The top six mortgage mistakes... or not?
March 19, 2014Part One.
I was recently surfing the web for mortgage information and came across an article on the Yahoo! Homes website titled "The Top 6 Mortgage Mistakes." This caught my attention of course. I was eager to find out the top 6 mistakes so that I could avoid them!
Turns out I was able to whittle the list down to one-half of one mistake.
Those of you who read my columns know that I believe there are NO bad mortgage products. There are often mortgage products which are mismatched to the borrower, but that is the mistake of the borrower and the loan originator, not the loan product.
Here is my take on the Yahoo! Homes list of mistakes. This week I will examine 1 through 3.
1. Adjustable Rate Mortgages. I'm surprised this was number one, but maybe the list is in no particular order. Adjustable rate mortgages are a GREAT product. If you are buying a home that you plan to own for 3, 5 or 7 years for example, why pay an interest rate premium for a 30 year fixed rate loan? Choosing a loan that is fixed for the first 5 years can save tens of thousands of dollars over a 30 year fixed rate loan on the same home.
Even after the initial fixed rate period expires it will take another year or two under the worst case scenario for the borrower to start losing money versus the 30 year fixed option.
I have closed two loans in the last two weeks that were fixed initial rate mortgages, or FIRMs. Both of these loans were the perfect loan for my borrowers.
2. No Down Payment Loans. The Yahoo! author seems to think that this is a mistake because the bank is at risk if the borrower has "no skin in the game." It might deserve a place on the list of "6 mortgage mistakes that banks make."
My favorite loan is the VA or Veterans Administration loan. These are for active duty military or veterans. In most cases these are no money down loans. In fact if the deal is structured correctly it can be a VA "No No." No money down and no closing costs. The VA buyer gets into the home without a dime of their own money in the deal.
The VA loan is one of the best performing loan products in good times and bad. What could be better than giving a veteran an opportunity to own a home when they otherwise would not be able to? The fact that these loans perform so well makes them a winner for everyone.
3. Liar Loans. OK, I'll give them one-half for this one. At the peak of the mortgage madness there were loans that were stated income, stated assets, no money down up to a $1,000,000 loan amount. The 18 year old kid who mowed your lawn and bought a $500,000 house since he was a "Landscape Engineer" and stated that he made $125,000 a year was in trouble from the start. Lying on a loan application is a bad idea all around, and also a felony.
Stated income loans no longer exist, but they did have their place with an honest loan application. Reduced paperwork was a benefit for those who did qualify for a loan but had complicated financial situations.
Next time I will look at 4-6 on the Top 6 Mortgage Mistake list.
John Yeager is the Valley Center Branch Manager for Summit Mortgage, NMLS #219612.
He can be reached at 760-749-8931 or by visiting www.john-yeager.com, or via email at firstname.lastname@example.org.