Your Real Estate Mama
Get practical tips, expert advice, and encouragement for home buyers and sellers on Your Real Estate Mama—the go-to weekly podcast for all things real estate.
Hosted by Jan Scott, a seasoned real estate broker with over 35 years of experience and 25 personal moves, this podcast offers quick, bite-sized insights into the home buying and selling process. Whether you're a first-time buyer or experienced seller, Jan’s knowledge, heartfelt stories, and Southern charm will guide you every step of the way.
Stay connected by following us on Facebook @YourRealEstateMamaPodcast for updates, tips, and more. Got questions? Reach out to Jan at jan@yourrealestatemama.com—she’s always happy to help!
Your Real Estate Mama
Mortgage Made Simple: Expert Guide to Home Loans and Approval Secrets
Are you feeling overwhelmed by the mortgage process and unsure where to start on your homeownership journey? In this eye-opening episode of Your Real Estate Mama Podcast, mortgage expert Rose Rauch pulls back the curtain on the complex world of home lending, providing listeners with a comprehensive roadmap to securing their dream home.
What you'll learn:
- The essential documents needed for mortgage approval
- Different types of home loans (FHA, VA, conventional, USDA)
- How debt-to-income ratio impacts your loan eligibility
- The difference between pre-qualification and pre-approval
- Tips for self-employed borrowers navigating the mortgage process
Packed with insider knowledge and practical advice, this episode breaks down the mortgage process step-by-step, demystifying everything from credit requirements to loan types. Whether you're a first-time homebuyer or looking to understand the intricacies of home financing, Rose Rauch offers actionable insights that can save you time, money, and stress. Learn how to prepare your finances, choose the right loan, and confidently move through the mortgage approval process with expert guidance from two industry professionals.
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Email: jan@yourrealestatemama.com
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Introduction to Mortgage Insights
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[00:00:00] Jan: If you've ever wondered why your lender asked for certain documents or what's really going on behind the scenes in the mortgage process, you're in for a treat.
Meet Rose Rauch: The Mortgage Gal
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[00:00:10] Jan: Joining me is someone I like to call the mortgage gal, Rose Rauch from Magnolia Mortgage. Rose is here to break it all down for us, from the whys of mortgage lending to what you can expect as you work with your lender to get those keys to your dream home. Let's get to it.
[00:00:33] Hey there, welcome to Your Real Estate Mama. I'm Jan Scott, and I'm here to help you navigate the ups and downs of buying or selling I've been wrangling the real estate market for over 35 years. And trust me, with all this gray hair comes a whole lot of wisdom. I'm excited to share tips, a little humor, and plenty of encouragement to make your journey easier.
[00:00:58] Whether you're new or a regular, I'm so glad you're here. Follow the show for new episodes every week and together we'll grow and help even more folks. Well, with me today is Rose, the mortgage gal at Magnolia Mortgage. You know, Rose is a five year veteran of the mortgage industry, but her background is actually in human resources.
[00:01:21] So that sets her up perfect for being great customer service. Relationship building and education, which has always been very important to her. And I have worked with Rose and I want to tell you she is one amazing mortgage miracle worker. So glad to have you today, Rose.
Essential Documents for Mortgage Approval
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[00:01:40] Jan: Thanks for having me, Jan. Let's talk about the very first thing that a potential homebuyer should do, like, other than call you first, we know they need to call you first, but what are the things that they need to have in order for you to look at their financials and get them
[00:01:55] Rose: approved?
[00:01:56] So the following is going to be required, the mortgage application, that'll go through the basics of, you know, your job history, your, you know. living addresses, things like that. So getting the basics and credit report, you know, is always going to be required because we need that to see what kind of credit rating you have and make sure, you know, there's not any issues or concerns there.
[00:02:18] And the documentation. So documentation is pretty simple to get started. You know, you're going to need the pay stubs, the IDs, like your driver's license, social security cards, W 2s, um, some tax, you know, sometimes will include tax returns, depending on that type of loan. Um, bank statements, we need to know where the money's coming from, you know, and sometimes that requires reserves as well.
[00:02:41] So um, and if we're using.
Understanding Source of Funds
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[00:02:45] Jan: They can't just plop 20, 000 in there one day and have you verify them the next day. That 20, 000 has to be
[00:02:52] Rose: explained, correct, right? That is correct. I have a guy right now that I just got his bank statements and there's a 10, 000 deposit in there from 10 [00:03:00] 3, you know, on October 3rd.
[00:03:01] I was like, okay, we had this conversation to start, so tell me about what this is. Well, he had a great explanation. It's a job bonus that he got from work. Okay, well, now we're going to need the check to show that you got that from your employer. The employer needs to notate that on their verification of employment.
[00:03:17] You know, we have to, what we call, source those funds. So if you've got that mattress money sitting out there and you just want to put that cash in the bank, we're going to need that in there for at least 60 days because, you know, they are going to want to know where those funds came from. And if we can't explain them and it be accepted, then we may have to remove that from those Sourced funds to actually use those for closing.
[00:03:38] Jan: Everything has to be verified. Everything. You've got to explain everything on your bank account. Yes, absolutely.
Why Documentation is Crucial
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[00:03:45] Jan: And so now that we know we have to explain everything, why is all of this documentation
[00:03:50] Rose: needed? Well, we've gotta make sure that the home buyer is actually credit worthy. So we're going through verifying all that information, making sure the job history's stable
[00:04:00] Um, you know, there is a misunder, you know, misunderstanding out there on to your job history. You know, that to your job history does not have to be at the same company, doesn't have to be in the same field, but we need to show that it's stable. So there's different things that we have to do, you know, per each loan guideline.
[00:04:17] So those things are, you know, going to have to be. You know, reviewed and everything, and that's why it's important to have a full application and all the documentation.
Self-Employed Borrowers
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[00:04:25] Jan: Right, and just briefly, if they're self employed, that is a whole new ball game. My suggestion is if you are self employed, your documentation needs to be one on one with Rose.
[00:04:37] Absolutely.
[00:04:38] Rose: Perfect example, I had a guy out of Texas that, um, worked insurance claims and he was in roofing. So, he did, he went in and did a lot of repairs for roofing and things like that. You know, they had, you know, on their tax return, you're looking at the bottom line. So, let's say, you know, he was a Schedule C.
[00:04:58] On the bottom line, he had, you know, a negative 280 some thousand dollars of income. So, there was no income for us to use, even though his income was great that year. But unfortunately, we have to look at that bottom line. And so, he didn't have the income, so that's where we actually switched it over to what we call a bank statement loan.
[00:05:16] So, we've got a lot of options for self employed borrowers. So, heads up,
[00:05:20] Jan: if you're self employed, you just need to call Rose. Absolutely. And go and say, or she can help, she can work it out.
[00:05:25] Yes.
Types of Loans Explained
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[00:05:26] Jan: Tell me about the different types of loans out there. You know, I used to, back when I first started, there was like one or two types of loans.
[00:05:32] It was easy for me to keep up with. And I tell everybody, I can't keep up with it anymore, y'all. You need to call my friend. Yeah. She's the guru. She's the one that understands all of this because there's so many different types of loans. And so explain to us the different types of loans.
[00:05:49] Rose: I like to do this in two, two worlds.
[00:05:51] You know, we've got your traditional. conforming loans, which is going to be your conventional, which we can do, you know, anywhere from, you know, three to however much you want to put down three percent on. The three percent down loans, you know, are for those individuals that meet the area median income. So you have to meet some requirements for that three percent down.
[00:06:13] Otherwise, most people fall in that five percent category. There is a misconception that you have to have twenty percent down. And you do not. You do not. That is a little trick to get outside of your private mortgage insurance on a conventional loan. So if you do 20 percent down, you don't have to have that PMI, um, which the lender will charge if it's under that 20 percent down mark.
[00:06:36] Um, so it's always good to kind of have those conversations to see what makes sense for you. And first time homebuyers, you know, 20 percent is a lot of money a lot of times for most of us. So it'll prevent you from having to. You know, to be able to buy a home sooner.
[00:06:52] Jan: My friend, Dave Ramsey, who I love and have followed him for years.
[00:06:56] Um, he always says, don't buy a house unless you got 20 percent down. And I kind of disagree with that. I'm sorry, Dave, but I kind of disagree with that because it's better to get in with a little and build equity in your home, which we're going to talk about. Then to wait till save 20 percent because in today's world,
[00:07:21] Rose: It's definitely one of those things that, you know, you, you got to pick your poison, you know, do you want that lower monthly payment, you know, with 20 percent down or do you want to take and have a chance on that home price value going up and that's not, you know, temporary, that's a permanent deal when you have to pay, pay that purchase price, that higher purchase price.
[00:07:42] Exactly. Yes, you can actually anywhere from 5 percent down is traditional for conventional, but you can go up from there and, um, you know, we just usually dictate that by the, the client's file. All of our loans can be done 30 years, you know, at a fixed rate, and some can be done at a variable rate as well, the adjustable variable rates.
[00:08:02] Jan: 30 year loans now are, they can prepay them ahead of time, like if they're If they make an extra 10, 000 a year, they can designate that directly to the principal.
[00:08:13] Yes. And
[00:08:13] Jan: get that principal paid down so you can actually pay a 30 year loan off in 15 years if you
[00:08:18] Rose: plan it right. Correct. Correct. That's the nice thing about your traditional conforming loans is there's no prepayment penalties on those.
[00:08:26] So that's, that's another benefit there. Um, but you know, that's the conventional side. You know, And we have the VA loan for veterans, and I love doing those, being able to give back to the community. And, you know, those are ones that, you know, there are, there is no private mortgage insurance on those, period.
[00:08:45] There is not anything there. Um, they have an upfront funding fee on those that the VA charges, um, and that's based on the veteran is, you know, himself or herself that shows. you know, what that, we'll, we'll pull like a certificate of eligibility. And, you know, let's say you have a disabled veteran, they may be exempt from the funding fee.
[00:09:08] So then they pay nothing extra for that service to do a VA loan. And it's 0 percent down, you know, and it does have flexible You know, debt to income ratios and credit scores. So it definitely opens that up to a lot of veterans and veteran loans are one of the best loans out there. There's a lot less foreclosures and it's a very, very good product for those that qualify.
[00:09:32] I just closed
[00:09:33] Jan: one, uh, VA last week that we actually got that veteran. He was paying 1, 800 in rent and, um, another agent brought me this buyer and they already had him prequalified. The agent had done a great job in getting their work done. And when we closed last week, the veteran actually got 500 back at closing because it was zero.
[00:09:54] We got, we worked out the closing to where we were. The seller paid part, the lender paid part of it, got him in that house for no money, literally no money, and his payment was like 400 less than what his rent was. Absolutely. They were excited at closing.
[00:10:11] Rose: Those are great stories. So we also have, you know, a couple of other options too.
[00:10:16] We've got the FHA, which is, you know, the Federal Housing Administration loan, and that goes under the HUD. And We, you know, do those at three and a half percent down. Um, those are more known as the first time home buyer loans, but anyone can do an FHA loan. You know, in my past i've had three FHA loans on three homes.
[00:10:38] And so it's not just for first time home buyers, but it's a little more Flexible on credit scores, debt to income ratios, things like that. So it, it, it helps more Americans get into the loans compared to a veteran or the conventional loan. Because the conventional loan is going to be a little tighter and a little stricter than the FHA.
[00:11:00] You know, there is the mortgage insurance premium on that, and that is something that FHA charges up front and annually, and so they break that down in, you know, monthly payments for you, just like your private mortgage insurance.
[00:11:15] Jan: Even though you've got that, sometimes the payment is less than a conventional because the interest rate is less.
[00:11:21] Correct. So it's all about monthly payments. People like to look at the monthly payments. Yes. Don't care how we got there, just I need the lowest monthly payment.
[00:11:29] Rose: And a lot of times I have, you know, first time homebuyers that are coming to me saying, you know, they, you know, they've been told they don't want an FHA loan.
[00:11:36] They need a conventional by their parents or, you know, someone else in their life. And, you know, when I really break it down for them on a black and white loan estimate for them to show them exactly what it looks like, a lot of times they will go the FHA route because sometimes that interest rate's a little, little lower.
[00:11:56] The mortgage insurance can be a little lower as well, on a conventional, you know, than a conventional loan because they're basing it more on your credit score. The FHA, it's a flat, you know, 55 percent for the annual. Last one on the traditional loans is your USDA. So your USDA is going to be for those first time homebuyers or homebuyers in a rural area, you know, and those are from the rural development in our government.
[00:12:27] So those are backed by them. You can get some of those with no down payment? Those are zero down payment. Zero down payment. So zero percent. They're a little trickier, though, because you have income limits that we have per your area, so it's very specific to your area and location. Um, debt to income ratio is very tight.
[00:12:46] You know, they've got that at a 34 and 41 debt to income ratio. Again, none of those products that we just talked about, those loan programs, none of those have prepayment penalties. So, you can pay those, as you said, early, Pay 'em a little more, you know, throughout the year to get that, you know, that 30 year faster and faster.
[00:13:06] Somebody that's
[00:13:06] Jan: listening to us today.
Debt to Income Ratio (DTI)
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[00:13:08] Jan: The, the debt to income, just briefly, that is basically, can you explain just what that d what call it TDTI Debt? Yes. To ratio income. What is that for? What are
[00:13:20] Rose: the, what is that? That is part of that credit, credit worthiness that I mentioned earlier. That's where we're actually gonna grade that file.
[00:13:28] So if you have, um. A higher DTI, debt to income ratio, then we may not be able to close that loan. We may have to do some work. Maybe the income needs to come up. Maybe some debts need to be paid off. So that's what's going to help us determine, along with the credit score, where you fit in which loan product.
[00:13:47] So a lot of people, unfortunately, with that USDA loan, can't fit into that because of that debt to income. So we move them over into the FHA loan because That, you know, that DTI can go up higher.
[00:14:01] Jan: Right, which is a great reason that they need to meet with you so you can look at their situation and find out what loan is best for them.
[00:14:09] Basically, the way I see the debt to income is they look at what you owe. And they look at how much income you make, that's kind of it in a nutshell.
[00:14:18] Rose: That is. Well, let's just do a quick example, you know. So, let's say that your total, because we have two sides of a DTI. So, you've got your front end and your back end.
[00:14:29] So, your front end is going to be your housing ratio. So, it's just the housing expense for that person. that home that you're purchasing. And so let's say this, this scenario was 2, 067 is, um, what the house payment would be. Your income is 6, 755. So 6, 755. When you divide that out, you've got 31 percent for your front end DTI.
[00:14:55] That's just the housing ratio. So, that sounds great, but then let's add [00:15:00] in some additional debts. So, let's say you've got a 450 car payment and a 100 credit card bill, you know, monthly. So, let's add that in. So, we add, um, those monies in there. So, now our total expenses for the month is 2, 617. So, 2, 617 a month, divide that by the 6, 755 for income, now you're at a 39 percent debt to income ratio.
[00:15:24] You know, we've got to make sure that, you know, those ratios are in line and it's not as black and white as a lot of people think. You know, I have realtors and buyers that call and say, well, what's the, what's the credit score? What's the debt to income ratio need to be for this loan type? There's more that goes into that.
[00:15:42] So, you know, we have what's called. DU and LP. So we're actually running automated underwriting system, you know, systems behind the scenes with these files once we have all the information in. And once we pull that, some, you know, depending on a credit file, it could be, let's say they had a 585 credit score and we're doing an FHA loan, but you know, we can go up to a 55 percent DTI, but let's say we don't Get an approval on this one.
[00:16:15] It's taking other things in accountability behind the scenes like that full credit rating There's little analytics that they do behind the scenes So sometimes we need more reserves Which simply just means we need money in the bank in that savings account showing that we can make those payments each month, you know um And sometimes we just need to add, you know, those little things to the file to make sure, let's say you've got a 401k and, you know, we didn't have that in the file.
[00:16:43] If we add that to the file, it could also help because it offsets and gives us another good factor to the file. It's not always black and white.
Pre-Qualification vs. Pre-Approval
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[00:16:53] Rose: I don't do pre qualifications for my clients because it's not worth the paper that it's written on. There's a difference between pre qualification
[00:17:01] Jan: and a pre approval.
[00:17:02] Rose: Yes. So pre qualified and pre approval. Pre approval is what we just talked about early on, getting all those documents, running that AUS, doing the credit, doing all of that information. And that shows that you've actually done your job up front as a loan officer. And being
[00:17:18] Jan: pre approved gets you more buying power because when your agent presents the the offer to your new home.
[00:17:24] Yeah. And they can show that you're pre approved, not pre qualified. Yes. Then, hey, they, they know that you're
[00:17:32] Rose: good to go. Absolutely. You're ready to go to close. They know that you've already done those extra steps to do that process. And it's not just a conversation that you had with a loan officer or lender.
What's Included in Your Mortgage Payment?
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[00:17:40] Rose: Rose, tell me what all is included in your mortgage payment? We like to call that our PITI, so that's going to be your principal, interest, taxes, and insurance. And the insurance, we, you know, that's your homeowner's insurance. So, you're going to actually have that mortgage insurance as well, so any insurances that we have.
[00:18:00] So, we have, you know, the principal, That you're going to be making each month the interest that the lender is collecting and then the taxes and insurance Any insurance that we have on that that file another little myth out there? That's busted is you know A lot of people and I was one of those when I was younger that I was told that You know the escrow account which is your taxes and insurance that the lender sets up and actually holds those funds Until they make those annual payments for your insurance and taxes that Is not There's no interest paid on that.
[00:18:34] That is simply your money going into a separate account. And again, what the lender is doing is making sure that those things are getting paid. It's a risk that they, you know, that makes it a little easier.
[00:18:46] Jan: Well, let's talk about the loan process.
Behind the Scenes of the Loan Process
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[00:18:48] Jan: Once they come in and that they have been pre approved, Uh, tell us what happens behind the scenes because all they come in and, and they fill out forms and they, or they e sign [00:19:00] on the computer.
[00:19:01] They don't see what goes on in your office behind the scenes. And I'd like for them to be educated on
[00:19:05] Rose: that. So I just had a client, um, they're just got, got under contract yesterday. So I got the contract last, last night and I talked to the mom and she's like, so tell me why it takes 30 days to close a loan.
[00:19:22] You know, I was like, well, that's a great question, because again, they think they've already provided everything up front, right? You know, in those documents that we talked about earlier. Well, there's other things that go on behind the scenes, so let's talk about everything. So, I'm going to get that contract today, and I'm going, when I get back to the office, we're going to actually go through and update their application now with the remainder of the information.
[00:19:45] We're going to add those addresses, we're going to add the purchase price, the down payments, we're going to call the client, talk about, you know, the interest rates, where they're sitting now, are we ready to lock today, or do we want to wait a little bit, depending on what the market is. Well you say
[00:19:59] Jan: lock, you're talking about locking their
[00:20:00] Rose: rate to where if the interest rate goes up, they're protected until we can get this closed.
[00:20:06] And then, once I'm finished with the file, then I have to submit that over to my processor. The processor is then going to tidy that file up, get our initial loan estimates, our disclosures and everything like that ready to be sent to the buyers to sign. Those documents have to be sent to our buyers within three days, um, of getting the contract.
[00:20:26] So, um, We have a lot of different guidelines that we have to hit as lenders behind the scenes that, you know, aren't known out there, you know, for regulation side. So we have to do those and what my processor is doing is doing a lot of different ordering. We're going to order appraisals, we're going to order title work, we're going to, you know, start getting that file ready for the underwriter.
[00:20:49] So when the underwriter gets the file. They're going to evaluate all of our documents that we provided up front, and then they're going to come back and actually the underwriter is going to review the file against [00:21:00] that specific loan guideline that we did. So if we're doing an FHA guideline or FHA loan, they've got to review and make sure that those guidelines are met within the information that we've provided to them.
[00:21:12] They're also going to do. Other reports behind the scenes. So credit reports are great, but not, it doesn't show everything. It's going to pull different public records behind the scenes. Is there any liens out there that you're attached to? Is there any properties that you didn't disclose that you're attached to?
[00:21:29] Things like that. So there's a lot of things that go in behind the scenes and those take a little extra time. Typically, the initial. Review from the underwriter comes out within three to seven business days, and that's when we can actually start working what we call as loan officers conditions. That's where we're going to go.
[00:21:48] The underwriter says we need a letter of explanation. We see on your credit report that you had credit pulled in the last 120 days. We need to make sure that there was no additional new credit. That was received through that that that's not reporting on the credit report yet.
[00:22:04] Jan: So it's it's important that the they don't get frustrated when you ask for these things.
[00:22:10] I know I have had some frustration come back in the past where why are they wanting this? Now? Why are they wanting that? I thought I had give that to them. Yeah, well, there's so many hands in this process.
[00:22:21] Rose: So one of the things, you know, that we always have to explain is, okay, so I just got bank statements just like, you know, earlier I said that that 10, 000 deposit on there on October 3rd.
[00:22:35] Now I need an additional document to explain that. So there anytime we provide additional documentation, you're not done until it's reviewed and then they come back sometimes and ask for more, you know, and that's pretty common, you know, right.
[00:22:50] Jan: And I always tell my folks, it's not over until we walk away closing day with key in hand.
[00:22:58] Rose: Yes. [00:23:00] So, and honestly, you know, that's, that's it. Once we, you know, work through those conditions with the underwriter and, um, get everything resubmitted back, that's when they're going to evaluate it again and make sure there's nothing else that popped up in the, in that documentation. And then they'll issue what's called a clear to close.
[00:23:17] And that's where we're going to get the numbers. From the closure, there'll be a closer assigned and then we actually start working with our title company or the closing attorneys, whichever your state or area provides for that. And then we start balancing and getting the final numbers. Docs are drawn and sent for closing and then.
[00:23:39] We meet at closing table. We get it clear to close. We're done. The words we wait for. The words we love to hear. I always
[00:23:46] Jan: tell my, especially my first time homebuyers that have never been through this process before that they, they're, they're kind of are the ones that kind of get a little frustrated with the system.
[00:23:54] I tell them right up front, They're going to want to know everything. They're going to want your blood type. They're going to want to know your mother's maiden name, and they're going to come back for more blood later on. So just be prepared for that. It's the process. Yes. It, it is not, you know, always the, you know, the most favorite thing to do.
[00:24:13] They're not picking on you. They want this from everybody, everybody. So it's part of the process. Yes. Well, Rose, thank you so much for being with me today. Absolutely. I look forward to a lot more interviews. Yes. Thank you for having me.
Final Thoughts and Encouragement
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[00:24:27] Jan: I really hope you enjoyed this interview with Rose today. If you have any questions, send them to Jan at yourrealestatemama.
[00:24:34] com. And as always, I like to leave you with some mama wisdom and inspiration. You know, the journey to home ownership is a process and sometimes that process requires patience, Waiting for your loan approval and closing day can feel like a lifetime, but great things are worth waiting for. Every step is moving you closer to the place where your dreams will take root, your memories will be [00:25:00] made, and your future will flourish.
[00:25:02] Stay focused, stay positive, and trust that your new home is waiting for you on the other side. That reminds me of Hebrew 611. About the importance of perseverance and diligence in the Christian life. It says, we want each of you to show the same diligence to the very end so that what you hope for may be fully realized until next time, keep believing, keep dreaming, and remember, I'm here to walk this journey with you.
[00:25:32] You've got this and soon you'll have the keys to your very own front door.
[00:25:39] Well, that's a wrap. Follow the show for new episodes every week. Don't forget to leave a review, rating, or jan@yourrealestatemama.com. I love hearing your questions and comments, and I'd be happy to help you find a great real estate agent anywhere you live.
[00:26:03] Be sure to follow me on Facebook @YourRealEstateMamaPodcast. Until next time, y'all take care, happy house hunting, and remember, you should always listen to your mama.
