Home Mortgages: Fact Versus Fiction in Today’s New Housing Market

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Loan expert Melanie Welsh of Envision Mortgage Corporation discusses industry changes; stresses key points in financing.

Research shows the housing market is steadily recovering from this decade’s collapse, but has yet to achieve its previous stability. What’s more, the “black mark” scarring the industry in the past few years has left many homebuyers leery of lenders and unsure of who to trust.

Given this, mortgage experts all over the country are trying to set the record straight. According to Melanie Welsh, president and co-founder of Envision Mortgage Corporation, the industry’s biggest task is to help both homebuyers and homeowners make informed decisions when financing or refinancing in today’s housing market.

“Owners and buyers are not soon to forget the bad reputation mortgage loan officers built in the past years and, frankly, I don’t blame them,” she said. “What they need are the facts. They need complete transparency – and that’s really not too much to ask for.”

Professionals such as Welsh attribute current fears to misconceptions about the mortgage industry in general. To clarify matters, Welsh tackled the three commonly held perceptions she routinely hears from her clients:

1.    Hidden fees may drive up loan costs.
Fact. Many borrowers focus solely on the actual interest rate of the loan as opposed to the overall costs, thus failing to understand how the rate is actually structured. They don’t realize that additional fees, especially those financed into the loan amount, can leave the borrower paying a lot more over the life of the loan. It’s imperative that they understand the Annual Percentage Rate (APR) and what is built into the loan. The APR should also be used when comparing lender quotes.

2.    All lenders must disclose how much profit they will make off of a loan.
Fiction. Lenders in mortgage divisions of national banks do not have to disclose the amount of compensation they are making on a mortgage loan. They may even change the compensation between the time borrowers receives their initial quote and when they lock in. On the other hand, mortgage brokers who originate mortgages for several lenders are required by law to disclose in writing the amount of compensation they will receive from the origination of the mortgage loan.

3.    It’s difficult to determine who can get a loan.
Fiction. While qualifying guidelines and risk tolerance may change depending on the environment, “The 4 C’s of Underwriting” – Capacity, Credit, Cash, and Collateral – will always apply. The first three reflect the borrower’s qualifications; the fourth focuses on the property being mortgaged. And while each carries its own weight, it’s really the combination of the four that is key. In fact, solid income ratios in conjunction with a large down payment backed by strong reserves can offset some credit issues. Similarly, good credit and income can offset smaller down payments.

With spring home-buying season well underway, Welsh hopes the efforts of forward-thinking lenders will encourage buyers to do their research – and for financial providers to promote transparency. She believes this will ultimately strengthen buyer-lender relationships nationwide.

“Compared to years past, this is a brand new housing market we are working in,” Welsh said. “Lenders can make what we want of it and buyers can as well. What works best for both of us is being clear about the facts of financing and, most importantly, making sure we are all well-informed. No myth left un-busted, so to speak.”

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Hilary Brady
Bons Eye Marketing
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