Over the next week, within this blog, I will be touching on different aspects of originating that sometimes make it difficult to complete the loan transaction. It will encompass everything from market conditions to debt ratios to consumer goals within each transaction. In the end, I hope that it is a week filled with some learning moments and if an "AH HA" moment occurs, then the job will be successful.
One of the most difficult aspects of originating loans is discovering the interest rate that will satisfy a customer. Often, consumers are a bit jaded when it comes to what their interest rate should be and they focus too much on that aspect and not on the aspect of housing affordability. True, an interest rate can price you out of the market, but an interest rate phobia can lead you to missing the right opportunity.
There are currently some difficulties within the lending business that may make it hard for first time home buyers and those in need of refinances to find a loan. Many underwriters and companies who buy loans on the secondary market have declared Maricopa County a distressed market. This distressed market rating automatically cuts the loan to value on maximum financing back by 5%. So, if the max LTV on a cash-out refinance is 95% on their guidelines, because of the current market conditions, the LTV can be no more than 90%. This, on a refinance, can kill the deal. The same goes for a purchase, if the max LTV on a specific purchase product is 100% (unlikely in this market but still available), the new LTV is 95%.
What does the above mean for you as a consumer. It means that you will be responsible for the cash necessary to close the deal. For example, on a $100,000 loan amount for 100% financing, with the cut, the loan is $95,000 and the consumer is responsible for the $5000, plus closing costs. A well informed originator will prep the customer for this change, however, it is always possible that unforseen changes occur of which the loan originator is not always at fault.
More about that tomorrow as we begin to break down the stigma against Loan Originator's and begin to educate people about how they can make the process work for them.