Understanding The Mortgage Game and How to Play It

Written by: George Smith
09/04/2019

mortgage-concept

There are many different kinds of mortgages in the mortgage industry. I am a Mortgage Broker in California by trade and I am very familiar with the different types of mortgage products available. The most common type of mortgages are known as conventional mortgages. These types of mortgages can be obtained by mortgage companies through Licensed Mortgage Brokers. These types of mortgages have very low wholesale interest rates. Conventional interest rates are regulated by banking guidelines and change every day. These mortgage rates can be locked at a certain rate and secured for borrowers. The locks are usually for 30 to 45 days at a time and will secure a certain interest rate for a borrower that will not change until the mortgage transaction is funded. These rates are typically referred to as wholesale rates. Wholesale rates are determined daily and can change at anytime depending on the market. They are provided to Mortgage Brokers and Loan Officers on Wholesale Rate Sheets. Wholesale Rate Sheets are only available to licensed Mortgage Brokers and Loan Officers. They are not available to the general public.

Licensed Mortgage Brokers and Loan Officers

Licensed Mortgage Brokers and Loan Officers have daily access to Wholesale Mortgage rates. They receive these rate daily through wholesale rate sheets. Wholesale rate sheets give you information regarding the current mortgage interest rates for that particular day. Customers who work with Mortgage Brokers will have access to these daily rates to determine the rate they would like to have for their mortgage. The wholesale interest rates will determine the mortgage payment for each individual customer. The wholesale mortgage rates will be determined by the credit score, type of loan, as well as other factors for each individual borrower.

Government Loans

Another type of mortgage loan is what is known as Government Loans which are more commonly known as FHA loans. These loans will have the lowest interest rates and lowest down payments available. These loan programs are also only given to Licensed Mortgage Brokers and Loan Officers and are not available to the general public. These loans can even be obtained with no payment down and can usually be obtained with a minimum credit score of 550. This is the best type of mortgage loan available if you are seeking the most aggressive terms in the industry. These loans also come with what is known as MI. This is Mortgage Insurance and is a mandatory part of all FHA loans. This is an additional fee which must be paid monthly by the borrower. This is in case the borrower defaults on the loan. The loan is insured and will be paid in full.

Private Mortgage Loans and Hard Money Mortgage Loans

Another type of Mortgage Loans are Private Mortgage Loan. These loans are also referred to as Hard Money Loans. These Loans are provided by private funds. These private funds usually come from private investors and are not bank regulated in any way. The interest rates and terms are determined by private investors. These loans do not have rate sheets and do not change on a daily basis. These loans are usually used by private investors for investment real estate transactions. They can also be used by borrowers who do not have the standard documentation needed for conventional or FHA mortgage loan transactions. They are based on the equity in the real estate being purchased. They are not based on the borrower’s credit or income as much as they are based on the available equity in the real estate property being purchased or refinanced. Some of the borrower’s criteria is considered, but most of the qualification process is based on the property. Hard Money loans usually fund in 7-10 business days as opposed to the standard 30 days needed for conventional and FHA loan transactions. Investors often use hard money loans for investment real estate purchases known as “fix and flips”. Hard money loans also provide the funds needed for real estate investors to rehabilitate the property and make the necessary repairs needed to resell the property.

The Mortgage Process, Underwriting and Loan Processing

The mortgage process involves many needed steps before funding can be obtained. This involves underwriting, credit analysis. income analysis, tax return analysis, appraisal analysis for property value, as well as several other steps needed to obtain loan documentation for borrower signature. Once this has been completed, the loan will then be funded and will record at the county recorders. The underwriter will analyze all of the information needed for the lender to issue conditions for funding. It is then given to the loan processor to obtain these conditions from the borrower or request this information from the loan officer to obtain from the borrower.

Escrow

Escrow plays a vital and pivotal role in the mortgage process. The escrow officer is responsible for controlling the funds involved in the mortgage loan transaction. The funds are sent from the lender to the escrow company when it is time to fund the real estate transaction. The escrow company receives the funds from the lender and funds and records the loan transaction. The escrow officer also does a title search on the property to make sure there are no additional liens or claims against the property that would prevent the property from obtaining clear title once it is time to fund. The escrow officer would have to make sure that these claims or liens are paid or removed so that they do not remain on the property. The escrow officer will also pay the taxes and insurance on the property for the first half of the year. The borrower will be responsible to pay all subsequent taxes and insurance once the loan has been funded. These funds are deducted from the borrower’s loan proceeds prior to funding.

Credit Makes the Difference

Make sure you have the best credit possible when beginning your mortgage loan process. This will ensure that you receive the best loan interest rates and terms available. Time to buy that dream house now.


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