FAQs on Mortgages 101

Here are the top FAQs/misconceptions I hear from home Buyers on residential mortgage loans.

1. There is no such thing as parity or even consistent rules amongst lenders. There are retail banks, credit unions, direct institutional lenders, mortgage brokers. Some lenders sell directly to Fannie Mae, Freddie Mac, Penny & Ginnie also known as GSEs. Every lender to some extent underwrites to these GSEs. Then some lenders have their own overlays

2. Overlays are a lenders rules/restrictions on borrowers. Such as credit score, Debt to income ratio (DTI), loan to value (LTV) - what percentage is the down payment requirement vs loan amount, reserves (savings/cash you have left after you buy), preferred banking relationships (how much in total assets do you have with the bank)

3. Different lenders offer different loan programs. Some can do 1st/2nd loans on jumbos allowing 89.9% LTV. Some jumbo requirements are less stringent. Some won’t lend on VA 2-4 units. Some have asset depletion models, bridge loans. Some won’t do investor 2-4. Some have bank statement loans and other non QM loans

4. There is no such thing as parity in rates. You can contact 5 different lenders and get varying rate quotes. I recommend you get them at par so you can compare apples to apples. In volatile times, spreads between lenders can be wider. This changes daily, sometimes intra-day as lenders re-price. ABC lender can be better 1 day, XYZ the next and then they’ll flip flop. Most of the rate surveys you see quoted online, even on FRED are NOT quoted at par. They can quoted in a non standard fashion with points. Meaning 1 lender is quoting X rate with .5 pt, another with 1pt

5. The Fed doesn’t directly set long term rates. They set the Fed Funds rate, long duration treasuries are set on the open market depending on demand for Treasuries. They influence yields & bond prices by buying or reducing their holdings in bonds including Treasuries & MBS. This is often referred to as QE (quantitative easing) or QT (quantitative tightening). The 30 year mortgage most closely tracks with the 10 year Treasury + a spread. This is due to fact that most home mortgages duration is 10 years or less, with either homeowners selling within 10 years, or they refinance into a different mortgage

6. Loan officers (LOs) are licensed per state- talk to a local lender first. Your lender & Realtor team can make or break your offer getting accepted, whether you can close. Your LO & lender (company) may have an excellent reputation in your market or a horrible one. No one wants to call a 1-800 number and talk to a different person each time

7. Why are experiences so varied with big banks or any lender? Retail Wall St banks are big and conservative by nature given their roles in managing deposits & assets. The experience you receive I think largely hinges on the LO you’re working with. Some figure out how to get it done. LOs who know they’re going to have problems with your borrower profile will either run it up the chain before you commit to them or will suggest you go with another lender

8. For conventional loan limits, you do not need 20% down if you qualify on DTI otherwise. You can put as little as 3% down on a conventional loan, 3.5% on FHA, and $0 on VA but this impacts your funding fee unless you have a disability rating of 10% or greater (always check with the lender on changing guidelines). If you can go conventional instead of FHA, talk to a lender about why/ differences- 1 big one is the MI for life of a FHA loan. Conventional loan limits are set nationally with some counties having a high balance limit

Self Employed

1. Why do I know you can get a mortgage/ refinance if you’re self employed (SE) 1099 or a S Corp? Most Realtors & many loan officers are SE!! We buy properties, re-finance them.

2. Yes you must have income and can’t write everything off. Especially when you’re SE, talk to a lender or 2 BEFORE you file your taxes if you want to buy a house in the next year or 2

3. If you plan to go from a W2 job to SE, talk to a lender first

4. If you’re SE and the LO doesn’t look at your tax returns to fully qualify you, RED FLAGS! If your scenario is unique/ complex a good LO will be willing to run your file (application, credit, tax returns / financial docs) by an underwriter to get ahead of problems

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