When to use a mortgage broker?

Question

I have a few questions in regards to this topic. Here's some context to my situation before jumping straight into the questions:

• Looking for my first property (duplex, triplex or quad). My wife and I will live in one of the units.
• My wife and I both have credit over 750
• We have money for a down payment
• I've been an entrepreneur for the past 5 years so my income is next to nothing. However, my wife makes a good salary.

My problem is that I'm not sure if our income is enough to qualify for a loan to get a duplex, triplex, quad in CA.

1) Is it worth it to use a mortgage broker to help us find a lender that will lend to us based off of our actual income? Can a broker actually help me or does my income automatically screw us? I have a friend that is a mortgage broker, but I don't want to contact him and get his hopes up unless we're actually going to use him.

2) Do you need to get a loan from a lender or mortgage broker in the market in which you are looking to buy? Or can they loan come from somewhere else in the state?

Thanks for the help. I look forward to learning more about this.

Zack

Ashley St. Gelais · Answer

Hey @Zach Parker,

Super exciting that you are getting into real estate.

As an FYI with conventional financing - it may be difficult to use the rental income from a property to help you qualify with your debt to income ratio, if you don't have 2 years of experience as a landlord.  A way around this however, is to use FHA financing to purchase a multi family when you'll be living in the home. This program allows you to use 75% of the income from currently rented units to qualify for the home.  Typically lenders can lend any where in a state or sometimes more than 1 state. So the lender doesn't have to be in your hometown, but look for someone in your state.

I'd suggest starting off with your friend to give him a chance and see if he has knowledge about and offers FHA loans... Start off by asking him about the FHA program that allows a down payment as low as 3.5% for a multi family home.  Closing costs and monthly MI are higher - but that seems to be a small price to pay to get into a home that produces income and grows in value over time.

The cool thing about starting off this way is you can get the 2 years history of being a landlord so if/when you are ready to buy your next place you'll already have a few years under your belt.

Let me know if you have any other questions!

Ashley  : )

Jerry Padilla · Answer

@Jeffrey Mars FHA is definitely a great way to go.

Jeff Mars · Answer

@Ashley Wishinski thanks for that info. I'll be finding myself in a similar situation in Northern CA in Sep. @Zack Parker how did your search for a mortgage work out? Did you end up using your friend, your bank, or another broker? Were you able to secure an FHA loan? Good luck!

Chau Nguyen · Answer

Hello all,

I have the same situation like Zack. I am living in Florida. Can anyone give me bits of advice about finding a lender? I am self-employed. I want to purchase a duplex as well. I asked my local bank that I had a relationship with and they said I have to wait to have full 2 years in the business. I also asked couple mortgage brokers and they said they only need 2 years tax return in the business, which I have. However, their rate is much higher than what the bank told me. So should I wait until August to have 2 full years to go with the bank or I should go with the mortgage broker now?

Thank you

Chau

Conor Hesch · Answer

Hello @Zack Parker I have an idea other than FHA with less money down and no mortgage insurance (its how I bought my first duplex).  I am helping someone in CA.  Message me for specifics.

Zack Parker · Answer

Thanks everybody for the thoughtful responses. I look forward to my next steps in the process. Step #1, my wife and I need to determine where we want to live since we just returned from being abroad for a year.

I'll keep you posted!

Mike Hanneman · Answer

I always use a broker or a lender other then the big banks. I have always recieved a better deal of the loan. Smaller local banks or credit unions are always my first choice, it seems like they care a little more.

Robert Beck · Answer

Zack,

Not sure if you got the answer you were looking for here's my .02 for what it's worth. The 2 biggest difference between using a broker vs a bank or direct lender are;

1) Variety of programs - A broker will have a lot of different programs to suit your need. I see a lot about using an FHA, that has great benefits but there are private lenders that also have "FHA like" loans that don't have the UMI/MI costs. A bank or direct lender will have only the programs they offer, it would be like a square peg in a round hole kinda thing.

2) Speed of funding or closing. A bank or direct lender will be a little bit faster since they have the money, a broker has to take a few more days to process in house and send to the lender and this happens all the way to funding so a broker needs more time to close, so just plan around that and you should be good.

Having said all that, the FHA in today's market is a much better rate than a conventional loan so the costs of the UMI/MI will off set and since it's financed and has a tax benefit, it works your advantage.

And lastly, anyone with a CA endorsed or any other state NMLS license can originate anywhere in the state, as long as the lender writes loans for that area.

You're on the right track, once you're in your new home read up on accelerated mortgage loan payoff strategies, it will shorten the life of your loan by about 1/3 and you can actually lower your payment, but that's another topic.

Good luck,

Robert

Tina Reid · Answer

The three major factors for mortgage are

Downpayment

Income

Credit

You have saved up enough for the down payment and have good credit score. But income is also a factor. Normally for the self-employed there are three types of mortgage, full doc qualifying,low doc qualifying and fully stated income mortgages. But since you are applying with your wife this might not be a problem. If you are unsure about going to broker, refer this blog   http://www.albertamortgagecentre.com/using-a-mortgage-broker-vs-using-a-bank/ .

Jared Rine · Answer

@Zack Parker...good questions and where are you in the process??. @Ashley Wishinski answered well, for both of your questions.  From my professional experience in both residential and commercial lending, FHA is likely going to be your best route and you'll be able to use 75% of income from the rented units to qualify, as Ashley stated.  And to answer your 2nd question, no you don't have to get a loan from a lender who is in the market in which you are looking to buy.  As long as they are licensed with in CA, whether broker or banker, it makes no difference (myself for example, I can lend all over CA and tend to do loans all over the state).

@Jeffrey Mars As Jerry stated, FHA is probably best way to go...where in Northern CA will you be?

Just wondering as I'm local to Sacramento.

Thanks,

When to use a mortgage broker?

Most Popular Reply