Kind of accounts for down payment

Down payments must be your very own blood, sweat, and tears. Lenders want your down payment to come from your own savings or checking accounts. Other people can’t make your down payment for you, though they can help by giving a gift. Otherwise it has to come from you. There are programs that require no down payment whatsoever, or loan programs that you let you borrow your down payment, but most every loan available will require some type of down payment, which needs to come from you or a family member.

First and foremost will be the money in your bank or savings accounts. Your lender will typically ask for account statements for the preceding three or more months to verify your funds to close the deal. Why three months? A lender wants to see a pattern or history of an account. If suddenly $20,000 pops into your bank account, the lender wants to know where it came from. Did you borrow it from someone else? Are you obligated to pay it back? By providing three or more months of statements the lender can determine that the funds you’ve saved came from you and you only. Some home buyers know this and are in fact advised by some loan officers to simply ‘‘put some money in the bank and call me back in three months,’’ assuming that the lender won’t care where the funds came from if in fact they’ve been in an account for that period. Quite true. It’s also quite true that lenders can ask for more than three months. They can mostly ask for whatever they want if they think they’re having the wool pulled over their eyes.

Your funds can come from your job, a bonus, your regular savings, selling something, or borrowing against an asset. Your paycheck can certify that you’re getting a certain amount each month and you can verify that it’s going into a bank account. Same with any bonus or commission income. It’s documented as you make it. Some people have assets they can sell for down payment money. Do you have a car you can sell? Artwork? Stocks? The key to selling an asset is first, you need to document the transaction, and second, the object sold must be an appraisable asset.

An appraisable asset is an item whose value can be determined by a third party expert. That car you want to sell? It’s an appraisable asset. Its value is independently appraised by a variety of automobile pricing schedules or even classified advertising. Do you have an expensive watch or heirloom jewelry? If the item can be appraised, in this instance by a gemologist or jeweler, and sold then you can use those funds to buy the house.

Another form of down payment can come from a ‘‘pledged asset.’’ A pledged asset is typically a stock or investment account that you can borrow against for a down payment. The stocks aren’t cashed in, you simply pledge the asset as collateral for down payment funds. If it can’t be appraised, the lender may not be able to use those funds for a down payment.

If you can’t document where your down payment money is coming from, many loans won’t allow for that. Lenders want to be absolutely certain that the money you used to buy the house is not borrowed from another source. Borrowing from another source will affect your debt ratios and your collateral. It also affects your equity in the property and increases the risk in the loan. That’s why people can’t take out cash from their credit cards for down payments. That money’s borrowed. Lenders want to see you save your down payment.

Wholesale Lenders Can Pay Brokers to Send Them Loans

Mortgage brokers don’t lend money; they find money. And they find money from a group of mortgage companies called wholesale lenders. Wholesale lenders don’t make loans to consumers directly. Instead, they make loan programs available to mortgage brokers, who in turn ‘‘mark up’’ the interest rate to the retail level. The difference between the wholesale rate and the marked-up rate is how much money the broker makes. It’s not unlike any other wholesale/retail consumer product: Buy low, sell high.

Brokers can make more money on your loan with something called a yield spread premium, or YSP. Each morning, all wholesale lenders publish their interest rates for that business day. And while most of these rates will be the same, there might be a difference in how much each interest rate ‘‘costs’’ the mortgage broker.

For example, a mortgage broker will begin comparing interest rates from various wholesale lenders. The forte of a mortgage broker is that the broker has the ability to ‘‘shop’’ for the best mortgage rate by comparing the hundreds of lenders that the broker is signed up with.
But what the broker may really be doing is not finding you the best rate but finding himself the most money.

A broker can peruse the daily wholesale rate offerings and find three lenders offering a 15-year fixed-rate mortgage at 5.50 percent. The difference is not the rate; the difference may be the YSP. Lender A might offer a 1.00 percent YSP, Lender B might be offering
a 1.375 percent YSP, while Lender C is offering only 0.875 percent that day, all on the very same 15-year fixed-rate mortgage program. Remember, it’s the YSP that typically goes to the mortgage broker as its profit. So which lender do you think the broker is going to choose? Lender B.

On a $400,000 loan, Lender A pays the broker $4,000, Lender B pays $5,500, while Lender C can muster only $3,500 that day. Lender B gets your loan because the broker makes more money from it while you get the rate you were promised.

Is that mortgage broker going to give you back some of that money? No. Should she? I don’t think so, but others may disagree. If you agreed to a 5.50 percent interest rate and your broker locked you in at that rate, then you got what you wanted. Of course, a mortgage broker who picks up a few extra bucks because she found a slightly better deal at one of her wholesale lenders could certainly offer to give you some of that ‘‘extra’’ money, but she is not obligated to. Compare it to a retail store. If the store can cut its costs on a product, it can pass along the savings to you, but it is not obligated to do that.

How to Establish Credit

If you don’t have any credit and you want to establish it, you’ll need to go a step further than using alternative-credit sources such as telephone and cable television bills. To establish credit, you need to buy something on credit, then make your payments on time, every time. That’s it.

But how can a person establish credit if no one will grant credit without a prior credit account? It’s true that there are certain credit accounts that require a traditional credit history, but there are a couple of places to get started with a credit account. The first place to begin is most likely at a department store. Many department stores offer credit accounts and are willing to issue credit to first-timers. Don’t expect a credit line in the stratosphere, though. Your first credit account is likely to have a credit limit of $250 to $500. Another option is to apply for a credit account from a gasoline company. They too may issue credit on a limited basis to those without a history. But if you’re having trouble or would rather not wonder whether or not you’re going to get a credit card, then go to your bank and open up a secured credit card account.

A secured credit card is just like any other credit card in that it has a credit limit and when you charge something on it, you have to make monthly payments to pay it off. However, instead of having an open credit line with no collateral, you ‘‘secure’’ the card with cash up front.
For a secured credit card, you will need to make a cash deposit of anywhere from $250 to $5,000, whatever you choose or the bank requires, into a collateral account. This cash deposit acts as a ‘‘backup’’ for the bank in case of default on your part.

If your deposit is $1,000, then your credit line will be $1,000. You will then be issued your first credit card, and it will look just like any other card. When you buy something on the card, you will get a statement in the mail each month showing the required minimum monthly
payment.

The minimum monthly payment is your contractual obligation to pay the bank back. If you charged $100, then your minimum monthly payment could be, say, $18.00. Your minimum monthly payment is a function of the interest rate attached to your card account.

You can pay the minimum, which includes the interest or finance charge, or you can pay a little more than that or you can pay the balance in full. It’s up to you, but you need to pay at least the minimum required on or before the due date.

Most card accounts give you 25 to 30 days to make a payment by the due date, although some cards ask for the money a lot sooner. Pay very close to that due date and don’t be late; if you are, you will be establishing bad credit.
Ithe late payments show up on your credit report, showing how many payments were more than 30 days past due, 60 days past due, and so on. Those notations are for credit-reporting purposes, and lenders use them as an accepted guideline when determining ‘‘good’’ or ‘‘not so good’’ credit.

Be warned, however: Even if a payment to a credit account is less than 30 days past the due date, if it is as little as one day past the due date, the credit issuer will most likely penalize you by increasing your interest rate to much a higher level. Pay the account before the due date and you won’t have those problems.

Most secured cards will return your cash deposit to you after 12 months of on-time payments and keep your credit line the same as the original amount. Continuous on-time payments and responsible credit usage will soon be rewarded with an increased credit limit (if that’s what you want, of course).

After you’ve opened up your first credit account, you may apply for another credit account after three to six months of use. Be careful though; just because credit is available to you doesn’t mean that using it is a good thing. Many a folk have gotten themselves into credit hot water, or worse, by opening up and using too many credit lines.

When you’ve established a track record with a credit account, you need to make certain that the lending institution is reporting your payment history to the credit bureaus. To find this out, simply ask about it while you’re applying for the credit account. If the institution doesn’t report, you may want to try another bank. Odds are that almost every bank will report your information, however. After all, they’re members, of the credit bureaus, too.

Are There Poor Credit Home Loans Today?

If you were wondering if poor credit home loans still exist, then you will want to read this article. Specifically, we will discuss what has happened to bad credit mortgages, where you can go to get a mortgage if your credit is bad, and the best things you can do to improve your chances of qualification. After reading this article, you should have a good understanding of where bad credit loans are today.

A few years ago, if you wanted to buy a home but did not have good credit, you had many options. Mortgage professionals used to joke that if you could fog a mirror you could get a mortgage! There were sub-prime lenders who would lend to people with scores down in the 500'. Lenders offered 100% financing at good rates to people with scores down to 620. There were others who offered no doc and stated income loans. Unfortunately, the implosion of the mortgage market has changed that.

In today's mortgage market, people with scores below 620 have almost no options unless they have a sizable down payment or are looking to refinance and have a great deal of equity in their homes. Those with scores less than 700 but above 620 are looking to the FHA for mortgages. This is the best place to look for poor credit home loans in today's market. The benefits of going with FHA is that they will accept lower scores than other non-insured lenders and they place more of an emphasis on your recent credit file. Once you are approved, your interest rate is not generally impacted by your credit score.

If your score is less than 620, unless you have access to a significant amount of cash, you will need to work on improving your credit score. Fortunately, there are numerous things you can do. You will want to start by getting a copy of your credit bureau. You can get this for free at http://www.annualcreditreport.com. Once you have this report, you will want to go over it carefully and notice any errors or negative credit reporting that you feel is questionable. Pay attention to accounts that are reporting late, negative accounts reporting more than seven years after the date of last activity and your credit card limits. Starting with the two or three items that will have the most impact on your credit score, you will want to dispute these items with the three credit bureaus.

Once you have completed your first round of disputes, you will want to continue the process until you have corrected any errors on your report. While you are doing this, you will want to work on paying off as much revolving debt as you can. Paying each individual credit card to down below 30% of the limit is ideal. If you lack positive good credit, you may get a parent or spouse with good credit to add you as an authorized user to an account with a low balance.

While bad credit home loans are not as prevalent today, for people with scores over 620, they still exist. Those with a score lower than this will want to take steps to improve their credit score. Hopefully, you now have an understanding of where bad credit mortgages are today, and what your options are.

Wendy Black Polisi is the founder of creditrepaircollege.com. To learn more about poor credit home loans and credit restoration please visit her on the web.

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Watch out of Loan Fraud

Engaging in loan fraud is tempting, especially with loans that require very little or no documentation. However, loan fraud is bad news. It doesn’t just lead to a slap on the wrist; people go to prison for it.

And it’s not small potatoes. With the advent of the Internet, AUSs, identity theft, and each subsequent technological advance in mortgage lending, good old-fashioned crime finds new ways to get to the table. There are plenty of ways to commit loan fraud on an application, and they all involve the same thing—lying. The most common lie may be about income. In cases of mortgage fraud, it’s usually the borrower who makes arrangements with others to help pull the wool over the lender’s eyes.

Let’s say a borrower has paid his rent more than 30 days past his due date nearly every month for a year. Knowing that getting approved with such a lousy rental history will be tough, he makes arrangements with a friend to pose as his landlord. The lender then sends the ‘‘landlord’’ a form asking how much the borrower’s rent is and if the borrower has ever been late with his rent. If he was late, then how late was he?

Or the borrower fakes her income by changing some information on her paycheck stub or makes a fake W2. How does a lender combat such fraud?
Lenders have been around the block a few times. And no, the borrower just mentioned didn’t invent a new way to get around a bad rental history. Several years ago, a lender would accept a rental verification form from an individual just as easily as it would accept a mortgage rating from a credit report. Not anymore. Lenders now want something a little more than someone’s verbal or written verification.
Why? Well, let’s say it’s tempting to fudge a little when your credit history is less than stellar. A lender will now ask for 12 months’ cancelled checks. Not 12 months’ worth of checks made out to the fictitious landlord, but the front and the back of those checks, showing a cancellation date.

What, no cancelled checks? The borrower paid with a money order? Fine; let’s see the copies of the money orders. All 12 of them. I’m sorry, no copies? You sometimes paid with cash? Then we’re sorry, too. No loan approval.

It’s also not too much of a stretch to imagine a real landlord giving out a sterling rental history verification when the renter was anything but sterling. Why would a landlord do such a thing? To get that no-good deadbeat renter out of his rental house, that’s why. No, a lender wants to get just a little more than warm fuzzies when approving a loan.

Did the borrower provide a fake pay stub? Lenders can verify employment and payment history by making a phone call to the employer. There are even businesses that specialize in employment verification that the lender can call. Lenders can also get copies of previously filed tax returns when the borrower gives them IRS form 4506, asked for on almost every loan application.

Lenders get real serious when it comes to fraudulent loans. People go to jail, plain and simple. There are advertisements that promise to erase all your bad credit legally by having you simply ‘‘start all over’’ with a new identity. Sounds easy enough, right? But it’s against the law. It also goes against the mortgage application, which asks, ‘‘Have you ever been known by any other name?’’ If you say no, then you just lied on your application. Loan fraud has actually been made easier by the lenders themselves with the advent of low and no documentation loans, where applicants cross their hearts and hope to die that what they put on the mortgage application is true. Buying a house, moving in, and being paranoid that every time there’s a knock at the door, it’s the FBI isn’t worth it. There are so many loan options available that loan fraud simply isn’t worth it. If the loan is properly structured, almost anyone can get a mortgage.

Government Mortgage Loan Aspects

Government loans, while still automated, have their own guidelines, paperwork, and verbiage. That takes some getting used to. Granted, it’s not that big of a deal, but if a mortgage company only does conventional loans then you can bet they won’t handle your deal as efficiently (if at all) as someone who specializes in government loans. FHA grants certain status to mortgage bankers who are allowed to underwrite and approve FHA loans. Such status is called Direct En-
dorsement, or DE. If you determine that you need an FHA loan, the very first thing you need to ask the lender is if they have their DE approval from HUD. If they don’t, go elsewhere. If they have no idea what you’re talking about, go elsewhere. FHA lending is just a tad different from conventional, not a lot, but enough to slow things down when you don’t need them slowed down. FHA loan? Get an FHA lender.

Are you a veteran or otherwise qualify for a VA loan? Just as HUD grants special DE status to certain FHA lenders, the VA grants special status for VA loans in a similar fashion. If a lender is VA approved, then the process is streamlined. The lender approves the loan in-house, the appraisal is ordered in-house (compared to ordering it directly from the VA), and all approvals are done in-house.

For example, having Lender Approved Appraisal Process, or LAAP, allows the lender to do the appraisal without all the paperwork involved when ordering one through the Department of Veterans Affairs. If you want a VA loan, ask your lender if they’re LAAP approved. If not, again move on.

Once you’ve decided which type of loan you’re going to get, stand firm in your decision. Sometimes if a banker or broker can’t offer the loan you’ve decided on they’ll try and talk you into switching to something that they prefer. For example, say you call a lender and ask for a 3-percent-down FHA loan and they try and talk you into a conventional 3-percent-down loan instead. They’ll run the numbers, quote some rates, and try and convince you to go conventional instead of government. If this happens, simply ask them if they’ve got their DE approval from HUD. If not, then I’d be a little suspicious as to why they’re trying to talk you out of a government loan.

If you see that a lender or broker specializes in your type of loan request, then certainly include them on your list of prospective lenders. Lenders who specialize in government loans tend to do a lot of them, which will mean an easier approval process for you. Be careful though. Make certain that the lender who claims to specialize in VA loans also doesn’t claim to specialize in FHA, conventional, jumbo, first-time buyer, construction, bad credit, excellent credit, and so on. That removes some of the credibility in the claim when the lender specializes in every single loan on the planet. Specializes in everything? Please. I’m not saying they’re not any good at a VA loan, but wouldn’t you feel better about a lender who says, ‘‘we specialize in VA loans’’ without claiming that they specialize in everything else? Makes some sense, doesn’t it?

Your Assets for loan

Your lender need to know what kind of assets do you have to give you a loan. First and foremost, you need to make sure the assets belong to you and you have access to them. Sometimes first-time home buyers share a savings or money market account with their parents. Even though your name might be on the statement, a lender might split that asset between you and your mom. Let’s say you have a checking account with your mom that you used all through college, and now there’s about $12,000 in the account that you plan to use for a down payment. If your mom’s name is on the account, you may only get credit for $6,000. If this happens to you, have your mom turn over that account to you by writing a short gift letter stating, ‘‘I’m giving all these funds to my wonderful son so he can buy a house.’’ Any asset you list needs to be all yours.

Another consideration may be how ‘‘liquid’’ the asset is. If you have a retirement account worth $50,000 but can’t get to it unless you retire, it’s not liquid. You can’t get to it and therefore can’t count it toward buying your home. Some accounts let you cash them in but do so only under a penalty. If you can get that same $50,000 for the purposes of buying a home but there’s a 10 percent penalty if you do that, then the lender might also deduct that 10 percent, which leaves $45,000. Be careful that you understand the tax and penalty implications of tapping retirement accounts by speaking with a good tax accountant or financial planner.

What should i look for in a mortgage loan?

Get a loan that you feel comfortable with, one you don’t have to worry about, and one that is easy to get in terms of qualifying and cost. You can knock yourself out on that one. Fannie and Freddie make up about a quarter of all mortgages generated; the others are government, jumbo, and portfolio loans. But instead of trying to find the absolute best loan for your situation, first ask yourself if indeed you are very different from most other borrowers. Do you have good credit? Do you have a down payment? Do you have a job and can you afford the new mortgage payment? If so, there’s no reason to get cute about your mortgage.

Forget perusing through your mortgage lenders loan book exploring all the possible alternatives.Get a fixed or get an ARM. Fixed if you’re in it for the long term or are risk-averse. Get an ARM if you see this purchase as being short term, say three to five years. Get a hybrid if you’re in between.

Why such narrow choices? Pricing. Look at it this way, if the single most common item on the market today is available with most every lender on the planet, and if the loans are exactly alike, then what do you think that does to the price? It keeps it low. If more people are trying to sell the same product and it’s available twenty-four hours a day then you would think that such a commodity’s determining factor would be price, right? If a conventional loan is everywhere then the only thing you accomplish by trying to find something better is a wasted effort.

Online companies on bid loan

What a change from just a few years ago. Today you can fill out a single application online and have several lenders or mortgage brokers provide you with their best quote after reviewing your application. You may not get anything better than what you can get locally, but you still get four mortgage quotes without having to complete four different applications.

Before the advent of various ‘‘mortgage bidders’’ it was unheard of for a consumer to have multiple mortgage applications out at once. Not that it was illegal or anything, it was just if one lender found out that you applied somewhere else then the lender wouldn’t approve your loan unless you cancelled the other ones. Not so today. Now some Web sites actually encourage you to apply, not using several mortgage applications, but with just one application. After you complete the application, it is sent to a select group of lenders or brokers for their review. They’ll see how much money you make, what your current debt load is, and they’ll get your credit report along with your credit scores. After an evaluation, those lenders will make an
offering, which you can accept or reject. This is a relatively easy process for making multiple applications.

Sometimes however you don’t know who’s going to be bidding on your loan or who all will see it. You might see a list of approved lenders but you might come back with a quote from someone you’ve never heard of or who doesn’t have an office in your city. Some of these sites do less ‘‘bidding’’ and instead rely on selling your lead to other lenders or brokers who pay money to see your application. Such companies are nothing more than lead generators who get paid by mortgage companies. No harm there, but be prepared for an onslaught of e-mails and telephone calls advertising their super low, low rates.

The mortgage process has been made both easier and harder at the same time. As the loan approval process becomes more efficient, lenders and loan officers can find themselves in a more difficult situation when it comes to marketing. After all, a loan is a loan is a loan. Lenders have turned a mortgage into an off-the-shelf commodity, making it harder for them to differentiate themselves from other lenders. Most cases, anyway.

Minimum credit score to qualify for a mortgage loan

Minimum credit score to qualify mortgage loan depends upon the loan program, but credit scores don’t ‘‘approve’’ or ‘‘decline’’ anyone. Lenders may have minimum credit score requirements for particular loan programs, but you’re not automatically turned down solely because of your score. Don’t forget, just having a low credit score doesn’t mean you can’t get approved. I have spoken with countless customers who either didn’t buy a home or put it off for a long time because when they got their credit score they took it upon themselves to ‘‘decline’’ themselves and didn’t even apply for a loan. This is similar to people who don’t apply for a mortgage they want because they think their debt ratios are too high.


A recent customer called me wanting to apply for a mortgage but he knew his credit wasn’t all that great. High debt load, a couple of late payments, and not much available credit. He was right; his score was low at 581. Unfortunately for many people, once they see a score they consider ‘‘low’’ they give up without ever trying. The guy with the 581 credit score? He got approved for the best rates available for a $185,000 loan. He had some other factors that offset the low credit score, mostly a hefty down payment, but the point is that he got approved.

If There’s a Mistake on Your Credit Report, It’s Your Lender Who Can Best Help You Fix It, Not the Bureau

You didn’t know that, did you? You didn’t think your lender would help you fix your credit ? Well, it’s not exactly the lender; it’s your loan officer who is your best friend when it comes to fixing errors.

Remember that your loan officer doesn’t get paid unless your loan closes. If there’s a mistake on your credit report that’s lowering your credit score or otherwise blocking your AUS approval, your loan officer has some contacts that you don’t have.


Credit-reporting agencies solicit lenders’ business every single day. They hire sales reps, just like many other businesses, to make sales calls. No matter what lender or mortgage broker you end up using, there’s a credit-reporting agency representative who is paid to get business from that lender or broker.

These agencies are not direct employees of the three major credit bureaus; they are employees of companies that pull data from these bureaus and report and provide those data to lenders who want to issue credit decisions for their consumers as part of their business or trade. These sales reps promise things such as lower prices for reports, timely reporting, and finally assistance when there are problems. Fixing mistakes on credit reports is where these companies earn their keep—and it’s your loan officer who knows them.

Forget about credit explanation letters—your loan officer can fix this for you. If it’s a mistake. What’s a mistake in the world of credit reporting? A mistake is something that can be proven wrong by third-party sources. Did the creditor say you were late on one of your payments to it? You can’t simply tell your loan officer, ‘‘No, that’s not correct’’; instead, you will have to provide your loan officer with third-party documentation verifying that what you say is correct.

Find that cancelled check and get a copy of that old statement, give it to your loan officer, and have her take a look at it. If in fact you can show that what was due was paid on time, through a date cancellation on the back of your check, or show how the account was paid online, then all your loan officer has to do is show that documentation to the credit agency
sales rep and he will wipe it clean—something that can take months when consumers try to do it by themselves. Credit agency sales reps get paid to do things like this, and your loan officer has a vested interest in getting mistakes fixed and fixed fast.

Writing an Explanation Letter to the Credit Bureau Does Absolutely No Good

A consumer has the right to include an explanation letter in a credit report. For instance, if there’s a late payment on a credit account and you find out about it when you review your credit report, you need to find out if the late payment was, in fact, late.

You find the old statement from the creditor, find the copy of the cancelled check or online , make copies, and send them to the credit bureau. If the negative information is a mistake, the information should be removed completely from the report.


But if it’s not a mistake, you have the right to prepare a letter that must be included with your credit file. Let’s say that, yes, you were late, but there were extenuating circum- stances. You make the payment on time, but for some reason the payment never arrived at the creditor’s payment center.

Soon, you received a late payment warning in the mail from the creditor, so you called the and said, ‘‘I mailed that payment two weeks ago,’’ or whatever. The creditor then said, ‘‘Yes, received it; don’t worry.’’

But the check still didn’t clear. At least, it didn’t clear for a couple of months, but finally it did. So you called the creditor, and the person on the phone told you that the creditor had received it, but it was never reflected that way. When you review your credit report and see the error, you try to correct it by calling the creditor.

The creditor replies, ‘‘We don’t show any record of its being made on time; in fact, we show that it was two months late.’’ You’re astonished. You say, ‘‘But when I called you, you said that you had the payment and not to worry! Now it’s showing up late on my credit report!’’
‘‘I’m sorry,’’ replies the creditor. ‘‘I don’t know who you talked to back then . . .’’
‘‘Fred!’’ you say.
‘‘I’m sorry, but Fred doesn’t work here anymore. There’s nothing I can do,’’ the creditor finally says.
You’re heartbroken. But wait! You have the right to include a letter with your credit file explaining your side of the story, don’t you? Of course you do. So you compose a great letter, with as many facts as you can remember, and send it to the credit bureau.

Guess what? Nobody cares. Several years ago, lenders read credit explanation letters when they were included in the file: ‘‘I bought this piece of junk from them and it never worked, so I didn’t pay them!’’ or ‘‘I was out of the country for three months,’’ or ‘‘I moved and they never sent the bill to my new address.’’

Whatever the case, letters were read by underwriters who were deciding whether or not to approve a particular mortgage. But not now. With the advent of credit scoring, credit explanation letters have gone the way of the dinosaur. If a friend or acquaintance or real estate agent suggests writing a letter to the bureau explaining your side of the story, you’re wasting your time with regard to a mortgage.

You May Have Mistakes on Your Credit Report That You Don’t Know About

You have to ask. The three credit bureaus simply collect data and report them back when asked. You can have mistakes on a credit report and not know about it, and this can damage your credit file.

There is no requirement that credit bureaus tell you about errors. In fact, credit bureaus don’t know whether something in your credit report is a mistake or not; they just spit out what’s been given to them. If you paid a credit card $100 and the credit bureau states that you paid only $10, it’s not the credit bureau’s fault. It’s usually the credit card company that transposed a decimal somewhere.

But you’ll never know about these mistakes unless you ask the credit bureaus directly. You do this by getting copies of your credit report from all three bureaus and reviewing them for mistakes. When you find a mistake, you contact the credit bureau and inform it of the error.
When you’ve established that there is an error, the bureau is then required to contact the other two bureaus and have them clean up the mistake as well. But it’s your job to look for mistakes, not the bureaus’.

Recent changes in credit-reporting laws now make it easier for you to get your credit reports. All you have to do is visit www.annualcreditreport com, where you can get your report from three bureaus at no cost to you.
If you do find errors, and you can document the mistakes, once you provide that documentation to one bureau, it’s not necessary for you to contact the other two as well to make sure they get the corrected information. The law requires one bureau to notify the other bureaus when a mistake is found and corrected.

The Most Important Element in Your Loan Approval Is Your Credit Report

Everything revolves around credit—the type of loan you receive, perhaps the rate you’re quoted, and even whether you get the approval you want or not. It all boils down to credit.

Your credit is defined as both your ability and your willingness to pay back your creditors. Ability means that you can afford to pay back your creditors, and willingness means that you have the inclination to do so. Both components need to be present to establish a good positive credit history.

How do you get a history? Businesses that you borrow from send your payment patterns to a great big centralized database. Actually, there are three great big centralized databases; they’re called Equifax, Trans- Union and Experian.

Businesses that extend credit to consumers pay money to access these databases as well as putting consumer payment information into them. If you pay Widget Factory on time every month, then Widget Factory sends those payment patterns to the various databases.

If you apply to another company for credit, that company will tap one of those databases with your name, your social security number, and other personal data about you and review how you’ve paid other businesses. If the company’s credit extension guidelines match what you want from it, then, voila` , you’ve got a new credit account.

Portfolio lending

A ‘‘portfolio’’ loan means that it is made by a lender with no intentions of selling the loan or having it underwritten to any external guidelines. Instead, the loan is made and kept in the lender’s portfolio of loans. A portfolio loan is a loan made by a direct lender, most usually a bank, that is designed to be kept in-house. Unfortunately, portfolio lending is a term that’s bandied about too often, encompassing loan programs that are nothing near portfolio. Often a portfolio loan is incorrectly described as any loan that’s not a conventional or government loan.

Portfolio loans go by their own guidelines and don’t necessarily follow loan rules established by others. Why would someone want a portfolio loan? Perhaps when their loan application doesn’t quite meet the guidelines of a conventional loan. Or when no government program will work.

For instance, let’s say you just found an apartment building with ten units and need financing. Conventional or government loans don’t cover apartment buildings, so those loans won’t work. Instead, you’ll need a portfolio loan. Or maybe you found a four-plex but had zero money for down payment. If you found conventional financing at all it might require a higher down payment or other special circumstances that youmight not find attractive. Are you a real estate investor and have so many residential properties that conventional lenders think you have one too many? Go portfolio. Where do you get portfolio loans? From your bank. Portfolio lending is more of a ‘‘common sense’’ loan that might not fit the conventional guideline, but shucks, it looks like such a great deal.

Don’t be surprised if your portfolio loan is of a shorter term or maybe a hybrid. Retail banks certainly like to make loans but they also don’t like to tie themselves into any one rate for an extended period of time. If a bank makes a portfolio loan at 6.00 percent, and then three years later rates are at 9.00 percent, they’d like to make more loans, just at the new, higher rates.

Ex-Wife screwed up your credit?

It is such a nice problem with you. But i tell you something, keep your divorce decree handy showing who the judge said was responsible for paying what. Getting divorced is a bad thing. What many people don’t realize is that the ex-spouse can mess up your credit report long after the ink is dry on your final divorce decree. I know, I know. The judge said he could have the house and the car and you could have all the credit cards, but if you applied jointly for the house and the car, the lender may, quite frankly, care less about your failed marriage. Lenders agreed to make a loan to both of you, whether or not your relationship worked out. If you split up, that doesn’t dissolve either person’s obligations to pay.


The judge may have the ability to assign credit obligations to either party in such a case, but the judge doesn’t have the authority to absolve either of you from paying someone back. Only the lender can do that. Let’s say you had bought a house together and the exspouse got the house while you signed a piece of paper agreeing to release all interest in the property. Fine. But there’s still a mortgage outstanding. Here’s where you need to be careful. If your ex-spouse is responsible for the mortgage and the car, unless you get off of the original loan you may still find late payments on your credit report. Let’s say you give away the home and sign a warranty deed to your ex-spouse. Unless the ex refinances the loan, the payment history might still appear on your credit report. That’s just the way it works. To compound the problem, if you needed both incomes to qualify for the original loan then the exmay not be able to qualify for a refinance in the first place. In this instance, not only do you need to release all interest in your old home to your ex, you must also have the original loan refinanced to get you off of the mortgage completely.

The same is true for the car and any other loans you might have obtained together. A divorce decree isn’t sent to the credit agency when you get divorced. If you’ve been divorced, you need to get your ducks in a row and review your credit report long before you apply for a mortgage.
Some loans make allowances for legal assignments for who’s responsible for what, and although those obligations may not be taken off of your credit report, any loans still in your name might not be considered. Keep your divorce decree. If you can’t find it, get a copy of it. While a divorce decree won’t erase joint obligations, for qualification purposes old credit items might be excluded from your application when it comes time to determine debt ratios.

How much i can borrow?

That depends on a variety of factors, but the most common answer is that your debt ratios are in line with lending guidelines. But it may also be more than that. It may just be the amount that you feel comfortable with. Often when I’ve prequalified clients, typically first-time home buyers, they’re surprised at how much money a lender will lend to them. ‘‘Oh gosh, no. I don’t want that much money!’’ Still others are disappointed that they can’t borrow more than the lender feels comfortable with, using the very same loan parameters.

What’s good for one borrower may not be good for another. Different mortgage programs can have different lending guidelines, but for the most part these programs decide how much you can borrow based upon these ratios. It used to be that debt ratios were relatively strict. If a ratio were above 41, for example, the buyer would either have to borrow less or find a cheaper house.

What is the preapproval process?

The ‘‘pre’’ stuff verifies two critical elements in credit approval, which are the ability and the willingness to repay a mortgage. Ability and willingness both go hand in hand. While you can make enough money to be able to afford to pay back a loan, if you don’t have the willingness to do so then it won’t work. And of course there are certainly a lot of people out there that may have the willingness to pay someone back, they just don’t have enough money to do so.

By verifying the income, verifying the available assets to close on a house, and reviewing the credit report, these two initial hurdles are overcome. It’s no big deal, but documenting your prequalification really is your very first step. But let’s examine the process a little more in detail.

First, here’s what doesn’t happen. Loan applications aren’t sent to some loan committee for review. Loan committees went out with leisure suits. In those days, yes, that’s how it happened. Potential borrowers would apply for a mortgage and extol their financial virtues; a loan committee, usually meeting once per week, would later discuss the positives and negatives of the applications. A host of old men in black suits, smoking cigars and saying things like ‘‘harrumph,’’ would eventually approve or disapprove the loan request.

Today, your loan application is approved or not approved at the very beginning of the process before it ever gets to an underwriter (the person who physically approves your loan). This process is now mostly automated, which is different, but it’s also different because everything is approved first before anything is ever verified. It’s different from the old days. It used to be document and verify absolutely everything before any approval whatsoever. You could go three to four weeks without really knowing if you’re approved. Today, your loan is approved first, then verified later.

Those of you who have applied for a home loan within the past ten years or so will recognize this next drill.

First, you gathered all your documentation—bank statements, tax returns, and paycheck stubs—whatever you could think of. Then you trotted down to your local mortgage company, bank, or savings and loan and met with a loan officer. You completed the loan application with a loan officer who then detailed the types of documentation needed. Your credit report was also pulled and reviewed. Your debt ratios were calculated to make certain you weren’t borrowing more than you, in the lender’s eyes, could handle.

If there were any credit problems, say a late payment on a car last year, the loan officer would ask for an ‘‘explanation letter.’’ The credit report would show the problem, whether a pattern or an isolated instance. The explanation letter was a secondary requirement that had to be in the file. Many times the letter simply said, ‘‘I forget why it was late.’’ And it would still be okay. It didn’t have to convince anyone or be necessarily plausible, it just had to be there. You’d also have to address any other discrepancies, such as length of time at current job or a gap of employment. Didn’t work because you broke your leg? Provide some medical bills to prove it. Sudden deposits of money in the account? Prove where you got it to make sure you didn’t borrow the money from somewhere else, affecting your debt ratios or perhaps hiding a prior lien on the property.

And that’s just from your standpoint. At the same time an appraisal of the home you’re considering buying would be ordered along with some initial title work. Then a bevy of folks would start mailing stuff to you, explaining this and declaring that, and using words you’ve never heard of. Then about three weeks later, after all of the required documentation has been gathered, and only then, your complete application would be sent to a loan underwriter for approval. It’s been nearly a month and the mortgage company still hasn’t looked at your complete application.

This process simply means this: Verify first, approve last.

After make an offer to a house

Right after your contract is accepted, you will order an inspection of the property. An inspector crawls throughout your house looking for problems in the house. Is there termite damage? Is the roof in good shape? Do the faucets leak? Inspectors will even run the dishwasher to make sure it works okay.

Upon a satisfactory inspection report, your lender will order an appraisal. Notice that the appraisal and inspection are two entirely different things, although some get them confused. An inspection looks for problems with the house. The appraiser on the other hand ‘‘appraises’’ or determines the value of the home. Comparing similar homes in your area that have sold recently, typically within the previous twelve months, does this. While appraisers may indeed note the condition of the house as Good or Average, they don’t inspect the house for defects like an inspector does.

At the same time, your title is researched and a report is prepared. Your title report reflects all previous owners of the property as well as anyone else who might have had an interest in the home such as a lender issuing a mortgage or a contractor who placed a lien on the home during a remodeling stage. The purpose of this research is to make sure there are no other previous owners who at some point might lay claim to your property after you close on your house. For example, some long lost heir to the house fifty years ago never signed anything authorizing transfer of the house. Or there is an unsatisfied judgment on record that has never been paid. All previous liens or claims against the property have to be accounted for and properly released. When this is done, the title company will issue a title insurance policy protecting the lender and others against any
previous claims, recorded or unrecorded.

Once your appraisal and title work are done, your loan then gets sent to the underwriter, who reviews all the documentation and authorizes your loan papers to be printed. Your papers are sent to the person assigned to hold your closing, you show up, sign, and close your deal.

The benefits of getting preapproved

You know before you go. Before you ever start shopping for a home you should first have your preapproval letter in your hand. Preapprovals speed up the entire home buying process. You can shop with confidence, knowing that there are no ‘‘kinks’’ in your application, while your agent can look for homes on your behalf knowing that you’ve already arranged for financing. Even the seller of a home benefits, knowing that they’re selling to someone who has already applied for, and been approved for, a mortgage. Still, some consumers don’t get this step done until after they’ve found a home. That’s a mistake for the obvious reasons but also a mistake for one not so
obvious.

Let’s say there’s a home on the market for $200,000 and there are two exact offers that arrived simultaneously. One buyer hasn’t seen a lender while the other one has. One borrower hasn’t reviewed their credit report while the other one has a preapproval letter in hand. Who do you think will get the house? Still another buyer makes an offer below the asking price but also provides a preapproval letter stating that the loan is ready to close. Do you think a preapproval letter can sweeten an offer? Of course it can. The seller knows there won’t be any hitches and knows that he or she can move into a new home quickly.

Can i "borrow" for mortgage insurance?

“Borrow mortgage insurance is another alternative to piggyback mortgages and mortgage insurance, called a ‘‘financed premium,’’ which you should review and compare. This program allows for the borrower to buy a mortgage insurance premium and roll the cost of the premium into the loan amount in lieu of paying a mortgage insurance payment every month. This program came about just a few years ago but for some reason it’s never really gotten off the ground.

However, when compared to an 80-10-10 program it’s worth examining further. Let’s look at a typical transaction on a $200,000 home with 10 percent down. With an 80-10-10 program the first mortgage amount would be for 80 percent of $200,000, or $160,000, with the second mortgage at 10 percent of the sales price, or $20,000. Using a 30- year fixed rate of 7.00 percent on the first, and a 15-year rate of 8.00 percent on the second mortgage, the payments work out to be $1,058 and $189 respectively, for a total payment of $1,247. With 10 percent down and a monthly PMI premium, the mortgage payment at 7.00 percent on $180,000 would be $1,190, with a mortgage insurance premium of $36, for a total of $1,226.

Comparable deals in price with the exception that mortgage insurance is not tax deductible whereas both the first and second mortgages can be. Now look at paying for mortgage insurance with one premium and rolling that premium into your loan. With 10 percent down the financed premium amount cost is around $3,780. Add this number into your principal balance of $180,000 and again use the 7.00 percent 30-year rate. The new loan amount will be higher, and yes, you’re adding to your principal, but now you have one loan at $183,780 and a payment of $1,215 using the same 30-year note rate of 7.00 percent. Two things are happening here. First, the payment is lower than the other two options of 10 percent down with monthly mortgage insurance, and second, the interest on the full $1,215 payment is now tax deductible, whereas a monthly mortgage insurance payment is not.

There are some detractors of this program, but really the only drawback is that it adds to your principal balance, and the cost of that $3,780 spread over thirty years gets expensive, adding over $5,000 in additional interest. True, but there are also financed mortgage insurance programs that are refundable when the loan is refinanced. This is such a solid program I’m not certain why it’s not more popular. As a matter of fact, I used this very same program to buy my first home in Austin.

Types of mortgage loans (1)

Mortgages come in all shapes and sizes. You can see the ads on television or read about them in the newspaper:
‘‘We have over 500 loans programs from which to choose!’’ I can recall working for a mortgage company that had rate sheets for its consumers that were eight pages long with over 125 different loan programs.

Why all the loans?

There really aren’t that many types of loans at all. It’s just that lenders like to make it appear that they are giving you more ‘‘choices’’ than the other lender. But in reality, loans come in two types: fixed rate and adjustable rate.



Fixed Rates
Fixed rates are easy to explain. You get an interest rate when you take out your mortgage, and it’s fixed. It doesn’t change. Ever. Easy enough, right? The only thing you need to decide about your fixed rate is what the rate will be and over what period you’d like to amortize the loan. The amortization period is the fixed period over which your loan will be paid back.

If your amortization period is 20 years, then your loan will be paid off exactly in 20 years and your monthly payments will remain the same, fixed, throughout the life of the mortgage.

Amortization periods can be anything the lender is willing to offer, but if a lender wants the loan to conform to Fannie Mae or Freddie Mac standards (discussed later in the book), then it will be amortized over 10, 15, 20, 25, 30, or sometimes 40 years. The differences between these loans are the rate and how much interest you will pay over the life of the loan. The longer the loan term, the lower your payment, simply because you’re taking a longer period to pay back the lender.

For example, on a $100,000 15-year fixed-rate mortgage, you might get a rate of 5.00 percent. That means that your payments will be $790 per month. After 15 years, you will have paid the lender a total of $142,342. That means that the lender made $42,342 in interest charges.

Borrowing the same amount for 30 years at 5.50 percent works out to a monthly amount of $567. Over 30 years, that adds up to $204,120; the lender makes $104,120 off of you. Yes, the monthly payments are lower with a 30-year loan, but over the long haul you’ve paid more than twice as much interest.

Another point to consider with loan terms is the amount that goes to principal and interest each month. With fixed-rate mortgages, most of the initial payments go to interest, with very little going to principal. But when the loan term is shortened, say from 30 years to 15, you also pay down your principal more quickly.

Using the same information as in the previous example, after 5 years the loan balance on the 30-year loan is $92,316. You’ve paid down your original mortgage only $7,684. With the 15-year loan, your balance is $74,076, a difference of $18,240 after just 5 years.

There’s a trade-off with amortization. Lower payments also mean slower loan paydown. Fixed-rate loans can also have another feature called a balloon. With a balloon, the loan comes due in full after a predetermined period has elapsed. Many conventional loans with balloons come due after five years and are called ‘‘thirty-due-in-five,’’ written as ‘‘30/5.’’ Again using the previous example, after five years your loan balance of $92,316 becomes due, all of it, to the lender. The loan has to be refinanced or paid off in some other way to avoid the balloon payment. Who would want a balloon payment?

Lenders offer balloons because they can offer a reduced interest rate. And these loans are particularly attractive if borrowers don’t think they’ll have the mortgage that long anyway. The interest rate on a 30/5 might be 5.25 percent instead of 5.55 percent.

There’s another version of a fixed-rate loan, sometimes called a ‘‘twostep’’ or a 5/25. This loan offers a reduced initial rate for 5 years, then makes a one-time adjustment to another rate for the remaining 25 years. There are also two-step loans called 7/23s that work similarly.

When the right time to buy a home?

Have you ever heard a real estate agent say that it’s a bad time to
buy? I haven’t. It’s either ‘‘The market’s hot, buy now before prices
go up even further,’’ or the opposite, ‘‘It’s a buyer’s market right
now, make an offer while the deals are good.’’ Come on, they need
to make money, too, right? A good time to buy is when you, and
only you, decide that it’s right.

The best ways to know if it’s a good time to buy or not is the fact that
you’re even thinking about it in the first place. It’s a good time to
buy if you’re ready, and a bad time to buy if you’re not. Don’t get
pushed into home ownership.

Too many people get caught up in real estate valuations, home
price cycles, the number of homes listed, buying in the winter instead
of the summer, and so on. While these are all useful considerations
they shouldn’t make that much of a difference when all is said and
done. Yes, it’s easier to buy in the summer and move if you have kids
and you want them to finish out their school year and start a brand
new school at the beginning of the new school year. Yes, home prices
might be a little softer in the wintertime than in the spring or summer
because of seasonal demand. And yes, it might be a good time to buy
a home because the market is soft and values will certainly appreciate.
But don’t get caught up in all of that. At least not to the point of
paralysis. There is no right answer. Certainly these things should be
taken into consideration at some point, even more so if you’re a real
estate investor who studies market trends and buys and sells homes
for income. But if you’re just looking for your first home, don’t get
bewildered by such facts.

Buy a home not for an investment but buy a home because you
want to. Buy a home that you can call your own. Begin saving for
the future by building equity. But buy from the heart while using
your head. Don’t buy because some real estate guru told you that
you could make millions in real estate. Bookstores and late night
infomercials have enough on real estate investing. If you’re reading
this book because you want to become a real estate tycoon, you
bought the wrong book.

Renting or Buying?

Perhaps one of the easiest ways to determine if it’s better to buy or
rent is to sit down and calculate the financial advantages of owning
versus renting. This is commonly done on line-with a ‘‘rent versus
buy’’ calculator found on the Web.

These calculators compare your current or probable rent situation
with a projected home ownership number. They’re easy to find. I ran
a Google search for the term ‘‘mortgage and calculator’’ and I got
back 1,190,000 Web sites that had those two terms.

But the kicker with these calculators is that rarely will they tell
you that ‘‘No, it’s not a good idea to buy.’’ Part of what makes this
true are the tax benefits of home ownership. The interest and property
taxes associated with a mortgage are generally tax deductible.


You can deduct them from your gross income. With rent, you can’t.
Yeah, I know. When you’re a renter you don’t pay property taxes
or mortgage payments. Instead you give money to someone else for
the privilege of living there. But you can’t write off your rent. It’s
just that. Rent.

When do these calculators suggest it’s better to rent? When you
intend to own your next home only for a year or so. Buying a home
incurs other expenses, such as money for down payment, property
taxes, and hazard insurance (which is much higher than a renter’s
policy). Many apartment complexes pay your electric bills along with
water and other utilities.

When you own, you pay all these. Owing a home with all its tax benefits
doesn’t outweigh the acquisition costs to buy the home if you’re
only going to own it for a short period.Short term, rent.

Longer term, buy. Are your rent payments the
same or less than what a mortgage payment would be? Depending
upon where you live, they may be the same. Especially if interest
rates are relatively low.
Let’s say you’re renting a nice 3,000-square foot, 3-bedroom
home close to schools in a friendly neighborhood. You might be paying
$1,800 each month in rent. A similar 3-bedroom home might
cost $150,000. If you put 5 percent down to buy the home, your
monthly house payment, including taxes and insurance, would be
close to $1,200 using a 30-year fixed rate at 7.00 percent.

If rent payments in the area you want to buy are near what a
mortgage payment would be, it makes sense to buy. If you can save
$600 per month and you also get to write off the mortgage interest,
then it’s truly a no-brainer.

Another reason buying is generally better than renting is simply
a matter of appreciation and equity. When you rent and property
values increase, that doesn’t affect you other than your landlord will
probably raise your rent again. And of course each time you make a
rent payment you’re not increasing your equity in anything, just
helping your landlord increase his stake in your house or apartment.
I’ll give you an example.

Your rent is currently $1,000 per month, and you’re thinking
about buying a $150,000 home. If you put 20 percent down and
borrow $120,000 at 7.00 percent on a 30-year fixed rate, your principal
and interest payment are about $800 a month. Let’s also assume
that property values are increasing in your area by about 5
percent per year. What’s the situation after two years? If you rented,
you paid someone else $24,000. But if you owned and itemized your
federal income taxes you likely deducted over $16,600 in mortgage
interest on your taxes. You also paid your loan down by over $2,500,
while at the same time increasing your equity position in the house
by nearly $18,000. Now you see why those calculators always tell
you to buy a home.

Through all of these calculations, remember the real reason to
buy: You buy a home because you want to. Because you like it. It’s
your home. I know that a home is one of the largest single financial
commitments someone can make. And while I agree with that statement
let’s not go overboard here. Buy a house because you want to,
not because some calculator told you so.

Mortgage insurance : The Less Your Down Payment, the More It Costs

The purchase of mortgage insurance will allow less cash down and a higher loan amount, but it will cost you. How much? That depends on the cash down, the loan term, the type of loan, the particular mortgage insurance company, the type of premium that is paid, or if it is computer underwritten.

Normal, private mortgage insurance is now a simple monthly payment determined by the amount of coverage required, the amortization period, type of loan, and the LTV. To list all the types of properties, the LTVs, coverages, and so forth 72 L-T-V (Loan-to-Value) Means R-E-S-P-E-C-T would take a great deal of space, and they do change. Just to give you an idea, here are some standard coverage and costs for an owner-occupied residence with an amortization over 20 years.



LTV COVERAGE RATE
97% 35% .95/1000
95% 30% .78/1000
90% 25% .52/1000
85% 12% .32/1000
The rate is divided by 12 and added to the monthly payment: $100,00 loan, 90%LTV = 1,000 × .52 = 520/12 months = $43.33/ month. These numbers only show what the relative cost can be Premiums change with time and companies.

Mortgage insurance : For Those Long on Income and Short on Cash

Mortgage insurance can influence not only the borrower’s house payment but also his ability to qualify. Earlier we briefly discussed the fact that any loan with less than 20% down will require mortgage insurance. Now we need to understand exactly how it affects our loan and our ability to get it.

Many borrowers confuse mortgage insurance with mortgage life insurance, which pays off the mortgage if the borrower dies. While the lender doesn’t want the borrower to die, it is more concerned about the fate of the loan. Historically, when a borrower
has gone to foreclosure and the house has been sold, the lender received only about 80% of the value of the property. Also, the first years of a mortgage are the years of greatest risk. These facts mean several things to the borrower:

1. The less cash you put down, the more expensive the mortgage insurance.
2. If the type of loan is a higher risk, such as an ARM or any loan with increasing payments, the mortgage insurance is more expensive. Mortgage insurance protects the lender against loss if there is a default and foreclosure on the mortgage. Normally mortgage insurance covers the top 25% of the loan, thereby reducing the lender’s exposure to 75% of the value. For example, consider a $100,000 purchase made with 5% Mortgage Insurance 71 down. That creates a very high risk for the lender. In a foreclosure situation it could lose $15,000 or more. The company is not interested in making a high LTV loan without some protection, so it requires that the borrower purchase mortgage insurance to lower the risk.


There are about eight to ten mortgage insurance companies that lenders use. Most lenders have companies that they prefer to deal with because they have developed a good working relationship.

Most of these companies’ rates fall within a close competitive range, but they can change periodically. Before submitting the loan to the underwriter for approval, the lender will choose the mortgage insurance company that it feels will give the best service. The borrower is not involved in this part of the process other than to pay the premium.

Today, most mortgage insurance is “delegated.” That means the lender is delegated by the mortgage insurance company to approve the loan for them. Sometimes the mortgage insurance company’s underwriters will be required to approve the loan. If the loan is computer-approved with MI, the computer will assign the level of coverage, possibly lowering the cost to the borrower.

The MI company used is often determined by its relationship with the lender. A lender may work with three to five companies, rotating the loans given to them based on these relationships. Mortgage insurance companies can help lenders get lower interest, more investors, or just plain lower the cost per loan. Depending on the agreement between the lender and the MI company, a certain percentage of the lender’s loans requiring MI will be assigned to that company. So, mortgage insurance companies can do more than just provide risk coverage.