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					DreamLoan Mortgage
Questions & Answers
Library (Version 2.0)
WHAT IS THE MINIMUM DOWN PAYMENT ON A PURCHASE?
Zero percent (0%) of the Purchase Price on VA loans and USDA loans, three percent (3%) of the Purchase
Price on Conventional (non-Government) loans and three and a half percent (3.5%) on FHA loans. However,
FHA loans and some Conventional high Loan To Value loans will permit Down Payment Assistance which is
usually a need-based Second Mortgage that is ultimately Forgivible. Using Down Payment Assistance could
very possibly cover the Down Payment on an FHA or a Conventional 97% loan as well as some, if not all, of
the Closing Costs. For more information see the DreamLoan Specialty Tutorial “Responsible Zero Down
Payment Financing”.


WHY IS THERE NO DOWN PAYMENT ON A REFINANCE?
There is no Down Payment on a Refinance because on a Refinance, the part of the property that is not
encumbered by Liens is compared to the Fair Market Value of the property and the result is the Equity in the
property. For example, if the home is worth $100,000 and the loan against it is $80,000 then there is $20,000 of
Equity. Because the Equity belongs to the Borrower, it is the Borrower’s “contribution” to the transaction,
(similar to the Down Payment on a Purchase). In some cases, however, no Equity is necessary to complete a
Refinance. A VA loan, for example, allows the Loan To Value of the Refinance to be 100% of the Fair Market
Value of the property.


HOW MUCH DOES A REFINANCE COST?
Refinances generally cost between one percent (1%) of the new loan amount and the maximum percentage set
down by state or federal law (usually 7.99%). Most often, Refinances cost between one and four percent
(1-4%) of the new loan amount. The larger the loan amount, the lower the Closing Cost percentage; conversely
the lower the loan amount, the higher the Closing Cost percentage. This is because some Closing Costs are
static and not based on the loan amount, like Underwriting, Tax Related Service, Appraisal, Processing, Credit
Report and Flood Certificate. As a result, these costs are a higher percentage of a small loan amount and a
lower percentage of a large loan amount. For example, if these five fees were $2,000 that would be more than
3% of a $60,000 loan amount, but only 1% of a $200,000 loan amount.
The largest factor in the amount of the Closing Costs is the loan Structure chosen by the Borrower. If the
Borrower intends to keep the new loan for a long period of time and chooses to pay all the costs and
compensation of the loan on the Front of the loan in exchange for a Wholesale Par Interest Rate, then
obviously the Closing Costs will be high. If, on the other hand, the Borrower intends upon keeping the loan
only for a few years and chooses to pay all compensation for the loan through the Interest Rate, then the
Closing Costs will be low and the Rate will be a little higher.




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Often times when people ask “How much does a Refinance cost?” they really are asking how much money
does the Borrower have to contribute, out of pocket, to the transaction. Since Closing Costs on Refinances can
be rolled into the new loan (provided there is enough Equity in the property to do so), the answer to this
question is very little. For example, prior to the Closing of a Refinance, a Broker/Banker may require the
Borrower pay for the Credit Report, the Appraisal and an Application Fee. Credit Reports run anywhere from
$20 to $60 per applicant, Appraisals cost between $400 and $550 for standard properties (no large acreage or
unusual homes) and the Application Fee can be anywhere from $200 to $600. Therefore, in the worst case
scenario (two applicants, an Appraisal of an Investment Property and a high Application Fee), such a
Refinance could cost about $1,270 out of pocket. All of these fees should show as being collected from the
Borrower prior to Closing on the HUD-1 Settlement Statement at Closing. It is possible, however, to roll these
costs into the new loan as well. The Borrower simply pays them up front to the Broker/Banker, then at Closing,
the Broker/Banker charges them a second time and pays for them with the loan. Then, after the loan Funds, the
Broker can refund a check back to the Borrower in the same amount that the Borrower paid out of pocket. That
way the Broker/Banker is protected for hard costs and in the end, the Borrower is reimbursed and the charges
are paid by the new Refinanced loan. For more information see the DreamLoan Specialty Tutorial “Tailor the
Mortgage Yourself and Save Thousands - ”.


HOW MUCH ARE THE CLOSING COSTS ON A PURCHASE AND WHEN DO I PAY THEM?
Closing Costs on a Purchase can run anywhere from about one percent (1%) on a very expensive home to
7.99% on a small home. However, there are many factors that influence the amount of Closing Costs paid by
the Borrower. For example, in the Contract (that sets the terms of the transaction), the Borrower may secure
Seller Contributions toward Closing Costs. With the guidance of a DreamLoan-certified Broker/Banker, these
Seller Contributions can cover some, most or all of the Closing Costs. Another example is how the Borrower
wishes the loan to be Structured. If the Borrower wants to pay all of the costs and compensation associated
with the loan and get a Wholesale Par Interest Rate, then Closing Costs will be higher. If the Borrower wants
the reverse (higher Rate and fewer Closing Costs), that can be accommodated as well.
To illustrate an example, it will be presumed that the Contract Purchase Price is $200,000 with the Borrower
putting five percent (5%) down. It will also be presumed that there are no Seller Contributions and that the
Borrower has chosen a Wholesale Par Interest Rate and that the Borrower will pay the costs and compensation
associated with the transaction on the Front of the loan. The following is simply an illustrative example of
Closing Costs on this hypothetical Purchase and when the Borrower pays them:
     • Credit Report Fee (2 applicants) - $50 paid to Broker/Banker during Mortgage Interview
    • Application Fee - $500 - paid to Broker/Banker when Loan Application is executed
    • Earnest Money/Deposit (good faith gesture to seal the Contract) - usually one percent (1%) of the Purchase Price
           - paid to either a Title/Escrow Company, a Closing Attorney or the Seller’s Real Estate Agency at the time of
           Contract’s execution.
    •      Option Fee (if applicable, to allow Buyer to have a period of time to inspect the property)
    •      Home Inspection - $400 paid on site to the inspector after inspection report is generated
    •      Appraisal Fee - $400 (for an Owner Occupied home) - paid to Broker/Banker or directly to the Appraisal
           company after Inspection is satisfactory or after the Inspection period expires
    •      Homeowner’s Insurance premium for first year - paid to Homeowner’s Insurance Company either prior to
           Closing or at Closing




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    •   Remainder of unpaid Closing Costs - one to three percent (1-3%) of the $190,000 loan amount if Seller is paying
        the Title Insurance and two to four percent (2-4%) of the loan amount if the Buyer is paying the Title Insurance.
    •   Prepaid Interest, Escrow Reserves, the remainder of the Down Payment and local or state transaction taxes - one
        to two percent (1-2%) of the loan amount paid at Closing to the Title/Escrow Company, the Closing Attorney or
        the Retail Bank.


WHAT HAPPENS IF THE APPRAISAL COMES IN HIGHER THAN THE PURCHASE PRICE ON A
PURCHASE TRANSACTION?
If this happens, most mortgage loan originators would just be happy the Appraisal came in higher. But there is
actually a great advantage in this situation that few brokers know to use for the benefit of the Buyer. If the
Contract does not have any Seller Contributions toward Closing Costs, or if there are Seller Contributions but
they are low, then the Appraisal coming in at a value higher than the Purchase Price can be exploited to on the
Buyer’s behalf.
If this occurs, the Buyer can approach the Seller and rewrite the contract, taking advantage of the higher value.
As long as the same gross Proceeds end up with the Seller, there should be no reason for the Seller to object.
Here’s an example:
Let’s say you had a contract with a Purchase Price of $300,000 and Seller Contributions toward Closing Costs
of $3,000. Then the Appraisal comes in at $310,000. Since the Seller’s gross Proceeds are $297,000 ($300,000
minus $3,000 toward Closing Costs) the new Contract should leave the Seller with the same $297,000. By the
time the Appraisal comes in, you know how the mortgage was Structured and that your total Closing Costs
were $9,700. Thus, you can amend the Contract to a Purchase Price of $306,200 with $9,186 in Seller
Concessions. This makes the gross Proceeds to the Seller $297,014 which is equal to or higher than $297,000.
In this way, you saved $6,000 in cash by “financing” most of the Closing Costs.
Remember that loan programs and Down Payments affect the maximum amount of Seller Concessions allowed
in a transaction. The chart is as follows:

                          Buyer Down Payment                      Maximum Concessions from Seller
                   5% (Owner Occupied & Second Home)                             3%
                  6-10% (Owner Occupied & Second Home)                           6%
                  10% +(Owner Occupied & Second Home)                            6%
                     Investment Property (regardless of                          2%
                             Down Payment)
                               3.5% - FHA                                        6%
                                 0% - VA                                         4%


This means that if, in the example above, you were buying an Owner Occupied home with a five percent (5%)
Down Payment and you had $10,000 in Closing Costs, you would not be able to raise the Purchase Price to
$307,000 with $10,000 in Seller Contributions toward Closing Costs because $10,000 is more than three
percent (3%) of $307,000.
However, the cat can be skinned another way. Some costs, when paid by the Seller, do not count as
contributions toward Closing Costs. These are:
    • Appraisal
    • Title Insurance


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    • Survey (in states that use Surveys)
    • Home Warranty
    • Materials
So, in order to get your full $10,000 from the Seller and still stay within the confines of the chart above, the
amended Contract could read that the Purchase Price will be $307,000 with $9,210 in Seller Contributions
(3%) toward Closing Costs and the Appraisal and the Survey to be paid for by the Seller.


WHAT HAPPENS IF THE APPRAISAL ON A PURCHASE TRANSACTION COMES IN LOWER
THAN THE PURCHASE PRICE?
The Contract either needs to be renegotiated or the Buyer must pay the difference between the Appraised Value
and the Purchase Price. For example, if the Appraisal on a Contract of $250,000 comes in at $245,000 then the
Buyer must contribute $5,000 plus their Down Payment plus Closing Costs and Prepaid Items.


HOW ARE INTEREST RATES DETERMINED?
Interest Rates for Prime Mortgage loans change on a daily basis based on economic conditions and bond
market activity (trading). As bond prices increase and yields fall, Interest Rates and/or the cost of those Rates
fall. The opposite is also true: As bond prices fall and yields increase, Interest Rates and/or the cost of those
Rates increase. Whatever the market activity is on a given day, it will affect the next day’s pricing in the Prime
market. Sometimes market activity is so volatile or heavy that Lenders will temporarily close their Lock Desks
and have a ‘mid-day price change’ to keep up with the market.
Subprime Interest Rates generally change once a week, once a month or every few months, depending on the
Lender. Few Subprime Lender change their Rates daily, but some do.


SHOULD I USE THE REAL ESTATE AGENT’S MORTGAGE COMPANY?
No. It is generally unwise to allow the “fox into the chicken coop” or to do your financing with the same entity
that is making a Commission off of the sale of the home. It is important that there is independence between the
Real Estate Agent and the Mortgage company so that each can keep the other’s work product in check. For
example, if the Real Estate Agent is doing something that is not in the best interests of the Borrower, the
Mortgage company may notice it while the Borrower would not even know to look for it. In this situation, if
the Mortgage company is the same as the Real Estate company, an action by the Real Estate Agent that is not in
the best interests of the client, may be overlooked due to their allegiance to one another and would never be
brought to the attention of the Borrower. Clearly the best way to approach this situation is to purchase referrals
to both a DreamLoan-certified Realtor® to handle the Real Estate side of things and a DreamLoan-certified
Broker or Banker to handle the property financing.


SHOULD I USE THE REAL ESTATE AGENT’S MORTGAGE REFERRAL?
Possibly, but usually no. Real Estate Agents, despite what they think, generally do not know anything about
Mortgage financing. Therefore, it is unlikely that a Real Estate Agent will truly be able to determine who is a
good Mortgage Broker and who is not. A Borrower should never use a Mortgage originator simply because
someone said to. Instead, the Borrower should have a list of questions that are posed to any and all Mortgage
originators with whom the Borrower is considering doing business. These questions include, but are not
limited to:


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    •   How long has the originator been in Mortgaging and how can the answer be verified? (such as an online
        licensing system or state registry)
    •   How many Lenders does the originator have access to, and can they name them?
    •   Do they have in-house Processing or do they subcontract it out? (In-house is usually a sign of a more substantial
        Broker)
    •   Do they know the differences between Conventional loans and Government loans, and can they recite those
        differences?
    •   What did they score on their National Mortgage Licensing test? (a 90% or better is usually a sign of a competent
        Broker/Banker)
    •   Are they a Loan Officer or a Broker? (Brokers have more experience)
    •   If they are only a Loan Officer, what is the experience of the managing Broker?
    •   How many loans have they closed in the last three months?
    •   Do they know how to do Purchases, Refinances, Cash Out Refinances and Construction loans? (It’s best if they
        know how to Close all types of loans)
The best way to handle this situation is to purchase referrals to both a DreamLoan-certified Realtor® to
handle the Real Estate side of things and a DreamLoan-certified Broker or Banker to handle the property
financing. Additionally, all DreamLoan-certified Brokers and Banker have to meet strict standards including
passing the DreamLoan exam (with a score of 80% or higher) and having many different kinds of Lenders
(Conventional, Government, Second Mortgages, Manual Underwrites, Construction Loans, etc.).


WHAT IS THE DIFFERENCE BETWEEN A CUSTOM BUILD AND A NEW HOME?
A New Home is simply completed inventory from a Tract Builder. A Tract Builder basically builds the same
house over and over in a subdivision that the Tract Builder owns. A Custom Build is where a home is built to
suit, specifically for the people who will live in it, according to architectural Plans and Specifications. For more
information see the DreamLoan Specialty Tutorials “Beware the Tract Builder” and “How to Do a
Construction Project”.


HOW DO I FIND A BUILDER?
The most effective and most reliable way to choose a builder is to contact the local builders association. This
registry will have a long list of Builders available in a Borrower’s community. However, in order for the
Borrower to easily get to the cream of the crop, it is best to find out which Builders are on the board of the
association. These Builders should be contacted first regarding price and availability. If these Builders prove to
be unavailable, then the next set of Builders interviewed should be those builders recommended by the
Builders on the association’s board. For more information see the DreamLoan Specialty Tutorial “How to Do
a Construction Project”


WHAT IS INTERIM FINANCING?
Financing for new construction. The Borrower should ask if the Interim Financing for construction is being
provided in a One-Time Close or a Two-Time Close loan. In a Two-Time Close loan, the Closing for the
Interim Financing offers the Borrower funds only for the construction of the home (usually for a period of one
year to 18 months depending on the size of the project). The downside to a Two-Time Close is that the Interim
Financing must then be Refinanced at the end of construction (in a second Closing) in order for the Borrower


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to obtain Permanent Financing. If the Interim Financing is being provided in a One-Time Close loan, then the
Interim Financing will simply be modified into the Permanent Financing after construction is completed (by
simply modifying the terms of the Note. This removes the need for a second Closing. Thus, One-Time Close
loans are usually the less expensive of the two. All DreamLoan-certified Brokers and Wholesale Bankers have
access to a One-Time Close Construction Loan. For more information see the DreamLoan Specialty Tutorial
“How to Do a Construction Project”.


WHY DO I NEED PERMANENT FINANCING AFTER BUILDING?
If one is asking this question, it is because one probably only has Interim Financing from a Construction Loan
that was a Two-Time Close loan. In a Two-Time Close loan, the Closing for the Interim Financing offers the
Borrower funds only for the construction of the home (usually for a period of one year to 18 months depending
on the size of the project). Then, after building the house, the Interim Financing must be paid off (Refinanced)
at the end of construction (in a second Closing) in order for the Borrower to obtain Permanent Financing. The
less expensive option is to do a One-Time Close Construction Loan in the first place because a One-Time
Close loan finances the Interim Financing then modifies the construction Note with new terms in order to
achieve the Permanent Financing without having a second Closing. All DreamLoan-certified Brokers and
Wholesale Bankers have access to One-Time Close Construction Loans. For more information see the
DreamLoan Specialty Tutorial “How to Do a Construction Project”.


WHAT ARE THE STAGES OF CONSTRUCTION?
The stages of construction are listed below. These stages assume that the architectural drawings (the Plans)
have been completed and that the Custom Builder and Buyer have agreed upon the Specifications for the
house.
   • Construction preparation - Obtaining any required soil testing, acquiring the building permit, putting temporary
           facilities (an office, trailer, singlewide) and utilities (a light pole for electricity) on the property, and putting a
           port-a-potty on the property.
    •      Clearing and Grading - cutting trees, clearing brush, removing any obstructions (old driveways, old walkways,
           etc.) and grading the property in preparation for the foundation.
    •      Foundation Prep - framing, footings, plumbing and electrical connections, gas lines, rebar
    •      Foundation -pouring the foundation
    •      Framing - flooring, sub floor, walls, roof, sheathing
    •      Rough plumbing - connections, pipes, rough outlets, tubs
    •      Rough electrical - junction boxes, wiring, outlet boxes
    •      HVAC (heating and cooling system) rough - duct work, rough outlets
    •      Roof - finish, cornice, fascia
    •      Dry In - exterior doors and windows, exterior veneer
    •      Insulation - walls and ceilings
    •      Sheetrock - cut, tape, bed, texture
    •      Fireplaces - boxes, hearth, mantle
    •      Interior Finish - cabinets, counter tops, trim and millwork, doors, hardware, paint/wallpaper
    •      Exterior Finish - stone, Portland cement, clapboard, priming, painting


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    • Flooring Finish - carpet, wood, stone, tile, staining/scoring
    • Exterior Surface - driveway and walkways (stone/pavers/cement)
    • Plumbing Finish - fixtures
    • Electrical Finish - fixtures
    • HVAC (heating and cooling system) Finish - condensers and units
    • Exterior Detail - gutters, screens, garage doors
    • Appliances
    • Well/Septic - if applicable
    • Landscaping - finish grading, sod, planting, irrigation system
    • Final Clean - interior and exterior
For more information see the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


WHAT ARE THE DIFFERENT TYPES OF PURCHASE + CONSTRUCTION LOANS?
The Purchase + Construction combination can be:
    • The Purchase of land + the construction of a home.
    • The Purchase of a home, to be torn down (Razed) + the construction of a home.
    • The Purchase of a home + the Remodel of the home.
    • The Purchase of a home + an addition to the home.
    • The Purchase of a home + the Remodel of the home and an addition to the home.
For more information see the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


WHAT ARE THE STEPS TO BUILD A HOME?
The Steps In Construction are:
1. Construction preparation - Obtaining any required soil testing, acquiring the building permit, putting temporary
    facilities (an office, trailer, singlewide) and utilities (a light pole for electricity) on the property, and putting a port-a-
    potty on the property.
2. Clearing and Grading - cutting trees, clearing brush, removing any obstructions (old driveways, old walkways, etc.) and
    grading the property in preparation for the foundation.
3. Foundation Prep - framing, footings, plumbing and electrical connections, gas lines, rebar
4. Foundation -pouring the foundation
5. Framing - flooring, subfloor, walls, roof, sheathing
6. Rough plumbing - connections, pipes, rough outlets, tubs
7. Rough electrical - junction boxes, wiring, outlet boxes
8. HVAC (heating and cooling system) rough - duct work, rough outlets
9. Roof - finish, cornice, fascia
10. Dry In - exterior doors and windows, exterior vaneer
11. Insulation - walls and ceilings
12. Sheetrock - cut, tape, bed, texture
13. Fireplaces - boxes, hearth, mantle


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14. Interior Finish - cabinets, countertops, trim and millwork, doors, hardware, paint/wallpaper
15. Exterior Finish - stone, Portland cement, clapboard, priming, painting
16. Flooring Finish - carpet, wood, stone, tile, staining/scoring
17. Exterior Surface - driveway and walkways (stone/pavers/cement)
18. Plumbing Finish - fixtures
19. Electrical Finish - fixtures
20. HVAC (heating and cooling system) Finish - condensers and units
21. Exterior Detail - gutters, screens, garage doors
22. Appliances
23. Well/Septic - if applicable
24. Landscaping - finish grading, sod, planting, irrigation system
25. Final Clean - interior and exterior
For more information see the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


HOW LONG DOES A REFINANCE TAKE?
How long any Mortgage takes depends largely on how quickly the Borrower gathers all requested financial
documents. That said, provided a Borrower is quick about supplying requested documents, a Refinance usually
takes about three weeks to Close then usually another week to Fund (if it is Owner Occupied). In the case of an
Owner Occupied Refinance, the loan does not immediately fund because federal law states that Owner
Occupied Refinances must have a three (3) day Rescission period which delays Funding after Closing the loan.


WHEN DO I BEGIN MY FINANCING IF I’M LOOKING TO BUY?
As early as possible for a number of reasons. First, it is imperative that one either use the DreamLoan mobile
App Tools to calculate how much house one is qualified to Purchase or use DreamLoan for a referral to a
DreamLoan-certified Broker/Banker to calculate it. Once one knows how much house one is qualified to buy
(and the associated payment), one can determine whether or not that payment works in one’s budget (just
because someone can qualify to buy a home worth $300,000, doesn’t mean they’ll like the payment...thus one
can limit house searches to $260,000 because that payment is more comfortable). Once a comfortable payment
is found, one will need a Prequalifcation letter. Prequalifications can be obtained either through
DreamLoan.pro, through the DreamLoan mobile App or through a DreamLoan-certified Broker/Banker.
The Prequalification letter will communicate to the Sellers of prospective homes that you are qualified to be
looking at their Listings. It will also communicate that you have properly begun your financing before looking
for a home. Lastly, you will want to begin gathering your financial documents so that you can provide it to your
Mortgage professional quickly and easily. See Steps To Prepare For A Mortgage in the DreamLoan Mortgage
Glossary.


WHEN SHOULD I PAY POINTS?
Loan originators (beginning April 1, 2011) make their Commissions in one of two ways: Either on the Back of
the loan in Yield Spread Premium (or Service Release Premium for Bankers), based on the Interest Rate sold or
on the Front of the loan, by charging Points and fees. The Borrower decides how the originator will be




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compensated, that is, on the Back of the loan (through the Interest Rate sold) or on the Front of the loan
(through Points and fees charged).
So, which should the Borrower choose? A Front-loaded loan or a Back-loaded loan? Like every other decision
in Mortgaging, this is a mathematical question with a mathematical answer. First, however, the Borrower’s
short-term and long-term financial goals must be examined. For example, if the transaction is a Purchase and
the Borrower has very little money (just enough for the Down Payment) and there are no Seller Concessions in
the Purchase Contract, the answer is obvious - the Broker/Banker will have to be compensated on the Back
side of the loan (by the Lender, based on the Interest Rate sold) and no Origination or Discount Points can be
on the Front of the loan. However, if the same Borrower has negotiated a lot of Seller Concessions, then Points
can be charged (and paid by the Seller) and the Rate will be either close to or at Wholesale Par. With regard to
Discount Points, See Buydown or Recoup in the DreamLoan Mortgage Glossary.


WHAT IS BUYING DOWN THE RATE?
Buying down the Rate is the payment of Points (or a portion of a Point) in exchange for a lower Rate. People
think that costs or Points in the Discount line of the HUD-1 Settlement Statement is the only way to identify a
Buydown. While this is one way to Buydown the Rate, it is not the only way. Buying down the Rate is the act
of changing the Structure of the loan from a baseline to one that has higher Closing Costs in exchange for a
lower Rate. Origination Points are also a form of a Buydown, since the originator is being compensated on the
Front of the loan via those Origination Points and does not need to be compensated by selling a Rate with as
much Yield Spread Premium. Whether or not to Buydown, or pay more for, a Rate is a mathematical question
with a mathematical answer. The two things the Borrower must know before choosing the Rate are the
following:
     • The baseline Structure (the Rate that costs no Points) and provides the Mortgage professional’s entire
        commission;
     • The costs of each Rate in increments of .25% lower than the baseline Rate
Once these Rate options are known, the Borrower can plug numbers into the Recoup formula to make sure that
a Buydown makes financial sense.
For example, if on a Purchase transaction, a Borrower has funds only for a Down Payment and there are no
Seller Contributions toward Closing Costs, then a Buydown is obviously not appropriate. Similarly, if a
Borrower (on a Purchase or a Refinance) intends to keep the property for only two years then plans to sell it, a
Buydown would be a waste of money. These are cases where the short-term financial goals weigh heaviest, and
the Recoup formula is not used. It is when the long-term goals weigh heavier that the Recoup formula becomes
important. If a Borrower plans on keeping a home, for example, for seven (7) years following the origination of
the loan, then it is possible that a Buydown could benefit the Borrower, provided the number of months it




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would take to Recoup the cost of the Buydown is less than 84 months (seven years). This situation is examined
as follows:
                            7.75%                                                 $2,750

                $13.99


                 $27.86     7.50%                                                 $2,000
                  $41.62

                            7.25%                                                 $1,000
                   $55.28                                                                  $2,750


                                                                                               $2,000

                                                                                                $1,000
                            7.00%                                                  $500
                                                                                                  $500



                            6.75%                                                     $0
                                    Payment differences   Cost differences
Assume the loan in question is a $100,000 loan with a Term of 15 years. On the left side of the Recoup
formula, the monthly payment differences of various Rates are compared against a 7.75% standard (in the
preceding graphic, the difference in red between a 7.75% payment and a 6.75% payment would be $55.28/mo).
To arrive at these monthly payment differences, establish the payment for 7.75% (or whatever your standard
will be), determine the payments for other available Rates, then subtract each payment from the payment for
the standard. This is illustrated on the left side of the preceding graphic. These calculations can be done using
the DreamLoan Mortgage Calculator. One only needs to enter the loan amount ($100,000), the Term (15) and
the Interest Rate to get each payment. Subtracting each payment from the payment for the standard is simply
subtraction.
On the right side of the preceding graphic the costs of the Rate choices are compared against the standard of $0
(the black line of 7.75%). The goal then is to divide the difference in cost by the differnce in monthly payment
to arrive at the number of months it would take to Recoup the costs. This is done through simply division.
For example, the $500 cost (in blue) of the lowering of the Rate from 7.75% to 7.50% is divided by the $13.99
monthly savings (in blue) to equal 35.74 months to Recoup. Lowering to 7.25% (in pink) divides the $1,000
difference by the $27.86 monthly savings and would Recoup in 35.89 months; 7.00% (in green) would Recoup
in 48.05 months; 6.75% (in red) would Recoup in 49.75 months.
This comparison of Rates and associated costs shows clearly that the quickest period of Recoup is the period
corresponding to lowering the Rate from 7.75% to 7.5%. However, it also demonstrates that the longest period
of Recoup is the period corresponding to lowering the Rate to 6.75%, which is 49.75 months, which is only
slightly longer than four years. If the Borrower plans on keeping the new loan for at least seven years, then all
Rate choices would be appropriate. Actually, lower Rate choices would even be appropriate, provided the
Recoup period did not approach the seven year mark.


HOW DOES THE MORTGAGE BROKER GET PAID?
All loan originators now (since April 1, 2011) get paid entirely by one entity (by the Lender, by the Borrower
or by the Seller in Purchase transaction). Originators can be paid entirely on the Back of the loan (by the
Lender through the Yield Spread Premium/Service Release Premium), entirely on the Front of the loan (by the
Borrower or by the Seller in a Purchase transaction) or on both the Back and the Front of the transaction (by


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selecting a lower than retail Rate then having the Lender charge some Discount to the Borrower). Therefore, a
Mortgage Broker/Banker should offer the Borrower the option of paying his compensation through the Interest
Rate sold, or through Origination Points. Federal law now mandates that all loans must be Structured as either
Lender Paid or Borrower Paid. When the loan is Structured as a Borrower Paid loan, the Broker/Banker’s
commission is contained in the Origination Charge and is, therefore, completely negotiable between the
Borrower and the Broker/Banker. When the loan is structured this way (Borrower Paid), the Borrower must
receive either a Wholesale Par Interest Rate or a Discount credit if the Rate sold has Yield Spread Premium/
Service Release Premium attached to it.
The only other Structure for a loan is Lender Paid, which is slightly more complicated. The federal law that
governs Broker/Banker compensation also allows for the Broker/Banker to predetermine how much he/she
will be paid by each Lender when the loan is Structured as a Lender Paid transaction (where the Lender is
paying the Broker/Banker’s commission). This predetermined amount can also be changed periodically.
Simply said, if the loan being originated has the Broker/Banker’s compensation paid by the Lender, the Lender
that the Broker/Banker chooses will have a set amount that it will pay the Broker/Banker on every loan. This is
called the Lender Paid Compensation (LPC) or Total Compensation level and can vary from $1.00 to 5% of the
loan amount. Brokers/Bankers that have several Lenders usually have one Lender with a 1.00% LPC, another
with a 2% LPC, a third with a 3.00% LPC, etc. This allows the Broker/Banker to sell a wide range of Rates.
However, if the Broker/Banker sells a Rate making him/her 2.00% in Yield Spread Premium but places the
loan with a Lender which has him/her making 3.00% LPC, the Broker/Banker must be paid 3.00% overall. In
this instance, the Borrower will be charged 1.00% Discount (paid to the Lender) and the Lender will pay the
Broker/Banker the 2.00% Yield Spread Premium (for the Rate sold) plus the Discount Point in order to pay the
Broker/Banker the full 3.00% LPC.
Therefore, if the Good Faith Estimate breakdown includes a Discount Point or any portion of a Discount Point,
the Borrower should demand that the Broker/Banker either offer an explanation as to why the chosen Lender
has to be used or demand that the Broker/Banker move the loan to a Lender with whom he/she has an
agreement for a lower LPC in order to remove the Discount Point. For more information see the DreamLoan
Specialty Tutorials “Tailor the Mortgage Yourself and Save Thousands” and “What a Mortgage Professional
Should Do”.


WHAT DO YOU DO WHEN THE LENDER SAYS NO?
Demand to know exactly why. Then communicate the supposed reason to a DreamLoan-certified Broker/
Banker. If you already have a DreamLoan-certified Broker, he/she will move the loan to another one of his/her
Lenders to attempt to achieve a Conditional Approval.


WHAT DOES LENDER LOOK FOR WHEN APPLYING FOR A MORTGAGE?
Credit, employment, Income and Liquid Assets. Credit is the first item. Generally, loans are available to
Borrowers with a 600 credit score or better, provided the Borrower is using a DreamLoan-certified Broker/
Banker. Obviously the Interest Rates associated with a 600 score will be higher, but at least a Borrower with
this Credit Score is able to get a loan. Obviously, the higher the Credit Score the better. If there is damage on
the Credit Report (late payments, medical collections, other collections, bankruptcy, foreclosure) the following
general guidelines regarding Credit Report challenges apply:
     • Late payments should be more than a year old;
     • Medical collections should be more than a year old;


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     • Collections and charge offs should be more than a year old and should not exceed $1,000 when added up.
     • Bankruptcies should be more than two years old following discharge; and
     • Foreclosures should be more than three years old.
The next item is employment. If the Borrower is an employee (receives a W2) as long as there is a two year
work history, the Borrower can be at his/her current employer for as little as a few weeks, provided the
Borrower has already received a paycheck. Self-Employed individuals generally should have two years of Tax
Returns showing Self-Employment, but DreamLoan-certified Brokers/Bankers can often reduce that to only
one year.
The next item is Income. For Salaried, W2 employees, Income is fairly easy to figure. For Self-Employed
Borrowers, see Income Analysis in the DreamLoan Mortgage Glossary.
The last item is Liquid Assets. It is important that (in a Purchase transaction) the Borrower has the entire Down
Payment plus a few months’ worth of the new payment (this is called Reserves) if the Borrower wants a
Conventional loan. Borrowers with very few Liquid Assets generally need to use the FHA, VA or USDA (if
property is rural and qualifies for USDA) programs. Obviously the more Liquid Assets the better to make the
file stronger. All Liquid Assets must be in existence (Seasoned) in the Borrower’s account(s) for at least 60
days prior to applying for the loan. If they are not, they can be disqualified as Liquid Assets. In the FHA
program (and some Conventional programs) Gifts are allowed for Down Payment, Reserves, Closing Costs
and Prepaids. See Gift Documentation in the DreamLoan Mortgage Glossary for more information.


HOW DO I KNOW WHAT MY INCOME IS?
Income can be determined in the following manner. Income must be determined based on how the Borrower is
“employed”.
    • Salaried Borrower (W2): The income that can be used as Qualifying Income is the monthly Gross Income per the
        Borrower’s paystub. The most recent year W-2 will also be reviewed to determine if there has been any
        substantial increase or decrease in Salary. If a salaried Borrower also earns Commission, Bonus, and/or overtime
        income, these non-Salary types of income will be averaged over a two year period. These non-Salary types of
        income must have a good likelihood of continuation.
    •   Commissioned Borrower that is paid by W-2: If the Borrower’s income is all Commission income but he/she
        receives a W-2 and taxes are withheld from his/her pay, the Commission income must have existed for the
        current year (Year to Date) and for the past two years to be used as Qualifying Income. The two previous years’
        income and current Year to Date income will then be divided by the number of months represented.
    •   Commissioned Borrower that is paid by 1099: A Borrower who earns Commission income and is issued a 1099
        and pays his/her own taxes by reporting his/her income on a Schedule C is considered Self-Employed. In this
        case, the income to be used for Qualifying Income is the Net Income from the Schedule C plus any Depreciation
        or depletion reported on the Schedule C minus 50% of the Exclusion for Meals and Entertainment. This must
        then be averaged over a two year period. Current Year to Date Commissions are not considered income.
    •   Self-Employed Sole Proprietorship: This Borrower will report income on a Schedule C and the income to be
        used for Qualifying Income is the Net Income from the Schedule C plus any Depreciation or depletion reported
        on the Schedule C minus 50% of the Exclusion for Meals and Entertainment. This must then be averaged over a
        two year period.
    •   Self-Employed Corporation (where Borrower owns >25% of that Corporation): Current base Salary being earned
        is used to qualify. Added to that number is a two year average of Bonuses and Commissions (less than two years
        cannot be used). If Bonuses and Commissions exist, the W2 will show more than the base Salary). In addition,
        the last two years of business Tax Returns can be reviewed to add any Depreciation or depletion less Mortgages,


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        notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership per the Return. A
        two year average of this additional income can be added to the base salary (plus any applicable Bonuses and
        Commissions). If Borrower owns <25% of the Corporation, Qualifying Income is based on how the Borrower is
        paid (Salaried/Salaried-Bonus/etc., Commissioned W2 or Commissioned 1099) plus K-1 earnings.
    •   Self-Employed S-Corp or LLC (where the Borrower owns >25% of that S-Corp or LLC): A two year average of
        Gross Income reported on the most recent two years W2s and K-1’s can be used for Qualifying Income. In
        addition, the last two years business Tax Returns can be reviewed to add any Depreciation or depletion less
        Mortgages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership (per
        the K-1 or Return). A two year average of this additional income can be added to the other Qualifying Income. If
        Borrower owns <25% of the S-Corp or LLC, Qualifying Income is based on how the Borrower is paid (Salaried/
        Salaried-Bonus/etc., Commissioned W2 or Commissioned 1099) plus K-1 earnings.
    •   Self-Employed Limited Partnership (where the Borrower owns >25% of that Limited Partnership): A two year
        average of Gross Income reported on the most recent two years K-1’s can be used for Qualifying Income. In
        addition, the last two years business Tax Returns can be reviewed to add any Depreciation or depletion less
        Mortgages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership (per
        the K-1 or Return). A two year average of this additional income can be added to the other Qualifying Income. If
        Borrower owns <25% of the Limited Partnership, Qualifying Income is still calculated as above.
    •   Dividend/Interest Income: A two year average of Dividend/Interest Income from a personal Tax Return
        (Schedule B) can be used for Qualifying Income as long as it can be documented that the Borrower still has the
        assets which generated the Dividend/Interest Income.
    •   Unreimbursed Expenses: If a Borrower claims unreimbursed expenses on Schedule A, this amount must be
        deducted from the Qualifying Income.
    •   Schedule E: Schedule E is a declaration of income from a variety of sources including royalties, real estate
        rentals, estates and trusts. The first part of the form is used to report income from rent and royalties as well as
        expenses from these activities such as advertising, auto travel, Commissions, insurance, and Mortgage Interest.
        Provided the Borrower has a history of reporting rental income on Schedule E, the Net Income plus any
        Depreciation can be added to Qualifying Income. The third section reports income or losses from estates and
        trusts which can also be used to qualify using a two year average provided five years of future continuation can
        be documented.
    •   Schedule F: If a Borrower files a Schedule F for Farm Income, the net profit (Net Income) or loss plus
        Depreciation can be used for Qualifying Income.
    •   Retired or Semi-Retired Borrower: Monthly Pension, Annuity and/or Social Security Income (Grossed Up).
    •   Foster of adoptive parents: Monthly adoption or foster care stipend.


DO I HAVE TO BE SELF-EMPLOYED FOR TWO YEARS TO GET A LOAN?
If you use a Retail Loan Originator or a Retail Banker, yes. If you use a DreamLoan-certified Broker or
Wholesale Banker, not necessarily. Assuming you are using a DreamLoan-certified Broker/Wholesale
Banker, if the characteristics of your Mortgage Profile are excellent, then it is possible to run the loan in an
Automated Underwriting engine and receive Findings that require as little as six (6) months of Self-
Employment and only one Tax Return to prove Self-Employment.


SHOULD I WAIVE ESCROWS OR NOT?
The answer to this question is entirely up to the Borrower, provided of course that the Borrower’s first Lien
will be 80% Loan To Value or less. The benefits of Waiving Escrows are as follows:


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• The overall loan amount will be lower because it does not have to absorb the cost of establishing the Escrow Reserves.
• The PI payment will be lower because the loan amount will be lower.
• The Borrower’s mandated monthly obligation will be lower because Property Taxes and Homeowner’s Insurance will
   not be included in the Mortgage Payment.
• If the property is sold, the Borrower will not have to wait 30-60 days to receive the contents of the Escrow Account
   from the Lender whose loan was paid off in the sale.
• If the Borrower ever Refinances the property again, the Borrower will not have to wait 30-60 days to receive the
   contents of the Escrow Account from the Lender whose loan was paid off in the Refinance.
• The Borrower can earn Interest on the Escrow Reserves as they sit, all year, in a savings, money market or other
   account instead of the Lender earning Interest on these funds (which will not be given to the client).
• The payment on the Mortgage is static and will not increase when Property Taxes have increase on the property.
The benefits of having an Escrows Account (not Waiving) are as follows:
• Many Borrowers find it convenient to have their Property Taxes and Homeowner’s Insurance included in the
   Mortgage Payment.
• The Borrower does not have to “save” the money necessary to pay the Homeowner’s Insurance bill when it comes due.
• There is no possibility of the Borrower falling behind on their Homeowner’s Insurance.
• The Borrower does not have to “save” the money necessary to pay the Property Tax bill when it comes due.
• There is no possibility of the Borrower falling behind on their Property Taxes.
For more information see the DreamLoan Specialty Tutorial “The Pros and Cons of Waiving Escrows”.


WHY DO I HAVE TO PAY AN UNDERWRITING FEE?
When a Mortgage file leaves the Processor and is submitted to the Underwriter for approval, it passes through
the following individuals:
• A processor/coordinator on the Lender’s end puts the file into the order in which the Underwriter reviews files (Credit
   Report comes before Appraisal, Income documents come after Appraisal, etc. for example)
• The Underwriter painstakingly reviews the file, calculates Loan To Value, Front and Back Ratios, Reserves, etc. in
   order to provide either a Declination, a Suspension or a Conditional Approval.
• A processor/coordinator on the Lender’s end collects the Conditions from the Broker/Wholesale Banker and submits
   them to the Underwriter so that all Conditions are submitted at once to the Underwriter.
• The Underwriter again reviews the file, verifying that the Conditions have been met in order to clear the file and
   provide a Clear To Close.
• A “Closer” who reviews the Title Commitment, the Homeowner’s Insurance documents, the Broker/Wholesale
   Banker’s fees, etc. then prepares the file for Closing.
• A “Funder” (after Closing) verifies that all documents were correctly executed at Closing and sends the wire and
   releases the Funding Number.
In order to help pay the salaries of all these people who are handling these files all day long, most Lenders
charge an Underwriting fee. While it is a legitimate fee, it can be negotiated if the Borrower is working with a
Broker or Wholesale Banker.


CAN I USE AN EXISTING SURVEY?
On a Purchase, some states do allow the Borrower to use the Survey provided by the Seller, provided that no
structural changes have taken place on the property since the Survey was done. In states that use Surveys, it is


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generally acceptable to use an existing Survey on a Refinance, again provided that no structural changes have
taken place on the property since the Survey was done.


WHAT DOCUMENTATION IS NEEDED FROM ME FOR A MORTGAGE?
Financial documents, property documents and any situational documents that apply. Specifically, a Borrower
should gather:
    • Find Income Tax copies for last two years
    • Find W2 forms for last three calendar years
    • Find business (C-Corporations, S-Corporations, Limited Liability Companies, Partnerships) Income Tax copies
        (if Self-Employed) for last two years
    •   Find K-1 forms for last three calendar years (if Self-Employed)
    •   Gather pay documents (one month of paycheck stubs, a Social Security Award letter, Pension award letter,
        Annuity award letter, adoption or foster care stipend stubs and/or county printout of child support payments)
    •   Gather asset documents (two months most current bank statements for all checking, savings, and money market
        accounts, last two statements received for all IRAs, 401Ks, Stock accounts, and Annuities, HUDs from recent
        property sales) Note that state, county and federal retirement accounts for current employees do not count as
        assets.
    •   Gather situational documents (Divorce Decree, Bankruptcy discharge letter and list of creditors, leases for Rental
        Properties, Tax Appraisal Notices for Rental Properties, Homeowner’s Insurance Declarations Pages for Rental
        Properties, proof of payment for Judgments, Tax Liens, Collections)
    •   Obtain statement of Whole Life Cash Value (if applicable)
    •   Find Survey (if Refinancing and in a state that uses Surveys)
    •   Find Homeowner’s Insurance Declarations Page for the Subject Property


WHY DO I HAVE TO PAY FOR THE APPRAISAL?
Either the Borrower or the Broker/Banker can pay for the Appraisal, but most Brokers and Bankers are not
willing to take the risk of fronting the money to pay for it. Under the new federal law commonly known as the
Home Valuation Code of Conduct (HVCC) all Appraisals must be paid for in advance and the loan originator is
prohibited from speaking to, emailing or communicating in any way to the Appraiser. Appraisals are ordered
through the Lender and via a national agency that finds the local Appraiser. The local Appraiser then calls the
Borrower (on a Refinance) or the Realtor® (on a Purchase) to set an appointment time to perform the
Appraisal.


IS AN APPLICATION FEE NORMAL?
Yes, especially for the more substantial brokerages and wholesale banks. An Application Fee insures that the
Borrower is invested in the transaction with the Broker/Wholesale Banker similar to the way Earnest Money or
a Deposit invests the Borrower with the Seller in a Purchase transaction. Application Fees may run anywhere
from $200 to $600 and compensate the Broker/Wholesale Banker in the event the Borrower changes his/her
mind and cancels the transaction. If the loan is for a Purchase with lots of Seller Concessions or is for a
Refinance with Closing Costs rolled into the new loan, then the Borrower should demand that the Application
Fee be charged again at Closing and that after Funding the Broker or Wholesale Banker refunds the Borrower



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for the Application Fee paid out of pocket at the beginning of the transaction. That way either the Seller or the
new loan can pay it, instead of it permanently coming out of the pocket of the Borrower. The same would be
true for any fee paid in advance, such as a Credit Report fee or an Appraisal fee.


CAN I GET PAID FOR REFERRING A FRIEND TO MY REAL ESTATE AGENT?
Yes, but usually only if you request it.


CAN I GET PAID FOR REFERRING A FRIEND TO A BROKER?
No. That is illegal. Brokers/Wholesale Bankers may not pay individuals or companies to acquire a client.
Mortgage originators may only buy leads from marketing companies at a predetermined, static price. For
example, a Mortgage originator can buy 500 leads for $2/lead, but he may not thank someone who sent him a
loan with $1,000. Furthermore, the loan originator cannot pay $200 for a lead for a $300,000 loan and then
$500 for a million dollar loan. All leads must cost the same. Additionally, a Mortgage originator cannot pay
one price for general leads and another price for leads that Close. The total cost of each type of lead must be
equal. For example, the originator can buy exclusive leads for one price and non-exclusive leads for another
price from the same company, but the originator cannot pay different prices for exclusive leads of differing
quality (high Credit Scores, large Liquid Assets, etc.).


WHAT ARE THE STEPS IN PURCHASING A HOME?
1. Gather your financial documents to prepare for your Mortgage financing.
2. Obtain a Prequalification letter. The DreamLoan mobile App can handle all of this for you, or you can get a
   Prequalification letter at DreamLoan.pro.
3. Choose a Mortgage loan originator or purchase a referral to a DreamLoan-certified Broker/Banker.
4. Get started on the Mortgage loan. Arranging the Mortgage financing before one looks for property may seem backward,
   but it allows the prospective Buyer to know how much they can qualify for, and whether or not the Buyer is
   comfortable with the payments, etc. before looking for property.
5. Find a Buyer’s Agent and an attorney (if an attorney is required in your state). A Buyer’s Agent can be found by
   purchasing a referral to a DreamLoan-certified Realtor®, and the Realtor® can usually suggest an attorney if one is
   required in your state. Keep in mind that there is no requirement to have a Buyer’s Agent. To assist users that wish to
   handle the Real Estate side of the transaction themselves, DreamLoan.pro sells a Specialty Tutorial called “Looking
   for Real Estate without a Realtor®”.
6. Enter into a Contract including delivering the Earnest Money/Deposit check and Option Fee check (if applicable) to the
   appropriate party (Real Estate Agency, Title/Escrow Company or Closing Attorney’s law firm)
7. Perform Home Inspection, including Termite (if desired, required on an FHA loan)
8. Perform other Inspections (Septic or Well, if applicable, or Foundation if Home Inspector has concerns)
9. Order or obtain Survey from Seller (in states that use Surveys)
10. Perform Appraisal
11. Arrange Homeowner’s Insurance coverage for the home
12. Complete Mortgage financing, including deciding if using a Power Of Attorney
13. Obtain Closing check. This check must be a cashier’s check so that the funds are immediately negotiable (can be
   immediately cashed). However, a wire from the Borrower’s bank account to the Title/Escrow Company’s bank
   account (or Closing Attorney’s trust account) will also work. If a Borrower is wiring funds to the Title/Escrow


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   Company, the Borrower first needs to obtain the Title/Escrow Company’s wiring instructions so that the funds are
   applied to the Borrower’s transaction. The same is true for wiring funds to a Closing Attorney’s law firm.
14. Attend Closing. Usually the only items the Buyer should bring to Closing are a photo identification, the Closing check
   and a checkbook (if the Closing check was not for the exact amount due). However, the Mortgage Lender may ask the
   Buyer to bring originals of Letters of Explanation or other items to Closing.


WHAT ARE THE STEPS IN REFINANCING?
The Steps In A Refinance are:
1. Prepare financial documents (see Steps to Prepare for a Mortgage)
2. Find your Survey (in states that use Surveys)
3. Apply for Mortgage financing. This can be done numerous ways using a DreamLoan-certified Broker or Banker.
4. Meet Appraiser
5. Meet any required Inspectors (Well, Septic)
6. Work with Processor
7. Decide if using a Power Of Attorney
8. Gather Conditions per the direction of the Processor
9. Close
10. Obtain Closing check, if applicable


HOW CAN I PREPARE FOR A MORTGAGE?
The Steps To Prepare For A Mortgage are:
1. Find Income Tax copies for last two years
2. Find W2 forms for last three calendar years
3. Find business (C-Corporations, S-Corporations, Limited Liability Companies, Partnerships) Income Tax copies (if
   Self-Employed) for last two years
4. Find K-1 forms for last three calendar years (if Self-Employed)
5. Gather pay documents (one month of paycheck stubs, a Social Security Award letter, Pension award letter, Annuity
   award letter, adoption or foster care stipend stubs and/or county printout of child support payments)
6. Gather asset documents (two months most current bank statements for all checking, savings, and money market
   accounts, last two statements received for all IRAs, 401Ks, Stock accounts, and Annuities, HUDs from recent
   property sales) Note that state, county and federal retirement accounts for current employees do not count as assets.
7. Gather situational documents (Divorce Decree, Bankruptcy discharge letter and list of creditors, leases for Rental
   Properties, Tax Appraisal Notices for Rental Properties, Homeowner’s Insurance Declarations Pages for Rental
   Properties, proof of payment for Judgments, Tax Liens, Collections)
8. Obtain statement of Whole Life Cash Value (if applicable)
9. Find Survey (if Refinancing and in a state that uses Surveys)
10. Find Homeowner’s Insurance Declarations Page for the Subject Property


DOES ALIMONY COUNT AS A DEBT?
Yes, but only if it will continue for more than ten months.



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DOES CHILD SUPPORT COUNT AS INCOME?
Yes, but only if it will continue for at least three years.


DOES CHILD SUPPORT COUNT AS A DEBT?
Yes, but only if it will continue for more than ten months.


CAN I CLAIM CHILD SUPPORT AS INCOME?
Yes, provided it will continue for at least three more years and that the Borrower can prove it has been paid
every month for the past 12 months.


WHAT IS AN ARM?
An ARM is an Adjustable Rate Mortgage. An Adjustable Rate Mortgage is a Mortgage with a Rate that
changes over time. ARMs come in many different varieties, but most of them (with the exception of a 1 month
ARM) have a period at the beginning of the Mortgage where the Rate is Fixed (the Fixed Period). At the end of
the Fixed Period, the Rate will adjust up or down, based on the market at that time according to the Period.
These are the terms referred to in, for example, a 5/1 ARM, that is, a 5/1 ARM has a Fixed Period of five (5)
years and a change Period of one (1) year. The amount by which the Interest Rate can adjust up or down is
based on the Cap and the Floor respectively. In order to fully assess an ARM, one would need to know the
Initial Rate, the Fixed Period, the Index upon which the ARM is based, the Period of adjustments, the Margin,
the Initial Cap, the Periodic Cap, the Lifetime Cap and the Floor. An adjustment to the Rate is calculated by the
Index plus the Margin which is then compared to the current Rate plus the Cap (the new Rate would be the
lower of the two) which is then compared to the Floor (the new Rate would then be the higher of the two). For
example, if a 5/1 T-Bill ARM has an Initial Rate of 6.00%, a Margin of 3.00% and a Floor of 3.00% with 2/6/6
Caps (Initial, Periodic and Lifetime) it will adjust as follows: If, after the five year Fixed Period is over, the T-
Bill Index is 2.50%, this would be added to the Margin (3.00%) which results in a 5.50% Rate. Then, as
compared to the Initial Rate (6.00%) plus the 2% Initial Cap (total of 8.00%), the 5.50% is lower (if higher then
the 8.00% would stand). The 5.50% is then compared to the Floor of 3.00%. 5.50% is higher than the Floor (if
lower, then the Floor would stand). Thus the new Rate for the next year would be 5.50%.

                                Index of 2.5%                      Initial Rate of 6.0%
                             + Margin of 3.0%                     + Initial Cap of 2.0%
                            New Rate is 5.5% if less than...                      8.0%




                        New Rate is 5.5% if greater than...        The Floor of 3.0%


HOW DOES A REVERSE MORTGAGE WORK?
In a regular Mortgage (non-Reverse Mortgage), the Applicant borrows a lump sum and pays that sum back,
with Interest, in Mortgage Payments over the Term of the loan. In a Reverse Mortgage, the Applicant gives the
Lender a Lien against the property and in exchange, the Lender then makes payments to the Applicant every
month for the Term of the loan. Because the Applicant is receiving payments rather than making them, no


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employment, Income or Liquid Assets are required to obtain the loan. Instead, only a minimum age (62) and
sufficient Equity in the Subject Property are required of the Applicant in order for the loan to be made.


WHY WOULD I CHOOSE INTEREST ONLY?
Generally, an Interest Only loan is chosen to lower the monthly Mortgage Payment in order to carry a Real
Estate investment. For example, if a Buyer purchases an Investment Property, an Interest Only attribute might
be chosen in order for the rent on the property to completely cover the Mortgage Payment. Interest Only loans
are best used when properties in the Subject Property’s area are steadily appreciating in value. The Interest
Only attribute can make an enormous difference in payment on a large loan. A $400,000 loan, for example, if
amortized over 30 years at 7.00% would have a payment of $2,645.78. Applying the Interest Only attribute
would drop the payment to $2,333.33 which is a difference of over $312.00 a month. Interest Only loans can
also be used to assist the Borrower during difficult financial times. If a Borrower gets lots of overtime in the
fall, but very little in the spring, an Interest Only loan could assist the Borrower in making payments during the
leaner times. In another case, a Borrower may get a large tax refund each year. Knowing this, the same
Borrower might choose an Interest Only loan so that payments are low and then, once a year, the Borrower
applies a large sum toward the Principle of the loan with his/her tax refund. In this way, the Borrower achieves
the Principle reduction of an Amortized loan, but does so with lower payments throughout the year.


WHAT ARE ACCEPTABLE DEBT TO INCOME RATIOS?
Acceptable Debt To Income Ratios depend upon the loan program and the strength of the Borrower. The Front
Ratio generally should not exceed:
    • 28% on Conventional, good credit loans
    • 29% for Government loans with or without a Non-Resident CoBorrower
    • 33% for Prime, Jumbo loans
    • 35% for Prime (good or excellent credit), Conventional loans using Non-Resident CoBorrowers (CoBorrowers
        who will not live in the property which is the subject of the loan). This is 35% based on the Borrower’s Income
        only. The Income of the Non-Resident CoBorrower on a Conventional, Prime loan can only be used to lower the
        Back Ratio, i.e. the Borrower alone must still have a Front Ratio of 35% or less
The Back Ratio generally should not exceed:
   • 45% for most Prime, Conventional Conforming loans.
   • 38% for most Prime, Jumbo loans.
   • 41% for most FHA and VA loans (Government loans).
   • 43% for Prime (good credit), Conventional Borrowers with Ron-Resident CoBorrowers.
   • 43% for FHA and VA loans doing new construction (building a home).
   • 45% for Construction Permanent loans
   • Up to 60% for Conventional loans with Compensating Factors, run on an Automated Underwriting engine
   • Up to 49.99% for very good or excellent credit, Government loans with Compensating Factors, run on an
        Automated Underwriting engine
    •   45% for a Combo loan Second Mortgage
    •   45%, 50% or 55% for Subprime loans (depending on Lender)




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WHAT IS MORTGAGE INSURANCE?
An insurance policy paid by the Borrower to insure the Lender against default. Specifically, Mortgage
Insurance insures the Lender for the portion of the Loan To Value above 80% that the Lender is extending in
credit. This is because most Foreclosure sales make approximately 80 cents only on the dollar. So if a loan of
95% Loan To Value was made, 15% would likely not be recoverable in the event of a Borrower’s Default.
Mortgage Insurance would insure the Lender for this 15% Loan To Value above the 80% mark. For example, if
a Borrower does a 5% down, one Lien loan, the Loan To Value is 95% of the Purchase Price. Thus, the
Mortgage Insurance on that loan would insure the Lender for the 15% above the 80%. Mortgage Insurance
began being tax deductible on January 1, 2007 and is deductible for single Borrowers with Incomes up to
$100,000 per annum and for married Borrowers with combined Incomes up to $110,000 per annum. Mortgage
Insurance is only tax deductible on Owner Occupied properties.
In the event that a Borrower makes more than the Income guidelines above, there is another way to make
Mortgage Insurance tax deductible. This is done by using Lender Paid Mortgage Insurance, where the Lender
charges a one-time fee that can either be paid through the Rate or by the Borrower or Seller (on a Purchase) or
through the Rate or by the Borrower or the loan amount (on a Refinance). Usually this is accomplished by
paying the fee through a slightly elevated Rate (assuring the Mortgage Insurance’s tax deductibility since the
Interest on a Mortgage is tax deductible (to a limit of $1 million of loan’s worth of loan Interest).


WHAT DETERMINES IF I HAVE TO HAVE MORTGAGE INSURANCE
All FHA loans have Mortgage Insurance. On Conventional loans, Mortgage Insurance is mandated on loans
with Loan To Values greater than 80%. This is why Combo Loans are so helpful for Borrowers that want to put
down less than 20% but who don’t want Mortgage Insurance. There is no monthly Mortgage Insurance on VA
loans.


IS MORTGAGE INSURANCE TAX DEDUCTIBLE?
It depends upon your Income and what kind of Mortgage Insurance is on your loan. There are three types of
Mortgage Insurance: Borrower Paid, Lender Paid and Split Edge. Borrower Paid and Split Edge Mortgage
Insurance are tax deductible for individuals who have gross Incomes of less than $100,000 a year. It is also tax
deductible for married couples who have gross combined Incomes of less than $110,000 a year. Lender Paid
Mortgage insurance is always tax deductible, no matter what the Income of the Borrower because it is usually
paid via an increase in the Interest Rate (or as a Discount fee), and not as a separate monthly fee.


WHAT IS LENDER PAID MORTGAGE INSURANCE?
Some Lenders offer Borrowers the ability to trade an increase in Interest Rate (or a Discount Points charge) in
exchange for the Lender paying the Mortgage Insurance on a loan. For example, if a Borrower is Refinancing
and anticipates that their $80,000 loan will be only 80% of a $100,000 value but finds that the home, upon
appraisal, is only currently worth $90,000 then the loan becomes more than 80% of the home’s value. In this
situation, when the First Mortgage is more than 80% of the home’s value, Mortgage Insurance is mandated.
Because this Borrower’s Appraisal has come in low, the resulting Loan To Value ratio is now 88.89% and the
Borrower and the DreamLoan-certified Broker/Banker need to decide which is better: Borrower-Paid
Mortgage Insurance, Lender Paid Mortgage Insurance or Split Edge Mortgage Insurance. If Lender Paid
Mortgage Insurance is chosen (because the Borrower makes more than $100,000 gross Salary a year, for
example, a Lender that offers Lender Paid Mortgage Insurance must be used. Providing the correct Lender is


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being used, that Lender will offer to pay the monthly Mortgage Insurance on the loan in exchange for a
permanent increase in the Interest Rate on the loan (or a one-time Discount charge). The increase in the Interest
Rate can be as little as an eighth of a percent (0.125%) or as high as 1.00% or more, depending on the Credit
Score of the Borrower, the size of the loan, the strength of Mortgage Insurance required, the Term of the loan,
the Loan To Value ratio, and other loan aspects.


WHICH SHOULD I CHOOSE, BORROWER PAID MORTGAGE INSURANCE OR LENDER PAID
MORTGAGE INSURANCE?
Each has advantages and disadvantages. A Borrower may wish to make the Mortgage Insurance tax deductible
when it otherwise wouldn’t be, or may wish to limit the application of Mortgage Insurance to a limited period
of time. In the first instance, when a single Borrower makes more than $100,000 a year in Gross Income,
Borrower Paid Mortgage Insurance would not be tax deductible, whereas Lender Paid Mortgage Insurance
would be. In the second example, where the Borrower wants the Mortgage Insurance to be temporary, if a
Borrower knows that the value of his property will appreciate rapidly, Borrower Paid Mortgage Insurance is
not permanent (one can apply to have it removed by proving the home’s value has increased), but Lender Paid
Mortgage Insurance exists for the life of the loan. There is even a third option - Split Edge Mortgage Insurance
where the Borrower pays half monthly and the Lender pays half monthly. Split Edge is usually used when a
Borrower has a Debt To Income Ratio that is too high and needs to be lowered.


IF I BOUGHT MY HOUSE LESS THAN A YEAR AGO, CAN I REFINANCE?
It depends entirely upon the loan amount. If a loan amount is equal to or below the Conforming loan limit, it
can be Refinanced immediately because Conforming loans do not have to be Seasoned. If the loan amount is
above the Conforming loan limit and is a Jumbo loan, the loan must be Seasoned for a full year.


HOW MUCH MONEY DO I NEED TO HAVE TO REFINANCE?
Generally, only two months’ worth of the new payment (as Liquid Asset Reserves) would need to be Seasoned
in order to Refinance. If the current loan is $400,000 with a PITI payment of $3,600 then $7,200 would need to
be Seasoned Liquid Assets. However, many Refinances change the Term of the loan as well. Moving from a 30
year loan to a 15 year loan will most often make the PITI payment go up, so more Liquid Assets might be
necessary. A DreamLoan-certified Broker/Banker would easily be able to calculate this Liquid Asset
requirement for the Borrower. With regard to out-of-pocket expenses, generally only an Application Fee
($200-$600) a Credit Report fee (<$60) and an Appraisal fee ($400-$550) are required before the loan closes.
These fees can, however, be rolled into the new loan and then reimbursed back to the Borrower.


HOW MUCH SHOULD MY RATE GO DOWN IN ORDER TO REFINANCE?
The Interest Rate of the loan does not need to go down at all in order to Refinance. Many consumers hear that
there is a rule of thumb that “the Interest Rate must drop 2% for a Refinance to be worth it”. But this is not
necessarily true. For example, if a Borrower’s Salary increases, the Borrower might Refinance a loan from a 30
year Note to a 15 year Note, even though Rates are no lower than when the Borrower purchased the home. This
would still be a sound Refinance with great financial benefit. If, in this example, that Borrower purchased the
house three years ago, Refinancing into a 15 year Note would cut 12 years off the life of the loan. If the loan
were $400,000 that could save over $350,000 in Interest even if the Rate remained the same. Another Borrower


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might foresee a reduction in Income and might Refinance his loan from an Amortized loan to an Interest Only
loan before the Income reduction takes place. Again, the Rate could be the same yet the financial benefit still
exists. Obviously it is best when the Interest Rate goes down in a Refinance, but it is not always necessary to
create a financial benefit. All DreamLoan-certified Brokers/Bankers can assess these options for a Borrower
and can likely find some combination of loan features that gives ample financial benefit to the Borrower. All
one needs to do is ask. And a Borrower needn’t worry about paying for a DreamLoan Mortgage referral and
then finding out a Mortgage transaction is not possible. In this limited instance, the DreamLoan Referral
Guarantee program applies.


WHAT’S A LEASE BACK?
A Lease Back is a rental agreement between the new owner (the Buyer), as Landlord, and the Seller (the
tenant) which allows the Seller to remain in the property for a specified period of time following the Closing of
the Purchase. If the Purchase of the property is for an Investment Property, the Lease-Back can be for a term
that is as long as the two parties wish. However, if the Purchase of the property is for an Owner Occupied
property or a Second Home, depending on which investor is being used for the Mortgage loan, the term of the
Lease Back usually cannot exceed 30 to 60 days due to the requirement of an Occupancy Affidavit
(establishing when move-in will take place which is usually either within 30 days or within 60 days) signed by
the new owner (the Buyer) in the Buyer’s Closing documents.


WHAT’S AN ASSUMPTION?
An Assumption is when another party takes over a homeowner’s Mortgage Payments and Mortgage, instead of
just going to a Mortgage professional and obtaining their own Mortgage. Only Government loans are
Assumable. In the past (last century) anyone could assume your Mortgage; all they had to be was 18 and
breathing. Since around 2000 the person assuming the Mortgage now must qualify to do so. The other benefit
to having someone assume your Mortgage is that you do not have to hire a Real Estate Agent and go through
the home selling process. This saves time and approximately six percent (6%) of the value of your home. A
drawback to an Assumption is that the homeowner is not released of personal liability when the Mortgage is
assumed. This means that if the party assuming your Mortgage is late on their payments, it will negatively
affect your credit history and Credit Scores.


HOW DO I KNOW WHEN TO REFINANCE?
Refinancing depends upon the Borrower’s goals for the property as well as market conditions. Assuming
Interest Rates are lower then when the property was purchased, when to Refinance is examined as follows:
If the Borrower bought a house and the intention is to keep the property for only two years and then sell it,
Refinancing makes no sense at all, no matter how low Rates are. If, on the other hand, a Borrower intends on
keeping a property for a long time and Rates have moved lower, then a Refinance may be appropriate.
Very simply, if you are going to keep the property for a while, and looking to do a new loan with the same Term
as your current loan (30 years, 15 years, etc.) and you are not getting any Cash Out, then use the following
formula to figure out which Rate would be necessary to Breakeven on the Closing Costs within the number of
years the new loan is going to be kept. Assume 3% of the loan for Closing Costs, nothing for Prepaid items,
your current PITI for the skipped payment and use the DreamLoan Mortgage calculator to calculate the new




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payment. Then calculate the difference of your current PI-only payment minus the new PI payment. This will
give you all the variables needed to figure the number of months until Breakeven.

                         ---------- Formula ----------            ---------- Example ----------
                               Total closing costs                             $15,980.22
                                   - Prepaid items                             - $1,572.90
                               - Payment skipped                               - $3,228.13
                         _____________________                     _____________________

                                  Cost of Refinance                            $11,179.19
                         ÷ Monthly Pmt Reduction                                ÷ $212.18
                         _____________________                     _____________________

                         Breakeven (# of months)*                                       52.69

Of course, if the formula above it too complicated, one can always get the answer needed from a DreamLoan-
certified Broker or Banker.
Keep in mind that Rates are not the only indicator of when a Borrower might benefit from a Refinance. For
example, if a Borrower’s Salary increases, the Borrower might Refinance a loan from a 30 year Note to a 15
year Note, even though Rates are no lower than when the Borrower purchased the home. This would still be a
sound Refinance with great financial benefit. If, in this example, that Borrower purchased the house three years
ago, Refinancing into a 15 year Note would cut 12 years off the life of the loan. If the loan were $400,000 that
could save over $350,000 in Interest even if the Rate remained the same. Another Borrower might foresee a
reduction in Income coming and might Refinance his loan from an Amortized loan to an Interest Only loan or
from a 30 year loan to a 15 year loan before the Income reduction takes place. Again, the Rate could be the
same yet the financial benefit still exists. Obviously, the lower the Rate the better, but a Refinance can
sometimes be advantageous even if Rates haven’t dropped. A DreamLoan-certified Broker/Banker can
always help you in this evaluation. You can talk to DreamLoan-certified Brokers even if you don’t have an
immediate transaction. Counseling the Borrower in anticipation of a transaction is all part of the profession.


WHAT’S THE DIFFERENCE BETWEEN AN INSPECTION AND AN APPRAISAL?
An Inspection is generally a Home Inspection and is ordered by the Buyer and is an examination of the
property to make certain that it is in full working order and to identify any and all repairs that are
recommended. The Home Inspection is usually done during the Option Period or Inspection Period in the
Contract of Sale so that, if repairs are recommended, the Buyer can negotiate who will pay for the repairs (with
the Seller) during the time that the Buyer can still legally exit the Contract. An Appraisal is ordered by the loan
originator and is an estimate of the Fair Market Value of the property based on recent, nearby sales of similar
size and quality.


WHAT IS A SURVEY?
A Survey is a measurement and drawing of a property including its boundaries, Building Lines, Setbacks and
easements. A Survey looks like a sketch of the property, including the property lines, any structures on the
property, driveways, walkways, etc. A Survey literally looks like an outline of the property from the view of an
airplane. Surveys can be done two ways: Lot/Block and Metes & Bounds. Not all states use Surveys.



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I HAVE HEARD THAT I SHOULD SHOP MY MORTGAGE AROUND. IS THIS TRUE?
It is not necessary to shop a Mortgage. What is more important is finding a good Mortgage Broker or Banker.
DreamLoan certifies Mortgage Brokers and Bankers to make the process easy. Referrals to competent
Mortgage Brokers are available through both the DreamLoan mobile App and DreamLoan.pro. There are
four reasons why “shopping a Mortgage” is counter-productive in the search for a good Mortgage.
1. A Borrower who goes to many different banks and Mortgage brokerages looking for a Mortgage usually gives each of
   these entities their Social Security Number. Each entity then pulls the Borrower’s Credit Report and the mathematical
   formulas from which Credit Scores are derived are not intelligent enough to recognize that all of these credit pulls are
   all Mortgage inquiries (often because many Mortgage brokerages do set themselves up as Mortgage companies and
   their pulls are seen like credit card inquiries). As a result, the Borrower’s Credit Scores get lower and lower during the
   “shopping” process. This can have a negative impact on the Borrower, since Mortgaging is incredibly Credit Score-
   driven. Mortgages for Borrowers with lower Credit Scores either cost more or have higher Interest Rates.
2. The client is not really qualified to evaluate the differences between one Mortgage quote and another. Mortgage quotes,
   or Good Faith Estimates can differ largely between Lenders, Brokers, Bankers, etc. The client is generally not capable
   of comparing numerous Mortgage characteristics such as:
   • Whether or not the Mortgage has a Prepayment Penalty
   • If the Mortgage has a Prepayment Penalty, whether it is a Hard Prepay or a Soft Prepay
   • Whether the loan is Fixed or an Adjustable Rate Mortgage
   • Whether or not an Escrow account is required
   • Whether the loan is Interest Only or Amortizing
   • Whether or not the payment quoted includes Property Taxes and Homeowner’s Insurance
   • If the loan Structure is appropriate for their short-term or long-term financial needs or both
   • Whether or not there is a way to have the Lender pay the Mortgage Insurance
   • Whether or not the Rate contains Yield Spread Premium paid to the Broker
   • Whether or not the Rate contains Service Release Premium paid to the Banker
   • What the estimated Processing time is
   • What problems does the file contain and how should they be addressed before Underwriting
3. The client is unaware that a Mortgage quote, or Good Faith Estimate is only good for ten (10) days. Since Processing
   time for a Mortgage is more than ten (10) days, the Mortgage quote or Good Faith Estimate can be worth very little if
   the brokerage it comes from is not of high quality.
4. There is no law that says that a Broker, Banker or Retail Loan Originator has to tell the truth when giving a Mortgage
   quote. The Broker, Banker or Retail Loan Originator can literally tell the Borrower whatever the Borrower wants to
   hear in the Mortgage quote and there is no law that says that the final Mortgage has to even remotely resemble the
   quote. The only law that comes into play is one that says if there is a difference between the written Good Faith
   Estimate and the final Mortgage, the Broker, Banker or Retail Loan Originator must redisclose the fees of the
   Mortgage on another Good Faith Estimate at least three days prior to Closing. What the Borrower doesn’t think about
   is that three days prior to Closing in a Purchase transaction, for example, the Borrower will have given notice at their
   apartment or prior home, will have registered their children in a new school district, will have packed all of their
   belongings and scheduled the moving truck, etc. Three days before Closing, the Borrower is backed into a corner and
   must take the Mortgage they are given, making all the “shopping” worthless. Generally, the expression “you get what
   you pay for” applies here. If the Borrower chooses the Mortgage with the lowest rate and lowest cost, the Borrower
   may very well get either an extremely unqualified, untrained loan originator or an unscrupulous one who intends to
   deliver a big surprise at Closing.
Again, the more important thing to do is to either shop between Mortgage brokerages or get a DreamLoan
referral to a competent, honest, professional Mortgage Broker or Banker and then let the Mortgage


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professional shop the Mortgage to throughout its Lender network. DreamLoan spends considerable time and
effort in certifying Mortgage Brokers and Banker, so that it is easy for a Borrower to find a quality Broker
quickly. For more information, see the DreamLoan Specialty Tutorial “What a Mortgage Professional
Should Do”.


HOW MUCH SHOULD I PUT DOWN ON A NEW HOUSE?
There are two schools of thought when it comes to this question. Some think it is best to put the minimum
amount down and conserve cash, while others think it is best to make a large Down Payment in order to
establish Equity. We will examine the pros and cons of each.
The benefits to making a large Down Payment on a new house: First, a larger Down Payment mean one can
Purchase more house. For example, a Buyer who qualifies for a $300,000 loan still qualifies for a $300,000
loan regardless of what the Down Payment is. Therefore, that Buyer can buy a house priced around $315,000
with a five percent (5%) Down Payment or, if the Down Payment is larger, a $355,000 house with a twenty
percent (20%) Down Payment. In both situations the size of the Mortgage is roughly the same, but the Buyer
making a larger Down Payment can buy more house. The second benefit to making a large Down Payment is
that the Buyer is somewhat insulated from being Upside Down in the event of an economic downturn and/or
softening housing market. The third benefit is that a Buyer buying, for example, a $200,000 house will have
lower Mortgage Payment with a large Down Payment than he/she would with a minimal Down Payment.
Lastly, a Down Payment of twenty percent (20%) or more allows the Buyer to avoid Mortgage Insurance and
to have the right to handle his/her own Property Tax and Homeowner’s Insurance payments (Waiving
Escrows).
The benefit to making a small or minimal Down Payment is the conservation of cash. Homeownership comes
with many additional costs, such as new painting, new shelving, furniture, landscaping, etc. and it is often
advisable for a new home Buyer to make sure that they have ample funds for these costs after Closing.
Generally, the difference in Interest Rate between making a minimal Down Payment and making a large Down
Payment is minor. FHA loans, for example, with a 3.5% Down Payment generally have the same Interest Rates
as Conventional loans with large Down Payment. There are, however, Mortgage Lenders (especially Retail
Loan Originators associated with large companies like Quicken Loan, Ditech, etc.) who offer slightly better
Interest Rates for transaction with large Down Payments, but there are always other “fine print” terms that
must also be met in order to acquire that Interest Rate.
The decision to make a small or large Down Payment is best made in concert with your DreamLoan-certified
Broker/Banker. In some cases, a larger Down Payment will be required for Loan Approval and in other cases,
only a minimal Down Payment is required. It might also be a good idea to purchase the DreamLoan Specialty
Tutorial “Responsible Zero Down Payment Financing”.


HOW DO I KNOW WHAT TO OFFER FOR THE HOUSE I WANT?
For Borrowers without Real Estate Agents, this question should be posed to a DreamLoan-certified Mortgage
Broker/Banker who can contact an Appraiser for guidance. For Borrowers with Real Estate Agents, this
question should be posed to their Realtor®. For all Borrowers, there are a few important things to think about
when making an Offer.
The first is Seller Concessions. Whenever possible it is a good idea to get the Seller to pay Closing Costs
(Seller Concessions or Contributions). Seller paid Closing Costs are important for two reasons: They lower the
bottom line dollar figure that the Buyer will need to bring to the table at Closing, and they allow for Buydowns


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to permanently lower the Buyer’s Interest Rate and payments. The reasoning for Seller Concessions is that
cash is king. The more cash the Buyer can have at their disposal after the Closing, the better. This can assist in
meeting Liquid Asset Reserve requirements in Mortgage qualification and can assist the Buyer in meeting the
more unexpected financial costs of owning a home (like paint, drapes, cable installation, electricity and water
deposits, gas deposits, shelving, light fixtures, appliances, etc.). Additionally, extra cash after the Closing
lowers the likelihood of Default should something in the Borrower’s financial life go wrong shortly after
beginning the new Mortgage.
With regard to the Purchase Price being offered, Seller Concessions can sometimes help. If a Buyer sends the
Seller an Offer of $200,000 for a house listed at $210,000 the Seller may only see that their asking price has not
been met and that they are netting only $200,000. But if the Offer is $206,000 with $6,000 in Seller paid
Closing Costs, the Seller may feel that the Offer is almost the amount of the asking price. Even thoough the
two net numbers are the same, psychologically one is more appealing than the other the the Seller. The net to
the Seller is still the same ($200,000), but the Borrower keeps more cash after Closing and the likelihood of the
Offer’s acceptance by the Seller is heightened.
The second thing to think about is the Earnest Money/Deposit required. The Buyer wants this number to be as
low as possible. This is because the Earnest Money/Deposit is paid for by the Buyer when the Contract (the
Offer, once signed, initialed and dated by all parties becomes the Contract) is “Receipted” at the Title/Escrow
Company, Listing Real Estate Agency or Closing Attorney. The Buyer will then get a credit for this money
toward the Purchase Price of the property at Closing. The reason that it is important to keep this Deposit on the
home as low as possible is because if there is ever an argument or conflict between the Buyer and the Seller (an
inability to get financing, an Inspection with lots of repairs, etc.), this Deposit can be held by the Receipting
party until everyone agrees that it should be given back to the Buyer. The Seller, now disgruntled, would be
one of those parties.
The third thing to think about when making an Offer is the Option or Inspection Period and any associated fee.
The Buyer wants the period (the number of days) to be as long as possible, so that there is no need to get the
Inspection done in an impossibly quick period of time. This gives the Buyer time to find a good Inspector and
schedule an appointment. If the Buyer is in a state where there is a fee associated with the Option or Inspection
Period, it is very important that this fee be as low as possible, because this fee is not refundable and
immediately goes to the Seller. This fee usually runs between $100 and $200 in exchange for seven to ten (7-
10) calendar days. However, this period of time is totally negotiable and can be extended by making the period
ten (10) business days instead of calendar days, for example. The Buyer should get a credit toward the
Purchase Price for this fee at Closing.
The last item to consider when making an Offer is where the transaction will Close. This means the Buyer must
choose the Title/Escrow Company or Closing Attorney that will handle the Closing. Usually the Seller states
his/her preference, but in reality that is usually just the preference of the Listing Agent. This item is totally
negotiable and very important. If the Title/Escrow Company or Closing Attorney is beholden to the Listing
Agent for the business received, private information about the Buyer may be communicated to the Listing
Agent and therefore, the Seller. However, if the Buyer’s choice of Title/Escrow Company or Closing Attorney
is agreed upon as the Buyer’s preference, then the Buyer will likely receive far more privacy during the
transaction.
If the Buyer has a Real Estate Agent, a professional Mortgage loan originator will leave the Offer to the
experience and data known by the Real Estate Agent. The loan originator need only do a cursory review of the
Offer before the Buyer signs it to make sure it was done from the best possible financial position. If the Buyer
does not want a Real Estate Agent it is strongly encouraged that you purchase the DreamLoan Specialty
Tutorial “Looking for Real Estate without a Realtor®”.


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CAN I USE MY PART-TIME INCOME TO QUALIFY FOR A LOAN?
Part-Time Income can be used as Qualifying Income provided that it has been taking place for at least one year
and is likely to continue.


WHAT ARE CLOSING COSTS?
There are a large number of people or entities involved in the execution of a Mortgage loan. Closing Costs are
the charges and fees associated with these parties. Closing Costs are collected by the Title/Escrow Company or
Closing Attorney and are distributed to all of the entities involved in obtaining a Mortgage loan. Not all
Closing Costs go to the loan originator. Origination Points would go to the originator, but Discount Points
might go to the Lender. An Underwriting fee would go to the Lender, while a Processing fee might be charged
by a contract Processor. A Survey fee would go to the surveyor and the company that issues 1098 forms will
charge a one-time Tax Related Service Fee. Another company might charge for a Tax Certificate or a Flood
Certificate. All of these charges are considered the costs necessary to Close a loan, which is why they are
called Closing Costs. Closing Costs are itemized at the Closing at the Title/Escrow Company or Closing
Attorney’s office on the HUD-1 Settlement Statement.


SHOULD I APPLY FOR A MORTGAGE BEFORE I MAKE AN OFFER ON A PROPERTY?
Yes. While it might feel like you are putting the cart before the horse, but it is actually much better to get the
Mortgage financing lined up before entering into a Contract. Applying for the Mortgage first allows the
Borrower to know the maximum Purchase Price that the Borrower is qualified to buy. Additionally, the
Borrower will know the monthly payment associated with the loan for which they qualify. The Borrower can
then move the Purchase Price down until the monthly payment is comfortable and then put in an Offer on a
house that does not exceed the comfortable Purchase Price. Potential Buyers can begin their Mortgage process
by purchasing a referral to a DreamLoan-certifed Broker/Banker to insure that the transaction goes smoothly.


DO I NEED A REAL ESTATE AGENT TO MAKE AN OFFER?
No. There are no states in the U.S. that require a Buyer to have a Realtor® in order to purchase Real Estate.
Individuals who wish to “go it alone” and search for property themselves should have a DreamLoan-certified
Broker or Banker so they have at least some guidance. Additionally there is a DreamLoan Specialty Tutorial
called “Looking for Real Estate without a Realtor®” that will help in this endeavor.
All of the suggestions contained within the DreamLoan Specialty Tutorial “Looking for Real Estate without
a Realtor®” are worth following in the end. This is because the Seller would normally pay the Buyer’s Agent
one-half of the Listing fee charged by the Listing Agent’s firm (this is usually in the neighborhood of 6% of the
Purchase Price). Since individuals without Real Estate Agents do not have a Buyer’s Agent, the amount of that
Commission becomes available to the Buyer (as Seller Contributions toward Closing Costs, not as a
Commission). These funds can be secured for the Buyer by writing the following in the special or additional
provisions section of the Offer: “Since Buyer does not have a Realtor®, Buyer respectfully requests Seller
Concessions of 3% of the Purchase Price toward any and all Buyer’s Closing Costs and Prepaid items.” There
may end up being some negotiation over this percentage, but it is worth the negotiation - every $100,000 of
house equals $3,000 of cash to be applied toward Closing. Additionally, if there is any section of the Offer that
refers to a Buyer’s Agent in any way, that section should be crossed out and initialed.
An example of a person who might look for Real Estate without a Realtor® might be someone who knows the
exact neighborhood in which they want to live. In this case, they might drive through the neighborhood each


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weekend looking for “for sale” signs. Another example might be individuals who are particularly technology-
savvy who can search the internet for property and who have the time to go look at all the houses they find.
Remember that a Prequalification letter can be obtained on either DreamLoan.pro, the DreamLoan mobile
App or through a DreamLoan-certified Broker/Banker.


WHERE CAN I GET A REAL ESTATE FORM TO MAKE AN OFFER WITHOUT A REAL ESTATE
AGENT?
Each state has a Real Estate Commission and generally offers promulgated or standardized Real Estate
Contracts online. These Contracts can be filled out by hand. If you are going to buy Real Estate without a
Realtor® it is strongly encouraged that you purchase the DreamLoan Specialty Tutorial “Looking for Real
Estate without a Realtor®”.


WHAT ARE THE FOUR BOXES ON THE TRUTH IN LENDING DOCUMENT?
The financial data on the Truth In Lending document for a loan consists of four boxes and a payment schedule.
The four boxes are the Annual Percentage Rate (APR), the estimate of Interest, the estimate of Principle and
the estimate of total repayment costs. These are explained as follows:
• The APR is the first box from the left on the Truth In Lending Statement. The APR is what the Lender will actually
   yield from the loan, each year, including the Closing Costs paid to obtain the loan (as if they were spread out over the
   Term of the loan). The APR is the Interest that will be paid during the first year (the Interest Rate), plus certain costs
   that were paid for by the Borrower (or Seller in a Purchase transaction) to acquire the Mortgage. This inclusion of fees
   paid to acquire the Mortgage (as represented as a percentage of the loan) is why the APR is slightly higher than the
   Interest Rate of the loan. If there were no Closing Costs, then the APR would be identical to the Interest Rate. The
   APR is an excellent way to compare loans (provided all attributes between the loans are the same, i.e. Term,
   Amortization, whether or not there is a Prepayment Penalty, whether or not there is a Balloon, etc.) because it is a more
   complete representation of the total cost of the loan, as opposed to simply comparing the Interest Rate. For example, a
   3.875% Interest Rate with a 4.225% APR is actually more expensive than a 4.00% Interest Rate with a 4.082% APR.
   However, it is important to note that using the Breakeven and Recoup formulas are even more precise at determining
   the prudence of how much Closing Costs are best. For example, a No Point Loan may have a lower APR than a loan
   with two Discount Points, but both the Recoup and the Breakeven formulas may prove that it is the best loan for the
   Borrower’s short-term and/or long-term financial goals. The APR is an oversimplified, government number that does
   not take into account how long the Borrower intends on remaining connected to the loan. Therefore, it is
   DreamLoan’s opinion that a complete analysis of the loan (using the Breakeven and/or Recoup formulas) is a better
   way to compare loans than the APR. If this is too painstaking for the Borrower, a DreamLoan-certified Broker/
   Banker can certainly do it. Related terms: Prepaid Finance Charges, Interest Rate, Origination, Discount.
• The second box from the left is an estimate of the Interest that the Borrower would pay on this loan if the Borrower
   kept it for its entire Term and never paid Principle off in advance.
• The third box from the left is an estimate of what the Borrower actually borrowed, adjusted downward by the Closing
   Costs that are being paid (this is called a net loan amount, i.e. the total loan amount minus the Closing Costs).
• The last box, or fourth box from the left, is an estimate of the total amount the Mortgage will cost the Borrower if it
   were kept for its entire Term and Principle was never paid off in advance. That is, it should be equal to the second box
   plus the third box.
• The payment schedule gives the Borrower an idea of what his/her monthly PI payments will be throughout the life of
   the loan. This is the Principle & Interest payment only. On Adjustable Rate Mortgages, the payment schedule always
   assumes that when the Interest Rate adjusts, it will adjust downward.



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WHEN DO I HAVE TO PAY THE EARNEST MONEY ON AN OFFER?
Once the Contract has been initialed, signed and dated by all parties, the Buyer or one of the Real Estate
Agents must take the check for the Earnest Money/Deposit to the Title/Escrow Company, Closing Attorney or
Listing Agent’s Real Estate Agency that is named in the Contract. This should be done within 24 hours after
the final signature on the Contract in order for the Contract to remain in effect. The check can be a personal
check or a cashier’s check, unless the Contract specifies otherwise. It is important to note that the Contract is
not legally considered enacted by the Buyer until the Earnest Money/Deposit is Receipted at either the Title/
Escrow Company, the Closing Attorney’s office or the Listing Agen’t Real Estate Agency. If you are
considering buying Real Estate without using a Real Estate Agent, it is strongly encouraged that you purchase
the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


WHY DO I HAVE TO KEEP INITIALING THE OFFER?
Because the Offer is just that, an Offer. The Buyer initials and signs the initial Offer which will contain the
price the Buyer wants to pay for the Subject Property and any other terms and/or special provisions that the
Buyer is offering. When the Seller reviews the Buyer’s Offer, the Seller may counter-propose back to the
Buyer with changes. The Seller will do this by signing the Offer where applicable and initialing any changes
made by the Seller. If the Buyer agrees, the Buyer will initial the changes the Seller made to the Offer and it is
sent back to the Seller. The Seller then dates the Offer and this constitutes a signed Contract. However, the
Buyer may not totally agree to the Seller’s initial changes and may want to counter-propose other changes or
changes based on the Seller’s proposals. If this occurs, the Offer goes back to the Seller. During this “back and
forth” the Offer technically evolves as more and more items are agreed to. At any time the Buyer can stop and
make the Offer a Contract by accepting it. If not, the Contract consists of the most recent agreed-upon terms
but is still evolving. An Offer remains and Offer until such time as all terms are agreed to by both parties
initialing. Once all terms are initialed, the Offer is signed and the Seller dates the Offer, it becomes Contract
and then needs to be Receipted. If you are buying a home without a Realtor®, it would be wise to purchase the
DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


DO I HAVE TO PAY FOR A PROPERTY INSPECTION?
Depending upon how the Contract has been negotiated, either the Buyer or the Seller can pay for the Home
Inspection. The Seller must make the Property available at reasonable times and must make sure that the
utilities are turned on at the time of the Home Inspection. If the Buyer has a Real Estate Agent, either the Buyer
or the Buyer’s Agent can meet the Inspector on the property. If the Buyer does not have a Real Estate Agent, it
is the either the Seller or the Listing Agent’s job to give the Inspector access to the property at the appointment
time. DreamLoan recommends using an Inspector that is not associated with any of the Real Estate Agents in
the transaction. This is because such an Inspector might feel beholden to the Realtor® and might “overlook”
certain items in order to not negatively effect the Real Estate Agent’s Commission. The Buyer wants an
Inspector that will painstakingly inspect every aspect of the property and report any and all irregularities or
deficiencies.


IF THE SELLER AGREES TO DO REPAIRS, CAN HE JUST GIVE ME THE MONEY AND LET ME
DO THE REPAIRS AFTER WE CLOSE?
Yes, if “giving you the money” means contributing it toward Closing Costs at Closing. Technically, the Seller
has to either perform the repairs prior to Closing or give the Buyer Seller Concessions equal to the amount of


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the repairs at Closing. This is because monies for repairs are considered a Seller Concession. If the Contract
already has the maximum amount of Seller Concessions in it (see following table), then the repairs would have
to be performed by the Seller prior to Closing. In the end, giving Seller Concessions equal to the amount of the
repairs is almost the same as giving cash to the Buyer anyway. This is because the Seller Concessions will
reduce the amount of funds the Buyer needs to to produce to Close the Purchase, leaving that much more cash
in the Buyer’s possession.
             Maximum Allowable Seller Concessions per Buyer Down Payment and Property Type

                          Buyer Down Payment                   Maximum Concessions from Seller
                  5% (Owner Occupied & Second Home)                           3%
                 6-10% (Owner Occupied & Second Home)                         6%
                 10% +(Owner Occupied & Second Home)                          6%
                     Investment Property (regardless of                       2%
                             Down Payment)
                               3.5% - FHA                                     6%
                                 0% - VA                                      4%


WHAT IS THE MAXIMUM THE SELLER CAN PAY TO COVER MY CLOSING COSTS?
This is determined by the type of Mortgage loan being obtained and the Loan To Value of that Mortgage loan.
Maximum Seller Concessions (or Seller Contributions) are shown in the following chart.
             Maximum Allowable Seller Concessions per Buyer Down Payment and Property Type

                          Buyer Down Payment                   Maximum Concessions from Seller
                  5% (Owner Occupied & Second Home)                           3%
                 6-10% (Owner Occupied & Second Home)                         6%
                 10% +(Owner Occupied & Second Home)                          6%
                     Investment Property (regardless of                       2%
                             Down Payment)
                               3.5% - FHA                                     6%
                                 0% - VA                                      4%


It is important to note that any funds to the Borrower or payment made for the Borrower count as Seller
Contributions. For example, if the Seller is giving $5,000 in Seller Contributions toward Closing Costs and
then another $3,000 for new carpet, the total Seller Contributions toward Closing Costs (even though carpet is
not a Closing Cost) would be $8,000. The only items that do not count as Seller Contributions are the
Appraisal, the Survey, the Owner’s Title Policy and the Warranty.


WHAT IS THE DIFFERENCE BETWEEN EARNEST MONEY OR DEPOSIT AND A DOWN
PAYMENT?
The Earnest Money/Deposit is the amount of money that the Buyer agrees to deposit with either the Title/
Escrow Company, the Closing Attorney or the Listing Agent’s Real Estate Agency to secure the property in the




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Contract. This amount is negotiated between the Buyer and Seller and must be Receipted after the Contract is
completely initialed, signed and dated. The Earnest Money/Deposit is credited to the Buyer at Closing.
The Down Payment is a Lender requirement and is the amount or percentage of the Purchase Price that the
Buyer must pay in order to acquire the Mortgage. The minimum Down Payment is determined by the type of
loan. For example, on Conventional loans, the minimum Down Payment can be anywhere from 3% to 20% or
more depending on the loan program and whether the property will be a Primary Residence, Second Home or a
Rental Property. The minimum Down Payment requirement for an FHA Loan is 3.5%. There is no Down
Payment requirement on a VA or a USDA Loan. At Closing, the Buyer must pay the Down Payment less any
Earnest Money/Deposit that has been Receipted. If you are buying a home without a Real Estate Agent, you
are strongly encouraged to purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a
Realtor®”.


WHY DOES THE TITLE COMPANY HOLD THE EARNEST MONEY?
Because the Buyer parts with it to show good faith intent to buy the property, and the Seller cannot have the
funds until Closing. Thus an independent party must hold the funds until the loan is Closed. The Title/Escrow
Company, the Closing Attorney handling the Closing or the Listing Agent’s Real Estate Agency can act as the
Escrow Agent for these funds in a Purchase transaction. Earnest Money/Deposit funds are held in a non-
interest-bearing Escrow account until the loan is Closed and Funded, at which time the Title/Escrow Company,
the Closing Attorney or the Listing Agent’s Real Estate Agency pays out the funds to the proper parties. If you
are buying a home without a Real Estate Agent, you are strongly encouraged to purchase the DreamLoan
Specialty Tutorial “Looking for Real Estate without a Realtor®”.


WHAT IS THE FIRST STEP IN APPLYING FOR A MORTGAGE LOAN?
The first step is taking a DreamLoan tutorial or webinar or reading the DreamLoan Questions & Answers
Library available on DreamLoan.pro or on the DreamLoan mobile App. Once educated, the next step is
finding the appropriate bank, Wholesale Banker or Mortgage Broker to originate the Mortgage loan. This can
be achieved by having DreamLoan recommend a DreamLoan-certified Broker/Banker to handle the
transaction. This loan originator can advise the Borrower as to which loan programs best meet the Borrower’s
short-term and long-term financial needs. If the Borrower wishes to get a head start on the paperwork that will
be required of the Borrower in the Mortgage process, the Borrower can look at the Steps To Prepare For A
Mortgage on DreamLoan.pro or on the DreamLoan mobile App.


WHY DOES THE LENDER HAVE TO PULL A CREDIT REPORT BEFORE HE CAN GIVE ME AN
INTEREST RATE QUOTE?
The Lender cannot quote an accurate Interest Rate to the Borrower without knowing the Borrower’s Credit
Score, or, at the very least, some accurate characterization of the Borrower’s credit (excellent, very good, good,
fair, poor). There is a Credit Score for the Borrower from each of the three major credit Repositories (Experian,
Equifax, and Trans Union) on the Borrower’s Credit Report. The Lender uses the middle of the three Credit
Scores as the Borrower’s Mortgage Credit Score.
Mortgaging is exceptionally Credit Score driven. For example, a Borrower with a 740+ Credit Score has access
to virtually every Mortgage product in existence. A Borrower, however, with a 700 Credit Score will have
access to all programs, but at a considerably higher cost than the Borrower with a Credit Score of 740+. Rates



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for Borrowers with 700 Credit Scores are higher than those with Credit Scores of 740+. The lower the Credit
Score, the higher the Interest Rate.
Furthermore, A Borrower with a Credit Score of 679 or lower would not have access to any Conventional
Mortgage product with Mortgage Insurance and would be forced to have either an FHA loan, a Combo loan or
a loan with a larger Down Payment. The costs of such Mortgages would force the Interest Rate higher still.
Borrowers with Credit Scores of 619 or lower would have the highest costs and the highest Interest Rates and
would only have access to a very limited number of Conventional loan products (Expanded only) or FHA
loans, but those would likely require a larger Down Payment than the minimum on a Purchase or a lower Loan
To Value on a Refinance. Thus, the Credit Score of the Borrower is very important when giving a responsible
Interest Rate quote.


WHY DO I HAVE TO PROVIDE ALL PAGES OF MY BANK STATEMENTS WHEN THE LAST PAGE
HAS NO INFORMATION ON IT?
Even though some of the pages of the Borrower’s bank statements may be blank or contain standard verbiage
from the bank (that is not related to the Borrower’s specific account), each page is numbered. The
Underwriters must know that they have all the pages of a bank statement in order to insure that there is no
missing information or information that negatively affects the assets in the Borrower’s file. Therefore, if the
first page of the statement shows “1 of 10”, all 10 pages must be provided.


WHY DO I HAVE TO PROVIDE ALL PAGES OF MY DIVORCE DECREE?
All pages of a signed Divorce Decree must be provided for review because there are several sections of this
document that affect the risk evaluation of a Mortgage loan. The Underwriter must review dates of filing, child
support information, assets awarded, debts awarded, and any other provisions which might affect a Borrower’s
monthly financial obligations and/or Income.


WHY DO I HAVE TO EXPLAIN CREDIT INQUIRIES ON MY CREDIT REPORT?
Any credit inquiries on the Borrower’s Credit Report must be explained and supporting documentation
provided if applicable. This is required because the Underwriter must assess whether or not any of the inquiries
resulted in a new account. A new account that has been opened recently may not yet be reporting to the Credit
Bureaus (from the new creditor). As a result, it is possible that the Borrower has monthly obligations that the
Underwriter is missing because those obligations were established too recently. So that the Underwriter can
determine accurately the Borrower’s total monthly debt, explanations from the Borrower must be provided
regarding the reason for each inquiry. If an inquiry represents a new account which has been opened but is not
yet being reported, the Underwriter would additionally require a copy of the new Note or credit agreement, the
current balance on the obligation and the monthly payment. If the Borrower has no idea why a creditor has
inquired into the Borrower’s Credit Report and no new account has been opened, that is all the letter of
explanation has to say. All letters of explanation must be signed and dated by the Borrower. For more
information, purchase the DreamLoan Specialty Tutorias “Understanding Credit and Credit Scores” and
“Manipulating Your Credit Score Higher”.




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CAN THE APPRAISAL BE ORDERED BEFORE I APPLY FOR A MORTGAGE?
Yes, but it cannot be used in the Mortgage transaction that may result. This is because federal law only allows
an Appraisal to be used in the Mortgage transaction to be ordered after:
    • A Loan Application has been taken
    • A dated Good Faith Estimate has been provided within three days of the Loan Application date
    • A Truth In Lender Statement has been provided, signed and dated within three days of the Loan Application date
    • An Intent To Proceed declaration has been signed and dated by the Borrower


WHY DO I HAVE TO PAY FOR THE APPRAISAL UP FRONT?
In order to be in compliance with the new Home Valuation Code of Conduct ruling, which went into effect on
April 1, 2010, all Appraisals must be paid for in advance by either the Borrower, the Seller, or the loan
originator. While it is possible that in the negotiations between Buyer and Seller the Seller may be required to
pay for the Appraisal, it still must be paid for before the Appraisal is performed. It is rare that the loan
originator will pay for a client’s Appraisal as such a policy would represent considerable risk to the Mortgage
company. Additionally, the Home Valuation Code of Conduct ruling requires that all Appraisal orders must be
placed through the Lender using an Appraisal Management Company (AMC) which is a third party that routes
the assignment of the Appraisal to a licensed appraiser in the area of the Subject Property. Further still, this
ruling expressly prohibits any direct communication between the loan originator and the Appraiser.


WHY IS THE FAIR MARKET VALUE DIFFERENT FROM THE TAX APPRAISED VALUE?
The Fair Market Value, or Appraised value is the value that is assigned by a licensed Appraiser after the
Appraiser has inspected and measured the property, taken photos of the property, and met all the secondary
market (Fannie Mae or Freddie Mac) requirements. To determine the Fair Market Value, the most weight is
placed on other properties that have sold in the last six months which are most similar to the Subject Property.
These are called Sale Comparables. The Fair Market Value also takes into consideration the “Cost Approach”
wherein the appraiser determines the actual cost it would take to completely rebuild the Property to its present
condition.
The Tax Appraised Value, or assessed value, is what the taxing authority (county, city or town) uses to
determine how much Property Tax is due. In some cases, the assessed value might be the same as the Fair
Market Value, but usually the assessed value is lower.


HOW LONG DOES IT TAKE TO GET A MORTGAGE LOAN?
The time to process and Close a Mortgage loan should take no longer than three to four weeks. However, many
factors are involved. Many times, the biggest delay in the Processing of a Mortgage loan is the Borrower
supplying the financial documentation needed by the loan originator/Processor. To avoid these delays,
Borrowers can look at the Steps To Prepare For A Mortgage on DreamLoan.pro or in the DreamLoan mobile
App. Another delay can be that the current file quantities in the Lender’s Underwriting and Closing
Departments are high and the Borrower’s file, once submitted, can sit in the Lender’s queue for a time before it
is either Underwritten or Closed. In some cases where an Appraisal is not required, total Processing and
Closing time can be reduced to two to three weeks.




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CAN MY LOAN BE SUBMITTED TO MORE THAN ONE LENDER?
Yes. But only if the Borrower is using a Mortgage Broker. By definition, a Mortgage Broker has numerous
Lenders to which the Mortgage Broker can send loans for Loan Approval. If the Mortgage loan is Declined at
one Lender, it is possible that based on differing guidelines, the loan could be approved at another Lender. This
is why it is important that the Mortgage Broker used has access to many different Lenders, so that there are
always numerous options for Loan Approvals. A Mortgage Broker who only has two or three Lenders in their
network does not have the Lender depth necessary to always do an effective job. It is important to note that
submissions to numerous Lenders cannot be done if the Borrower is using a Mortgage Banker, a Retail Banker
or a Retail Loan Originator. These lending sources only have access to the loan products of the bank for which
they work and usually do not have additional Lenders to which they can place loans. DreamLoan-certified
Brokers generally have a minimum of at least five different Lenders in their networks. This is one of the
requirements for DreamLoan certification.


WHAT DOES IT MEAN IF THE LENDER SAYS MY LOAN APPLICATION HAS BEEN
SUSPENDED?
When a loan is Suspended, it is usually because the Lender feels that the loan has merit but the Underwriter
requires more documentation before a Conditional Approval can be issued. It does not mean that the Loan has
been turned down (Declined). It merely means that it has been “set aside” until the additional documentation
has been received and is reviewed by the Underwriter.


WHAT DOES THE UNDERWRITER DO?
The Underwriter is an employee in the Lender who thoroughly reviews all documentation in the Mortgage file
to insure that all credit, asset, Income, property, and loan program requirements have been met. It is the
responsibility of the Underwriter to evaluate the level of risk the Lender would be exposed to should the
Mortgage loan be Closed and Funded. For Conventional loans, the Underwriter simply has to have completed
all training associated with that particular Lender’s guidelines and policies. For Conventional loans with
Mortgage Insurance, the Underwriter must be an employee or agent of a Mortgage Insurance company itself.
For FHA and VA loans, an Underwriter must be certified to underwrite Government Mortgage loans with a
certificate called a Direct Endorsement (DE).


WHAT ARE UNDERWRITING CONDITIONS?
Underwriting Conditions are items that must be produced on a Mortgage loan to convert a Conditional
Approval into a Clear To Close. When a Mortgage file is initially reviewed by the Underwriter, there may be
some items missing or questions raised upon review of the file. If this is the case, the Underwriter will issue a
Conditional Approval, which is an approval with a list of Conditions that must be met in order to Close the
loan. Examples of Conditions are bank statements, Letters of Explanation, updated paystubs, Gift
Documentation, a cleared Earnest Money/Deposit check, etc. These are also referred to as Stips (short for
Stipulations).


WHAT IS AN ESCROW ACCOUNT?
An Escrow account is a non-interest bearing account containing Reserves of Property Taxes and Homeowner’s
Insurance for the property. This is also referred to as an Impounds account. Loans that have First Mortgage


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Liens greater than 80% of the Appraised Value (on Refinances) or the lower of the Purchase Price or the
Appraised Value (on Purchases) require Escrows. All FHA and VA loans require Escrows. Escrows (or Escrow
Accounts) are established at the Closing when Reserves are collected to be placed into the account. Then,
monthly, the Borrower adds to the Escrow account by making his/her payment (since 1/12th of the Property
Taxes and 1/12th of the Homeowner’s Insurance premium are included in each payment). When Property
Taxes then become due, the Lender will receive a notice from the Tax Appraisal District of the Subject
Property and the bill will be paid by the Escrow Account. Similarly, on the anniversary of the Closing, a bill for
the Homeowner’s Insurance premium will be sent to the Lender by the Homeowner’s Insurance company and
the Escrow Account will pay it.
Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) afford the Borrower the
option as to whether or not the loan will have an Escrow Account. If the Borrower still wants an Escrow
Account, the appropriate Reserves will be required from the Borrower at Closing (if the Mortgage is a
Refinance, these Reserves, which are Prepaids, can be rolled into the loan, just like Closing Costs). If the
Borrower does not want an Escrow Account (and wishes to pay the Homeowner’s Insurance premium and the
Property Tax bill separately when they come due), the Borrower is asking to “Waive” Escrows. The Borrower
is then responsible to pay all Property Taxes and Homeowner’s Insurance premiums as they become due. For
more information you might want to purchase the DreamLoan Specialty Tutorial “The Pros and Cons of
Waiving Escrows”.


WHY DO I HAVE TO PAY A WHOLE YEAR’S HOMEOWNER’S INSURANCE AT THE CLOSING OF
MY PURCHASE?
It is a Lender requirement that one year’s Homeowners Insurance premium must be paid at or before Closing
on a Purchase Mortgage loan to be certain the property is insured. This applies to all Purchases, even if the
Borrower is not setting up a new Escrow Account. Homeowner’s Insurance is like car insurance in that the
premium is paid in advance to protect the property. If a Borrower has an Escrow Account, the Lender will not
pay the Homeowner’s Insurance renewal premium until the anniversary of the Closing (because the Lender
needs the Borrower to make 12 payments into the account), thus it will take a year for the amount of the
premium to be built up in the Escrow Account. Therefore, the property still needs to be insured for the first
year, which is why the entire first year of Homeowner’s Insurance is due on or before Closing. For Borrowers
that do not have Escrow accounts, the same requirement applies: The first year must be paid at or before
Closing and the subsequent years are the responsibility of the Borrower.


CAN I PAY MY OWN TAXES AND INSURANCE?
In some cases, yes. Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) afford
the Borrower the option as to whether or not the loan will have Escrows. If the Borrower still wants an Escrow
Account, the appropriate Reserves will be required from the Borrower at Closing (if the Mortgage is a
Refinance, these Reserves (Prepaids) can be rolled into the loan, just like Closing Costs). If the Borrower does
not want and Escrow Account (and wishes to pay the Homeowner’s Insurance premium and the Property Tax
bill separately when they come due), the Borrower is asking to “Waive” Escrows. For more information you
might want to purchase the DreamLoan Specialty Tutorial “The Pros and Cons of Waiving Escrows”.




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CAN ANYBODY GIVE ME GIFT MONEY?
A Borrower may receive a Gift from a family member, the Borrower or CoBorrower’s employer, a close friend
with an established long-time relationship to either the Borrower or CoBorrower, or a labor union to which the
Borrower or CoBorrower pays dues. With Letters of Explanation, mentors, self-help group sponsors and non-
familial “uncles” and “aunts” (with a long-standing relationship with either the Borrower or the CoBorrower)
can also be Gift Donors. The Gift Donor may not be a person or entity with an interest in the sale of the
Property, such as the Seller, Real Estate Agent or Broker, Builder, Mortgage originator, Lender employee or
any entity associated with them.
On Conventional loans with Loan To Values of 80% or less, all of the Down Payment funds may be Gift funds
(including those used for Closing Costs and Prepaids). On Conventional loans with Loan To Values higher than
80%, generally the Borrower/CoBorrower must match the Gift in the transaction (an example would be a 90%
loan where the Gift Donor provides 5% and the Borrower/CoBorrower provides the other 5%). On
Conventional 97% loans, all of the Down Payment, Closing Costs and Prepaid items may be paid for with a
Gift, provided the Borrower has assets of a certain amount (based on the loan program’s guidelines...often this
amount is the amount of the Down Payment even though it won’t be used in the transaction). On FHA and VA
loans, the entire Down Payment, Closing Costs and Prepaids may all be paid with Gift funds. Gift funds must
be documented. See Documenting Gifts in the DreamLoan Mortgage Glossary. For more information you
might want to purchase the DreamLoan Specialty Tutorial “Responsible Zero Down Payment Financing”.


IF I REFINANCE, WHAT HAPPENS TO THE MONEY THAT IS IN MY CURRENT LENDER’S
ESCROW ACCOUNT?
Once the new Refinance loan has been Closed and Funded, and funds have been disbursed by the Title/Escrow
Company or Closing Attorney to the Borrower’s Lender (thus paying off the old Mortgage), that Lender
(having been paid in full) will reconcile the Borrower’s Mortgage account and find that there are unused funds
in the Escrow Account. That Lender will then send a refund check for the amount being held in the old Escrow
Account to the Borrower. This process should take between 30-60 days following the Funding of the new loan.
DreamLoan suggests, however, that the Borrower contacts the old Lender and inquire as to what their
turnaround time is for this procedure. The Borrower should call the customer service number and ask for the
Escrow Department. The Borrower should have the old loan number handy when the call is made. In addition,
the Borrower should have their Social Security Number on hand, or at least the last four digits to verify the
Borrower’s identity. For more information you might want to purchase the DreamLoan Specialty Tutorial
“The Pros and Cons of Waiving Escrows”.


CAN I CHANGE THE TERMS OF MY LOAN AFTER MY FILE HAS BEEN SUBMITTED TO
UNDERWRITING?
Yes. If the Borrower wishes to change the terms of the loan (for example change from the 30 year Mortgage
term to a 15-year Mortgage), the Borrower just needs to contact the loan originator so that he/she can
communicate the Borrower’s wishes to the Lender. It will be necessary for the loan originator to complete a
Change In Circumstance form and generate an updated Good Faith Estimate and Truth-in-Lending Statement
to reflect the new terms. If the loan has already been to Underwriting and has received a Conditional Approval,
the file will have to go back to the Underwriter for a second review so that the new Conditional Approval
reflects the changes the Borrower wishes to make.




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WHAT IS A “SHORT PAY”?
A Short Pay is a loan Closing that leaves only a short period of time between the Funding of the Mortgage and
the first Mortgage Payment. On Purchases, this is a loan that Funds within the first five (5) or ten (10) days of
the month (depending on the Lender’s cut-off). On Refinances, these are also usually loans that Fund in the
first five (5) or ten (10) days of the month, or a loan that actually closes at the end of one month but Funds in
the beginning of the next. Short Pays are generally not permitted on FHA, VA or USDA loand and are
sometimes not permitted on Adjustable Rate Mortgages.
When a Short Pay occurs, the first payment will be due on the 1st of the month following the Funding of the
loan. When that first Mortgage Payment is made, the payment will cover Interest for the entire prior month
(since Mortgages are paid in arrears). But since the loan did not Fund until the month had already begun, it
isn’t fair for the Borrower to have to pay for days that the loan was not in place. Therefore when a Short Pay
occurs, instead of Prepaid Interest being added to the HUD-1 Settlement Statement, a credit of a few days
occurs and the overall dollar amount necessary to Close and Fund the loan is lowered.


WHAT IS PREPAID INTEREST?
Prepaid Interest is Interest that is added to the HUD-1 Settlement Statement in the Prepaids section to prepay
the loan to the end of the month so that the Mortgage “begins” on the 1st of the following month. The
Borrower then has to hold the loan for another month before the first payment is due. For example, if a
Purchase loan Closes on the 20th of March and March has 31 days in it, 12 days of Prepaid interest (the day of
Funding, the 20th, plus 11 more days) will be added to the HUD-1 Settlement Statement. This will prepay the
Interest for the part of March that the loan was in existence and will force the loan to “begin” on the 1st of
April. The Borrower then has to hold the loan for one month (April) before the first payment is due. The first
payment would then be due on the 1st of May. This is also referred to as a Long Pay.


HOW DO I FIND OUT HOW MUCH MONEY I HAVE TO BRING TO CLOSING?
This information should be obtained from the loan originator. It is unwise to depend on the Title/Escrow
Company, the Closing Attorney or a Real Estate Agent for this information because, ultimately, the loan
originator must approve the HUD-1 Settlement Statement which almost always requires corrections that effect
the bottom line. Both the Lender’s attorneys and the loan originator review and approve the HUD-1 Settlement
Statement for its accuracy and instruct the Title/Escrow Company or Closing Attorney as to any corrections
that must be made to make the HUD-1 Settlement Statement final. The Borrower is usually then informed of
the amount due in time to obtain a cashier’s check or to wire the funds necessary to Close (if any are due).
Some Refinances do not require the Borrower to bring any funds to Closing.
Ideally, the Borrower should be informed of the amount due at Closing the day before the Closing; however,
often times it is the day of Closing before the final exact number is determined. In these cases, it should be
obvious to the loan originator that the HUD-1 Settlement Statement production is behind schedule.
Responsibly, the loan originator should go ahead and give the Borrower a close estimate of the funds which
will be needed at Closing so that the Borrower can obtain a cashier’s check or wire the amount of the estimate.
Then, if the final amount due is larger that what the Borrower was told as an estimate, the Borrower can
produce the additional funds at Closing. In most states, the Borrower can produce up to $1,500.00 in funds that
are not a cashier’s check or a wire.
Conversely, if the final amount due is smaller than the estimate that was given to the Borrower, the Title/
Escrow Company or Closing Attorney will refund the Borrower the difference. The reason the loan originator



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still might not know the final amount due from the Borrower the day before Closing is because there are
variables on the HUD-1 Settlement Statement that are decided upon by the Title/Escrow Company or the
Closing Attorney and the loan originator only learns of their values when the HUD-1 Settlement Statement is
produced.
An example of giving a Borrower an estimate for Closing, would be as follows: If the loan originator’s internal
numbers suggest a Borrower will be bringing $20,149.00 to a Purchase Closing but the HUD-1 Settlement
Statement has not yet been produced, a responsible loan originator would tell the Borrower to get a cashier’s
check or to send a wire in the amount of $21,000.00. This allows for the Buyer to get the cashier’s check or
send the wire at their leisure instead of running around like a crazy person on the day of Closing. If the HUD-1
Settlement Statement, once approved by the Lender’s attorney and the loan originator, shows that the Buyer
needs to produce $20,500.00 then the Buyer will receive a refund from either the Title/Escrow Company or the
Closing Attorney in the amount of $500.00. If the bottom line for the Buyer ended up being $21,300.00 then
the Buyer (who was told to bring his/her personal checkbook to Closign) would simply write a personal check
for $300. All DreamLoan-certified Brokers/Bankers use this method of producing Closing/Funding funds in
order to reduce the stress the Borrower may feel as Closing nears.


WHY WON’T MY REFINANCE FUND THE SAME DAY IT CLOSES?
Most likely because it is Owner Occupied. Owner Occupied Refinances in the United States do not Close and
Fund on the same day. This is because the government insists that Borrowers have the right to cancel their loan
after Closing for a three (3), business day period. This is called a three (3) day Right of Rescission as
guaranteed by the Federal Truth In Lending Act. When counting business days, Sundays and holidays do not
count. Saturdays do count, however, even if they are preceded by a Friday holiday. Thus, an Owner Occupied
Refinance that Closes on a Wednesday will have three (3) business days of Rescission time to cancel the loan.
Those days would be Thursday, Friday and Saturday. Then, if not canceled, the loan would Fund on Monday,
provided it is not a holiday. If it is, then the loan would fund on Tuesday.


WHAT IS THE MAXIMUM LOAN I CAN GET ON AN INVESTMENT PROPERTY REFINANCE?
It depends on the loan program. If the loan is already a Fannie Mae loan (which a DreamLoan-certified Broker
or Banker can determine) and it qualifies for DU Refi Plus, the loan can be anywhere from 80% Loan To Value
to 125% Loan To Value. These circumstances, however, are not the norm. In general, most Prime loan
programs for Investment Properties can only lend 75% to 80% of the Appraised Value of the property. For
more information you might want to purchase the DreamLoan Specialty Tutorials “Properly Buying
Investment Property” and “Buying Multifamily Housing”.


I AM DIVORCED, BUT MY EX-SPOUSE IS STILL ON TITLE TO MY PROPERTY. HOW DO I HAVE
HIM/HER REMOVED FROM TITLE?
If the Borrower’s ex-spouse is still on the title of the Property, a deed must be executed by that ex-spouse in
order to relinquish Title ownership. If the ex-spouse is still on the original loan and wishes to be removed from
that obligation, this can only be done by doing a Refinance to the property. Once the Borrower has qualified
alone and has obtained financing to replace the current loan, the ex-spouse will be removed when the loan
Closes and Funds. All DreamLoan-certified Brokers and Bankers know how to execute these transactions.




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I AM DIVORCED AND MY EX-SPOUSE RECEIVED SOME OF OUR REAL ESTATE PROPERTY
IN THE SETTLEMENT. AM I STILL RESPONSIBLE FOR THIS DEBT IN A MORTGAGE
TRANSACTION?
Yes. If you are on the Note for the original Mortgage on the Property, you will continue to be held equally
responsible for the Note payment (even if your ex-spouse is making the payment) and the Lender will continue
to report this Mortgage on your Credit Report. In order to be relieved of this responsibility, your ex-spouse
must Refinance on his/her own and have you removed from the Note. All DreamLoan-certified Brokers and
Bankers know how to execute these transactions.


WHAT HAPPENS IF THE CONTRACT DATE PASSES AND THE LOAN HAS NOT CLOSED?
If the Closing date of the Contract passes and the loan has not closed, the Buyer can lose the Earnest Money/
Deposit and the Contract can become null and void. If it becomes apparent that the Mortgage loan financing
will not be in place in time to Close and Fund by the Closing date on the Contract, the Buyer needs to have the
Selling Agent request an amendment to the Contract from the Seller to extend the Closing date. The Contract
amendment extending the Closing date must be signed and dated by all parties in the transaction and delivered
to the DreamLoan-certified Broker/Banker and to the Title Company or Closing Attorney as soon as possible.


CAN I APPLY FOR NEW ACCOUNTS ONCE MY CREDIT REPORT HAS BEEN PULLED?
This is not advisable when a Mortgage Loan is not yet Closed and Funded. Different Lenders have different
internal policies; therefore some excercise their right to re-pull an Applicant’s Credit Report any time before
the Loan is Closed. If they pull a Credit Report which reflects recent inquiries and/or new accounts, they must
include the payments on any new account(s) in your Debt To Income Ratio. In many cases, additional debt can
push your Debt To Income Ratio over the qualifying limit and affect your Loan Approval. When entering into
a Mortgage Loan process, it is always better to wait until your new Mortgage has Closed and Funded before
any new debt is obtained or applied for. For more information you might want to purchase the DreamLoan
Specialty Tutorial “Understanding Credit and Credit Scores”.


CAN I GET A MORTGAGE IF I JUST STARTED A NEW JOB?
It depends. If you take a new job that is similar to what you have done in the past and you receive W-2 Income
only, it usually does not present a problem on a Mortgage Loan. The new employment must be verified and
you must present at least one pay check stub from the new job prior to final Loan Approval. You will be
qualified on the new Salary or hourly Income at the new job. However, if you switch from a Salaried or hourly
position where you were paid W-2 wages to Self Employment, this will affect your ability to meet
requirements for a Mortgage Loan. The same applies to a situation where you may switch from earning W-2
Salaried or hourly Income to receiving 1099 or Contract income. As a 1099 independent contractor, you are
considered Self-Employed (even if you are doing the same thing at the same Company and only the pay
structure has changed). As a Self-Employed person, one usually must have two full years of history being Self-
Employed in the same business, before your Income can be considered for qualifying on a Mortgage Loan.
Qualifying Income will be the Net Income on your Tax Return and it must be averaged for the length of the
Self-Employment. DreamLoan-certified Brokers and Bankers are generally able to reduce the two (2) year
requirement of Self-Employment down to as little as six (6) months for a Self-Employed Borrower. This is an
important reduction and makes home ownership available to almost all Self-Employed individuals.



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DOES MY SPOUSE HAVE TO BE ON THE LOAN?
No, your spouse does not have to be on the Mortgage. However, you must be able to qualify for the Mortgage
using your own Income only, as well as your own Liabilities and still meet all loan program requirements. If
the spouse is not on the new Mortgage, he/she must still be on Title as a Non-Borrowing Spouse or Non-
Purchasing Spouse if required by the state in which the Subject Property is located.
If the Mortgage is being done using an FHA, VA or USDA loan, and a Non-Borrowing Spouse is present, a
Credit Report must be pulled on that person to expose additional debt. On Government loans, all familial
liabilities count against the Borrower’s Debt To Income Ratios. When a Mortgage is Closed, regardless of the
loan program used, the Spouse will have to sign the Deed of Trust (or Security Instrument) and final Truth-In-
Lending Statment as well as other Title-specific documents at Closing.


CAN I HAVE MORE THAN ONE COBORROWER ON THE LOAN?
Yes; however, a full Credit File for each CoBorrower on the Loan must be provided to the Lender for
Underwriting, including a Credit Report, Income documentation, Liquid Asset documentation, and all
supporting documentation. For more information you might want to purchase the DreamLoan Specialty
Tutorial “Dropping an FHA Non-Resident CoBorrower”.


HOW MANY COBORROWERS CAN I HAVE ON THE LOAN?
It depends on the type of loan. If it is an FHA or VA Loan, there is no limit to the number of CoBorrowers that
can be on the loan and the Debt To Income Ratio of all applicant debts divided by all applicant Qualifying
Income is the only Debt To Income ratio that matters. So, while a separate Loan Application must be signed by
each CoBorrower or each married CoBorrower couple and their Income is used as Qualifying Income, debt
from any CoBorrowers must be also be included to calculate Debt To Income Ratios.
If it is a Conventional loan, the number of CoBorrowers is also unlimited, however, like with Government
loans, all Borrower and CoBorrower Income and Debt must be considered when calculating Debt To Income
Ratios; however, on a Conventional loan the primary Borrower’s Debt To Income Ratio cannot exceed 43% of
his/her Qualifying Income (by him/herself). For more information you might want to purchase the
DreamLoan Specialty Tutorial “Dropping an FHA Non-Resident CoBorrower”.


IF THERE IS A COBORROWER, DOES HE/SHE/THEY HAVE TO LIVE IN THE PROPERTY?
No, the CoBorrower does not have to live in the Property. However, if the CoBorrower does not intend to live
in the Property, the monthly rent or Mortgage Payment for the Property in which he/she intends to reside must
be included in the calculations to determine Debt To Income Ratios. For example, if the new Mortgage
Payment will be $1,000.00/month but the CoBorrower will continue to have a separate Housing Expense of
rent for another $800.00/month, and the Qualifying Income is $6,000.00/month, the total Housing Expense
would be $1,800.00 and the Front ratio would be 30.00% (total Housing Expense divided by Qualifying
Income). Likewise if the combined monthly consumer debt on the Credit Reports is another $800.00 per
month, that figure would be added to the total Housing Expense of $1,800.00—a total of $2,600.00—and then
divided by the Qualifying Income of $6,000.00 for a resulting Debt To Income Ratio of 43.33%. For more
information you might want to purchase the DreamLoan Specialty Tutorial “Dropping an FHA Non-Resident
CoBorrower”.




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WE ARE FIRST TIME HOME BUYERS. HOW DO WE GET STARTED?
The first thing to do is to take the Beginner Purchase course on DreamLoan.pro or on the DreamLoan mobile
App. This will familiarize you with general terms and concepts involved in a Purchase of Real Estate. The next
thing to do would be to visit with a DreamLoan-certified Broker or Banker so that you can take a look at your
Credit Report, learn how much of a loan you qualify for, what the maximum Purchase Price on the new home
should be, and get an idea of what your payment range will be. More information can be found in the Steps In
A Purchase in the DreamLoan Mortgage Glossary as well as in Steps To Prepare For A Mortgage.
Once your financing has begun, the next step is to contact a DreamLoan-certified Realtor® in your area or
purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”. As First Time
Home Buyers you may also want to purchase the DreamLoan Specialty Tutorials “Understanding Credit and
Credit Scores”, “Manipulating Your Credit Score Higher”, “Beware the Tract Builder”, “Buying Multifamily
Housing”, “How to Instantly Build Credit when You Have None”, “Lease to Own Using a Refinance”,
“Responsible Zero Down Payment Financing”, “What a Realtor® Should Do” and “What a Mortgage
Professional Should Do”.


WHAT DOES A MORTGAGE BROKER DO?
Mortgage Brokers, by definition, broker the funds of wholesalers to the general public. All DreamLoan-
certified Brokers have numerous Lenders in their stables of wholesalers. A Mortgage Broker represents the
Borrower, and does not represent any Lenders. When a consumer applies for a Mortgage, the Mortgage Broker
finds the most appropriate Lender for that application. If the Loan Application is Declined, then the Mortgage
Broker can move the file to another Lender. Additionally, the Mortgage Broker provides education to the
Borrower and assists in the loan process. This includes gathering the pertinent information from the Borrower,
advising the Borrower about available loan programs, identifying the financial documents the Borrower will
need to submit, assisting in processing the loan file and guiding the loan to a Closing. For more information on
the specific responsibilities of a Mortgage Broker, see the DreamLoan Specialty Tutorial “What a Mortgage
Professional Should Do”.


IS AN ARM A 30 YEAR MORTGAGE?
Usually yes. While Adjustable Rate Mortgages have Interest Rates that change over time, they are still usually
loans that are Amortized over 30 years. It is possible, however, that an Adjustable Rate Mortgage could also
have an Interest Only option. If this is the case, it is still a “30 year loan” but the loan will not be Amortized at
first. Instead, the Borrower will be required to pay Interest Only for a predetermined period of time and then
the loan would become Amortized over the period remaining (30 years minus the Interest Only period). For
example, if an Adjustable Rate Mortgage were Interest Only for the first 10 years, then after that period is over,
the unpaid Principle would be Amortized over the 20 years left.


WHO ORDERS THE APPRAISAL?
The Processor, who works for the loan originator, orders the appraisal. Since 2010, Appraisals must be prepaid
by either the Borrower, the Seller or the loan originator and are ordered through the Lender chosen for the loan.
For more information you might want to purchase the DreamLoan Specialty Tutorial “What a Mortgage
Professional Should Do”.




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CAN YOU REFINANCE MORE THAN ONCE?
Yes. A home can be Refinanced as many times as the Borrower wishes, provided that the property continues to
Appraise high enough and that the originator can prove there is a tangible benefit in doing so.


CAN YOU BUY A HOME AND DO A CONSTRUCTION LOAN AT THE SAME TIME?
Yes. Construction Loans exist that will allow you to both acquire the property and receive construction funds to
fund the Interim Financing. For more information you might want to purchase the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


IS THERE A DIFFERENCE BETWEEN BUYING A LOT AND BUYING A HOME?
Yes. Mortgages are credit that is extended to the Borrower based on collateral. A home is better collateral than
land, thus the Down Payment requirements for land are much higher than for a home. For more information
you might want to purchase the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


WHAT IS CHEAPER, A ONE-TIME CLOSE CONSTRUCTION LOAN OR A TWO-TIME CLOSE?
A One-Time Close Construction Loan because there is no Refinance of the Interim Financing at the end of
construction. For more information you might want to purchase the DreamLoan Specialty Tutorial “How to
Do a Construction Project”.


WE WANT TO BUY A HOME BUT IT NEEDS UPDATING. ARE THERE LOANS FOR THAT?
Yes. First, there are Construction Loans where the acquisition of the property is financed as the first “draw”,
then the Interim Financing is allocated for the builder to draw from in a non-uniform manner as construction
progresses. One-Time Close Construction Loans then modify the construction Note at the end of construction
to reflect the Permanent Financing. Two-Time Close Construction Loans Refinance the Interim Financing into
the permanent financing at the end of construction, through a second Closing.
In addition, both Fannie Mae “Rehab” loans and FHA Construction Loans (203Ks) also exist. Both loan
programs allow for the financing of the acquisition cost of the property and the allocated construction funds.
This Interim Financing Note is then modified to reflect the permanent terms when construction is complete.
FHA 203K loans must conform to county-by-county Maximum Base Loan Amounts and cannot exceed them.
Fannie Mae Rehab loans are also limited, in that they must be Conforming (equal to or below $417,000 in
2010, 2011 and 2012). Jumbo Construction Loans must be done as either One-Time-Close or Two-Time-Close
Conventional loans, as they are too large for either the FHA 203K or Fannie Mae Rehab programs.
It is important to note that all DreamLoan-certified Brokers and Bankers have access to at least one One-
Time-Close Construction Loan Lender.


WE WANT TO REMODEL. DO WE REFINANCE OR DO A CONSTRUCTION LOAN?
There are numerous ways to finance the remodeling of a home. First, a One-Time-Close or Two-Time-Close
Construction Loan can be originated as a Refinance. Additionally, both an FHA 203K or a Fannie Mae Rehab
can also be done as Refinances. Another method would be to do a Cash Out Refinance and pull Equity out of
your home to finance the improvements. A DreamLoan-certified Broker/Banker can show you each option.



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For more information you might want to purchase the DreamLoan Specialty Tutorial “How to Do a
Construction Project”.


I AM BUYING A DUPLEX AS AN OWNER OCCUPIED HOME. CAN I USE THE RENT FROM THE
OTHER SIDE TO QUALIFY?
Some loans allow this sometimes. In order to use rental Income derived from an Owner Occupied property, the
Borrower must have a signed lease for the second unit and must have declared Schedule E Income for the two
most recent years on his/her Tax Returns. This proves to the Underwriter that the Buyer has experience being a
Landlord. In this case, 75% of the face value of the lease for the other unit can be used as Qualifying Income. If
this is not the case, see the DreamLoan Specialty Tutorial “Buying Multifamily Housing”.


I AM BUYING A NEW OWNER OCCUPIED HOME AND PLAN TO MAKE MY CURRENT HOME A
RENTAL. I HAVE A LEASE FOR MY CURRENT PROPERTY. CAN I USE THE LEASE MONEY TO
QUALIFY TO BUY THE NEW HOUSE?
Only if you can prove a two year history of being a Landlord. In order to use rental Income from an Investment
Property, that Income must appear on Schedule E of the two most recent Tax Returns. If this is the case, then
75% of the face value of the signed lease can be used as Qualifying Income.
In the event, however, that you have rented part of your current Owner Occupied property for the past few
years, that Income can be declared on Schedule E of the next Tax Return that is filed. Depending upon your
Mortgage Profile, it is possible that a DreamLoan-certified Broker or Banker can utilize an Automated
Underwriting engine in order to reduce documentation requirements for the new Mortgage. If this occurs and
the Findings only ask for the last 1040 filed, you have a shot at including the lease in your Qualifying Income.
So, if one is reading this answer in March of 2012 and this Borrower has been renting out part of the current
Owner Occupied property, that income can be included on Schedule E of the 2011 Tax Return. Using this
strategy, one can realistically count 75% of the face value of the new lease as Qualifying Income for the
Purchase of the new Owner Occupied property. For further explanation of these strategies, it is best to purchase
a referral to a DreamLoan-certified Broker/Banker.


WHY DOES MY LENDER CHANGE?
Some Mortgage loans are sold on the Secondary Market after they are originated. Once originated, however, it
is not a foregone conclusion that a Mortgage loan will be sold. Every Lender has its own Servicing/Transfer
statistics. Wells Fargo Wholesale, for example, keeps (or Portfolios) all of its loans, whereas Grand Bank keeps
only 25% of its loans and sells the rest.
When a loan is sold or transferred, the terms of the Mortgage must remain the same. These terms include the
loan amount, Interest Rate, Term, whether or not an Escrow Account is set up, whether or not there is a
Prepayment Penalty, the presence of a Balloon, etc. The Borrower must be notified that the Mortgage loan is
going to be sold at least 15 days prior to the due date of the next payment. The selling Lender will send you a
Goodbye Letter. In this Goodbye Letter both the selling Lender and the purchasing Lender will be identified.
Additionally, the Borrower should receive a Hello Letter from the purchasing Lender. Under the Fair Credit
Reporting Act (FCRA) late payments cannot be reported to a Borrower’s Credit Report within 60 days
following the sale of the loan.
Upon receipt of a Goodbye Letter, the Borrower should call the selling Lender and ask them to name the
Lender to which the Mortgage loan has been sold. Vice versa, the Borrower should also call the purchasing


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Lender and ask them to name the Lender from which the loan has been purchased. This will certify that all
information is accurate and that the Mortgage loan has actually been sold. These phone calls are important
because scams do exist where criminals search county records to reveal the name and address of a Borrower
and the Lender of their Mortgage. Then the Borrower is mailed a letter stating their loan has been sold and
directing that payments be made to a “new Lender” at a P.O. Box. Most Borrowers just obey and by the time
the real Lender asks why the payment is late, the check that was sent to the fictitious “new Lender” has already
been cashed and the criminals are long gone.


WHEN MY LOAN GETS SOLD, CAN MY INTEREST RATE CHANGE?
No. When a loan is sold, all of the loan’s characteristics must remain the same. This includes the Interest Rate,
the Term, whether or not an Escrow Account has been established, whether it is a fixed Rate Mortgage or an
Adjustable Rate Mortgage, etc.


HOW DO I PREPARE FOR DOING A MORTGAGE?
1. Find Income Tax Return copies for last two years
2. Find W2 forms for last three calendar years
3. Find business (C-Corporations, S-Corporations, Limited Liability Companies, Partnerships) Income Tax copies (if
   Self-Employed) for last two years
4. Find K-1 forms for last three calendar years (if Self-Employed)
5. Gather pay documents (one month’s worth of paycheck stubs, a Social Security, Pension, Annuity Award Letters,
   adoption stipend stubs and/or county printout of child support payments received)
6. Gather asset documents (two months most current bank statements for all checking, savings, and money market
   accounts, last two statements received for all IRAs, 401Ks, Stock accounts, and Annuities, HUDs from recent
   property sales) Note that state, county and federal retirement accounts for current employees do not count as assets.
7. Gather situational documents (Divorce Decree, Bankruptcy discharge letter and list of creditors, leases for Rental
   Properties, Tax Appraisal notices for Rental Properties, Homeowner’s Insurance Declarations Pages for Rental
   Properties, proof of payment for Judgments, Tax Liens or collections)
8. Obtain statement of Whole Life Cash Value (if applicable)
9. Find Survey (if Refinancing and in a state that uses surveys)
10. Find Homeowner’s Insurance Declarations Page
11. Write down the names, addresses and telephone numbers of all landlords for the past two years
12. Write down the name, address and telephone number of the Human Resources department for all jobs


I’M DOING A REFINANCE. WHAT HAPPENS IF MY HOUSE DOESN’T APPRAISE?
Either the Lender can be changed and a new Appraisal ordered or the loan can be based on the value of the
Appraisal (possibly requiring a Borrower contribution at Closing to pay off the prior Mortgage).


WHEN DO I KNOW IF MY LOAN IS APPROVED?
You should be informed once the loan receives a Conditional Approval. DreamLoan-certified Brokers/
Bankers are required to notify Borrowers once a Conditional Approval is received on the file. Additionally,



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some DreamLoan-certified Brokers/Bankers have websites which allow a Borrower to login using a Social
Security Number to see the most current status on the loan.


DOES THE TAX APPRAISAL DISTRICT SEE MY APPRAISAL?
No. It is part of a private transaction and file.


TO WHOM DO I GO IF I HAVE A COMPLAINT?
If you are complaining about a Mortgage person, you can do so by contacting the National Mortgage Licensing
Service at http://www.nmlsconsumeraccess.com and searching by the loan originator’s name. Once it is
determined which state(s) the originator is registered from, click Contact Us and scroll down to the appropriate
state. There you will see the appropriate state’s website. Go to the appropriate state’s website and click any link
for either Consumer Information or Consumer Complaints. This will show you how to file a complaint and/or
see if your originator has any complaints filed against him/her.
If you are complaining about a Real Estate Agent, you can do so by contacting your state Real Estate
Commission. Here you will receive information as to how to file a complaint against the Real Estate Agent.
While no professional is perfect, DreamLoan has sought to compile a list of the nation’s best and most
reputable Mortgage Brokers, Mortgage Bankers and Real Estate Agents. DreamLoan interviews, vets and
tests every professional that applies to be part of the DreamLoan family. Many Mortgage Brokers, Mortgage
Bankers and Real Estate Agents are turned down. If you are having a problem with the Mortgage professional
or Real Estate Agent you chose, it might be wise to purchase a referral to a DreamLoan-certified professional
to properly serve you.


WHY ARE RATES HIGHER WHEN I BORROW MORE?
There are two ways to answer this question. If by “more” you mean when you borrow more than the
Conforming loan limit, the reason is because Jumbo loans are considered higher risk loans, thus their Interest
Rates are higher.
If by “more” you mean more than what was advertised on TV or on the radio or in print, this is because most
advertised Rates are contingent upon an 80% Loan To Value, so one assumes those Rates apply to their
potential loan when they never did in the first place. This is not an uncommon question. What is really
happening is you are being caught in a deliberately laid web. This is called using a “loss leader” to entice
people to apply for a Mortgage, only to find (the majority of the time) that they cannot qualify for the
advertised Rate or loan program or that their Loan To Value is too high. Mostly these advertisements, which
are misleading, attract consumers in the hopes of getting what is really an unrealistic Interest Rate in the first
place. These loan originators (usually Retail Loan Originators) are playing a numbers game. They figure that at
least five to ten percent (5-10%) of those who respond to the ad will actually qualify for the advertised terms.
Considering how many people see these national or state-wide advertisements, that is still a lot of bang for
their advertising buck. Additionally, a small percentage of responders to the ad will simply go along with the
higher Interest Rate or terms, since they have already put in the effort to apply. This is why such
advertisements abound...because they unfortunately make a lot more money for the Mortgage originator than
what is spent on the ads. It is unfortunate, but it is a common practice among the more unscrupulous Retail
Loan Originators out there.
This is why DreamLoan did not create a consortium of Mortgage loan originators and Real Estate Agents
based on their advertised Rates or the Commission structures. Instead, DreamLoan-certified Mortgage


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Brokers, Mortgage Bankers and Real Estate Agents are screened based on more important criteria. All certified
DreamLoan professionals must apply for certification by filling out a comprehensive application that weeds
out only the best professionals in the country. Second, these professionals are vetted, including background
checks, complaints, speaking to prior prior clients (based on records, not referrals). Lastly, each DreamLoan-
certified professional must pass an exam (with a score of 80% or higher) written by some of the most
accomplished minds in the Mortgage and Real Estate industries. Few applicants pass this exam, further
separating the wheat from the chaff. DreamLoan strongly encourages its members not to be “tempted by the
shiny apple” and to focus more on the professional grade of the Mortgage originator or the Real Estate Agent,
rather than attractive loan terms or “specials” being advertisied. Instead, purchase a referral to a DreamLoan-
certified professional to insure a positive and financially wise experience.


WHAT ARE THE RISKS OF EXTRACTING EQUITY FROM MY PROPERTY?
If one borrows too much Equity from a property, that property can be at risk of becoming “Upside Down”. This
can occur if there is a market correction (home values drop in the area) or if builders in the area are building the
same size or larger houses and charging less for them. This drags down the dollar per square foot number of
your property and lowers the Fair Market Value. If the Fair Market Value falls, suddenly one can owe more
than the house is worth, because the Equity was extracted when values were higher. For example, if a house
appraises for $200,000 and the Borrower takes out a loan against it that is 90% of the Fair Market Value, the
Borrower will owe $180,000. If the property’s value increases five percent (5%) a year for two (2) consecutive
years to approximately $220,000 but then has a 20% correction in value (in a rescession), within three (3) years
the property could then be worth $176,000 which is less than the $180,000 loan taken out three years prior. If
such a correction takes place and the Borrower is also experiencing difficulty paying the Mortgage Payment,
selling the property is no longer an option, because after Real Estate Agent Commissions and Seller Closing
Costs, one would need to bring money to the Closing in order to sell the house. Thus, it is DreamLoan
suggestion never to borrow more than 80% of the value of the property when Refinancing (whether the
Refinance is a Cash Out or a regular Rate/Term). For more information you might want to purchase the
DreamLoan Specialty Tutorial “Equity Investing”.


WHAT IS A WALK THROUGH?
A Walk Through is a Final Inspection by the Buyer of the property being purchased to insure that all work has
been completed by the Seller/Builder. Usually this results in a “Punch List” on a home under construction,
which is a final list of minor items that need to be corrected before the Builder takes his/her Final Draw. In a
Purchase transaction, a Punch List is usually not done because there is no stop gap to prevent the Seller from
getting their Sales Proceeds after Closing and Funding. Thus, a Walk Through on a Purchase must result in
verification that all work agreed to by the Seller has been completed. If not, Closing must be rescheduled in
order to give the Seller more time to finish. It is DreamLoan’s suggestion that a Walk Through be performed
on Purchases, especially if furniture has been removed (empty space has a way of exposing items in need of
repair) and that Walk Throughs be performed on all construction projects. For more information you might
want to purchase the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


WHAT SHOULD I LOOK FOR IN HOMEOWNER’S INSURANCE?
The following attributes should be sought in Homeowner’s Insurance:
   • That coverage covers fire, wind/storm damage, hail, etc. It should cover against everything other than a flood.


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    •   Reconstruction coverage - Be certain that there is enough coverage to rebuild the property at current day prices to
        its original size and materials grade.
    •   Liability coverage - Be certain there is coverage if a guest or trespasser were to “slip and fall” or otherwise
        become injured on your property. If your net worth is higher than these liability limits, an “Umbrella Policy”
        with additional liability coverage should be examined.
    •   Other structures - Be sure that any other structures besides the main house are covered and could be rebuilt in the
        event of a loss.
    •   Personal property on premises - Be certain there is ample coverage for expensive belongings such a watches,
        jewelry, important papers, art collections, etc.
    •   Personal property off premises - Be certain that any property that travels with you off the premises is also
        covered.
    •   Deductible - Be sure that the deductible is reasonable for your Income/savings level and that it does not exceed
        1% of the policy amount (this is usually the maximum deductible allowed by Lenders).
    •   Interior flood coverage - Be sure there is coverage should a pipe burst or should a dishwasher or washing
        machine flood a room.
    •   Contents - Be certain there is ample coverage for your possessions to be replaced at current day prices.


WHAT IS HAZARD INSURANCE?
Hazard Insurance is the same thing as Homeowner’s Insurance. The reason for the alternate term is that both an
owner’s Homeowner’s Insurance policy and a landlord’s Homeowner’s Insurance policy are Homeowner’s
Insurance policies. So, when saying “Homeowner’s Insurance” one could be talking about either an owner’s
insurance policy or a landlord’s policy and it is unclear. Thus, Hazard Insurance is a way to refer to either and
both at the same time, without confusion.


SHOULD I GET FLOOD INSURANCE?
If the Flood Certificate obtained by the Lender for your property shows that the property, or any structure
thereupon, is in a Flood Zone, it is extremely important to not only get flood insurance but to also cover the
contents of the home in the policy. Contents coverage is obviously not necessary if the property is a Rental
Property.


WHAT IS MORTGAGE INSURANCE?
An insurance policy paid by the Borrower, by the Lender or both, to insure the Lender against Default. The
acronym for this term is MI or PMI. Specifically, Mortgage Insurance insures the Lender for the portion above
80% that the Lender is extending in credit (as most Default sales obtain approximately 80 cents on the dollar).
For example, if a Buyer does a five percent (5%) Down Payment and a one Lien loan, the Loan To Value is
95% of the Purchase Price. Thus, the Mortgage Insurance on that loan would insure the Lender for the 15%
that it is lending above the 80%. Mortgage Insurance began being tax deductible on January 1, 2007 and is tax
deductible for single Borrowers with Incomes up to $100,000 per annum and for married Borrowers with
combined Incomes up to $110,000 per annum. MI is only tax deductible on Owner Occupied properties.
There are three types of Mortgage Insurance: Borrower Paid, Lender Paid and Split Edge. Borrower Paid
Mortgage Insurance is paid monthly by the Borrower in their Mortgage Payment. Lender Paid Mortgage
Insurance is charged to the Lender by the Mortgage Insurance company and the Lender is either pre-


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reimbursed by virtue of a one-time Discount charge or reimbursed as the loan is paid back by virtue of a higher
Interest Rate on the loan. Split Edge Mortgage Insurance is when the Borrower pays a little of the Mortgage
Insurance premium in his/her monthly payment and the Lender pays the rest. Again, the Lender is either pre-
reimbursed by a Discount charged paid to the Lender in the Closing Costs or reimbursed as the loan is paid
back through a slightly increased Interest Rate.


WHO DOES MORTGAGE INSURANCE ON A REFINANCE PROTECT?
The Lender who has extended the credit.


HOW CAN I TELL IF MY BROKER HAS HAD COMPLAINTS AGAINST HIM/HER?
By contacting the National Mortgage Licensing Service at http://www.nmlsconsumeraccess.com and
searching by the loan originator’s name. Once it is determined which state(s) the originator is registered from,
click Contact Us and scroll down to the appropriate state. There you will see the appropriate state’s website. Go
to the appropriate state’s website and click Consumer Information...Consumer Complaints. This will show you
how to file a complaint and/or see if your originator has any complaints filed against him/her.
It is important to point out that DreamLoan researches this very thing during the vetting portion of the
certification process. When one purchases a referral to a DreamLoan-certified Mortgage Broker/Banker or a
DreamLoan-certified Realtor®, one can depend upon DreamLoan to have done considerable due diligence in
order to permit that professional to be in the DreamLoan family.


WHEN IS MY PURCHASE TRANSACTION FINAL?
As soon as the loan Funds. However, in Escrow states, recording of the Mortgage instrument and deed transfer
must also take place in order to close Escrow and make the transaction final.


DO I HAVE TO USE MY REAL ESTATE AGENT’S MORTGAGE BROKER?
Absolutely not. Under the law, the Borrower may choose the entity providing financing and cannot be coerced
into using any specific Broker/Banker or Retail Bank. True independence for the consumer can be achieved by
purchasing a referral to a DreamLoan-certified Mortgage Broker or Banker. DreamLoan also offers
consumers the ability to purchase a referral to a DreamLoan-certified Realtor® so that all DreamLoan users
can access the very best professionals in the Real Estate and Mortgage industries.


FOR HOW LONG IS MY RATE QUOTE GOOD?
Under the law, a Rate quote on a Good Faith Estimate is good for 10 calendar days unless there is a Change In
Circumstance (like the loan amount, the Term, etc.) at which point a new Good Faith Estimate with a new 10
day period will be generated. Therefore, whatever Rate is disclosed on the most recent Good Faith Estimate
will be the one that is good for 10 days from the date on the disclosure.


WHAT DOES IT MEAN TO “LOSE MY LOCK”?
Interest Rates are locked for a period of days and expire at the end of the Lock Period. If the loan that was
Locked does not Close and Fund within the Lock Period, then the lock will be lost. If that happens, the Broker/



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Banker will need to either a) renegotiate the Lock; b) pay for an extension; c) Relock the loan; or d) move the
file to a new Lender and Lock with the new Lender’s Lock Desk. Depending on market in the bond market,
these options can be very expensive. If the Broker/Banker warns that the expiration date of the Lock is
approaching, the Borrower should get a written list of any documents or authorizations that are outstanding in
order to meet the Stipulations of the Conditional Approval. If there is nothing required still from the Borrower,
then keeping or losing the Lock becomes the responsibility of the DreamLoan-certified Broker/Banker only.


WHAT DO I DO IF MY FINANCIAL INFORMATION CHANGES?
Notify your DreamLoan-certified Mortgage Broker or Banker immediately. Your Mortgage originator will tell
you exactly how to document this change in a way that helps you to maintain your Qualifying Income.


WHY DID MY CLOSING DATE CHANGE?
Most likely because it was set by someone other than the DreamLoan-certified Broker/Banker (like a Real
Estate Agent, for example, who has not checked with the DreamLoan-certified Broker/Banker). If that is not
the case, Closing dates can change for numerous reasons: The lawyers that draw the docs are behind schedule,
the Underwriter surprised the loan originator with a new, previously undisclosed Condition, the Borrower still
owes the loan originator some documentation, etc. Usually, DreamLoan-certified Brokers/Bankers only set
the Closing date and time when they already possess a Clear To Close and the file has reached the front of the
queue of the lawyers that draw the Closing documents.


WHY DO I HAVE TO HAVE AN INSPECTION?
A Home Inspection is not required, but it is highly recommended. Often, out of a concern that the Borrower is
protected, Real Estate Agents and Mortgage professionals will make it sound like a Home Inspection is
required, but it is not. There is no loan program that requires a Home Inspection. However, only through an
Inspection can the Borrower truly make an informed decision as to whether or not the house under Contract is
well built and without serious defect.


WHY WOULD I CHOOSE A DREAMLOAN-CERTIFIED BROKER/BANKER?
Because only DreamLoan-certified Brokers and Bankers have passed a very difficult DreamLoan Mortgage
Originator Exam. Also, in order to become certified, they have to have met product availability requirements,
have a minimum number of Lenders in their network and have demonstrated a track record of superior
customer service. Additionally, DreamLoan offers Testimonials on DreamLoan.pro and through the
DreamLoan mobile App that give a Borrower an uncensored view into the experiences of those who have
purchased DreamLoan referrals. Furthermore, DreamLoan is available to assist a Borrower from the moment
a referral is purchased through the Closing of the transaction. Lastly, the referral one purchases from
DreamLoan comes with a guarantee; if one is not satisfied with the referred Broker/Banker, DreamLoan will
provide another referral at no cost to insure the Borrower’s satisfaction provided the Borrower informs
DreamLoan of their dissatisfaction within 30 days from the date of Purchase. For more information you might
want to purchase the DreamLoan Specialty Tutorial “What a Mortgage Professional Should Do”.




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I AM THINKING ABOUT BUYING A HOME AND ALSO STARTING A BUSINESS. WHAT SHOULD I
KNOW?
That the order in which you do these two things matters. Since a history of Self-Employment is required before
one can qualify for a Mortgage loan, it is important that, when possible, home ownership is achieved before the
switch to Self-Employment is made. If it is too late, and the Self-Employment has already begun, it is
imperative that the Borrower purchase a referral to a DreamLoan-certified Mortgage Broker or Banker to
heighten the likelihood of a reduced Self-Employment documentation requirement (less than the standard two
years).


WHEN IS IT OKAY TO BECOME SELF-EMPLOYED?
If possible, it is best to hold off on Self-Employment until such time as the Purchase of a home has been
achieved. Finding a home and completing a Purchase can be done in as little as six weeks. A DreamLoan-
certified Realtor® and a DreamLoan-certified Broker/Banker can work together to find a property and finance
it quickly if someone is presented with this situation.


MY COMPANY IS CHANGING ME FROM W2 TO 1099. HOW WILL THIS IMPACT MY MORTGAGE
FINANCING?
The moment the employer makes this change, you will be considered Self-Employed. Therefore, if it is
possible, a home should be Purchased before this change takes place because there is a minimum time period
that one must be Self-Employed before Mortgage financing is possible. If one needs to Purchase a home
quickly in order to achieve the Purchase before Self-Employment begins, A DreamLoan-certified Realtor®
and a DreamLoan-certified Broker/Banker can work together to find a property and finance it usually within
as little as six weeks.


MY WIFE IS A HOMEMAKER. DOES SHE HAVE TO BE ON THE MORTGAGE?
No. There is no requirement that a homemaker be placed on the Loan Application for the Mortgage. Spouses
that are not listed on the Loan Application are called Non-Obligor (Refinances) or Non-Purchasing (Purchases)
Spouses. If, however, a homemaker wishes to develop his/her credit, being added to a Mortgage Loan
Application is an excellent way of doing so.


MY PARENTS ARE WILLING TO COSIGN FOR MY MORTGAGE. IS THIS ALLOWED?
Yes. Certain Government loan programs, like FHA or VA loans allow Non-Resident CoBorrowers, that is, they
allow cosigners for the loan that will not live in the property. This is the usual scenario when parents wish to
help a child Purchase property. If the Borrower’s parents intend to live in the Subject Property, then a
Conventional loan would also work. If, on the other hand, the Borrower’s parents will not live in the property
and the loan cannot be a Government loan (if the loan size is too large, for example) then the only possible loan
would be a Conventional loan. On Conventional loans with Non-Resident CoBorrower, the Borrower(s) must
qualify alone with maximum Debt To Income Ratios of 43% before any non-Resident CoBorrower Income is
added. Thinking a little further down the road, it is possible to require parents to cosign a Mortgage for as little
as one (1) year. DreamLoan-certified Mortgage professionals know how to do this. For more information on
this, purchase the DreamLoan Specialty Tutorial “Dropping an FHA Non-Resident CoBorrower”.



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CAN I BUY A HOUSE WITH NO MONEY IN THE BANK?
Believe it or not, yes. The first way is for veterans by using a VA loan which finances up to 100% of the
Purchase Price and allows for four percent (4%) of the Purchase Price in Seller Contributions to pay Closing
Costs and Prepaids. If that is not enough the VA loan program also allows Gift Funds to be used in the
transactions.
Additionally, the FHA 203B Purchase loan allows for the entire Down Payment, all Closing Costs and all
Prepaids to be paid from Gift Funds, requiring nothing from the Borrower. It is not uncommon for Borrowers
without funds of their own to become homeowners, due to the flexibility and Government backing of the FHA.
It is important, however, to note that no savings and a Gift Donor for a Down Payment is considered a negative
Mortgage file characteristic. Such a lack of “skin in the game” has statistically been linked to higher than
average rates of Default. If the Borrower’s Mortgage file contains another negative characteristic, like poor
credit, FHA Underwriters may not be able to overlook the two combined and can Decline the loan or require
more of a Down Payment to lower the loan risk. All DreamLoan-certified Brokers and Bankers have access to
both FHA and VA loans and know how to positively present a Mortgage loan in which the Borrower is
contributing zero funds. For more information you might want to purchase the DreamLoan Specialty Tutorial
“Responsible Zero Down Payment Financing”.


WHO ORDERS THE APPRAISAL?
The Mortgage Broker/Banker orders the Appraisal through the Lender that has been chosen for the Borrower.
The Borrower only needs to meet the Appraiser (Refinance) on the property or arrange for a Real Estate Agent
to meet the Appraiser (Purchase) on the property. For more information you might want to purchase the
DreamLoan Specialty Tutorial “What a Mortgage Professional Should Do”.


I AM GETTING MARRIED. IS THERE ANYTHING I SHOULD KNOW ABOUT MORTGAGES
WHILE I AM STILL SINGLE?
Yes. While DreamLoan encourages you to seek professional legal advice on this issue, the following is our
suggestion: If it is desired to acquire the property before the marriage and keep it as a separate asset, the
Borrower must qualify, Close and Fund by him/herself and no “rent” or contribution can be charged to the
occupant the Borrower is marrying. If the property is Purchased before marriage and the spouse then never,
ever contributes to the Mortgage Payments, this keeps the asset completely separate should the union be
dissolved in the future. While this is not a 100% sure thing, Purchasing the home as a single individual and
being very careful to never charge your spouse rent or never accept any part of the Mortgage Payment from the
spouse heightens the likelihood of surviving a divorce with the asset intact, even in a Community Property
state.


CAN MY BOYFRIEND AND I QUALIFY TOGETHER?
Yes, as unmarried co-applicants.


MY GIRLFRIEND AND I LIVE TOGETHER AND SHE PAYS ME RENT. CAN I USE THIS INCOME
TO QUALIFY TO BUY A HOUSE?
Only if the rent received has been disclosed to the IRS on Schedule E of at least the most recent year’s Tax
Return. Non-DreamLoan-certified Mortgage people may actually need this to have taken place for the last two


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(2) tax years, while DreamLoan-certified Mortgage Brokers and Bankers can often keep this requirement
limited to only one (1) year. If the Borrower has met this guideline, then 75% of that rent can be used as
Qualifying Income.
There is, however, a way to skin this cat. To learn how, see the DreamLoan Specialty Tutorial “Buying
Multifamily Housing”.


SHOULD I CHOOSE A FIXED RATE MORTGAGE OR AN ARM?
It depends entirely upon how long one will be keeping the loan. A Fixed Rate Mortgage is one where the
Interest Rate is Fixed for the entire Term of the loan. That means that if you choose a Fixed Rate Mortgage and
it has a Term of 20 years, then the Interest Rate will remain the same (as when it was Locked) for the entire 20
years.
An Adjustable Rate Mortgage is a Mortgage where the Interest Rate changes (with the market) throughout the
Term of the loan. Adjustable Rate Mortgages usually have a Fixed Period at the beginning, however. During
this Fixed Period the Interest Rate remains the same (as when it was Locked) for that Fixed Period of time. The
general rule of thumb is that the Fixed Period of an Adjustable Rate Mortgage should be at least two years
longer than the length of time one intends on keeping the loan. For example, if one is buying an Owner
Occupied home to live in for two years and one intends to keep the property as an Investment Property for two
years following move out, then the Fixed Period of the loan should be at least six years. This would mean that
a Fixed Rate Mortgage or a 7/1 or 10/1 Adjustable Rate Mortgage are appropriate choices (as the first number
on the Adjustable Rate Mortgage indicates how long the Fixed Period is).


WHAT SHOULD I TELL THE APPRAISER WHEN HE COMES?
Tell the Appraiser about any improvements that have been made to the property but that are not obvious to the
eye. Limit your input to that one topic.


I CAN’T FIND MY COPY OF MY TAX RETURNS. WHAT CAN I DO?
Visit the nearest IRS office and request a Transcript of your Tax Returns and W2s (if also needed).


HOW DO I FIRE MY REAL ESTATE AGENT?
In writing with a copy to your Broker/Banker and to the supervising Real Estate Broker in charge of the Real
Estate Agent. If this occurs (which it often does) DreamLoan can replace that Real Estate Agent by selling a
referral to DreamLoan-certified Realtor® so that a Buyer can rest assured that he/she is finally in good hands.
If you are now considering buying without a Realtor® you might want to purchase the DreamLoan Specialty
Tutorial “Looking for Real Estate without a Realtor®”.


THE LISTING AGENT WANTS HER FRIEND TO REPRESENT ME. SHOULD I DO IT?
Absolutely not. There is no requirement in any state for a person to have a Real Estate Agent in order to buy
Real Estate. If you do want a Realtor®, the best Real Estate Agents in the nation are DreamLoan-certified
Realtor®s. Should you choose to purchase Real Estate without a Real Estate Agent, DreamLoan can help you
in this endeavor. Just go to the DreamLoan Specialty Tutorials and choose “Looking for Real Estate without
a Realtor®”.


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THE LISTING AGENT WON’T SHOW ME THE PROPERTY BECAUSE I DON’T HAVE A BUYER’S
AGENT. IS THIS LEGAL?
No. It is illegal. If this occurs, threaten to file a complaint with the state board of Realtors®. Usually, that will
be enough to get the Listing Agent to let you view the house. If the Listing Agent requires a Prequalification
Letter in order to view the house, that is a reasonable request. Prequalification letters can be provided on
DreamLoan.pro, by use of the DreamLoan mobile App and through a DreamLoan-certified Mortgage
Broker or Banker. See the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


I AM DOING A MORTGAGE BUT NEED TO BUY A NEW CAR. WHEN IS IT SAFE TO DO SO?
Purchase the car after the Mortgage loan has Closed and Funded. The first reason for this is that in Mortgaging
there are things called ratios. The Front Ratio is the Housing Expense (the PITI on the new loan) divided by
your Gross Income (a person paid with taxes withheld) or Net Income (a person who is Self-Employed). The
Back Ratio is the Housing Expense plus any and all monthly obligations that appear on the Applicant’s Credit
Report. A new car payment would be counted against you in your Back Ratio, and if it goes too high, the
Mortgage loan could be denied.
The second reason why you should buy the car after you buy the house is that car shopping is notorious for
lowering your Credit Scores. This is because car dealerships broadcast fax (or email) your credit application to
multiple lenders, each of which pulls your Credit Report. This lowers your Credit Scores considerably and if
you subsequently apply for a Mortgage, your Mortgage Credit Report will reflect the lower Credit Scores and
that could raise the Interest Rate for which you qualify.


CAN I USE MY CAR ALLOWANCE TO QUALIFY?
Only on an FHA or Subprime loan.


CAN I USE MY FOSTER PARENT STIPEND TO QUALIFY?
Yes, provided it can be proven that it will continue for at least three (3) years. This is often done using a birth
certificate for the foster child, since the stipend will continue until the foster child is 18.


CAN I USE MY ADOPTIVE PARENT STIPEND TO QUALIFY FOR A MORTGAGE LOAN?
Yes, provided it can be proven that it will continue for at least three (3) years. This is often done using a birth
certificate for the adopted child, since the stipend will continue until the adopted child is 18.


DOES THE APPRAISER HAVE TO COME INSIDE?
Generally yes, unless the house has been Appraised previously by the same Appraiser very recently.


I HAVE A BOARDER. CAN I USE THAT RENT TO QUALIFY?
Only if the rent received has been disclosed to the IRS on Schedule E of at least the most recent year’s Tax
Return. Non-DreamLoan-certified Mortgage people may actually need this to have taken place for the last two
(2) tax years, while DreamLoan-certified Mortgage Brokers and Bankers can often keep this requirement




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limited to only one (1) year. If the Borrower has meets this guideline, then 75% of that rent can be used as
Qualifying Income provided there is a signed, current lease.
There is, however, another way to skin this cat. To learn how, see the DreamLoan Specialty Tutorial “Buying
Multifamily Housing”.


I DON’T WANT TO SHOW MY FINANCIAL INFORMATION TO ANYONE. IS THAT OKAY?
Yes, but only if you are using a Limited Documentation loan program such as Stated Income, Stated Income
Stated Assets, No Doc, No Ratio, No Income Verified Assets or No Income No Assets. If you are doing a Full
Documentation loan, all financial information must be disclosed and proven to the Broker/Banker and the
Lender.


IS MY MORTGAGE FILE PRIVATE?
Yes. Under federal law (the Right to Financial Privacy Act), only the Broker, the Lender and any entity that
buys the loan on the Secondary Market may see the Mortgage file. Real Estate Agents may not see the file and
should not need anything other than a Prequalification letter. The Broker/Banker cannot impart any
information to the Real Estate Agent without written consent from the Borrower. All DreamLoan-certified
Brokers and Bankers are aware of these guidelines and laws.


DOES THE COUNTY TAX ASSESSOR GET TO SEE MY APPRAISAL?
No. It is part of a private transaction between the Borrower and the Lender. The only other entity (besides the
DreamLoan-certified Broker/Banker) that needs to see the Appraisal is the Homeowner’s Insurance agent so
that the property can be fully insured.


MY BROKER SAYS I SHOULD REFINANCE BUT MY RATE WON’T GO DOWN VERY MUCH.
SHOULD I DO IT?
It depends on your goals. The following would be examples of reasons for doing the Refinance, even if your
Interest Rate won’t go down a lot:
     • Changing the Term to make the repayment period shorter in order to pay the loan off sooner
     • Changing from an Adjustable Rate Mortgage to a Fixed Rate Mortgage
     • Changing from an Interest Only Mortgage to a Amortized Mortgage
     • Changing from an Interest Only Mortgage to an Adjustable Rate Mortgage that is Amortized
     • Changing the Term in order to lower the payments achieving Breakeven quickly (within two years)
     • Paying off the current First Mortgage and getting Cash Out (accessing the Equity)
If the transaction does not involve any of the attributes above, it may be wise to seek the advice of a Certified
Financial Planner or CPA. DreamLoan-certified Brokers and Bankers, however, know that a Refinance must
be justified with a tangible financial benefit.


CAN I PAY OFF DEBTS TO QUALIFY FOR A MORTGAGE?
It depends on the Lender and their signed commitment with Fannie Mae and/or Freddie Mac. Usually,
however, loans with a First Mortgage Loan To Value ratio of over 80% will not permit debts to be paid off


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following the date of the Loan Application. This is because such loans, with Private Mortgage Insurance, must
be underwritten according to Mortgage Insurance Underwriter guidelines which generally do not allow debt to
be paid off in order to qualify for a Mortgage loan. There are, however, exceptions as different Lenders have
different commitments with the main purchasers of loans. It is probably wise to consult with a DreamLoan-
certified Broker/Banker before doing anything with regard to debts. Together, the DreamLoan-certified
Broker/Banker and the Borrower can come up with a strategy to reduce the Borrower’s Debt To Income Ratio
if it indeed presents a problem to the DreamLoan-certified Broker/Banker’s Lender.


I WANT TO BUY AN INVESTMENT PROPERTY. WHAT SHOULD I LOOK FOR?
See the DreamLoan Specialty Tutorials “Properly Buying Investment Property” and “Buying Mulitfamily
Housing”.


CAN I DO THE WORK MYSELF ON A CONSTRUCTION LOAN?
Yes and no. Generally, construction Lenders prohibit “Builder Builds”, that is, the owner of the property cannot
be the General Contractor, unless the loan is specifically for the construction of a Non-Owner Occupied
property. However, the owner of the property can act as a Subcontractor and may provide services in the
owner’s area of expertise. For more information, see the DreamLoan Specialty Tutorial “How to Do a
Construction Project”.


HOW DO I FIGURE OUT WHAT IT IS THAT I NEED TO KNOW?
DreamLoan.pro and the DreamLoan mobile App have more than a dozen separate tutorials, specifically
tailored to the user’s experience (or lack thereof), education and loan purpose (Purchase, Refinance,
Construction). A few simple questions need to be answered in order for the correct tutorial to be displayed. At
any time on both DreamLoan.pro and the DreamLoan mobile App, the user can update his/her Profile to
access another tutorial. Additionally, DreamLoan offers a suite of Specialty Tutorials (online courses,
webinars, etc.) so that each user can learn as much or as little as they desire.
The DreamLoan Mortgage Glossary is also designed so that users can learn as much or as little as they want.
When one clicks on a term that appears in the Glossary, the first sentence of that term’s definition will be
displayed, followed by the word “more”. Only if the user clicks “more” will the rest of the definition (if
necessary) will appear. This way users get the information they need but are not overwhelmed or required to
read lengthy definitions, even though they are available for those who are interested in more information.


WHAT SHOULD MY REAL ESTATE AGENT BE DOING?
Generally the Realtor® finds properties that meet your specifications and previews them so that the Buyer is
only seeing houses that are very likely to be to the Buyer’s liking. However, there are numerous, specific
activities that the Realtor® should do for the Buyer. See the DreamLoan Specialty Tutorial “What A
Realtor® Should Do”.




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WHAT IS MY MORTGAGE PERSON SUPPOSED TO BE DOING?
Generally, a Mortgage loan originator evaluates the Borrower’s needs and obtains a Mortgage loan on the
Borrower’s behalf. However, there are numerous, specific activities that the Mortgage loan originator should
do for the Borrower. See the DreamLoan Specialty Tutorial “What A Mortgage Professional Should Do”.


HOW DO I BUY A HOUSE WITHOUT USING A REAL ESTATE AGENT?
See the DreamLoan Specialty Tutorial “Looking For Real Estate Without A Realtor®”.


HOW CAN I BUY THE HOUSE THAT I AM RENTING?
There is a superior way to do it that Real Estate Agents do not know about. See the DreamLoan Specialty
Tutorial “Lease To Own Using A Refinance”.


WHAT IS LEASING TO OWN?
There is a superior way to do it that Real Estate Agents do not know about. See the DreamLoan Specialty
Tutorial “Lease To Own Using A Refinance”.


CAN MY SECOND MORTGAGE BE LARGER THAN MY FIRST MORTGAGE?
Yes. Although it is unusual, there are no prohibitions to a Second Mortgage being larger than the First
Mortgage. Sometimes this occurs when a house has a great deal of Equity in it but the First Mortgage is at such
a low Rate that the Borrower does not want to unseat it. In this situation, the Borrower may decide to do a
Home Equity Second Mortgage and pull more Equity from the home than is the size of the First Mortgage.


I WANT TO BUY A SECOND HOME. WHAT DO I NEED TO KNOW?
The first thing that you need to know is that not all houses qualify as Second Homes. There are several rules
with regard to buying a Second Home:
    • You must prove that you have a Mortgage or rental obligation for your current Primary Residence.
    • The proposed property must a reasonable distance away from your Primary Residence. Generally this is
        interpreted to mean that the Second Home must be more than 35 miles away (as the crow flies, i.e. actual
        distance rather than drive time or drive distance) from your Primary Residence.
    •   The proposed property must be in a “desirable Second Home community” or area suitable for Second Homes,
        such as the mountains, the beach, another city, in town (if the Primary Residence is in the country and the
        Borrower works in town), etc.
    •   Relatives cannot live in the proposed property.
    •   The property should not be rented when the owners are not there.
    •   The proposed property must be occupied by the Borrower for at least two weeks out of every year.
    •   The proposed property can only be a Single Family Residence, Condo or Townhome/Townhouse.
    •   The proposed property cannot be a time share property.
    •   There can be no management agreement to control the Occupancy of the property.




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    •   Generally the proposed property cannot be larger than your Primary Residence unless you live in an area with
        exceptionally high rental rates (such as New York City or San Francisco for example).
Additionally, it is important to point out that Second Homes have the exact same rates and costs as Primary
Residences. If your loan originator tells you that your rate will be higher or that it will cost more because you
are buying a Second Home, find a new loan originator immediately. Of course, this can easily be avoided by
purchasing a referral to a DreamLoan-certified Broker/Banker.


SHOULD I BUY A NEW HOUSE FIRST OR A NEW CAR?
Because Debt To Income Ratios are one of the most important factors in Mortgage approvals, it is suggested
that one always Purchases a house before a new car (new to you). This is because even at very low interest
rates, car loans usually have a payback period of 75 months or less, which makes the monthly payment
substantial. This works against the Borrower by adding to the Back Ratio and possibly making qualification
problematic. Additionally, the credit inquiries that accompany buying or leasing a new car (or a used one) can
significantly lower one’s Credit Scores, which are another important determining factor to a Mortgage loan.


CAN AN ELDERLY PERSON QUALIFY FOR A 30 YEAR MORTGAGE?
Under Federal Law (the Equal Credit Opportunity Act), a Mortgage applicant cannot be discriminated against
based on their age, provided they are old enough to enter into a binding contract. This means that even a 90
year old person can qualify for a 30 year Mortgage based solely on the Collateral (the property) and the
Borrower’s ability to pay the loan back.


I WANT A FIXER-UPPER. WHAT DO I NEED TO KNOW?
The first thing that a person needs to know when buying a “fixer upper” is whether or not the house can be
lived in during the period of improvements. A house that can be lived in during the period of remodeling or
construction can be Purchased as an Owner Occupied home with Rates and Terms that are most favorable. A
house that cannot be lived in during the period of construction must usually be Purchased as an Investment
Property unless a Construction Loan is used.
Construction Loans can allow the Borrower to live elsewhere during construction and still consider the
property Owner Occupied, but on a Construction Loan, the Lender will control the construction funds. For
example, the Builder or General Contractor hired to perform the construction must complete a portion of
construction (electrical, plumbing, framing, etc.) before he/she can gain access to the construction funds for
that portion. This allows the Lender to have control over the Collateral (the house), sending Inspectors to the
property each time a “Draw” is requested by the Builder or General Contractor. Thus, the second most
important question to be posed to the Borrower is whether or not the Borrower wishes to have total control
over the construction funds. Borrowers that wish to have complete control over the construction funds need to
use a different kind of Mortgage loan. For example, a Borrower can use a loan that requires a small Down
Payment and then Structure the loan with Lender Paid compensation. This minimizes cash due at Closing so
that savings can be used to do the construction. Another option would be to borrow as close to 100% of the
Purchase Price as possible, then to make as many “value oriented” changes as possible to the property, then
borrow Equity against the now improved market value of the Property.
Lastly, the Borrower buying a Fixer Upper needs to know a reputable Builder or General Contractor. Generally,
Lenders do not allow the Borrower him/herself to perform the function of a General Contractor. Additionally,
Lenders generally will not endorse Builders or General Contractors because they do not want to be sued if the


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relationship between the Borrower and the contractor goes sour. Lenders will, however, approve Builders
based on their Income, the number of years they have been in business, their credit, their assets and/or their
access to materials. This is a service to the Borrower because generally Borrowers do not know enough to
properly distinguish between a solid Builder and a novice. Thus, it is important that a Borrower interested in
buying a Fixer Upper knows of a reputable Builder/General contractor and that he/she has the ability to pass
the scrutiny of the Lender. The most effective and most reliable way to choose a builder is to contact the local
builders association. This registry will have a long list of builders available in a Borrower’s community.
However, in order for the Borrower to easily get to the cream of the crop, it is best to find out which Builders
are on the board of the association. These Builders should be contacted first regarding price and availability. If
these Builders prove to be unavailable, then the next set of Builders interviewed should be those Builders
recommended by the Builders on the association’s board.
Additionally, Fannie Mae offers Rehab loans which allow for limited construction on a property. All
DreamLoan-certified Brokers/Bankers have access to this type of loan program.
Guidance on doing construction on a property can be found, in great detail, in the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


IF I BUY A FIXER-UPPER, DO I NEED TO HAVE A CONTRACTOR?
Generally, yes. The majority of Lenders will not allow a Builder Build and will require the Borrower to have a
General Contractor. However, if the Borrower can prove that he/she has experience in construction and knows
a large number of Subcontractors the Borrower must tell the loan originator so that a Lender that allows
Builder Builds can be used for the Construction Loan. The only other option is to borrow the Equity from
another home in order to bypass the use of a Construction Loan for the Fixer Upper.
Additionally, Fannie Mae offers Rehab loans which allow for limited construction on a property. All
DreamLoan-certified Brokers/Bankers have access to this type of loan program.
Guidance on doing construction on a property can be found, in great detail, in the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


ARE THERE LOANS FOR FIXING A PLACE UP?
Yes. Both Fannie Mae and Freddie Mac offer loans for limited construction. However, large construction
projects require the use of a Construction Loan. The only other option is to take out a Home Equity Loan or
HELOC in order to access the Equity from a house that the Borrower already owns. This type of loan allows
the Borrower to have full control over the construction funds and to be their own General Contractor. All
DreamLoan-certified Brokers/Bankers have access to this type of loan program.
Guidance on doing construction on a property can be found, in great detail, in the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


MAY I LIVE IN A HOUSE WHILE I AM FIXING IT UP?
Yes, provided the property is habitable. There are no Mortgage loans that force a Borrower to live elsewhere
while they are improving the home. However, the Borrower should realistically assess the level of
inconvenience that will be encountered during the Remodeling of a home. Usually this inconvenience is
substantial and is very difficult for the majority of the public to endure.




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Guidance on doing construction on a property can be found, in great detail, in the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


DO I NEED PERMITS TO FIX UP A HOUSE?
It depends on the level of construction that will be done. Some municipalities allow the construction of an
existing interior without requiring a Permit. However, the majority of cities and towns require a construction
Permit for any improvements larger than painting or carpeting a room. Usually a Permit is required if any of
the interior walls are affected or if the Remodeling requires substantial involvement with other aspects of the
home (such as a kitchen Remodel requiring additional electrical outlets or plumbing changes). Ignoring the
requirement for a Permit can result in a Red Tag or substantial fines. Additionally, any Builder or General
Contractor that says a Permit is not required is usually inexperienced or shady. If a Builder/General Contractor
states that a Permit is not required, the Borrower should immediately consult the opinion of the city hall for the
municipality in which the property is located. If that source contradicts the Builder/Contractor, that Builder/
General Contractor should probably not be used. While DreamLoan does not certify Builders, a DreamLoan-
certified Mortgage Broker, Mortgage Banker or Realtor® can probably refer a quality Builder to the Borrower.
Guidance on doing construction on a property can be found, in great detail, in the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


WHERE DO I GET PERMITS?
Permits are usually provided to the public by the municipality’s city hall or a private firm (an Inspector, an
engineering firm, etc.) that is hired by the municipality to supervise construction. Guidance on doing
construction on a property can be found, in great detail, in the DreamLoan Specialty Tutorial “How to Do a
Construction Project”.


WHAT DOES THE REAL ESTATE AGENT DO?
The Realtor® should be finding and previewing houses that are as close as possible to the Buyer’s
specifications. However, there are numerous, specific activities that the Realtor® should perform for the Buyer
(or Seller). See the DreamLoan Specialty Tutorial “What a Realtor® Should Do”.


WHAT SHOULDN’T MY REAL ESTATE AGENT DO?
The most important thing a Real Estate Agent should not do is to advise on financial or Mortgage matters.
Generally Real Estate Agents are not educated or experienced in finance. Additionally, Real Estate Agents
should not advise on construction matters unless they are advising on which items correspond to increased or
decreased value. For example, it is perfectly appropriate for a Realtor® to assess the Fair Market Value that
adding a bathroom might add, however it is not appropriate for the Realtor® to select the correct type of sheet
rock to use for its construction. Likewise, it may be appropriate for a Realtor® to advise on the size of
bedrooms in an addition to the house, but it is not appropriate for the Realtor® to advise on the type of pipes
that should be used for the plumbing. DreamLoan offers a document “What a Realtor® Should Do” in the
DreamLoan Specialty Tutorials to offer an overview of the responsibilities of a Realtor®, should you need
further information.




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HOW DO I GET A REAL ESTATE AGENT?
Buy far, the best way to acquire a Real Estate Agent is to purchase a referral to a DreamLoan-certified
Realtor®. This is because DreamLoan-certified Realtors® are tested and are considered the best in their field
or in their city/town. DreamLoan does not certify Realtors® that do not score 80% or higher on the
DreamLoan Realtor® Exam. The next best way to find a Real Estate Agent is to get a referral from close
friends, business associates or colleagues. However, one should ask specific questions, rather than just asking
“Do you know a good Realtor®?” For example, questions that should be asked include:
     • Did your Realtor sit down with you in order to find out exactly what you were looking for in a house? (The
        answer should be yes and that the conversation was very detailed).
    •   Did your Realtor preview houses for you or did he/she just give you a list of houses to drive by in order to decide
        which of them you wanted to view? (The answer should be that the Realtor previewed properties based on
        previously communicated Buyer specifications).
    •   Did your Realtor advise you as to which Mortgage person you should use? (The answer should be no.)
    •   Did your Realtor give you information about school districts, crime statistics and other information? (The answer
        should be yes). If not, the DreamLoan mobile App 2.0 contains special Tools that address these issues.
    • Did your Realtor show you houses only within your preapproved price range. (The answer should be yes.)
    • Did your Realtor attend your Closing? (The answer should be yes).
Additionally DreamLoan.pro offers a documents “Ten Questions for Your Realtor®” to help you determine
whether or not you have a good Realtor® on your hands. This documents is specially written to help you
decide whether or not you need a DreamLoan-certified Realtor® instead.
If you would like to buy property without a Realtor, it is strongly encouraged that you purchase the
DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


WHY WOULD I WANT A REAL ESTATE AGENT?
For three reasons: To narrow your search of homes to specific areas; to negotiate on your behalf; and to provide
the convenience of previewing properties. Borrowers who already know the exact areas in which they wish to
buy property and who have another party (such as lawyer or financial professional) to assist them in
negotiating can certainly buy Real Estate without a Realtor®. See DreamLoan Specialty Tutorial “Looking
for Real Estate without a Realtor®”.


WHAT ARE THE REAL ESTATE AGENT’S FEES AND WHO PAYS THEM?
Buyer’s Agents are paid by the Seller based on the Purchase Price that is paid for the property. Generally the
Buyer’s Agent is paid one half of the Listing fee charged by the Listing Agent, which is usually six percent
(6%) of the Purchase Price. If one is inclined to do the Real Estate Agent’s job and sell their house themself,
see the DreamLoan Specialty Tutorial “For Sale By Owner”. If one wishes to look for a new home without a
Realtor®, see the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”. If one needs
to know the specific duties that a Realtor® should be performing, see the DreamLoan Specialty Tutorial
“What a Realtor® Should Do”.


I AM SELLING MY HOUSE WITHOUT A REAL ESTATE AGENT. WHAT COSTS WILL THERE BE?
There will obviously be the costs of yard signs, newspaper ads, etc. but the transactional costs will be as
follows:


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     • A three percent (3%) commission for any Realtor® that brings a Buyer to you.
     • Any title insurance costs agreed to in the Contract
     • Any Property Taxes due or accrued on the property being sold
     • Any document costs for the conveyance of ownership
     • Any filing costs for the filing of the document used for the conveyance of ownership
     • The cost of a Tax Certificate
     • The cost of any Releases of Lien that are required to “remove” the current Mortgage(s) in order to clear Title.
     • Any filing costs for the filing of any Releases of Lien
If one is inclined to do the Real Estate Agent’s job and sell their house themself, see the DreamLoan Specialty
Tutorial “For Sale By Owner”.


CAN I JUST LET THE LISTING AGENT SHOW ME THE HOUSE?
Yes. However, in preparation for this, one should purchase the DreamLoan Specialty Tutorial “Looking for
Real Estate without a Realtor®”.


HOW DO I MAKE A COMPLAINT AGAINST A REAL ESTATE AGENT?
Every state and most cities have a central Real Estate board or commission. Formal complaints can be made in
person, by mail or through a website in most cases. Filing a formal complaint is important recourse for a
disgruntled Buyer or Seller because such complaints are usually taken very seriously. Unfortunately, however,
the majority of the time, angry clients only threaten to make formal complaints but usually do not follow
through. If a Buyer needs another Realtor® to replace the one about which they are complaining (or if the
Buyer wishes to have a Realtor® they should never have to complain about), the Buyer should purchase a
referral to a DreamLoan-certified Realtor®. If you have soured completely on the idea of using a Realtor®,
you should purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


IS THERE A GOOD TIME OF YEAR TO BUY A HOUSE?
Generally, home sales dip in the winter, bringing prices down (unless a particular area is particularly strong all
year round). Unless one is buying a house in a strong Seller’s market, winter is the time when prices are either
lower or not increasing. This is because there are fewer Buyers in the market because of the holidays that
stretch from mid-November through the beginning of the New Year. More information on when it is best to
purchase a home in a particular area can be found through a DreamLoan-certified Realtor®.


HOW DO I FIND HOUSES THAT ARE FOR SALE?
With the advent of the internet, home shopping has become far more simple than it used to be. Instead of being
completely reliant on a Real Estate Agent for the information contained in MLS (Multiple Listing Service),
consumers can now look at properties on Realtor® websites, Real Estate search engines, individual property
websites, Real Estate Agency websites, newspapers and magazines. For those Buyers who would prefer to look
at houses themselves, it is highly recommended to read the DreamLoan Specialty Tutorial “Looking for Real
Estate without a Realtor®”. However, for those Buyers that do not have time to search for properties
themselves, a DreamLoan-certified Realtor® can be a valuable resource to find out exactly what is desired in
a home and to similar properties for one to view.


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HOW DO I LEARN ABOUT DIFFERENT NEIGHBORHOODS?
There are three ways: Through a Realtor®; through friends; and through the DreamLoan mobile App (2.0).
“Neighborhood View”. This tool on the DreamLoan mobile App 2.0 allows one to enter an address or to use
the smart phone's GPS (when standing in a house or in a neighborhood) to get information about a
neighborhood. This can include supermarkets nearby, restaurants, schools, etc. Additionally, the DreamLoan
mobile App 2.0 has two other tools that offer crime statistics for a neighborhood and whether or not there are
registered sex offenders nearby. Additionally, DreamLoan-certified Realtors® come with a wealth of
information regarding their markets for the betterment of the prospective Buyer. Lastly, if you are considering
buying property without a Realtor®, you should purchase the DreamLoan Specialty Tutorial “Looking for
Real Estate without a Realtor®”.


WHAT IS “CURB APPEAL”?
Curb Appeal is the aesthetic characteristics of a house from the street. Enhancing Curb Appeal can include new
paint, flowers, a green lawn, lighting or any attribute that makes the home more attractive from the curb. If you
are considering selling your home without a Realtor®, you should definitely should purchase the DreamLoan
Specialty Tutorial “For Sale By Owner”.


HOW DO I KNOW WHAT MY PAYMENT WILL BE?
Consult a DreamLoan-certified Broker/Banker or use the DreamLoan mobile App. You will need to know
certain things, such as the price of the house in question, the amount of your Down Payment, the Interest Rate
being offered, whether or not you will have a Second Mortgage, etc. The advantage to inputting this
information into the DreamLoan mobile App is that you can then change the Purchase Price and leave all
other loan attributes the same in order to figure the payment on many different houses.


WHAT’S THE CURRENT MORTGAGE RATE?
There is no answer to this question. Mortgage Rates differ based on numerous loan characteristics, such as the
loan amount, the Down Payment (Purchase) or Equity (Refinance), the Credit Scores (of the applicants), the
Occupancy type (Owner Occupied, Second Home or Investment Property), the type of property (Single Family
Residence, Duplex, Triplex, Fourplex, Condo, etc.), the number of Mortgages on the property, whether the
transaction will be Lender Paid or Borrower Paid, etc. To find out what Interest Rates apply to you, consult a
DreamLoan-certified Broker/Banker and provide him/her with the necessary information.


HOW LONG DOES IT TAKE TO BUY A HOUSE?
Buying a house can take anywhere from six (6) weeks to more than a year. It depends largely upon how quickly
the Buyer finds a suitable property. Once a Contract is executed, it generally takes a little less than one (1)
month to Close the transaction, provided the property is not a Foreclosure or a Short Sale.


WHAT IS “SWEAT EQUITY”?
Sweat Equity is the value of the work that the owner has physically done over the years. For example, if a
house is Purchased and Renovated over time, one could say that the value of the home (after completion) is the
Purchase Price of the property, the cost of the improvements, and the Sweat Equity of the owner. Sweat Equity


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is not recognized as an actual value of a property, but can certainly be used to improve the Borrower’s
perception of value.


WHAT IS CO-SIGNING?
Co-Signing is the act of one person (including their credit, Income, Liquid Assets) assisting another person in
the Purchase or Refinance of a property. When the Co-Signer will not be living in the property after Closing,
that person is considered a Non-Resident CoBorrower. Co-Signers are most frequently used on FHA and VA
loans to help new homeowners achieve their first Mortgage. Co-Signers must be family members or persons
with whom the Borrower has a long-term relationship (like a mentor, an adopted parent, an employer, a spouse
that lives in another location, etc.). There is also a way to only use the Co-Signer for just one year. To do this,
you would probably need a DreamLoan-certified Mortgage Broker/Banker and you should purchase the
DreamLoan Specialty Tutorial “Dropping an FHA Non-Resident CoBorrower”.


HOW DO I KNOW IF I NEED A CO-SIGNER?
A Co-Signer is necessary when one does not qualify for the loan by themself (Government loans only). This is
something that must be communicated to the Borrower by a DreamLoan-certified Broker/Banker as it
involves figures including Down Payment percentages, Debt To Income Ratios, employment information,
Liquid Assets, credit, etc. There is also a way to only use the Co-Signer for just one year. To do this, you would
probably need a DreamLoan-certified Mortgage Broker/Banker and you should purchase the DreamLoan
Specialty Tutorial “Dropping an FHA Non-Resident CoBorrower”.


DO I HAVE TO PAY AN APPLICATION FEE FOR A MORTGAGE?
It depends upon the loan originator being used for the Mortgage financing. Application Fees can be common
among the better professionals in the Mortgage industry because they generally aren’t willing to work on a
loan that doesn’t have a very good chance of being Closed and Funded. An Application Fee is the Borrower’s
good faith gesture that the Mortgage is being done at that particular Mortgage firm and that the Borrower is not
putting applications in at several different brokerages. The Application Fee can go to cover hard costs,
Processor costs or other costs that will be incurred by the brokerage prior to the loan’s Closing/Funding.
Whether or not an Application Fee is a) refundable; or b) applicable to the total Closing Costs as a credit will
be based on the brokerage’s own policy.


WHAT DOES THE MORTGAGE BROKER DO?
The Mortgage Broker is basically the Borrower’s representative to numerous banks and wholesale Lenders
within the Broker’s network of funding sources. The Mortgage Broker first gets to know the Borrower and all
his/her characteristics through a Mortgage Interview. The Broker then, based on his/her knowledge of the
Borrower and the transaction, chooses the best Lender to provide the funding for the loan being sought.
Additionally, the Broker translates the requirements of the chosen lending source for the Borrower so that the
Borrower understands exactly what is needed in order to secure the loan. The Mortgage Broker often is the
orchestrator of the entire transaction, ordering the Appraisal, locking the Interest Rate, setting the Closing, etc.
The actual process of securing a loan can be quite complicated and it is the Mortgage Broker’s job to insulate
the Borrower from this complexity and to make the Mortgage process as seamless and as effortless as possible
for the Borrower. Generally, the best way to find a good Mortgage Broker is to buy a referral from


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DreamLoan since DreamLoan certifies all Mortgage Brokers that are referred to its users. This certification
process includes testing, Lender reach, Broker education, Broker product offerings, etc. If a Borrower wishes
to use a non-DreamLoan-certified Broker the following questions should be answered by that Broker before
the Broker is chosen:
    • How long has the Broker been originating loans? (a minimum of two years is recommended)
    • What did the originator score on his NMLS exam? (a minimum of an 80% is recommended)
    • Why is the Broker not DreamLoan-certified? (most good Brokers are)
    • What is the Broker’s educational background? (mathematics, economics, business, languages are recommended)
    • How many Lenders does the Mortgage Broker have in his/her network? (at least 5 is recommended)
    • Does the Mortgage Broker offer both Refinance and Purchase loans? Construction Loans? FHA, VA, USDA and
        Conventional loans? First Mortgages and Second Mortgages? (having access to all products is recommended)
More information regarding the specific duties of a Mortgage Broker can be found in the DreamLoan
Specialty Tutorial “What a Mortgage Professional Should Do”.


DO I HAVE TO HAVE A MORTGAGE BROKER TO BUY A HOUSE?
No, but you must have some source for the Mortgage. The different Mortgage entities are as follows:

The first entity is a Retail Banker. This person:
    •   Can be found in the lobby of a retail bank, large or small
    •   Can originate only the limited Mortgage loan products that their one bank offers
    •   Is an agent of the retail bank and originates loans for the benefit of the retail bank
    •   Has no recourse if a Mortgage application is Denied - if this occurs the Retail Banker will tell the Buyer that they
        do not qualify for a Mortgage, which may or may not be true
    •   Usually cannot originate Government loans
    •   Almost always cannot broker loans to other lending sources

The second entity is the Retail Loan Originator. This person
    •   Is an “order taker” on the other end of an 800 number or behind a website
    •   Offers limited Mortgage loan products but generally has access to more products than a Retail Banker
    •   Is an agent of the lending source and originates loans for the benefit of that lending source
    •   Has little recourse if a Mortgage application is Denied - if this occurs the Retail Loan Originator will tell the
        Buyer that they do not qualify for a Mortgage, which may or may not be true
    •   Usually cannot originate Government loans
    •   Does not Broker loans to other lending sources

The third entity is a Wholesale Banker. This person:
    •   Works for a Wholesale Lender and is known through advertising or client referrals
    •   Works for and to the benefit of the Buyer but experiences pressure to sell “in house” bank products
    •   Has access to a decent number of Mortgage products, but again, is under pressure to use “in house” products


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    •   Has some recourse if a Mortgage application is Denied - if this occurs the Wholesale Banker might be able to
        find another lending source that can approve the loan, however, their reach is limited
    •   Usually can originate Government loans
    •   Brokers loans to a very limited number of lending sources

The last entity is a Mortgage Broker. This person:
    •   Is known through advertising and client referrals
    •   Works for an independent brokerage and works to the benefit of the Buyer only
    •   Has access to a very large number of Mortgage products and is the “go between” between the Borrower and all
        the Lenders
    •   Has numerous options if a Mortgage application is Denied - if this occurs the Mortgage Broker can move the
        loan to source after source until the loan is approved
    •   Does both Conventional and Government loans as well as specialty Mortgage loans, like loans for people Self-
        Employed for only a short time or people who need Jumbo loans
     • Brokers loans to a large number of lending sources
DreamLoan scrutinizes and tests Mortgage Brokers, Wholesale Bankers and Retail Bankers nationwide for
certification into DreamLoan’s referral system. DreamLoan does not certify Retail Loan Originators. Using a
DreamLoan-certified Broker/Banker is always a good idea because only the best can pass (80% or higher) the
DreamLoan Mortgage Loan Originator Exam. It might also be a good idea to purchase the DreamLoan
Specialty Tutorial “What a Mortgage Professional Should Do” so that your expectations are appropriate.


WHAT MAKES A HOUSE GO UP IN VALUE?
Scarcity of inventory in the Real Estate market, improvements, square footage increases, good school districts,
low crime in the area and Curb Appeal.


WHAT MAKES A HOUSE GO DOWN IN VALUE?
Large inventory in the Real Estate market, limited square footage, lack of amenities, Deferred Maintenance
(the need for repairs), Functional Obsolesence, poor school districts, high crime in the area and lack of Curb
Appeal.


SHOULD I CARE IF A HOUSE GOES UP OR DOWN IN VALUE?
Historically, Real Estate in the United States has gone up in value, if kept for numerous years. Insofar as a
house is an investment, one should care that it appreciates in value since money and time have been invested
into it. However, it is best to realize that Real Estate is also a cycle; of inventory, of shortages and of inventory
again. The old adage is to buy low and sell high, or to buy when inventory is plentiful and to sell when there are
shortages in Real Estate inventory. However, it is best to look at Real Estate as a long-term investment and to
try to remain unaffected by market fluctuations until you are planning to sell the property and realize the profit
in your investment.




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WHAT KIND OF INSPECTIONS ARE DONE ON THE HOUSE I WANT TO BUY?
Generally, only a Home (property) Inspection is done to verify that the house is built well, has functioning
systems (water, electrical, heating and cooling system, plumbing, etc.) and that there is no obvious Deferred
Maintenance (needed repairs). Many Home Inspectors, however, include a Termite Inspection in their Home
Inspection, but if they do not, a Termite Inspection (and treatment if necessary) is recommended. Additionally,
if the property has any special systems (such as a Well or a Septic system), those systems may be required to be
inspected by the Underwriter of the loan.


WHO PERFORMS THE INSPECTIONS ON A HOUSE?
The general Home Inspection is performed by a licensed Home Inspector. Termite Inspections are done by
Home Inspectors and by pest control companies. Septic, Well, foundation and other systems have their own
specialized Inspectors (for example, a foundation would be inspected by a structural engineer).


WHO PAYS FOR INSPECTIONS?
Unless otherwise negotiated in the Contract, the Buyer usually pays for all Inspections.


WHAT DO I DO IF THE INSPECTOR FINDS SOMETHING WRONG WITH THE HOUSE?
Usually the Home Inspection takes place during the Option Period or Inspection Period. If the Inspector indeed
finds a major problem with the house that the Seller is not willing to immediately rectify, the Buyer can exit the
Contract for the cost of the Option Fee or Inspection Period cost (if any). Signing a Contract for a house with
no period of inspection is not recommended, unless the buyer is a seasoned Builder.


CAN I BUY LAND AND BUILD A HOUSE ON IT INSTEAD OF BUYING A HOUSE?
Yes. This can either occur with a land loan and a subsequent Construction Loan or it can occur with a
Construction Loan if the Buyer plans on building on the land immediately. See the DreamLoan Specialty
Tutorial “How to Do a Construction Project”.


WHAT DO I DO IF I BUY A PROPERTY I WANT TO TEAR DOWN AND REBUILD?
You simply disclose this to your Mortgage originator so that the best loan program can be used to suit your
needs. For example, a simple Purchase loan is probably not the best loan program since the Collateral for the
loan would disappear as soon as the house was demolished. This would be a violation of the Deed Of Trust and
could expose the Borrower to Acceleration. However, a Construction Loan could be the perfect loan program.
See the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


WHAT IS A BID?
An Offer. If you are buying a property without a Realtor®, see the DreamLoan Specialty Tutorial “Looking
for Real Estate without a Realtor®”.




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WHAT IS A BIDDING WAR?
When two or more Offers have been made on the same property and they are competing to be chosen by the
Seller. If you are buying a property without a Realtor®, see the DreamLoan Specialty Tutorial “Looking for
Real Estate without a Realtor®”.


WHAT IS TITLE INSURANCE? WHY DO I HAVE TO HAVE IT?
There are two types of Title Insurance:
   • Owner’s Policy - This policy insures the Buyer that Title has changed hands appropriately during the life of the
        property and protects the Buyer from Title challenges. If, for example, someone claims that they were married to
        a prior Seller of the property and that their signatures were never obtained for the sale, the Title Company would
        pay attorneys to represent the interests of the Buyer and, should the claimant be successful, the Title Company
        would reimburse the Buyer for the Purchase Price of the property.
    •   Mortgagee Policy - This policy insures the Mortgage Lender that Title has changed hands appropriately during
        the life of the property, that all Liens on the property have been disclosed and/or released. This policy protects
        the Lender from Title challenges. If, for example, someone claims that their Lien was never properly released,
        the Title Company would pay attorneys to represent the interests of the Lender and, should the claimant be
        successful, the Title Company would reimburse the Lender for the amount due on the loan.


WHAT IS ESCROW?
There are two types of Escrow:
   • The period during which a Real Estate transaction is taking place - This reference to Escrow is used in states that
        Close Real Estate transactions through Escrow Companies.
    •   An account established by the Lender, into which the Borrower makes monthly payments, to pay the Property
        Taxes and the Homeowner’s Insurance on the property. - This reference to Escrows is the presence of or absence
        of an Escrow (or Impounds) Account. One can either have an Escrow Account attached to their loan or they have
        “Waived Escrows”.


WHAT IS AN ESCROW ACCOUNT?
An Escrow Account is Property Tax and Homeowner’s Insurance Reserves kept in a non-interest bearing
account. This is also referred to as an Impounds Account. Conventional loans that have First Mortgage Liens
greater than 80% of the Appraised Value (on Refinances) or the lower of the Purchase Price or the Appraised
Value (on Purchases) require an Escrow Account. All FHA and VA loans require an Escrow Account. Escrow
Accounts are established at the Closing when Reserves are collected to be placed into the account. Then,
monthly, the Borrower adds to the Escrow Account by making their Mortgage Payment (since 1/12th of the
Property Taxes and 1/12th of the Homeowner’s Insurance premium are included in each Mortgage Payment).
When Property Taxes then become due, the Lender will receive a notice from the Tax Appraisal District and
the bill will be paid by the Escrow Account. Similarly, around the anniversary of the Closing, a bill for the
Homeowner’s Insurance premium will be sent to the Lender by the Homeowner’s Insurance company and the
Escrow Account will pay it.
Some loans (80% or lower Loan To Value loans and Combo Loan First Mortgages) afford the Borrower the
option as to whether or not the loan will have an Escrow Account. If the Borrower still wants an Escrow
Account, the appropriate Reserves will be required from the Borrower at Closing (if a Refinance, these can be
rolled into the loan, just like Closing Costs). If the Borrower does not want and Escrow Account (and wishes to


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pay the Homeowner’s Insurance premium and the Property Tax bill separately when they come due), the
Borrower is asking to Waive Escrows. For more information, see the DreamLoan Specialty Tutorial “The
Pros and Cons of Waiving Escrows”.


DO I HAVE TO HAVE AN ESCROW ACCOUNT?
Conventional loans that have First Mortgage Liens greater than 80% of the Appraised Value (on Refinances) or
the lower of the Purchase Price or the Appraised Value (on Purchases) require an Escrow Account. All
Government loans require an Escrow Account. Combo Loans are an excellent way to put less than 20% down
and still Waive Escrows. For example, a Conventional Combo Loan of an 80% First Mortgage followed by a
15% Second Mortgage would result in a 5% Down Payment yet, because the First Mortgage is 80%, Escrows
could still be Waived. For more information, see the DreamLoan Specialty Tutorial “The Pros and Cons of
Waiving Escrows”.


HOW MUCH WILL MY PROPERTY TAXES BE?
The amount of Property Taxes depends on numerous variables. Often the Fair Market Value is actually higher
than the Tax Appraised Value and Property Taxes are based on the Tax Appraised Value. Additionally, the
amount of land, the school district, Homestead and other Exemptions all affect the Tax Appraised Value of the
property and therefore, the Property Taxes. A general rule of thumb is to take the Tax Appraised Value and
multiply it by 0.025 or 2.5%, except in California where you should take the Tax Appraised Value and multiply
it by 0.01 or 1%. This will give you an estimate of the annual Property Taxes. Divide by twelve (12) if you
want to know the monthly amount of Property Taxes that will be added to your Mortgage Payment if you have
an Escrow Account. For more information, see the DreamLoan Specialty Tutorial “The Pros and Cons of
Waiving Escrows”.


HOW ARE PROPERTY TAXES CALCULATED?
Usually in pieces. For example, there are multiple taxing authorities such as the county, the city, the school
district, etc. Each of these entities has a legislated percentage of Property Tax based on its, or the county’s, Tax
Appraised Value. These different tax amounts are then added together and referred to as Property Taxes.
A general rule of thumb is to take the Tax Appraised Value and multiply it by 0.025 or 2.5%, except in
California where you should take the Tax Appraised Value and multiply it by 0.01 or 1%. This will give you an
estimate of the annual Property Taxes. Divide by twelve (12) if you want to know the monthly amount of
Property Taxes that will be added to your Mortgage Payment if you have an Escrow Account. For more
information, see the DreamLoan Specialty Tutorial “The Pros and Cons of Waiving Escrows”.


DO I HAVE TO HAVE HOMEOWNER’S INSURANCE?
If you have a Mortgage on the property, yes. The house is Collateral for the loan and must be protected. If the
house were to be destroyed or damaged, there must be sufficient insurance to restore the Collateral to its
original state because that was the state in which the house was Appraised when the transaction (and the
agreement between the Borrower and the Lender) was established.




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WHAT HAPPENS IF MY HOUSE IS DESTROYED?
A claim must be made against the Hazard Insurance (Homeowner’s or Landlord’s) on the property. Generally,
insurance companies pay only what they think rebuilding should cost, minus the homeowner’s deductible on
the policy. Furthermore, some insurance companies require the homeowner to cover the costs of construction
(usually in parts) to then be reimbursed by the insurance company. Other insurance companies pay the claim to
the Mortgage Lender who owns the loan on the property, and the Mortgage Lender dolls the insurance funds
out to the homeowner based on completion of construction phases. Needless to say, destruction of Collateral
for a loan is a very serious event that involves the homeowner in a long and arduous process.


WHAT IS THE RIGHT AMOUNT OF HOMEOWNER’S INSURANCE COVERAGE?
As much as you can get. Foolishly, the general public thinks that when it comes to insurance, the cheaper the
premium is, the better. But really, the annual cost of the insurance is secondary to the amount of coverage you
can obtain. Insurance companies insure based on the reconstruction cost, that is, what it would take to rebuild
the destroyed Collateral. If insurance company A will insure the house purchased at $300,000 for $250,000 (in
costs to rebuild) for $1,500 a year but insurance company B will insure the same house for $275,000 for $1,600
a year, the latter is the better choice. The $100 annual difference could mean $25,000 extra in funds that would
go toward reconstruction.


CAN I DEDUCT ANY PART OF MY MORTGAGE PAYMENT FROM MY TAXES?
Yes. The Interest paid, any Mortgage Insurance paid, Homeowner’s Insurance, Property Taxes and any Points
can all be deducted. See DreamLoan Specialty Tutorial “Tax Advantage Mortgaging” for more specific
information.


HOW DOES BUYING A HOUSE AFFECT MY TAXES?
American homeowners get numerous benefits for buying a home. A Buyer can deduct some of the Interest paid
each year and other items. This information is contained in a DreamLoan Specialty Tutorial “Tax Advantage
Mortgaging” which covers automatic tax deductions one gets for buying or selling a home and other benefits
that can be created based on how the Mortgage is done. Done properly, one can save many, many times the
price of the Specialty Tutorial in tax deductions.


WHAT IS A CREDIT SCORE?
A Credit Score is a numeric snapshot of credit worthiness. Each of the three major credit Repositories give a
Credit Score to a consumer. In Mortgaging, the low and high scores are thrown out and only the middle Credit
Score is used. Additionally, if the Borrower has a 700 Credit Score, for example, and the CoBorrower has a
680 Credit Score, then the Credit Score used in conjunction with that Mortgage loan will be the lower of the
two, the 680. See DreamLoan Specialty Tutorials ”Understanding Credit and Credit Scores”, “How to
Instantly Build Credit when You Have None” as well as “Manipulating Your Credit Scores Higher” for more
information.




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WHAT IS “FLIPPING” A HOUSE?
Flipping a house means buying the house as an Investment Property, never intending to rent it then reselling it
in a short period of time. Often improvements are made to the property before it is resold in order to increase
its value. If a person is Flipping a house and makes no improvements, the new Sales Price generally can not be
more than 120% of the value at which is was Purchased. Furthermore, it might be a good idea to ask the Buyer
to purchase a referral to a DreamLoan-certified Broker or Banker because there are special rules in
Mortgaging when someone is buying a house that was recently flipped. This will heighten the possibility that
the Buyer’s Mortgage will be done properly because that Buyer will tell their DreamLoan-certified Broker or
Banker that the house they are buying has just been Flipped so that the DreamLoan-certified Broker or Banker
can research the special rules for the loan program being used for that Buyer.
If you are buying a house that has recently been Flipped, you should purchase the DreamLoan Specialty
Tutorial “Buying a House that was Flipped”.


DO I CARE IF I AM BUYING A HOUSE THAT WAS “FLIPPED”?
Yes. There are two main reasons that a Buyer should care. Both of these are discussed in the DreamLoan
Specialty Tutorial “Buying a House that was Flipped”. Knowing this information can save a Buyer valuable
time during the Mortgage process and possibly a great deal of money.


HOW DOES MY CREDIT SCORE AFFECT MY INTEREST RATE?
Generally it can be said that the higher the Credit Score, the lower the Rate or the price of a Rate. In
Mortgaging, Credit Scores have the most affect on the Interest Rate offered on 20, 25 and 30 year Amortized
loans. 15 and 10 year Amortized loans are less Credit Score sensitive. Most, if not all Lenders price loans
according to both Credit Score and Loan To Value in a matrix. Assume for the two following examples that
pricing on the Rate Sheet reflects Yield Spread Premium as a positive (1.00% in Yield Spread Premium is
101.00 or 1.00% over Wholesale Par (100.00). The following matrix shows Credit Scores on the left-hand side
and Loan To Values across the top and shows negative (higher) risk price adjustments (called “Hits”) as a
negative and positive (lower) risk price adjustments (called “Improvements”) as a positive.
Referring to the following matrix, if the Borrower has a Credit Score of 679 and a Loan To Value of 80.0%
then the loan would be priced with a Hit or cost of 1.75% of the loan amount, shown in red (lower score =
higher risk). Thus, the Wholesale Par Rate for this particular loan for this particular Borrower would need to
have a base Yield Spread Premium of 1.75% to pay for the costs associated with the loan (see Rate Sheet). If,
however, this Borrower’s Credit Score were 40 points higher (719) with the loan at the same Loan To Value
(80.0%), then the Interest Rate would be lower because Yield Spread Premium of only 1.00% of the loan
amount would be needed to cover the costs or Hits of the loan, also shown in red (higher score = lower risk).




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This is a clear example of how a higher Credit Score gets a Borrower fewer Hits and therefore a better Rate if
the Loan To Value is the same.


               Credit Score and Loan To Value Cost Table (Mortgages > 15 Years)

                < 60      60.01 - 70    70.01 - 75   75.01 - 80   80.01 - 85   85.01 - 90   90.01 - 95   95.01 - 97
     740 +     + 0.25        0.00          0.00        - 0.25       - 0.25       - 0.25       - 0.25       - 0.25
 720 - 739     + 0.25        0.00         - 0.25       - 0.50       - 0.50       - 0.50       - 0.50       - 0.50
 700 - 719     + 0.25       - 0.50        - 1.00       - 1.00       - 1.00       - 1.00       - 1.00       - 1.00
 680 - 699      0.00        - 0.50        - 1.25       - 1.75       - 1.50       - 1.25       - 1.25       - 1.00
 660 - 679      0.00        - 1.00        - 1.50       - 1.75       - 1.75       - 1.75       - 1.75       - 1.25
 640 - 659      0.00        - 1.00        - 2.00       - 2.50       - 2.75       - 2.50       - 2.50       - 1.75
     < 640     - 0.50       - 1.25        - 2.50       - 3.00       - 3.25       - 2.75       - 2.75       - 2.25


However, the matrix also shows that Loan To Value is an important indicator of price. For example, a Borrower
with a 740 middle Credit Score whose Loan To Value is 75% (circled in blue) prices better than a Borrower
with the same Credit Score whose Loan To Value is 80% (also circled in blue). The 740 Credit Score loan with
a Loan To Value of 75% has no Hit and no Improvement, while the 80% Loan To Value loan has a Hit of
0.25%. In this case, the Rate for the 75% Loan To Value option might have a slightly lower Rate. This
demonstrates how a larger Down Payment or the flexible use of a Combo Loan can improve the Rate of the
First Mortgage. Thus, in the blue example, and additional 5% Down Payment would lower the Interest Rate
because no base Yield Spread Premium would be needed (0.00% is neither a Hit nor an Improvement). This
could also be achieved in the case of a Combo Loan. To get the better pricing (or a better Rate), a Borrower
might still only put 10% down, but instead of doing an 80-10-10, the Borrower might do a 75-15-10 making
the First Mortgage smaller (with a Loan To Value of 75%) and the Second Mortgage larger but still putting
10% down. This makes the Rate on the larger loan (the First Mortgage) lower.


HOW LONG DO I HAVE TO OWN A HOUSE BEFORE I CAN SELL IT FOR PROFIT?
If the loan on that home is Conforming, the answer is one calendar day. If the loan is a Jumbo loan, the answer
is one calendar year. There is no Seasoning requirement on Conforming loans.


HOW CAN I GET IN ON “FLIPPING” HOUSES?
The first step would be to consult a DreamLoan-certified Broker/Banker in order to set the financial plan in
motion to be able to qualify to buy the number of houses one wants to Flip. The second step would be to
develop a knowledge of the Real Estate market in one’s area or specific neighborhood. Often these
neighborhoods are adjacent to some new type of development that will increase its value, like a new medical
center, retail center, sports facility, airport, etc. Lastly, one needs to develop relationships with skilled
Subcontractors or General Contractors so that improvements can be made quickly and correctly. Two things
that are essential in making Flipping profitable is to limit the time period on which one will make payments
and to document the construction (including perhaps photos of the interior work) so that an Inspector has them
at his disposal when it comes time to sell the property. There is a DreamLoan Specialty Tutorial “Buying a
House that was Flipped” which might be important to buy so that you, as the Seller, knows why it is important
for the Buyer to use a DreamLoan-certified Broker/Banker for the loan that funds the purchase of the Flipped


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property you are selling. That DreamLoan-certified Broker or Banker needs to know, from day one, that the
Subject Property is a Flipped house.


WHAT IS A CONSTRUCTION LOAN?
Technically, a Construction Loan is a loan in which both the property (land, Tear Down or small property) and
the construction funds are acquired in one transaction, then the construction funds (called Interim Financing) is
available for the Builder or General Contractor to access in Draws. There are two types of Construction Loans:
One Time Close and Two Time Close. One Times Close loans are generally cheaper. DreamLoan offers a
Specialty Tutorial entitled “How to Do a Construction Project” for more information.


CAN ANYONE DO A CONSTRUCTION LOAN?
No. First of all, some Lenders limit Construction Loans to those who are building only their Primary
Residences and avoid “Speculative” (Investment Property) Construction. Additionally, Loan To Values and
Loan Amounts are often closely dependent upon Credit Scores and Liquid Assets. A DreamLoan-certified
Broker/Banker can tell you whether or not you qualify for a Construction Loan. DreamLoan offers a
Specialty Tutorial entitled “How to Do a Construction Project” for more information.


WHAT DOES A GENERAL CONTRACTOR OR BUILDER DO?
A General Contractor or Builder does the following:
   • Work with the architect to finish the working construction plans (blueprints)
   • Prepare the light pole (electrical connection), temporary facilities (trailer), port-a-potty and dumpster
   • Order and secure any surveys (Land, Form, Final)
   • Hire all subcontractors
   • Supervise construction
   • Oversee all inspections
   • Communicate to the Borrower
   • Meet with appraiser
   • Meet with the final Inspector
   • Provide Borrower with all documentation, including warranties
DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project” for more information.


WHAT ARE “SUBS”?
“Subs” are Subcontractors. These are construction workers with specialized skills, such as plumbing, tile work,
floor laying, masonry, painting, etc. For mor e information about the construction process in general, purchase
the Specialty Tutorial entitled “How to Do a Construction Project”.


DO I HAVE TO FIND THE “SUBS”?
If you have a General Contractor (Builder), then no. It is the General Contractor’s job to find, hire, supervise,
pay and, if necessary, fire the Subcontractors. If you are acting as your own General Contractor, then yes, it is


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your responsibility to find, hire, supervise, pay and fire the Subcontractors. For mor e information about the
construction process in general, purchase the Specialty Tutorial entitled “How to Do a Construction Project”.


IF I GET A CONSTRUCTION LOAN, DO I NEED A CONTRACTOR/BUILDER?
Generally, yes. The vast majority of Construction Loans require a General Contractor other than the Borrower.
However, there are some Construction Loans that allow “Builder Builds”, which means that if the Borrower
has experience as a Builder, the Borrower may build his/her own home, acting as the General Contractor.
However, these loans are considered high risk and few Lenders offer them. In the event that the Borrower owns
a piece of land outright (free & clear), more opportunities become available where Construction Loans are
concerned. Only a DreamLoan-certified Broker is going to have the Lender reach to offer a Builder Build
Construction Loan, if such financing even exists in the Subject Property’s area. DreamLoan offers a Specialty
Tutorial entitled “How to Do a Construction Project” for more information.


HOW DO I FIND A GOOD CONTRACTOR?
There are numerous ways. First, one can contact the Builder’s Association in their municipality. Usually the
most well known and respected Builders hold positions on the board or the board members can recommend
member Builders. Second, one can buy books about houses in one’s area (Finest Austin Homes, for example,
or something similar) in which the Builder of each home will be mentioned. Third, one can drive
neighborhoods in which preferred architecture exists and can simple ask homeowners who built their house
(and which architect designed it). DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction
Project” for more information.


MY CONTRACTOR ISN’T DOING WHAT HE’S SUPPOSED TO DO. WHAT SHOULD I DO?
Bring the problem to the attention of the Lender. The Lender holds the funds to continue the construction and
can intervene on a builder that is not properly building their Collateral. Additionally, there is something called
“Retainage” in Construction Loans. Retainage is a percentage of each Draw (Builder’s request for funds) that
is withheld so that the Lender keeps a position of power over the Builder. Should the Builder not fulfill his
obligations, the Lender can assist a Borrower in firing the Builder and can refuse to give the Builder any of the
accrued Retainage. DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project” for
more information.


WHAT IS THE CONTRACTOR/BUILDER SUPPOSED TO DO?
The Contractor (General Contractor) or Builder is supposed to:
   • Work with the architect to finish the working construction plans (blueprints)
   • Prepare the light pole (electrical connection), temporary facilities (trailer), port-a-potty and dumpster
   • Order and secure any surveys (Land, Form, Final)
   • Hire all subcontractors
   • Supervise construction
   • Oversee all inspections
   • Communicate to the Borrower



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   • Meet with appraiser
   • Meet with the final Inspector
   • Provide Borrower with all documentation, including warranties
DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project” for more information.


HOW DO I MAKE A COMPLAINT AGAINST A CONTRACTOR?
In states that require licensing (which is most states), Builder complaints can be officially made with the
department that issues licenses. If the Builder is a member of the Better Business Bureau or any other
association, a complaint can also be made there. Lastly, it is important to be sure that the Lender is made aware
that the Builder should no longer be approved for other Borrowers. DreamLoan offers a Specialty Tutorial
entitled “How to Do a Construction Project” for more information.


CAN I DO WORK ON MY HOUSE IF I HAVE A CONSTRUCTION LOAN?
Only if you have a Construction Loan that allows “Builder Builds” (where the Borrower is the General
Contractor too). The vast majority of Construction Loans do not allow the Borrower to be the General
Contractor, mostly because few Borrowers have the experience necessary to take on the task and to build the
Collateral for the loan appropriately. However, it is possible that your General Contractor/Builder will allow
you to perform some work as a Subcontractor if you have the appropriate experience and skill. DreamLoan
offers a Specialty Tutorial entitled “How to Do a Construction Project” for more information.


WHAT ARE CONSTRUCTION INSPECTIONS?
Building a house is done is stages, where each stage must be done well and correctly in order to support the
next stage. For example, the forms must be laid correctly with fundamental connections to plumbing and
electricity before the foundation can be poured. The foundation must be poured correctly to support the
subflooring and framing. The framing must be done correctly to support windows, plumbing pipes and
electrical wires. Construction Inspections are when the town, city or municipality actually halts construction in
order to “approve” each stage before the next one can be begun. Depending on the size and complexity of the
house, there are generally between 10 and 20 Construction Inspections. DreamLoan offers a Specialty
Tutorial entitled “How to Do a Construction Project” for more information.


WHAT IS A CERTIFICATE OF OCCUPANCY? WHY DO I NEED ONE?
A Certificate of Occupancy is basically the Final Inspection. The Certificate of Occupancy allows the structure
to be legally connected to all public utilities, such as electricity, water & natural gas and for the occupant to
inhabit the property. DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project” for
more information.


WHO PAYS FOR CONSTRUCTION INSPECTIONS?
If a Construction Loan is obtained for the construction, then the Lender pays for Construction Inspections and
charges them to the Borrower. If no Construction Loan is involved, then the homeowner pays for the
Construction Inspections, unless otherwise negotiated with the Builder. DreamLoan offers a Specialty
Tutorial entitled “How to Do a Construction Project” for more information.


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HOW MUCH DOES A CONSTRUCTION INSPECTION COST?
Approximately $100 to $300 per Construction Inspection, depending highly upon the area in which the Subject
Property is being built. DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project”
for more information.


WHAT HAPPENS IF MY HOUSE DOESN’T PASS A CONSTRUCTION INSPECTION?
New construction is halted until the Builder cures the defect. Then, another Construction Inspection must be
performed and paid for in order for the Construction to move forward. DreamLoan offers a Specialty Tutorial
entitled “How to Do a Construction Project” for more information.


HOW MANY TIMES CAN A HOUSE FAIL A CONSTRUCTION INSPECTION?
Unless a municipality legislates otherwise, as many times as one is willing to pay for the Construction
Inspections. DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project” for more
information.


WHAT HAPPENS IF I MISS A MORTGAGE PAYMENT?
A Late Fee will be imposed, the payment will still be required and the Borrower’s credit may be damaged
(depending on how late the Mortgage Payment is). Late payments that are 30 days late or more negatively
affect the Borrower’s Credit Report and Credit Scores. Missing multiple Mortgage Payments also exposes the
Borrower to the possibility of Acceleration, which means that all the Mortgage Principle and Interest can
immediately be called due. This is also referred to as “Calling the Note”. If a Mortgage Payment is late and a
Late Fee is imposed, only the Mortgage Payment itself still needs to be paid in order for the Credit Report and
Credit Scores to remain unaffected. It is illegal for a Lender to consider a Mortgage Payment more than 30
days late because outstanding Late Fees have not been paid. If you are concerned about being able to make
your Mortgage Payment, purchase the DreamLoan Specialty Tutorial “How to Skip Two Mortgage
Payments”.


WHAT IS A “GRACE PERIOD”?
Most Mortgages have a Grace Period during which the Mortgage Payment can be late. Usually, on First
Mortgages, this Grace Period is ten to fifteen (10-15) calendar days, which means that the payment can reach
the Lender up to 15 days after the due date and will not be considered late. After the Grace Period, a Late Fee
can be assessed which is equal to five percent (5%) of the Principle & Interest payment on Conventional loans
and four percent (4%) of the payment on Government loans. If you are concerned about being able to make
your Mortgage Payment, purchase the DreamLoan Specialty Tutorial “How to Skip Two Mortgage
Payments”.


WHAT IS FORECLOSURE?
Foreclosure is when the Borrower has Defaulted under the terms of the Note (or Mortgage) and the Deed of
Trust (or Security Instrument) by not making Mortgage Payments or by not abiding by other contractual
obligations (such as non-commercial use of a property or keeping hazardous materials on the property). This




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Default results in the legal seizure of the property by the Lender in order to reclaim the property and then sell it
in order to satisfy the Mortgage loan attached to the property.


HOW MANY MISSED PAYMENTS MAKES A FORECLOSURE HAPPEN?
Technically, one missed Mortgage Payment can result in a Foreclosure. However, in practice, Lenders usually
do not begin Foreclosure proceedings against the Borrower/property until at least four Mortgage Payments
have been sequentially missed (four in a row).


IS THERE ANY BENEFIT IN BUYING A HOUSE THAT WAS FORECLOSED UPON?
Yes. Foreclosure properties can often be purchased far below market value. This is because the Lender may be
so interested in selling the property that they are willing to take only what is owed on the property, rather than
what it is worth. Therefore, a Foreclosure can be an excellent way to Purchase a home and have instant Equity.
Sometimes Lenders are willing to take less than is owed on the property. When they do the property is offered
as a Short Sale. Short Sales should be understood completely before entering into one.


CAN I BUY A HOUSE NOW AND DO CONSTRUCTION ON IT LATER?
Yes, provided the house is habitable in its current condition. Both an Appraiser and an Underwriter would have
to agree that the house is habitable (all utilities working, able to perform cooking, bathing, sleeping, etc.) in
order for a Mortgage loan to be granted. After the house is Purchased, either a Construction Loan (to pay off
the existing Mortgage balance and allocate construction funds) or a Home Equity Loan (to pull Equity out of
the house to pay for construction) can be obtained to make improvements on the property. DreamLoan offers
a Specialty Tutorial entitled “How to Do a Construction Project” for more information.


HOW LONG DOES REMODELING TAKE?
The length of remodeling depends highly upon the amount of improvements being done to the house. Usually,
the shortest period of time is about three months, where large projects can take more than a year. DreamLoan
offers a Specialty Tutorial entitled “How to Do a Construction Project” for more information.


HOW LONG SHOULD A BUILDER TAKE TO BUILD A NEW HOUSE?
The rule of thumb is that houses worth $1 million or less can be built in a year or less (depending on the part of
the U.S. in which it is being built) and properties worth more than $1 million can be built in two years or less.
This period of construction time also depends heavily on the size of the house being built, so much so that the
rule of thumb above can be altered. For example, a 2,500 square foot home can be worth $1.5 million in
California while the same house would be worth only $500,000 in Texas, yet both can generally be built in a
year or less. The opposite can also be true, that is, a $1 million home in Texas might be worth $3 million in
California, yet both can generally be built in a year. This is an important question to ask a Builder when
contracting someone to build a home; quick quotes (building a home in six months) can suggest dishonesty and
long quotes (two years) can suggest a Builder is lacking either experience or Subcontractors or both.
DreamLoan offers a Specialty Tutorial entitled “How to Do a Construction Project” for more information.




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WHAT IS THE DIFFERENCE BETWEEN REMODELING AND RENOVATING?
Remodeling is generally the redesign of a home without moving interior walls. Renovating generally involves
moving interior walls. However, the two terms are used interchangeably. DreamLoan offers a Specialty
Tutorial entitled “How to Do a Construction Project” for more information.


WHAT IS RAZING?
Razing is tearing a house down to its foundation or to the dirt. DreamLoan offers a Specialty Tutorial entitled
“How to Do a Construction Project” for more information.


HOW DO I KNOW WHEN IT’S A GOOD TIME TO BUY A HOUSE?
As a long-term investment, the best time to buy a house is when the market is a Buyer’s market, that is, when
inventory of homes is high and values are low since demand is outpaced by supply. With regard to qualification
for a Mortgage, the best time to buy can be anytime, such as prior to becoming Self-Employed, but obviously
the best time is when Rates are low. If you are considering buying property without a Realtor®, it would be
wise to purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


SHOULD I BUY A HOUSE OR A CONDO?
Both have advantages and disadvantages. Houses are generally larger, have no common walls, have minimal
Homeowner’s Association dues and have property. However, they require maintenance and upkeep (interior,
exterior and gardening). Condos, on the other hand, are generally easier to maintain, but they have common
walls, higher Homeowner’s Association dues and no property. A hybrid of these two is a Townhouse (or
Townhome) which is a Single Family Residence that often has common walls, but where the land underneath is
owned by the homeowner, and maintenance is low. If you are considering buying property without a Realtor®,
it would be wise to purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a
Realtor®”.


WHAT IS A CONDO?
A Condo is a Condominium. A Condominium is one unit of a complex of units that make up a building.
Condos do not have ownership of the land beneath them. Usually, Condos have monthly Homeowner’s
Association (HOA) dues to collectively perform maintenance, upkeep and other requirements of the complex.
Condos generally do not have Homeowner’s Insurance except for policies covering the personal contents of the
owner.
Condominiums (in the Conventional side of lending) are either Warrantable or Non-Warrantable. Warrantable
Condos have preferred Interest Rates while Non-Warrantable Condos have higher Rates and fewer Lenders
that will lend on them.
There are two processes by which Warrantability is determined: Full Review or Limited Review. These two
types of reviews are determined by an Automated Underwriting program (either Freddie Mac’s Loan
Prospector or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of
questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review
questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20
questions.
Whether a Condo receives a Full Review or a Limited Review, the following must be true:


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For new Condo complexes -
    • At least 90% of the units must be sold;
    • All phases of construction must be completed;
    • The Homeowners Association must have been under the control of the homeowners; and
    • Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per
        building or per phase but for the entire complex). If any of these three items is not met, then the Condo complex
        is Non-Warrantable.
For established Condo complexes:
    • At least 90% of the units must be sold;
    • All phases of construction must be completed;
    • The Homeowners Association must have been under the control of the homeowners for at least one year;
    • Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per
        building or per phase but for the entire complex).
    •   Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and
    •   The Homeowner’s Association must have at least 10% of its annual budget in reserves.
If any of these three items is not met, then the Condo complex is Non-Warrantable. The reason that a Non-Warrantable
Condo complex has increased risk is because the unit is not free standing. Instead, the unit is connected to all
the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, that means
that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay
their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go
into default. If the units of a Condominium complex are in default, then the Homeowners Association dues on
those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained
will be bare and the complex itself may fall into disrepair, damaging the value of all the units.
On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved”
or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of
their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.


THERE IS STUFF IN THE HOUSE I JUST BOUGHT. WHAT SHOULD I DO WITH IT?
Once the loan is Funded (and out of Escrow in Escrow states) the contents belong to the Buyer. It is the Buyer’s
decision whether to return the items to the Seller, to dispose of them or to keep them.


WHAT IS A SECOND MORTGAGE?
A Second Mortgage is a Mortgage in second Lien position on Title. In the event of a Default, the property is
sold on the regular market or at auction. In this situation, the First Mortgage is paid off first and if there are any
funds leftover, the Second Mortgage is then paid off (in part or in full). For this reason, Second Mortgages (that
are not HELOCs) usually have higher Interest Rates than First Mortgages.
There are four kinds of Second Mortgages: Purchase Money Seconds, Renew & Extend Seconds, Home Equity
(Closed End) Seconds and Home Equity Lines of Credit (Open Ended Seconds, also referred to as HELOCs).
Purchase Money Seconds are original Second Mortgages that are taken out at the time of the Purchase using a
Combo Loan. Renew & Extend Seconds are Refinance Seconds that are originated at the time of the Refinance
using a Combo Loan. Home Equity Seconds are Second Mortgages resulting from the extraction of Equity


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from the property (with or without a Refinance of the First Mortgage) and HELOCs are Second Mortgages that
are renewable Lines of Credit resulting from the extraction of Equity from the property (with or without a
Refinance of the First Mortgage).


WHAT IS THE DIFFERENCE BETWEEN A FIRST MORTGAGE AND A SECOND MORTGAGE?
A First Mortgage is a Mortgage in first Lien position on the Title of a property. A Second Mortgage is a
Mortgage in second Lien position on the Title of a property. In the event of a Default, the property is sold on
the regular market or at auction. In this situation, the First Mortgage is paid off first and if there are any funds
leftover, the Second Mortgage is then paid off (in part or in full). For this reason, Second Mortgages (that are
not HELOCs) usually have higher Interest Rates than First Mortgages.
When the sizes of First Mortgage Liens are referred to, it is referred to as a percentage or the Loan To Value. A
single First Mortgage will have a balance which divided by the Appraised Value (or the lower of the Appraised
Value and the Purchase Price on a Purchase) results in a percentage. An $240,000 First Mortgage on a home
worth $300,000 would be a First Mortgage with a Loan To Value of 80%.
When the sizes of Second Mortgage Liens is referred to, it is referred to both a percentage and as the total
percentage of the Appraised Value (or the Purchase Price on a Purchase). For example, on a $100,000
Purchase, with an 80% Loan To Value (or $80,000 balance) there might also be a $15,000 Second Mortgage.
This Second Mortgage has a 15% Loan To Value (not often said) and a 95% Combined (or Total) Loan To
Value.


HOW DO I KNOW HOW MUCH I CAN AFFORD?
Mathematically, through using the Mortgage Calculator on DreamLoan.pro, using the Mortgage Calculator
on the DreamLoan Mobile App and through a DreamLoan-certified Broker/Banker. The DreamLoan-
certified Broker/Banker will, based on your Income, Liquid Assets, Down Payment, likely Interest Rate and
middle Credit Score, give you an idea of the maximum dollar amount that will likely be allowed. The
DreamLoan Mobile App will give you an estimated payment based on the Purchase Price of a home (or loan
size on a Refinance) and other factors. Mathematically, you can conservatively estimate your safest payment
by multiplying the Purchase Price (after Down Payment is subtracted) or the loan amount (on a Refinance) by
0.20 then adding the following:
     • Property Taxes - 2.5% of the Purchase Price (on a Purchase) or loan amount (on a Refinance), divided by 12
     • Homeowner’s Insurance - $75 for every $100,000 of the Purchase Price (on a Purchase) or Appraised Value (on
        a Refinance)
    •   Homeowner’s Association dues - on a Condominium
    •   Mortgage Insurance - on any First Mortgage at one percent (1.0%) of the First Mortgage loan amount, divided by
        12
    •   Flood Insurance - if the property is in a Flood Zone, based on its elevation, at the annual premium quoted by an
        insurance agent, divided by 12
For more information about tailoring a Mortgage transaction, determining your potential Mortgage Payment
and verifying Debt To Income Ratios, purchase the many different types of DreamLoan Specialty Tutorials
entitled “Tailor the Mortgage Yourself and Save Thousands - ”.




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WHAT IS REFINANCING?
Refinancing is the act of Renewing & Extending at least one of the Mortgage Liens on a property. Basically, it
is the “substitution” of a new loan with more advantageous terms replacing a prior loan. Refinancing is
different from Purchasing for many reasons: Unless it is a Construction Loan Closed as a Refinance, no Real
Estate Agents are involved, there are no Offers or Contracts, and there are generally no structural, water,
electricity, gas and other Inspections. Termite Inspections are only done if the Appraiser notes on the Appraisal
that there is active infestation or that “conditions conducive to termite infestation” exist. Additionally,
Refinances establish their Loan To Values from the current Appraised Value (or Fair Market Value) instead of
the agreed upon Purchase Price and Appraisal in unison. Refinances allow Borrowers to “roll in” their Closing
Costs so that the new loan pays off their entire prior Mortgage and their Closing Costs, Prepaids, Property
Taxes and Homeowner’s Insurance. This is advantageous because, provided the property Appraises at a
sufficient level, the Borrower can experience almost no money out of pocket to Refinance a property. If you are
considering Refinancing, timing can be very important. For more information on this, purchase the
DreamLoan Specialty Tutorials “How to Skip Two Mortgage Payments” and “Paying Off Current and Back
Taxes without a Cash Out Loan”.


WHAT IS UNDERWRITING?
Underwriting is the process of painstakingly reviewing the Mortgage File. This process certifies that the
Mortgage file is either Approved without Conditions (a Clear To Close), Conditionally Approved, Suspended
or Denied. Underwriting also makes sure that a) the Borrower qualifies under the specified loan program; b)
that the proposed Mortgage does not propose an unusually high level of risk; c) those Conditions to be gathered
in order to make the Conditional Approval valid are in writing; and d) that Mortgage Insurance (if necessary)
can be certified for the Mortgage. Once a Processor submits a file to Underwriting, all paperwork must be in
order (Good Faith Estimate, Intent to Proceed, Truth In Lending Statement, etc.). The file is then placed in a
queue and when it arrives in the first position of a queue, it is assigned to an Underwriter to be Underwritten.
Underwriting itself takes only one to two days, but the amount of time in the queue differs widely based on the
Lender, market activity, Interest Rate levels, supply and demand, etc.
Once the written Underwriting determination is made available, the Processor and Broker/Banker attempt to
solve any problem(s) causing the file to be Denied or Suspended, gathering the Conditions to achieve full
approval of the Mortgage loan, or beginning the process of moving the file into Closing if it was found to be
Clear To Close.
In the first three of these cases, the file will have to go back to the Underwriter in order for the Underwriter to
overturn his/her Denial or Suspension of the file or to verify that all Conditions have been gathered by the
Broker/Banker and received by the Lender so that a Clear To Close can be issued and the loan can move to
Closing.


WHAT IS CLOSING?
Closing is technically the execution of the Mortgage documents (and all Purchase-related items if the
transaction is a Purchase). In some states (Escrow states) Closing signifies the very end of the transaction as
Escrow is opened, there is a Signing (the execution of documents), there is a Funding and there is the Closing
of Escrow.




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WHEN DO I GET THE KEYS TO MY NEW HOUSE?
Shortly after Closing. If Real Estate Agents are involved in the transaction, then it is their responsibility to
obtain the keys to the property for the Buyer. If no Real Estate Agents are involved in the transaction, the Title/
Escrow company handles the key exchange.


WHAT IS THE PROCESS OF BUYING A HOUSE?
1. Prepare for your Mortgage financing (See Steps To Prepare For A Mortgage in the DreamLoan Mortgage Glossary).
2. Obtain a Prequalification letter. The DreamLoan mobile App can handle all of this for you, or you can get a
   Prequalification at DreamLoan.pro or through your loan originator.
3. Choose a Mortgage loan originator or purchase a referral to a DreamLoan-certified Broker. DreamLoan-certified
   Brokers and Bankers are some of the best Mortgage professionals in your state.
4. Get started on your Mortgage loan. Arranging your Mortgage financing before you look for property may seem
   backward, but it allows you to know how much you qualify for, and if you are comfortable with your payments, etc.
   before you look for property.
5. Find a Buyer’s Agent and an attorney (if an attorney is required in your state). Keep in mind that it is not always
   necessary to have a Buyer’s Agent. DreamLoan.pro can prequalify you and handle most of the real estate issues for
   you, saving you thousands of dollars. If you wish to purchase Real Estate without a Buyer’s Agent, purchase and read
   the DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.
6. Enter into Contract including delivering the Earnest Money/Deposit check and Option Fee check (if applicable).
7. Perform property Inspection and Termite Inspection if desired.
8. Perform other Inspections (Septic or Well, if applicable, or Foundation if Home Inspector has concerns).
9. Order or obtain Survey from Seller (in states that use Surveys).
10. Obtain Appraisal.
11. Arrange Homeowner’s Insurance coverage for the property.
12. Complete Mortgage financing, including deciding if using a Power Of Attorney.
13. Obtain Closing check. This check must be a cashier’s check so that the funds are immediately negotiable (can be
   immediately cashed). However, a wire from the Borrower’s bank account to the Title/Escrow Company’s bank
   account will also work. If a Borrower is wiring funds to the Title/Escrow Company, the Borrower first needs to obtain
   the Title/Escrow Company’s wiring instructions so that the funds are applied to the Borrower’s transaction.
14. Attend closing. Usually the only items that should be brought to Closing are your photo identification, the Closing
   check and a checkbook (if the Closing check was not for the exact amount due). However, the Mortgage Lender may
   request originals of Letters of Explanation or other items to Closing.


WHO IS INVOLVED WHEN I WANT TO BUY A HOUSE?
First, a DreamLoan-certified Broker/Banker in order to ascertain how expensive a house the Borrower can
afford. Second, if desired, a DreamLoan-certified Realtor® to find promising properties, prepare an Offer
when appropriate and negotiate the Offer into a Contract (if you wish to purchase Real Estate without a
Realtor®, you should purchase and read the DreamLoan Specialty Tutorial “Looking for Real Estate without
a Realtor®”. Then the Buyer will experience a number of other individuals and entities that each has their own
part in the Purchase transaction. These include the Listing Agent (unless home is For Sale By Owner), Home
Inspector, the pest control company, the Title/Escrow company, the Appraiser, the Homeowner’s Insurance
agent and the Seller. The vast majority of the Borrower’s time, however, will be with the loan originator and
his/her staff in order to obtain the financing necessary for the transaction to Close.


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I WANT TO BUY A WAREHOUSE AND LIVE IN IT. CAN I DO THAT?
Yes, if three items are present: First the property must be zoned as “Mixed Use” or have residential or no
zoning, the Appraisal must state that using the property as a residence is its “highest and best use”, and third,
that the Lender is comfortable lending on a unique property. It would be highly recommended for a Buyer of a
warehouse to use a DreamLoan-certified Broker/Banker to obtain financing in such a transaction.


WHAT ZONING?
Zoning is the legislative classifications for property uses in a municipality. Zoning includes but is not limited to
the following
     • No Zoning, which means any property may be used any way within that zone
    • Commercial, which means that all properties must be used for Commercial purposes within that zone
    • Mixed Use, which means that properties can be used for residences and/or businesses (commercial purposes)
        within that zone
    •   SF*, where * represents a number which attempts to convey an idea of what property types (all residential) can
        exist within the zone, such a Fourplexes, Triplexes, Duplexes, Townhomes, Condominiums and Single Family
        Residences


WHAT IS A MIXED USE PROPERTY?
A Mixed Use property is one that has a Zoning declaration that properties within the zone may be used for
Commercial purposes and for Residential use. People who live above their restaurant, for example, are living
in a Mixed Use zone.


WHAT IF I PUT AN OFFER ONTO A PROPERTY AND DECIDE I DON’T WANT IT ANYMORE?
Usually Contracts have Inspection periods or deadlines in them that give the Buyer the opportunity to cancel
the Contract for a limited period of time. Should one decide to exit the Contract at no penalty, it must be done
during this period.


ARE THEIR SPECIAL LOANS FOR FIRST TIME HOME BUYERS?
Yes. Fannie Mae and Freddie Mac both offer First Time Home Buyer loans with minimum down payments,
relaxed Liquid Asset standards, competitive Interest Rates and higher Seller Concession maximums. All
DreamLoan-certified Brokers/Bankers offer First Time Home Buyer loans. First Time Home Buyers should
consider purchasing one or all of the DreamLoan Specialty Tutorials “Buying a Home that was Flipped”,
“Beware the Tract Builder”, “Responsible Zero Down Financing” and “Looking for Real Estate without a
Realtor®”.


ARE THERE SPECIAL LOANS FOR PARENTS BUYING A HOUSE FOR THEIR KIDS?
No. However, these loans are considered to be for Investment Properties, not Second Homes (when relatives
will live in the property, it cannot be considered a Second Home). There are other ways, however, to skin this
cat. If the children are employed and can qualify for the loan but don’t have the Down Payment, the parents can
provide the entire Down Payment and Closing Costs as a Gift on an Owner Occupied Purchase of the same
property. Buying the property this way, the parents achieve the same Purchase with better terms because it is


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really the children’s loan. Another way would be for the parents to be Non-Resident CoBorrowers on an FHA
loan for the children. Again, this would be an Owner Occupied Purchase, rather than an Investment Property
Purchase. Complicated loan scenarios like this are best left to DreamLoan-certified Mortgage Brokers and
Bankers.


ARE THERE SPECIAL LOANS FOR VETERANS?
Yes. The Veterans Administration offers “VA” loans to honorably discharged veterans. These loans are even
cheaper for disabled veterans. For good measure, it might be a good idea to also purchase the DreamLoan
Specialty Tutorial “Responsible Zero Down Payment Financing”.


WHAT IS THE DIFFERENCE BETWEEN AN FHA LOAN AND A REGULAR LOAN?
FHA loans have more relaxed underwriting guidelines. Some of the differences are the following:
   • Seller Concessions are capped at 3% of the Purchase Price on Conventional loans (with a 5% Down Payment)
        but FHA allows 6% Seller Concessions with only a 3.5% Down Payment.
    •   FHA will allows Non-Resident CoBorrowers when the occupants (Applicants on the loan) do not qualify on their
        own (based on their Income or Debt To Income Ratios). Conventional loans only allow Non-Resident
        CoBorrowers if the Borrower(s) qualify by themselves.
    •   Gift funds are allowed on all Loan To Values on FHA loans but are only allowed with 10% or more Down
        Payment on Conventional Loans (except 97% specialty Conventional loans).
    •   Absences from the work force are tolerated on FHA loans but are not on Conventional loans.
    •   Down Payment Assistance funds are allowed on FHA loans but are not allowed on most Conventional loans.
    •   Medical collections never have to be paid off in order to Close on FHA loans, but often must be paid in order to
        Close on Conventional loans.
    •   An FHA loan can be Closed as little as two years following a bankruptcy. The period of time between
        Bankruptcy and the ability to Close a Conventional loan is much longer. With special circumstances, a Borrower
        only one year out of bankruptcy can Close an FHA loan. A DreamLoan-certified Broker/Banker would be
        required to obtain this financing (where only one year has passed since Bankruptcy discharge).
    •   If the Borrower is in Credit Counseling or a Chapter 13 bankruptcy, the Borrower can get an FHA loan after only
        one year of on-time (and in-full) payments. Conventional loans do not allow Borrowers to be in Credit
        Counseling or Chapter 13 bankruptcies.
    •   Housing stipends can be used as Income on an FHA loan but cannot be used as Income on a Conventional loan.
    •   Credit Scores can be as low as 600 for an FHA loan. Conventional loans generally have higher Rates for Credit
        Scores that low.


WHAT IS AN HISTORIC PROPERTY?
An historic property is a property that has been designated as an historic landmark by the municipality in which
it is located. Usually such properties have construction restrictions in order to preserve the antiquity of the
property.




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ARE THERE BENEFITS OR DRAWBACKS TO OWNING AN HISTORIC PROPERTY?
The benefit is obviously owning a part of history and a designated landmark. The drawbacks are generally a
lack of liberty with regard to construction, remodeling, landscaping, etc. as the governing municipality will
restrict most normal construction rights to preserve the antiquity of the property.


WHAT IS “GRANDFATHERING IN”?
Grandfathering is the act of excusing particular properties or people from a code or restriction legislated by the
governing municipality. For example, if a certain town passes a law that states that all properties must connect
to the new sewer system, it might also grandfather in any properties with functioning septic systems where the
owner is older than a certain age. Another example might be restrictions added to a building code that
grandfather’s in any property with a current construction Permit.


IF I BUY A HOUSE, DO I HAVE TO BELONG TO A HOMEOWNER’S ASSOCIATION?
Only if the property is in a neighborhood that has a Homeowner’s Association. Most Planned Unit
Developments (PUDs) have Homeowners Associations. However, not all neighborhoods do. Neighborhoods
that do not have Homeowner’s Association usually have municipal codes that dictate grass length on lawns,
inoperable vehicle storage, etc. to maintain the aesthetics of a municipality. A DreamLoan-certified Realtor®
is the best professional to tell you whether or not the property in which you are interested is located in an active
Homeowners Association area.


HOW IS THE VALUE OF MY HOME DETERMINED?
There are two types of values for a home. The first is the Tax Appraised Value which is determined by the
county (via the Tax Appraisal District) in which the property is located. Based on recent reported sales data in
each neighborhood, the county’s Tax Appraisal District assigns values to each home for taxation purposes. The
second is the Appraised Value or the Fair Market Value. This is the value assigned by an Appraiser after careful
inspection of the property and recent sales of similar properties (Sales Comps) that have sold in the last six
months.


HOW DOES THE TAX APPRAISAL DISTRICT DETERMINE MY PROPERTY TAXES?
The amount of Property Taxes depends on numerous variables. Often the Fair Market Value is actually higher
than the Tax Appraised Value and Property Taxes are based on the Tax Appraised Value. Additionally, the
amount of land, the school district, Homestead and other Exemptions all affect the Appraised Value of the
property and therefore, the Property Taxes.
Thus, Property Taxes are usually assessed in pieces. For example, there are multiple taxing authorities such as
the county, the city, the school district, etc. Each of these entities has a legislated percentage of Property Tax
based on its, or the county’s, Tax Appraised Value. These different tax amounts are then added together and
referred to as Property Taxes.




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WHAT DO I DO IF THE TAX APPRAISAL DISTRICT ASKS ME HOW MUCH I PAID FOR MY
HOUSE?
You are under no obligation to answer. What you paid for your home as well as all of the details of the Contract
are personal, private financial information that only the Borrower, the Mortgage originator and the Lender
know.


WHAT IS A HOMESTEAD?
Homestead generally means one’s Owner Occupied residence (Primary Residence). This differentiates the
property from Second Homes and Investment Properties for Property Tax purposes. In one state, Texas,
Homestead also means that any Cash Out loan on a Homestead property is to be considered a Texas Cash Out
transaction and falls under the regulatory authority of the Texas state constitution, specifically Section
15(a)(6), which, among other things, limits the Loan To Value to 80% or less (all Liens combined).


WHAT IS A HOMESTEAD EXEMPTION?
A Homestead Exemption is a Tax Appraisal District tax break. Filing this Exemption in most states establishes
one’s property as the Homestead and lowers the overall Property Tax bill or limits the amount the Tax
Appraised Value can increase each year. The Mortgage originator or the Title/Escrow Company that Closes
one’s loan should know the precise time period during which a homeowner must apply for this Exemption.


WHEN DO I FILE MY HOMESTEAD EXEMPTION?
Usually, shortly after the Homestead property is Purchased. This calendar date is different in almost every
state, thus the Borrower should ask the Mortgage originator or Title/EscrowCompany so that the exemption is
obtained in a timely manner.


WHO DETERMINES THE VALUE OF MY HOUSE?
The Tax Appraisal District determines the Tax Appraisal Value and a private Appraiser would determine the
Fair Market Value.


WHAT IS AN APPRAISAL DISTRICT?
A municipal entity that assigns value to all properties (Commercial and Residential) in order to assess the
county’s portion of Property Taxes.


WHY DOES THE VALUE OF THE HOUSE MATTER IF IT’S ALREADY BEEN PURCHASED?
Value, as a long-term indicator, should appreciate over time. While value does increase and decrease during
periods of low housing inventory or recession, the general pattern over a longer period is positive. Knowing
what your property’s value is can be quite important. For example, without keeping track of value, how does
one know the optimal time to sell the property, or conversely, when not to sell? If one does not know the
property’s value, how does one know when their is accessible Equity in the property? The value of a property
can also be a means by which one gets their Property Taxes reduced (by protesting the Tax Appraisal District’s
Tax Appraised Value.



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WHAT IS AN INVESTMENT PROPERTY?
An Investment Property is a property that, from the owner’s point of view, will be used for Commercial or
familial purposes. This means that if a property is being used to house family members or is being rented out, it
is considered in the Mortgage and Real Estate industries to be an Investment Property. Investment Properties
are Appraised, taxed, reported, financed and financially calculated differently than Owner Occupied properties.
For more information, purchase the DreamLoan Specialty Tutorial “Properly Buying an Investment
Property”. It is also highly recommended that you purchase the DreamLoan Specialty Tutorial “Buying
Multifamily Housing” to be the smartest Investment Property owner possible.


WHAT IS A RENTAL PROPERTY?
A Rental Property is a property that, from the owner’s point of view, will be used for Commercial or familial
purposes. This means that if a property is being used to house family members or is being rented out, it is
considered in the Mortgage and Real Estate industries to be an Rental Property. Rental Properties are
Appraised, taxed, reported, financed and financially calculated differently than Owner Occupied properties.
For more information, purchase the DreamLoan Specialty Tutorial “Properly Buying an Investment
Property”. It is also highly recommended that you purchase the DreamLoan Specialty Tutorial “Buying
Multifamily Housing” to be the smartest Investment Property owner possible.


WHAT IS A NON-OWNER OCCUPIED PROPERTY?
A Non-Owner Occupied Property is a property that, from the owner’s point of view, will be used for
Commercial or familial purposes. This means that if a property is being used to house family members or is
being rented out, it is considered in the Mortgage and Real Estate industries to be an Non-Owner Occupied
Property. Non-Owner Occupied properties are Appraised, taxed, reported, financed and financially calculated
differently than Owner Occupied properties. For more information, purchase the DreamLoan Specialty
Tutorial “Properly Buying an Investment Property”. It is also highly recommended that you purchase the
DreamLoan Specialty Tutorial “Buying Multifamily Housing” to be the smartest Investment Property owner
possible.


WHAT DETERMINES WHEN A HOUSE IS A SECOND HOME?
Second Homes are homes that are occupied by the owner for at least two weeks out of every calendar year.
There are particular rules when it comes to a property being considered a Second Home from a Mortgage
standpoint. These are:
    • You must prove that you have a Mortgage or rental obligation for your current Primary Residence.
    • The proposed property must a reasonable distance away from your Primary Residence. Generally this is
        interpreted to mean that the Second Home must be more than 35 miles away (as the crow flies, i.e. actual
        distance rather than drive time or drive distance) from your Primary Residence.
    •   The proposed property must be in a “desirable Second Home community” or area suitable for Second Homes,
        such as the mountains, the beach, another city, in town (if the Primary Residence is in the country and the
        Borrower works in town), etc.
    •   Relatives cannot live in the proposed property.
    •   The property should not be rented when the owners are not there.
    •   The proposed property must be occupied by the Borrower for at least two weeks out of every year.


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    •   The proposed property can only be a Single Family Residence, Condo or Townhome/Townhouse.
    •   The proposed property cannot be a time share property.
    •   There can be no management agreement to control the Occupancy of the property.
    •   Generally the proposed property cannot be larger than your Primary Residence unless you live in an area with
        exceptionally high rental rates (such as New York City or San Francisco for example).
Additionally, it is important to point out that Second Homes have the exact same rates and costs as Primary
Residences. Second Homes are Appraised, taxed, reported, financed and financially calculated the same way
that Owner Occupied properties are. If your loan originator tells you that your rate will be higher or that it will
cost more because you are buying a Second Home, find a new loan originator immediately. Of course, this can
easily be avoided by purchasing a referral to a DreamLoan-certified Broker/Banker.
If, in the end, the property you desire is deemed to be an Investment Property, you should purchase the
DreamLoan Specialty Tutorials “Properly Buying Investment Property” and “Buying Multifamily Housing”.


DOES THE ZONING AROUND MY HOUSE AFFECT THE VALUE OF THE HOUSE?
Yes, in lots of ways. If you are in a Mixed Use zone (meaning buildings can be businesses and residences) and
a recession comes, lots of “going out of business” signs in Commercial windows isn’t going to help your
home’s value. Getting involved in preventing business from encroaching upon your Residentially zoned
neighborhood is also a good idea to preserve your home’s value. Sometimes, having an area re-zoned for
Mixed Use (for example, as a downtown grows) can improve your home’s value. The long and the short of it is
that being involved in your Homeowner’s Association or your neighborhood group is a good idea.


HOW DOES ZONING CHANGE?
Zoning changes occur when they are approved by the governing body in the property’s municipality. Usually
this is a city council or a governmental neighborhood development body. One can petition for Zoning changes
for various reasons: To Zone a property Commercial or Mixed Use when it is Zoned Residential (if it sits on
the line between a Residential zone and a Commercial zone), to Zone an area for Residential use that was
previously Commercial (such as for inner city lofts) or to limit and restrict the Zoning of a property (to prevent
encroachment by a Commercial zone, for example).


HOW DO I KNOW IF THE CONDO I’M INTERESTED IN IS WARRANTABLE OR NOT?
Condominiums (in the Conventional side of lending) are either Warrantable or Non-Warrantable. Warrantable
Condos have preferred Interest Rates while Non-Warrantable Condos have higher rates and fewer Lenders that
will lend on them.
There are two processes by which Warrantability is determined: Full Review or Limited Review. These two
types of reviews are determined by an Automated Underwriting program (either Freddie Mac’s Loan
Prospector or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of
questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review
questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20
questions.
Whether a Condo receives a Full Review or a Limited Review, the following must be true:
For new Condo complexes -
    • At least 90% of the units must be sold;


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    •   All phases of construction must be completed;
    •   The Homeowners Association must have been under the control of the homeowners; and
    •   Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per
        building or per phase but for the entire complex). If any of these three items is not met, then the Condo complex
        is Non-Warrantable.
For established Condo complexes:
    • At least 90% of the units must be sold;
    • All phases of construction must be completed;
    • The Homeowners Association must have been under the control of the homeowners for at least one year;
    • Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per
        building or per phase but for the entire complex).
     • Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and
     • The Homeowner’s Association must have at least 10% of its annual budget in reserves.
If any of these three items is not met, then the Condo complex is Non-Warrantable. The reason that a Non-
Warrantable Condo complex has increased risk is because the unit is not free standing. Instead, the unit is
connected to all the other units. If the Condo complex has a low Owner Occupied and Second Home
percentage, that means that the majority of the units in the complex are Investment Properties. When
recessions hit, people tend to pay their Owner Occupied and Second Home Mortgages first, which means that
Investment properties tend to go into default. If the units of a Condominium complex are in default, then the
Homeowners Association dues on those units are also not being paid. Thus, the coffers that keep the entire
Condominium complex maintained will be bare and the complex itself may fall into disrepair, damaging the
value of all the units.
On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved”
or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of
their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.


I RECEIVED SOMETHING IN THE MAIL FROM THE COUNTY ASKING ME WHAT I PAID FOR MY
HOUSE. DO I HAVE TO ANSWER IT?
No. What you paid for a property is your own private financial information. Unless court-ordered, you are
under no obligation to provide the county with this information.


I RECEIVED SOMETHING IN THE MAIL THAT SAYS IT CAN FILE MY HOMESTEAD EXEMPTION
FOR ME FOR A FEE. SHOULD I DO IT?
No. You can file your own Homestead Exemption by filling out a form one can print from the internet (from
the county Tax Appraisal District office). This form can then be mailed for the cost of a postage stamp. It is
very easy to fill out.


WHEN WILL I BE ABLE TO BUY A HOUSE?
There are five parts to qualifying for a Mortgage: Credit, Income, employment, Liquid Assets and debt. The
minimum threshold for the best Interest Rates available would be credit with a Credit Score of at least 600 and
no negative activity for the last 12 month; Income that results in a Front Ratio (Housing Expense or PITI) of


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28% of your Gross monthly Income (or Net Income if Self-employed); Salaried employment of at least one
month or Self-Employed Income of at least two years; Liquid Assets sufficient to cover two months of the new
Mortgage Payment, the Down Payment and Closing Costs (all of which can be a Gift); and Credit Report debt
that, when all minimum payments are added together, does not make up more than 13% of your Gross monthly
Income (or your Net Income if Self-Employed). If the Borrower is a Veteran, assets would not have to include
a Down Payment and can also be a Gift.


IS GETTING A MORTGAGE EXPENSIVE?
Not necessarily. Mortgages can be Structured in many different ways to accommodate the short-term and long-
term financial goals of the Borrower. This is called “tailoring” the loan and not all Mortgage loan originators
know how to do it. All DreamLoan-certified Brokers and Banker are required to know how to tailor
Mortgages.
An example of a tailored Mortgage Structure would be a Borrower that has only enough Liquid Assets for a
small Down Payment and no funds for Closing Costs, but who also must have a Mortgage Payment below a
certain dollar amount per month. In this situation, the Mortgage would be tailored with the originator’s
complete commission charged as Points, getting the Seller to pay for them and giving the Borrower a
Wholesale Par Rate. Another example would be the opposite: A Borrower wishes to buy a Second Home but
will only keep it for the next two years. In this situation, the Mortgage originator’s commission will be
completely paid by the Lender and the few Closing Costs and Prepaid items that would exist would be paid
either by the Seller or the Lender. Since the originator’s commission is paid by the Lender, the Rate will be on
the high end. This won’t matter to the Borrower because he/she will only be paying the higher Interest Rate for
24 months or less. The goal in tailoring this Mortgage would be to minimize Closing Costs because it is
financially foolish to Buydown the Interest Rate since the Breakeven would take place after the home is resold.
Keep in mind that the Borrower should be an active participant in the Mortgage process. The more you know,
the better off you are. For more information about Purchasing and Refinancing, purchase the DreamLoan
Specialty Tutorials “Tailor the Mortgage Yourself and Save Thousands -”.


I AM INTERESTED IN LEASING TO OWN, WHAT DO I NEED TO KNOW?
There is a superior, inexpensive way to do this. See DreamLoan Specialty Tutorial “Lease to Own Using a
Refinance”.


IS BUILDING A “NEW HOME” A GOOD IDEA?
See the DreamLoan Specialty Tutorial ”Beware the Tract Builder”. It is DreamLoan’s opinion that New
Homes built by Tract Builders should be avoided and that a Custom Build should be performed or a relatively
new Resale should be considered. Buyers are encouraged to get a DreamLoan-certified Realtor® to help them
find either a good Custom Builder or a Resale property. If a Custom Build interests you, purchase the
DreamLoan Specialty Tutorial “How to Do a Construction Project”.


HOW WOULD I CHOOSE A MORTGAGE BROKER?
Luckily, you no longer have to. DreamLoan does all that for you and has the nation’s best Mortgage Brokers
and Bankers in its network of originators. In the past, consumers had strange ways of determining a loan
originator’s worth, relying on friends and relatives to give them a reference. But most consumers don’t know


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much about Mortgaging. So even if that friend or relative had a positive experience, they still don’t know
whether or not the loan originator they are recommending is really schooled in Mortgaging. Many loan
originators are personable but really do not know what they are doing. Consumers do not qualify loan
originators based on proper screening, including number of years in the business, NMLS score, number of
Lenders in their network, presence of a supervising Broker, etc. These are the true criteria upon which a
Mortgage loan originator should be chosen. Because consumers are not experts in Mortgaging, DreamLoan
systematiclly interviews, vets, tests and certifies quality Mortgage Brokers and Bankers, practically ensuring
that the consumer’s experience will not only be positive, but will also be performed by a competent,
professional Mortgage loan originator of an extremely high caliber. Additionally, you might want to purchase
the DreamLoan Specialty Tutorial “What a Mortgage Professional Should Do”.


IS GOING TO YOUR BANK FOR A MORTGAGE A GOOD IDEA?
Generally no. This is because most Retail Bankers (loan originators that work for a retail bank) know very little
about Mortgaging, believe it or not. The majority do not achieve certification with DreamLoan. Brokers and
Wholesale Bankers on the other hand, have to know much more about Mortgaging because their livelihood
depends on it. Word of mouth only works if the loan originator proves that he/she is a competent professional
over and over and over again. A Retail Banker, on the other hand does not have to find and satisfy clients in
order to get more clients, because their customers simply walk into the bank lobby. Additionally, Retail
Bankers can only offer the limited Mortgage products their retail bank offers. Often Retail Bankers have no
access to FHA loans, VA loans, USDA loans, Combo loans, etc. simply because they are not among the
products their employing retail bank offers.
DreamLoan’s opinion is that it is far better and worth the cost to buy a referral to a DreamLoan-certified
Mortgage professional to insure the best service, most number of products and most expertise at your disposal.
For more information about the services provided by DreamLoan-certified Mortgage Brokers and Bankers,
purchase the DreamLoan Specialty Tutorial “What a Mortgage Professional Should Do”.


WHAT’S THE DIFFERENCE BETWEEN A MORTGAGE BROKER AND A MORTGAGE BANKER?
A Mortgage Broker brokers and funds loans using other people’s (Lenders’) money. A Mortgage Banker funds
loans with their own money and then sells the loan on the Secondary Market. Additionally, a Mortgage Broker
works for and on the behalf of the Borrower, wherease a Banker is either forced to sell only the retail banks’
products (Retail Banker) or under pressure to use his or her own funds to make the loan (and not brokering the
loan which would make many, many loans available. Retail Bankers work for and on behalf of the bank which
employes them. Wholesale Bankers only work for and on behalf of the Borrower when they are brokering a
deal (which is a low percentage of the time). For general information about the originator’s responsibilities,
purchase the DreamLoan Specialty Tutorial “What a Mortgage Professional Should Do”.


ARE THERE ANY GOOD MORTGAGE BROKERS LEFT?
Yes, and the majority of them are certified with DreamLoan. Referral purchases from DreamLoan are even
more important now that the Mortgage industry has gone through so much upheaval in recent years. While
most of the low-end, minimally educated Mortgage loan originators are now out of the business, many have
held on because they worked for large companies that have survived the storm. Now more than ever it is
important to really know that the Mortgage Broker/Banker that you choose is the best of the best. DreamLoan
painstakingly interviews, vets, tests and certifies its Mortgage Brokers and Bankers so that the consumer does


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not have to do anything, yet still gets a superior Mortgage professional to represent them. For general
information about the originator’s responsibilities, purchase the DreamLoan Specialty Tutorial “What a
Mortgage Professional Should Do”.


HOW DO I FINANCE HOME IMPROVEMENTS?
There are a few diffferent ways. First, on a Refinance, the Borrower can access the Equity in their property and
do a Cash Out loan (First or Second Mortgage) to receive a lump sum of cash so that the Borrower can pay for
the home improvements. The second way is to find an actual Home Improvement Loan, but in today’s market
they are rare. The third way is to do a Construction Loan. In a Construction Loan, the funds to pay off your
First Mortgage (your current Mortgage) as well as funds for construction can be allocated. The first “Draw” on
the Interim Financing pays off the existing Mortgage, then the rest of the Interim Financing can be accessed by
the Builder or General Contractor to perform the construction. Once the improvements are done, the
Construction Loan either Refinances off the Interim Funds (Two-Time Close) into Permanent Financing or
modifies the construction Note into Permanent Financing (One-Time Close). For more information there is a
DreamLoan Specialty Tutorial that can be purchased entitled “How to Do a Construction Project”.


HOW DO I KNOW MY REAL ESTATE AGENT IS ANY GOOD?
Generally, you don’t other than word of mouth. There has never been an entity that rates Realtors, until now.
DreamLoan interviews, vets, tests and certifies Realtors so that consumers buying referrrals to these Realtors
know that they are all excellent. Without DreamLoan, consumers just have to “spin the wheel” and hope their
Realtor really knows what they are doing. Now that DreamLoan exists, consumers can confidently focus on
other more pressing items than interviewing Realtors. It is, of course, important to know what a Relator should
be doing in the transaction. For this reason DreamLoan offers a Specialty Tutorial, “What a Realtor Should
Do” that itemizes all of the Realtors’s responsibilities. DreanLoan.pro also offers a document, “Ten Questions
for Your Realtor®” that can help you determine whether or not your Real Estate Agent is any good.


HOW DO I KNOW MY MORTGAGE BROKER IS ANY GOOD?
Generally, you don’t other than word of mouth. There has never been an entity that rates Mortgage
professionals, until now. DreamLoan interviews, vets, tests and certifies Mortgage Brokers/Bankers so that
consumers buying referrrals to these professionals know that they are all excellent. Without DreamLoan,
consumers just have to “spin the wheel” and hope their Mortgage professional really knows what he or she is
doing. Now that DreamLoan exists, consumers can confidently focus on other more pressing items than
interviewing Mortgage professionals. It is, of course, important to know what a Mortgage professional should
be doing in the transaction. For this reason DreamLoan offers a Specialty Tutorial, “What a Mortgage
Professional Should Do” that itemizes all of the Mortgage professional’s responsibilities.


HOW OLD DO YOU HAVE TO BE TO BUY A HOUSE?
Old enough to legally enter into a binding contract. It differs from state to state but generally the answer is 18
years old.




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CAN I BUY A HOUSE WITHOUT A REAL ESTATE AGENT.
Absolutely. Consumers who have the time to find houses on their own (driving neighborhoods, newspaper,
magazines, internet) can certainly do the Real Estate Agent’s job if they wish. There is no law in any state that
requires a Buyer to have a Realtor®. If a person is interested in representing themselves, and they need
guidance as to what they will need to do, DreamLoan offers a Specialty Tutorial called “Looking for Real
Estate without a Realtor®” that is reasonably price but can save a Buyer thousands of dollars.


ARE THERE SPECIAL PROGRAMS FOR VETERANS?
The VA loan program offers 100% lending for Veterans with a DD-214 and a Certificate of Eligibility.
Additionally, the VA Funding Fee is financed into the loan so that the Borrower does not have to bring that fee
to Closing. Some states also offer additional programs. Texas, for example, offers a Texas Land Veteran loan
for land purchases in Texas. Speak to your DreamLoan-certified Broker or Banker about specific veteran
loans in your municipality. You might also want to purchase the DreamLoan Specialty Tutorial “Responsible
Zero Down Payment Financing”.


CAN PART-TIME INCOME BE USED TO QUALIFY FOR A MORTGAGE?
Yes, provided the Borrower has worked at that job for at least one year and provided the employer states that
the probability of continued employment for that Borrower is good, very good or excellent on the written
Verification of Employment form the employer fills out at the loan Processor’s request.


WHEN SHOULDN’T I BUY?
It would be unwise to buy if there are looming layoffs or any other potential negative event that might occur at
one’s place of employment. It would also be unwise to buy a house when the housing market is booming, as
one would be buying when house prices are at their highest. If you are considering Purchasing Real Estate
without a Realtor® you should purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without
a Realtor®”.


HOW DO I KNOW IF MY CREDIT IS GOOD ENOUGH TO BUY?
While numerous companies now offer access to one’s Credit Report and Credit Scores online, the best way to
be sure your credit is good enough to buy is to contact a DreamLoan-certified Broker or Banker to pull your
actual Mortgage Credit Report. First of all, this report will be a “merged in-file” that will merge all the
information from all three of the nation’s credit Bureaus (or Repositories) as well as show all three Credit
Scores (in some instances not all Credit Scores show up if the Borrower has limited credit). Additionally, this is
the only Credit Report that can be used in a Mortgage transaction (Lenders accept a Broker/Banker Credit
Report but they do not accept one that a Borrower accessed through some other service). Once the Credit
Report is accessed and the credit history and Credit Scores of the Borrower are known, the DreamLoan-
certified Broker/Banker can educate the Borrower on their chances of obtaining a Mortgage loan for a Real
Estate Purchase. DreamLoan offers the sale of numerous Specialty Tutorials dealing with credit. These are:
“Understanding Credit and Credit Scores”, “Manipulating Credit Score Higher”, and “How to Instantly Build
Credit when You Have None”.




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HOW DO I APPLY FOR A MORTGAGE?
Purchase a referral to a Mortgage professional (a DreamLoan-certified Broker/Banker) through
DreamLoan.pro or the DreamLoan mobile App. All DreamLoan-certified Brokers and Bankers have
various methods for applying for a Mortgage loan (in person, via overnight mail, online, etc.) yet all must pass
the same scrutiny in order to achieve DreamLoan-certification.


HOW DO I KNOW HOW MUCH HOUSE I CAN AFFORD?
One can calculate this number using the Mortgage Calculator on DreamLoan.pro or the DreamLoan mobile
App or by speaking with a DreamLoan-certified Broker or Banker. It is important to note that just because one
can qualify for a certain Purchase Price/loan amount/Mortgage Payment, one should really look at how much
one feels comfortable paying each month and not exceeding that limit.


CAN I GET FREQUENT FLYER MILES FROM A MORTGAGE?
Yes. But only through major banks, such as Chase and Bank of America. Usually this works by going to the
airline’s site and accessing their frequent flyer program, then choosing one of their approved Lenders and
obtaining the Mortgage through that Lender using a particular code. DreamLoan does not, however, certify
entire groups (like all loan originators at Chase, for example). Instead, you would search on DreamLoan.pro
for specialty Mortage professionals. Certified Brokers/Bankers of 50 or more in the retail department of one
particular employer are located in the Specialty Mortgage Professionals area. A Borrower can entire this side
of the site and purchase a referral for a DreamLoan-certified Banker within a particular company.


CAN I APPLY FOR A MORTGAGE ONLINE?
Yes. All DreamLoan-certified Brokers and Bankers must have the ability to accept and online Mortgage Loan
Application.


IS BUYING A HOUSE REALLY HARD?
No. Especially when you have qualified professionals helping you. DreamLoan offers referrals to certified
Realtors® and certified Mortgage Brokers and Bankers, so that you begin your transaction in the best possible
hands. It is also not a legal requirement that one has a Realtor®, so some people handle the real estate
transaction themselves, even First Time Home Buyers. If one is interested in Purchasing Real Estate without a
Realtor®, one should purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a
Realtor®”. Once you have your Mortgage professional and Realtor® (if applicable) chosen, the steps of
buying a house are:
1. Prepare for your Mortgage financing (See Steps To Prepare For A Mortgage in the DreamLoan Mortgage Glossary).
2. Obtain a Prequalification letter from the DreamLoan mobile App, DreamLoan.pro or from your DreamLoan-
    certified Broker or Banker.
3. Get started on your Mortgage loan. Arranging your Mortgage financing before you look for property may seem
    backward, but it allows you to know how much you qualify for, and if you are comfortable with your payments, etc.
    before you look for property.
4. Find an attorney (if an attorney is required in your state).
5. Enter into Contract including delivering the Earnest Money/Deposit check and Option Fee check (if applicable).




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6. Perform property Inspection and Termite Inspection if desired.
7. Perform other Inspections (Septic or Well, if applicable, or Foundation if Home Inspector has concerns).
8. Order or obtain Survey from Seller (in states that use Surveys).
9. Obtain Appraisal (ordered by the Mortgage professional).
10. Arrange Homeowner’s Insurance coverage for the property (speak to an agent.). It is important to note that most major
   insurance companies offer double discounts if both your home and car coverage are with the same firm. Usually it is a
   10% or more discount on both the Homeowner’s Insurance and the auto policy.
11. Complete Mortgage financing, including deciding if using a Power Of Attorney.
12. Obtain Closing check. This check must be a cashier’s check so that the funds are immediately negotiable (can be
   immediately cashed). However, a wire from the Borrower’s bank account to the Title/Escrow Company’s bank
   account will also work. If a Borrower is wiring funds to the Title/Escrow Company, the Borrower first needs to obtain
   the Title/Escrow Company’s Wiring Instructions so that the funds are applied to the Borrower’s transaction.
13. Attend closing. Usually the only items that should be brought to Closing are your photo identification, the Closing
   check and a checkbook (if the Closing check was not for the exact amount due). However, the Mortgage Lender may
   request originals of Letters of Explanation or other items to Closing, which will be listed with the Title/Escrow
   Company as “Funding Conditions”.


WHEN WILL INTEREST RATES START GOING UP?
It is impossible to say with certainty, but conventional wisdom seems to be (based on comments by the Federal
Reserve) that Interest Rates will stay low until sometime in 2013 or 2014. In February, 2012, Interest Rates
were at an historic low, so there really is little place to go other than up. DreamLoan’s recommendation is the
old saying that “pigs get fat and hogs get slaughtered”, meaning, strike while the iron is hot and Lock an
Interest Rate while Rates are low rather than playing the gambling game of waiting for Rates to go even lower
before you Purchase or Refinance. When Borrowers gamble, this often results in Rates increasing and then the
Buyer waits for the Rates to go back down, which they rarely do, only to go up further. A great Interest Rate is
a great Interest Rate and being greedy or “a hog” when it comes to them is speculative and foolish.


IS BUYING A SHORT-SALE A GOOD IDEA?
Only if the Buyer has a inordinate amount of time and patience. Short Sales are notorious for taking anywhere
from three to six months to Close following the execution of a Contract for Sale. This is because the Seller is a
loss mitigation department of a huge bank or loan servicer, which is so large that it cannot make decisions or
turn paperwork around in a timely fashion. Sometimes it takes weeks just to get a response to an Offer. While
it is true that buying a Short Sale property can be advantageous (the price is usually excellent because the
property was previously Foreclosed upon and the First Mortgage holder is trying to sell off the asset to
minimize losses), such a transaction requires enormous patience and the ability to live somewhere else while
the transaction is dragging on and on.


CAN YOU GET A GOOD DEAL BUYING A FORECLOSURE?
Certainly. But there are a few items that are important to remember:
    • Any repairs that need to be made (per the Appraisal) must be performed before Closing. Unbelievably, the Seller
         (a Lender) will not put any more money into the property. Thus, if the Appraiser requires certain repairs, the
         Buyer of a Foreclosed property will have to arrange and pay for the improvements. This means getting access to
         the property through one or more Real Estate Agents. This also means putting money into a home that the Buyer


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        does not yet own. If you are in this situation, DreamLoan strongly encourages you to buy a referral to a
        DreamLoan-certified Mortgage Broker/Banker for such a transaction because the Buyer must know, beyond a
        doubt, that the Mortgage is going to be Approved, Closed and Funded if they are going to be putting money into
        the Subject Property prior to owning it.
    •   There is sometimes a five (5) day waiting period between when the Mortgage professional’s attorneys draw the
        Closing documents and when the Closing may be done. This is because if the sale is a HUD-repo (property
        owned by the Department of Housing & Urban Development), HUD always requires a five (5) day inspection
        period to inspect the Closing documents.
    •   If one buys the property in As Is condition, then the Buyer must realize that he/she is responsible for all
        conditions that must be rectified in order to inhabit the dwelling. Some municipalities require Certificates of
        Occupancy that give the Buyer the right to move occupants into the property. This will not be issued if the
        reposession is Functionally Obsolete (lacking electricity or proper gas valves or appliances, etc.).
    •   The property may have hidden problems. Generally, people who cannot afford their homes cannot afford
        maintenance or repairs. DreamLoan strongly encourages having a Home Inspection done before fully
        committing to the Purchase.
If one is interested in Purchasing Real Estate without a Realtor®, one should purchase the DreamLoan
Specialty Tutorial “Looking for Real Estate without a Realtor®”.


IS UNDERSTANDING MORTGAGES HARD?
Not anymore, thanks for DreamLoan.pro. DreamLoan is dedicated to providing easily digestible Mortgage
and Real Estate education for the everyday consumer so that he/she understands the transaction before them.
By far, the most difficult thing about getting a Mortgage is the “foreign language” that Mortgage professionals
seem to speak. Talk of Points, Buydowns, Breakevens, documents, Credit Reports, Credit Scores, etc. confuse
the consumer and place the consumer at considerable risk. The risk comes from not understanding how the
Mortgage works, how the loan originator makes his/her commission, what charges are appropriate, what
Structure is the best for one’s short-term and long-terms financial goals, etc. Unscrupulous loan originators can
take advantage of this lack of consumer knowledge and take advantage of the consumer. However, with
education through DreamLoan.pro, the consumer can become well-acquainted with Mortgaging and can
participate fully in the financing side of the transaction. Additionally, DreamLoan provides referrals to
Mortgage professionals that have been interviewed, vetted, tested and certified so that the Mortgage is handled
by a Mortgage originator that has been qualified as being talented enough to handle each transaction. To
illustrate how reasonable it is to understand a mortgage, purchase the DreamLoan Specialty Tutorial “Tailor
the Mortgage Yourself and Save Thousands”.


WHAT IS AN APPROPRIATE INTEREST RATE FOR A FIRST TIME HOME BUYER?
First Time Home Buyers are offered numerous loans that come with Interest Rates only slightly higher than
Prime, Conventional Conforming Rates. Additionally, First Time Home Buyers can utilize Government loans
which have Interest Rates almost identical to those for Conventional buyers with perfect Mortgage loan files.
Interest Rates are only higher for First Time Home Buyers when that Buyer is financing more than 80% of the
Purchase Price with one, Conventional, Conforming First Mortgage. If this is not the case, then the First Time
Home Buyer should receive an Interest Rate that is on par with seasoned home Buyers. For First Time Home
Buyers, DreamLoan suggests purchasing the following Specialty Tutorials: “Understanding Credit and
Credit Scores”, “Manipulating Your Credit Score Higher”, “Beware the Tract Builder”, “Buying Multifamily
Housing”, “How to Instantly Build Credit when You Have None”, “Lease to Own Using a Refinance”,


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“Responsible Zero Down Payment Financing”, “What a Realtor® Should Do” and “What a Mortgage
Professional Should Do”.


WHAT IS AN APR?
An APR is the Annual Percentage Rate that is found on the Truth In Lending Statement. The APR is the first
box from the left on the Truth In Lending Statement. The APR is what the Lender will actually yield from the
loan, each year, including the Closing Costs paid to obtain the loan (as if they were spread out over the Term of
the loan). The APR is the Interest that will be paid during the first year (the Interest Rate), plus certain costs
that were paid for by the Borrower (or Seller in a Purchase transaction) to acquire the Mortgage. This inclusion
of fees paid to acquire the Mortgage (as represented as a percentage of the loan) is why the APR is slightly
higher than the Interest Rate of the loan. If there were no Closing Costs, then the APR would be identical to the
Interest Rate. The APR is an excellent way to compare loans (provided all attributes between the loans are the
same, i.e. Term, Amortization, whether or not there is a Prepayment Penalty, whether or not there is a Balloon,
etc.) because it is a more complete representation of the total cost of the loan, as opposed to simply comparing
the Interest Rate. For example, a 3.875% Interest Rate with a 4.225% APR is actually more expensive than a
4.00% Interest Rate with a 4.082% APR. However, it is important to note that using the Breakeven and Recoup
formulas are even more precise at determining the prudence of how much Closing Costs are best. For example,
a No Point Loan may have a lower APR than a loan with two Discount Points, but both the Recoup and the
Breakeven formulas may prove that it is the best loan for the Borrower’s short-term and/or long-term financial
goals. The APR is an oversimplified, government number that does not take into account how long the
Borrower intends on remaining connected to the loan. Therefore, it is DreamLoan’s opinion that a complete
analysis of the loan (using the Breakeven and/or Recoup formulas) is a better way to compare loans than the
APR. If this is too painstaking for the Borrower, a DreamLoan-certified Broker/Banker can certainly do it.


HOW MUCH ARE THE CLOSING COSTS WHEN YOU BUY A HOUSE?
That depends entirely upon the Structure and the Interest Rate the consumer chooses (See Structure and
Recoup). A safe rule of thumb is that Closing Costs on a Borrower Paid Compensation transaction will run
from between 3.5% and 5.5% of the loan amount. The Closing Costs on a Lender Paid Compensation
transaction should be no more than 1.5% of the loan amount. Once the Borrower has a property in mind, a
quick discussion with a DreamLoan-certified Broker/Banker will produce a fairly accurate picture of all the
Closing Costs on that particular Mortgage. Remember that the Borrower is an active participant in the
Mortgage process. The more you know, the better off you are. For more information about Purchasing and
Refinancing, purchase the DreamLoan Specialty Tutorials “Tailor the Mortgage Yourself and Save
Thousands -”.


WHAT GOOD IS A MORTGAGE ANYWAY?
A Mortgage means you own Real Estate. Despite the cyclic housing downturn, Real Estate is considered one of
the best long-term investments in the United States. Additionally, there are numerous tax advantages for the
home owner that are a direct result of the Mortgage. Lastly, a Mortgage replaces the 100% Interest Rate of
renting. The tax advantages of home ownership are discussed, at length, in the DreamLoan Specialty Tutorial
“Tax Advantage Mortgaging”.




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IS IT DUMB TO RENT?
If one has a stable job, a little savings and reasonable (but not perfect) credit, then yes, it is foolish not to be a
home owner. Renting is a 100% annual Interest Rate while having a Mortgage gets one an Interest Rate based
on their Mortgage Profile. Additionally, there is no development of Equity when renting and the Equity (which
develops over time due to making payments and housing appreciation rates) in a piece of Real Estate can be
accessed when necessary. Rent is also designed for one to pay it indefinitely, while a Mortgage has a term after
which the Borrower will own the property outright (Free & Clear). Lastly, a Mortgage offers the Borrower
numerous tax advantages including large deductions on their personal Tax Returns. DreamLoan.pro has a
running Blog in which renting vs. owning has been examined in great detail. The tax advantages of home
ownership are discussed, at length, in the DreamLoan Specialty Tutorial “Tax Advantage Mortgaging”.


CAN FRIENDS BUY A HOUSE TOGETHER?
Yes. They would just be CoBorrowers to one another. Not only could they all be on the loan, but they can also
pool Liquid Assets for the Down Payment and Closing Costs. Additionally, all CoBorrowers will be placed
into Title ownership of the property. Mortgaging allows individuals, married couples, unmarried couples, Gay
couples, relatives and friends to apply together for one Mortgage. If any of the friends do not intend on living
in the property, then two things must occur: First, a Government loan must be used because only Government
loans allow Non-Resident CoBorrowers. Second, a long term, serious relationship (equal to that of a family
member) must be established between the Non-Resident CoBorrower and at least one of the Applicants in
order for that person’s Liquid Assets and/or Income to be used for the purposes of qualifying for the Mortgage
loan. In the case of friends buying property together, it might be a good idea to purchase the DreamLoan
Specialty Tutorials “Buying Multifamily Housing”.


CAN MY PARENTS CO-SIGN FOR MY MORTGAGE FOR JUST A LITTLE WHILE?
Yes. Under the FHA program, Non-Resident CoBorrowers can be removed after just one year (one probably
needs a DreamLoan-certified Broker or Wholesale Baker to do this as not all originators know how). For a
detailed explanation of how this is done, purchase the DreamLoan Specialty Tutorial “Dropping an FHA
Non-Resident CoBorrower”


CAN MY PARENT GIVE ME MONEY FOR A DOWN PAYMENT?
Yes, either as a Gift on an FHA, VA or USDA loan or on a Conventional Mortgage with at least a 10% Down
Payment. This can also be accomplished by making the parent a Non-Resident CoBorrower on an FHA, VA, or
USDA loan. When the person providing the Down Payment is a Non-Resident CoBorrower on a Government
loan, the funds are not considered a Gift, but instead just a contribution from an Applicant on the loan. For
more information about buying with little money, purchase the DreamLoan Specialty Tutorials “Responsible
Zero Down Payment Financing”.


HOW DO YOU KNOW WHEN TO BUY?
It is difficult to say. It is probably best to pose this question to either a DreamLoan-certified Mortgage
professional (to get an idea of where Interest Rates are) or a DreamLoan-certified Realtor® (to get an idea of
general market conditions). The following items are moments when it may be a good time to buy:
     • At the relative bottom of a housing downturn


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    •   Before a pending layoff is expected to happen
    •   Before buying an automobile
    •   When it is a buyer’s market
    •   Before you become self-employed
    •   When your rent gets too high
    •   When you need tax deductions


HOW DO I PREPARE FOR APPLYING FOR A MORTGAGE?
See Steps for Preparing for a Mortgage in the DreamLoan Mortgage Glossary.


IS THERE A LIST OF MORTGAGE TERMS ANYWHERE?
Yes. DreamLoan offers the DreamLoan Mortgage Glossary on DreamLoan.pro or on the DreamLoan
mobile App.


IS IT BAD TO BUY DURING THE RECESSION?
Quite the opposite. Provided one’s employment is stable, a recession can be the best time to buy Real Estate.
This is because recessions are almost always coupled with a slow housing market which is a Buyer’s market
(Sellers are really motivated to sell and reduce prices). Additionally, Interest Rates usually come down during
a recession, so buying a home is cheaper.


CAN I QUALIFY FOR A MORTGAGE WITH A BRAND NEW JOB?
Yes. Usually all that is required is your first month’s worth of paycheck stubs and verification of your
employment.


MY WIFE DOESN’T WORK...CAN SHE BE ON THE MORTGAGE?
Yes. Homemakers can be on the Mortgage loan also, provided they do not carry challenged credit or large
debts along with them.


WHAT DO YOU NEED TO KNOW ABOUT REFINANCING?
That it is a financial tool to meet either short-term or long-term financial needs. If one has a short-term
financial need, like lowering one’s payment, a Refinance to a lower Interest Rate on a new 30 year Mortgage
can usually achieve that. If another short-term financial need is cash, a Cash Out Refinance can provide a
Borrower with the cash he/she needs, provided the property Appraises high enough. An example of a long-
term financial goal would be wanting to pay the house off more quickly. By Refinancing to an equal or lower
Interest Rate but going from a 30 year Mortgage to a 15 year Mortgage, cuts numerous years off the life of the
loan, saving tens of thousands of dollars and sometimes hundreds of thousands of dollars in Interest. It is
important that the Borrower understands that he/she can be an active participant in the Mortgage process. To
illustrate this, purchase the DreamLoan Specialty Tutorial “Tailor the Mortgage Yourself and Save




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Thousands”. If you are concerned about qualifying for a Refinance and have a Government loan, see the
DreamLoan Specialty Tutorial “Refinancing the Problem Borrower - FHA and VA Refinances”.


HOW DO I DETERMINE THE EQUITY IN MY PROPERTY?
Informally or formally. Informally would be paying a Realtor® to do a Comparative Market Analysis for you
(which basically tells one the price at which it would be Listed if one was selling it) and then simply
subtracting the amount of one’s loan(s). A formal manner would be to actually hire an Appraiser to do an
evaluation. Again, one would subtract the aggregate of all loans from the Appraiser’s value.


IS BORROWING AGAINST YOUR HOUSE TO PAY OFF CREDIT CARDS A GOOD IDEA?
Yes, provided you keep the Loan To Value reasonable. 80% of the property’s current Fair Market Value
(Appraised Value) is probably the maximum you should borrow. Sometimes this may not provide the particular
sum of money the Borrower wants for home improvements or to put a child through college, but DreamLoan
suggests one avoids the temptation to Borrower too much of your home’s Equity. If home values fall in a
recession, one always wants their home to be worth more than what is owed. This maintains all of your
Mortgage options.
The main reason why it is a good idea to pay off credit cards (or cars or tuition) with the Equity from an Owner
Occuped property or Second Home is because it is trading high Interest debt for low Interest debt.
Additionally, if the funds are spent on home improvement, all of the Mortgage Interest paid throughout the
year (up to $1 million in loan’s worth) is tax deductible.


WHAT PART OF A MORTGAGE IS TAX-DEDUCTIBLE?
Numerous parts. To answer this question it is paramount that one purchases and reads the DreamLoan
Specialty Tutorial “Tax Advantage Mortgaging” on DreamLoan.pro or on the DreamLoan mobile App.


I HAVE A BUNCH OF MEDICAL COLLECTIONS...CAN I BUY?
Yes. Medical collections are ignored on Government loans (FHA, VA & USDA) provided they and all other
accounts are not in dispute. If this is the case, there is no requirement to pay medical collections off. If credit in
general is an area of interest or concern, purchase one of the DreamLoan Specialty Tutorials “Understanding
Credit and Credit Scores”, “Manipulating Your Credit Score Higher” and/or “How to Instantly Build Credit
when You Have None”.


DOES ANYONE CERTIFY REAL ESTATE AGENTS?
DreamLoan interviews, vets, tests and certifies Realtors® in order for them to be part of the DreamLoan
family of professionals. First, Realtors® are interviewed for their overall strength, education and ability to
build a repore with a client. Second, they are vetted, meaning any and all complaints against them are
uncovered and investigated, as well as their education and general reputation. This also includes speaking to a
large number of their clients. Should the Realtor® still be a candidate for inclusion into DreamLoan’s network
of Realtors® at that point, they are tested by taking a 100 question examination written by some of the keenest
minds in Real Estate. Only those who score 80% or better may be certified to receive referrals of clients from
DreamLoan.pro.


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IS THERE ANY WAY TO SCREEN MY MORTGAGE BROKER?
DreamLoan interviews, vets, tests and certifies Mortgage Brokers and Bankers in order for them to be part of
the DreamLoan system. First, Mortgage professionals are interviewed for their overall product availability
and their ability to build a repore with a client. Second, they are vetted, meaning any and all complaints against
them are uncovered and investigated, their Credit Report is pulled and a criminal background check is
performed. This vetting process includes speaking to a large number of their clients. Should the Mortgage
professional still be a candidate for inclusion into DreamLoan’s network of Mortgage Brokers and Bankers at
this point, they are tested by taking a 200 question examination written by some of the best Mortgage Brokers
in the United States. Only those who score 80% or better may be certified by DreamLoan for participation in
receiving referrals of clients from DreamLoan.pro.


SHOULD I DO A HOME EQUITY LOAN OR A HELOC?
The two are very different. And there are actually three of them: A Home Equity Loan is usually a First
Mortgage, which can be Fixed Rate loan. A Home Equity Second is a Second Mortgage, which can also be a
Fixed Rate loan. But a Home Equity Line Of Credit (HELOC) is a Mortgage against your home that has a
credit limit (the maximum for which a Borrower qualifies), like a credit card. But worse, the HELOC’s Interest
Rate adjusts monthly, because a HELOC is an Adjustable Rate Mortgage based on Prime (which changes).
Usually there is an intial Interest Rate that is fixed for a short period of time that is artificially low. This teaser
Rate stays in place for a fixed period of time (a few months) after which time the HELOC Rate adjusts every
month. When the HELOC adjusts, it adjusts based on Wall Street Prime, which is based on the Rate at which
the Federal Reserve lends to its member banks. If the Federal Reserve raises or lowers the Rate at which they
will lend money to major banks, then the HELOC Rate will change. This, in turn, changes the Wall Street
Prime Rate, which changes the HELOC’s Rate. Let’s say the Federal Reserve raises their lending Rate from
3.00% to 3.50% because it is trying to slow the economy when production is too hot. Major banks follow suit
and raise Wall Street Prime to 5.5%, so the next month, the Borrower’s HELOC jumps to 7.5% (Prime plus a
Margin) increasing your Mortgage Payment. DreamLoan’s opinion is that HELOCs are for people who don’t
really need the money (or people who are totally reckless). In many states they were popular during the 2005
Real Estate boom. But they are now harder to get and not worth the effort. If rates are decent (Prime at 5.00%
or less) get yourself a Fixed Rate Home Equity Second (if you have a good, low-Rate, First Mortgage). Then
your Mortgage Payments are the same always, until the Term expires and you again own that portion of your
Equity Free & Clear (outright).


WHAT’S A HELOC?
A Home Equity Line Of Credit (HELOC) is a Mortgage against your home that has a credit limit (the
maximum for which a Borrower qualifies), like a credit card. But worse, the HELOC’s Interest Rate adjusts
monthly, because a HELOC is an Adjustable Rate Mortgage based on Prime (which changes). Usually there is
an intial Interest Rate that is fixed for a short period of time that is artificially low. This teaser Rate stays in
place for a fixed period of time (a few months) after which time the HELOC Rate adjusts every month. When
the HELOC adjusts, it adjusts based on Wall Street Prime, which is based on the Rate at which the Federal
Reserve lends to its member banks. If the Federal Reserve raises or lowers the Rate at which they will lend
money to major banks, then the HELOC Rate will change. This, in turn, changes the Wall Street Prime Rate,
which changes the HELOC’s Rate. Let’s say the Federal Reserve raises their lending Rate from 3.00% to
3.50% because it is trying to slow the economy when production is too hot. Major banks follow suit and raise
Wall Street Prime to 5.5%, so the next month, the Borrower’s HELOC jumps to 7.5% (Prime plus a Margin)


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increasing your Mortgage Payment. DreamLoan’s opinion is that HELOCs are for people who don’t really
need the money (or people who are totally reckless). In many states they were popular during the 2005 Real
Estate boom.


WHAT ARE THE STEPS TO BUYING A HOUSE?
1. Prepare for your Mortgage financing (See Steps To Prepare For A Mortgage in the DreamLoan Mortgage Glossary).
2. Obtain a Prequalification letter. The DreamLoan App can handle all of this for you, or you can get a Prequalification
   at either DreamLoan.pro or through your loan originator.
3. Choose a Mortgage loan originator or get a referral to a DreamLoan-certified Broker. DreamLoan-certified Brokers
   and Bankers are some of the best Mortgage professionals in your state.
4. Get started on your Mortgage loan. Arranging your Mortgage financing before you look for property may seem
   backward, but it allows you to know how much you qualify for, and if you are comfortable with your payments, etc.
   before you look for property.
5. Find a Buyer’s Agent and an attorney (if an attorney is required in your state). Keep in mind that it is not always
   necessary to have a Buyer’s Agent. For those inclined to look for Real Estate themselves, DreamLoan.pro offers a
   Specialty Tutorial “Looking for Real Estate without a Realtor®” that can save you thousands of dollars.
6. Enter into Contract including delivering the Earnest Money/Deposit check and Option Fee check (if applicable).
7. Perform property Inspection and Termite Inspection if desired.
8. Perform other Inspections (Septic or Well, if applicable, or Foundation if Home Inspector has concerns).
9. Order or obtain Survey from Seller (in states that use Surveys).
10. Obtain Appraisal (ordered by your Mortgage professional).
11. Arrange Homeowner’s Insurance coverage for the property.
12. Complete Mortgage financing, including deciding if using a Power Of Attorney.
13. Obtain Closing check. This check must be a cashier’s check so that the funds are immediately negotiable (can be
   immediately cashed). However, a wire from the Borrower’s bank account to the Title/Escrow Company’s bank
   account will also work. If a Borrower is wiring funds to the Title/Escrow Company, the Borrower first needs to obtain
   the Title/Escrow Company’s wiring instructions so that the funds are applied to the Borrower’s transaction.
14. Attend closing. Usually the only items that should be brought to Closing are your photo identification, the Closing
   check and a checkbook (if the Closing check was not for the exact amount due). However, the Mortgage Lender may
   request originals of Letters of Explanation or other items to Closing.
For information about how to be a full participant in your Purchase transaction, purchase the DreamLoan
Specialty Tutorial “Tailor the Mortgage Yourself and Save Thousands - Front/Back Loaded Purchase”.


WHAT ARE THE STEPS TO REFINANCING?
1. Prepare financial documents (see Steps to Prepare for a Mortgage in the DreamLoan Mortgage Glossary).
2. Choose a Mortgage loan originator or get a referral to a DreamLoan-certified Broker/Banker.
3. Find your Survey (in states that use Surveys).
4. Apply for Mortgage financing. This can be done at DreamLoan.pro or by contacting a DreamLoan-certified Broker
   or Banker.
5. Meet Appraiser.
6. Meet any required inspectors (Well, Septic).
7. Work with Processor.



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8. Decide if using a Power of Attorney.
9. Gather Conditions.
10. Close.
11. Obtain Closing check, if applicable.
For information about how to be a full participant in your Refinance transaction, purchase the DreamLoan
Specialty Tutorial “Tailor the Mortgage Yourself and Save Thousands - Front/Back Loaded Refinance”.


CAN I BUY THE HOUSE I AM RENTING?
Yes, if the Landlord is willing to sell it. Provided there is a Seller, the loan will only be Approved if one can
provide proof they paid their rent on-time every month, because an Underwriter cannot rely on the word of the
Seller on a Verification Of Rent form. The Seller is not a disinterested party. He wants the loan to be Approved
and to sell his house. This could make one lie. Thus, the only way to Approve a Mortgage where the Seller is
the Landlord, is to gather canceled checks or a letter from the retail bank the Borrower belongs to in order to
prove that the rent was paid in-full and on-time for at least the last 24 months (bank accounts can change within
this time period). Other than that specific, the loan works like any other Purchase loan, with a Down Payment
unless the loan is VA or USDA.
But why do a Purchase loan with a Down Payment when you can do a Refinance instead, using the Equity in
the house as the “Down Payment”? Refinancing against the property’s Fair Market Value is by far the better
transaction, since Closing Costs can be rolled in, there is no cash Down Payment, etc. To “Purchase” the house
this way, see the DreamLoan Specialty Tutorial “Lease to Own Using a Refinance”.


I RENT OUT A ROOM OF MY HOUSE...CAN I USE THAT INCOME TO QUALIFY?
Only if the rent was claimed as Income on your Schedule E on your Income Taxes for the last two years. If you
have told the government that you make the money, then you may use the money to qualify for a Mortgage.
Sometimes this time period can be just the most recent Tax Return. For this to be possible, one must use a
DreamLoan-certified Mortgage professional to handle the transaction.
There is, however, a way to achieve what you are looking for. To learn how, see the DreamLoan Specialty
Tutorial “Buying Multifamily Housing”.


WHAT’S THE POINT IN REFINANCING?
There are numerous points, each for different people. Some of the good reasons to Refinance are:
   • Getting a better Rate so that one pays less Interest in upcoming years
   • Reducing one’s payment
   • Shortening the Term of the loan (from 24 years left on a 30 year Mortgage to chopping off 9 years of payments
         by Refinancing into a 15 year Mortgage). This can save up to hundreds of thousands of dollars in Interest. See
         Net Savings formula.
    •    Accessing the Equity in the property (paying off credit cards, cars, debts, other Mortgages, college tuition, etc.)
         by doing a Cash Out loan.
    •    Any combination of any above (like a Cash Out Mortgage with a better Rate and a shorter Term)




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I WANT TO BUY A HOUSE AND A CAR...WHICH SHOULD I BUY FIRST?
One should always buy the house first in this situation. The reason is because of a thing called “ratios” in
Mortgaging. There are two ratios, the Front Ratio and the Back Ratio. The Front Ratio is the result of taking
your new housing obligation monthly (your Mortgage Payment including PITI and Homeowner’s Association
dues) and dividing it by your Gross monthly Income. This ratio generally should not be higher than 40%. The
Back Ratio is your Front Ratio plus any debts on your Credit Report (or alimony, child support or restitutional
payments) divided by your monthly Gross Income. This number should not be higher than 41% if the loan
requires Mortgage Insurance or up to 60% if the loan does not require Mortgage Insurance. However, a large
new car payment can push the Back Ratio too high and can result in a Mortgage loan declination. So, always
buy the house first so that your new car payment doesn’t cost you your home. Of course, if you have an
extremely large Income so that your Front Ratio is very low, then the new car payment would not matter since
it makes up such a small portion of your monthly Gross Income. However, 99% of the people in the United
States do not have monthly Gross Incomes in excess of $20,833.33 ($250,000.00 a year). So very few
consumers are in the position of not being impacted by a new car payment. So buy the home first and the new
car second.


WHAT’S THE DIFFERENCE BETWEEN A CONDO AND A TOWNHOUSE?
A Townhouse is when you may share common walls with other units, but you own the land underneath your
side. Condominiums have no ownership of the land beneath them. A Townhouse is a happy medium for people
who don’t want a lot of maintenance but who also don’t want to be near others. It has less maintenance than a
house plus property but it has fewer common walls than a Condo. If you are looking for Real Estate on your
own, it might be wise to purchase the DreamLoan Specialty Tutorial “Looking for Real Estate without a
Realtor®”.


I WANT TO REZONE MY HOUSE, WHAT SHOULD I DO?
Decide the new Zoning that you desire and petition your municipality to change it, by itself and quietly. The
better your argument, the better your chances. Rezoning one property might be relatively easy but Rezoning a
neighborhood is quite different. Numerous business interests and Homeowner’s Associations or groups all
push financial and/or self-governing interests and great disagreement can erupt.


SHOULD I BUY AN APARTMENT THAT’S BECOME A CONDO?
The integrity of the building in this case is sometimes questionable. Apartments are built to be just that,
apartments. Interior walls are thinner, space is used more efficiently, hookup for a washer and dryer are rare,
etc. Condos, built from scratch are more solidly built (provided the construction was done well) and usually
have more open spaces with washer and dryer hookups in the unit. In some areas apartments converted to
Condos can serve as sufficient Collateral, but unless the entire U.S. housing market is booming in every corner
of the country, apartments converted to Condos do not appreciate as rapidly as normal Condos, Townhouses or
Single Family Residences do.


WHAT’S MY INCOME FROM A MORTGAGE POINT OF VIEW?
Analysis of income documentation to determine Qualifying Income (income in the Mortgage world).
Qualifying Income must be derived differently based on how the person is “employed”.


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    •   Salaried Borrower (W2): The income that can be used as Qualifying Income is the monthly Gross Income per the
        Borrower’s paystub. The most recent year W-2 will also be reviewed to determine if there has been any substan-
        tial increase or decrease in Salary. If a salaried Borrower also earns Commission, Bonus, and/or overtime
        income, these non-Salary types of income will be averaged over a two year period. These non-Salary types of
        income must have a good likelihood of continuation.
    •   Commissioned Borrower that is paid by W-2: If the Borrower’s income is all Commission income but he/she
        receives a W-2 and taxes are withheld from his/her pay, the Commission income must have existed for the cur-
        rent year (Year to Date) and for the past two years to be used as Qualifying Income. The two previous years’
        income and current Year to Date income will then be divided by the number of months represented.
    •   Commissioned Borrower that is paid by 1099: A Borrower who earns Commission income and is issued a 1099
        and pays his/her own taxes by reporting his/her income on a Schedule C is considered Self-Employed. In this
        case, the income to be used for Qualifying Income is the Net Income from the Schedule C plus any Depreciation
        or depletion reported on the Schedule C minus 50% of the Exclusion for Meals and Entertainment. This must
        then be averaged over a two year period. Current Year to Date Commissions are not considered income.
    •   Self-Employed Sole Proprietorship: This Borrower will report income on a Schedule C and the income to be
        used for Qualifying Income is the Net Income from the Schedule C plus any Depreciation or depletion reported
        on the Schedule C minus 50% of the Exclusion for Meals and Entertainment. This must then be averaged over a
        two year period.
    •   Self-Employed Corporation (where Borrower owns >25% of that Corporation): Current base Salary being earned
        is used to qualify. Added to that number is a two year average of Bonuses and Commissions (less than two years
        cannot be used). If Bonuses and Commissions exist, the W2 will show more than the base Salary). In addition,
        the last two years of business Tax Returns can be reviewed to add any Depreciation or depletion less Mortgages,
        notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership per the Return. A
        two year average of this additional income can be added to the base salary (plus any applicable Bonuses and
        Commissions). If Borrower owns <25% of the Corporation, Qualifying Income is based on how the Borrower is
        paid (Salaried/Salaried-Bonus/etc., Commissioned W2 or Commissioned 1099) plus K-1 earnings.
    •   Self-Employed S-Corp or LLC (where the Borrower owns >25% of that S-Corp or LLC): A two year average of
        Gross Income reported on the most recent two years W2s and K-1’s can be used for Qualifying Income. In addi-
        tion, the last two years business Tax Returns can be reviewed to add any Depreciation or depletion less Mort-
        gages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership (per the K-
        1 or Return). A two year average of this additional income can be added to the other Qualifying Income. If Bor-
        rower owns <25% of the S-Corp or LLC, Qualifying Income is based on how the Borrower is paid (Salaried/Sal-
        aried-Bonus/etc., Commissioned W2 or Commissioned 1099) plus K-1 earnings.
    •   Self-Employed Limited Partnership (where the Borrower owns >25% of that Limited Partnership): A two year
        average of Gross Income reported on the most recent two years K-1’s can be used for Qualifying Income. In
        addition, the last two years business Tax Returns can be reviewed to add any Depreciation or depletion less Mort-
        gages, notes, and bonds due in less than a year multiplied by the Borrower’s percentage of ownership (per the K-
        1 or Return). A two year average of this additional income can be added to the other Qualifying Income. If Bor-
        rower owns <25% of the Limited Partnership, Qualifying Income is still calculated as above.
    •   Dividend/Interest Income: A two year average of Dividend/Interest Income from a personal Tax Return (Sched-
        ule B) can be used for Qualifying Income as long as it can be documented that the Borrower still has the assets
        which generated the Dividend/Interest Income.
    •   Unreimbursed Expenses: If a Borrower claims unreimbursed expenses on Schedule A, this amount must be
        deducted from the Qualifying Income.
    •   Schedule E: Schedule E is a declaration of income from a variety of sources including royalties, real estate rent-
        als, estates and trusts. The first part of the form is used to report income from rent and royalties as well as



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        expenses from these activities such as advertising, auto travel, Commissions, insurance, and Mortgage Interest.
        Provided the Borrower has a history of reporting rental income on Schedule E, the Net Income plus any Depreci-
        ation can be added to Qualifying Income. The third section reports income or losses from estates and trusts which
        can also be used to qualify using a two year average provided five years of future continuation can be docu-
        mented.
    •   Schedule F: If a Borrower files a Schedule F for Farm Income, the net profit (Net Income) or loss plus Deprecia-
        tion can be used for Qualifying Income.
    •   Retired or Semi-Retired Borrower: Monthly Pension, Annuity and/or Social Security Income (Grossed Up).
    •   Foster of adoptive parents: Monthly adoption or foster care stipend.


WHAT ARE POINTS?
Points are 1/100th of the loan amount and are used for compensation to the loan originator or for Buying Down
the Interest Rate on the Mortgage loan. Points are not inherently bad. They are perfectly financially sound if
applied correctly. For example, if a Borrower is going to keep a home he/she is Purchasing for 25 years (until
all children are grown and out of college), then a Borrower Paid Compensation Structure with Buydown Points
is a mathematically sound transaction because the Borrower will achieve Breakeven (Refinance) or Recoup
(Purchase transaction) long before the house is sold. See Buydown and Recupe in the DreamLoan Mortgage
Glossary.


WHAT IS A BUYDOWN?
The addition of Discount Points to the Front of the loan in order to sell a lower Interest Rate (that nears
Wholeslae Par). Buydowns are judged for their efficacy using the Recoup formula.


HOW DO I KNOW IF MY CONDO IS WARRANTABLE?
Warrantability works as follows:
There are two processes by which Warrantability is determined: Full Review or Limited Review. These two
types of reviews are determined by an Automated Underwriting program (either Freddie Mac’s Loan
Prospector or Fannie Mae’s Desktop Underwriter). The difference between the two Findings is the number of
questions on the Condo Questionnaire that the Homeowner’s Association must complete. The Full Review
questionnaire has approximately 42 questions and the Limited Review questionnaire has approximately 20
questions.
Whether a Condo receives a Full Review or a Limited Review, the following must be true:
For new Condo complexes -
    • At least 90% of the units must be sold;
    • All phases of construction must be completed;
    • The Homeowners Association must have been under the control of the homeowners; and
    • Owner Occupied and Second Home units must make up at least 70% of the units sold in the complex (not per
        building or per phase but for the entire complex). If any of these three items is not met, then the Condo complex
        is Non-Warrantable.
For established Condo complexes:
    • At least 90% of the units must be sold;


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    •    All phases of construction must be completed;
    •    The Homeowners Association must have been under the control of the homeowners for at least one year;
    •    Owner Occupied and Second Home units must make up at least 51% of the units sold in the complex (not per
         building or per phase but for the entire complex).
    •    Homeowner’s Association dues cannot be delinquent by more than 15% of the number of sold units; and
    •    The Homeowner’s Association must have at least 10% of its annual budget in reserves.
If any of these three items is not met, then the Condo complex is Non-Warrantable. The reason that a Non-Warrantable
Condo complex has increased risk is because the unit is not free standing. Instead, the unit is connected to all
the other units. If the Condo complex has a low Owner Occupied and Second Home percentage, that means
that the majority of the units in the complex are Investment Properties. When recessions hit, people tend to pay
their Owner Occupied and Second Home Mortgages first, which means that Investment properties tend to go
into default. If the units of a Condominium complex are in default, then the Homeowners Association dues on
those units are also not being paid. Thus, the coffers that keep the entire Condominium complex maintained
will be bare and the complex itself may fall into disrepair, damaging the value of all the units.
On FHA and VA loans, Warrantability is not determined. Instead, a Condo complex must be “FHA Approved”
or “VA Approved” prior to the transaction in order to do a Mortgage on the unit. Condominiums, regardless of
their Loan To Value ratio, do not have monthly Mortgage Insurance on FHA or VA loan.
It is DreamLoan’s recommenation that when Purchasing or Refinancing a Condo, one should use a
DreamLoan-certified Broker for the financing. This is because DreamLoan-certified Brokers must have
Lenders in their networks that include both Lenders that lend on Warrantable and on Non-Warrantable Condos.


HOW MANY MORTGAGES CAN I HAVE?
Fannie Mae allows for up to four financed properties per Borrower in order to lend. If the transaction is for the
fifth, it will be declined. Some Lenders, however, allow up to 10 properties per Borrower. Thus, it is important
to use a DreamLoan-certified Broker/Banker for a transaction in which one is applying for a loan for the fifth
or greater home because DreamLoan-certified Brokers/Bankers must be able to lend on Borrowers with more
than four financed properties.


INVESTMENT PROPERTIES SHOULD CASH FLOW. WHAT DOES THAT MEAN?
That means the monthly rent should cover the following:
1. The full Principle & Interest payment
2. A full 1/12th of the annual Property Taxes
3. A full 1/12th of the annual Homeowner’s Insurance premium
4. Non rental of the unit for at least three months out of the year
5. Ten percent (10%) to twenty percent (20%) of the monthly PITI Mortgage Payment for repairs and maintenance
For more detailed information on Investment Properties, purchase the DreamLoan Specialty Tutorials
“Properly Buying Investment Property” and “Buying Multifamily Housing”.


WHAT IS PITI?
Principle, Interest, Taxes & Insurance (Homeowner’s), making up the Mortgage Payment or total obligation
monthly. In some cases, where the First Mortgage is 80% of the value of the property (Fair Market Value on a


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Refinance and the lessor of the Purchase Price or Fair Market Value on a Purchase) this number can be broken
into two if the Borrower chooses to Waive Escrows. In this case, the Principle & Interest would be the
Mortgage Payment to the Mortgage Lender and the Property Taxes and Homeowner’s Insurance would be kept
in a savings account until the premiums are due. Additionally, Mortgage Insurance (if applicable) and
HomeOwner’s Association dues (if applicable) can be added to this number for it to be complete. Dividing this
number by one’s monthly Gross Income yields the Front Ratio.


WHAT ARE PROPERTY TAXES?
Property Taxes are the taxes assessed for a property based on the Tax Appraised Value the county, city or
municipality sets down by law. The value upon which Property Taxes are based, the Tax Appraised Value can
be protested. When your annual Tax Appraised Value comes to you in the mail, you have a limited amount of
time to protest (informally) and you must file the appropriate paperwork by the date by which all informal
protests must be made. Usually, because of sheer numbers, the county or municipality automatically gives a
protestor a 10% reduction in the Tax Appraised Value. But if the home owner wants more than a 10% discount,
a formal protest must be scheduled. A formal protest allows the home owner to bring as much evidence as
possible proving that the real Fair Market Value is lower than the Tax Appraisal District’s value. If you are
thinking about paying your Property Taxes yourself, it may be wise to purchase the DreamLoan Specialty
Tutorial “The Pros and Cons of Waiving Escrows”.


CAN I BUY A HOUSE FOR MY COLLEGE KIDS?
Yes. But it will be considered an Investment Property whether you use it as a Second Home or not. See Second
Home in the DreamLoan Mortgage Glossary. For more detailed information on Investment Properties,
purchase the DreamLoan Specialty Tutorials “Properly Buying Investment Property” and “Buying
Multifamily Housing”.


CAN EX-CONS BUY HOUSES?
Yes. Provided they can demonstrate a two year work history before their incarceration. If they can, their
Income will be based on their current W2 salary. Specifically, FHA Handbook Section 2: Effective Income,
subsection 2-6 addresses this issue of “recent absence from the work force”.


I WAS A HOUSEWIFE...NOW I WORK. CAN I BUY?
Yes. The FHA Handbook Section 2: Effective Income, subsection 2-6 addresses this issue of “recent absence
from the work force” and allows for the use of your current W2 salary for qualifying purposes provided one
can prove a two year history in the work force prior to becoming a housewife.


CAN I GET A 30 YEAR MORTGAGE IF I’M OVER 50?
Yes. It is illegal to discriminate against Borrowers based on age.




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WHY DO PEOPLE REFINANCE INTO 15 YEAR MORTGAGES?
To cut the Term of the loan in order to pay the house off earlier. Following the Net Savings formula, this can
save a Borrower up to hundreds of thousands of dollars, provided they will keep the home for the next 15
years.


WHY DO I HAVE TO PAY LAWYERS TO DO A MORTGAGE?
In some states, the Buyer has a lawyer, the Seller has a lawyer and the Lender has a lawyer (New York, for
example). Other states only require that the Closing documents be drawn by an attorney (Texas, for example).
Other state are somewhere in between. If you are required to use an attorney under state law, it is best to ask
your DreamLoan-certified Realtor® or Mortgage professional for a reference to a competent, personable
attorney.


HOW LONG DOES A MORTGAGE TAKE?
If the Borrower is quick in supplying the financial documents that are required of them, then a Mortgage can be
accomplished in four weeks on a Purchase and three weeks on a Refinance.


WHY CAN’T MY MORTGAGE BROKER TALK TO THE APPRAISER?
Because in 2011, the Home Valuation Code of Conduct went into place and there is supposed to be complete
autonomy for Appraisers. The Broker/Banker is not permitted to communicate to the Appraiser in any way.
This is intended to undo the influence that Brokers and Bankers previously had over Appraisers where Brokers
and Bankers stipulated the value they needed to consummate the transaction, and the Appraisers tried to please
the Brokers/Bankers since they were the ones ordering the Appraisals. Now, it is the Lender ordering the
Appraisals and the Appraisers are basically now beholden to the Lenders. Thus Appraisals are now coming in
low (in the favor of the Lenders) all over the United States. The pendulum has swung from one extreme to the
other.


CAN SELF-EMPLOYED PEOPLE BUY HOUSES?
Absolutely. In some cases a Self-Employed person only needs to show at least six months of Self-Employment
in order to qualify for a Mortgage loan (this is most likely possible using a DreamLoan-certified Mortgage
professional). It is important to note that two things must occur in order for a Self-Employed individual to
qualify for a Mortgage with only six months of Self-Employment. First, an Automated Underwriting engine
must yield finding that state that the Borrower only needs to show Self-Employment for the last six months;
and that the Lender chosen by the Broker/Banker cannot have Overlays that require documentation beyond
those required by the Findings of the Automated Underwriting engine. Without these two situations being in
effect, the general rule of thumb is that a Self-Employed Borrower must be Self-Employed for at least two
consecutive years.


WHAT IS A CONSTRUCTION LOAN?
There are two kinds of Construction Loans: The first is a Two-Time Close where the construction funds (the
Interim Financing) are allocated at the first Closing, the Builder draws funds as he/she builds the house, and
then the second Closing Refinances the Interim Financing based on the new Fair Market Value of the property.


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The other kind of Construction Loan is a One-Time Close. This loan allocates the Interim Financing, the
Builder draws funds as he/she builds the house, and the end of construction is accompanied by a Modification
of the construction Note signed at the first Closing. One-Time Close Construction Loans only have Closing
Costs once, instead of twice, like a Two-Time Close Construction Loan. For detailed information on
construction, purchase the DreamLoan Specialty Tutorial “How to Do a Construction Project”.


CAN MY COLLEGE KID BUY A HOUSE?
Yes. And if the child does not qualify by him/herself, the loan can be done as an FHA loan and the parent can
be a Non-Resident CoBorrower. Otherwise, on a Conventional loan, the child would have to qualify on his/her
own and the parent could only be a CoBorrower that really isn’t needed. the FHA loan program has the
advantage of allowing a child that will not qualify by him/herself to use the Income and Liquid Assets of the
parent as a Non-Resident CoBorrower.


WHY SHOULDN’T I USE MY REAL ESTATE AGENT’S INSPECTOR?
Because it in possible that the Inspector may overlook some defect in the house because he/she does not want
to “blow” the Real Estate Agent’s deal. Using an independent Home Inspector is the better way to go.


SHOULD I USE A NEW REAL ESTATE AGENT?
If “new” means a Realtor® that is brand new at the profession, then the answer is: Only if that Realtor® is a
DreamLoan-certified Realtor®.


ARE LISTING FEES NEGOTIABLE?
Yes. There is no law that states that Listing a property for sale with a Realtor® requires a Listing fee of six
percent (6%) of the Purchase Price. Instead a Seller can negotiate the Listing fee in many different ways: As a
percentage of the Purchase, as a flat fee, as one price if the Buyer has a Realtor® and another price if the Buyer
does not, etc. If you are inclined to try to sell your property yourself, purchase the DreamLoan Specialty
Tutorials “For Sale By Owner”.


SHOULD I USE THE BUILDER’S MORTGAGE COMPANY?
Only if the Builder is a Custom Builder. Tract Builder Mortgage companies are basically owned by the Seller
and cannot be considered independent and looking out for the Buyer’s best interests.


SHOULD I USE THE REAL ESTATE AGENT’S MORTGAGE GUY?
Generally, no. And this is because despite the Real Estate Agent’s experience, the Realtor® is not educated in
finance or Mortgaging. Instead, it is better to purchase a referral to a DreamLoan-certified Mortgage Broker/
Banker to be sure that the Mortgage professional is independent, competent and reliable. If you are inclined to
look for Real Estate on your own, purchase the DreamLoan Specialty Tutorials “Looking for Real Estate
without a Realtor®”.




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HOW MANY INVESTMENT PROPERTIES CAN I BUY?
Generally up to nine, if you have a Principle Residence. Up to eight if you have both a Principle Residence and
a Second Home.


ARE THEIR SHORTER MORTGAGES THAN 30 YEARS?
Yes. Mortgages come in Terms of 30 years, 25 years, 20 years, 15 years and 10 years. It is, however, possible to
make the term somewhere in between, such as 21 years. The loan originator just has to have a flexible Lender
(or a Portfolio Lender) in its network.


DO LAND MORTGAGES EXIST TOO?
Yes. The Down Payment requirements are higher for land, but the Mortgages do exist.


WHAT’S THE SMALLEST DOWN PAYMENT I CAN PAY?
Zero percent (0%) of the Purchase Price on VA loans and USDA loans, three percent (3%) of the Purchase
Price on Conventional (non-Government) loans and three and a half percent (3.5%) on FHA loans. However,
FHA loans and some Conventional high Loan To Value loans will permit Down Payment Assistance which is
usually a need-based Second Mortgage that is ultimately Forgivible. Using Down Payment Assistance could
very possibly cover the Down Payment on an FHA or a Conventional 97% loan as well as some, if not all, of
the Closing Costs. Be weary of “zero down” marketing gimmicks, especially for New Homes. For more
information, purchase the DreamLoan Specialty Tutorials “Beware the Tract Builder” and “Responsible Zero
Down Payment Financing”.


WHAT IS THE DOWN PAYMENT ON A REFINANCE?
There is no Down Payment on a Refinance because on a Refinance, the part of the property that is not
encumbered by Liens is compared to the Fair Market Value of the property and the result is the Equity in the
property. For example, if the home is worth $100,000 and the loan against it is $80,000 then there is $20,000 of
Equity. Because the Equity belongs to the Borrower, it is the Borrower’s “contribution” to the transaction,
(similar to the Down Payment on a Purchase). In some cases, however, no Equity is necessary to complete a
Refinance. A VA loan, for example, allows the Loan To Value of the Refinance to be 100% of the Fair Market
Value of the property. Remember that you are also a full participant in the Refinancing of your property. To
illustrate this, purchase one of the DreamLoan Specialty Tutorials “Tailor the Mortgage Yourself and Save
Thousands - Front/Back Loaded Refinance”.


HOW MUCH DOES IT COST TO REFINANCE?
Refinances generally cost between one percent (1%) of the new loan amount and the maximum percentage set
down by state or federal law (usually 7.99%). Most often, Refinances cost between one and four percent
(1-4%) of the new loan amount. The larger the loan amount, the lower the Closing Cost percentage; conversely
the lower the loan amount, the higher the Closing Cost percentage. This is because some Closing Costs are
static and not based on the loan amount, like Underwriting, Tax Related Service, Appraisal, Processing, Credit
Report and Flood Certificate. As a result, these costs are a higher percentage of a small loan amount and a




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lower percentage of a large loan amount. For example, if these five fees were $2,000 that would be more than
3% of a $60,000 loan amount, but only 1% of a $200,000 loan amount.
The largest factor in the amount of the Closing Costs is the loan Structure chosen by the Borrower. If the
Borrower intends to keep the new loan for a long period of time and chooses to pay all the costs and
compensation of the loan on the Front of the loan in exchange for a Wholesale Par Interest Rate, then
obviously the Closing Costs will be high. If, on the other hand, the Borrower intends upon keeping the loan
only for a few years and chooses to pay all compensation for the loan through the Interest Rate, then the
Closing Costs will be low and the Rate will be a little higher.
Often times when people ask “How much does a Refinance cost?” they really are asking how much money
does the Borrower have to contribute, out of pocket, to the transaction. Since Closing Costs on Refinances can
be rolled into the new loan (provided there is enough Equity in the property to do so), the answer to this
question is very little. For example, prior to the Closing of a Refinance, a Broker/Banker may require the
Borrower pay for the Credit Report, the Appraisal and an Application Fee. Credit Reports run anywhere from
$20 to $60 per applicant, Appraisals cost between $400 and $550 for standard properties (no large acreage or
unusual homes) and the Application Fee can be anywhere from $200 to $600. Therefore, in the worst case
scenario (two applicants, an Appraisal of an Investment Property and a high Application Fee), such a
Refinance could cost about $1,270 out of pocket. All of these fees should show as being collected from the
Borrower prior to Closing on the HUD-1 Settlement Statement at Closing. It is possible, however, to roll these
costs into the new loan as well. The Borrower simply pays them up front to the Broker/Banker, then at Closing,
the Broker/Banker charges them a second time and pays for them with the loan. Then, after the loan Funds, the
Broker can refund a check back to the Borrower in the same amount that the Borrower paid out of pocket. That
way the Broker/Banker is protected for hard costs and in the end, the Borrower is reimbursed and the charges
are paid by the new Refinanced loan.
Remember that you are also a full participant in the Refinancing of your property. To illustrate this, purchase
one of the DreamLoan Specialty Tutorials “Tailor the Mortgage Yourself and Save Thousands - Front/Back
Loaded Refinance”.


MY REAL ESTATE AGENT SAYS TO USE HER FRIEND FOR MY MORTGAGE. SHOULD I?
No. It is generally unwise to allow the “fox into the chicken coop” or to do your financing with the same entity
that is making a Commission off of the sale of the home. It is important that there is independence between the
Realtor® and the Mortgage company so that each can keep the other’s work product in check. For example, if
the Realtor® is doing something that is not in the best interests of the Borrower, the Mortgage company may
notice it while the Borrower would not even know to look for it. In this situation, if the Mortgage company is
the same as the Real Estate company, an action by the Realtor® that is not in the best interests of the client,
may be overlooked due to their allegiance to one another and would never be brought to the attention of the
Borrower. Clearly the best way to approach this situation is to purchase referrals to both a DreamLoan-
certified Realtor® to handle the Real Estate side of things and a DreamLoan-certified Broker or Banker to
handle the property financing. If you are inclined to look for Real Estate on your own, purchase the
DreamLoan Specialty Tutorial “Looking for Real Estate without a Realtor®”.


I WANT TO BUILD A NEW HOME. WHAT SHOULD I DO?
You should do a Custom Build instead of buying a New Home. A New Home is simply completed inventory
from a Tract Builder. A Tract Builder basically builds the same house over and over in a subdivision that the
Tract Builder owns. A Custom Build is where a home is built to suit, specifically for the people who will live in


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it, according to architectural Plans and Specifications. See the DreamLoan Specialty Tutorial “Beware the
Tract Builder”.


CAN I PURCHASE A HOME AND DO CONSTRUCTION ON IT?
The Purchase + Construction combination can be:
    • The Purchase of land + the construction of a home.
    • The Purchase of a home, to be torn down (Razed) + the construction of a home.
    • The Purchase of a home + the Remodel of the home.
    • The Purchase of a home + an addition to the home.
    • The Purchase of a home + the Remodel of the home and an addition to the home.
For more information on construction, purchase one of the DreamLoan Specialty Tutorial “How to Do a
Construction Project”.


WHO PAYS THE MORTGAGE GUY?
All loan originators now (since April 1, 2011) get paid entirely by one entity (by the Lender, by the Borrower
or by the Seller in Purchase transaction). Originators can be paid entirely on the Back of the loan (by the
Lender through the Yield Spread Premium/Service Release Premium), entirely on the Front of the loan (by the
Borrower or by the Seller in a Purchase transaction) or on both the Back and the Front of the transaction (by
selecting a lower than retail Rate then having the Lender charge some Discount to the Borrower). Therefore, a
Mortgage Broker/Banker should offer the Borrower the option of paying his compensation through the Interest
Rate sold, or through Origination Points. Federal law now mandates that all loans must be Structured as either
Lender Paid or Borrower Paid. When the loan is Structured as a Borrower Paid loan, the Broker/Banker’s
commission is contained in the Origination Charge and is, therefore, completely negotiable between the
Borrower and the Broker/Banker. When the loan is structured this way (Borrower Paid), the Borrower must
receive either a Wholesale Par Interest Rate or a Discount credit if the Rate sold has Yield Spread Premium/
Service Release Premium attached to it.
The only other Structure for a loan is Lender Paid, which is slightly more complicated. The federal law that
governs Broker/Banker compensation also allows for the Broker/Banker to predetermine how much he/she
will be paid by each Lender when the loan is Structured as a Lender Paid transaction (where the Lender is
paying the Broker/Banker’s commission). This predetermined amount can also be changed periodically.
Simply said, if the loan being originated has the Broker/Banker’s compensation paid by the Lender, the Lender
that the Broker/Banker chooses will have a set amount that it will pay the Broker/Banker on every loan. This is
called the Lender Paid Compensation (LPC) or Total Compensation level and can vary from $1.00 to 5% of the
loan amount. Brokers/Bankers that have several Lenders usually have one Lender with a 1.00% LPC, another
with a 2% LPC, a third with a 3.00% LPC, etc. This allows the Broker/Banker to sell a wide range of Rates.
However, if the Broker/Banker sells a Rate making him/her 2.00% in Yield Spread Premium but places the
loan with a Lender which has him/her making 3.00% LPC, the Broker/Banker must be paid 3.00% overall. In
this instance, the Borrower will be charged 1.00% Discount (paid to the Lender) and the Lender will pay the
Broker/Banker the 2.00% Yield Spread Premium (for the Rate sold) plus the Discount Point in order to pay the
Broker/Banker the full 3.00% LPC.
Therefore, if the Good Faith Estimate breakdown includes a Discount Point or any portion of a Discount Point,
the Borrower should demand that the Broker/Banker either offer an explanation as to why the chosen Lender



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has to be used or demand that the Broker/Banker move the loan to a Lender with whom he/she has an
agreement for a lower LPC in order to remove the Discount Point.
Remember that you are also a full participant in the Refinancing of your property. To illustrate this, purchase
one of the DreamLoan Specialty Tutorials “Tailor the Mortgage Yourself and Save Thousands - Front/Back
Loaded Refinance”.


I AM NEWLY SELF-EMPLOYED. CAN I BUY?
If you use a Retail Loan Originator or a Retail Banker, no. If you use a DreamLoan-certified Broker or
Wholesale Banker, probably yes. Assuming you are using a DreamLoan-certified Broker/Wholesale Banker,
if the characteristics of your Mortgage Profile are excellent, then it is possible to run the loan in an Automated
Underwriting engine and receive Findings that require as little as six (6) months of Self-Employment and only
one Tax Return to prove Self-Employment.


WHEN SHOULD I REFINANCE?
Refinancing depends upon the Borrower’s goals for the property as well as market conditions. Assuming
Interest Rates are lower then when the property was purchased, when to Refinance is examined as follows:
If the Borrower bought a house and the intention is to keep the property for only two years and then sell it,
Refinancing makes no sense at all, no matter how low Rates are. If, on the other hand, a Borrower intends on
keeping a property for a long time and Rates have moved lower, then a Refinance may be appropriate.
Very simply, if you are going to keep the property for a while, and looking to do a new loan with the same Term
as your current loan (30 years, 15 years, etc.) and you are not getting any Cash Out, then use the following
formula to figure out which Rate would be necessary to Breakeven on the Closing Costs within the number of
years the new loan is going to be kept. Assume 3% of the loan for Closing Costs, nothing for Prepaid items,
your current PITI for the skipped payment and use the DreamLoan Mortgage calculator to calculate the new
payment. Then calculate the difference of your current PI-only payment minus the new PI payment. This will
give you all the variables needed to figure the number of months until Breakeven.

                         ---------- Formula ----------            ---------- Example ----------
                               Total closing costs                             $15,980.22
                                   - Prepaid items                             - $1,572.90
                               - Payment skipped                               - $3,228.13
                         _____________________                     _____________________

                                  Cost of Refinance                            $11,179.19
                         ÷ Monthly Pmt Reduction                                ÷ $212.18
                         _____________________                     _____________________

                         Breakeven (# of months)*                                       52.69

Of course, if the formula above it too complicated, one can always get the answer needed from a DreamLoan-
certified Broker or Banker.
Keep in mind that Rates are not the only indicator of when a Borrower might benefit from a Refinance. For
example, if a Borrower’s Salary increases, the Borrower might Refinance a loan from a 30 year Note to a 15
year Note, even though Rates are no lower than when the Borrower purchased the home. This would still be a



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sound Refinance with great financial benefit. If, in this example, that Borrower purchased the house three years
ago, Refinancing into a 15 year Note would cut 12 years off the life of the loan. If the loan were $400,000 that
could save over $350,000 in Interest even if the Rate remained the same. Another Borrower might foresee a
reduction in Income coming and might Refinance his loan from an Amortized loan to an Interest Only loan or
from a 30 year loan to a 15 year loan before the Income reduction takes place. Again, the Rate could be the
same yet the financial benefit still exists. Obviously, the lower the Rate the better, but a Refinance can
sometimes be advantageous even if Rates haven’t dropped. A DreamLoan-certified Broker/Banker can
always help you in this evaluation. You can talk to DreamLoan-certified Brokers even if you don’t have an
immediate transaction. Counseling the Borrower in anticipation of a transaction is all part of the profession.
Remember that you are also a full participant in the Refinancing of your property. To illustrate this, purchase
one of the DreamLoan Specialty Tutorials “Tailor the Mortgage Yourself and Save Thousands - Front/Back
Loaded Refinance”.


WHAT IS AN APR?
The APR is the first box from the left on the Truth In Lending Statement. The APR is what the Lender will
actually yield from the loan, each year, including the Closing Costs paid to obtain the loan (as if they were
spread out over the Term of the loan). The APR is the Interest that will be paid during the first year (the Interest
Rate), plus certain costs that were paid for by the Borrower (or Seller in a Purchase transaction) to acquire the
Mortgage. This inclusion of fees paid to acquire the Mortgage (as represented as a percentage of the loan) is
why the APR is slightly higher than the Interest Rate of the loan. If there were no Closing Costs, then the APR
would be identical to the Interest Rate. The APR is an excellent way to compare loans (provided all attributes
between the loans are the same, i.e. Term, Amortization, whether or not there is a Prepayment Penalty, whether
or not there is a Balloon, etc.) because it is a more complete representation of the total cost of the loan, as
opposed to simply comparing the Interest Rate. For example, a 3.875% Interest Rate with a 4.225% APR is
actually more expensive than a 4.00% Interest Rate with a 4.082% APR. However, it is important to note that
using the Breakeven and Recoup formulas are even more precise at determining the prudence of how much
Closing Costs are best. For example, a No Point Loan may have a lower APR than a loan with two Discount
Points, but both the Recoup and the Breakeven formulas may prove that it is the best loan for the Borrower’s
short-term and/or long-term financial goals. The APR is an oversimplified, government number that does not
take into account how long the Borrower intends on remaining connected to the loan. Therefore, it is
DreamLoan’s opinion that a complete analysis of the loan (using the Breakeven and/or Recoup formulas) is a
better way to compare loans than the APR. If this is too painstaking for the Borrower, a DreamLoan-certified
Broker/Banker can certainly do it. Related terms: Prepaid Finance Charges, Interest Rate, Origination,
Discount.


THE REAL ESTATE AGENT SAYS I HAVE TO PAY A DEPOSIT TO HER REAL ESTATE AGENCY.
IS THAT CORRECT?
Yes, in some states. While the Earnest Money/Deposit on a Contract is usually placed into Escrow at a Title/
Escrow Company or a Closing Attorney’s law firm, in some states the Real Estate Agent’s Real Estate Agency
can hold the Earnest Money/Deposit as well. The Buyer parts with the Earnest Money/Deposit to show good
faith intent to buy the property, and the Seller cannot have the funds until Closing. Thus a third party must hold
the funds until the loan is Closed. Earnest Money/Deposit funds are held in a non-interest-bearing Escrow
account until the loan is Closed and Funded, at which time the Title/Escrow Company, the Closing Attorney or
the Listing Agent’s Real Estate Agency pays out the funds to the proper parties.


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WHO CAN GIVE ME GIFT MONEY?
A Borrower may receive a Gift from a family member, the Borrower or CoBorrower’s employer, a close friend
with an established long-time relationship to either the Borrower or CoBorrower, or a labor union to which the
Borrower or CoBorrower pays dues. With Letters of Explanation, mentors, self-help group sponsors and non-
familial “uncles” and “aunts” (with a long-standing relationship with either the Borrower or the CoBorrower)
can also be Gift Donors. The Gift Donor may not be a person or entity with an interest in the sale of the
Property, such as the Seller, Real Estate Agent or Broker, Builder, Mortgage originator, Lender employee or
any entity associated with them.
On Conventional loans with Loan To Values of 80% or less, all of the Down Payment funds may be Gift funds
(including those used for Closing Costs and Prepaids). On Conventional loans with Loan To Values higher than
80%, generally the Borrower/CoBorrower must match the Gift in the transaction (an example would be a 90%
loan where the Gift Donor provides 5% and the Borrower/CoBorrower provides the other 5%). On
Conventional 97% loans, all of the Down Payment, Closing Costs and Prepaid items may be paid for with a
Gift, provided the Borrower has assets of a certain amount (based on the loan program’s guidelines...often this
amount is the amount of the Down Payment even though it won’t be used in the transaction). On FHA and VA
loans, the entire Down Payment, Closing Costs and Prepaids may all be paid with Gift funds. Gift funds must
be documented. See Documenting Gifts in the DreamLoan Mortgage Glossary.


SHOULD I DO A CASH OUT LOAN?
Provided the Loan To Value of the loan is reasonable. Perhaps no more than eighty percent (80%) of the
Appraised (Fair Market) Value. If one borrows too much Equity from a property, that property can be at risk of
becoming Upside Down. This can occur if there is a market correction (home values drop in the area) or if
Tract Builders in the area are building the same size or larger houses and charging less for them. This drags
down the dollar per square foot number of your property and lowers the Fair Market Value. If the Fair Market
Value falls, and one has borrowed too much of the Equity in the home, suddenly one can owe more than the
house is worth, because the Equity was extracted when values were higher. For example, if a house Appraises
for $200,000 and the Borrower takes out a loan against it that is 90% of the Fair Market Value, the Borrower
will owe $180,000. If the property’s value increases five percent (5%) a year for two (2) consecutive years to
approximately $220,000 but then has a 20% correction in value (in a rescession), within three (3) years the
property could then be worth $176,000 which is less than the $180,000 loan taken out three years prior. If such
a correction takes place and the Borrower is also experiencing difficulty paying the Mortgage Payment, selling
the property is no longer an option, because after Realtor® Commissions and Seller Closing Costs, one would
need to bring money to the Closing in order to sell the house. Thus, it is DreamLoan‘s suggestion never to
borrow more than eighty percent (80%) of the value of the property when Refinancing (whether the Refinance
is a Cash Out or a regular Rate/Term).
Remember that you are also a full participant in the Refinancing of your property. To illustrate this, purchase
one of the DreamLoan Specialty Tutorials “Tailor the Mortgage Yourself and Save Thousands - Front/Back
Loaded Cash Out Refinance”.


WHAT IS HOMEOWNERS INSURANCE
Homeowner’s Insurance is the same thing as Hazard Insurance which is insurance coverage against fire, hail,
wind, storm and other damage (and hurricane, tornado or earthquake based on location). The reason for the
alternate term is that both an owner’s Homeowner’s Insurance policy and a landlord’s Homeowner’s Insurance
policy are Homeowner’s Insurance policies. So, when saying “Homeowner’s Insurance” one could be talking


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about either an owner’s insurance policy or a landlord’s policy and it is unclear. Thus, Hazard Insurance is a
way to refer to either and both at the same time, without confusion.


DO I NEED TO SAY ANYTHING TO THE APPRAISER WHEN HE COMES?
Tell the Appraiser about any improvements that have been made to the property but that are not obvious to the
eye. Limit your input to that one topic, but answer any questions he/she may have.


WHAT’S THE DIFFERENCE BETWEEN A FIXED RATE AND AN ARM?
A Fixed Rate Mortgage is one where the Interest Rate is Fixed for the entire Term of the loan. That means that
if you choose a Fixed Rate Mortgage and it has a Term of 20 years, then the Interest Rate will remain the same
(as when it was Locked) for the entire 20 years.
An Adjustable Rate Mortgage is a Mortgage where the Interest Rate changes (with the market) throughout the
Term of the loan. Adjustable Rate Mortgages usually have a Fixed Period at the beginning, however. During
this Fixed Period the Interest Rate remains the same (as when it was Locked) for that Fixed Period of time. The
general rule of thumb is that the Fixed Period of an Adjustable Rate Mortgage should be at least two years
longer than the length of time one intends on keeping the loan. For example, if one is buying an Owner
Occupied home to live in for two years and one intends to keep the property as an Investment Property for two
years following move out, then the Fixed Period of the loan should be at least six years. This would mean that
a Fixed Rate Mortgage or a 7/1 or 10/1 Adjustable Rate Mortgage are appropriate choices (as the first number
on the Adjustable Rate Mortgage indicates how long the Fixed Period is).


I NEED TO BUY A NEW CAR AND A NEW HOUSE. WHICH SHOULD I DO FIRST?
Purchase the car after the Mortgage loan has Closed and Funded. The first reason for this is that in Mortgaging
there are things called ratios. The Front Ratio is the Housing Expense (the PITI on the new loan) divided by
your Gross Income (a person paid with taxes withheld) or Net Income (a person who is Self-Employed). The
Back Ratio is the Housing Expense plus any and all monthly obligations that appear on the Applicant’s Credit
Report. A new car payment would be counted against you in your Back Ratio, and if it goes too high, the
Mortgage loan could be denied.
The second reason why you should buy the car after you buy the house is that car shopping is notorious for
lowering your Credit Scores. This is because car dealerships broadcast fax (or email) your credit application to
multiple lenders, each of which pulls your Credit Report. This lowers your Credit Scores considerably and if
you subsequently apply for a Mortgage, your Mortgage Credit Report will reflect the lower Credit Scores and
that could raise the Interest Rate for which you qualify.


CAN I BE A SUBCONTRACTOR ON MY OWN CONSTRUCTION PROJECT?
Yes and no. Generally, construction Lenders prohibit “Builder Builds”, that is, a Homeowner building his own
house. There are some lenders out there that will allow it, however, they are proving to be difficult to find at the
beginning of the 21st century. The vast majority of Lenders now will not allow it. As far as they are concerned,
the owner of the property cannot be the General Contractor, unless the loan is specifically for the construction
of a Non-Owner Occupied property. Yes, believe it or not, some of the thinking in Residential Mortgage
financing is this bass-ackwards these days. Lenders would rather extend credit on a house that will be sold



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quickly and on which they will make little interest, than allow a qualified Builder to build his own home. The
only way around this is to purchase the DreamLoan Specialty Tutorial “Being My Own Builder”.


WHAT DOES THE REAL ESTATE AGENT DO?
Generally the Realtor® finds properties that meet your specifications and previews them so that the Buyer is
only seeing houses that are very likely to be to the Buyer’s liking. However, there are numerous, specific
activities that the Realtor® should do for the Buyer. See DreamLoan Specialty Tutorials, “What A Realtor®
Should Do”.


HOW MUCH HOUSE CAN I BUY?
One arrives at this answer mathematically, through using the Mortgage Calculator on DreamLoan.pro, using
the Mortgage Calculator on the DreamLoan Mobile App and through a DreamLoan-certified Broker/Banker.
The DreamLoan-certified Broker/Banker will, based on your Income, Liquid Assets, Down Payment, likely
Interest Rate and middle Credit Score, give you an idea of the maximum dollar amount that will likely be
allowed. The DreamLoan Mobile App will give you an estimated payment based on the Purchase Price of a
home (or loan size on a Refinance) and other factors. Mathematically, you can conservatively estimate your
safest payment by multiplying the Purchase Price (after Down Payment is subtracted) or the loan amount (on a
Refinance) by 0.20 then adding the following:
    • Property Taxes - 2.5% of the Purchase Price (on a Purchase) or loan amount (on a Refinance), divided by 12
    • Homeowner’s Insurance - $75 for every $100,000 of the Purchase Price (on a Purchase) or Appraised Value (on
        a Refinance)
    •   Homeowner’s Association dues - on a Condominium
    •   Mortgage Insurance - on any First Mortgage at one percent (1.0%) of the First Mortgage loan amount, divided by
        12
    •   Flood Insurance - if the property is in a Flood Zone, based on its elevation, at the annual premium quoted by an
        insurance agent, divided by 12


THE COUNTY WANTS TO KNOW HOW MUCH I PAID FOR MY HOUSE. WHAT SHOULD I DO?
You are under no obligation to answer. What you paid for your home as well as all of the details of the Contract
are personal, private financial information that only the Borrower, the Mortgage originator and the Lender
know.


I GOT A MAILING ASKING ME HOW MUCH I PAID FOR MY HOUSE. SHOULD I ANSWER?
You are under no obligation to answer. What you paid for your home as well as all of the details of the Contract
are personal, private financial information that only the Borrower, the Mortgage originator and the Lender
know.


WHO IS THE TAX APPRAISAL DISTRICT?
A municipal entity that assigns value to all properties (Commercial and Residential) in order to assess the
county’s portion of Property Taxes.



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WHO DETERMINES MY PROPERTY TAX VALUE?
A municipal entity that assigns value to all properties (Commercial and Residential) in order to assess the
county’s portion of Property Taxes.


ARE FHA LOANS THE LOWEST DOWN PAYMENT LOANS?
Actually, no. The majority of Americans think that the lowest down payment loan available are FHA loans.
But, not so. There are conventional loans now with only a three percent (3%) Down Payment (FHA is 3.5%)
and believe it or not, lower monthly Mortgage Insurance rates.
For example, FHA loans now come with a 1.75% surcharge (called Upfront MIP) that is added to the loan
amount, eating away at your Equity. This means that if you make a 3.5% Down Payment, FHA takes that
resulting loan amount (called the Base Loan Amount) and adds half of your Down Payment back onto the loan.
In addition, the monthly Mortgage Insurance is as high as 1.25% of the loan amout, every year.
Conventional 97s have no Upfront MIP added onto the loan, so your Equity is preserved and you don’t lose
half of your Down Payment. Additionally, monthly Mortgage Insurance rates cannot go any higher than 1.1%
of the loan amount each year.
So let’s do the math. If you are buying a $200,000 house and use an FHA loan, you first subtract your Down
Payment of 3.5% ($7,000) resulting in a Base Loan Amount of $193,000. Then you must add on 1.75% of that
Base Loan Amount (just over $3,377) for a Final Loan Amount of $196,377. At an Interest Rate of 4.5% for 30
years, your Principle And Interest payment would be $991.30 but you would have to add $204.56 a month for
Mortgage Insurance, bringing your payment up to $1,195.86 to which you would then add monthly Property
Taxes and Homeowner’s Insurance.
Now, on a Conventional 97, using the same Down Payment of $7,000 (even though only $6,000 is required),
your total loan amount will be $193,000. At the same Interest Rate and Term (4.5% for 30 years), your
Principle And Interest payment would be $974.25 to which you would add monthly Mortgage Insurance of an
absolute maximum $176.92 (for higher Credit Score Borrowers it is lower). This makes your total payment
(before adding monthly Property Taxes and Homeowner’s Insurance) of only $1.151.17 which is $44.69 a
month cheaper. Now that doesn’t seem like a lot money until you multiply it by 30 years. Then is becomes
$16,088.40 of savings.
Now, in order to get a Conventional 97, one must have at least very good credit (a Credit Score of 680 or
higher). If your Credit Score is lower than that, your lowest Down Payment loan would indeed be an FHA
loan. But remember, DreamLoan also offers Credit Development services and Specialty Tutorials on how to
improve your Credit Score (“Understanding Credit and Credit Scores” and “Manipulating Your Credit Score
Higher”). Purchasing either of these could move your Credit Score higher and put you in reach of a
Conventional 97.


I WANT TO BUILD A NEW HOME. WHERE DO I START?
When building the home of your dreams, the first thing that needs to be decided is whether or not you are doing
a Tract Build or a Custom Build. A Tract Build is the construction of a new home or a To Be Built from a Tract
Builder. A Tract Builder basically builds the same house, over and over again on numerous, adjacent parcels of
land in a new Subdivision. The consumer makes minor choices (paint colors, carpet, garden tub, appliances,
etc.) but is really not building a home. Instead, they are observing the construction of a Tract Builder product.
There are pros and cons associated with Tract Building. It is fairly easy. And one does receive a New Home
without having to make hundreds of decisions. But the house that is built for you has little distinction and looks
like all the other houses in your neighborhood. Additionally, the paradigm of Tract Builders is to use the


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cheapest possible materials in order to multiply their profit times hundreds of houses. Additionally, if there is
any kind of economic downturn after one Purchases a Tract home, the Tract Builder will immediately start
selling the exact same size house he sold to you for much, much less. This makes the value of your home
plummet and nothing can be done about it.
Custom Building is an entirely different animal. In a Custom Build, one Purchases a Lot or a home to be torn
down, and builds the home of their dreams on the land. This can also be done as a Refinance if the Borrower
already owns the Lot or the Tear Down. Custom Building includes working with an architect to design the
home to your exact Specifications, and choosing a Custom Builder with whom hundreds of decisions are made
for Specifications to build the house. The profit paradigm is the opposite of a Tract Builder’s. One can choose
the highest quality materials that one can afford, and the Builder makes a percentage of the entire construction
cost as profit.
There are also different loans that apply to these different types of construction: Purchase loans are used for
Tract Built homes, or Custom Builder’s completed homes that were built for no specific customer.
Construction loans are used Custom Builds.
There are two types of construction loans: Fair Market Value Construction Loans or Loan To Cost
Construction Loans. Fair Market Value Construction Loans lend the Borrower a percentage of what the house
will be worth after it is completed and can often result in no Down Payment at all. Loan To Cost Construction
Loans do not; they lend the Borrower only a percentage of the total cost of the project and require a Down
Payment.
Within these two types of Construction Loans, there are two types of loans: One-Time Close and Two-Time
Close Construction Loans. One-Time Close Construction Loans finance the cost of the Lot (or Tear Down) and
the construction funds as one loan in one Closing. When construction is complete the construction Note is then
modified to reflect the Permanent Financing terms. A Two-Time Close Construction Loan has one Closing for
the acquisition of the property and the construction funds, then, when the house is finished construction, a
Refinance to pay off the construction loan and create the Permanent Financing terms in a second Closing.
Needless to say, One-time Close Construction Loans are cheaper, as there is only one Closing instead of two.
With all the choices above, what’s the best way to go? Well, DreamLoan’s opinion is that first, Custom
Building is preferable to Tract Building. Additionally, almost all DreamLoan-certified brokers and bankers
have access to Fair Market Value Construction Loans, which are far better than Loan To Cost Construction
Loans. Lastly, DreamLoan encourages Borrowers to use One-time Close Construction Loans to save money.
Let’s look at an example of a One-time Close, Fair Market Value, Custom Build Construction Loan: Let’s
assume that the Purchase of the Lot is $100,000. Then, the construction budget is another $300,000 for a 2,500
square foot Custom Home. Together this makes the total raw budget $400,000. The Appraiser then goes over
the Plans and Specifications and determines that, based on current market conditions, the house will be worth
$550,000 when it is finished. This is called a Subject To appraisal (a value is assigned Subject To completion
of the specified construction). In this case, the Borrower gets a 72% loan against the $550,000 value and the
entire construction budget ($400,000) is financed as one loan. There is no Down Payment and in some cases,
Closing Costs and Prepaid Items are rolled into the loan as well. For example, if the loan were increased to
$415,000 it could accommodate (finance) all of the Closing Costs and Prepaid Items and still will only be a
75.5% loan against the $550,000 value.
DreamLoan strongly encourages Borrowers to purchase a referral to a DreamLoan-certified broker or banker
if they are considering doing construction, especially a One-time Close Construction Loan. This is because you
will be the client of the Mortgage professional for a year or more, not just a month, as the construction must all
take place and then the modification of the construction Note takes place. With Two-time Close Construction
Loans, you are connected to the Mortgage professional just for the initial Closing, then you are on your own.



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To prepare yourself for a construction project, one should really purchase the DreamLoan Specialty Tutorial
“How to Do a Construction Project” and learn exactly what to do and how to do it in order for the project to
run smoothly and so that one knows exactly what to expect.


CAN PEOPLE STILL QUALIFY FOR A MORTGAGE?
While it is true that Conventional Mortgage lending has tightened up, Government lending and new
specialty Mortgage programs have together made getting a Mortgage almost as easy as it was before.
The stories of perfect credit people being denied mortgages may be true, but what they don’t mention
is that most of those are in the retail banking environment. Walking into the lobby of the bank that
handles your checking account for a Mortgage (and receiving one easily) is indeed a thing of the past.
Underwriting guidelines and standards have tightened sharply, and record numbers of applicants are
finding it tough to get through the Mortgage qualification process. But you must understand two
incredibly important things: First, most retail banks offer Conventional loans only. And it’s the
Conventional side of things that has gotten so anal. But Government lending is at an all-time high.
Second, those Mortgage Brokers that are still in business are the best of the nation’s Mortgage
professionals, because those Brokers who were in it for quick money and who had little or no real
Mortgage knowledge are all selling cars now.
With the demise of the Subprime Mortgage industry, the Department of Housing and Urban
Development has bolstered Government lending to pick up the slack. Despite the huge losses in the
Mortgage market, American home buyers’ access to Mortgage lending is simply too fundamental to
the American economy to be abandoned. In response to the disappearance of Subprime Mortgage
offerings, the federal government has expanded Government lending in order to provide the
necessary Mortgage loans to the next wave of American home buyers.
The fact of the matter is that smart Brokers have plentiful networks of dedicated and inventive
wholesalers, all too eager to make Mortgage loans (keep in mind that the best Brokers are
DreamLoan-certified Mortgage Brokers and Bankers). Here are some examples of what can still be
done today:
    •   Home buyers that have no money in the bank can qualify for a Mortgage loan and can use a family member (or
        long time family-like relation) Gift for all of the Down Payment, all of the Closing Costs and all of the Prepaid
        Items on a Mortgage.
    •   Homeowners with Governement loans can Refinance without having to qualify at all based on Income and
        without having one penny in the bank, as long as their Mortgage Payment goes down by at least $50 a month.
    •   Home buyers who do not qualify for a Purchase mortgage can have a family member (or long time family-like
        relation) cosign the loan even though that family member won’t even live in the property.
    •   Homeowners can Refinance even if the value of their property has fallen, in some cases with a loan amount that
        is up to 125% of the property’s value. In some cases (when the homeowner’s credit is excellent) the loan amount
        can go up to an unlimited value, as the current value of the property is completely ignored.
    •   Home buyers can have Debt To Income Ratios of up to 50% of their Gross Incomes. That means that their
        housing payment plus all of their minimum payments on their credit report all added together can be up to 1/2 of
        their entire Gross Income.
    •   Homeowners Refinancing a Conventional loan with the same wholesale servicer can qualify even if they are
        currently Under Water (where the Mortgage debt is more than the house is currently worth).



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IS IT A BUYER’S MARKET OR A SELLER’S MARKET
For over three years now (2009 - 2102) we have been hearing about how badly the housing market
collapsed following the Real Estate boom and how dismal the market is for Sellers. We hear every
month that housing prices have fallen and that Foreclosures are at an all time high. While all of that is
true, what is rarely discussed is that the result of this collapse is a boom for Buyers.
Throughout most of the country, Buyers have the advantage of two positive consequences of the slow
Real Estate market: Prices and negotiation strength.
First of all, housing values have fallen tremendously over the last few years. Some markets have seen
as much as a 30% drop in home values. Even further, as Foreclosures have landed on the market,
housing values have bottomed out and are not expected to fall any further. This means that not only
are the prices excellent right now, but that prices should not fall any further, which insulates new
Buyers from having their new investments experience a loss.
Secondly, as inventories of houses remain high, Sellers are motivated to sell as their competition is
fierce to capture the limited number of Buyers in the recessionary market. This means that Sellers are
not only willing to come down on price, but will also agree to other valuable concessions, such as
paying the Buyer’s Closing Costs, paying for the Owner’s Title Insurance Policy, paying for the
Appraisal, paying for a new Survey (in survey states), etc.
If there were ever a time in the nation’s contemporary history to buy a home, especially a first home,
this is it. Buyers have all the negotiating power and if the Seller won’t play, there are innumerable
other houses up for sale.

ARE THERE SIMPLE WAYS TO IMPROVE MY CREDIT?
The following items can improve your Credit Score:
    •   Keeping balances below 50% of your credit limit
    •   Making payments larger than the minimum balance
    •   Making double payments on Installment loans (like automobiles)
    •   Keeping some credit cards at a zero balance
    •   Closing excessive credit card accounts (excessive in number)
    •   Closing store-specific charge accounts
    •   Paying smaller credit cards off to zero every other month
    •   Keeping tabs on your Credit Report to immediately correct any erroneous information that appears
These simple steps can quickly increase your Credit Scores and require very little money or effort on
your part. Remember, the better your Credit Score when it comes time to do a Mortgage, the better
your Rate or the cost of that Rate.
Lastly, the Credit Scores that one sees using “free” consumer credit report monitoring services do not
always match your actual Credit Score on your Mortgage Credit Report. So focus on the fact that your
score is increasing, rather than the score itself.
For more tips, strategies and techniques for improving your Credit Report and Credit Scores,
purchase the DreamLoan Specialty Tutorials “Understanding Credit and Credit Scores” and
“Manipulating Your Credit Score Higher”.



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ARE FHA LOANS REALLY EASIER TO QUALIFY FOR?
When the Subprime Mortgage market collapsed, the Government immediately expanded the FHA
loan program to pick up the slack. Believe it or not, qualification for an FHA loan is actually just as
easy, if not easier than it always has been. Here are some examples:
    •   A home Buyer or Homeowner who just started a new job can qualify for an FHA loan.
    •   Gift Funds (using a Gift Letter and proof of the grantor’s ability to make the Gift) for all or part of the Down
        Payment, all or part of the Closing Costs and all or part of the Prepaid Items on the loan, are allowed. So home
        Buyers that have no money in the bank can qualify for a Mortgage loan using a family member (or long time
        family-like relation) Gift.
    •   Homeowners with Governement loans can Refinance without having to qualify at all based on Income and
        without having one penny in the bank, as long as their Mortgage Payment goes down by at least $50 a month.
    •   Home buyers who do not qualify for a Purchase Mortgage can have a family member (or long time family-like
        relation) cosign the loan even though that family member won’t even live in the property.
    •   Homeowners can Refinance even if the value of their property has fallen, in some cases with a loan amount that
        is up to 125% of the property’s value. In some cases (when the Homeowner’s credit is excellent) the loan amount
        can go up to an unlimited value, as the current value of the property is completely ignored.
    •   Home Buyers can have Debt To Income Ratios of up to 50% of their Gross Incomes. That means that their
        housing payment plus all of their minimum payments on their Credit Report all added together can be up to 1/2
        of their entire Gross Income.
    •   The minimum Down Payment on a Purchase is 3.5%. Loan To Value ratios (on the Base Loan Amount),
        therefore, can be as high as 96.5%.
    •   Down Payment Assistance funds are allowed for the Down Payment, Closing Costs and Prepaids on the loan.
    •   Work assistance Down Payment funds are allowed, without taxes withheld by the employer.
    •   FHA loans can be Manually Underwritten on an Automated Underwriting decline. All DreamLoan-certified
        Brokers and Bankers have access to at least one Lender that will do manual underwriting.
    •   A CoBorrower whose relationship to the property is Non-Owner Occupied is permitted on the loan. These
        CoBorrowers are referred to as Non-Resident CoBorrowers. A Non-resident CoBorrower that is contributing to
        the transaction is not considered giving any Gift Funds, but instead may be the source of the Down Payment, the
        source of the funds for Closing Costs, etc. because he/she is actually a Borrower on the loan. Non-Resident
        CoBorrowers can also be the recipient of Gift Funds. Non-Resident CoBorrowers generally must be family
        members, however unrelated individuals who can document evidence of a family-type, long-standing and
        substantial relationship can be considered Non-resident CoBorrowers as well. These types of individuals can
        include employers, close friends, god-parents, mentors, coaches, domestic partners, etc.
    •   Seller Contributions toward Closing Costs are allowed up to six percent (6%) of the Purchase Price of the
        property. These contributions can pay for all Closing Costs and all Prepaid Items but may not reduce the amount
        of the Down Payment. If all the Seller Concessions are not required based on the final charges of the loan, the
        Seller must retain the un-applied portion of the contributions as proceeds from the sale. However, this can be
        avoided by using the extra Seller Concessions in Discount and lowering the Rate, which would be the strategy of
        all DreamLoan-certified Brokers and Bankers.
    •   Collections, Repossessions and Charge Offs on the Credit Report do not have to be paid in order to achieve Loan
        Approval or Clear To Close, provided they do not threaten the 1st Lien position of the FHA loan. This however,
        assumes that the loan received an Automated Underwriting Approval. If the loan must be Manually
        Underwritten, it is the Underwriter’s discretion as to whether or not such items must be paid off based on overall
        risk.



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    •   Borrowers with two years of time having passed following a Bankruptcy discharge are considered eligible for
        FHA loans with at least four newly established (post-Bankruptcy), perfect Trade Lines in existence on the Credit
        Report for more than a year (each Trade Line). Technically (per the FHA Handbook), an FHA loan only one year
        out of Bankruptcy can be approved with the same newly established credit, as long as it can be documented that
        the Bankruptcy was beyond the control of the Borrower and that the events leading up to the Bankruptcy are not
        likely to occur again. Serious illness, disability or death of a wage earner would be considered extenuating
        circumstances beyond the control of the Borrower.
    •   A Borrower currently in a Credit Card Counseling Services program is eligible for an FHA loan provided that the
        involvement in counseling program has been taking place for at least 12 months, the payment history on the
        debts has been perfect and the counseling program entity approves the total PITI payment on the new loan.
    •   A Borrower with a prior Foreclosure is also eligible for an FHA loan, provided a full three year period has passed
        since the Foreclosure was finalized. However, if the Foreclosure was a result of a documented extenuating
        circumstance(s) that were beyond the control of the Borrower and the Borrower has re-established good credit
        since the Foreclosure, an exception may be granted to the three year-post Foreclosure requirement. Serious
        illness, disability or death of a wage earner would be considered extenuating circumstances beyond the control of
        the Borrower.
    •   Student loans need only be deferred for one year following loan closing to be eliminated from debt Ratios.
    •   Borrowers with time in the workforce under two years are sometimes acceptable provided there is a reasonable
        explanation for the lack of work history (disability, incarceration, previously a homemaker, illness, etc.) and
        provided the Borrower can demonstrate a two-year work history prior to the absence from the work force.
        Lenders who dispute the allowability of limited work force when determining effective Income should be
        referred to the FHA Handbook, Section 2: Effective Income, subsection 2-6.
    •   Housing pay and other non-conventional pay is often considered Income.
    •   Non-resident aliens with work visas who intend to purchase their primary residence are acceptable candidates for
        FHA loans.
    •   Down Payment funds that can neither be Sourced nor Seasoned (in an account for less than 60 days) can still be
        used provided the Borrower can show a budget that has created Cash Saved At Home. This guideline is for
        people who do not have checking, savings or other Liquid Assets accounts.


I’M A RENTER. WILL I HAVE TO PAY MORE FOR A MORTGAGE?
Most renters feel that they cannot buy a house because the payments would be too high. They feel
that, even though rent every month seems like a waste of money, they cannot afford to buy a house,
despite the fact that they would love to own.
This may have been true in the 70s or 80s, when Interest Rates were higher, but with Interest Rates
still on the low end of their history, renters can actually buy and pay the same as they would if they
were renting. The trick is finding a suitable property that is priced affordably.
Following the end to the housing boom of the early 2000s, home prices are currently far more
affordable than they have been in quite a while. It is the perfect time to buy, but renters still need to
see that they won’t be paying more to own.
Imagine a renter who has a two bedroom, two bathroom apartment and rents it for $1,300 a month.
This renter thinks it is only a dream to buy a house and still pay the same. Provided one is not located
within the city limits in most cities in Texas (and the same is true for many other cities nationwide) a
suitable property at a reasonable cost is actually quite realistic.



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There are six parts, or variables that make up a Mortgage Payment: Initial loan amount, Interest Rate,
Term, Mortgage Insurance (if applicable), Homeowner’s Insurance and Property Taxes.
First, there is the loan amount. Believe it or not, a house costing as much as $160,000 using an FHA
loan is possible for our comparison. This would create a loan amount of approximately $157,000.
Next, there is the Interest Rate. Currently, 30 year Fixed Interest Rates are in the low four percent
(4%) range. But we will use five percent (5.00%) for our comparison to compensate for a low Credit
Score and/or the inability to pay Closing Costs. Next, there is the Term. Currently a 30 year
repayment schedule is the maximim most lenders will allow. A $157,000 loan at five percent (5.00%)
over 30 years would make a Principle and Interest payment of approximately $839 a month.Then,
there is Mortgage Insurance. Mortgage Insurance on an FHA loan of $157,000 would be
approximately $163 a month. Then, Homeowner’s Insurance. Safely, a figure of approximately $75 a
month would cover a house with $160,000 of value. Lastly, there are the Property Taxes. Using
2.25% of the Purchase Price annually, monthly Property Taxes would be about $294 a month.
Taking our $839 a month and adding $163 (Mortgage Insurance), $75 (Homeowner’s Insurance) and
$294 (Property Taxes) gives us a final PITI (Principle, Interest, taxes and insurance) of $1,371 a
month.
Through this illustration, one can easily see that Purchasing a similar property to the one being rented
is entirely possible, while keeping the payment the same.
And be sure to consider purchasing a referral to a DreamLoan-certified Realtor® and a
DreamLoan-certified Mortgage Broker or Banker to make sure that the transaction is done right.

WHO SHOULD I CHOOSE TO DO MY MORTGAGE?
First of all, in the hierarchy of Mortgage originators, which originator you choose affects the risk of how
qualified an individual one will get to originate their Mortgage. The lowest member of this hierarchy, with the
highest risk, is a Retail Loan Originator. This is the representative, or order taker, on the other end of the phone
or behind a website, that processes your Mortgage application in a huge, nationally advertised Lender, such as
QuickenLoans or Ditech. This loan originator usually is nothing more than a data processor, typing your
information into an automated underwriting engine and quickly telling you if you can qualify or not, with no
reasoning, creativity or expertise working in your favor. It is important to note that DreamLoan does not
certify retail loan originators, period.
Walking into a bank branch or applying at your personal bank online places you with a Retail Banker, the next
least flexible, educated and connected kind of loan originator. The risk associated with this choice is almost as
high as with a Retail Loan Originator, since the Retail Banker works for and to the benefit of the bank for
which he/she works, not for you. Additionally, this originator can only sell the limited number of Mortgage
products offered by his/her bank and usually has very limited Mortgage knowledge as his/her clients pour in as
customers of the bank, not because of his/her reputation as a knowledgeble Mortgage originator.
If one chooses a Wholesale Banker (a Mortgage Banker with more than one funding source), the risk gets
lower. Wholesale Bankers tend to be better educated than Retail Loan Originators or Retail Bankers, but they
are still beholden to the bank for which they work and originate many Mortgages in the interests of that bank
and not yours. Additionally, their Lender reach is limited as the bank for which they work will rarely sign buy
back agreements with other wholesalers (agreements creating severe consequences for errors or fraud made on
the part of the Wholesale Banker in a transaction). Thus, the Wholesale Banker usually has perhaps a half
dozen wholesalers in addition to their own bank through which they can fund Mortgage loans.


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At the top of the hierarchy, is the Mortgage Broker. The Mortgage Broker is basically the Borrower’s
representative to numerous banks and wholesale Lenders within the Broker’s network of funding sources. The
Mortgage Broker first gets to know the Borrower and all his/her characteristics through a Mortgage Interview.
The broker then, based on his/her knowledge of the Borrower and the transaction, chooses the best Lender to
provide the funding for the loan being sought. Additionally, the Broker translates the requirements of the
chosen lending source for the Borrower so that the Borrower understands exactly what is needed in order to
secure the loan. The Mortgage Broker often is the orchestrator of the entire transaction, ordering the Appraisal,
locking the Interest Rate, setting the Closing, etc. The actual process of securing a loan can be quite
complicated and it is the Mortgage Broker’s job to insulate the Borrower from this complexity and to make the
Mortgage process as seamless and as effortless as possible for the Borrower. Most importantly, the Mortgage
Broker originates Mortgages for and to the benefit of the Borrower only, as the Borrower’s hired
representative.
Without question, the best way to find a good Mortgage Broker is to buy a referral from DreamLoan since
DreamLoan certifies all Mortgage Brokers that are referred to its users. This certification process includes
interviewing for education, experience, lender reach, product offerings; vetting the Broker including pulling
credit and doing a criminal background check as well as researching complaints against the Mortgage Broker
(if any); and testing the Mortgage Broker through a 200 question, two hour exam that has been written by some
of the keenest minds in the Mortgage industry nationwide.
If a Borrower wishes to use a non-DreamLoan-certified Broker the following questions should be answered
by that Broker before the Broker is chosen:
     • How long has the Broker been originating loans? (a minimum of two years is recommended)
     • What did the originator score on his NMLS exam? (a minimum of an 80% is recommended)
     • Why is the Broker not DreamLoan-certified? (most good brokers are)
     • What is the Broker’s educational background? (mathematics, economics, business, languages are recommended)
     • How many Lenders does the Mortgage Broker have in his/her network? (at least 5 is recommended)
     • Does the Mortgage Broker offer both Refinance and Purchase loans? Construction Loans? FHA, VA, USDA and
        Conventional loans? First Mortgages and Second Mortgages? (having access to all products is recommended)
More information regarding the specific duties of a mortgage broker can be found in the DreamLoan
Specialty Tutorial “What a Mortgage Professional Should Do”.


WHY DOES DREAMLOAN CERTIFY REAL ESTATE AGENTS?
For the entire history of Mortgaging, consumers have been left to their own devices to figure out who they
should use to represent their Real Estate interests when buying property. Yet, very, very, very few actually
know the criteria upon which they should make this assessment.
While it is entirely possible to educate the consumer about what they should ask, what they should know and
what they should demand when shopping for a Realtor®, it still remains a daunting task. To have these
conversations with multiple Realtors® in order to find a good one, would take almost as long as actually
buying a property itself.
This need in the market is precisely why DreamLoan began certifying Realtors®; to do the work for the
consumer for a nominal charge. DreamLoan’s goal has always been to certify thousands of Realtors® in each
state, based on a per capita formula in order to service the Real Estate needs of all American consumers.
DreamLoan-certified RRealtors® by exact and surrounding zip codes in order to pinpoint excellence for each
and every client who wants a referral to a superior local Realtor®. Furthermore, DreamLoan is committed to


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not only certifying but creating excellent Realtors®. When Realtors® do not pass the DreamLoan certification
process, but are still clearly excellent Realtors® in the making, DreamLoan offers them precise education in
order to sharpen their skills and achieve certification at a later date.
The process by which DreamLoan certifies Realtors® is fourfold: Interviewing, Vetting, Testing and
Certifying. These parts are described as follows:
    • Interviewing: DreamLoan has developed a no-stone-left-unturned approach to interviewing Realtors®. The
        “right” answers are not obvious and the interview is not only subjective, but objective as well. Interview ques-
        tions include education, experience, license scoring, specialies, Mortgage contacts, conflicts and zip codes repre-
        sented.
    •   Vetting: DreamLoan determines who the Real Estate Agents prior clients are by searching public records and
        contacting prior clients without using the Realtor® for their identities. Furthermore, DreamLoan does general
        reputation investigations among colleagues, brokers and Mortgage Lenders. Lastly, DreamLoan requires Real-
        tors® to be a part of the Better Business Bureau and researches any complaints made against Realtors® at the
        BBB or at the supervising agency or organization (like the state or local board of Realtors®).
    •   Testing: DreamLoan has developed a five (5) part examination that Realtors® must pass with a score of eighty
        percent (80%) or higher, written by some of the keenest minds in the Real Estate industry.
    •   Certification: DreamLoan requires Realtors® to take and pass educational requirements for any portion of the
        DreamLoan Realtor Exam in which three or more questions were answered incorrectly, so that even those
        Realtors® that score high enough to become DreamLoan-certified Realtors®, still must brush up on the areas in
        which they are least strong.
All of this is done so that American consumers can purchase confidence; confidence that their Realtor® is
excellent and offers superior Real Estate knowledge and expertise. Gone are the days of simply asking family
members, coworkers or acquaintances to refer you to a Realtor®, in the hopes that he/she is actually good at
what he/she does.


HOW DOES A MORTGAGE WORK?
By tailoring the loan to the specific short-term, long-term, tax and other goals of the Borrower. For examples
that can save you thousands of dollars, purchase the DreamLoan Specialty Tutorials “Tailor the Mortgage
Yourself and Save Thousands - ” which offer examples of Purchases and Refinances, as both Lender Paid
Compensation and Borrower Paid Compensation transactions. These DreamLoan Specialty Tutorials act as a
guide for being in charge of how your Mortgage loan is Structured in order to save money through a
completely transparent transaction.


MY MORTGAGE BALANCE IS ONLY $250K, SO WHY IS MY REFINANCE BALANCE $260K?
Because your DreamLoan-certified Mortgage Broker/Banker has identified the transaction as a Borrower Paid
Compensation transaction where all the costs and compensation involved in the Mortgage will be Front loaded
and rolled into the new loan. This Structure not only saves you from having to pay all the costs and
compensation in the Mortgage out of your own pocket, but also gives you a Wholesale Par Interest Rate and
assumes that you expect to be connected to the Mortgage for a reasonable period of time (like more than five
years) so that you can achieve Breakeven in a short time period.




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