Pre Qualification, Pre Approval, Committment Letter

I get questions from every direction about the differences between Pre-Qualification, Pre-Approval, and a Commitment to Lend Letter. Now, understand, different brokers use different criteria for what defines these three things. Lenders too. But as a buyer or seller, think of these three "Letters" as different degrees of approval.

A Pre-Qualification is basically the initial step in BEGINNING to put the finance wheel in motion. With my company, we consider an applicant Pre-Qualified when we have taken either a phone or face-to-face interview and gotten the nuts-and-bolts of the transaction. Borrowers Information, Credit, Employment, Income, Property Information, Down Payment (if any), etc. After reviewing this information, if a lender has a loan program that can accommodate the applicant and their goals, they are Pre-Qualified. Which leads us to the next level in the approval process.

A Pre-Approval is issued when we have taken all of the information above, we VERIFY (through written documentation) that what our applicant has told us is, in deed, true and accurate. We will gather and verify recent pay stubs, recent bank statements, etc. If all this information checks out, at this point a Pre-Approval Letter may be issued to a seller or realtor. This demonstrates that with the information I have verified regarding the applicant, this applicant is Pre-Approved for a home loan, for a specific amount. On this Pre-Approval, you will see 2 amounts. One being the purchase price of the home, the other is the amount of the loan. I always list conditions associated with the Pre-Approval. These conditions are things that are still to be determined, not yet verified, or things beyond the brokers control. Examples might be:

1. All employment and credit information to remain unchanged



2. Acceptable appraisal supporting a value of at least $xxx,xxx.xx



3. Clear 24 month chain of title history



4. Evidence of Flood Insurance, if applicable



5. Evidence of Homeowners Insurance



6. “Clear to Close” issued from lending institution

In short, by issuing a Pre-Approval Letter, I am stating that everything the broker and lender knows, and has verified, about the applicant, tells us that we can loan for this transaction. The next stage is to document the collateral (the property) used to secure the loan. This requires the applicant to not only select a property, then order all appraisals, inspections, and insurances that protect the home.

When all of the documentation regarding the APPLICANT AND THE PROPERTY has been documented, verified, signed off by the underwriter, and APPROVED. Then a Commitment to Lend Letter may be issued. A Commitment to Lend Letter states that everything has been agreed upon with the lender, and the only thing left to do is begin the closing. This letter can legally bind the lender to make this loan. Therefore, lenders make sure that everything thing is in place and double checked before the extend this type of commitment. After which, the loan will be funded and funds dispersed to the respective parties.

The differences in these letters is, more times than not, an target for confusion between buyers and sellers. I hope this information helps you see the importance of a "quality" Pre-Qualification, Pre-Approval, or Commitment Letter. If you have any comments or questions from your own experiences, please make a comment.

1st Quarter Realtor Function Recap!

We at Professional Mortgage Group, Inc. really appreciate our referral partners! Our goal was to start this year off with a Bang! We held our 1st Quarter Referral Partners Function at Village Wine & Cheese on Thursday Feb. 22nd. The event was a Wine Tasting with
hors d'oeuvres. It was a great evening and we really enjoyed thanking our Realtors and other referral partners for their business. This is one way we like to give back and at the same time meet new partners. The following is a list of the attendees we would like to thank:

Jason Nowlin - Remax Boone Realty
Michelle Nickles - Remax Boone Realty
Christine Lacey - Remax Boone Realty
Bob Curnutte - The Prairie Group
Pat Curnutte - The Prairie Group
Cindy Neff - The Prairie Group
Tom Bradley - Bradley Marketing
Debbie Netemeyer - Plaza Real Estate
Tim Kuchta - 3D Realty
Gary Pfau - The Jones Team
John Sorenson - The Jones Team
Chris Weinerich - Century 21 Advantage
Sharon Chitwood - Centruy 21 Advantage
Jennifer Stoker - Century 21 McDaniel Realty
Pam Socha - House of Brokers
Sue Franklin - House of Brokers

We will be having another function at some point. Be on the lookout in the 2nd Quarter for information on this event!

Thanks again to all who attended and who send us business! We wish you all the best for your business in 2007!

The Professional Mortgage Group, Inc. Team
Columbia, MO

Is That Spring In The Air?

The weather looks like it might have turned toward spring like temperatures. This is good news for all real estate professionals in general and in Columbia specifically. I've heard from some of my realtor contacts that interest in home shopping is picking up as the weather warms. In fact, several have written contracts over the last week.

• As we start to gear up for the year it is easy to overlook some important things that make life easier for everyone involved in the transaction:
• Remember to have your clients prequalified so that they can look for and get in an appropriate home for their situation.
• Contact a mortgage professional often to discuss current rates and trends.
• Educate your clients on the purchase or selling process.
• Deliver the kind of service and professionalism you would expect if it were your transaction.
• Communicate often with clients...even the most sophisticated needs to be reassured that they have chosen the right professional.

It really is as simple as that! Doing the small (very important) things will set you apart from the competition and bring success. Good luck and much business to all!

Getting Past Procrastination

We all do it. We can all think of things that need to be done...and the sooner the better. It happens in all seasons of the year. You say things like "This year I'm going to start to exercise/diet/take a class/mow the grass/review my finances/develop a will/etc. The list goes on and on. Yet, things just seem to get in the way. Even though you know that these things that need to get done are important, deep down you want to put them off as long as possible. Logical? No. Human Nature? Yes!

The truth is procrastination is a habit, and a bad one at that. But, this time of year is the best time to make sure you accomplish some of those things that really should be done. It's cold out so there are no pressing golf games to attend. The kids are in school, so no pesky vacations that need to be taken before we "buckle down" to work. In fact, as far as most things financial go, this is the one time of year that you have collected all of your financial information to complete your tax forms.

As you are looking at the various forms that were sent to you last month, check out how much interest you paid on your mortgage. Is this the time to consider refinancing? Maybe. If your credit is better now than it was when you took your mortgage out, it is probably worth the time to sit down with a trusted advisor and look at your options. Or, maybe that house is feeling a little cramped. Now would be a good time to review if you can finally afford that dream home for which you've always wished. The point is you have most of the work already done...why let Uncle Sam be the only one who benefits from your organization of information.

It is always hard to break a bad habit. Hard, but not impossible. Don't let procrastination make you pass up or delay getting the benefit of the one time of year where your finances are at their most organized.

Be Up Front With Your Broker!

The reason I am writing this post is because I recently dealt with a buyer who was not up front with me and it ended up wasting my time, two real estate agent's time, and the sellers time! Not to mention they didn't get the house they really wanted!

It should go without saying, but always be up front and honest with people. This is always the best way to go about your business. These customers thought they could work the system and everything would be OK. I am not going to go into detail, but the customers told one little white lie that led to another. As we started verifying things and asking questions, things just snow balled from there. They scrambled to cover their missteps until they had nowhere else to go. They were caught and that was that. Things like this are eventually going to come to the surface. It is just a matter of time. Loans have been underwritten for many years and checks and balances have been put in place to catch these things. Don't think you are coming up with some new plan that hasn't been tried before. We don't tolerate this and neither do the lenders we use. We will not go along with your story. We do things one way and that is the right way!
You can even be prosecuted for trying to commit such acts. It is simply not worth it!

A good mortgage broker has a variety of products at his finger tips that can deal with most situations. Had this customer told us the entire story up front, the loan could have been completed with ease! Instead the customers chose to withhold information. This caused the loan process to drag on and on, which allowed time for their financial situation to change. As I mentioned the customer didn't even plan on doing any of this. They thought it was better to go with their story instead of being honest. This is something that makes the broker look bad, when in actuality it is all on the borrower! All real estate agents and sellers see is that a closing date is missed or the terms of the deal have changed. They don't know the story and what new hoops have been created from the clients lack of honesty!
Luckily for the borrower, we caught what they were doing before the lender did. We put an end to it and the deal was dead.

This is just one example of what can go on. Remember, this is rare and most buyers are honest and this is never an issue. However, It really struck a nerve with me and I wanted to mention this. It all sounds so simple, but just tell your broker the full story up front and you will be placed with the appropriate product from the start! Many buyers have heard mortgage "myths"and feel a simple thing like being self-employed will keep them from getting a loan. Don't assume these things and try and get creative. Professional Mortgage Group has programs that can help.

Just ask!

Brought to you by your friends at:

Professional Mortgage Group, Inc.

Columbia, Missouri

Foreclosure Homes

First, What is Foreclosure? Foreclosure is the process in which a bank or investor tries to recover any unpaid amount on the loan by either taking possession or selling the property. As you may already know, banks are not in the "home owning business". They are in the deposits and lending business. When a property is foreclosed upon, the bank doesn't look at the situation as "I've got a home valued at $200,000.00, but only $150,000.00 outstanding on it.", they look at it as "I haven't seen the $1300.00 interest payment in 3 months, I need to get that money back and loan it to someone who will pay the interest"
So, you can see where there may be some opportunity, as a buyer, to purchase a home at a discount. However, you should be well versed on market conditions, strategies, and risks of purchasing a foreclosed home before a transaction of this type. But for the purposes of this post, lets look at the options on "how" to purchase a foreclosed home.
There are 3 opportunities to purchase a foreclosed home:
During Pre-Foreclosure
At Auction
Purchasing a Bank Owned (REO)
Purchasing a home during the pre-foreclosure stage is exactly as the title indicates. You approach the a homeowner that may be having difficulties meeting their mortgage obligation. You offer to buy the home outright. In this scenario, the homeowner may have an opportunity to walk away with some of the equity in the house, and avoid any derogatory marks on their credit. The buyer may be able to purchase the home well below the market value
When the home has reached the Auction Stage, buyers have the chance to bid on the house at public auction. Buyers are usually required to pay cash for the property. This leaves little chance to inspect the title work of the property and the home itself, but this is where you can find some of the best bargains.
If the lender was unable to resolve the issues with the original homeowner, and was unable to sell the house at auction, then the lender will assume ownership of the property. Usually, the lender will try to sell the home as quickly as possible to recoup any defaulted amounts and costs associated with the foreclosure. In many cases, as a foreclosure buyer, have missed a window of opportunity. Because, by the time it reaches this stage in the foreclosure process, your less likely to find as large of savings as you would have in the earlier stages.
So, if you have considered searching out foreclosure homes, you should definitely do your homework. They can be a risky transaction but lucrative.

Buying A Home "The Right Way"

Sooner or later everyone either plans to buy a home or is going to buy a home. The latter is greatly dependent on their ability to be guided down the right path to home ownership. The former could be largely due to an individual dealing with the wrong lender, an informative realtor or even being uninformed about the pros and cons of buying a home, and what to expect during the process. I hope this post sheds some light on what I teach and believe to be the right way to go about purchasing a home.

1) Real Estate Agent: Finding a good agent is critical to a successful home buying experience. The right agent will inform you about necessary inspections, explain the sales contract and their role in the transaction and what to expect from him or her. The right agent is also critical to finding the right home for you and your family. You will want an agent that you can relate to and who will show you homes that meet your specific criteria. A good agent should return phone calls in a timely fashion, answer any and all questions, help you negotiate a good sales price while at the same time looking out for your best interests with honest advice and dialog.

Local Columbia, Missouri Agencies:

ReMax Boone Realty
First Tier Realtors
Plaza Real Estate Services
House of Brokers
Reece & Nichols
Central Missouri Real Estate
The Jones Team

2) Lender: The right lender is imperative to a nice smooth home buying experience. They will perform the pre-approval, explain the lending process and give you honest advice on rates and products. Also your lender will be honest when troubling issues present themselves. The lender has a deadline to meet per the sales agreement. Their job is to give you the best possible home loan in the most efficient, ethical, and effective manner. The wrong lender can spell disaster for your home buying experience. You do not know how many horror stories I hear about clients being promised one A and get B. The loan process is fairly straight forward as long as you are dealing with someone you trust and who does his or her job the right way.

Local Columbia, Missouri Lending Institutions:

The Professional Mortgage Group, Inc.
Bank of Missouri
Boone County National Bank
First National Bank

3) Title Agencies: Title companies are the final link to a successful home buying experience. They will explain the closing documents thoroughly and answer any and all questions the home buyer has. They are also responsible for ensuring the proper vesting and that your property has the correct and appropriate lien. If for some reason the title company makes an error and misses something you could be in for a long day. The last thing you want is to find out that your neighbor has an easement to drive their car across your front lawn.

Local Columbia, Missouri Title Companies:

LandAmerica Commonwealth
Archer Title Company
Boone-Central Title Company
Guaranty Land Title


Now, there are a lot of smaller steps, but for the most part, these are the three keys to a smooth and memorable home buying experience. Of course there are appraisers, inspection specialists and other smaller parts to this process, but your realtor or lender can help you out with those individuals.

Your comments are always welcomed!

Do you know what is in your credit report?

"How can I find out what is in my credit report and how do I correct things that shouldn't be in there." I hear this question frequently from my clients. Fortunately there is an easy answer. Everyone should know that a few years ago Congress passed a law allowing everyone to get one free credit report from the three major credit bureaus once a year. All you have to do is go to www.annualcreditreport.com and follow the directions. This allows you to see what is in your reports and it does not ding your credit score as a inquiry.

In addition to letting you see your credit history, it lets you file a review request that is sent to the individual creditors (past and present) if you think there is any incorrect information. Creditors, by law, must review any request and either prove a bad report or correct it. Getting the correct information on your report is critical to getting the credit you deserve.

Looking at your credit annually is a good habit to get into. It allows you to see what potential creditors see, watch out for identity theft, and watch your progress toward getting a good credit history.

NO PRO JOE!

Starting today, be sure to listen for Professional Mortgage Group's new add campaign on the #1 Hit Music Station Y107! PMG was featured this morning on the Cosmo and JC Morning Show. The campaign's purpose is to poke fun at celebrities or public figures in the news that act "Un-Professional". This is of course the opposite of what PMG is all about and it is no laughing matter in the business world! We believe YOU deserve the utmost respect and professionalism when it comes to YOUR loan!

To nominate next week's "NO PRO JOE", you can visit Y107's website and click on the PMG "NO PRO JOE " logo.

Thanks to Tom Bradley of Bradley Marketing, Cosmo, & JC, and Y107 for helping Professional Mortgage Group, Inc. launch this great campaign!

Thank You,
PMG

Interest Rates

To understand why mortgage rates change we must first ask the more general question, "How do interest rates change?" It is important to realize that there is not one interest rate, but many interest rates:

• Prime rate: The rate offered to a bank's best customers.


• Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).


• Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.


• Treasury Bonds: Long-debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.


• Federal Funds Rate: Rates banks charge each other for overnight loans.


• Federal Discount Rate: Rate New York Fed charges to member banks.


• Libor: : London Interbank Offered Rates. Average London Eurodollar rates.6 month CD rate: The average rate that you get when you invest in a 6-month CD.


• 11th District Cost of Funds: Rate determined by averaging a composite of other rates.


• Fannie Mae-Backed Security rates: Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.


• Ginnie Mae-Backed Security rates: Ginnie Mae pools large quantities of mortgages, secures them and sells them as Ginnie Mae-backed securities. The rates on these securities influence mortgage rates on FHA and VA loans.

Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates. If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates. When the economy is expanding there is a higher demand for credit, so rates move higher, whereas when the economy is slowing the demand for credit decreases and so do interest rates.

This leads to a fundamental concept:

• Bad news (i.e. a slowing economy) is good news for interest rates (i.e. lower rates).


• Good news (i.e. a growing economy) is bad news for interest rates (i.e. higher rates).

A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing. When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.

Mortgage rates tend to move in the same direction as interest rates. However, actual mortgage rates are also based on supply and demand for mortgages. The supply/demand equation for mortgage rates may be different from the supply/demand equation for interest rates. This might sometimes result in mortgage rates moving differently from other rates. For example, one lender may be forced to close additional mortgages to meet a commitment they have made. This results in them offering lower rates even though interest rates may have moved up!

There is an inverse relationship between bond prices and bond rates. This can be confusing. When bond prices move up, interest rates move down and vice versa. This is because bonds tend to have a fixed price at maturity--typically $1000. If the price of the bond is currently at $900 and there are 10 years left on the bond and if interest rates start moving higher, the price of the bond starts dropping. The higher interest rates will cause increased accumulation of interest over the next 5 years, such that a lower price (e.g. $880) will result in the same maturity price, i.e. $1000.

What is Title Insurance?

What is Title Insurance? Title insurance is a policy that protects you, the home purchaser or owner, against losses that may arise due to defects in your property's title.

Why do you need title Insurance? Any interest in property must be recorded in public records, if the interest holder wants to be protected. All subsequent parties are then presumed to know the existing interests in a given property, since they are a matter of public record.

Public record searches (of millions of documents on record) are necessary to establish rightful ownership of your property and to determine whether any mortgages, liens or other encumbrances are outstanding against it. Otherwise, you can potentially lose the title to your property at any time due to unexpected title defects or hidden risks and never recoup your investment in the property, either.

How do you Get Title Insurance? It's easy!! Simply inform your lender or the agent that is handling your closing that you want to purchase an Owner's Title Insurance Policy from a Title Company. Your premium will be based on a the amount of the purchase price of the property. You will only pay the premium once. Your agent can quote a premium either upon your inquiry or at the time of closing.

A title company we have had great experiences working with is Archer Title in Buttonwood and soon moving to Clark Lane. Please check out Archer Title online at www.archer-title.com

Weather & The Housing Market

Wow, it has been bitterly cold in central Missouri for quite some time. It's funny how the weather will affect home buyers and their need to purchase a home. I read an article the other day about how December was seasonally warm and the housing market was strong. Then I found another article about January's weather and how it was seasonally cold and the housing market had really dropped off. What does this mean?

People like to shop comfortably for homes. Dealing with the elements that weather can sometimes bring just isn't worth it for most people. It's hard enough to keep emotions in check when considering something with such importance as a home, but had snow, rain or sleet to the mix and human nature says "I'll wait till the weather changes".

Statistically if look at the market trends of home buying the strong months are from March through October. This is a directly correlation to weather and how it can greatly impact the Midwest, Northeast, and Northern markets. I for one am anxiously awaiting some better weather!

Your comments are welcomed!