What Is a Base Business Home Mortgage?

Sounds kinda of funny, "base business home mortgage," huh? Well, it's how people who are looking for information on having a home-based mortgage business search for info about it. So, I'm going to use this a few times below, even though it sounds funny.

So, if you are considering the mortgage industry, and a base business home mortgage, keep reading.

One of my friends is a mortgage broker. Helping people finance the purchase of their homes has been his soul source of income for well over 30 years. During that time, despite the highs and lows of the market, he has done well. He’s a smart guy, a sound businessperson, and knows all there is to know about the mortgage industry.

He happens to be a nice guy too. So, when I asked him for information about having a base business home mortgage, he was more than willing to help me out. In fact, he used to give a class on being a mortgage broker through the Learning Annex. Here is what he has to say about the profession:

The Why of Being a Mortgage Broker or Lender

There are numerous reasons why a person decides to become a mortgage broker, lender or have a base business home mortgage. It’s definitely not a profession for everyone. So, take a look at the following reasons why people decide to become lenders and see if any of them apply to you:

Your earning potential is unlimited. There are very few professions in which a person can make a doctor’s or lawyer’s salary without the costly education that goes along with those professions.

Specifically, full-time mortgage lenders make about $60,000 a year to start. Work your business hard and you’ll be earning more. Part-time mortgage lenders make approximately $25,000 a year. Of course, there is no guarantee that a person will make any money in their business – it really depends upon the person and what they are willing to do.

There are different types of employment. You can be self-employed (this would apply with having a base business home mortgage) or employed:

Mortgage brokers can have big or small businesses. The Lenders Group is large, or you can own your own, smaller shop (a base business home mortgage).

Mortgage bankers, such as Centex and National Pacific Mortgage can be medium to large shops.

Or, you can go the direct retail lenders route, such as your WAMU, Countrywide or Wells Fargo. But, this wouldn't be a base business home mortgage.

There are pros and cons to all of the above avenues, so do your research to see which one fits best with what you want. For example, whether or not you obtain a license depends upon a company’s requirements. Also, decide if you want to be working for a commission, a salary, or combination of both. And, of course, if you really do want a base business home mortgage, that will dictate how you decide to proceed.

With the right training and guidance you can survive market cycles. Yes, you can have a successful base business home mortgage despite market lows.

You can generate additional streams of income for yourself by building your own portfolio in real estate, owning loans, making second mortgages, or managing family money.

There is a lot of fulfillment in helping people achieve their financial goals and home ownership.

Mortgage Broker Tools and Products

There are a variety of tools and products that mortgage brokers use:

Conforming and Jumbo loans have 30-year and 15-year terms, fixed rates with 1/1, 3/1, through 10/1 Arms. These can be for owner, non-owner, and second homes.

FHA and VA, CHFA, CalPers, Cal Vet loans are mostly purchased and low or no down payment type products. These loans primarily have fixed rates and a 30-year term.

Adjustable loans have wider underwriting and easier alternative products, such as 80/20s and 100%, 103% and 107%.

Construction and commercial loans are “lesser used areas of opportunity” such as lot loans, construction, rehab multi unit (5 or greater), commercial and retail real estate.

Reverse mortgages and swing loans are specialized.

You can fund your own loans as seconds and private money – the rate of return is very high, but be cautious.

Your Marketing and Business Plan

To succeed in this business, and especially with a base business home mortgage, it’s best to have a marketing and business plan that includes, at a minimum, the following:

Determine how much you’re going to make and how many contacts you need to get a funding.

Determine your average loan size versus the points you’re going to charge. The average should be 1% plus.

What is your game plan for getting your name out there? Define your target market – your clientele and where you’re going to approach them.

Establish how you’re going to network with realtors. Are you going to swap referrals, cold call, or meet brokers? What value are you going to bring to the table?

What is your plan for acquiring refinance business? Are you going to obtain referrals, conduct direct mail campaigns or some other form of marketing? Are you going to do relational or transactional selling?

What other professions can you develop alliances with to promote your business? Some possibilities are: builders, home improvement companies, CPAs, insurance brokers and even other lenders.

What contact management system are you going to use? Some of the more popular systems are Outlook, ACT, Goldmine and Excel.

Create your marketing materials, such as your letterhead, business card, and any sales tools you will need.

What types of software and loan origination system will you use?

How to Have Customers for Life

Once you acquire a customer, there are several things that you can do to keep that customer for life. It's especially important to keep your customers if you're going to have a base business home mortgage:

Appreciate the difference in personality types. Some people will question everything and some will not.

Respect people’s money and their costs – it’s part of helping them achieve their financial goals.

Stand by your commitments and your estimates.

Take time to explain. Bring knowledge and value to your customers. Be their expert.

Know your product. Know the requirements, the costs, and the features.

Competition? Bring it on! If your competitor is better than you, then find out why and improve yourself.

Glossary of Terms

PITI = Principal, Interest, Taxes, Insurance (pmi+hoa)

DTI = Debt to Income, Ratios, Front and Back

LTV and CLTV = Loan to Value, Combined LTV (2nd)

TIL = Truth in Lending

GFE = Good Faith Estimate

HUD 1 = Closing Cost Estimate and Final Settlement

APR = Annual Percentage Rate (points and costs affect yield)

ARM = Adjustable Rate Mortgage

FRM = Fixed Rate Mortgage

FICO = Fair Isaac & Company (Credit Score by 3 bureaus)

1003 = Loan Application

1008 = Loan Transmittal, summary of ratios and transaction

Full Doc = All income verified with pay stubs etc., verify assets

Alt Doc = Verification through bank statements or phone verified

NINA = No income, no asset (not disclosed)

Low Doc or Stated Income = Income not verified but shown

4506 = IRS Verification Form

LP = Loan Prospector, Freddie Mac

DU = Desktop Underwriter, Fannie Mac

Docs = Loan Papers (final) that borrower signs

Important Websites and Resources

California Dept of Real Estate Licensing Requirements

Freddie Mac

Fannie Mac

HUD

State of California Housing Finance Agency

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