THE MONEY SOURCE

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Mortgage Brokering

Lending guidelines vary from country to country and you need to find a competent loan broker/lender in your area (if outside the US) for specific advice. However… everyone lending money is looking for one thing, the security of their capital. In order to "feel safe and make a loan", a lender needs to know specific information. Originating a residential mortgage loan is fairly simple and a great complement to Buying and Selling homes or building Super Homes! Also, anyone buying houses or refinancing their homes need the kind of loans that we arrange, and then, they'll need you. Also, anytime you are accelerating to eliminate someone's debt (as explained in that section) and a refinance is needed, you can write the loan and make $1,000-5,000+ on average. FYI: We are also attractive to Real Estate Investors, since we can make the money available for them to Invest in Real Estate.

And by the way…

When I refer to "we" or "us" within this section… I am referring to you and me as "Loan Brokers". You will be fproperty.ocusing on applications for first or second mortgages for residential owner investment  Everything written here is very straight to the point. No time is wasted. Please, be coachable and learn quickly. Follow these instructions and you will be welcomed into "The Money Business". WHAT IS A MORTGAGE? A mortgage is a LOAN secured by a piece of real estate. When you acquire a mortgage, you must put Property as collateral. We cannot do a mortgage loan if there is no Real Estate Property involved. When you understand the simplicity of pre-qualifying borrowers and putting a loan package together, it is not impossible to do 15-20 loans at the same time. However, before we start talking those kinds of numbers, lets get to the BASICS of the Residential Mortgage process.

Who are "we"?

  1. We are Money/Mortgage Brokers.
  2. We are not a bank.
  3. We are the link (middleman) between a borrower and a Lender.

What do "we" do? ·         

  1. We broker loans. ·        
  2. We pre-qualify applicants. ·         
  3. We complete loan packages and submit them to Lenders for approval/funding.

Here's the "bird's view" of the entire loan process

  1. Have a "MINI APP" completed
  2. If the MINI APP "looks good", have the "Residential Loan Application" (1003)¨completed by the borrower, or do it for them over the phone and then submit it for pre approval to the lender. Once pre-qualified by the lender, arrange a meeting to have application (respa) docs signed and give you the documentation needed to fulfill the lender's conditions on the pre-approval and submit the completed package to the lender.
  3. Go to closing and collect your check! (or have it wired)

Sounds simple, doesn't it?

Well… it is simple, but it won't become simple until you learn and master every step of the loan process and learn how NOT to waste your time. This truly is a business where all the details have to "make perfect sense" or the deal should be scrapped.

How to find borrowers

  1. Ask everyone you meet if they need a loan!
  2. Ask everyone you meet if they want to save money
  3. Ask everyone you meet if they need to eliminate their debt
  4. Tell Real Estate Agents that you can do the loans for all their clients!
  5. Tell anyone with a home for sale that you can do the loan for their buyer!
  6. FORM everyone, search for the need to consolidate debt or lower the rate!
  7. Promote yourself and advertise:

The majority of your business will consist in providing loans for residential Real Estate (single family - 4 family).

The two MAIN types of loans are:

  1. PURCHASE When someone is buying a property.
  2. REFINANCE When somebody is taking out a loan on a property that THEY ALREADY OWN to consolidate/accelerate debt or to CASH OUT.

The three Cs to a successful loan

  1. Collateral  ----- The property's Appraised Value. (Value of the property)      
  2. Capacity   -----  The clients financial ability to repay debt. (Job/Income)       
  3. Credit      -----  The clients Credit history. (According to the credit report)

It's that simple,

The three Cs are ALL the information that you need of the borrower to make a residential loan.

The real trick is

T to ACCURATELY put the loan package together andverify the Cs.

What is Loan To Value (LTV)?

The loan to value (LTV) is the percentage of the property value that is to be encumbered by the new loan.

For Example:

If Sales Price is  $100,000

And Loan is: $85,000  |  $80,000  |  $90,000

Then LTV =  85%LTV  |  80%LTV  |  90%LTV

THINGS TO LOOK FOR IF IT IS A PURCHASE:     

  1. What kind of property is it?
  2. What is the sale price?
  3. Does the property need any work?
  4. Is it an owner occupant? (The buyer is going to live in the house) Or is it anInvestment property? (A tenant will occupy the property/Rental)
  5. How much CASH does the BUYER have available?
  6. Is the SELLER to carry a 2nd deed of trust? (ex: 80% loan 15%carry back 5% down ·         
  7. What is the BUYER’S monthly income and length of employment? ·         
  8. What is the BUYER’S monthly debt load? (see above Purchase) ·         
  9. Can the BUYER produce all the necessary income and other documentation that may be required?………..… (Last 2 years W2's, pay stubs, VOD, VOE, VOR etc.) ·         
  10. What kind of TERMS does the buyer require ?
  11. Does the BUYER consider his/hers credit to be: Good, Fair, Poor or Bad?………………………………………..

THINGS TO LOOK FOR IF IT IS A REFINANCE ·         

  1. What kind of property is it?
  2. What is the APPRAISED value of the property?
  3. Does the property need any work?
  4. Does the BORROWER live in the house, or is it a rental/tenant occupied?
  5. How much is the TOTAL BALANCE of ALL existing loans? (1st, 2nd, 3rd, liens, judgments, etc) ·         
  6. What is the BORROWER’S monthly income and length of employment? ·         
  7. What is the BORROWER’S debt load? (monthly obligations) ·         
  8. Can the BORROWER produce all necessary income and other documentation that may be required? ·         
  9. What kind of TERMS does the BORROWER require?
  10. Is the borrower consolidating any debt?(Paying bills down/off) ·         
  11. Does the BORROWER consider their credit to be: Good, Fair, Poor or Bad?

There is NO way around it.

You must know ALL this to give a fair quote to your client and to effectively submit any deal. ASK QUESTIONS and complete the 1003. How to PRE-QUALIFY your clients The pre-qualification is the most important part of the lending business. The better you get at pre-qualifying clients, the less time you will spend with deals that make no sense. (Use MINI APP). This will allow you to concentrate on the deals that DO make sense… Time is money! After you have collected the information discussed in the previous pages, you need to quickly Pre-qualify your client prior to pulling his/her credit report. Using the Quick-Qual, Find out how much the property is WORTH, How much the client makes per month, How much the client's obligations are per month and how the credit is. We use whatever the client tells us at this point. What are RATIOS? The "Ratios" are the lender's guidelines to determine the quality of a borrower and his/her ability to repay debt. Ratios will vary from lender to lender. I have seen ratios from 20/28 to 50/55 and a typical ratio is 30/40. You must keep yourself informed with the lenders we are currently working with, and their ratios, programs, rates, etc. You will have this information available through the lenders, for example 30/40.

What does 30/40 mean?????

PIR/OIR: The LEFT number represents the Payment to Income Ratio (PIR) the RIGHT number represents the Obligation to Income Ratio (OIR) If PIR = 30 Payment to Income Ratio (PIR): This means that the monthly payment on the loan requested CANNOT exceed a certain percent of the borrower’s monthly income.(In this example, PIR is 30. This means that the loan payment can NOT exceed 30% of your client's monthly income)

For Example:

Bob's gross monthly income $3,200 Figure out PIR (30%) X 0.30

Bob can't afford a payment larger than = $960

In this example, the monthly payments on this loan are $875. Then Bob qualifies the PIR. If OIR = 40 ·   

Obligation to Income Ratio (OIR):

This means that the Bob's monthly debt load cannot exceed a certain percent of the client's monthly income. (In this example, OIR is 40. This means that the client’s total monthly debt load, which includes: house, car, credit card, whatever else payments, can NOT exceed 40% of the clients monthly income) For

Example: Loan monthly payment $875

Credit card $80 Car loan $150 Student loan $150 Total monthly obligations $1,230

In this example: $1,230 (Total obligations) divided by $3,200 (monthly income) equals 38.4% Bob qualifies the OIR), or figure out 40% of the total Monthly income. Ex 40% of $3,200 is $1,280. Bob's obligations are $1,230: therefore, Bob qualifies! ALL CLIENTS MUST QUALIFY THE PIR AND THE OIR IN ORDER TO QUALIFY FOR THE LOAN! HOW MUCH DOES Bob QUALIFY FOR? A good rule of thumb is to take the client’s Total Annual Income and multiply it by three (3). This will give an approximate of the maximum loan your client will qualify for. You can also use the payment estimator.

That's how simple a "pre-qual" is!

You can get to this point without ever physically meeting the client and by asking the following questions: ·         

  1. HOW MUCH IS THE PROPERTY WORTH, AND HOW MUCH DO YOU NEED TO BORROW? ·         
  2. HOW MUCH ARE YOU PUTTING DOWN? (Is it CASH or owner carry back - 2nd on Purchases only)) ·         
  3. HOW MUCH DO YOU MAKE PER MONTH? ·         HOW MUCH DO YOU SPEND PER MONTH? ·         
  4. HOW IS YOUR CREDIT? By now you have a pretty good idea if BOB can get a loan or not. If the deal makes sense at this point, have the client complete a 1003 (Ten-O-three) Residential Loan Application) at home and return it to you the next day. (If the client has a fax machine, you can do this by fax). Having the client complete the 1003 will save you hours of work, make sure you ask the client to be as accurate as possible and make sure that they have the instructions to the 1003.

So, when you have the completed 1003,

Look it over and make sure that everything is accurate and that the borrower qualifies for the ratios. 1.  Check the property, borrower and co-borrower, income, assets and liability sections. 2.  Verify that according to the 1003 you received from the client, he/she still qualifies for  the loan. 3.  If they "don't look good anymore", call and tell them politely that you could not get them a loan. 4.  If the ratios "look good", you may continue with the process! 5.  Obtain the clients credit report and print it. 6.  Check the client's credit SCORE (Under 550 is poor, 550-600 is OK, 600-700 is good, 700+ is A1) 7.   Look for 30, 60, 90, 120 days late on accounts. 8.  Look for judgments and collections. 9.  Look for bankruptcies and repossessions If the credit looks good, it is time to submit for pre-approval.

  1. Input the 1003 into the loan software in your computer or type it neatly. Make sure it is accurate and ACCEPTABLE. Print the 1003.
  2. Fax the 1003 and the credit report to the appropriate lender(s), make sure to include a submission sheet. (Make sure to stay on top of your lender's rates, this information will generally be available to you by the lender(s)
  3. Wait for response
  4. If the response is a "Turn Down" from the lender(s), it means that you have to practice your pre-qualification skills a little more and call your client to politely turn him down.
  5. If the response is "pre-approved" by the lender(s)… BINGO! Take a look at the conditions (predications) and make sure that they can be complied with.Now you know that your client(s) qualifies for a loan, as long as they can comply with all the conditions (predications) given by the lender on the pre-qualification. Now you need to prove that the information in the 1003 really is true. So, the question is… can we PROVE it in writing?

MAKE SURE TO GET THE FOLLOWING DONE WHEN THE LENDER HAS STIPULATIONS ON / NEEDS VERIFICATION ON: ·         

MONTHLY SALARY: (Gross monthly Income is used on all sources of income, including part time / second jobs, overtime, bonuses, profit sharing etc)

GET: A - W2's for last TWO years (Tax returns if self employed) B - Pay stubs to cover the last 2 months. C - Request for Verification of Employment ·         

MORTGAGE/NOTE INCOME: When somebody accepts a PROMISORY NOTE or a 2nd or a 3rd deed of trust and is collecting monthly payments, it can be counted as income in order to assist in the qualification.

GET: A -Copy of the NOTE B -Copy of the deed, or contract. Whichever applies. ·         

CHILD SUPPORT/DIVORCE SETTLEMENT: This is something that can be used as income as well as a debt load, depending if you are talking to BOB or to his WIFE.

GET A - Copy of the divorce decree GET B -Copies of last 6 canceled checks sent/received by the payer. ·         

SOCIAL SECURITY, DISABILITY, RETIREMENT ETC.

GET - Copies of last 2 year’s statements and last checks received. ·         

COMMISSION ONLY INCOME: We must establish a 24 month income history, but in some cases we may be able to get only 18 months accepted.

GET A - year-to-date Profit and Loss Statement prepared by client’s accountant.

GET B - Copies of the last 2 year's COMPLETED "1040" Fed. Income Tax Return.

GET C - Request for Verification of Employment. ·         

RENTAL INCOME: Applies mostly to landlords and investors. In most cases, we can use 75% of monthly cash flow. A - Verification of Mortgage (VOM) on the rental properties. B - Copy of the property tax bill GET: C - Lease agreement D - Copy of deed E - Insurance coverage for the rental property

SELF EMPLOYED: We must establish a 24 month income history. In some cases we may be able to get only 12 months accepted.

GET A Year-to-date Profit & Loss statement prepared by client’s accountant. GET: B - Last 2 years completed 1040's (Tax Return) ·         

VERIFICATION OF DEPOSIT (VOD): Have client’s bank sign the completed VOD form. ·         

VERIFICATION OF BALANCE (VOB): Have the clients bank sign the completed VOB form. ·         

VERIFICATION of MORTGAGE (VOM): Have the client’s Mortgage holder sign a completed VOM form. ·         

VERIFICATION OF RENT (VOR): Have the client’s landlord sign the completed VOR form. ·         

PRIVATE MORTGAGE INSURANCE (PMI): This is an insurance policy that insures the lender in case of default by non-payment of the loan. The lenderwill be handling all the specifics about PMI. Once all the conditions have been met (all documents collected):

  1. Arrange a meeting to sign RESPA DOCS [loan documents]. Have him/her bring all his/her income and other required documentation that the lender required in the pre-approval to this meeting and make SURE to include ALL documentation in the loan package as soon as you get it in your hands. Get a copy of the client's picture ID and collect the up front fees, if any. (Application & Appraisal fees). Make TWO copies of the ENTIRE FILE. (For the Lender and you). The respa docs are in all Mortgage Software and if you are co-brokering deals, the company you are working with will have all necessary forms.
  2. When you have ALL the required documentation and the LENDER has deemed it acceptable and APPROVED THE LOAN, order Appraisal and Title and schedule the closing. Make sure that the property is worth what they say it is worth before getting an appraisal. Pull /ask for quick comps to see if the property is really worth what the client states. (If you don't have access to the MLS, ask a Realtor or the appraiser before spending any money). If it's worth what client states… you can proceed. If it's NOT worth what client states, talk to your client about it. If the numbers don't make sense at all anymore… this deal is dead.

 

The "PACKAGE" The loan package is what you need to put together and submit for approval. The package is simply a stack of papers supporting the 1003. They simply prove that the borrower didn't LIE on the 1003 and can qualify to close the loan. The package is what this is all about. No lender can approve an incomplete loan-package, so please be sure everything is "there" and that the borrower qualifies before submitting anything. The package consist of a file folder or a "stack" of documents (depending on how you want to organize it) with "TABS or separators". You can buy the supplies at Office Depot or if you are co-brokering with a company, they will have a "template package" for your use. Make SURE to include a Residential Loan Processing Checklist on TOP (first page) of the loan-package so that you can track the progress.

Here are the sections (TABS) to be included in the package for easy tracking:

  1. Application:completed 1003 Residential Loan Application and signed Quick Application, must be included. The "Residential Loan Application" also known as 1003 (Ten-O-three) is the most important part of your loan submission. We are not interested in receiving an application that we can't read. You can have the borrower fill out an application by hand, but have him/her sign a typed one for submission. You will then have a clean and neat "Residential Loan Application" ready for presentation. Please be sure to have the borrower fill out a "Schedule of Real Estate Owned" (if needed), and attach it to the "Residential Loan Application".
  2. Respa [loan documents] disclosures:Respa disclosures together with your "FEE AGREEMENT" goes here.
  3. Income documents:Last 2 years W2 forms and pay stubs covering the last 60 days. If self employed, last 2 years of tax returns and profit & loss statements. Sometimes, bank statements are needed as proof of income if self employed.
  4. Appraisal:An ORIGINAL appraisal must be included here.
  5. Credit report:The original credit report must be included here.
  6. Title & Legal documents:After ordering and receiving the title work, include it here.
  7. Insurance information:After ordering and receiving the insurance coverage, include it here.
  8. Verifications:(VOD, VOM, VOR, VOE, VOB,… etc.): All verifications must be included here. (Don't forget to include the Appraisal & the Insurance fees in the closing costs to assure payment)
  9. Any other documents required by the lender

Here's the "bird's view" of the entire loan process... again 🙂

  1. Have a "MINI APP" completed
  2. If the MINI APP "looks good", have the "Residential Loan Application" (1003)¨completed by the borrower, or do it for them over the phone and then submit it for pre approval to the lender. Once pre-qualified by the lender, arrange a meeting to have application (respa) docs signed and give you the documentation needed to fulfill the lender's conditions on the pre-approval and submit the completed package to the lender.
  3. Go to closing and collect your check! (or have it wired)

REMEMBER

Everything MUST be complete and in a neat format in order to submit our package. Please don't "cheat", you will be cheating yourself. Your loan will not close unless you properly complete the package and get it closed! You will be receiving many loan requests, some of which will work and some, which will not. Your job is to determine which loan request is feasible and marketable to lenders. Have several PROCESSING CHECKLISTS on hand and place a Residential Loan Processing Checklist on top of every file. Please, be thorough Welcome to the money business!