Interview with Attorney Siegel on “The New Rules for Mortgages”

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Dale Robyn Siegel is a licensed attorney in New York and owner of Circle Mortgage Group, a boutique mortgage broker in Westchester, New York. She is an adjunct professor at Baruch College as well as NYU Schack Institute of Real Estate. She is currently on a mission to re-educate the consumer about real estate finance. Dale has been speaking to the public and teaching real estate professionals about mortgage finance for the past ten years. You can learn more about The New Rules for Mortgages at thenewrulesformortgages.com, and you can purchase a copy at Amazon.com.

1. How much money will a first time home buyer need to purchase a home?

It is best to have a 20% down payment these days. The lenders will also require additional funds to cover closing costs and reserves for taxes and homeowner’s insurance. A reserve of at least two months of housing expenses is required, however I recommend having at least six months covered and in the bank. You just never know what can happen these days.

2. What changes exist to acquiring a mortgage should a buyer be most concerned about?

The borrower is qualified on their credit, assets and income under very strict guidelines these days. Not too long ago, lenders would use one strong factor to compensate for weak ones. Now, there are simply risk assessments and a good credit score might not make up a high expense to income ratio. Thus, it is easier to get rejected for a loan even if the client is almost perfect.

3. What changes have been made to the appraisal criteria, and how does it affect the buyer’s ability to get a mortgage?

Appraisals are now under the scope of HVCC (Home Valuation Code of Conduct) and are ordered by a management service company rather than the lender or loan officer. The service hands out jobs on a “round robin” system (think of up’s in a car dealer). The next appraiser on the list gets it and he/she might not be familiar with that property type or location. Therefore, the appraisal might not be performed from experience and will be unacceptable to the lender or come in low in value. The borrower bears the burden of the cost [appraisal], so they might have to pay for a new one.

4. What credit score is required to get a mortgage?

A buyer’s best asset these days is a good FICO score. If a minimum credit score of 620 is not met, there will be few lenders that one may go to (for a decent mortgage). Of course, there are plenty of lenders that will offer mortgages at different levels of FICO score, but the lower the score, the more of a down payment is required and the higher the interest rate.

5. How long does it take to close on a FHA/VA loan or conventional loan compare to the time to close those loans before the changes to mortgage rules?

I would give a loan more towards 60 days to close whereas before it could have been less than 30. The better prepared the parties are, the faster the process goes.

6. How often does the loan get denied after the completion of the appraisal? What can the buyer do to protect his or her self from the possible monetary losses?

As stated, appraisals are coming in lower than purchase prices more often than not. If this happens, the buyer has to either come up with more money or renegotiate a lower price. Some sellers are willing to reduce, other are not. If the deal goes south, the buyer does not get reimbursed for any money already spent on appraisals or engineer reports. It is simply the cost of doing business.

7. Are there other reasons that a buyer is turned down after receiving a pre-approval letter?

A preapproval is not a commitment to lend. Think of it as a review of the financial profile and a promise to work on getting a loan approval. A borrower can be rejected if the bank feels they do not qualify after they have received all of the documents. In addition, a borrower’s situation could change with loss of employment, income or a credit blemish. So, it is not ever until the fat lady sings- as they say.

8. If a buyer is turned down can the buyer get his or her money back?

Typically a contract will have a mortgage contingency clause. This will state that they have a set time (45 days) in order to make a reasonable application for a mortgage. If the borrower has done all they could and not get a loan, then they will get the down payment back. If they have done nothing to get a mortgage, it will be tough to get a refund.

9. Should a buyer get a copy of his her credit report before applying for a mortgage? If so, when should he or she get it? Who should the buyer contact to get a copy of his or her report? How does the buyer dispute incorrect information? How long does it take to correct the information?

Yes, regardless all people should get a copy of their credit report once a year just to review it for errors or changes. A free annual credit report is allowed by law from each of the three credit bureaus. This can be researched on line for easy access and information. After the report is received it should be examined and corrected with both the vendors/creditors and the bureaus. It takes about 60-90 days to show changes on a report and have a positive effect on the FICO score. So, it is a good idea to stay on top of one’s credit.

10. In your opinion, have the changes that have been made improved the mortgage industry or made lending more difficult and complicated for the consumer?

It was a necessary evil on so many levels. The bad apples had to be weeded out of the industry, the lender portfolios needed be flushed of bad loans and non-qualifying borrowers needed to be deterred from getting mortgages. On the downside it does eliminate many good qualified borrowers which is having a crushing effect on the real estate market. However, once this is over and we are back to reality, the ride will be smoother and smarter just ahead.

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