The five secrets you must know before buying home with mortgages.

You want to buy a house.?You need to borrow money to pay for it.?So you go to your local bank and apply for a mortgage.?The bank approves the mortgage and you buy your house.?

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?Sadly, it is anything but that simple.

Today, the mortgage industry is much more complex, not to mention integrated with the federal government as well as the financial markets on Wall Street.?This complicates matters and makes applying for a mortgage anything but straight forward.?

And though technically it isn’t necessary to understand all these under workings of the mortgage industry, it really helps, so you know precisely what banks are looking for, how to increase your chances of approval, and to assuage the frustration when you might be declined for a loan.

Secret No.1:

The key thing to understand about the mortgage industry is to realize that it is very unlikely your mortgage is “held” at your local bank.?It might have originated there.?You may have signed your documents there.?But rarely do banks “hold onto” the loan.?They usually sell it to another bank or financial institution on the “secondary market.

In order to sell your loan on the secondary market, banks must comply with the secondary market’s standards and requirements.

Secret No.2:

the secondary market is made up of a variety of different players, including:

• Mortgage lenders:?Mortgage lenders are the companies that actually make the loans to borrowers. They can be banks, credit unions, or other financial institutions.
• Mortgage brokers:?Mortgage brokers are intermediaries who help borrowers find lenders and get approved for loans. They do not make loans themselves, but they charge a fee for their services.
• Government-sponsored enterprises (GSEs):?GSEs are government-backed entities that purchase mortgages from lenders. This helps to make mortgages more affordable for borrowers. The two largest GSEs are Fannie Mae and Freddie Mac.
• Rating agencies:?Rating agencies assign ratings to mortgages. These ratings help lenders to assess the risk of lending money to borrowers.
• Mortgage insurance companies:?Mortgage insurance companies insure mortgages against default. This protects lenders if borrowers are unable to make their payments.

Secret no.3:

If your application meets these standards, it is considered a “conforming loan” and can be sold on the secondary market, and therefore likely meet approval.?If not, it is considered a “non-conforming loan” and is likely not to be approved.?

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??To be a “conforming loan” you need:?

??- A 20% down payment for the house?

?-?A decent credit score?

??- Proof of income that you can afford the loan?

??- Reliable income history?

??- Conformance with the lending limits of Fannie Mae and Freddie Mac

One more hint, Some of the traits or variable that is preventing you from becoming a “conforming loan” applicant:

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?-?You’re self-employed.??

??- You don’t have any credit cards or debt, and therefore (ironically) have a very low credit score.??

??-You don’t have the nearly impossible 20% down payment banks typically require.??

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Secret no.4: ?

However, realize mortgage brokers are brokers, not investors.?They do not hold onto your loan.?They only want to make the deal and collect their commission.?

This being the case, some really don’t care if you can pay your mortgage or not. They will attempt to qualify you for as much as they can, some even suggesting you lie on your application, which can put you in a very bad financial situation.

Secret no.5:

The direct way The lender makes a profit on this loan in two ways:

• Interest:?The lender collects interest on the loan for 30 years. The total amount of interest that the lender collects will be more than the $200,000 loan amount. This is how the lender makes most of its profit.
• Fees:?The lender charges origination and closing fees, which are additional sources of income.

And?some other ways that mortgage lenders make money:

• Selling mortgages to investors:?Lenders can sell mortgages to investors, who then collect the interest payments from borrowers. This is a way for lenders to free up capital and make money on the difference between the interest rate they charge borrowers and the interest rate they pay investors.

• Mortgage servicing fees:?Lenders can charge borrowers a fee for servicing their mortgage loans. This fee covers the costs of collecting payments, handling escrow accounts, and taking care of other administrative tasks.

• Prepayment penalties:?Lenders can charge borrowers a penalty if they pay off their mortgage early. This is a way for lenders to protect themselves from losing out on interest payments.

In conclusion, The mortgage industry is a vital part of the economy. It helps people to achieve the dream of homeownership, and it provides liquidity to the housing market.

So you want to make sure you understand the mortgage you’re getting yourself into and ensure you can afford it.?You also want to make sure they aren’t charging or hiding excessive fees in the paperwork.

Until next time,

Ayman Gamal