The purpose of a blog is often multifaceted. It can be educational in nature, providing insights on specific topics, vocations or industries, for example. A blog can be entertaining, providing humor and alternate looks at the world around us and all that is happening. A blog can also be a channel for personal expression and connecting with others. Most likely, a blog is a combination of all these things.
I like to think this blog is the latter – a mix of education, entertainment and personal expression. In each post, I make sure there is something of value for members of the credit union mortgage lending community, something they can take with them and use in their efforts to help more of their members with homeownership. I typically attempt to tie these educational topics together in entertaining ways, reflecting on scenarios not much different from mortgage lending. And as an alien on your planet, I often can’t help but refer to my intergalactic adventures and my home planet of Amicitia.
And nothing thrills me more than receiving affirmation that this formula is working!
A few weeks ago, I made a post titled, Don’t Go to Sleep on Refis. I had a subscriber reach out to me, thanking me for the post. I graciously accepted his thanks and asked if there was a specific reason why this post was particularly helpful. He said that until reading the post, he hadn’t realized you could re-appraise your home and, if the loan-to-value falls under 80 percent as a result, Private Mortgage Insurance (PMI) can be dropped. He said thanks to the post, he’s now saving over $100 on his monthly payment! He just wished he knew this sooner.
The moral of the story: You can’t be faulted for something you knew nothing about.
There is a very good chance that many of your members who are thinking about purchasing a home or already in the process of doing so may not know the ins and outs of the mortgage process. Sometimes, as mortgage lenders, it’s easy to assume they know what everything means since we deal with the processes and vocabulary daily. Members conversely only go through the homebuying process a few times in their lives and are likely to become a bit bewildered or overwhelmed by the entire process.
As their responsible and trusted credit union, it’s your job to keep them away from mistakes by educating them all through, during and after the process. To help you out, I’ve identified nine key points that you need to clarify and stress to members so that they can realize their dreams of homeownership.
- The 20% Myth: Many potential homebuyers assume you need a 20 percent down payment to buy a home, which is a myth. Communicate with your members that there is a range of options available, including zero down payment, if qualified. Furthermore, most first-time homebuyers make a median down payment of only six percent.
- Changing Jobs Can Affect Approval: Loan approval amounts are typically based on a two-year employment history. Changing or leaving a job as well as becoming self-employed requires restarting the income verification process. While this sometimes is out of our members’ hands, stress the importance of staying with their current employer.
- Buying a Car or Making Other Large Purchases: Increasing debt during the homebuying phase is exactly what members should NOT be doing. Buying a car, for example, has a direct impact on the member’s debt-to-income ratio and may force them into a higher percentage rate or loan type.
- Adding Credit Card Debt and Missing Payments: If your member is buying a home or already prequalified, make sure they know that now is NOT the time to start buying furniture for their new house or investing in a celebratory (but costly) vacation. Adding debt to credit cards as well as missing or making late payments can result in lower credit scores that can impact their loan.
- Saving for Closing Costs: Depending on the home purchase agreement, closing costs could very well be the member’s responsibility. Typically, these costs run about 2-5 percent of the purchase price, so encourage them to save accordingly so that there are no surprises at the closing table.
- Not Listing Debts and Liabilities: We get it. High debt and liabilities can be personal, and members may prefer not to share. However, omitting these from home loan applications can result in delays, because the reporting agencies WILL list them, creating a potential wealth of discrepancies.
- Multiple “Runs” of Their Credit: It’s not unusual for a consumer to shop around, especially when making a large purchase. Mortgages are no different. However, if there are too many credit pulls by multiple lenders, the potential is there for the member’s credit score to decrease.
- Checking on Gift Funds: I previously discussed how the receipt of gifted funds can help members with various costs related to the homebuying process. While this is typically okay to do, remind your members to check with you first. Note to them that any large monetary gifts and deposits must come from documented sources – if they aren’t documented, they likely can’t be used.
- Co-signing a Loan: Just like numbers 3 and 4 above, a member co-signing a loan is the same as taking on those debts as their responsibility. While it is a generous act, co-signing a debt can negatively affect their credit and debt-to-income ratio.
For your convenience, these “mistakes” that can be made by members are listed in a downloadable PDF. Feel free to use this document to educate your members and establish yourself as their trusted credit union mortgage lender!