While many consumers complain that loan approval is just too hard these days, there are others who are refinancing and buying properties. Those that are getting approved are enjoying the lowest rates ever offered and many are scooping up great real estate deals in areas that are distressed. How can professionals guide consumers towards enjoying these opportunities?

 

First, it takes a lot more forethought in today's environment to be ready for a real estate purchase and mortgage loan approval of any kind. This makes perfect sense since it is a major investment and long term commitment. We all know easy approval is not a good thing as we have seen the outcome of it in recent years.

 

To prepare for financing consumers need to get their financials in order and learn what a bank will want to review well in advance of a loan application.  This means every consumer that intends to buy real estate within a two year period or has a loan already should be in touch with a banker to discuss current interest rates, income qualification, documents, and financial patterns that are acceptable to a bank for loan approval.

Besides the financial aspect, credit can factor in heavily in the process as well. Consumers must always consider the power and value of an excellent credit score and how maintaining it can change their life. 

 

For example:

 

Jim and Brenda bought a home at the end of 2007. The purchase price was 620,000 and they put down 20%.  They both had excellent credit, well above a 780 Fico score, and worked hard to maintain it.  The rate they received was 5.875% leaving them with a monthly payment of $2943.  The total payment over the 30 year loan would be $1,056,244.   

Jim had a good relationship with his banker who was quite adept at providing him with current mortgage rates through email and social media blasts.  A little over a year later, Jim's banker reached out to him to discuss a refinance since rates had come down quite a bit.  After a conversation and some number crunching it was decided that reducing the rate 1% would be well worth the refinance.  Jim and Brenda refinanced to a rate of 4.875% leaving them with a new monthly payment of $2625, totaling $944,950 over the life of the loan.  The savings came to a grand total of $111,294. Jim was very happy with this outcome.

 

As time went by and rates continued to reduce, Jim's banker continued to stay in touch through monthly emails sending him more information about mortgages and banking. Again Jim picked up the phone to discuss the even lower rates with his banker. Jim's banker informed him that it might be best to refinance to a 15 year loan rather than a 30 since current rates would yield Jim 4.25%. The savings would equate to about $200 a month ($70,000 over the life of the loan), which was good, but the couple could do better.

The 15 year loan, with the couples combined high scores, would yield them a 3.375% interest rate costing $3515 a month and totaling $632,781 over the life of the loan.  This loan, although an increased monthly payment of a little more than $500 compared to the current loan, would save them more than $300,000 over the life of the mortgage.  Jim and his wife decided to get the 15 year loan and compared with the original loan they saved over $420,000.

 

Difference in Interest Rates:      

1st loan - monthly payment $2943, over 30 years, total paid $1,056,244         

1st refinance - monthly payment $2675, over 30 years, total paid $944,950. They would save $111,294 over life of loan.    

2nd refinance - monthly payment $3515, over 15 years, total paid $632,781. They saved $420,000 plus from 1st loan and $300,000 plus from last loan.

 

This savings was achieved due to Jim's ability to have excellent credit scores and his relationship with a thoughtful banker who constantly kept his customer base well informed.  If Jim did not have the consistency of high credit scores he would not have been able to take part in the savings offered.

 

Sadly, many real estate agents do not realize how much money an excellent credit score can save their buyers.  Recently, I educated a large group of realtors and handed out examples of varied scores and the rates that applied to each.  The example included the difference, over thirty years, a consumer would pay with a 750 credit score as opposed to a 660.  They were quite shocked at the amount and felt the knowledge they received could help them bond and develop relationships with clients.  Having more knowledge would give them the ability to explain how important it is to prepare early on for loan application.  For example, they were happy to pass on www.myfico.com to buyers that were not ready to start shopping for a property but wanted to start improving their credit scores. 

 

 

After being in the credit repair business for over twenty years, writing books, hundreds of articles, participating in webinars, radio shows, nationwide television, and giving educational seminars to both professionals and consumers, I have found that people learn best when they hear or see examples of situations they can relate to. Try to share stories with your referral sources and clients to help them understand the value of a sophisticated professional!