Frequently Asked Questions

A mortgage is an agreement in writing, duly executed and delivered, that creates a lien upon real estate to be used as security for the payment of a specified debt.  Most often a mortgage loan is used to purchase a property or to refinance an existing mortgage on the property.   The person contracting to pay back the loan is the borrower (debtor) and the party providing the loan is the lender (creditor).  

After the loan is made to the borrower, most loans require a loan payment to be made each month (payments usually include a portion of the (principal) plus some or all of the interest accrued for that period of time. Eventually the entire loan must be paid off or the property will be foreclosed on and the borrower could lose some or all of their equity in the property. Once the loan has been paid back in full, the deed of trust used to secure the loan against the title of the property is released (reconveyed) so that the borrower (property owner) can sell the property or they can encumber the property with a new loan.

The requirements to secure a mortgage vary based on risk profiles of the borrower, the property used for security and the transaction. Based on those profiles, some Lenders offer loan programs that accept that risk profile and other lenders will not be able to provide a loan based on that risk.  The loan process begins with the borrower applying for the mortgage and then the information listed on the loan application must be properly documented according to the lender guidelines. Once the loan is approved the borrower will be able to borrow a certain amount of money for the use stated on the loan application.  

Generally, the main categories of risk considered by lenders can be summarized as following into the “Three C’s”:

CAPACTITY estimates the borrower’s ability to pay the loan payment by comparing their monthly debt to their stable monthly income. (Debt Ratios are calculated by dividing monthly debt by properly documented income) and the typical maximum debt ratios allowed are approximately 40%. Some programs and lenders allow higher debt ratios. 

CREDIT estimates a borrower’s future likelihood of making the loan payments according to the terms of the loan by reviewing the borrower’s past credit history (usually using a borrower’s credit score and with a thorough review of their credit report).  

COLLATERAL estimates the borrower’s equity of the property used for securing the loan by comparing the loan amount to the property value (LTV). The lower the LTV (or, the higher the amount of borrower’s equity in the property) means there is likely to be lower risk to the lender.  

All three of these categories are analyzed to determine the perceived risk of the transaction and a loan approval or denial is based on how that perceived risk compares to the underwriting guidelines for that particular loan type.  

A mortgage broker is a person or company that helps connect buyers with lenders offering different mortgage products. Brokers have relationships with a variety of lenders, so they can help you choose a lender that meets your needs, saving you the trouble of contacting multiple lenders to compare options.  Mortgage brokers and their loan officers (mortgage loan originators) must be licensed in the state where they operate.

Many direct lenders just don’t have many loan type options and many of the programs they do have do not allow for any flexibility in qualifying for them. 

Shopping for a mortgage is time-consuming and can be stressful. If you want quotes from different lenders, you may have to spend the time and effort to apply with each lender, fill out applications for each lender, and undergo a credit check. With a broker, you fill out one application and let the broker do the rest of the work. 

Because brokers have relationships with multiple lenders, they can easily compare rates and find loans with the features you want or need.  Aside from finding a loan for your unique finances, mortgage brokers are also experts in the entire mortgage process, so they can answer any questions you have about the entire transaction - not just the loan.

Mortgages fall into two main categories: conventional loans and government-backed loans:

1. Conventional loans (Fannie-Mae, Freddie-Mac and Jumbo loans) are made by lenders and often sold on the secondary market. They are often the most popular loans as they typically cost less than government-backed loans, but they can be tougher to qualify for than government loans.
2. Government-backed loans (FHA and VA loans) are insured by the government and have unique features to accommodate buyers who might not be a good fit for a conventional loan.  Sometimes the loan terms are bit more expensive than conventional loans (but not always) and they often require Private Mortgage Insurance (PMI), but typically they are easier to qualify for than conventional loans.

SEE THE PRODUCTS SECTION for more thorough descriptions of loan product choices.

After asking some questions about the borrower and about the transaction, the loan officer/mortgage loan originator will have a good idea on the type of product(s) that you can qualify for and that will meet your needs. 

When that is known the loan process begins with a loan application and with the loan officer letting you know the types of documentation required to verify your assets, credit and income. 

Once you’ve selected and applied for a loan, your broker assists with every step, from loan submission to loan approval, to loan funding. Your mortgage brokers will act as an intermediary if problems arise with the goal of  helping you avoid delays so that you can close on time which is epically important for purchase transactions.

Based on the details of the borrower, the transaction and the loan type applied for, Lenders require specific types of documentation to verify credit history, income, liquid assets, source of down payment, property information, etc. 

A partial list of items needed is likely to include:

• Two years of tax returns, including W2 forms and 1099s.
• Pay stubs  for the most recent month.
• Bank statements for the most recent two months.
• Statements for retirement accounts and investment accounts for the most recent two months.
• If a gift is used for any of the down payment, proper documentation will be required from the person providing the gift (gift letter, two months bank statements, etc).
• For new property buyers, rental history of the borrower (usually 12-24 months of canceled checks to landlord, or bank statements to verify consistent payments).
• The mortgage broker will run your credit report which usually requires data to be pulled form all three  credit bureaus. This will require your authorization.
• Signed loan application and other loan disclosure forms.