When closing transactions take place for real estate in Irvine, CA, chances are the buyers got most of the funds they needed to acquire the property from home loans. In 2017, mortgage lending represented a little over 50 percent of the United States gross domestic product, so it’s safe to say the home loan industry is a major contributor to the American economy, and it also happens to be very complex. When a prospective borrower signs a 1003 Fannie Mae Uniform Residential Loan Application, a string of financial events and processes are set in motion, and many of them are not typically known by mortgage applicants or even some loan officers.
1. The U.S. Federal Government Holds Most Mortgages
More than half of all residential loans written by American banks are eventually purchased by the government. Fannie Mae and Freddie Mac, the two largest government-sponsored entities in the U.S., are in charge of purchasing mortgages that meet certain underwriting guidelines. They retain banks to act as mortgage servicing entities on their behalf, but most of the principal and interest payments borrowers make eventually end in the coffers of the U.S. Treasury. Without home loan guarantees issued by the government, the American real estate market would be less than half its current size.
2. Home Loans Change Ownership Often
A certain percentage of mortgages are transacted in the secondary market. In some cases, Fannie Mae and Freddie Mac may sell mortgage-backed securities to private investors who ultimately receive portions of the principal and interest payments borrowers make every month. In turn, these securities can be bought and sold, but the mortgage servicing entity often remains the same despite the actual mortgage changing hands.
3. Gross Income Is More Important Than Net Income
The combined income of mortgage applicants is more important than the actual amount of money they bring home. Qualifying borrowers can be difficult in expensive real estate markets. For this reason, mortgage lenders do not pay attention to the net income brought home after tax deductions and retirement plan contributions. Mortgage underwriters care about gross income because they figure borrowers will adjust their salary deductions accordingly if they need to pay their mortgage in the future.
4. Financial Assets Are Not as Important as Income Potential
Underwriters will not be impressed by borrowers who have a Ferrari collection, a yacht, and a lot of money in the bank. The only cash they are concerned with includes down payments and a three-month reserve. What underwriters are interested in is the borrower’s ability to repay. A prospective buyer in Irvine who inherited two million dollars from a rich uncle will have a difficult time getting a home loan if he or she only works part-time at McDonald’s.
5. Not All Home Loans Require a Down Payment
Veterans of the U.S. Armed Forces may qualify for a mortgage that does not require them to bring a down payment to the closing table. Likewise, some programs the U.S. Department of Agriculture offers will issue zero-down payment mortgages in selected rural development areas.
Before you start looking for homes, make sure to get preapproved for a loan. If you’re interested in houses or condos for sale in Irvine, get in touch with the trusted real estate agents at OC Residential. Start your search for your ultimate dream home by calling 714-454-6304 today.