For those of you who are unfamiliar, “Miracle on 34th Street” is a movie about Santa Claus, specifically the Macy’s Santa, who, among other things, sent customers to other stores if Macy’s didn’t have exactly what they wanted.
I write this column with that in mind. No single lender is the right answer for everybody. Different banks have different interests, and if a borrower could focus on the bank most interested in meeting their needs, the borrower would likely get the best product.
Pricing
While no one rule is absolute, if your loan amount is greater than $453,000 and you have a significant banking relationship with a large bank, that is where you would likely be able to find the best pricing. At large banks, pricing is typically more attractive for large loan amounts, especially when combined with promotions offered to depositors with large balances.
If the loan amount is less than $453,000, mortgage bankers become more competitive, though again it depends on the individual situation.
Renovation Loans
Most large banks do not participate in renovation loans. This is when you purchase a home that requires work prior to the closing. Most banks won’t even close on a home that requires renovation if the appraisal states the home is not habitable as it exists. Lenders who offer renovation loans may be able to close on such a loan and escrow certain funds to be used on the construction. While you may be able to take a regular loan from a bank with very little down and pay for the construction yourself, the renovation loan may be the better option.
Special Programs
Programs like FHA and VA may be offered by many institutions, but if your individual lender doesn’t have experience in those products you may be better served working with someone who has the experience. There are different guidelines and issues that could impact the ability to close the loan in a timely manner.
HELOCs
There are many different types of home equity lines of credit and you really need to do your homework. Look for pricing and look for maximum loan to value. There are certain banks that are willing to go as high as 90 percent loan to value, and some banks with rates below prime.
Construction Loans
This is different from a renovation loan. This is when you buy your house to do either a major renovation or to knock it down and start over. Most large banks don’t participate in such loans, although there are several banks that now do. You essentially have three options.
The first is to secure as much of a loan as possible on the purchase. There are products offered by banks that go as high as 85 percent and some offer up to 90 percent loan to value without charging PMI. You could also go up to 95 percent with PMI. In this scenario, if you decide to do construction, you may have enough funds to pay for the construction yourself. After the work is done, you can then refinance and get one new large loan. The second option is to secure a construction loan from a commercial bank, which would be a temporary loan and would terminate once construction is completed. At that time, you would secure a permanent loan based on the new value of the home. Some banks offer a third option, which would be a construction to permanent loan. The terms of this loan may not be ideal, but the benefit is that the borrower can establish permanent terms at the time of the purchase. You still have the opportunity to refinance when the construction is completed, if you wish.
Underwriting Guidelines
Different banks have different underwriting guidelines. Some banks may allow an 85 percent or higher loan to value without PMI. Some banks will allow interest-only loans, while others will be less competitive in that space. Some banks will allow you to lock the interest rate at the beginning of the process, avoiding the risk of ending up with higher interest rates, while some may need you to wait until later in the process. Guidelines can be different in regard to many issues, including self-employment income, determining income using assets, acceptable credit scores, prior credit issues, investment properties, second homes, etc.
Different underwriting guidelines can result in an approval from one bank and a decline from another. It’s important, at the beginning of the process, to understand if your bank can accommodate your needs. The preapproval process will help with that. You should insist that your lender disclose if he thinks you have potential issues with getting an approval.
In summary, borrowers, like people, come in different shapes and sizes and no one answer fits all. The best way to feel confident you are receiving the best advice is to contact several lenders with at least one being a large bank and one being a mortgage banker. This way you will likely hear different perspectives from which you can then choose. Nobody knows your needs as much as you do, and relying on the first referral you receive may not be the best choice.
Unless, of course, he is the Santa Claus from Macy’s.
Chag sameach.
By David Siegel
David Siegel is a home lending officer with Citibank in the Englewood and Clifton offices. He can be reached at 917-270-0593 or david.siegel@ citi.com. David will be hosting another one of his new homeowners seminar series on April 24 at 7 p.m. in the Citibank Englewood branch, featuring a licensed electrician. Contact David to reserve a spot.
