The crucial ability to save for a down payment

You just need $10,000, or you just need 3.5%, or you just need 20%, have you heard those words before?  As home prices go up, those percentages seem to inch ever higher.   While I have addressed zero down programs here: 100% financing rocks!  The real issue is that not everyone qualifies for zero down, and on top of that, are the closing costs that less and less sellers are willing to negotiate.

Why is saving for a down payment wise?

Strictly speaking, it shows your ability to think beyond the expenses of the moment and to be able to have something set aside for the future unexpected events.  For example, a “rainy day” fund for loss of work, unexpected expenses like medical, legal, etc., and just to have money set aside to put down on your next major purchase, like a home. 🙂

Why is it so hard to do?

Because we tend to think not too much farther ahead than the next paycheck.  And there are countless marketers advertising for the same thing: just $X a month will get you what you want today, with no mention (except in very fine print) of the consequences long term (how many years you will have that debt, usually long after it’s of any value to you anymore).   We literally have to break the “consumerism” mindset and start thinking long term, like if I do this, then that could happen.  And we have to see the benefit of long term planning.  Note I said planning, not wishing.

Why is it crucial to bridge that gap?

Simply put, learning to save will change your life.  Some ideas of savings are simple, like make your coffee at home, or don’t eat out, or buy at a discount.  All of that is fine, but the holding money back, putting it away somewhere, is often lost in how to save $2.  The mindset has to be “I am going to pay myself first,” or “the piggy bank gets the first dollar(s) I earn.”   This habit will then grow and you will look for more ways to save to put more money aside.  Simply saving by discounting your expenses may just lead to finding yet another way to spend it.  But learning to put aside money first can lead you to always have something in reserve, no matter what you make or what your expenses and debts are.

What about a down payment?

The funny thing about learning to save is that it often leads to a better credit score, since you have money to avoid collections, to reduce debt, and to keep from spending on credit in the first place.  So literally, a down payment become not easy, but easier.  Beyond a down payment is the reserves, or money for future needs (like moving, putting in blinds, carpet, or painting, and having that first payment next month).  The more you have to put down, the more you have in reserves, and the better the credit score, simply put, the easier it is to get a loan.  And it all starts with the ability to save…

Start here for your options: Your favorite mortgage banker 

Why not just your local bank’s mortgage loan officer?

Why use a mortgage banker (that’s all they do) or mortgage broker?  Why not just use your local bank, credit union, trust, or first bank or trust’s mortgage loan officer (MLO)?

  1. The bank doesn’t have anywhere near the products that a professional mortgage banker or broker has.  Proof enough: ask them if they have a bank statement loan, a loan based on the self employed individual’s bank deposits.  Wouldn’t you think a financial institution would have that for their deposit customers?  When the answer is no, I rest my case (by the way we have a lot more than just that: Non-QM, what? Is that a good thing?)…
  2. Your local bank loan officer doesn’t have to train or pass a test.  Yes, it’s true.  The criteria for national banks and even local community banks is pretty low.  They get a pass on all the requirements that we professional mortgage bankers and brokers have to do (20 plus hours of classroom training, then a test, sometimes additional training per state, and ongoing training requirements each year).  I worked at a major multi-state bank with a guy who worked for the local hardware store before being hired to tell you what the best loan is, go figure.   I also worked with ex-tellers, ex-secretaries, and ex-construction workers.  Nothing wrong with any of those professions, but consider for a moment that they had slim to no training to put you in the right loan, but the bank felt they were qualified enough to do so.  The joke in the industry is if you want to start out in this industry, it’s just easier to start there at a financial institution and if you survive, you can grow up to be a real mortgage banker or broker.
  3. The bank pushes their MLO to cross-sell.  Your professional mortgage banker or broker will simply not ask you to buy anything else.  Your local bank MLO could likely push you to talk to their banker to get your accounts, their investment person to get your investments, and their insurance person to get your homeowner’s insurance.  Even local credit unions have begun to use these tactics.  Why?  The bank makes more money off you, “captures” you as a client, and the MLO gets compensated for it.  As a professional mortgage banker, it is illegal for us to get a kickback or referral fee from selling you something else.   Again, the banker is not under those limitations and the bank pushes them hard.  A number of news items have been written about the pressure to cross-sell.  Coming from a bank environment, I can testify to seeing it personally.

What does all this mean?  Your local bank is good for some people.  The local bank is good for the local bank’s profits.  But they are also limited, looking to “capture” you, and last but not least, they may or may not be qualified to tell you what you actually qualify for.  Pick a professional.  Get a professional experience.

Credit, yet again…

The basics of credit, how do you even begin to explain it?  One of the most basic ways is trust.  Trust is one of those words that you can understand easily when you think of employees, family, and maybe even your own.

1) Employees?  Yes, an employee who has trust of their employer may have a certain responsibility, a key, a passcode to get into certain areas, etc.  That trust is usually built up over time or comes with their previous responsibilities that they held elsewhere.  In a similar way, credit is steps in a ladder.  I am often approached by someone with absolutely no traditional or alternative credit (see my other article here: ) that now would like to buy a house and get a loan.  Start building credit first on the lower rungs before you jump the ladder to the higher rungs.

2) Family?  Yes, a young person builds the trust of their parents over time by demonstrating responsibility.  With time, they have less restrictions and more freedom because their parents trust that they make good decisions based on their previous history of decisions made.   In a similar way, over time, credit is built up by positive (or destroyed by negative) payment history.  Even if you made mistakes in the past, you can rebuild credit just like trust by making positive steps from today on.

3) Your own?  Your friend comes to you and asks for $20.  Assuming you have it, and don’t mind giving it away, probably you don’t even mind losing it.  But now add a couple 0’s, he wants to borrow $2,000, now the story changes a little.  You want to make sure that he will repay it.  What has been his past history?  Do you have to bug him each time, or does he genuinely want to repay you, even more than he borrowed or agreed to, and ahead of time?   These well illustrate what a lender looks at.  I am amazed that people who haven’t paid their doctor $100, their last credit card $600, their last apartment complex $2,000, and their last utilities a couple hundred dollars, now think we should lend them $100,000 with relative ease.  How are they going to pay back $1,000 when they couldn’t pay the doctor $100?

The point here is not to state underwriting guidelines or dissuade anyone from trying, but be willing to acknowledge that sometimes, the best way to “qualify” is to take an honest appraisal of oneself and your past payment history and ask, would I lend myself money?   If not, then work towards that goal now.   If so, let’s talk with a little different lender

“Seasoned” salt

It’s the little things that really count.

Recently, my customer had a well water test.  That water test didn’t find anything major, anything deadly like e coli, but it definitely came up with something over the EPA limits.   So the underwriter flagged it as a loan condition.

So what do you think I hear from the “seasoned” people assisting in the transaction?   I heard that it’s “no big deal,” “never heard of such a thing,” and I even had to call the local water company, who by the way didn’t make the test, to hear that it “wasn’t fatal,” and “no other lender has ever asked for that” in their great knowledge and experience!

Why do these little things matter?  Because my customer’s family is going to inhabit that home.  I don’t want bad well water or anything that could harm my customer’s family.  If the lender asks for the water test, and the independent company flags it for something, then that’s it.  That’s the responsibility of the seller to make sure it’s fixed or okay.

Fast forward, and we find out the real problem.  The water treatment system was in poor condition.  The water softener was out of salt.  And of course, the untreated water was tested.  Whose responsibility is it to make sure the water treatment system works before a crucial water test?  Whose responsibility is the salt?

“Seasoned” individuals have that responsibility.  “Seasoned” salt.

And that’s the reason that it’s so important, even the little things, in every transaction.

Find a lender that makes sure the details are covered.

Time to ride the crazy mortgage loan roller-coaster?

The longer that I am in this business, the longer I think that a roller-coaster is the proper illustration for this whole process.  Customers likely approach a mortgage with the idea that they will be approved, then find a house, and wind up totally fine (maybe acknowledging that something could go wrong in the process such as a bad appraisal or a bad inspection report).  But the reality of the loan is it may feel much more like a roller-coaster!

What do most roller coasters have in common?

  • You have to wait in line – sometimes you have wait a while, this reminds me of credit issues, or income issues, or even savings for down payment issues that are necessary preliminary items in the mortgage loan process.
  • You have to be a certain height, age, etc. – well, thanks to laws, the age thing doesn’t apply (except you have to be of legal age). But there are definite pre-requisites like having income, having verifiable money assets, etc.
  • You have to strap in – as one of my processors would say a lot, it ain’t over until it’s over.   Until we get to the actual closing, you may be asked to regularly provide any number of proofs and papers.  It’s all part of the process.  Resistance is futile, it’s like fighting the straps holding you in as you hang upside down in the roller-coaster, or something like that.  Working with the loan officer to get what you need and when they ask for it is always the better route.
  • There is usually (we were on some newer ones that aren’t) a space of slow building up. You know, the section of the track where it creaks upward as some pulley systems are lifting the cars slowly upward in a suspenseful way as you look over the edge at how far up you really are!  Well, there are lots of these moments in a loan.  I had one customer ask me a hundred times if her loan was approved yet.  Or if that was the last document.  Or if the final figures were in.  We can estimate all we want, the final figures from the title company come at the end, usually around final approval, with lots of suspense between here and there…
  • The exhilarating rush as you sweep downward and scream in delight (or horror) – Well, let’s hope it’s in delight when the loan is approved and closed.  Hurry up and get me one last bank statement, one more pay-stub, another letter of explanation, etc.  When the underwriter or processor responds with a list, we rush to gather those documents and submit them again.
  • When you stop, you unstrap and usually are still a little exhilarated and maybe wobbly, try to get up and go back to the real world – the closing table is that great moment, just get past the 100 or so pages of paperwork and signatures, and get your keys and garage door opener.  Sometimes the title company representative, loan officer, and realtor are there to help you get oriented afterwards.  I have even seen family (like the ones that didn’t want to go on the roller-coaster in the first place and waited on the ground looking up at you go through the whole thing) waiting in the lobby or gathered around the closing table as emotional support.

Either way you look at it, lots of support in the end and hopefully in the whole process makes it a lot more enjoyable.  Just like a roller-coaster, some say, “let’s do it again,” and others, “whew!  I am glad that’s over with…”

Your favorite lender  is just here to make it a little smoother and easier along the way…

 

 

 

What we do for our pets…

The other day we heard from a realtor who explained that many repeat customers have specific pet needs that they now want a new home for.   So to expand their home or to have a fenced yard, or some other “pet-friendly” feature is sought after.  This reminds me of a man who left a house behind for his cat.  They affectionately called it the “cat house.”

What has life come to?  Well, in my own defense, a fenced in yard, a bird paradise, and some trees around for squirrels, chipmunks, maybe even raccoons, does keep my cats entertained.  When I had a dog, a fenced in yard to run in was also very important.

Also, we all know that as the family grows, the need for a bigger, better place comes in.  When you add pet family members, and the tendency we all have to have more than one, it is clear that this is a legitimate reason why to look for another home.

So that being the case, what are your options?

  1. Sell your current home and buy another.
  2. Rent your current home and buy another.
  3. Do a renovation of your current home to make it more “pet friendly.”

The beauty of this, a good mortgage lender can help with all of the above, but how?  A preapproval was the key to the first 2, and a good mortgage lender will help tell you exactly what you can afford, what you need to get for rent, and help you budget for the new purchase.  Why get preapproval?  But also number 3 can be helped as I have discussed before: Remodel or rehab loan?

So whether you are looking to expand your human or pet family, it might be time to now weigh your options to get the home of your family’s dreams…

Renovation clues to help you out

I am amazed reading the ads for homes for sales that are fixer-uppers or handyman specials.  Sometimes it clearly says it, other times, it says something like needs tender loving care (TLC) or lots of potential or even words like quaint or partially finished anything.

But the best part of all is when the person wants to buy and do it themselves with no down payment and no cash reserves, and no real plan.  That sort of lending (for anything major) is hard to find.  Basically, you would have to have an appraiser turn a blind eye, since most types of loan require at least minimum standards.  Those standards include possibly no ongoing maintenance issues like peeling paint, or minimum standard safety upgrades such as GFCI outlets (Ground Fault Circuit Interrupters) or upgraded electrical.

Maybe you think this will never happen to you, but even if you just want a few upgrades, you should consider a renovation loan.  Why a renovation loan?

Remodel or rehab loan?

How do I finance a pool?

Well, as I have explained in previous blogs, there are several main advantages:
1) One payment instead of the complications of a second mortgage, home improvement store loans, or credit cards.

2) More importantly, the renovation loan considers FUTURE value, after repairs.  This is the most important part of the equation.  Any typical purchase mortgage loan normally goes by appraisal value or purchase price, the LOWER amount.  The renovation loan considers the after repair value, which can potentially help a lot.

3) There are so many projects that can be done, really your imagination and the future value are the key considerations to keep in mind.  After that, a consultant or a good contractor can help you put that dream in the form of a quote.  That quote then becomes your guide to make key decisions and have the future appraisal done.

4) Last, but not least, if there is a 1-4 family, or rental property possibility, renovation loans can really help.  Even fewer lenders do this type of lending with so little down.  Most buyers can get as low as 3.5% down…

So many good reasons to get a renovation loan instead of looking for other, more limiting forms of financing.  Get started with your favorite renovation lender here.