Nationwide Mortgage Licensing System and Registry launches
NMLS Consumer Access Website
The Office of Consumer Affairs and Business
Regulation announced that the Nationwide Mortgage Licensing
System and Registry (NMLS), operated by state financial
regulators including the Massachusetts Division of Banks,
launched the "NMLS Consumer Access" resource. There hope
is that it will help protect mortgage shoppers from unscrupulous
NMLS Consumer Access is a fully searchable
single-source consumer access website that allows the public
to verify state-licensed mortgage lenders, brokers and individuals
currently licensed through NMLS. Future updates to NMLS
Consumer Access will provide a record of applicable disciplinary
actions taken against a licensee by any jurisdiction in
The NMLS Consumer Access website was
launched in January 2010 and the NMLS
Resource Center, claims the website will bring greater
transparency to the mortgage industry and compliance with
provisions of the SAFE
The database of companies and individuals
will be updated nightly and will tell consumers whether
the person they're working with has had their license suspended
or revoked in any state, and will list any aliases the individual
has used since the age of 18. It will also seek to discover
whether that person is engaged in other sidelines and what
that person's license status is in other jurisdictions.
You can download a .PDF pamphlet of
about NMLS Consumer Access prepared by the NMLS Resource
Okay, now let's get back to the Financing Process.
A mistake that most inexperienced buyers make is they fail
to find out exactly how much home they can afford. This
affects almost every aspect of buying a new home - including
how the Offer To Purchase is constructed. Any real estate
agent who is willing to put you in their car and drive you
around to look at property before, at the very least, you
are pre-qualified is doing the Buyer a disservice and wasting
their own time as well. It makes no sense to start showing
a buyer real estate without knowing if that buyer can afford
the homes they are looking at. Therefore, it is generally
recommended that the first thing a buyer needs to do before
even contacting a real estate agent is pre-qualify themselves
so they know exactly how much they can afford to spend for
their dream home, and how much cash they will need for a
down payment. Pre-qualification acts as a dry run for the
loan application process. The mortgage lender will use details
you provide about your credit, income, assets and debts
to arrive at an estimate of how much of a mortgage you can
afford. The whole process may take only minutes and there
is usually no charge to the buyer. The pre-qualification
is non-binding to the lender because the information
you provide has not been verified. However, it serves as
a good indication to the lender of your general creditworthiness.
Pre-qualification is an easy process and can be done either
on-line or with the assistance of a lending agent. Items
considered when pre-qualifying for a mortgage loan are employment
history, credit history and FICO
(credit rating) score, and monthly income and expenses.
This also simplifies the pre-approval process which is the
next step. In many cases, the buyer will be pleasantly surprised
because they may have under-estimated their buying power.
PRE-APPROVAL vs. PRE-QUALIFICATION:
You may be wondering what the difference is between pre-approval
and pre-qualification. Pre-approval takes pre-qualification
one-step further. The lender will actually contact your
employer, your bank and others to verify your income, assets,
debts and credit history, and then issue you a letter stating
that your mortgage is approved for a certain amount within
a certain timeframe. You may be charged a small fee to cover
the cost of your credit reports and your application. This
fee is often refunded at the time of closing. I always ask
my clients to get pre-approved when they’re getting
serious about making a purchase, because in today’s
market a pre-qual letter carries very little weight with
savy sellers. In my experience over the years I have encountered
some sellers who require a prospective buyer to be pre-approved
as a requirement for allowing them to preview their property.
I have also encountered sellers who will not even consider
an Offer to Purchase unless a pre-approval letter accompanies
that Offer to Purchase. So, why not be prepared and have
that pre-approval at the ready.
I realize being in the position of a
borrower and having to present all of your personal financial
information to a stranger might be a sensitive subject.
Jack Guttentag, The
Mortgage Professor, has developed a free pre-qualification
tool. “It is designed to let you see where you stand,”
he says. “And it will offer [links] that give information
on remedying your weaknesses.” SplitRock Real Estate
can assist you in getting pre-qualified or pre-approved.
The first step in applying for a loan is to understand the
mortgage programs that you may qualify for, its advantages
and disadvantages, so make a list of any questions you may
have (i.e. Why choose a Fixed Rate Mortgage over an Adjustable
Rate Mortgage?) Depending upon the economic climate at the
time you are applying for a loan, you may want to lock-in
the interest rate or float the loan's interest rate. Locking-in
the rate means that the lender usually commits to the mortgage
interest rate and terms (points and fees) at the time the
loan application is submitted. Buyers who opt to "float
the loan" believe interest rates and terms may become more
favorable between the time (weeks or months) of the application
and the closing. This means that the buyer can lock-in the
interest rate anytime between the loan application date
and closing. As you can imagine, this is a gamble because
you take the risk that interest rates may rise instead of
drop. In addition, the terms may not be the same, thereby
increasing the mortgage payment. The next thing you want
to think about is if you want to pay additional points to
lower your interest rate. Each point is one (1%) percent
of the mortgage loan payable in cash at closing.
my article "Locking in the Rate" here.
The following list itemizes most of the documentation you
will need for your loan application:
- Check to pay for the application fee.
- Property Information:
- Completed Offer To Purchase or Purchase and Sales
Agreement contract signed by the buyer(s) and seller(s).
- Copy of the legal description and the LINK data
sheet for the property.
- If you are selling your current home, a copy of
the listing contract.
- If you have sold your current home, a copy of the
settlement statement (HUD-1)
- Income & Assets:
- Two most recent pay stubs from your employer..
- Names and addresses of each employer for the past
- W-2s for the past 24 months
- Statements for each bank, mutual fund, and/or investment
account for the last two months.
- The estimated value of all personal property.
- If you have made any large deposits to your accounts:
- Explanation and source for the deposit(s).
- If the large deposit was a gift:
- Signed "gift letter" from the donor if
a financial contribution is being "gifter"
stating the amount and that the funds do not need
to be paid back.
- Copy of the gift check.
- Copy of the deposit receipt.
- If you own more than 25% of a business:
- Corporate or Partnership tax returns.
- If self-employed: Tax returns for the last 2 years
Year-to-Date Profit and Loss Statement prepared by an
accountant. Copies of 1099 forms from the IRS showing
income as an independant contractor during a year. Note:
Any amount that totals less than $600.00 does not require
a 1099 form.
- If employed by another: Written verification of your
position and salary. Make sure this is written on company
letterhead and dated.
- If you are a first time home buyer, according to the
Consumer Financial Protection Bureau, a lender might request
canceled rent or utility checks to confirm that you have
a history of on-time payments.
- If you own rental property: Tax returns for the last
2 years and any current lease agreements.
- If you are retired: The Pension Award Letter.
- If you receive Social Security: The Social Security
- If you are counting child support as income: Copy of
the divorce settlement,
Copy of 12 months of cancelled child support checks.
- Names, addresses, account numbers, balances and
monthly payments on all current loans.
- Explanation of credit report anomalies, including:
Late payments, credit inquiries in the last 90 days,
charge-offs, collections, judgments and/or liens.
- Bankruptcy filed within the last 7 years (bring
a copy of your bankruptcy papers).
- VA Loans: Copy of DD Form 214, Report of Separation
- Photo ID and proof of Social Security Number for
each person whose name will be on the loan.
- Residence addresses for the past 2 years.
- If applicable, a copy of your divorce decree.
- If you are not a citizen, a copy of the front and
back of your green card.
- Proof of homeowners insurance for your new home,
WHAT DO I HAVE TO DO TO MAINTAIN
MY LOAN APPROVAL?
Just because you have been approved for a loan doesn't mean
that your financing is secure. The mortgage lender will
most likely make a second credit check just prior to closing
because the mortgage loan is only conditionally approved.
The lender reserves the right to re-verify credit, income,
assets and employment at any time prior to closing and may
cancel the loan if there are any adverse changes to your
qualification status. Red flags can disqualify you for the
approved mortgage program. A red flag is any inquiry made
regarding your credit worthiness. If you decide to purchase
a big ticket item - like that Porsche roadster or sailboat
you have wanted - prior to closing, you are risking a red
flag showing up on your credit report. Another thing you
do not want to do is move your money around --- leave your
bank and investment accounts alone until after the closing.
Do not close accounts or change banks. A large withdrawal
or deposit to any accounts will trigger a red flag. If a
red flag is triggered, you may be asked to produce a paper
trail tracking large withdrawals and/or deposits. Although
your employment status also affects your credit worthiness,
a change of jobs for salaried employees to one of equal
or higher pay will not trigger a red flag. However, commissioned
sales people should not change jobs prior to closing on
their mortgage loan. Mortgage lenders typically average
your commissions over the last two years to determine income.
Changing employers eliminates the two-year commission history
and places uncertainty on your income status. The bottom
line is not to make any changes without first talking with
your mortgage lender.
Okay, you have your loan and you closed on your Martha's
Vineyard property on time with no problems so you are one
happy camper. You have been enjoying your dream home for
a few years but lower interest rates have you thinking about
refinancing your loan. However, you failed to read the part
in your loan agreement that addressed a pre-payment penalty.
What can you do --- nothing! If it was in the agreement
when you accepted the loan, you have to pay. But, what is
a pre-payment penalty and why is it part of some lending
agreements? I explained earlier the how and why of paying
points as part of the loan package.
Anyway, the reason for including a pre-payment penalty clause
is because the lender is trying to protect themselves from
making a cheap loan, usually an Adjustable Rate Mortgage
(ARM) that the borrower intends to pay off or refinanced
in a few months. Massachusetts allows a lender to charge
a pre-payment penalty but it must be clearly spelled out
in the loan document.
Prepayment penalties are rarely waived,
but most mortgage lenders allow borrowers to pay off a maximum
of 20% of their loan balance each year which could be advantageous
should they sell your home early or in time they want to
refinance. A prepayment penalty can be 80% of six months
interest, and it can vary too. That six months interest
is the interest-only portion of the loan. As I am sure you
understand, the penalty lessens the longer the loan is held.
Note: FHA loans have no prepayment penalties.
There are two types of prepay penalties:
“Soft” and “Hard”
prepayment penalties. With a soft prepayment penalty
the borrower can sell their home at any time without a penalty.
However, if the borrower wants to refinance the loan, they
will be subject to a prepayment penalty. Conversely, a hard
prepayment penalty commits the borrower to a penalty
whether they sell their home OR refinance their loan. The
borrower has no options; they are between a rock and a hard
place should they have a need to sell their home quickly.
They will pay the penalty.
Why do we have prepayment penalties.
Well, for one banks are in the business of making money
and loans make them money, and pre-payment penalties exist
as a deterrent to what the financial market calls "refinance
In summary, it is important first to decide upon the mortgage
product that best suits your needs. Ask the lender if the
loan includes a pre-payment penalty for early payoff. After
the details of the pre-payment penalty are explained, you
can decide if the terms are agreeable to you.