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Applying for a Mortgage is Not the Same Anymore!

The mortgage industry is changing rapidly. Learn why the Big Banks are pulling out of this 1.5 Billion Dollar industry. Who is filling the void? You may be surprised. The best part is it’s saving you money…. 

I want to share something important with you my dear blog reader. If you’ve spent much time on my website, you no doubt realize I’m making every effort to keep my web visitors informed and current to the market conditions for real estate.

It seems that the Big Banks are pulling away from home lending. For years I’ve touted that this would be the best place to go for obtaining the funds to buy a home. I’ve been a real believer in going to the source for the money.

The market place is changing drastically. The alternative mortgage lenders (or the companies without bank tellers or customer deposits) are getting a bigger share of the $1.5 trillion dollar mortgage industry today than ever before.

The big banks that were once the major forces in home loan industry are starting to back away. They’re telling us that smaller profit margins and higher legal risks are the reasons.

This strikes me as very odd. Let me get this right. These multi-billion dollar banks who received government bailout money to stay afloat now want to pull out of mortgage banking? What is the real reason why?

Here’s one for you, the new alternative lenders have to be completely transparent when it comes to disclosing fees because of the new regulations put in place since the financial meltdown in 2008. Yet the big banks do not have to be as transparent. They can hide fees that loan brokers have to disclose. So the customer can shop smarter because of this favoring the mortgage brokers over the big banks.

So what’s happening is the alternative lenders (brokers) are embracing technology and doing all the business online. The process of getting a home loan is so streamlined now it can almost be completely done online. They do not need big bank branches with high overhead to pay in order to keep the doors open.

Alternative Lenders Are Middlemen

How do I know this? Well for one thing, some of my most recent customers I’ve helped to buy a house never walked into a bank at all. They applied online for their financing and the loan officer talked with them on the phone and helped them finish the process. Everything was done electronically.

Because of this technology, other companies have started to fill the void left open by the banks. Many of them are testing new business models and improving the process of getting a loan to buy a home or refinance it.     

Many of these online brokers are helping people shop for the best loan product and even guiding the credit challenged customers to navigate the process to improve their credit scores.

As a result of this, the whole mortgage process has been sped up and now we’re seeing faster approvals and easy ways to shop for a mortgage.

Have you heard of the Rocket Mortgage? Quicken Loans is one example. How about Lending Tree, do you see them on just about every website you visit? Chances are if you ever clicked on one of their ads on a website, they set a tracking pixel on your computer and are aggressively getting in front of you everywhere you go on the web.

I once referred my web visitors the Lending Tree. I was sending them over 200 loan applications a month from my web site. Then one day they decided to end our referral relationship with me and not do business anymore. They have done such a good job of remarketing to people using these tracking pixels, they can go more direct to the consumer and not advertise on my website.

Mortgage marketplaces, like LendingTree, Mortgage Hippo, Zillow and eLoan, are lead generators for loan originators. Here's how that works: Their mortgage rate algorithms take your basic application info and present you a roster of potential lenders. You choose one, or several, of the rate options, and the referring marketplace site receives a fee for the lead. You then complete the process with the lender.

That kind of near real-time approval is an example of how radically the mortgage process is changing. Next-gen lenders strip away layers of delays built into the old system by using automated loan-decision algorithms, electronic document gathering and secure online communications.

So Now What?

Alternative mortgage lenders now account for almost half (45 percent) of all home loans, according to the Federal Reserve "the largest share in 20 years”. These originators are transforming the mortgage loan process with faster approvals plus online application and document processing, and they are powering a more competitive market.

So since I no longer refer my web visitors to Lenders who once paid me for sending them customers, I’ve joined the revolution in my own little way and offer free personal coaching to help people navigate the process of finding grant money, a mortgage, the real estate search and purchase of that new home.

Why I even guide people that may have credit challenges. And the best of all, I do not charge one thin dime to help them.

The Rest of The Story

Almost half of the 15,000 – 20,000 website visitors I receive every month are looking for grant money. The vast majority of first time home buyers need help with the down payment and closing costs. They may have some money saved up but the down payment is still the major barrier to purchasing a new home.  

So I help people find the grant money offered by their state HUD agency, apply with a lender who works with the grant programs, and then find a realtor that is good at working with the first time home buyer. I hold their hand from start to finish.

This new business model has given me a whole new look at helping my web visitors get the education they need on the home buying process and achieve their goals of home ownership.

So if you’re a first time home buyer that is just getting started in the process, why not considering let me help you? It’s real simple to get started. Just click on this link and fill out my simple online form and I will respond to you by text, email and yes even a phone call. 

Try Our Closing Cost Calculator

Buyers Closing Costs
Purchase Price:
Down Payment:
Interest Rate:
Terms (Years):
Annual Taxes:
Months Required of Taxes:
Annual Insurance:
Months Required of Insurance:
Loan Origination Fee:
Discount Points:
Appraisal Fee:
Credit Report:
Document Preparation:
Courier Fee:
Escrow Fee:
Mortgagee's Title Policy:
Owner's Title Policy:
Filing Fee:
Misc:+/- Numbers Here, Seller Paid Costs Are Negative
Mortgage Amount @ 5.00% for 30 years:
Monthly Payment (P & I):
Monthly taxes & Insurance Escrow:
Mortgage Insurance:
Total Monthly Payment:
Property Tax Reserves:
Property Insurance Reserves:
Loan Origination Fee:
Discount Points:
Appraisal Fee:
Credit Report:
Document Preparation:
Courier Fee:
Escrow Fee:
Mortgagee's Title Policy:
Owner's Title Policy:
Filing Fee:
Misc: +/- Numbers Here, Seller Paid Costs Are Negative
Total Expense:
Down Payment:
Cash Needed to Close:

In no way is the estimate generated from this closing cost calculator meant to serve as a Good Faith Estimate or GFE. By law each lender you talk with is to provide you with a GFE to give you a more precise estimate. The final HUD-1 closing statement received at the end of the transaction will give you exact costs.

This calculator is intended to help you get a general idea of the amount of money needed for your down payment requirement and closing costs.

Do not consider this an offer of credit. This is only a general illustration of typical mortgage terms offered by most lenders. You will need to contact a specific lender to help you understand the different mortgage products and to determine your eligibility for any mortgage products.

Mortgage - Banks Lower Down Payment Requirements

first time home buyer mortgage

I read a mortgage article in CNN Money about how banks are lowering the down payment requirements for home loans.

I see this as a positive sign for the real estate market because lenders are starting to compete more aggressively. 

Before this shift, most lenders were requiring a 20% down payment which made it very hard for most home buyers. Because of the financial meltdown in 2008, they had to tighten the guidelines.

Previous Mortgage Down Payment Requirements

For the first time home buyer, they were continuing the use the FHA home loan to buy a home since it only required 3.5% down. Many other would be home buyers had to use the same loan product.

This only caused the resources of FHA to deplete faster and they increased the MIP (mortgage insurance premium) which cost borrowers more money up front and on a monthly basis. For awhile I was really getting concerned for the first time home buyer and the housing market in general.

With many banks lowering their  down payments to 5%, this will make it easier for people wanting to buy a home to do so using the conventional loan. The conventional loan has a lower PMI (private mortgage insurance) of .78% for a loan value of 90.01% to 95%. FHA has the 1.35% for loan values of greater than 90%. Both of these examples are for 30 year fixed rate loans.

What does this mean to a first time home buyer and their monthly payment?

If you had a $100,000 loan balance, the conventional loan would have a PMI payment of $65 whereas the FHA loan would be $112.50. Almost twice as much. Keep in mind this does not include the principal, interest, taxes or insurance. I'm only quoting the PMI or MIP in the case of FHA loans.

So I think you can see that the FHA home loan becomes less attractive for just a little more in down payment money. 

Is FHA Shooting Themselves in the Foot?

While it seems that FHA is actually trying to discourage borrowers, the conventional lenders are starting to compete for the first time home buyer once again. Now mind you, there are many other things that figure into this, I wanted to get this little message out to my readers right away so do your home work. Please read other pages on my site here.

I've been a fan of the FHA loan product because it was so favorable, but it looks like things are starting to change. FHA once had no credit requirements, now they require a 580 score or better.  If your score is 500-579 you have to put down 10% rather than the 3.5% down payment.

With the conventional loan, you need a middle score of at least 680.

If you have a decent credit score, work on that to get it to the 680. Then start to look at the conventional loan products. You may even find some that allow partial gifting for the down payment like about 2%.

The monthly savings of the PMI could make this a worthwhile endeavor. $50 a month could make a big difference for many home buyers.

So if you're thinking about applying for a home loan online, you may want to check out the conventional loan first. If you cannot fit into this loan, then look at the FHA home loan. So if you're home loan keep these thoughts in mind.

I never thought I would say this, but who knows, things could change back where FHA mortgages may be the better way to go. What makes me say this is the fact that many folks who bought a home using FHA are now trying to refinance into conventional loans.

I don't think refinancing is wise at all if you have to pay closing costs, so there's another opinion.

Leave Mortgage Down Payment Requirements Lowered and return to Home Mortgage Information main page.

Go to House Buyer Solutions Home Page.

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