Holly Gustlin, Residential Mortgage Broker

A mortgage loan originator is an intermediary who helps people get home loans. I am like an attorney for my clients trying to get a home loan. If you walk into a bank to get a loan, it is like going to court without an attorney. You may win. But if you go with an attorney who knows how the system works and has relationships with the judge and opposing counsel, you are more likely to win. It does not cost more to get your loan through a mortgage broker, in fact it can often cost less because we have the ability to shop many lenders at once through the online systems that are exclusive to wholesale lending.

There are five areas needed to qualify for most home loans. These are called “The 5 C’s of Credit.” Character - Credit – your credit report payment history is a reflection of your willingness to repay loans, because it shows them a history of your repayment on other loans. High balances on credit cards concern many lenders because high debt load increases the possibility of default or bankruptcy. Capacity - Income – lenders have a legal obligation to prove you can pay the mortgage. This law is laid out in Appendix Q. Lenders must examine past, current, and future income to satisfy the law. A-paper lenders (those with the lowest rates) use tax returns, W-2’s and paystubs. Non-QM lenders (those who use different criteria to determine eligibility) offer other options, but their rates are higher because their risk is higher. Capital - Assets – lenders usually want to see that borrowers have 2 to 12 months of total payments in reserve after closing. There are exceptions. But it is best to have backup plans to paying your mortgage if something interferes with your cash flow (i.e., lose your job, become disabled or sick, etc.) Collateral - Equity in the property – for a purchase, most loans require a down payment. If borrowers have “skin in the game” they are more likely to honor their commitment to pay the mortgage and avoid default. The VA does not require a down payment if the loan amount is within conforming guidelines. For a refinance, Collateral is equity in the property based on the loan amount and value (loan-to-value-ratio, LTV). Conditions – this is used more in business and commercial loans and is the most subjective of the 5 C’s. The underwriter balances many factors to determine the likelihood you will be willing and able to repay the loan.

We all want high credit scores so that when we want a home loan so that we are offered the best rates. Here are some keys to success I have learned from over time. Amount Owed The amount owed divided by your limit equals the percent credit usage. They care about individual credit cards and your overall usage. There are four important levels. If you are paying off debt to increase your score, try to pay them down to the lowest of these levels possible. - 10% or less = A+ - 30% or less = B+ - 50% or less = B- to C+ - 70% = D - 100% or over your limit = an F Your score can vary within a brief period depending upon your balances at the time they are reported. If you must have a high credit score to buy a home, it is best to keep the balances low the entire time, because it is difficult to know when the credit card companies report your balances. Payment History Late payments damage credit scores, often 100 points or even more. A late mortgage payment is devastating to a FICO score for years after the event. Late payments become less damaging each year that passes. If the event is 4-years old, it may not affect the score at all. Scoring Models The credit bureaus each have many different scoring models. If you have a judgement or collection on your credit, even if it is paid, you are in a higher risk model for the time that it is on your credit. Bankruptcies, short sales, and foreclosures also put you in a high-risk model. If you are in a high-risk scoring model, that caps how high your score can be. It is rare to get a score over 719 if you are on a high-risk model. I advise clients to avoid any litigation that will result in a report of a judgment against them if they lose. It stays on your credit, even if you pay it immediately. Collections If you have unpaid collections, I advise paying them only if the collector will agree to delete them from the credit. If they only show it as “paid in full”, it will lower your FICO score. This is a flaw in the system, in my opinion. The system sees any recent activity in that sector as bad, even if the activity is paying off the collection. I advise my clients to call the creditor tell them you won’t pay it unless they agree in advance and in writing to delete the record if it is paid. Length of Credit History Please do not close old credit cards! This is a big mistake. Length of credit history is important. I hope this has been helpful. If you have any questions or would like personalized advice, please contact me directly.