This chapter introduces three couples who all initially achieved their dream of homeownership, but had very different long-term outcomes. One couple lost their home and relationship due to overextending themselves. Another faces an uncertain retirement due to spending against their home equity. The third couple paid off their mortgage and now owns their home free and clear, achieving financial security. The author aims to help readers learn from these examples to manage their mortgage in a way that allows their home to become a source of long-term financial stability.

2. Copyright © 2013 by John Mallett.
All rights reserved.
ISBN #978-0-615-44867-1
No part of this publication may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording, scanning, or
otherwise, except as permitted by the author.

3. 2
About
the
Author
John Mallett has personally originated over one billion
dollars in mortgage loans over the last two decades. Many
people refer to John as "America’s Mortgage Coach,"
because of his unique ability to demystify the complexity of
mortgages into easy to understand concepts. John is the
Founder and President of MainStreet Mortgage, located in
Westlake Village, California. He received his undergraduate
degree from Brigham Young University and his MBA
from the University of Southern California. John and his wife
Carol are the parents of three children and reside in Southern
California.

4. 3
Table
of
Contents
MAKE YOUR DREAM OF OWNING A HOME COME TRUE!..............8
Chapter 1.................................................................................................
Living the dream..............................................................................9
Home ownership as a transformative journey............................16
A sacred trust ................................................................................18
You need a home buying strategy—period! ...............................20
Chapter 2.................................................................................................
Lessons from the 2008 housing crash........................................25
Understanding what happened....................................................26
How it all came crashing down ....................................................29
Chapter 3.................................................................................................
Buying In the Post-Mortgage Meltdown Era ...............................37
Is now a great time to buy? ..........................................................39
Caution: trying to time the market is not advised......................43
Should I rent or should I buy?......................................................46
Conditions of satisfaction ............................................................51
Hard Lessons Learned..................................................................55
POSITION YOURSELF FOR SUCCESS.................................................
Chapter 4.................................................................................................
Three “C’s” of mortgage financing..............................................59
Credit: the first “C”........................................................................62
Optimizing your credit score........................................................63
Who came up with the idea of credit scores? ............................66
Who generates your credit score? ..............................................68
Dealing with consumer credit bureaus .......................................71
Key components of your credit score.........................................73
How lenders evaluate your credit scores....................................77
Why the score variation between credit bureaus?.....................81
Why is my credit score higher when I pull it? ............................83

5. 4
Chapter 5.................................................................................................
Credit repair and recovery ...........................................................85
Credit bureaus and credit repair..................................................88
Steps to a higher credit score......................................................91
Rescoring your credit ...................................................................96
The downside of not spreading your credit risk ......................101
A word on closing credit accounts............................................103
Your credit is checked prior to closing on your home............104
Quick review—improving your credit report ............................105
Chapter 6.................................................................................................
Collateral - the second “C”.........................................................107
Single-family homes ...................................................................110
Modular housing .........................................................................111
Multi unit properties - not to exceed four units........................112
Condominiums ............................................................................113
Planned unit developments (PUD).............................................117
Manufactured homes ..................................................................119
Raw land.......................................................................................120
Whether it’s your primary residence matters...........................121
Chapter 7.................................................................................................
The value of your collateral and your loan terms ....................124
Home appraisals and loan-to-value...........................................128
Making the down payment .........................................................131
Making the minimum down payment strategy .........................134
Gift money....................................................................................138
How to approach a family member for a gift ............................143
FHA : get a loan with only 3.5% down.......................................146
Mortgage insurance and sharing the risk.................................149
Chapter 8.................................................................................................
Capability – The Third C .............................................................158
Debt-to-income ratios .................................................................159
Understanding the mortgage deduction...................................174
Ensuring you’re both capable and qualified.............................180
A last word on the three Cs........................................................183
FIND THE BEST MORTGAGE FOR YOU ..............................................
Chapter 9.................................................................................................
Mortgage product options..........................................................185
Cut through the hype..................................................................186
What the heck is amortization? .................................................190
Use amortization to your benefit ...............................................193
Bi-Monthly payment option........................................................197
The lower the interest, the greater the principal applied ........199
The time value of money ............................................................200

6. 5
Chapter 10...............................................................................................
Fixed rate mortgages ..................................................................202
Adjustable rate mortgages .........................................................206
Closing costs, points and fees...................................................214
Origination fees—commonly known as “points”.....................217
Watch out for the “No Fees – Low Interest” hype....................220
Getting a rebate to cover some loan fees .................................223
Finding and securing a competitive rate...................................226
What’s the real rate you want to shoot for?..............................232
Taking your next big step...........................................................235
CREATE YOUR HOME BUYING DREAM TEAM...................................
Chapter 11...............................................................................................
Finding your mortgage professional.........................................237
Qualified and non-qualified mortgage professionals ..............239
Financial Institutions & Mortgage Professionals .....................243
Finding a qualified mortgage professional...............................245
Chapter 12...............................................................................................
Optimizing your relationship with your mortgage professional
.......................................................................................................247
Why a long term relationship with your mortgage professional?
.......................................................................................................253
Chapter 13...............................................................................................
The first thing you want from your mortgage professional ....255
The loan application and pre-approval process.......................257
The Good Faith Estimate and Truth In Lending .......................263
You need a real estate professional. .........................................266
Keys to finding a great real estate agent ..................................269
Finding and securing your new property..................................270
LET’S CLOSE THE DEAL.......................................................................
Chapter 14...............................................................................................
Step 1 of the closing process – getting started........................274
Locking in a final interest rate....................................................281
Step 2 of the closing process – home stretch..........................289
Step 3 of the closing process. It’s a wrap!................................291
A SACRED TRUST & YOUR FINANCIAL SECURITY...........................
Chapter 15...............................................................................................
Make your mortgage work for you, not against you ................293
Taking out a line of credit against your home..........................297
When to refinance .......................................................................301
The liberation of a debt-free life.................................................303

7. 6
Chapter 16...............................................................................................
Final Thoughts.............................................................................308
Chapter 17...............................................................................................
Epilogue .......................................................................................310

8. 7
CHAPTER
1
PRE-­‐PUBLICATION
DRAFT
7/24/14

9. 8
MAKE YOUR
DREAM OF
OWNING A
HOME COME
TRUE!

10. 9
Chapter 1
Living the dream
Every person who walks through the doors of my office
carries the exciting dream of buying a new home—and the
belief their new home will become the basis for a better life
for them and their family. I love my job because nothing is
more rewarding than helping people fulfill their dreams. And
that’s what this book is all about—helping you achieve your
dream of owning your own home.
The dream of home ownership starts as a short sprint
but is really a long distance race. Finding, buying, and
moving into your new home is the sprint—the beginning of
the dream. How you manage your mortgage and turn your
house, condo, or penthouse into the home of your dreams
and a source of financial security is the long distance race. By
the time you finish reading this book you’ll not only be
prepared to successfully win the initial sprint, you will have
the knowledge and tools you need to prevail in the long
distance race as well.
Let me introduce you to three couples who all initially
ran to victory, but whose stories then diverged dramatically.

11. 10
Greg and Allison were a fantastic couple. Young, smart,
and successful—and only in their late twenties when we met.
I loved their energy. They had big dreams. Their enthusiasm
was contagious. They had a strong combined income, solid
credit, and I got them a mortgage with a great interest rate.
Three years later their property value had jumped and they
wanted to refinance their mortgage. Greg needed money to
launch a new company. With the refinance he could pull
$150,000 in equity out of their house. Over the next 18
months, Greg’s company struggled and the value of their
property dropped. Due to the refinance, they faced large
mortgage payments that they could no longer cover. They
ultimately lost not only their house, but also their
relationship, which cracked under the enormous stress of
their situation.
I liked Sally and Fred from the moment they sat down
across the table from me. Together they ran a small office
equipment repair operation. They were in their early 40’s,
with a son and a daughter in high school. They wanted to sell
their current home and move up to a larger place. Their
credit report wasn’t perfect, but over a three-month period I
helped them improve their credit and got them a mortgage
with a good interest rate. Five years later they’d built up

12. 11
equity and their lender offered them a line of credit against
their home. With the line of credit they could draw cash to
take the vacation of their dreams and to buy a sailboat that
Fred had been eyeing. Now they’re looking at retirement and
realizing that because of the money they spent using their
line of credit, their monthly mortgage payments have jumped
significantly and they won’t have the retirement cash flow to
cover their payments. They also have very little equity, so if
they sell they won’t clear much to put into savings. They’re
considering moving to a state where housing is cheaper, but
may still wind up renting an apartment for the rest of their
lives.
Now we come to Ken and Judy—and their seven
children! I met them when I’d been in the financing business
for about five years and they were in their mid-thirties. Ken
was a schoolteacher and Judy was a stay at home mom. They
had worked eight years to pull together the money for a
down payment and were so excited to be buying a home.
Their combined income was less than that of our other
couples, but their credit was solid and I got them a mortgage
with a decent rate. We reconnected six years later when the
value of their home had increased and interest rates had
dropped. They wanted to refinance, not to pull money out of

13. 12
their house, but to reduce their interest rate—with the goal
of paying off their mortgage sooner rather than later.
Recently, Ken and Judy made their final mortgage payment.
They own their home—free and clear—with $350,000 in
equity! Both now in their early sixties, they will never have to
make another mortgage payment the rest of their lives!
Three couples. Each made the initial home ownership
sprint successfully, but each experienced radically different
outcomes in the long distance race that followed. One couple
lost everything. Another faces an uncertain future. The last
couple used home ownership to achieve financial freedom
and security.
While every one of the hundreds of clients I’ve worked
with is unique, over the long term their home ownership
stories largely follow the path of one of our three couples.
When I started out in this profession, I avoided giving clients
too much long-term advice and focused on getting them the
best loan I could. Now when I sit down with clients, I make
it my intention to give each of them the advice, knowledge,
and tools they need—for the short AND the long term—to
achieve financial security through home ownership like Ken
and Judy.

14. 13
It is truly heartbreaking to watch people’s dreams turn
into nightmares. I have seen first hand what it does to
individuals, couples, and families when they find themselves
living on the edge financially—or going entirely over the cliff.
I’m not inclined to discuss my personal life in public, but I
share the following story in the hope it helps you understand
why these issues are personal for me, and why if this book
helps one person achieve financial freedom, it will make it
worthwhile.
My father walked out on our family when I was eight
years old. Whatever financial security we had was gone in a
heartbeat. From then on, my three siblings and I were raised
by my single mom. She did everything in her power to keep
our family afloat, but our descent into deep poverty was
relentless. Within a few years we went from living in a nice
house in a beach community to barely surviving in an
apartment in a federal housing project where the career path
for many of my school friends began in juvenile hall and
advanced to county jail, and finally to prison.
When I was twelve, our lives suffered another hard blow
when Mom was diagnosed with multiple sclerosis. It fell to
me to be her caregiver. We survived on food stamps, welfare
checks, the support of our church, and various odd jobs I

15. 14
picked up, from delivering newspapers to selling Christmas
cards door to door. Somehow we managed to keep things
pretty much together.
Then my mother died suddenly when I was 18 years old.
It hit home how fragile life is and how, in spite of hard work,
a good heart, and the best of intentions, people can live their
entire lives on the edge financially, not knowing from week
to week if there will be a roof over their head and food on
their plate. But deep inside I also felt it didn’t have to be that
way—for myself or for others.
Jump forward to 2008 when the subprime catastrophe
hit and the housing market crashed. I was on the front lines,
seeing it all happen before my eyes, people coming to me
who had gotten risky loans from unscrupulous lenders and
were losing everything—not just their homes, but their
marriages and even their health. Again, I knew it didn’t have
to be this way, only now I understood where people had
gone wrong. I now had the knowledge to help people—if
they would listen—make sure this never happened to them
again. I could show them a better path forward so their new
home, when they could buy it, would be a source of financial
security that could never be taken away.

16. 15
I could no longer stand on the sidelines and felt called to
write this book so I could share this knowledge not only with
people coming to my office, but with a much broader
audience.
I understand that you probably bought this book
because you’re focused on the initial sprint and want to get
the best financing you can to buy your new home. I
guarantee this book will give you the insider information and
tools you need to implement a strategy to secure that
financing. But buying your home is just the first step on your
journey. My goal is to help you see how success is ultimately
measured by a combination of getting the right mortgage up front
AND managing your mortgage so you keep as much money in
your pocket and as little going into your lender’s as
possible—until you own your home free and clear. That
secret combination of a successful initial sprint AND the
long distance race is the key to turning your home into a
source of financial security and the basis of a balanced life.
I look forward to giving you an edge that can make all
the difference in the world—a difference that can change
your life in the short term and for many years to come!

17. 16
Home ownership as a transformative journey
Follow the strategies in this book and you will discover how
home ownership can transform your life in five truly valuable
ways:
o Owning a home gives you a new sense of identity. It
grounds you in a place that you can truly call your own,
and if you manage your mortgage properly no one can
ever take that home away from you and your family.
o Caring for your home properly and managing your
mortgage wisely gives you an enormous sense of
achievement and a deep feeling of self-respect. This book
outlines the strategies you need to make your mortgage
work best for you—not for your lender.
o Managing your mortgage skillfully empowers you to
manage all of your finances more wisely. The result is
increased financial security that benefits you in multiple
ways—from your physical and mental health to the
freedom it provides when you are making major life
changes.

18. 17
o Owning your own home more deeply connects you to
your neighbors and your community because you are a
stakeholder with a long-term investment who shares
mutual aspirations with other homeowners.
o Owning your home can strengthen your relationship with
your spouse or life partner, if you both agree up front to
make all key decisions about your house together AND to
equally share responsibility. This commitment will help
you overcome the strains that inevitably surface. I will
help you identify and agree to a set of Conditions of
Satisfaction that you can make together before you even
start looking for a new home.

19. 18
A sacred trust
Before getting into the specifics of a winning strategy for
obtaining the ideal home loan, I encourage you to commit to
a big picture approach where you respect personal home
ownership as a sacred trust—exactly the approach taken by
our third couple, Ken and Judy. Here is what I mean by
understanding home ownership as a sacred trust, and why it
is so important:
o Respecting your new home as a sacred trust is
understanding that what you are buying is not just a
house, or condo, or townhouse—it is your and your
family’s HOME, the center of your life and the setting for
many of your most rewarding personal and family
experiences.
o Respecting your home as a sacred trust is understanding
that it is an investment unlike any other. Buying other real
estate in addition to your home can be a great investment,
and comparing those investments to investing in the
market makes great sense. But the return on the
investment in the home where you live, where your kids
grow up, and where you and your partner may grow old,

20. 19
is the experiences shared there and the security it will
provide into retirement—and that return is priceless!
o Respecting your home as a sacred trust is not using it as
your private bank, which is what Greg and Allison and
Sally and Fred did when they ran up their personal debt
via lines of credit or refinancing that took cash out in
order to fund a new business idea or take a dream
vacation. I cannot tell you the heartbreak I’ve seen when
people pile up debt against their home, and not only see
their investments or business swept away, but their
marriages, families and, literally, the roof over their heads.
o Respecting your home as a sacred trust is making sure you
only borrow money against it with the purpose of
improving your home, raising its value, or making it more
livable.
o Respecting your home as a sacred trust is working
diligently to own it free and clear, so no one can take it
away from you and it can become the foundation of long-
term financial security. The beautiful thing about owning
your home free and clear is that it levels the playing field
with the wealthiest of individuals because you don’t have
to earn a traditional income to support your housing
costs, which can run as high as 45% of your gross income.

21. 20
Make it your intention to treat home ownership as a
sacred trust and I promise that you, your spouse, and your
children will be deeply grateful for many years to come.
You need a home buying strategy—period!
You are holding in your hands what I believe is the most
valuable book you will ever read on mortgage financing,
especially if you are a first time homebuyer. I’ve packed it with
insider knowledge that shows you how to create a successful
step-by-step strategy for financing and buying your new
home, and then helps you guarantee that your home
becomes a source of financial stability for decades to come.
If you enter the home buying process without a solid
strategy for success, you best prepare yourself for an
enormous amount of stress and the real chance of
heartbreak, either in the short term or somewhere down the
line. Let’s face it, finding and buying a new home can be
hugely stressful. It is smack in the middle of the list of the
forty most stressful events in a person’s life—from taking
final exams to the death of a spouse!
My experience is that most people would rather have a
root canal than read a book about mortgage financing. There
is great excitement about finding the “perfect” home, picking

22. 21
out the colors and furniture, buying the tools to fix up the
home, and all the wonderful aspects that go with home
ownership. Yet few homebuyers realize the importance of
understanding the ins and outs of obtaining a mortgage.
We know from the subprime mortgage debacle, which
destroyed the lives of thousands of new homebuyers, that
you cannot trust some lenders and mortgage professionals to
automatically give you a loan that’s in your best interests. It
would have been much more difficult for Wall Street and the
lending community to pedal their inferior loans if consumers
had been aware of just how bad these loans really were.
The process of finding a home, placing an offer, and
getting a mortgage has changed dramatically in the last six
years. The complexity of putting together a loan, submitting
the loan to a lender, underwriting the loan, approving the
loan, gathering all of the conditions for a final loan approval,
drawing up the loan documents, understanding the closing
costs, and finally closing the loan, has gone through the roof!
Is it any wonder that many potential first-time
homebuyers have been staying away from purchasing a
home? Especially when they hear on the radio, read in the
newspaper, and see on TV that “you cannot get a loan” or
that “money is tight.” Does this really mean you cannot get a

23. 22
loan? The answer is a resounding no! The reality is that there is
more money to lend than the lenders know what to do with.
Several years ago Fannie Mae conducted a study that
revealed that 40% of all people renting could actually qualify
to buy a home, but they didn’t know it! Consider Ted and
Alice, a couple referred to me by a real estate agent they met
at an open house. Even though they “knew” they could not
qualify to buy a home, they were out on a Sunday afternoon
killing time and dreaming about what it would be like to do
so. Ten minutes into our interview it became apparent that
they were qualified to buy a home! After checking their credit
and verifying their income, I gave them a pre-approval letter
and they were in their own home in sixty days. And this was
not a one-time occurrence—I see it happen all the time!
When people cannot initially qualify to buy a home, I
love putting together a strategy for these future homeowners,
including improving their credit, increasing their income, or
saving for the down payment. In many cases they qualify to
buy a home within six months to a year!
Here are some key components of a successful home
buying strategy that I will address for you in this book:
o How to create your own first-rate home buying team, find
a qualified mortgage professional that you can trust, and

24. 23
learn the essentials of working with a knowledgeable real
estate professional.
o How to ask the right questions and watch out for danger
signs when applying for a mortgage. You’ll learn what
credit scoring is about, how to improve your credit report,
and how a lender determines the value of your home and
the size of mortgage you can afford. You’ll discover that
getting approved for a loan is not as hard as people often
believe.
o How there are many types of mortgage products, why
some mortgage products are better suited for your
situation than others, and different strategies for
qualifying for a mortgage.
o How it is vitally important to find and work with a
qualified mortgage professional. The Wall Street Journal
reported that people buying a new home from a builder
had a 30% greater chance of getting approved for a loan
than people buying an existing home. Why? Because the
mortgage professionals working for the builder took the
time to lay out a strategy to get their buyers approved.
Since their new home was, in many cases, still being built,
these buyers had time to make the arrangements to put a

25. 24
loan approval in place. Getting a loan approved is not
rocket science—unless you don’t know what you’re doing.
o How to use the insider knowledge I give you to avoid
being deceived by false advertising and offers that are
“too good to be true.” You’ll learn about the traps of
adjustable rate mortgages, and when and if they should be
used. You’ll learn the secrets to getting the best
competitive loan rate, and how to take advantage of every
break Uncle Sam gives people with home mortgages.
It is essential that you be armed with the knowledge you
need in order to avoid making costly mistakes and to lower
the stress of buying a new home. My promise is that by the
time you finish this book you will know all the right questions to
ask. And you will understand many of the answers better
than some of the professionals you’re working with!
Knowing the deadly traps of mortgage financing will
give you an edge—an upper hand. You don’t want to get
caught in a treacherous web of lenders selling you the wrong
loan. What you do want is a home buying experience that is
enjoyable. Yes, it is possible for the experience of getting a
home loan to be not only enjoyable, but truly transformative.