Frequently Asked Questions
 
Q. How do I shop for a mortgage or mortgage lender?

A. The mortgage industry today is very complicated and seems to be in a constant state of transition. Never in our history (unless you lived through the great depression) has the mortgage business been exposed to as many changes and upheaval as we’re experiencing now, and shopping for a mortgage or a mortgage lender is not as easy as it has been in the past.  We’ve created a short two page publication you’re welcome to print out entitled "How to Shop for a Mortgage" that we encourage you to use whether you have an established relationship with a lender or not. The reality is that so many things have changed so dramatically within our industry that those lenders that have not kept up to speed on the changes cannot possibly hope to offer you the best solution to your financing needs. Many loan programs have been discontinued, and new programs have been unveiled in their place, but for your own financial safety and security, you need to be much more particular with whom you entrust with one of the biggest financial transactions of your life. A mortgage can no longer be viewed as just a means to an end. Rather, it should be an integral part of your short and long term goals for financial freedom and personal wealth.



Q. Why should I use a mortgage broker?

A. The advantage of working with a Mortgage Broker is akin to how you might do your grocery shopping. Imagine you need to buy groceries for a week for a typical family of four. You need milk, eggs, bread, bacon, meat, fruit, vegetables, spices, Etc. You could load up the car, head into the country to a local dairy and find your milk and butter. Then you could drive down the road and find a produce stand and buy your tomatoes and apples. Then you could go hunt for a butcher to find some steaks or pork chops … but we all know that this is unlikely. We know through experience that the best thing to do is head to our favorite supermarket or Costco where you can look at EVERYTHING that’s available to fill your needs. And like many of us, you’ll probably keep an eye out for which brands are on sale, which produce is in season, and which cuts of meat the butcher has on sale, etcetera.

A professional Mortgage Broker will evaluate your unique mortgage needs, and then has the ability to shop for your loan from SEVERAL different wholesale lenders that do not deal directly with the public. The advantage to this is that a broker can shop for loan programs and rates—yes, even mortgage money goes on sale when you know where to look—to find the BEST possible solution for you. A skilled mortgage broker will have a greater degree of knowledge and should also have the skills to evaluate all aspects of your financial portfolio to make your mortgage loan an integral tool in your financial success. Additionally, a mortgage broker who has access to multiple wholesale lender’s product lines will be able to offer prices below what most local banks can offer, and can typically gain access to loan products not available through other sources like local banks or credit unions.



Q. What steps are involved in applying for a mortgage?

A. While no two lenders may be the same, at Mid Oregon Lending, we’ve developed a thorough step by step process designed to make your loan transaction seamless, educational, and thorough. If you’re not 100% satisfied with our process and your result, we can’t expect you to recommend us to your family and friends. Our process is as follows:

  • Initial consultation: Designed to uncover all aspects of your unique situation, this step involves a thorough evaluation of your mortgage needs, a review of your financial goals and a detailed conversation about the options available to you, and is conducted over the phone or in person.
  • Loan Application: Involves filling out the necessary paperwork to apply for mortgage financing, signing necessary disclosures, and getting a GUARANTEED Good Faith Estimate in which we will explain all of the costs involved and the particular aspects of the loan for which you have applied.
  • Processing: Completed within Mid Oregon Lending’s office, this step involves putting together all the pieces of a complete loan package including financial information, appraisal of the home you’re financing, title information, and several other necessary items to make submission to the lender possible.
  • Underwriting: The wholesale lender we’ve chosen to submit your loan to will evaluate the loan package we have compiled to verify your creditworthiness and ability to repay the loan. Once approved for the loan, they will create the appropriate contracts and documents you’ll sign promising to repay the money, to keep the home in good condition etcetera.
  • Closing: Once you’ve signed your closing documents, the lender will review them for accuracy, and then wire money to escrow to complete the transaction, and release the note and deed to the county where the home resides to become public record.
  • Post Closing Follow-Up: Mid Oregon Lending will follow up with you to make sure your process was what we promised to deliver, and that you’re completely satisfied with your transaction. Additionally, we will forward necessary documents from the transaction to your CPA as necessary, keep you informed of important aspects of your loan during the life of the loan, and will work hard to earn your future trust and business.


Q. What kind of mortgage should I apply for?

A. There are dozens of loan programs available today, and a myriad of ways to structure the transaction. Whether it’s a multi-million dollar loan, or a modest second mortgage, your Mortgage needs to be tailored to suit your unique financial situation, and should be an important part of your long and short term financial plans. Keeping that in mind, you need to evaluate your options carefully regarding the terms, amortization, and payment structure of your loan. Additionally, HOW you choose to structure the loan could mean thousands of dollars difference over the life of the loan. Should you pay higher closing costs and get a rock bottom rate, or take a higher rate and pay less at closing? Should you put more money down to have a monthly lower payment, or finance the maximum amount possible and maximize your tax deductibility?

These are difficult questions to answer, and they should reinforce the fact that you must be working with an experienced professional when making your mortgage plans. You need to evaluate what kind of mortgage you obtain in light of your other financial assets, your tax brackets and future earnings potential. You need to consider whether you have enough saved for retirement, or adequate funds set aside for your children’s education.



Q. What kind of documentation will I need?

A. Getting a mortgage in this day and age is quite different than the good ole days when customers could get a mortgage from their friendly neighborhood banker with little more than a handshake. Of course, today’s lending environment provides a much broader range of products to choose from, so the rewards are well worth the effort. When applying for a mortgage, most lenders will evaluate the "Three C’s" of your financial picture. You’re Credit, Capacity, and the Collateral. Your credit report is easily pulled by your mortgage broker with your written permission of course. And your Capacity relates to your financial ability to repay the loan in light of your household income and other debts like credit cards, student loans, and car payments. Lenders will also evaluate your assets in regards to your savings or retirement accounts as an indicator of your fiscal responsibility. The Collateral relates to the Home you’re financing, and the appraisal is typically ordered by your mortgage broker. So your responsibility is to portray your financial strengths as prominently as possible for the lender, and for that you’ll need to provide the following:

  • Most recent two years tax returns and W-2’s, and if you’re self employed, business tax returns as well
  • Most recent paystub
  • Most recent two months bank statements
  • Statements from retirement or investment accounts
  • Valid identification such as driver’s license or passport
Of course, loan programs vary, and there may be cause to provide other documents to better establish your creditworthiness, and your broker will advise you of any additional documents you may need.



Q. What is a rate "lock" and when can I lock?

A. A Rate Lock is effectively a guarantee from a lender that you will get to borrow money at a specified interest rate, and have a limited amount of time in which to close your loan to get that rate. Rate Locks can be as short as a few days, out to several months with the caveat that the longer you want to lock your rate, the higher the rate will likely be. Typically, you need to have a property address, loan amount, and loan program picked out to get a specific rate, and your broker will advise you of your locking options throughout the loan process. Since Rates are dictated by market conditions, they do change frequently, and a skilled broker should be able to identify interest rate trends and offer sound advice as to the best time to lock your rate. That’s why it’s incredibly important to work with a broker who monitors market conditions constantly and who’s experienced enough to recognize interest rate trends and spot the best time to Lock your Loan. Just a quarter of a percent in interest rate could mean thousands of dollars over the life of your loan.



Q. Should I refinance my loan?

A. Whether or not you should refinance your home loan depends on many factors above and beyond just what rate you currently have. How long you plan to keep the home, what interest rates you’re paying on consumer debt, how much money you need to borrow, and how you intend to structure your transaction should all play an important part of your decision making process. Remember, your home loan needs to be an important part of your overall financial portfolio, and needs to be evaluated in light of your long and short term goals for financial freedom and wealth creation. Again, this is why it’s vitally important that you work with an experienced mortgage broker capable of evaluating your mortgage needs as just a part of your overall financial goals and needs. Interest rate should only be a small part of the decision. Tax savings, retirement plans, college expenses, investment portfolio’s, etc are all a part of whether or not you should proceed with a refinance.



Q. What is yield spread premium?

A. Yield Spread Premium or YSP, should be viewed as a tool to help you structure your home loan transaction whether you’re purchasing or refinancing a home. Simply put, YSP is a premium paid to the mortgage broker that’s expressed as a percentage of the loan amount, and the higher the rate above the PAR interest rate, the higher the YSP. Interest rates change from day to day depending on market demand for the Mortgage Backed Securities which fund the mortgage industry, and as our customer, you have choices for how you can leverage that demand against your transaction. If you want a rock bottom interest rate, be prepared to pay higher closing costs. If you want to save money on closing costs, you can actually choose a higher interest rate, and allow the YSP to pay some of the costs of obtaining a loan. At one time, YSP was only whispered about by brokers and used as a tool to garner higher revenues on loans for unsuspecting borrowers. However, at Mid Oregon Lending, Inc, we pride ourselves on fully educating our clients, and that Includes teaching them about YSP and how to use it in light of each unique mortgage situation.



Q. How long will it take to complete my loan?

A. On Average, it takes about 25 days to complete a loan transaction, but there are several variables that can extend or shorten that time frame. Most loan transactions start with a consultation where a client’s needs are evaluated, and once the loan application is taken, there are several tasks that must be completed in order to close the loan. Appraisals must be ordered and received, title reports collected and reviewed, and once the entire package is assembled, it must be underwritten and approved by the wholesale lender. Regardless of what kind of mortgage you’re applying for, it’s important that you give your loan officer or broker as much time possible to assist you to the best of their ability. If you’re planning on purchasing a home, speak to your lender first to make sure you’re as prepared as possible to make an offer. The more time you allow us to do our job, the better! Of course there are times that timeframe can or must be shortened, but remember that to give you the best options possible requires careful scrutiny of every aspect of your profile, and the more time we have to evaluate your needs, the more favorable the result.



Q. What’s an "impound or escrow account?"

A. Property Taxes, Homeowners Insurance, and when necessary, Mortgage insurance are necessary costs in home ownership. The Lender’s that finance your home require that you keep adequate homeowners insurance, and that you pay your property taxes annually to avoid additional liens on the property. For that reason, most servicers of mortgage loans (a Servicer collects your monthly payments) offer Impound or Escrow accounts—and most REQUIRE them if you put less than 20% down on a purchase. Impound accounts offer security to the servicer that property taxes will be paid on time each year, and that the home is adequately insured against loss or damage. Laws in most states allow counties to lien homes when taxes are past due or delinquent which could jeopardize the lender’s lien position. When you make your monthly mortgage payment, you simply pay 1/12th of your annual property taxes, and 1/12th of your annual homeowners insurance along with the mortgage payment. The servicer holds those funds in an account called an impound or escrow account and disperses them when property taxes and insurance come due each year. The advantage to the borrower is that they’re not surprised with a large bill from the county or homeowners insurance company and don’t need to worry about budgeting for the cost because the lender takes care of it for you. In light of that, it’s the homeowners responsibility to monitor their impound account and verify that there is sufficient funds in the account to cover possible increases in property taxes or insurance premiums because in the end, it’s the homeowners responsibility to make sure they are paid.



Q. What is a Conventional loan?

A. The two largest purchasers of mortgages from the lenders with whom we will broker loans are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These companies purchase closed loans from lenders which provides the capital for those lenders to make more home loans, and then securitizes them and sells them to investors in the form of Mortgage Backed Securities on Wall Street. Fannie and Freddie guarantee payments of principal and interest on those loans to the end buyers of the securities. So in effect, the mortgage industry is a big circle of dollars through our economy. A Conventional Loan is any loan that meets the qualifying criteria established by Fannie and Freddie in regards to credit worthiness, debt to income ratio, loan to value, loan amount, etcetera. Typically, conventional loans offer most competitive rates and terms for the homeowners. Of course, these loans also require the highest degree of scrutiny by the lender, because Fannie and Freddie need to issue a guarantee of repayment to the end investor. So any loan that meets these criteria are considered Conventional or Conforming Loans because the Conform to the guidelines of Fannie and Freddie. There are several other varieties of loans insured or purchased by other entities on the secondary market like Jumbo loans, Veterans Administration Loans, Federal Housing Administration Loans (FHA loans) but Fannie and Freddie still make up the bulk of the loans granted in the United States.



Q. Is an appraisal the same as a home inspection?

A. As part of the loan application process, your home must be appraised. A real estate appraiser will calculate the Value of the home "AS IS." Because the Appraiser is essentially the "eyes" for the lender, and oftentimes the only party involved in the transaction to enter the home, they are allowed to comment on any possible defects with the home that adversely affect value. However this is in no way intended to identify or suggest possible remedy for any deficiencies or damage noted in the home. That task is best left to a licensed home inspector.

A home inspection is not always required as part of a home purchase or refinance, but some loan programs and lenders may require an inspection to be performed on some or all of the home or its components. A Home Inspection gives the home buyer in a purchase transaction the peace of mind knowing a qualified professional has inspected the home to identify any potential hazards, livability issues, or structural deficiencies, and Mid Oregon Lending typically recommends inspections. The price of the home inspection is relatively modest compared to the thousands of dollars it could cost to remedy problems down the road not readily apparent to the typical home buyer.
So while your appraisal will tell you what your home is worth, a Home Inspection will identify potential problems or areas the buyer should address.



Q. How does an appraiser determine value?

A. Owning Real Estate is an Investment, and like all investments the value and rate of appreciation will fluctuate based on several conditions. When determining your home’s Market Value, a Real Estate Appraiser will evaluate your home from several angles. First, they will search the local Multiple Listing Service and county recordings for home sales in the most recent six months for homes comparable to yours. Typically, they are looking for homes of similar age, square footage, lot size, finish grade, etcetera. In some cases, they will also look for homes merely listed for sale, but these comparable homes are not as viable since they have not sold, and are still on the market. Once they have a general idea of your homes market value, they will typically make adjustments to that final value based on discrepancies between your home and the “comps.” For example, if your home sits on a half acre lot, and a similar home nearby that recently sold sits on a quarter acre lot, the appraiser will adjust the value of your home upwards to reflect the inherent value of having a larger piece of real estate.

The adjustments section of the appraisal report will factor in many different aspects of your home, like the age of the home, number of bedrooms and bathrooms, neighborhood characteristics, size of the lot, and aesthetic qualities, like whether the home has panoramic views, river frontage, etcetera. And like many segments of our economy, the current market value of your home will also be impacted by the current inventory of homes available for sale. For example, the first part of this century in Deschutes County saw rapid appreciation and home prices skyrocket as demand was high, an inventory was much lower, and homeowners/builders could charge a premium for their homes. Beginning in ’06 and ’07, the supply outgrew the demand, and homes listed for sale took longer to sell, and inventory was much higher. This created a slower rate of appreciation and even depreciation in some areas.

A skilled appraiser will take all of these factors and more into account when preparing an appraisal report, and if you have questions regarding home value, don’t hesitate to give us a call. For your convenience, we have provided a helpful on-line tool for you on this website under "determine your property value" that you are welcome to use to get an estimated home value. To get an exact determination, a certified appraiser must complete an appraisal of your home.



Q. How are the interest rates on mortgages determined?

A. Interest rates on Mortgages are determined solely by the Mortgage Backed Securities Market. The MBS exchange is an actual trading center where Mortgage Backed Securities are bought and sold as commodities much like stocks and bonds on Wall Street. There is a DIRECT correlation between market demand for MBS, and the interest rates we can offer to our customers, and those rates are predicated by market appetite for these securities in relation to market trends and demands for other investment vehicles for investors. Simply put, if traders want to incite investors to buy MBS and draw their attention and dollars away from other investments, they have to offer them higher yield, which means they pay the buyers of MBS more money for their investment. This in turn means higher interest rates for consumers. If Demand for MBS is high then traders do not need to offer as great a yield, and interest rates to consumers will drop. A MBS is historically a "safer" investment than stocks and bonds, and oftentimes investors leery of rapid fluctuations in stocks who seek a safe long term investment will gravitate towards MBS as their payments of principal and interest on their investment are guaranteed in some MBS.

Through a complex cycle, mortgage dollars flow from the MBS markets, through large corporations like Fannie Mae and Freddie Mac who pool and guarantee the security, to wholesale lenders who offer mortgage dollars to the Mortgage Brokers and Banks around the Country. The Banks and Mortgage brokers are effectively the retail outlet where consumers can go to get a home loan.

Ironically, if you have money invested in mutual funds or some kind of whole life insurance policy, it’s a safe bet that you have dollars invested in Mortgage Backed Securities! So in effect, WE are the buyers of our own loans!

For a detailed explanation of the credit crisis that affected the mortgage industry in 2007, see our article entitled "liquidity crisis, special report" or give us a call and we’ll be happy to answer your questions.

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