You’ve seen those ads touting some crazy low number like 2.125% home loans! The first thing I usually notice is there is no APR advertised on the same line and in the same font – federal violation. This is often my first hint this is a lead generation company and not an actual lender. Lead generations companies, so it seems, can advertise just about anything they like since they are not actually providing home loans. In my opinion those who buy leads from companies who advertise should be held equally accountable – not likely to make me popular among “the liars club”.

Some months ago I wrote a post about this subject and even received a couple of phone calls from mortgage brokers, mostly out west, who would like to have done me bodily harm. We all know people in the industry who make outrageous claims they can very rarely deliver and weasel their way around the law by publishing a mult-paragraph disclaimer secreted away on some difficult to find asterisk centric page.

Even with the rates you see published by Zillow and BankRate, both reputable companies, you will often find the brokers and lenders who feed those companies the rates pushing it to the very lowest number possible to be achieved under the best circumstance on the best of days. Those rates never take into consideration anything except the best of circumstances and to really see the full picture one would need access to the qualifying factors – which are will hidden if published at all.

Understanding mortgage pricing is like understanding pricing for any other service: the higher the risk the higher the cost. Lenders base mortgage rate factors on credit score, loan amount, property type, and other factors due to the risk provided from those types of loans over the years. It’s no secret that the pool of borrowers of people with 720 or higher credit scores, 20% or more down payment and purchasing a single family home in the $200,000 range are less likely to miss a payment or default on the loan than the pool of borrowers with credit scores around 630 and 3.5% down on the same home. It’s just a fact of numbers.

So when you see interest rates advertised your first response should be doubt – and that will serve you well. If you have a middle credit score of 740 or higher, are paying at least 20% down on a home within the conventional mortgage limits for your area, you have a good income and ample assets then it is possible you will qualify for the rates you see advertised online.

BIG WARNING: There is a, an I use the term very loosely, “mortgage company” which advertises regularly on one of these type websites and their rates always seem about a full 1% lower than everyone else’s. Every day they take thousands of phone calls of people who do not qualify for those rates. Do yourself a favor – find a reputable lender who doesn’t use parlor tricks and flashy numbers to steal your trust. Hang up, call someone local and trustworthy, and give them your business.

ABOUT ONLINE LEAD COMPANIES: Most online lead companies will sell your information to 3 to 5 (or more) people. Even though the lead company may have advertised some obnoxiously low interest rate the company who purchases your lead is under no obligation to offer it. These mortgage brokers will pay as much as $50 or more for your phone number and you bet they are going to do whatever they can to get their money back. Don’t get me wrong, some of these lead buyers are the most honest and ethical people you will meet. Unfortunately many of the lead companies have neither honesty nor ethics.

Related articles

• Mortgages: Preventing Credit Score Dings (nytimes.com)
• Benefit of higher credit score dwindles at top end (sfgate.com)
• U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)

The mortgage process, especially for those who are denied or delayed, is an enigma to most. Understanding a few basics, three in fact, can help open the windows and let some light on the mysterious inner-workings of mortgage lenders. Getting denied or being quoted a higher rate than you heard advertised need not be a huge question mark.

Every conventional lender, those who lend according to Fannie Mae and Freddie Mac guidelines, builds their lending criteria equal to or more stringent than the guidelines offered by those to mortgage holding giants – unless they are selling to Ginnie Mae or another mega investor. In those guidelines are some very simple first steps so important to the lending process they can be the cause for the vast majority of denials or increase costs of credit.

Whether you are applying for money to purchase a home or to refinance one you currently own these three points are crucial to your success in obtaining a good mortgage.

Number One: Employment and Income

Chances are if you skip around from job to job, especially in different industries, and you have large gaps of time between them you will be considered too high risk at least for a prime loan. Even if you have steady employment history if your income is not verifiable to the amount you need for a good debt ratio you can also be denied or incur the cost of risk in the form of a higher interest rate.

Self-employed borrowers generally need to demonstrate two full years of self-employment as evidenced by a business or professional license or other acceptable documentation. The tax returns of self-employed borrowers are usually required and the adjusted gross income, less any allowable deduction add-backs, are the accepted form of verification of income. So if you “write everything off” you may be shooting yourself in both feet when it comes to qualifying for a bank loan.

Number Two: Payment History and Credit Scores

You have probably seen the adds of mortgage companies saying “bad credit okay”. Hold on to your assets if you go to them and don’t give them an unreasonable application fee because the industry that sets the qualifications disagrees with them. This means if they are able to get you financed you’re going to pay the price one way or another. It is always better to maintain a good payment history and resulting credit scores.

Missing payments and being late on payments are two different things but neither are good. Being late on a payment is being 30 days or more late in paying. In other words if your payment is due on May1 and you make the payment on May 29 you are not considered late for credit reporting purposes. However is you do not make that payment until June 2 then you are late and that counts as one 30 day late or “one times thirty”.

Payments made late, even one times thirty, can wreak havoc on your credit scores and obviously it gives you a bad mark on your payment history. When the loan officer asks if you have been late on any payments in the last 24 months and you say no she is going to find out if you are telling the truth as soon as the credit bureau starts spitting out your last 10 years or so of payment history.

Number Three: Property Type and Purpose

Condos, log cabins and single family detached homes all present varying levels of risk to the bank. Risk is determined by historicity of repayment by similar borrowers on similar properties over the decades. Likewise a single family detached home in which the borrower is going to live is different from a single family detached home on the beach where the borrower may want to live but only spends a few weekends per year.

Commercial properties and residential properties are two completely different items in the eyes of the lender. In fact you cannot use a commercial loan on non-commercial properties and you cannot use a residential loan on non-residential properties. Each carries its own level of risk and therefore qualifications and costs of credit.

Differences Matter

Hopefully you know what your credit score is. If not you should. You should also know if your credit report contains any derogatory information such as collections, charge-offs or late payments. If you find real errors on your report you may challenge the reporting bureaus to have the lender provide proof of the reasoning they submitted for derogatory comments.

You know your income and you should know whether or not you can truly afford a home. One of the big pushes on loan officers today is to make certain they believe you are fiscally responsible enough to own a home even if you earn enough income and seem “fun to chat with”.