The new cliché in the mortgage industry is that “We are getting back to basics.”

I have heard this phrase thrown around lately, but sometimes I wonder if anyone except other lenders knows what we are talking about?

I have a theory that if you get 2 or more mortgage lenders in a room at a party and they start talking shop, others watching probably think we are speaking Klingon, or what I been calling for a long time “mortgagese.”  You see, we like to throw a lot of words and acronyms around like FICO, DTI, LTV, flipping, deals, etc.  But I think we sometimes forget that Joe homeowner or maybe even most Real Estate Professionals have no idea what we are talking about.  So in plain old English, let me share what I know about getting back to the basics with mortgage lending.

“Mortgage Lending Guidelines 101″

Cash is King:  The more funds liquid in bank deposits and retirement accounts the better.

Down payment is crucial:  The more funds you have for a down payment, the stronger the loan file becomes.

Credit trumps all cards:  Without a decent credit score, a mortgage lender cannot even give you lending options.

Weird deals are to be avoided at all costs:  95% of the time if the deal is a little off the wall, it won’t work.

You must have a job or income:  The income source must be verifiable, believable and well documented for usually 2 years.  No job, no loan…Sorry!

Equity in your existing home will have a huge impact on the new mortgage loan being approved:  Today you must either choose to sell your existing home or have some pretty good equity if you expect the bank to offset the debt with rents.  Also, it must actually be rented out!  You cannot just say “we plan to rent it out.”

Appraised value matters:  The home must appraise for your offer price or the lender will cut the maximum amount they are lending.

Chain of title is important:  I have run into this issue lately with short sale flipping companies.

Title seasoning is a big deal:  Most lenders have sources that can do this loan 1 day after transfer of title, but are limited to where the loan can be placed.  FHA has a 90 day anti-flipping policy.

Mortgage insurance companies prevail over the lenders guidelines:  If the loan is going conventional for whatever reason, the mortgage insurance companies have their own lending overlays.  It gets real fun when you are in a declining market value state.

 AND LASTLY,

Mortgage Rules Change Daily:  This one is the most crucial.  What your mortgage lender knew in the past means nothing today.  The good lenders study up on current mortgage guidelines sometimes daily or weekly.  Even then it is almost impossible to keep up with the ever changing mortgage guidelines.

Again, when we say “we are getting back to basics” it means that common sense underwriting will usually trump with a mortgage lender.  If you have cash in the bank for a down payment on a home with some left over cash called reserves, you have a great job for over 2 years and you have decent or better credit score; you should be able to get approved.  If you do not have those 3 items, then you might run into some challenges.  There are always exceptions to these basics, but in general, that is what a mortgage lender is looking for today in a borrower.