Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
A timely article published by the National Association of Realtors addressed a recent survey about the “mortgage fears” of potential home buyers in today’s marketplace. One of the surveys suggested that 46% of potential home buyers fear they won’t qualify for a mortgage, to the point that they don’t even attempt to get one. Interestingly, the survey was done by a national mortgage lender, and my suspicion is that in their efforts to endorse themselves, they ended up amplifying fears about getting a mortgage, which prompted the response by the realtors association.
The negative surveys and reports by the national lender were probably not meant to strike fear in the hearts of potential mortgage applicants. They certainly wanted to provide so much uncertainty and dread that consumers would be prompted to flock to them for guidance and answers. While information is a powerful tool, when that information is presented improperly, it can lead to analysis-paralysis. I guess this can be compared to going to an extravagant celebration and being so overwhelmed by the smorgasbord that no food is taken. Options are great, choice/competition can be beneficial, but when taken out of context, the consumer does not come out ahead and is stuck being indecisive.
It was those concerns that the article was trying to address. The realtor association tried to debunk a few common myths and fears about getting a mortgage. Fear number one was not having enough money for a down payment. Fear number two was not qualifying due to poor credit. Fear number three was not being able to make monthly mortgage payments. Fear number four was getting in too much debt. The article certainly did a good job of relaying to prospective home buyers that they should not be afraid of the process, but they were only scratching the surface of what could be said.
Knowing what a lender considers when determining eligibility for financing is the best starting point for any mortgage consideration. While it’s important to know that a lender has numerous options that can be considered for all circumstances, it does not mean that a home buyer has to become versed in mortgage qualification and underwriting guidelines before considering a home purchase. There are four key areas that a lender evaluates in order to underwrite a loan. In the industry, they are sometimes referred to as the four C’s of mortgage qualification:
Capacity to pay back the loan. Lenders look at potential borrowers’ income, employment history, savings and monthly debt payments, such as credit card charges and other financial obligations, to make sure that they have the means to take on a mortgage comfortably.
Capital. Lenders consider readily available money and savings, including investments, properties and other assets that can be considered liquid. Having excess reserves proves that potential borrowers can manage their money and have the funds, in addition to their income, to pay the mortgage.
Collateral. Lenders take into account the value of the property as security against the loan.
Credit. Lenders check credit scores and history to evaluate a potential borrower’s record of paying bills and other debts on time.
I received much complementary feedback about our recent “shmortgage board” marketing campaign in this publication. Some thought the graphics were appealing and timely; others remarked on the cute headline (which they told me to patent); and others commented about the surprisingly vast number of loan options that are available to potential clients. The myriad of choices are overwhelming, but not meant to be debilitating. A good mortgage consultation must start with a candid conversation and trust in the mortgage professionals in order to utilize all the tools at their disposal to get the best rates, terms and guidance for a potential borrower’s specific circumstances.
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