An Experienced Mortgage Advisor Shares Her Tips
We sat down with Susan Willis, a Senior Mortgage Advisor at All California Mortgage, who we’ve been happily recommending (along with her business partner Lisa Fonarow) to our clients for three decades. Susan has been in the loan business since 1988 and a mortgage consultant since 2001. We asked her about choosing a mortgage advisor and tips for getting the best home loan in the competitive Marin County real estate market.
What makes for a good mortgage advisor?
Answer: An individual who listens and, more importantly, who has many years of experience. A seasoned loan officer can often get borrowers qualified when others cannot. Knowing the nuances of guidelines, the many creative options available, and how to demonstrate extra income can make all the difference These are critical skills that come from years of having boots on the ground. The best mortgage advisors are problem solvers and are competitive; they don’t take no for an answer.
Example: A few years ago, Lisa and Susan contacted a client about refinancing their mortgage with an all-time low interest rate of 2.75%. This was complicated because the client was self-employed and wanted to retain a previous home equity line of $100,000. Timing was critical as this low rate could come and go quickly. They were on the phone with the client every day for two weeks and, with careful planning and documentation and exquisite timing, they closed this 30-year loan at 2.875%, 0.1% higher because of retaining the equity line.
How should you choose a mortgage advisor?
Answer: It’s important to choose an advisor you feel comfortable with, usually a person who’s been recommended by someone you trust. When it comes down to it, it’s about the relationship and service and not about a small difference in interest rates. You need to know that you are taken care of. For example, I had clients choose a different mortgage advisor because of a small rate difference, only to find that the bank wouldn’t underwrite the loan. I was able to get their loan approved and still close on time for the purchase of their forever home.
References are important. The bulk of my business comes from referrals, including realtors, financial planners, CPAs, loan officers, and attorneys who I’ve worked with for a long time.
What’s the most frequent question you’re asked with today’s high interest rates?
Answer: The biggest question in 2024 is “Should I wait to buy until the rates come down?” Most buyers think the answer is “yes.” This can be a mistake, and here’s why: If a buyer waits until rates come down, they will likely be entering the market with everyone else who is also waiting for rates to come down, thus creating more competition for the same home and possibly leading to multiple offers and over-bidding. If a buyer qualifies and can afford a higher rate for now, they may be better off jumping in when competition is less and then look to refinance when rates come down. The cost of refinancing is typically under $5,000 (or zero in some cases) versus possibly having to pay $50,000-100,000 over asking price (which also results in higher property taxes).
As rates go down and the market heats up, home prices will likely increase due to increased appreciation. The buyer who purchased a home with a higher rate and less competition may do much better in the long run when they look at the amount they paid for the home and the appreciation gained.
What does it mean to buy down a mortgage loan??
Answer: Clients are concerned about interest rates and often ask whether it’s better to buy down the rate, which means paying percentage points to get a lower rate. My answer is that it depends, there’s no one-size-fits-all answer. You have to look at the cost to buy down the rate, how long the homeowner will keep the loan, whether rates are forecasted to go up or down, and any potential tax consequences.
There are two types of rate buy-downs:
- One is a temporary buydown where the seller, developer, or lender can contribute to the buy-down cost. This allows the borrower to have a reduced rate and payment temporarily for 1-2 years. This can come in handy if they need lower payments to start out and can afford higher payments later.
- A permanent buydown is achieved by paying points to permanently buydown a better rate for the life of the loan (1 point = 1% of the loan amount). Your loan officer can perform a break-even analysis and let you know how many years the resulting lower payment will take to recoup in exchange for any extra points paid. Whether the client has the extra resources to buy down the rate (or simply has better use of the funds), and if they believe they will refinance or move before the breakeven point will play a large role in deciding what’s best for them.
Do you have other specific advice for those looking to purchase a home in Marin?
Answer: The residential real estate market in Marin is very competitive, so it makes good sense for prospective purchases to be fully underwritten (pre-approved). Loan underwriting involves evaluating the borrower’s financial background, income, and credit standing. Lenders assess the financial risk that a borrower presents before lending them money. With the loan underwritten, the selling agent has greater certainty that the loan will close. For buyers, they are more competitive with cash offers (no loan involved).
What is the difference between loan pre-approval and pre-qualification?
Answer: Pre-approval means that the loan has been fully evaluated by an independent underwriter and that the bank has issued a conditional approval letter. It requires an application and documentation, which usually includes W-2s for the last two years, two current pay stubs, and two months of asset statements (checking, savings, investments, retirement). It’s a little different for the self-employed, though we do have many creative options for those that do not qualify traditionally.
Note that pre-approval letters are conditional because they may have conditions that must be addressed before finalizing, for example, a guarantee of home insurance. Another condition is that the borrower’s financial condition does not change before the closing date of the sale; for example, income is unchanged.
Typically, a pre-approval letter is generated within 24 hours after submission of the documentation and credit report. For jumbo loans or for loans that just qualify, it usually takes another 24-48 hours to have the loan fully underwritten by a lender. If the loan approval letter contains any conditions, I work with my client to get the necessary documents and information so we can clear those conditions quickly. For some well-qualified borrowers, our pre-approval can lend itself to making offers with no contingencies.
A pre-qualification letter can often be issued after an initial conversation with a lender and does not carry as much weight as a pre-approval, which is based on a thorough risk assessment. Pre-qualifications are rarely used anymore because most sellers and their agent want to see that a buyer has been pre-approved.
How do you advise clients about mortgage products?
Answer: Each loan, every single one, has its own DNA. No two are alike. And rates and limits change. Because of this, home buyers are best served by a mortgage broker who provides a wide range of options.
I look at the borrower’s specific qualifications to see what the best options are for them. Often, people think they can’t qualify when they can. Here, a mortgage advisor with experience and creativity is essential. I must listen to what my client wants and then communicate what’s available. If someone doesn’t qualify for a conventional loan, the process may be harder but not impossible.
The company I work for, All California Mortgage, is a division of American Pacific Mortgage, a mortgage bank. We are both brokers and bankers. I have a longstanding relationship with our bank’s underwriters, and we partner to find solutions. However, I can and do go outside our bank for the best programs for each client. As a full-service mortgage lender, we are a direct bank and a broker, and we have private lending and reverse mortgage divisions. With one client application, we can provide an expansive array of mortgage options, all under one roof.
You mentioned the need for creativity. What’s an example?
Answer: A buyer might need a loan size over the high balance loan amount (a number set each year by the Federal Housing Finance Agency that defines the maximum of conventional mortgages), or the borrower’s debt-to-income ratio is too high. Once a mortgage amount is over the high balance limit, a Jumbo loan is possible. Some borrowers don’t want to have to deal with all the documentation a Jumbo loan requires. In that case, we might split the loan. We would get a standard conforming loan from one bank and a HELOC (home equity line of credit) from a second bank. I’ve done this for a client who was due to get a large bonus after the closing. She was able to pay off the HELOC and keep it in place in case she needed to draw on her home’s equity later.
What is a conforming loan versus a jumbo loan?
Answer: Conforming loans have a maximum loan limit, set each year by the Federal Housing Finance Agency. For 2024 it is $766,550. Between 100 and 200 counties around the U.S. are designated as high-cost, competitive areas. Since Marin is a high-cost, competitive area, the maximum conventional loan for 2024 (also known as the high balance limit) is $1,149,825 for 1 unit, $1,472,250 for 2 units, $1,779,525 for 3 units & $2,211,600 for 4 units.
Loans over the above high balance limits are known as jumbo loans. These loans generally have higher standards to qualify.
Does a bridge loan have advantages?
Answer: A bridge loan is a short-term loan designed to provide financing during a transitionary period and is used, for example, when a client buys a new home before selling their current home. This type of loan is advantageous when a buyer wants time to ease out of their current home or plans to make improvements to gain a better price. Once they sell, we can refinance them into the loan of their choice, and they will typically qualify for more options as now they only have to qualify for one home, not two.
What are the advantages and disadvantages of single source lenders, for example, Wells Fargo?
Answer: Single source lenders, including retail banks such as Wells Fargo, process loans in-house, from application through loan documents to closing. We generally feel that retail banks do not offer an advantage as they have only one set of underwriting guidelines. If their answer is “no,” the borrower has to start over with a new credit report and appraisal, which can delay the close of escrow. Some clients think that if they are denied, they can’t qualify for a certain price point or qualify at all, whereas they may in fact qualify for an even larger loan with one of the many creative programs to which a banker/broker has access. However, it is possible that if a buyer has many assets at a single source, retail bank, the bank will provide a special price; essentially, the bank is lending the buyer their own money.
By contrast, while we are also a single source lender, our platform allows us to choose between in-house banking, brokering, and private lending, including bridge loans. With our in-house single source bank, we have access to many of the large retail single source lenders as well as access to other lenders that may not be known locally and who work only with mortgage banking platforms such as ours. Choosing from our many options, we are able to select the best one for the client.
Another advantage of All California’s platform is the ability to make a quick pivot if needed. If a client is unable to meet the possibly stricter underwriting guidelines of the best price lender, we can turn to another source with the same application and appraisal, usually within 24 hours.
What about using internet lenders?
Answer: Using an internet lender can sometimes result in small savings (usually insignificant over the long run), but the tradeoffs can be significant. Generally, internet lenders take on the easiest of loans, provide minimal customer service, employ less experienced loan officers, and are typically not equipped to provide creative options when a loan is complicated. They may also add on fees at closing. We have found that most Realtors prefer the higher service levels from their local mortgage lender.
Why use a local mortgage broker?
Answer: A local mortgage broker is likely to provide better customer service. They often are faster to respond to your needs and the requests from your real estate agent and the seller’s agent. If there are difficulties in completing the loan, they are familiar with local title companies and lenders to resolve issues in time to close.
Possibly the most important factor in a competitive market like Marin, is that local mortgage brokers have credibility with seller’s agents. The sellers and their agent know who can work effectively to close the sale. For this reason, the choice of mortgage broker is sometimes an important factor in a seller choosing one buyer over another.