Mortgage 101 Training for The ________ Team

Basics of mortgage A mortgage is a legal document in which one party pledges real estate as security for the payment of a debt. A note is the written document that discloses the terms of the debt and is the written promise to repay. Deed is the legal and recorded document that transfers ownership from seller to buyer.

Basics of mortgage Title is the preliminary report which indicates the information found by a title search of public records. This will include the legal description of the property, current owners, existing liens, and recorded info affecting the property. Title insurance is the insurance policy that will protect the lender against losses that may occur as a result of defects on title that existed at the time the policy was written.

Choosing A Lender Bank- a federally chartered bank that typically has limited options for programs and rates but will typically service the loan Broker- contracts out the processing, underwriting and closing to another mortgage lender Correspondent- keeps the processing, underwriting and closing in-house but will typically not service.

Choosing A Lender A customer is typically looking for three things. Rate Fees Service

Investors Mortgage companies need to adhere to policies and guidelines of investors. Some lenders go directly to the investor or they sell to a servicer who will go directly to an investor. Fannie Mae Freddie Mac Ginnie Mae

Third Party Vendors Hazard Insurance- is required on all loans to protect the lender from a variety of risks. Home Inspection- look for possible construction defects. Often times not required by the lender unless…. Mortgage Insurance- coverage that reduces financial risk of the loan. It allows lenders to close on low dowpayment loans. On conventional loans it for downpayments less than 20% and FHA for the life of loan.

5 stages of a mortgage Application Processing Underwriting Closings Post closing

Letters for Realtors Pre-qualification Letter- a preliminary decision based solely on the information provided by the borrower Pre-approval Letter- goes 1 step futher by verifying the information with credit report and income documents. Commitment Letter- issued after an underwriter has reviewed the file and all conditions have been satisfied.

Three Criteria For Underwriting a Loan Income Assets Credit

Underwriting a Loan There are 4 things the underwriters look for Character- the borrowers business record, credit, and employment history Capital- borrowers financial picture including assets Capacity- the ability to repay based on income/employment Collateral- the acceptability of the property

Credit 780 + Excellent credit 720-779 Good Credit 680-719 Above Average Credit 620- 679 Not So Great (FHA minimum) 620 or below is poor credit

Credit Things that can affect one’s credit score Number of times the credit is pulled Number of trade lines open Limits on trade lines opened Number of late payments in the last 2 years Collections, defaults, foreclosure, Bankruptcy Public Records

Assets Liquid Assets- checking, savings, mutual funds, stocks, bonds, money market, gifts funds. Non-Liquid Assets- IRA, 401k, pension, The lender is making sure the borrower has funds to close (downpayment and closing fees) as well as some reserves after closing. Typically looking for 2 months worth of bank statements.

Income Debt to Income Ratio- is the amount of income a person makes in comparison to the mortgage payment (front end) and also to the mortgage payment plus all monthly debt (back end). Typically looking for ratios in 25/32 range. FHA will allow up to 50 approximately with compensating factors like….

Income Types of income we have to watch for: Self employed Salaried Commissioned Bonuses Hourly Rental income

Unacceptable Income Unreported income to IRS Unstable income Not continue for 3 years Expense accounts Mileage Meals Educational Benefits Rent from boarders Profit sharing Medical Reimbursements Insurance Benefits Gift money Cash

Realtor questions to ask buyer Credit- how is your credit? - any late payments or collections - any bankruptcies or foreclosures Assets- will you be putting down your own money? - will you be getting a gift Income- are you self employed? For how long? - have you had any gaps in your income

Main Types of loans Conventional- highest loan to value (LTV) is 95% (up to $417,000 loan amount) FHA- highest loan to value 96.5% VA- highest loan to value 100% USDA (rural housing)- highest loan to value 100% MHFA- (MN Housing)- must have $1000 contribution