Financing Florida Keys Real Estate With Local Mortgage Broker Claudia Stober
During the home buying process, there are many different things to know. One of them is the difference between a mortgage broker and a mortgage banker, and how each can affect your home buying experience.
Mortgage Broker VS Mortgage Banker
A mortgage banker is limited to offering only the products and rates of that bank. If these products and rates do not fit the consumer, they must move onto another lender or take the less favorable conditions. Additionally, most banks require that you fit into a certain mold- a mold that many people do not fit.
Unfortunately, buyers are not often aware that there are other options or products. They simply go to a specific bank because that bank is close to their home, they have a checking or savings account there, their mom or dad got their loan through that bank, or they are familiar with it in some other way.
A mortgage broker, on the other hand, is not limited to one lender or bank or even to only one type of product. They also have the ability to think outside of the box. Mortgage brokers can be especially helpful for the following people:
Entrepreneurs
Day Traders
Independent Contractors
Veterans
Anyone with atypical employment or income
Benefits of Using a Mortgage Broker
Mortgage brokers offer many benefits that traditional lenders typically cannot.
Access to a Variety of Lenders
A mortgage broker is not one lender but instead has a network of lenders that he or she works with. The broker becomes an expert in these lenders, learning their products, their requirements, their benefits, and their pitfalls. Through this knowledge and their network, brokers can find a product and a lender that fits the buyer as opposed to the buyer having to fit the mold of one lender.
Access to a Variety of Loans
In addition to being an expert in a variety of lenders, mortgage brokers tend to be experts in a variety of loan products, as well. This is incredibly beneficial to the buyer as they are not limited to just the products offered by their bank. A mortgage broker can help the client find the best product for that situation. Some of the available products include the following:
- Conforming/Conventional Loans
Every year, Freddie Mac and Fannie Mae set a conforming loan limit. As long as the loan does not exceed that limit, the loan is guaranteed, so the lender gets their money even if a buyer defaults. Conforming or conventional loans are the loans that stay within these limits. They can be used for primary residences, secondary homes, and investment property. Some of the requirements of these include:
The buyer usually needs a credit score of at least 620.
A 5 percent down payment is usually required for a primary residence while 10 percent is often required for investment properties.
Private mortgage insurance is required until you build up equity in the home.
- Government Loans
Government loans are insured by the government, so if a buyer defaults, the lender still receives their money from the government. Sometimes these loans are the best choices for many people. They tend to have much lower interest rates and- often- less requirements.
1. FHA Loans
One type of government loan is an FHA loan. The amount of them varies by location and the median housing cost in that area, and they can be used on anything up to a four-unit property. They have low interest rates of around 3.5 percent, buyers can get approved with as low as a 580 credit score, and your debt-to-income ratio can be as much as 55 percent. The downside is that the buyer must carry private mortgage insurance for the life of the loan. Even with that insurance, though, your monthly payment would usually still be lower than with conventional loans.
2. VA Loans
If you are a veteran, a VA loan is an excellent product. There are no set monetary limits to a VA loan, so each individual lender can decide on the approval amount. There is no minimum down payment and, with most VA loans, there is no down payment at all. There is a funding fee with these loans but it can be worked into the loan amount. Also, they do not require private mortgage insurance.
- Nonconventional Loans
Nonconventional loans are those that do not fit the “regular” loan mold, which is what makes them great for people who do not fit that mold, either. Following are some of these unconventional loan methods:
Income Potential
If a property is being bought for investment purposes, it may qualify for a loan based on the potential income that investment property might make. In this case, the lender does not look at the buyer’s income at all but strictly at the property’s possible income. These are great loans for some areas, such as the Florida Keys, that have a lot of condos and vacation homes for sale.
Asset Depletion
If a buyer is sitting on a retirement account but not yet drawing from it, a lender may consider that asset for income qualification as opposed to traditional income sources.
Bank Statement Loans
Bank statement loans are those with which the lender uses your bank statements and bank deposits to calculate and qualify your income. These are great for anyone with non-traditional employment, such as the self-employed, or even servers and bartenders.
Jumbo Loans
Jumbo loans are loans that exceed the amount of conventional loans. As these are not guaranteed by Fannie Mae or Freddie Mac, they have much stricter requirements. The buyer must:
Have a credit score of at least 700.
Have a down payment of at least 10 percent.
Have a cash reserve of 6-12 months of payments put away after closing.
After having to pay a large down payment, it is often difficult to have that much money in reserve being completely unused. It would be better if that money was able to be invested so it could be growing during that time, at the very least.
For these reasons, mortgage brokers attempt to avoid these as best as possible. Some of them have lenders on their teams willing to loan more than the conventional loan amount without considering it a jumbo loan.
Loans for Mobile Homes
Many people wonder if it is possible to get a loan for a mobile home. It is indeed possible. For conforming loans, they must be made after June 30, 1976. Some lenders have additional requirements, such as they only approve double wides or something similar.
If you want to purchase a mobile home that does not fit these requirements, there are nonconforming loans that come from portfolio lenders. These lenders tend to specialize in one thing, such as loaning money for older mobile homes or construction loans.
Loans for LLC
If an individual wants to put a property under an LLC, there are loans to do so. The managing member of the LLC has to qualify and sign the contracts, but the title is held under the LLC.
Mortgage Brokers Are Very Knowledgeable
A mortgage broker can look at a buyer’s profile and know which direction to go in. They know which of their lenders are more lenient and which ones are stricter, among other things. Some specific areas that this knowledge comes in handy are the following:
Self-Employed Buyers
If a buyer is self-employed, there is a chance that their tax returns fluctuate. Some lenders require the self-employed to show two years of tax returns, and then they calculate an average income between the two. If a buyer has a good return one year but a not so great tax return the year before, they may not qualify for the best rates or favorable loan conditions.
Some lenders, though, only request one year of tax returns, giving those with fluctuating returns a better chance. A mortgage broker can determine which lender or lenders to apply through based on each self-employed client’s tax return.
Sometimes, self-employed people have a lot of deductions and other things that do not make the tax return look very favorable. In this case, bank statements and bank deposits can be used to calculate and qualify a buyer’s income. This is a fairly new practice, though. It only goes back about two years, so not all bankers or lenders use this practice yet. Mortgage brokers know who does and does not accept bank statements in their network, meaning they can get you straight to a lender who is likely to work with you.
Buyers With Credit Issues
Some lenders are very strict concerning credit scores and items on a person’s credit report. Others are more lenient. If a buyer comes in with a low credit score or unfavorable marks on their credit, a mortgage broker knows which lenders the buyer has a chance with and which they do not.
In this sense, a mortgage broker can help the buyer get the best mortgage loan for him or her. A broker knows which of the lenders in their network should offer the best rate and conditions for that particular client.
Mortgage Brokers Can Work With Lenders
Due to the relationship of the broker with their network, the broke can actually work with a lender on behalf of the buyer. For instance, he or she may be able to discuss a client’s individual situation to help get them approved at times when they may not normally be approved. They can also get direct information from said lenders on anything that needs to be worked on specifically.
Buyers Who Need Quick Approval
Though it may not be possible in every single situation, there are lenders who can work to close deals in just a couple of weeks. Mortgage brokers learn who can close on a short timeline in case a client needs it.
Mortgage Brokers Work for the Buyer
Mortgage bankers work specifically for their bank. Mortgage brokers work for the buyer, helping them navigate different potential lenders and products.
Local Broker VS Non-Local Broker
There are mortgage brokers all over the country, but hiring a local one provides many benefits. A local broker knows local issues and how to fight them or get around them. For instance, these are some common issues in the Florida Keys:
Downstairs Enclosures
Many homes in the Keys are on stilts, so many homeowners often close off the bottom level. They might use it for space for in-laws or they may turn it into a rental. However, since those homes were zoned as a single-family residence, some lenders will not approve a loan with these downstairs enclosures.
Condo Requirements
There are many condos in the Florida Keys. Some lenders require that not only the buyer be approved but the condo association, as well. This often means that the condo association is expected to have cash reserves, too. Many of them do not, though, as they choose to put that money toward other things.
A non-local mortgage broker would likely not be aware of these issues or know how to deal with them. A local broker, however, is not only familiar with these issues but would also know which lenders will work within the situation.
It is also important to note that just because a broker is local does not mean they are only familiar with local products. On the contrary, they are privy to products all over yet are well versed in local matters.
A mortgage broker is able to look at the whole picture, understand the various moving parts, and map out an optimal path to help the buyer reach their goal of homeownership. If you are currently looking for a home loan or getting ready to, consider all the ways a mortgage broker can help you.