Home Buyers Problems Often Begin at the Mortgage

The process appears simple.

You call a few real estate brokers about homes you’re interested in and after brief consultations with each broker you schedule appointments for a weekend you can view them.

After viewing a few properties you narrow your choices to those that meet all or most of your wants and needs.  You make an offer and, if your fortunate, the broker informs you that the owner has accepted it.  Congratulations, your work is done.

Or is it?

Too often home shoppers have misunderstood that buying a home is a project separate and distinct from shopping for a home.  And I think I know how this misunderstanding evolves, having been a home shopper some 12 years ago and now a real estate broker.

When you look at the home shopping process, it’s often mistaken for the home buying process.  Because we’re a consumer driven society, the majority of our shopping experiences consummate with instant gratification.

When you shop for a new outfit, you close the purchase at the cash register.  When you shop for a new car you close the purchase when you sign the sales contract and title transfer documents.  When you shop for most goods and services your purchase  is complete when you’ve paid your hard earned money.

Unfortunately, the same experience is sought when buying a home.  But upon careful review, the home shopping process is nothing like the home buying process.

The Home SHOPPING Process is…

1. Review Property Listings for housing needs/wants
2. Schedule viewings and/or attend open houses
3. Narrow choices from amongst property viewed
4. Schedule 2nd viewing of properties your interested in
5. Further narrow choice to 1 or 2 properties
6. Make offer(s) to broker(s) on property(ies) your interested in purchasing
7. Obtain an acceptance of your offer

The Home BUYING Process is…

1. Schedule home inspection with certified Inspector and review findings on home condition with engineer
2. Meet with Attorney for consultation on contract of sale, it’s review and signature
3. Meet wth Loan Officer and begin application for mortgage to finance purchase
4. Value of property is determined by Appraiser
5. Chain of Title, Seller and Buyer backgrounds are examined and reviewed by Title Examiner
6. Propety conveyed at title Closing from seller to buyer

In the home buying process, the Attorney, Title Examiner, Appraiser and Home Inspector are fixed fee service providers.  Their fees are disclosed in advance for the services they provide.  In addition, their roles in the home buying process can be summed up in one term: Fact Finding.

Introducing: the Loan Officer

The only service provider whose job has nothing to do with fact finding specific to the property your purchasing is the Loan Officer.  In fact, the loan officer’s REAL role is a SALESPERSON.  And what they’re selling all home buyers is MORTGAGE MONEY.

However, when you ask home buyers applying for a loan, they never have this view of the person collecting their documents, reviewing their credit, completing their 1003 loan application and assisting them meeting the requirements for a mortgage.

In fact, as a result of not understanding the job of the loan officer, the majority of home buyers are vulnerable to the ethics and integrity of the individual taking their application and the business standards of its company managers.

Most home buyers are unaware that the majority of loan officers earn their money in the form of commissions, much like licensed real estate brokers and salespersons.  However, unlike real estate brokers, who can only be paid a commission from the person they represent in the sale, companies that originate mortgages can often make money from the loan applicant in origination fees and from the lender who will fund a mortgage.

The lack of “Up Front” disclosure by some loan officers could possibly be a conflict of interest.  Many in the mortgage business rarely volunteer this information during the initial consultation with loan applicants.

This failure in disclosure at the outset offers one explanation why sub prime loans were placed overwhelmingly amongst black and latino home buyers, regardless of the applicant’s credit quality or level of education.

Government agencies, community organizations and industry trade associations have tried to arm the public with information about the home  buying process for years.  In spite of all the books, fairs and seminars, mortgage loans and their fees remain the topic most poorly understood among borrowers.

While there is plenty of blame going around for the current foreclosure crisis, the responsibility will always rest with the consumer to be informed and prepared when applying for a mortgage.  Now I don’t expect for anyone buying a home to become an expert in mortgage financing in order to avoid predatory and/or deceptive practices.

Instead, absent technical knowledge,  a good way to begin with any loan officer is to conduct a formal interview using the following questions:

• How long have you been a loan officer?
• Are you a licensed as a Mortgage Loan Originator in New York State?
• What is your MLO License number?
• How long have you been with the current Lender?
• Who is your direct supervisor and what is their contact information?
• How many loans have you done in the last 6 months?
• Are there any complaints with NYS Banking Department against you? your company?
• How many loans have you done that have ended in foreclosure in the last 3 years?
• What fees will you charge me to prepare and originate my mortgage? (ask for this in writing)
• Are you paying a referral fee to the party who referred me to you?

Absent any technical knowledge of the loan process, the answers to the above questions will provide insight into the loan officer your interviewing and whether you should do business with them, or their company.

For a more detailed approach on shopping for a mortgage in today’s market, you should read the articles below published at CorleyRE.com.