The first step in working with a lender is to pick the right one. We recommend a Loan Officer that has a local physical presence on Oahu. I have seen many loans from mainland lenders fall apart.

The next important thing to look for is someone with a great track record. Loan Officers are not graded anywhere, so the best way to find a good lender is to ask your Realtor who they recommend. Through their experience they have found good lenders that come through on time, and ones that can handle things when issues arise. We have some recommended lenders at OahuRE.com at http://www.oahure.com/vendors.php#lender.

Also, beware of Loan Officers who say they'll get you financing, but then don't ask for complete tax returns, paystubs, bank statements, and review your credit report.

If you follow those guidelines, you are already ahead of the game in terms of picking the right lender.

Getting Pre-Approved

A pre-approval is important because it gives you an idea of what price range you should be looking at, and once you are ready to make an offer, you should submit a written pre-approval with it.

To get pre-approved you will need the following:

1. For the employed: Two years federal tax returns (all schedules), last two months bank and asset statements (all pages), most recent two paystubs (or documentation of other income sources), and a credit report.
2. For the Self-Employed: Two years personal and business tax returns, two months bank/asset statements for personal and business, credit report.

Once a good loan officer has these documents, they can typically get the pre-approval prepared in 1-2 days and be confident that their pre-approval will stand through the underwriting process.

Questions & Answers

Will getting pre-approved drop my credit score?

One question I hear a lot is will a pre-approval drop my credit score. When a credit report is pulled by a lender for the purposes of a mortgage, it should not adversely impact one's credit profile as long as all credit checks are done within a 30 day time period. If done outside that timeframe it is possible that it might drop a borrower's score by a couple points. This could be important if a borrower's score is right on the borderline, though the most important way to keep your credit up is to pay your debts on time, and not use more than 45% of the credit at your disposal.

What types of loan programs are buyers using?

The last couple of years have seen a dramatic increase in the use of government loan programs like FHA, USDA, and VA. It is not uncommon for people in Hawaii to have less than 20% to put down toward their purchase, and as the banking community requires additional assurances in the form of mortgage insurance to fund a loan with greater than 80% loan-to-value ratios, people have been gravitating toward government mortgage insurance vs. private mortgage insurance. It's much more accessible and is typically less expensive.

Is it realistic to close in 30 days or is 45 days still the fastest?

As anyone in the real estate industry can confirm, every transaction comes with its own unique set of variables, which will impact the timelines. 30 day closes are possible in many cases, but it would require a skilled loan officer with a streamlined operations and underwriting staff working with good Realtors and experienced Title and Escrow professionals. It would also require that the buyers and sellers be prompt about addressing and returning requested documentation from their Loan Officer, Escrow Agent, and Realtor. 45 days does allow for a little more breathing room and is probably a safer bet when submitting offers, as new laws have slowed the process a little, though we have got some government loans through as quickly as 2-3 weeks.

What are the top 2 or 3 things that will help buyer's with the new RESPA laws?

The newest RESPA rules are intended to help buyer's plan for their closing costs by requiring that lenders be as accurate as possible upfront. The new Good Faith Estimate will be provided after escrow has been opened, and the rules will allow for variation only if something fundamental about the transaction changes, like the interest rate was locked, the purchase price changed after appraisal, or the buyer decides to change their down payment.   

What can a buyer do to make sure the loan is processed as fast as possible?

Once a purchase contract has been accepted and escrow has been opened, buyers should return or provide requested documents right away. Also, if you don't hear from your loan officer for a few days, give them a call and see if there's anything they need from you.

Should I pay discount points to reduce the interest rate?

If you plan to keep the property for a long time and never refinance it, then yes, it's probably a good idea to pay discount points up front to get a lower interest rate. This will translate into a lower monthly payment. For people who know they will be selling in the next few years, or might refinance in the future, then realizing the benefit of paying for a lower interest rate might not happen. Discussing your short and long term real estate plans with your loan officer is recommended, as they should be able to offer some suggestions based upon experience and current trends in the market.

Is it best to lock in my loan 30 days before it closes or 45 days?

It would depend on which way mortgage backed securities are trending on the secondary market, and how sure is the transaction's timeline. There are costs involved in rate locks, as the buyer is requesting that the lender hold aside a large amount of money for a period of time regardless of what happens in the market.

The longer the lock, the more it costs. The bank will fulfill that commitment, but if the lock expires before the transaction funds, then there will be additional costs to extend the lock. If the market has been holding steady, I wouldn't recommend locking until it looked like the market was about to take a turn for the worse. Plus, pricing could get better. If pricing is getting more expensive, I would say it would be prudent to lock. Once again, this is one of those delicate aspects to financing that requires a smart loan officer who is on top of the market and in tune with their client's transaction and timelines.

I would like to thank Chris Cloward, a loan officer with Guild Mortgage, for helping me put this information together.

If you have any questions, you can go to my Website www.OahuRE.com and hit the contact page to Email me.

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