elysia Stobbe: Exactly, and so, for instance, I mentioned income tax return, but let’s say for example you have, I don’t know, $20,000 that you’re going to use in a down payment, and those funds actually aren’t acceptable.
And you don’t really know that because you haven’t researched how much you can pull out of your 401k as a first time home buyer, and how that works. So the lender can review all those with you before you actually go shopping, so you truly know your buying power.
And also, it looks a lot stronger to a seller to have a pre-approval instead of a pre-qualification. And in some markets, in fact, some markets are harder than others across the country. The harder markets require a pre-approval and will not take a pre-qualification.
Steve Pomeranz: So how does someone shop properly for a mortgage?
There’s been some statistics that I’ve seen that says most people lose their shopping acuity when it comes to big financial decisions. They’ll only find one lender, and if that person’s very nice and easy to work with they’ll just stick with that person. What do you recommend there?
Elysia Stobbe: Anybody that actually reaches out to us, we have a checklist that we encourage them to shop around and ask questions.
And so a few of those would be, what type of references do you have? What type of licenses do you have? And I think references are very important, especially in this day and age. It’s very easy to research multiple lenders online through websites such as Trulia, or Zillow, Better Business Bureau.
And I would look for at least two or three of those sources that say that lender and that particular licensed loan officer is outstanding. It’s the largest purchase people typically make in their entire life and I think it’s very important to take it seriously.
Steve Pomeranz: What is the differential between lenders themselves, not talking about the broker, but from one bank to another or one lending organization to another?
Are there big differences between pricing or is it pretty much all commoditized?
Elysia Stobbe: That’s an excellent question. Actually, a lot of it is commoditized, but there are very subtle nuances between lenders. So for example, the FHA program has certain standards. But every lender, since they’re actually lending their money from their bank, adds their own overlays, as what they’re called in the industry.
So FHA actually may not have a credit score minimum, but most lenders will put either a 580 minimum or a 620 minimum. So if you went to one bank and their minimum credit score was 620, but the bank down the road actually is 580, well, then the 620 bank’s minimum would turn you down.
And hypothetically, if your score was 600, the one with 580 would be able to help you. And if you don’t go to that other bank, you’ll never know. So another question I encourage people to ask is what’s your closing ratio? Of your number of loans you originate, how many do you actually close?
And unfortunately, the national statistic is less than 50% across the country. So it’s disturbing because if you look at that statistic and think if people are already in a contract, they have their earnest money deposit in jeopardy of being lost. Or worse yet, they could have lost that and think they’re moving in, and they could be moving out of their rental or have sold their other home and not have anywhere to go.
So it’s very important to look at all the different nuances that each bank offers. And that can vary by region, that can vary from big bank to big bank, even. Some of them have a riskier appetite for loans, and some don’t.
Steve Pomeranz: Many years ago, I worked for a division of Chase Manhattan, their investment division, and we worked with their high net-worth or their jumbo loan division.
And I noticed that from time to time, the bank basically stated that they had enough loans, they wanted to stop doing loans, but they couldn’t stop. So what they would do is they would jack the rates up, and that would slow down. They would become uncompetitive, so to speak, for a period of time.
So is there a differential in rates between these, let’s say, large institutions or are they just kind of close enough? Where’s the skinny there? Is it in the points, is it in the rate? What should we look for?
Elysia Stobbe: It’s interesting you mentioned that, banks don’t do that.
When they’re busy, the way they do slow down their incoming pipeline is they will raise their rates. So it’s important to shop. And the interesting thing is that a consumer really has to shop with their credit score and their true potential, so they truly should be at least pre-qualified at not pre-approved.
And to get the best rates they need to shop on the same day. Because when I first got in this industry, if rates change by an eighth or quarter over six weeks, that was a big deal. But now, with everything being so hyper-reactive because of the electronic age and all or accept the incident information.
Rates can change anywhere from an eighth to a quarter, depending on the volatility of the market, on a daily basis. And that’s not customary, but sometimes we have more market volatility in the stock market that affects the bond market and that’s affecting the interest rates the same way.
Steve Pomeranz: Yeah, I mean, I follow the ten-year treasury bond all the time, and one day it’s at 2.1%, and the next day it’s at 1.95%. The amount of volatility is really tremendous, and that takes a while to feed through to the actual mortgage rate, but it does have an effect, right?
Elysia Stobbe: Yeah, it actually can come through pretty quickly. If there’s a significant change in the mortgage-backed security sales or the 10-year bond, which oddly the 10-year bond is what affects the 30-year fix. Those two together draw interest rates for the 30s. I mean, if there’s a significant change in the ten-year we’ll see that correct in two hours depending on the spread that happens, it doesn’t even have to wait until the next day anymore.
So that’s why I was saying, if you’re shopping for a rate, you really want to shop on the same day, and you want to stop and ask your lender questions like what’s the trend? Are we heading down, do you feel like it’s ending? No one can really predict that, obviously, I mean, be a fortune teller.
Steve Pomeranz: They can see trends, right?
Elysia Stobbe: Yes, and they can say it’s been going down six days in a row, don’t press your luck, or I’m super-conservative, whatever the client wants to do is what we do. It’s their choice when to lock.
Steve Pomeranz: What about adjustable rates versus fixed rates?
Rates are at historic lows, everybody’s been talking about rising interest rates for the last three years, it isn’t happening yet. But I mean, when you look out there, do you recommend a 30-year fixed at 3.6 or 7% or a variable that maybe resets in 5 or 7 years?
Elysia Stobbe: I really think it depends on the needs of the borrowers individually. If that borrower knows that they are going to be there for three years or less, or five years or less, then an ARMS might suit them. If they feel like they’re in it for long haul and going to keep that property for at least 5 to 7 years, then a 30 may be more appropriate for the situation.
Or if they feel like maybe they want to start an investment portfolio, then the 30 may also be a good recommendation.
Steve Pomeranz: Okay.
Elysia Stobbe: It’s interesting, it really varies by borrower and also, the borrower’s appetite for risk. If somebody makes them uncomfortable, then certainly an ARMS’ not the right product for them.
Steve Pomeranz: Yeah, exactly. The book is How to Get Approved for the Best Mortgage without Sticking a Fork in Your Eye. My guest is Elysia Stobbe, the author of that book and a mortgage broker herself. Unfortunately, Elysia, we are out of time, but thank you so much for the information.
What website can people get to you at?
Elysia Stobbe: The book is for sale on Amazon. So if they look up Elysia Stobbe books, E-L-Y-S-I-A, Stobbe, S-T-O-B-B-E bookstore.com, that’ll give the links right to the site. Or if they go to elysiastobbehomeloans.com, that’s our, blog and they can also follow me on Twitter, and LinkedIn, and Facebook as well.
Steve Pomeranz: Well, thank you for joining our conversation.
Elysia Stobbe: Thanks, appreciate it, Steve.