Get Approved For A Mortgage Without Sticking A Fork In Your Eye

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.