– National Mortgage News, April 2016
Borrowers continue to get smarter about the mortgage process, but from questions about closing costs to the minimum down payment and credit score needed to qualify, there’s still a lot that can keep consumers confused during the origination process, or worse, on the sidelines of the market entirely.
“Good loan officers are a heck of a lot better off talking about it up front than they are thinking they’re making it easier by not doing so and explaining things when they’re forced to at the last minute,” said Dave Jacobin, president of 1st Mariner Bank in Baltimore City, Md. “People have the most angst right before the loan gets approved.”
1. Closing Cost Sticker Shock
The TILA-RESPA integrated disclosures extensively detail mortgage closing costs, but those expenses can still come as a surprise to borrowers who have already settled on a home to buy before receiving their upfront Loan Estimate disclosure.
2. Exaggerate the Extent of TRID-Related Closing Delays
Borrowers — not to mention some real estate agents — often think any change to the costs detailed in the TRID Closing Disclosure requires the lender to redo the form and delay the closing. In reality, there are just three types of changes that require redisclosure.
3. Confusion Over Who Can Cover Closing Costs
Homebuyers may be under the false impression that only they can pay their closing costs, and often don’t realize closing costs can be a seller concession.
4. How Difficult It Is to Compile Verification Documents
Gathering the verification documents required by lenders sounds daunting to borrowers, but often all they need to do is authorize secure delivery by an accountant or other financial services provider.
5. No Credit, No Problem? Not Quite
Consumers may think their lack of credit cards is a positive, not realizing that it really means they don’t have the kind of debt-payment history that lenders look for when qualifying borrowers.
6. How Low Minimum Requirements Really Are
The average consumer thinks the minimum down payment for a Fannie Mae loan is 10% to 12% and the minimum FICO score is 650 to 652, as opposed to the real minimums: 3% down and a 620 FICO. They also often did not know the acceptable range for debt-to-income ratios.
7. Leaving Tax Breaks on the Table
Borrowers often think mortgage interest deductions are limited to primary residences, but second-home loans (in certain circumstances) and home equity lines of credit also are eligible.