Capacity. Capital. Collateral. Credit. And…

Nothing has changed in mortgage qualification. It’s still about the FOUR C’s.

With a 5th C making an appearance, Character.

A potential homebuyer walked into our office and said, “I have a 798 credit score. What are you going to do for me?”

While this is an excellent starting point, we let the client know that we need to verify income, the ability to make a down payment and review the property they wish to purchase.

The mortgage process essentially has not changed. We look at the same things today that we did decades ago and that is the four C’s of mortgage lending!
Capacity: Is the client able to make the payment on the proposed transaction? We will review income, W2 forms, tax returns, pay stubs, current housing payments and debts to determine the buyer’s loan payment capacity.

Capital: Does the client have a down payment? We review bank statements to verify the borrower’s ability to make the down payment and demonstrate their ability to save. Even with low to no down payment programs or transactions, or if the buyer is receiving gift funds for the down payment, we will look at their saving and spending history to determine if they can manage the new payment.

Collateral: The lender will need an appraisal on the purchase property to determine if the collateral will support the mortgage loan. The market value and condition of the property are determined with the appraisal report.

Credit: Great credit and high credit scores have an impact on many transactions. This can include obtaining insurance, employment, and all financial transactions. Good credit comes with better rates and terms for consumers in most financial transactions. For mortgage lending, the best rates usually come with credit scores over 740. It can be challenging to obtain a mortgage with a credit score below 620, but credit isn’t the only component of the mortgage lending decision.

Character: When reviewing a mortgage application package, underwriters are looking at the consumer as a whole, not just at the individual four C’s. With a new approach to credit review called “Trending Credit,” underwriters are not just looking at a credit score, but a borrower’s approach to credit and debt management. Underwriters are looking at job stability, professional growth and money management. Although the “Four C’s” have been the base line for lending for decades, with the advent of the Internet, lenders have the ability to learn a lot about consumers, the properties they are buying and the nature of the transaction.

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Sticky Offers!

This is an extremely busy and frustrating market. If you are a listing agent you are probably a bit overwhelmed with multiple offers and demanding sellers. It is no easy task trying to navigate the transaction to get to the closing table and end up happy.

If you are anyone else, you are running as fast as you can to do business. On any given weekend we here at Wintrust Mortgage can have dozens of borrowers making offers on their dream home. As a matter of fact, pretty much all other lenders in MA are fielding dozens of borrowers making offers on their dream home. With all of this activity, it is more than likely that those dozens of borrowers are all offering on the same homes! At least it sure feels that way.

As long as we are in a multiple offer market there will be one winner and many disappointed losers for every listing…. So how do we make offers that stick?
What matters other than price?

Timing – look at date flexibility, find out what the sellers need and deliver those dates.

Down Payment Size – The greater the down payment, the more attractive the offer!
Cash – Cash is King! Pay cash if you can, you can finance the property at a later date.

Speed – Talk with your lender about getting a “credit only” qualification quickly to satisfy the sellers, this means that the loan, if fully approved, is subject to approval of the property.
What about contingencies?

Financing – Call your loan originator to determine if it is reasonable for your buyer to remove the financing contingency and what the risks are. This is not the same as paying cash – what it means is that buyer’s cannot get the deposit back if denied the loan. If properly pre-qualified, the only concern when removing a financing contingency is that the appraisal comes in at the purchase price, or that the buyer is willing to make up the difference between the agreed upon price and the appraised value. However buyers with complicated self-employment income or other unusual financial circumstances need to be cautious when considering waiving their mortgage contingency.

Inspections – Some people remove the inspection contingency and some people have the inspection at or even before they make an offer. We have seen other offers accepted with the condition that they would have the inspection right away, but that the results of that inspection could not be used to cancel the contract on the house or to renegotiate the agreed upon price.

More Inventory

Until we get more listing inventory we are going to have lots of frustrated buyers. Many potential sellers tell us that their greatest concern about listing their home in today’s market is fear that they will not be able to find another property in the time frame allowed with the sale of their home.

Our Solution

Team up with Wintrust Mortgage to present programs where we can engage sellers in pre-qualification activity and home selling strategies such as utilizing extended locks and lease back agreements to allow enough time to find a new home once their property is under agreement.

Working together, we can bring more ready inventory to the market.

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Shop For the Truth, Not For The Answer That You Want!

Today is the buyer’s commitment date… but the lender has not issued one, in fact they are declining the loan!!!

That’s because the buyer does not qualify for the purchase which is what we told him when he came to us for the loan. He is self-employed and we suggested that he come back once his most recent year of tax returns was completed because his income would be higher. The buyer decided that he didn’t like the news and went to another lender where he was given a pre-approval letter, he then made an offer to buy a property, spent money on the inspection and the appraisal and guess what… the buyer does not qualify and will not be approved.

How does a consumer differentiate between information provided by two presumably professional lenders? How does a buyer determine who is telling the truth?
Here are some steps to take for your own education and protection:

• Have the lender walk you through exactly how they arrived at the approved loan amount for your financial profile.
• Ask for details on all aspects, credit, income, savings and employment history – get the why.
• Use the information gained with the first lender when interviewing for a second opinion “Why can you do this when the other lender said that it could not be done?” Then carefully consider the answer, you can take that answer back to the first lender if you think that will help you gain clarity.
• In light of differing opinion, get a third.

Regulators are trying to create a mortgage system where the consumer cannot get hurt, but that is simply not possible. All industries have good and bad players and various levels of competency of professionals. No amount of regulation is going to change that. Consumers have to be smart, educated and shop responsibly. Not just for the lowest rate or the answer they want to hear but for competency and knowledge in the marketplace.

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