The Real Estate business has been done the same way for decades and the only thing that has changed is how we deliver information to our clients. The internet has made the business easier without a doubt, in the way we can see homes for sale and do research on neighborhoods and schools and crimes in specific areas. The invention of digital documents has helped with signatures and the delivery of necessary disclosures to our clients. However, the core business model has not changed for most Real Estate firms. That model is to market to your clients and potential clients for their business, ascertain what they wish to do buy or sell, then have your clients contact a lender for pre-approval for a mortgage. Then once the Agent knows how much their client can afford, they then start searching the MLS for homes in their client’s desired area and price range. Or for listings they determine how much they can afford for their next home, as to not sell a home with no possibility of their client buying another one, in most cases. If they are working with a home buyer or when the seller becomes a home buyer upon the sale of their existing home, they then find properties in the area they wish to be in knowing what they qualify for from the client’s lender. Once a property has been identified as a property their client wishes to make an offer on the Agent then contacts the lender for a letter of qualification to be submitted with their offer to purchase. When the offer is accepted the documentation has to be disseminated to the lender and the Escrow/Title Company and the lender. Then the Agent arranges inspections and the lender sends out disclosures and orders the appraisal the Escrow/Title company orders the preliminary title report. When the documentation comes in it has to be shared with all involved. The Agent will periodically check with the lender for progress reports, but has no say at all in the loan, and the Loan Officer will give updates to all but has no say in the Real Estate transaction at all and may not know if things have changed with the disposition of the property and or contract and inspections. When the lender has completed their process, they send the legal Loan Documents to the Escrow/Title Company for the buyer and seller to sign. After everyone has signed and all the monies have been accounted for the loan funds the transaction closes and all the service providers get paid. This is the way Real Estate Transaction have been done since the beginning of modern times.
When you read this transaction flow you see there a several people and companies involved in making a Real Estate transaction close. When you have that many people, they all need to be paid and that is why it is so expensive to buy or sell a house. When you sell a house, you will pay an Agent or Agents, I most cases, 5 or 6% of the sales price and that is well worth not having the liability as a seller alone in the transaction. A highly qualified Agent will make that money back in many ways such as piece of mind that all the laws of selling your home are being met and all the required disclosures and inspections have been completed and done correctly. In many cases a good agent will price your home and market your home so that you get the highest and best price for your home thus making you more money than you probably could have trying to sell it on your own or using a cut rate internet real estate firm where you have to do most of the work. When you are the home buyer in a Real Estate transaction your Agent is paid by the seller out of the 5-6% commission that has been pre-set when the listing was originally taken. The commission to a buyer’s Agent is usually split between the listing Agent and the Selling Agent (the Agent representing the buyer). Why this is important I will get to in a bit.
When you work with a lender, in a traditional Real Estate Transaction, they are independent of the Real Estate Company and they get paid from the fees charged and rebates from the Interest rate on the loan. This may be confusing but usually a lender will make between 2 and 3% of the loan amount to keep it simple. Again, I will tie this in as to the importance of who gets paid what later. Remember in the transaction that the lender orders all their own disclosures orders the appraisal and has to communicate to all the Agents and title company. The lender also needs most of the documents that the Agent has signed such as the contract and any inspections the Agents have had done all the while keeping the Escrow/Title company informed of the progress.
As you can see the typical Real Estate Transaction still has many inefficiencies and redundancies in the typical transaction. I offer, as a solution to efficiency, to merge some of these functions together to make the transaction smoother and more cost efficient. I would merge the Real Estate and the Loan Functions together in order to be more transparent with the information in the transaction. This would cut time frames down and the client would only have to make one phone call to get the status of the loan and the Real Estate. This would cut out any miscommunications with the inspections as all eyes could offer advice as the inspections come in. Not to mention, prior to the contract being written the Agent and the Loan Officer are under the same roof so an efficient plan can be put together to benefit the buyer in an approach to making an offer that will get the buyer the best deal possible coupled with the best financing. If the Agent also is representing the seller and the buyer and the loan things can really be done efficiently.
Picture this, as a home buyer, you make one call to a company and you get your home loan pre-approved and you are looking at houses that same day. Then when you make an offer on a home your Agent and Loan officer already have made a strategic plan for you in the office they both work in, or they are one and the same person. When you make the offer there is no worry about the financing as your Agent has seen everything the Loan Officer has and vise versa. In addition, your loan officer is not tied to one lender he or she can find the best financing sources across the country saving you even more money. The Loan officer can offer tips with financing to negotiate a better price on the home. Some of the commission from the sale, that we talked about earlier, can be used to buy down the loan interest rate and fees. Remember the 5-6% commission the seller splits with the buyer’s Agent and the Seller’s Agent, well some of that commission can be used to get you a lower interest rate thus a lower payment. The additional monies can be used to lower your loan costs as well. If you have the same office collecting 5-6% on both the loan and the Real Estate Commission the company can afford to give back money so that you as a buyer get a lower interest rate and a lower monthly payment than you would have got buy using an Agent from separate firm as the Loan Officer. The trading of information will also speed up the transaction and make it far more efficient. As a Home buyer you would only have to meet at one office or talk to the same office to get all your information and within the office the loan and the Real Estate transaction are being completed at the same time under the exact terms of the contract with both the Agent and the loan officer working together and in some cases if the Agent is a Broker he or she can do both the Real Estate and the Loan.An Example will look like this: A First time home buyer contacts the Real Estate and Loan Firm and wants to buy a house. The Agent prequalifies the buyer over the phone or computer and gives them a list of items they need to become fully approved for the home loan. The Agent can run credit and run the information through automated underwriting and receive the approval with the client still on the phone. The Agent then can determine from the client where they wish to live and provide current listings in that area for the client to view. The client can ask to see specific houses and the Agent can then arrange to show them with the sellers. Knowing the client needs and financing options the Agent can make an offer that is the best for the client and provide the approval to the seller with the offer thus making the client's offer more attractive than other offers they may have received. The client throughout the process only needs to make one call as does the Agent. The agent can get the Loan information and the Real Estate information at the same time. On the other side of the transaction the listing Agent only needs to make one call to get everything they need to keep the seller informed. The Buyer's Agent finds the best lender in the country for their client getting them the lowest interest rate possible as well as contributing to their closing costs lowering their rate and monthly payment. The buyer gets into their house with very little running around and stress of the transaction. Everyone wins.
This may sound like utopia, but it is reality here at MAE Capital Real Estate and Loan. We have perfected this system and we are saving our client thousands of dollars when we represent them as their Realtor and their Lender. We can save home sellers thousands as well when we represent them as the seller of their home and find their next home for them and do the financing. The efficiency in bundling these services in incredible and saves our clients thousands of dollars and countless hours tracking down their Agents and Loan Officer. If you would like to see this in action, please give us a call at 916-672-6130 or click here to email us. We are looking forward to showing you this incredible modern system.
I know you have heard the ads on the Radio or TV and probably are wondering what all the hype is about with certain loans or Loan Companies. I know most of you have heard of Rocket Mortgage and some of you may have even tried it to find out that it is not as easy as it sounds. You may have heard of loans that can qualify you with just bank statements or “Income Solving Loans”, as advertised. You may have heard of Down Payment Assistance programs that are designed to help you with your down payment so you don’t have to come out of pocket to buy a house with very much money. These are all programs designed to get your attention and some are very viable programs and others you soon find out are a whole lot of work for very little.
So, let’s start with Rocket Mortgage and getting a mortgage with a push of a button. This is a bit of a pipe dream, so to speak, as in order for this to work you have to input all you information into their system before it can work and in some cases it won’t work and you end up having to deliver the traditional documentation anyway to get approved for your mortgage. Rocket Mortgage is a division of Quicken Loans which has emerged as one of the largest Mortgage Companies in the nation after Mortgage Melt down of a decade ago. The way their system works is based on a software platform that is designed to interact with different employer’s payroll systems and different banks. The software sets up, with your permission, an interaction with web based companies like ADP, Paychex, Talx and other payroll associated companies to verify your income information. The software also gets your permission to get your online banking information, as well, to verify that you have enough money for the down payment and closing costs associated with the loan. It will interact with credit reporting agencies as well. Once you have inputted all your information into their system the software can run income, bills, and cash to close to accurately give you an approval. However, if your job or bank does not interact with any of the online systems you will have to provide traditional documentation anyway. The major problem with this system is that you don’t have a human to be able to tell you how to fix any issues with your employment or deposits or any other reasons why their system is declining you for a home loan. This system is only as good as the information that is inputted from you the borrower and if you are confused as to what to put into the system you may make a simple input error and that could cost you the decision of an approval. When you work with a traditional Loan Officer they generally do all the input for you based on the documents you provide them and it is in their best interest to get your loan approved and closed as their income depends on it. This automated system might work for the perfect borrower who has perfect credit and has had one job, one bank account and works for the government. This, unfortunately, is not the real world, but it is a system that will be refined and eventually something like this will be the way mortgages are delivered in the future, but for now we still need human interaction to deal with problems or glitches that may arise.
Now down payment assistance programs (DAPs) have been around for a long time. The problem with these programs are that they have become so regulated over the last decade now since the Mortgage Meltdown that there are very few programs available. In California we have the California Housing Finance Agency or CalHFA for short and they offer an income limited program that is called MyHome Assitance program. This program will offer up to 3.5% second mortgage on the purchase of a home and the money is ued for the down payment on the first mortgage and closing costs if necessary. For the MyHome program you need to be a first time homebuyer (not claiming mortgage interest on your primary home for the last 3 years). You must occupy the home as your primary residence, and complete a homebuyer education course and you must fit into the income limitations. This assistance program can be used with an FHA or Conventional loan. For more detailed information and help with doing this loan please contact MAE Capital directly and one of our licensed and qualified Loan Officers can walk you through this process. CalHFA also offers, though approved Lender’s and Brokers like us the Mortgage Credit Certificate or MCC that is designed to help first time homebuyers receive and additional tax credits from homeownership and this program is also limited by the amount of household income that is made and does not help with the down payment it is only a tax credit program. This is really your only options for Down payment assistance in California. It all boils down to being able to get a down payment of 3.5% which is the minimum amount for an FHA loan. With an FHA loan, the 3.5% can come from a DAP or it can be a gift so it is very flexible as to where the funds to close come from. Here at MAE Capital we can hold your hand though this process and provide different options as they arise.
Lastly you may have heard of the Cash Call ”Income Solving” loans for owner occupied homes. These loans are being presented for those folks that may have trouble showing their income to a lender because they are self-employed or write off too many expenses on their Federal Tax Returns. The commercial on the radio states to call them if you have been declined by a lender for lack of income. Back in the day we used to be able to do stated income loans for those that write too many expenses off their tax returns if it made sense to for the client. These loans have been made illegal with Dodd Frank Act of 2008 which states that lenders must prove a borrower’s ability to repay the loan they are requesting. This has been interpreted to mean that you must get Tax Returns, and Pay statements in order to prove the borrower’s ability to repay a loan. There have been serval institutions that have looked at the law and came up with alternative ways of proving the ability to repay. One of the best ways to show that a borrower is actually making enough money from their self-employment would be to look at the deposits they make into their bank account every month. The Bank Statements will also show how a borrower is spending the income that is made from their business. If a borrower can show that their business is making good deposits every month and they are saving money after paying their usual bills then why would they not be able to afford a house payment. It is these bank statement loans or “Income solving Loans” that have been becoming more popular with self-employed people as they have a tendency to write-off more expenses than a typical salaried person would simply because they can. When we analyze a person’s bank statements for the last 24 months you can see trends and habits of good paying individuals or poor paying individuals. That coupled with a good credit score and savings habits will generally get a loan approved. These alternate income qualifying or Income Solving products are all different and different lenders will handle them differently, so it is important to use a Mortgage Broker for these products for no other reason than they can find the lender that will approve your loan. The Cash Call Loan is not the only alternative it is only one of many lenders that offer this type of solution. Don’t give up if you have been trying to get a bank statement loan from a mortgage banker or a Bank and it is declined chances are there is a lender out there that will probably approve the loan if it makes sense and it will generally be from a lender you have not heard of before.
The bottom line with regards to loans and specialty financing is that you should be dealing with a Mortgage Broker that knows the ins and outs of these products to get you hooked up with the right lender the first time. The myth that it will cost you more money dealing with a Mortgage Broker I just that a myth. In most cases a Mortgage Broker can find you the best interest rate scenario for you as opposed to a Bank or a Mortgage Banker as a Mortgage Broker is paid by the lender in the form of Lender Paid Commission. So not only could a traditional loan cost you less working with a Mortgage Broker but these specialty loans might only be found to be offered by a company you may never had heard of before but your Broker knows of them as it is our job to know where to find the right loan for our clients. With specialty loans and down Payment Assistance Programs and even software programs here a MAE Capital we can walk you through the maze of ever changing finances and trends and get you the answers you need to make informed decisions. We know that you are an expert in your trade or occupation and so are we, and it is our job, and our pleasure, to help you with all of this confusing stuff. With one phone call you can get the answers you need to Buy, Sell, Finance or Refinance all types of Real Estate. We look forward to guiding you to your next Real Estate transaction. Give us a call today at 916-672-6130 and ask to talk to one of our qualified Loan Officers. If you are selling a home and buying another one ask about our special bundling packages that can save you thousands in Real Estate commissions and fees.
Is it time to bring back loans that people don’t have to fully income or credit qualify for? I believe it is, for no other reason than the current environment cuts out an entire section of the US economy from qualifying for a good loan. The self-employed borrower is being left behind with the current lending rules. The self-employed borrower is a broad reaching term that applies to people that derive their income from partly or entirely from a source that does not require the withholding of taxes. This includes people on commission as a part of their income or their entire income. Another section of potential borrowers that are being left behind are those with less than perfect credit and a high down payment or high equity positions.
The idea of tight underwriting criteria is to keep the foreclosure rate low and to protect potential borrowers from themselves over committing themselves on a mortgage. In the past, lenders were left to their own when determining risks associated with lending money to potential borrowers. It has pretty much always held true that the more money, or equity, a potential borrower has into their home the less likely they will default on their mortgage. Even during the mortgage crisis of 2005-2011 we found that the folks that had a high investment into their homes initially were far less likely to default on their mortgage. After the crisis and with the onset of the Dodd Frank Act that put law into the mortgage risk assessing business we are finding that those folks that have the ability to save from their self-employed jobs are being discriminated against for no other reason than being a true American by using a tax accountant to prepare their taxes and writing off more things than a salaried employee can. This affect can be attributed to the current tax code that allows people write off business related expenses off their income thus reducing the amount of income a lender can use to qualify them. Currently even with a substantial down payment, 20% or more, if the self- employed borrower does not show enough income, net of expenses, they will not be allowed to get a traditional loan under the Dodd Frank laws.
This holds true for those that have a lower than acceptable credit score with a high down payment or equity position. I would contest to say that if a borrower can put a large down payment, 20% or more, they would be less likely to walk away from their mortgage even if the house devalued by 10-20% in the first few years after purchasing. We have seen over time that Real Estate, over the long run will continue to rise at a rate as high, or in most cases, higher than inflation. What this means is that people with large down payments have shown a commitment to the house they are purchasing for the long term. I would contend that even though a potential borrower may have a less than acceptable credit history for a low down payment loan that they should be able to be able to buy a home with a large down payment as they will tend to find ways to make the payments so they don’t lose their investment.
Good news, there is hope for these underserved borrowers out there. We have seen an increase in investors that see loopholes in the law that will allow for these underserved folks to be able to purchase a home. The Dodd Frank law states that “a borrower must show the ability to repay the mortgage”. FNMA and FHLMC (Fannie Mae and Freddie Mac) have interpreted that to mean that all loans securitized by them must explore all income verification sources such as Tax Returns, Pay-stubs, W2s, 1009’s, for all borrowers on the loan. Currently if a borrower fails to provide any one of those documents that support an income needed, the borrower is declined from those loans. The good news is that some new innovative lenders, even with the support from Wall Street hedge funds, are providing loans to those that have similar situations.
The laws state that if you are going to do a qualified mortgage (a home loan for a primary residence) you must show the borrower’s ability to repay that mortgage or verify their income. This can be done by other ways than tax returns, W2s and paystubs, as no two borrowers created equally, everybody is different. So to discriminate on those that don’t show income on their tax returns when they obviously are making income is ridiculous. There are other ways to prove income such as showing regular deposits made to a bank account, or show enough assets that could pay the mortgage off, or simply listening to a borrower on their thoughts of how they plan to repay the loan based on the large down payment they would be making. The market place is coming up with new ideas every day to stay within the law. Alternate income loans are going to be the future for those that cannot show proof of income through traditional sources and we have those Alternate Income Loans Available today.
Alternate income loans vary greatly from source to source that is why here at MAE Capital Mortgage Inc. we take care in making sure our alternate income lenders are everything they say they are. We have several Alternate income sources that will use bank statements for the last 12 to 24 months and average the deposits. The borrowers that can show a good deposit history will tend to get the best alternate income rates on their primary home. All the Alternate Income sources have graduated tiers for credit scores, and down payment or loan to value. What this means is that if you have a large down payment, good deposit history in the bank and you have a good credit score you will get the bests alternate loan rates. The rates will vary to the degree of risk. So on the other hand if you have poor credit you will be required to put a larger down payment or have a larger equity position for a refinance in order to get an alternate income type of loan. The Alternate income loans will require at least a 20% down, or equity position, to obtain this type of loan as the loan is not sold to FNMA FHLMC. There will be plenty of cases where people should not attempt to purchase at this time if their credit is too bad, or they just don’t have a good source of income, or they don’t have the saving to put into purchasing a home.
The Alternate Income loans are designed to fill the gaps where the banks will not lend. Most Alternate Income Borrowers are those that feel that they can make a mortgage payment with the income they are currently making, and have saved a good amount of money, and have good credit. Banks don’t offer these types of loans for a variety of reasons, so you will have to use MAE Capital Mortgage to find the alternate funding sources that will fit your needs. We are licensed by the department of Real Estate and we hold a NMLS license and that makes us uniquely qualified to be able to Broker loans to those funding sources. Our job is to find the best source for your particular situation and match the borrower with lender. We are limited by law on what can be charged on Alternate Money transactions as these loans are on your primary residence, so you know you will be taken care of when we do this type of loan for you or any loan for that matter. Our job, when working with our borrowers, is to find the best funding source for you, the borrower, for your particular needs and or challenges and if you do fit the box for a FNMA or FHLMC or FHA or VA loan we will certainly fit you into the best deal possible. If you have been faced with being declined for a loan from a Bank or a Mortgage Banker give us a call today and we will see if we can fit you into an Alter Income Loan. Again thanks for reading and You can call us today at 916-672-6130.