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Capacity = Willingness and ability to pay back the loan Credit = Payment history and current balances; willingness to repay Character = Job stability and or time in property Collateral = Property or what the lending institution will be left with if the borrower fails to pay.

Another one of the C’s that is often over looked is Cash to Close. Liquid assets readily available to pay the down payment, closing costs, and prepaid items of a mortgage transaction.

Credit is one of the most important things a borrower must be aware of when buying a new home. The credit report is a representation of how you pay your bills. If you have great credit. A Bank is willing to finance up to 106% . Which would allow a person to purchase a house with no money down.

Character – from the standpoint of underwriting, lenders are usually looking for a minimum or two years work history at the same company. If you have changed companies in the past two years, but are in the same line of work, as long as your income has stayed the same or increased lenders will accept that. The longer you have been employed with the same company and in the same line of work the better off you are and the more lenient the lender may be on other factors.

Knowing what lenders are looking for and planning to provide them what they need in order to fund your loan is the best way to make sure you can get the best loan for you.

From an underwriting perspective, if a loan package is significantly strong in one of the “C” areas, deficiencies in another “C” can be given less weight. Example, if a borrower is putting down a large down payment the Collateral would be stronger so a weaker credit score might be tolerated.

Credit - Although there are a few programs that are not credit score driven, by far you will be able to secure a better rate if your credit rating is good. Payment history plays a big part in your credit score and this shows the lender your track record of payments to your creditors. It’s more probable that you will pay your loan on time if you pay your other bills on time. If you have high balances on your other debt such as credit cards and automobiles this can affect your Debt-to-income (DTI) ratio and put you at more risk in the eyes of the lender. The reason good credit scores are important is because you have the ability with good scores vs. bad scores to qualify for no income verification or no documentation loans.

Collateral-From the standpoint of loan underwriting, the higher the stake a homeowner has in the property, the less likely he would default on the mortgage. Statistics have shown that if homeowners have 20% or more in equity in their homes, lenders are less likely to suffer a loss as a result of default. For home buyers who have less than 20% to put down as down payment, many banks are willing to grant them loans as long as these home buyers have other compensating factors, such as a better than average credit profile, or a low debt to income ratio. As a safety measure, most banks require home buyers putting down less than 20% to carry Private Mortgage Insurance, which insures the banks against loss due to homeowner default.

Capacity - Capacity goes hand and hand with credit. When a lender reviews your credit there are 2 major factors they are looking at aside from credit scores. One is your DTI or Debt-to-income ratio and the other is your credit history. Both of these will determine your capacity to repay the loan or your risk to the lender.

Capacity also refers to the amount of debts you can realistically pay given your income. Creditors look at how long you’ve been on your job, your income level and the likelihood that it will increase over time. They also look to see that you’re in a stable job or at least a stable job industry. It’s important when you fill out a credit application to make your job sound stable, high-level and even” professional.” Are you a secretary or are you an executive secretary or the office manager? Finally, creditors examine your existing credit relationships, such as credit cards, bank loans and mortgages. They want to know your credit limits (you may be denied additional credit if you already have a lot of open credit lines), your current credit balances, how long you’ve had each account and your payment history—whether you pay late or on time.

An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

Take a long time in selecting your realtor. It will be a long process to buy a house and you want someone that’s going to work for you. Many mortgage professionals have good relationships with quality realtors and can assist you with selecting a good realtor.It may be a wise idea to use your real estate agents preferred lender. The agent will probably have a good working relationship with their preferred lender, which often can make the difference between a deal that closes and a deal that doesn’t.

If you are looking to buy a home find a realtor with ABR credentials. This means they are an Accredited Buyers Representative and work for the home buyers best interest, not the home sellers.

It more often then not more beneficial to have a Realtor that is an exclusive agent representing you, rather then a dual agent that has both the sellers and the buyers best interests in mind.

In order to understand how Mortgage Brokers get paid, first one should know WHY Mortgage Brokers get paid. Mortgage Brokers are intermediaries that work with lenders to obtain financing for borrowers who wish to purchase residential or commercial real estate. The reason an individual or organization would obtain the services of a Mortgage Broker would be to secure financing at the lowest rate that the market will offer at that particular time for the type of property they wish to purchase.

Brokers are sometimes paid by both the lenders who underwrite the mortgages and the consumers who get them, and it’s important to look at the documents to make sure the broker isn’t getting paid too much or double-charging you.

Just like a bank loan officer, a broker gets paid for performing all of the work necessary to originate, process, and close a loan, and for the expertise they provide in matching the client and their needs to the right lender and program. These days there are hundreds of lenders with thousands of loan programs. Many customers ask us why they should use a broker, rather than going directly to a bank, and the reasons are simple.* First, a bank loan officer represents the bank, not you. Their job is to originate loans for the bank, and only for the bank employing them. A broker represents you. While they work with banks, you are their customer, and they will represent you when interacting with any and all of their bank relationships.* Second, since the loan officer represents only one bank, they can offer you only the products of that bank, whereas a broker generally represents anywhere from 10 to several hundreds lenders. The broker has far more options to find the best product and the best price for your specific needs, and if for some reason they do not have the ideal fit, they can work with hundreds of additional lenders to find the perfect fit.* Third, you may believe that a bank will offer you better rates. Well, that is rarely the case. The bank’s treasury department has a required rate of return (yield) on the loan, called the ‘wholesale rate’. The bank’s retail loan officer must provide the bank with the required yield, and then they must generate enough additional revenue to pay the loan officer, plus the high operating costs necessary to run a retail bank loan division and its many layers of management and support. A broker will have access to that same wholesale rate, but the additional revenue they must generate to cover salaries and operating costs is far less, since brokers do not have the large infrastructures that the bank has. The law requires that brokers disclose the fees they earn, while banks are not required to do so. Brokers originate 50-60% of the mortgage loans in the US because they provide the best service at the best price - when was the last time a bank provided you with both?* Finally, brokers only get paid if they close the loan. Having someone represent you is always better for you when their income is tied to their success in serving you, the customer.

Mortgage Brokers get paid to provide borrowers with financing to purchase or refinance homes. Most Mortgage Brokers only get paid when they close your loan. Mortgage Brokers are usually paid at closing from the borrower or out of loan proceeds. Mortgage Broker fees are usually capped by each state to prevent them from taking advantage of borrowers. Mortgage Brokers fees can be found on the Good Faith Estimate which are required by law to be shown to borrower within 3 days of applying for a home loan.

A combination of payments by origination fee paid by the borrower and a premium paid to the broker by the bank does not necessarily denote excess charging. In many cases that is the proper way to price a loan in order to structure the loan’s rate and fees to provide the most benefit to the borrower’s situation.

If you use a mortgage broker, you usually pay a fee for services or you pay additional money to your lender (sometimes the extra money is tacked on as an additional point on the mortgage) and then the lender pays the mortgage broker

In many instances Mortgage Brokers are paid by both the borrower and the Lender. This ensures that the borrower receives a favorable rate, while the Mortgage Broker is able to receive adequate compensation. The best method of payment will depend on your individual situation.

So why wouldn’t a borrower go directly to a bank for mortgage financing? The reason is because a Mortgage Broker is able to obtain the same financing at Wholesale Interest Rates, while a consumer will only be able to obtain financing at Retail Interest Rates. As is the case in any industry, Wholesale is always less expensive than retail. For this service, Mortgage Brokers are paid a fee, either directly from the borrower for obtaining favorable rates, by the Lender for obtaining a client that they otherwise would not have obtained, or a combination of the two.

One way a Mortgage Broker can obtain their fee is through charging a fee called an Origination Fee. This fee is paid to the Mortgage Broker for Originating the Loan. The Origination fee is added to the other closing costs that must be paid by the borrower. These fees can be paid out of pocket by the borrower, or in the case of a refinance, or 100% financing loan, the fees can be rolled into the loan. The amount of the Origination fee that is charged is generally a percentage of the loan amount. The amount of the fee is based on the difficulty level of the loan. For this reason a subprime loan will generally carry a higher Origination fee than a conforming loan.

Another reason Mortgage Brokers are paid for their services is because very often, they are able to obtain financing for individuals that would not have been offered by any traditional bank. Borrowers who have poor credit, little to no money for a down payment, an unusual property type, or a multitude of other issues will always find it easier to obtain financing through a Mortgage Broker.

Mortgage Brokers can also be paid by the Lender that actually makes the loan. The Lender compensates the broker for bringing clients to obtain loans. This fee is referred to as “Yield Spread Premium”, and the amount generally depends on the interest rate at which the loan is made to the borrower. The higher the interest rate with respect to current market conditions, the higher the Yield Spread Premium paid to the Mortgage Broker. This method of payment is utilized by many brokers because it reduces the out of pocket fees to the borrower while still allowing the broker to obtain compensation for their services.

Although everyone enjoys getting a “good deal”, it is prudent to be suspicious of a mortgage broker who charges significantly less than the norm. A good mortgage broker is a trained, experienced professional who must be properly compensated for his/her services. Look at it this way. Would you feel good about being operated on by a doctor who works for way less money than other doctors? As in just about everything else in life, paying too little often means a drop off in the quality of the goods or the service.

The bottom line is the mortgage broker gets paid for a tremendous amount of work having to coordinate the lender (closing coordinator ampersand funder), title company (closer ampersand assistant), Appraiser ampersand Insurance company. In most cases this is an arduous task to get each of these people to work in synergy. This demands a great deal of time and effort. In addition mortgage brokers find the best lender for your situation and every lender has different guidelines to follow for underwriting conditions. This is a fluid industry and guidelines for lenders change on a constant basis. This makes the tasks of a mortgage broker more challenging.

Choosing a realtor is a major step in the home buying process. You may be spending a lot of time with the realtor that you choose, so it is important to take your time and really shop for a person that you fit well with.

Ask your mortgage broker if they have a realtor that they might recommend to you that is familiar with the area you are looking to buy a home in. Also, ask friends and family if they have or know of a realtor that they truly like that they could refer you to. The realtor is a key player in helping you to sell or buy a new home. A poor realtor can undersell your home and cost you money. Therefore, choosing a realtor that you feel comfortable with and that is reliable is very important.

As mortgage brokers we have close relationships with many Realtors. Contact us for a pre-approval and we can get you in touch with a great Realtor for your market.

Make sure the realtor you choose is willing to work hard for you. Don’t let them push you into buying a home so they can get a commission. They should get to know exactly what you are looking for in a home.

Make sure you choose the right realtor for the right job. The are realtors for buyers and sellers. A buyer’s agent has the credentials ABR and will work in the buyer’s best interests.

Real Estate is a local industry. A good Realtor should know their area inside and out and should be able to prove their skills by documenting their history of sales. A Realtor with many sales in a given area obviously probably more than an agent with none.

A realtor familiar with the area you are interested in purchasing in will have previous knowledge of schools and transportation information.

Realtor is a trademark of the National Association of Realtors (NAR).

A buyer’s agent is a real estate agent that specializes in finding homes for you, the buyer. The agent generally has a better understanding of the area that you are looking to purchase. They probably will know more about the school system, where the closest grocery store is, and other things of that nature that will help you in finding a home.

A buyers agent will work for you in your negotiation of your new home price. Having a buyers agent will also benefit you with helping you understand the legal aspects of the purchase contract.

The buyers agent will know how to protect you in the event that there is something wrong with the home such as a mold issue, structural damage, a leaky roof or any other problem, they will let you know what is common in your area and work on your behalf to make sure that you are paying the proper costs such as title insurance or tax stamps as every area may differ on who pays what, and the buyers agent also has the ability to narrow your search results and save you time when finding your new home.

One of the best things about working with a buyers agent is that it costs you no more than working without one. The commission to the buyers agents is paid from the sellers proceeds.

Look for the abbreviation ABR next to a realtors name on any marketing material to identify if they are Accredited Buyers Representatives.

Having representation during this major purchase will be important for two specific reasons; first, you will have a real estate partner who has your best interests at heart, and second, your agent will have negotiation skills if there are any aspects of the process that are not suitable. A good buyer’s agent may also have prior relationships with selling agents that will help your purchase offer stand out above other offers in the cases of multiple bids.

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