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Meet Your Mortgage Team

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | February 6th, 2015

You apply for a mortgage. You fill out all the paperwork and send it in. And then a few days later, you get a call from a complete stranger asking questions such as, "Please explain the NSF on your VOD."

What's up with that? This isn't the same guy or gal you spoke with when you applied. So what's going on here?

The person on the other end of the line is part of your loan officer's mortgage team. If the loan officer was on the ball, he or she should have told you about them.

Indeed, Karen Deis, who has been mentoring loan officers and real estate professionals for more than a decade, tells her students to give their clients a handout up-front introducing their team, including names, phone numbers, photographs and each person who may contact you.

Deis, of Hudson, Wisconsin, used such a handout during the 15-plus years she was a loan officer, and she swears the simple introduction eliminated half her phone calls -- and a lot of her clients' confusion.

"At every face-to-face loan application, my clients received a printed flyer with the names, pictures and general job description of what each staff member does and how to contact them directly," she says. "If they applied online, they received (this information in) an email."

Unfortunately, not every mortgage originator follows Deis' advice. In case yours didn't, Deis shares, below, the members of a typical mortgage team and what each one does. Here are the four key players:

-- Loan coordinator: This team member puts the pieces of the puzzle together. The loan coordinator works with everyone from the credit bureaus, appraisers, title company and inspectors to the real estate agents or builders to make sure every piece of your financial picture comes together in a timely manner.

-- Loan processor: This person does much the same thing as the coordinator, but also puts each puzzle piece under a magnifying glass. The loan processor verifies the information that appears on your application, checks your credit report, verifies your income, makes sure you really have enough money in the bank to close and makes certain the appraisal won't screw up the deal.

The processor "will call you from time to time," says Deis, just to be sure the file that's submitted for approval is complete. That way, the underwriter has your total financial footing available when deciding if you seem like a solid borrower who can make payments on time, each and every month.

Sometimes the underwriter needs more information or needs to clarify something. Consequently, the processor may call you several times for additional information.

-- Closing coordinator: This team member works with the title company to obtain a clear title to the property.

If you are buying a new house, every lender requires a title insurance policy that shows the current property owner, real estate taxes, mortgage and tax liens and any deed restrictions listing the things you can or cannot do once you own the property.

If you are refinancing, the coordinator will order a title policy on your behalf and also obtain a payoff document from your current lender, explaining exactly how much you still owe. According to Deis, there's a three-day waiting period after you sign all the documents at closing before your old loan can be paid off.

The coordinator will also advise you about obtaining or updating your homeowners insurance policy. Every lender requires this to be in place at closing; otherwise, you won't be able to close.

If you are expected to bring money to the closing table, the closing coordinator will make every attempt to advise you of the exact amount you will need. Sometimes the figure isn't known until the last minute, but the coordinator's number is usually pretty close. Nevertheless, don't be surprised if the figures don't match and you have to ante up a few more dollars.

-- Loan officer: This is the person you applied with in the first place. He or she is the team leader, who will strive to make sure the process is as smooth as possible and that your loan closes on time. According to Deis, the loan officer should know the status of your application at all times.

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Beware Costly 'Change Orders'

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | January 30th, 2015

Nothing is more of a budget-buster on a remodeling project than a so-called "change order." Sometimes, if the job is not well planned and properly bid, there might be several change orders, all adding up to financial disaster.

A change order is exactly what it sounds like: any deviation from the original plan. For example, as a project progresses, you might decide you want the more expensive cabinets. You request that with a change order.

According to Kevin Casey of New Avenue Homes -- an Emeryville, California-based remodeling company with an online platform to help clients through the potentially harrowing remodel experience -- one of the root causes of "change-order-itis" and the resulting blown budget is unscrupulous contractors.

Not all contractors fall into this category, of course. In fact, most don't. But the occasional bad apple uses change orders in what Casey calls a "strategic and deceitful way" to offer low bids and then work you over for additional payments above and beyond the quoted price.

Recently, Casey reviewed more than 120 New Avenue projects and all of the projects' submitted change orders. The result was a list of the 18 most common ones, and paying attention to them is a good idea. That way, you can be ready to review any bid you receive to make sure as much as possible is included.

Interestingly, Casey found that 13 of the 18 most expensive were discretionary, meaning they were requested by the customer.

"They often pop up as a project is progressing on budget because the customer had a little reserve socked away for overages that never came," the New Avenue founder says. "The good news is that a perfect project can have 20-plus changes that you willingly choose to make and still complete the work on budget."

We'll get to those changes in a moment. First, let's look at the five changes considered to be non-discretionary -- the unpleasant ones. Sometimes, the cause is something beyond anyone's control, such as an unreasonable building inspector. But other times, the architect, engineer or contractor dropped the ball or overlooked something.

"In a complex project, this happens, and a little leeway is fair," says Casey. "But if it happens too often, it becomes a real question of competence. Many professionals are quite adept at shirking responsibility."

Generally, if the non-discretionary change orders are 2-4 percent of the initial bid, Casey says it is a well-run project. But going to 25 percent, 50 percent or even 100 percent over budget is obviously worrisome.

His advice: "Any contractor heading down that path with his first invoice should be offered two options: Eat the cost or walk away so a better contractor can do the job."

Here's New Avenue's list of the five worst change orders:

-- Excavate an additional two feet for foundation improvements; fill with compacted gravel and additional concrete. Cost: $6,042.

-- Fireproof the laundry area. ($2,151)

-- Add a new water line from street to main home to increase capacity for fire sprinklers. ($5,505)

-- Add fire sprinklers due to code changes made several years earlier. ($4,360)

-- Replace electrical panel in main home with a new 200-amp service, including a wire from the street, new panel and all breakers. ($3,272)

Now, here are the 13 discretionary changes that you might want to consider as part of your initial bid:

-- Add a bay window to the home. Cost: $5,684.

-- Upgrade windows. ($4,086)

-- Install a fenced-in trash area and stone flatwork in the yard. ($3,393)

-- Add a gas line to a backyard cottage to upgrade from electric stove to gas. ($3,000)

-- Upgrade siding. ($2,325)

-- Add tile to main home entry stoop. ($1,880)

-- Add crown molding to living room and kitchen. ($1,761)

-- Install a skylight in a loft. ($1,487)

-- Additional tile wainscoting in bathroom and tile nook in shower. ($1,050)

-- Change from stained concrete floor to tile floor throughout 610-square-foot space. ($1,050)

-- Add false wood beams to living room. ($996)

-- Add extra lighting fixtures throughout house. ($835)

-- Provide and install 8-by-4-foot redwood fence and lattice for trash cans. ($771)

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Get Ready to Apply for Financing

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | January 23rd, 2015

With interest rates remaining at or near record lows, gasoline prices tumbling to their lowest in a half-dozen years and the Federal Housing Administration stepping up to the plate by lowering insurance premiums, 2015 is already being called the year of the first-time homebuyer.

But whether you are planning to jump into the ownership waters this spring, this summer or even next fall, there are several steps you should start taking now so that there are no surprises when you are ready to get your feet wet:

-- Credit record. Your credit history is the key to not just whether you are eligible for the lowest mortgage rates available, but also whether you can obtain a loan at all. So obtain a copy of your credit records from all three major credit repositories – TransUnion, Equifax and Experian -- and look for any errors or issues that must be dealt with.

It can take several months to correct discrepancies, so the sooner you get your files, the better.

-- Credit score. Your credit record will be used to determine a credit or mortgage score, which is the holy grail of mortgage lending. The higher the score, the easier it will be for you to qualify for financing. So you want to clean up any deficiencies in your record.

Here, it might be wise to align yourself with a good mortgage broker or loan officer who understands how scoring works. Why? Because a simple step that seems logical to you may actually lower, rather than raise, your score.

For example, it is often best to leave an old deficiency on your record and concentrate on newer issues. Paying off an old judgment can raise your score a few points, but by paying it off, it becomes a new problem in the eyes of the scoring software, and that can wind up lowering your score more than it raises it.

-- Tax credits. Many states and even some localities offer tax credits for first-time buyers. Start looking for what your jurisdiction has to offer.

For example, Illinois, Ohio, Kentucky, New Hampshire and Washington, among several others, offer help in the form of down-payment or closing cost assistance for rookie buyers who qualify. Generally, eligibility is based on income, and there may be limits on how expensive a property you can purchase.

A good place to start searching for assistance is the Department of Housing and Development. The federal agency does not make grants directly to individuals, but it does grant money to organizations that is earmarked for first-time buyers. Learn more at hud.gov.

-- Counseling. Consider aligning yourself with a housing counselor, who can help guide you through the maze and offer impartial advice that you may or may not receive from your lender of choice.

There are many free counseling agencies available throughout the country. Again, you can start your search for government-approved agencies at HUD or the FHA (fha.gov).

-- Paperwork. When you finally apply for a home loan, you are going to be asked to turn over a bevy of papers, from pay stubs to tax returns, so become familiar with what's needed by your lender. Gather up what you can now, so the burden will be lighter later.

Here's a short list of what you will be asked to produce (some documents can be gathered now, but others will have to be current when you apply):

Federal tax returns for the previous two years, signed and with all schedules; W-2, 1099 and K-1 earnings forms that accompanied those returns; most recent 30 days of pay stubs or earnings statements showing year-to-date earning, and all pages from bank and investment account statements from which you will be paying your deposit, down payment and closing statements.

Also, a clear color copy of your driver's license, passport or other government-issued ID, and a copy of your most recent canceled rent check to verify your monthly housing cost. If you are self-employed, own investment property, or have been at your current residence or place of employment less than two years, even further documentation will be required.

"Once these basic documents are submitted, additional ones will be requested to clarify and expand on information already received, so the better prepared you are, the more smoothly and quickly your purchase will progress to close," says Chris Carter, a loan originator with the Paramount Residential Mortgage Group in Naples, Florida.

-- Saving. The more money you produce at closing as a down payment, the lower your monthly house payments will be. So if you haven't already, start saving now. Even if it's only $100 a paycheck, your savings should mount quickly.

Remember, once you buy a house, you are going to have a monthly payment. So setting aside money now will at least get you used to coming up with extra cash you'll need later on.

Many people try to set themselves up on some kind of budget, which is great if you can stick to it. But statistics show most fail at that exercise, so saving is a preferable alternative, says Donna Skeels Cygan, author of "The Joy of Financial Secuirty" (Sage Future Press, 2013).

"People so often fail to budget because, just like going on a bland diet, it's restrictive and makes us feel deprived," Cygan says. "That's why I suggest to my clients that they ditch their budgeting efforts ASAP and focus on saving instead."

Cygan admits that at first glance, this may feel like splitting hairs. But there's one important difference between budgeting and saving.

"With saving, you stay focused on something positive because there's (almost) literally a pot of gold waiting for you at the end of the road," she explains. "Instead of dwelling on what you're doing without, you can track the growth of your assets and take comfort in your future financial security."

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