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Are you thinking of buying a home soon? Get the inside scoop on what lenders are looking for so you can get a great deal on a mortgage!

How to Find the Best Rates for Your Mortgage

It's home buying season and depending on where you live, it could be a hot market. It’s certainly that here in Raleigh, NC.

As a buyer that can be additional pressure on finding the right place for you, but if you’re prepared and you snag a great deal on your mortgage, you’ll have a leg up.

This is why to have Wendy Dawson on the show today. She’s the Vice President of Mortgage Lending over at Coastal Credit Union. She’ll be sharing her expert insights on how to shop around and snag a great deal on your mortgage.

In this episode we’ll get into:

• What lenders look for when assessing a potential borrower's financial position
• potential down payment assistance programs for first-time homebuyers
• how to stay level-headed during your house hunt your new place is a blessing and not a burden

We have a lot to cover, so let’s get started!

Resources on Buying a House

If you’re looking to buy, here are some resources to help you find an affordable place you love!

• Best Budget and Money Apps: Empower, Tiller, Mint
• Grab My Book: Jumpstart Your Marriage and Your Money
• Buying a Home <- Want to save thousands of dollars while buying your dream home? Adam’s course takes you through contemplation to closing
• How To Get Your Finances Ready to Buy a House
• House Hunting: Tips to Buy a Home in a Seller’s Market

If you’d like to chat more your money system, please join us in our private and free Facebook group – Thriving Families. We’re families looking to support and help one another out.

Hope to see you there!

Thank You to Our Sponsor Coastal!

Support for this podcast comes from Coastal Credit Union! If you’re living in the Raleigh Durham area and looking to bank better, come check out Coastal today.

If you're thinking of buying a home here in the Triangle, take a look at Coastal's mortgage options and rates!

How to Shop Around and Find the Best Mortgage Rates

Wendy Dawson: Most recently had an article that was given to me and it was being traumatized by buying a home. And I'm thinking, oh my gosh, traumatized. That's not the word we wanna use!

And they're going, yeah, they equated it to the emotional impact was almost equivalent to being fired.

I'm going, oh my goodness, we need to level set and course correct. We have really gotta, we've gotta do better. We have to do better than this. Okay. And we can do better. It's just about absolutely educating and knowledge is power.

Elle Martinez: I really appreciate this because like you said, knowledge can be so powerful, especially in a market like Raleigh, where it's very much a seller's market. It's a hot market. Yes.

Things move fast and as much as we hope to be that objective buyer, our emotions get into play. Yes. When we're trying to house hunt.

I love going over this that way, at least it's in the back of our minds to like keep the course, keep to the plan that we have when buying a home.

Last episode, we went into getting your finances in a good spot so you could start house hunting and buying a house- getting a budget that is realistic where you're still having a life and you're saving towards those goals, right?

Making sure that, your high interest debts are gone. Now we're getting to the, I want to buy a house. I gotta get a mortgage for that. I'd love to get your perspective.

First of all, when someone comes to, say Coastal Credit Union, they wanna get a mortgage. What are some numbers, what are some things you are looking at to see whether or not they're in a good financial position to buy a house?

Don't Settle for Less: How to Choose the Right Mortgage Lender for You

Wendy Dawson: The first thing I would recommend for especially a younger buyer or a first time home buyer is choose wisely, and that means partner yourself with a lender. That's gonna navigate this sensitive space for you, and choosing that that preferred provider.

That financial provider, is important because it may mean, especially as you mentioned, This is a very hot market, the area we live in. There's a very high propensity that the first contract they initiate on, they may not get it. They may lose, they may actually go through several contracts that they don't win the bid.

You wanna make sure that not only have you aligned yourself with a real estate agent, an exclusive buyer's agent is what I would recommend, especially for the younger buyer or the first time home buyer.

What Mortgage Lenders Are Looking for

Wendy Dawson: I think that just gives them a little more insulation. But also recognizing who that lender partner's gonna be for you, because that lender will be able to strategically align looking at your finances, your monthly income, your gross monthly. They do a simple calculation of like 43% of your gross monthly income of debt. It's debt to income.

They would like for it not to exceed 43% of your gross monthly income, and that's your overall debt. Not only your PITI, which is your:

• principal,
• interest,
• taxes and,
• insurance,

Your monthly reoccurring bills too- your car payments, your minimum credit card payments, your installment loans. All of that debt.

Debt combined shouldn't exceed more than 43% of your gross monthly income. That's the benchmark we use. So that loan officer's gonna navigate that and then they're gonna look at different options for you.

The Surprising Perks of Being a First-Time Homebuyer

Wendy Dawson: In the first time home buyer space, you wanna make sure that you're, you have partnered yourself with a very experienced loan officer that understands all the benefits out there.

For a first time home buyer, it would be a really big miss on that lender for them not to negotiate or be able to give them the knowledge of the down payment assistance programs that are out there, or the North Carolina Housing Finance Agency mortgage credit certificate. That's a tax credit that they get because they're a first time home buyer for the life of the loan as long as they live in that property as a primary residence.

There's a lot of incentives for first time home buyers that can be bundled so you wanna make sure that you have aligned yourself to a lender loan officer that is skilled and knowledgeable in all of those areas. Because you're only a first time home buyer once and so you don't wanna miss that.

And so that's a really important thing I wanna say upfront is choose wisely there.

How Your Credit Score Affects Your Mortgage: What You Need to Know

Wendy Dawson: That's one of the navigating points that they look at. They look at that gross monthly income, and they look at that 43% of debt to income. The other thing they're gonna look at is they're gonna pull their credit report and they're gonna help 'em navigate.

Hopefully, we've got a lot of savvy I say millennials right now, they understand about credit scores, but in the event they don't, then they wanna have that conversation with their lender.

They wanna have a tri merge pulled. What that simply means is we take the median score of all three repositories from Experian as far as Equifax, and as far as TransUnion.

We look at all three and we take that median score, and that's how typically the lenders price the loan. They actually look at what they call risk-based pricing So the higher the score, the better.

How Your Loan Officer Can Help You Find the Best Mortgage Rates

Wendy Dawson: You may have heard of a lot of commentary right now from F HFA. About the new, well they call it the mortgage tax where, or the Robinhood Effect, where there's a loan matrix that when we sell loans in the secondary market that higher scored. Buyers get a better pricing. Well, they still do.

But what FHFA has done is recognizing the first time home buyers been shut out of the market. They have lowered those loan adjustment prices for those first time home buyers that their scores now, they're not hit with so many fees.

One of the things the loan officer will do is help educate that, that buyer, about their credit scores and how that enables them to have a better price or better products.

They're gonna look at their income, they're gonna look at their credit report, and then they're gonna look at their bank statements. They're gonna look at their ability to save. And what does that cash to close mean?

They're gonna look at any kind of residual reserves that they have. So they'll do a loan estimate and it gives them a bottom line of cash to close for the transaction, depending on the sales price that they qualify for.

How to Keep Your Mortgage Affordable

Wendy Dawson: I would caution this, a really good loan officer will look at what they qualify for for the max. But that doesn't mean that's the highest they have to buy, and that information is exclusive and it's confidential between the lender and the buyer.

We don't share that information with the realtors because there's FRCA and that's the Fair Credit Act basically, that insulates and protects them and it should. So these are confidential conversations that they're having.

So just because you're qualified up to 500,000 or 600 doesn't mean you need to buy the top of your purse, which is, I call, you wanna pull back a little bit, and it all depends on your comfort level too.

The other thing that we would look at is what have you been paying in rent? We look at payment shock. What's your outgoing expenses? What are you comfortable with?

That's a decision that that buyer has to make, but the loan officer creates a very informed, as far as atmosphere there, a foundation for them to make a better decision. So those are some of the things that the loan officer will help navigate.

The other thing they will do, especially on our first time home buyers, like I said, Look at the different areas of down payment assistance that's out there.

There are a lot of agencies out there that they have money and a good loan loan officer, a knowledgeable loan officer, will know about those resources and also giving and bundling them.

You've got the city second program with Raleigh, you have DHIC. There's a lot of down payment assistance. There are some limitations to the income, but a good loan officer, a knowledgeable one will know about that. So choose wise, it's almost like absolutely interviewing your loan officer and your preferred provider. That's what I say.

Staying Level-Headed in a Hot Real Estate Market

Elle Martinez: You bring up a lot of good points, and I think first of all, a lot of first time home buyers don't shop around for lender. Yes. They don't even consider it. They're like, okay, this is, you know who I have my accounts with, or I see a TV commercial.

It really, it does pay to invest time just to look for the lender. I knew some of the benefits, but I didn't realize all of the benefits. Having someone that also is local to your area state and knows about these programs such an asset because you hit a really good point because in a hot market, if, it's a working class family, middle class family, right?

It's harder. I was buying or helping my mom house hunt a couple years ago during the pandemic and just like you said there were a couple houses that she missed the bid. But, we had a plan and we knew what her budget was, right? So it was important to don't get emotionally tied to it.

Wendy Dawson: There’s another house. I know it's hard cause when you start, this is the biggest, I think one of the biggest missteps is that, you look at a house before you talk to the lender, the finance. Now you've walked into that house and you have emotionally tagged yourself to that home because you've already started placing furniture.

In your mind, your behavior, emotional, you are, and that is, the strategy for some realtors. So unfortunately, so but the good realtors don't really want it, want that to happen. They want you to talk to your lender first because they don't want you to go into where you're buying at the top of your purse, I call it. And then you're basically house poor and you don't wanna be that

It's also about, where is your comfort level financially? When you're competing against that, and we talked about this briefly, but you need to be mindful of when you need to walk away from a transaction.

When those bidding wars start I really do say push the pause button and really think about do you really wanna overpay here because you need to understand the ramifications of what a lender will look like or look at the transaction in the event that property doesn't appraise for the sales price.

We're gonna look at the lesser of the two and the difference, the variance between those. That figure comes from the buyer. They have to make that.

Those are just some tidbits that you need to be aware of. I say just push the pause button before you get into that bidding war, and you've already tagged yourself emotionally into that house. There will be one for you. I promise.

Elle Martinez: I say the same thing, you know, being on the other side, it's don't fall in love with the house first. I have a different phrase. I say, I want your house to be a blessing and not a burden.

Wendy Dawson: Yes, absolutely. That's exactly. You have to go with those numbers. Yes. You want it to be your sanctuary.

What You Need to Have Ready for Your Mortgage Loan Officer

Elle Martinez: First of all, what documents should the home buyers bring when they are looking to apply for a mortgage?

Wendy Dawson: Typically the lender's gonna ask for the, as far as the they want document the ability to repay the loan. It's the ATR. They will look at your W2s, your most recent pay stubs, they're gonna look at also your most recent bank statements, okay?

They wanna see that you have, what kind of cash do you have readily available to go in for the transaction, but they're also looking for reserves.

It's one thing for us to get you into the household, but it's another thing for us to make sure we've done our due diligence and our fiduciary responsibility of keeping you there. That means that, we want them to be educated. There's so much more after the closing, you have deferred maintenance, you're no longer a renter.

So you don't have the luxury of calling a landlord, okay? When there's a plumbing issue or there are certain maintenance issues that happen within the house, depending on how old it's, if you've bought an aged property, there are a lot of little, you know, minefields you need to navigate. So we look at not only the cash needed for the transaction, but we look for reserves as well.

What do you have readily available for you for later? So those are some of the things that we look at.

One of the beauties of the digital platform today, the automation is a lot of lenders. We have, you know, access to the electronic data. So if you don't have your most recent pay stub of your w2, then we'll use electronic like account check or form free or the work number, and we can get into that with your approval and just see exactly what your employment and your income is.

So you may not need the paperwork, but it is as far as its best practice to bring it.

The True Costs of Homeownership

Elle Martinez: Absolutely. I'm glad you mentioned that too. I think for first time home buyers, you don't appreciate. There's a myth or saying, ‘Hey, if you can afford X amount of rent, you can afford that for the mortgage’. But there's an added cost to that.

Wendy Dawson: I can attest.

Elle Martinez: Yeah. A, a ranch, good bones. It's an older house and we just this year replaced the water heater cuz it was time to replace that. So, oh, you have to save up for it, but if you plan for it's not a hassle. But for someone who doesn't have experience or isn't aware of those home maintenance costs, yes, it can definitely shock your finances in your budget.

If we can talk about that a little bit more, those unexpected costs. Yeah. Besides the down payment, especially with closing. Yeah. Some expenses home buyers should be aware of that they need to have ready? Yes.

Wendy Dawson: One of the things we do on our first time home buyer is, and, and some lenders do this, but I think it really does, it has value in it.

They go through a as, it's basically, it's a certification, it's a webinar, it's a couple of hours. Sometimes it's called framework. And I think the one that we look at today is called something a little bit different, but it's similar to framework and it basically addresses all those deferred maintenance.

Especially as you mentioned, if they had bought an older property, and it's an as is, it's a fixer upper, so you need to be aware of what fixer upper means, and it could be where, yeah, the water heater, the roof has as far as an age, life of three months or one year. So be ready to be able to be hit with that financial charge, so we're gonna, you need to be aware of that.

Not only are you looking at the cash to close, which would include any kind of per diem interest. A one year policy paid up front of homeowner's insurance. But also any escrows for taxes and additional insurances. But you're looking at appraisal fees, you're looking at any lender fees, you're looking at attorney fees, title search fees, tax service fees.

Those are all broken down in a loan estimate. The loan officer will give you the fees you don't know about are like after closing when you have closed and you're the happy homeowner, and then all of a sudden, like you said, Elle, the water heater needs to be replaced.

That's about normal deferred maintenance, but it's a lot more complicated if you bought in more as far as, like you said, in good bones as far as a fixer upper, which is what we're finding a lot of right now, and I would caution the first time home buyer to make sure they understand what comes with that type of property. Mm-hmm.

It may not be the forever home right now, but they, their anticipation or their hope is to make it that, well, that takes time and it also takes resources, financial resources.

Elle Martinez: Yeah, absolutely. And again, if you budget for this? Yes. If you're buying a home within your budget, this is all possible. Absolutely. For this particular house, we actually went with Coastal, both for the mortgage and also for our agent with Daymark. And it was a very smooth transition.

We weren't first time home buyers, but still we had questions. Yes. This was. We had a new build the first time. This is an older home, and it was really good knowing at least a general idea of what to expect. Right? There's always a surprise. There's always, something maybe you didn't have in mind, but it didn't hit our budget as hard because we knew, okay, we saved up for this.

This is what we need to keep in our savings, kind of as a general house fund for the things that pop up plus the maintenance. So again, you know it, it still feels like a blessing seven years later.

Wendy Dawson: Well, that's good to hear. I'm glad to hear that. That's good. That is good.

Comparing Mortgage Rates Like a Pro

Wendy Dawson: One of the things I would too caution is that sometimes we are attracted to, of course, we always want the best deal, especially in finance. So we look for that rate, but don't get seduced by the number. Okay. That rate, they'll, a lot of lenders will publish this. They use the nine nine factor, and it's a behavior, I call it three ninety nine. Four ninety nine five ninety nine. That is 6%. 5 99 or 4 99 is 5%, and right now we're seeing like six and a half.

Okay, so don't get so seduced by that number. Look at the APR. That APR calculates into is all the cost into that rate, that initial rate over the life of the loan.

So somebody out there could quote you six and an eighth today, and you go, that's a great rate. Look at this other lender. They're at six and three so they're at six. Ask for the cash to close.

There is an, what they call an IFW. It's an itemized itemized fee worksheet. They have to give you that if you haven't identified a property, okay?

They'll give you an IFW. It's a summary of expenses a summary that what does this rate cost you? So ask for that breakdown so you can compare them and make a more informed decision because that 5 99 or that six and an eight. Once you see all the costs that are in, as far as that are associated with that rate, that six and three eights or that six and a half might look a lot better, okay?

Okay. So don't get seduced by the number. Look at the bottom line. The cash to close that tells the real story.

Elle Martinez: Oh, that's really helpful. And I'll be honest, like that was one of my frustrating things was, especially the first time when we were buying a house, just looking at these numbers, the APY APR. And I was like, I just want a straight apples to apples comparison.

Understanding Discount Points with Mortgage Rates

Elle Martinez: Another hangup at that time when I was buying a house was like, points an origination fee. ‘Yes, we'll give this, but you paid this amount of points’. For those that aren't familiar with those terms and maybe a little embarrassed to ask, can you clarify that?

Wendy Dawson: Yes. It's the funny thing the, as far as the terminology you use in lending land discount points, the first thing you think of is a discount. Okay. Oh, I'm getting a discount. It's a discount to the rate. By you paying fees points, okay? That's what that is.

So if somebody says, I'm gonna give you 5% and it has four discount points, okay? Well, I'm discounting the rate by charging you four points, okay? 4% of the loan amount. So that's why I say, Look at the actual cash to close the APR is important.

It's the annual percentage rate over the life of the loan. And so when you're looking at those cost to close, it should have, and they're regulated and there's a compliance grid, you know, was a really a, a good thing for first time home buyers or any buyer because it, I think it gave more transparency to the actual transaction and it.

Everybody has to conform to the same loan estimate, and so the format is exactly the same, which is a smart thing. So you can actually do what you've said, compare apples to apples. You may get three different fee worksheets, but they should all be in actually the same font and broken down very similar.

So you can look across to be able to make the best informed decision, cash to close, and what that monthly payment means. And there could be a situation to where, yeah, discount points. There's, you know, $10,000 in discount points. Here, does it make sense for me to pay that? Sometimes not. The lender, the smart lender, will look at the difference between the two types of rates and the fees associated and see where you maximize the return better.

And it's a simple transaction. They're just gonna look at the monthly savings of that lower rate and those higher fees and give you what the recoup time is. It may take you three or four years to recoup the fees that you paid up front. And then you have to make a decision of is that really smart? Is that the way to use, is that, is that using my money wisely?

As far as that return won't start actually until the fifth year. The only time that's different is if you have what they call a third party contribution, say the seller or the builders picking up a lot of those fees. Mm-hmm. Well then that changes the dynamics of the transaction. No. So the lender that you choose, you go back to making sure that they're knowledgeable and accessible to be able to go through this journey with you.

You wanna ask the right questions, but sometimes a first time home buyer or even the younger buyer, they don't know the questions to ask. So you wanna make sure that you're interviewing that lender and they are gonna be asking the right questions for you.

How a Skilled Loan Officer Can Help You Secure the Best Mortgage Rates

Elle Martinez: Absolutely. I think you hit so many points, but most importantly, I hope people take away the idea of you have the ability to walk away. That's very powerful. Whether that's, you know, when you're house hunting or you know, when you're shopping around for lenders, make sure you feel comfortable asking questions and they should not intimidate you. They should not make you feel bad asking questions.

Wendy Dawson: There's a trust level here. There's that saying, and I'm trying to think of who says that, but it's like, if they're nice to you as far as, that's great, but if you trust them, they'll do business with you. So that's that level.

I like to think that the loan officers at Coastal, I have to give a little plug here because I differentiate between originators and loan officers. Ok. And in the credit union space, you're gonna find loan officers simply because they take that responsibility very seriously, and they're accountable for that to make sure that those buyers.

And it doesn't have to be a first time home buyer or a younger buyer, but any of our members and buyers that we've navigated that journey and that they feel very comfortable and they've trusted in their financial provider all the way to the closing and after.

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