What would you do to save $100 monthly?

I am mystified at human nature. I really can’t believe it. Recently I quoted a payment that would have saved someone $350 a month! (Don’t everyone call me to get the same deal, it was unique to that situation) And they didn’t take it! I have people DAILY call me to save $50 they would do anything. So let’s review the primary ways you can save on your mortgage payment and what a good lender (me) can do for you…

1. Stretching it back out to 30 years. Stretching the remaining amount back out to 30 years, even with adding in the closing costs, will often save on the monthly payment even if the interest rate doesn’t change at all.
2. Reducing the rate, not a end all be all, but reducing the interest rate is usually the key to a lower payment. There is no rule of thumb, but generally .5-1% less can make a good bit of difference.
3. Eliminating PMI – believe it or not, simply refinancing out of a loan with PMI (like and FHA loan) into a conventional loan will bring that benefit to the monthly payment by itself.
4. Paying off something else, including debt consolidation, this is a great way to reduce your monthly payments as a total.
5. Re-analyzing your escrow. This has several components, PMI mentioned above, homeowner’s insurance, and also property taxes (see how I saved someone a lot here).

Here are some great X factors (or bonuses) to refinancing:

1. “Skip a month” payment, maybe two!
2. Get your escrow back from the old mortgage company in 30 days after closing.

So many reasons to refinance! What’s your number you would like to reach? Let’s find it together here…

You are driving your house!

This week I have helped several people buy their first home, a relatively regular week for me. Without trying to attack car dealers, car lovers, or everyone that drives a car, let’s admit there’s an issue in this country with priorities at least in comparing what we are willing to do for a vehicle compared to a home purchase. You see, I have seen both sides as a banker doing a LOT of car lending, and now as a mortgage specialist.

Nearly every day, I see a $500-1000 car payment per month! There are some in the professions above and certainly as a consumer, that would say to us that “there’s nothing wrong if you can afford it.” However, the issue is that when you are looking to buy a home, debt to income is a very real concern. Oftentimes, the one who could “afford” that car, can’t afford the additional debt of a home on top of that vehicle debt.

$500 where I am at is a modest rental property payment or small apartment rent. $1000 could be a modest home or rent as well. So when you are “renting” a depreciating asset (car, truck, anything with 4 wheels), then that takes a huge chunk out of your buying ability for a stable asset, your home.

Add to that any other auto payment (they seem to come in two’s and don’t even think of adding another by co-signing!) or recreational vehicle, and we unfortunately have a lot of depreciating assets (assets that aren’t worth what you paid for it, sometimes less than what you owe on it) keeping you from owning the one asset that does pay you back in equity over time and also gives you a roof over your head.

There are so many real benefits to home ownership that it is sad that we have devoted so much attention to what we do for a short time (driving) and not what we do for hopefully at least 8 hours a day (sleeping in our own bed in our own home) and much of the time nights and weekends. Some are fortunate enough like me to work from a home office even. It is true that there are people who want to rent, ask to rent for short periods of time, and want to live a life of adventure before settling down. But most people have that desire at some point to call a place home and feel that they are more secure buying than the momentary payment of their next month’s rent. And for that majority of us, we need to be careful that we are not driving our “house payment” and renting an apartment!

By the way, did you know you can refinance a car to get down payment? That topic’s next! See the reformed banker for your next home loan…

What have I learned from recent refinances?

Refinancing has been BIG for the mortgage industry the past 2 years in particular. While everyone wants the unicorn lower rate, lower payment, and shorter period of time, usually you have to give up or choose at least one of them. But there are SO many more reasons to refinance!

1. A recent customer took cash out to finish his home remodel.
2. A recent customer took cash out to consolidate his debt, still met his time frame goals and is saving on his monthly payments so much that he intends to pay it off in HALF the time!
3. A recent customer took cash out of his rental properties to buy another!
4. A recent customer took his loan term down 10 years (7+ more than he had left) and maintained about the same payment. Do the math on that one, he is paying the same payment as he would have had for 27+ years and now it’s 20!
5. A recent customer eliminated multiple minor liens that they had on their property, one mortgage payment now and saved per month.
6. A recent customer took out their Home Equity Line of Credit that they said about the balance: “never went down.”
7. A recent customer eliminated PMI that they had, taking advantage of the new appreciation that their home had already within 2 years of purchase! They refinanced conventionally with no mortgage insurance and saved $200+ a month in their mortgage payments!

What can I do for you?

Why is a mortgage specialist better than a bank? Part 5: DSCR Loans

When I started this series (see 1, 2, and 3 here), I thought only of how to differentiate the skill set, or the person. But then it struck me, the key to this explanation is for you to see the main difference between the two: access to more options (and here was #4 about bank statement loans, surprisingly, something a depository financial institution doesn’t have). And we all know more options equals more opportunities to get you into the home loan you are looking for.

What is a DSCR loan?

Debt service coverage ratio, simply put, using the rents from that 1-4 family investment property home to offset the total housing payment. In other words, none of your other income or debts are analyzed, just the subject property and it’s associated PITIA payment. So how does it work? Let’s say that your payment is $1,000, and your rent earned (as proved by the appraiser who gives an average rent for the area) is $1,250, then the ratio is 1.25 times the payment.

Can a bank do this? Possibly, but usually banks are so siloed with different departments that don’t talk to each other, that the commercial side can do this type of loan, but with many differences (I discussed them here). Suffice it to say, the banks are none too generous, they take a global approach (all of your rental properties) and do get down to taxes, reserves (for all properties), and usually do an ARM or some form of “renewable” loan where they look at your financials from every year to every few years to do their “loan review.”

Why is a mortgage specialist WAY better?

Especially if we have multiple options, the DSCR loan can do several things a bank commercial loan can’t:

1. The majority of these loans are a fixed rate for 30 years, there is the possibility of ARM’s and interest only as well.
2. The DSCR loan does not require tax forms.
3. The DSCR loan does not take into account your other rental properties.
4. The DSCR loan does not require “reserves” for all of your other rental properties.
5. The DSCR loan does not require your financials again, one time and done, just like a normal mortgage loan.
6. Even go to <1.0 DSCR, even no DSCR (ask me about that!) or in other words, a payment higher than the rent earned on the property. While this has extra requirements, the very possibility is unheard of in a bank.

So how is a mortgage specialist better than a bank with a DSCR loan? The commercial side of the bank is clunky, almost unmanageable, and certainly not for the small investor. The normal bank mortgage loan officer only knows the plain vanilla products offered by the bank and presents those options. I remember the 2 years of taxes “requirement.” I remember the minimum credit scores of 640 or 670 that are thrown around, simply none of that is true when you have more loan options available. Start your journey to no more financial reporting again here…

Everything good you have to work for!

I really hesitated to write this, but I feel like so many people act like they are giving away houses. At the writing of this, they aren’t giving away homes and there aren’t enough to give away anyways! Assuming you aren’t paying cash and need a mortgage loan, you have to work for a preapproval, you have to present a good solid offer to the sellers, and you have to respond to the lender’s urgent requests for additional, current documentation to reach a final approval.

Why did I pick this crazy half balcony picture?

This picture well represents what happens when things are done halfway. I have worked at lenders who took a few notes and made a prequalification. Prequalification is like going to the car dealer and having them let you test drive and check out any car you want, with no preapproval, you have no assurance that it will be a vehicle you can actually afford or buy. Even if the salesperson says “it looks good,” you really can’t be sure until a lender looks at it and gives you an offer.

The same is true in mortgage lending, I have heard so many times that it’s simply not over until it’s over. The reason is not because the process is so difficult (although I am sure it probably is considered that way), it’s that so many things have to be verified that literally there are a hundred things going on in the background. That’s why it’s so important to line up all your documents first from a lender that gives a real preapproval based on multiple options available (start here) and that makes your process later even easier. It takes work, but like everything in life, it’s worth it!

Why is a mortgage specialist better than a bank? Part 4: bank statement loans!

When I started this series (see 1, 2, and 3 here), I thought only of how to differentiate the skill set, or the person. But then it struck me, the key to this explanation is for you to see the main difference between the two: access to more options. And we all know more options equals more opportunities to get you into the home loan you are looking for.

So let’s start with the most obvious of all: Bank Statement Loans

Every single customer when I was a banker thought that it mattered that they were an account holder, or deposit customer, when it came time to get a loan. This thought is so ingrained that sometimes self-employed individuals, in particular, would mention the thousands they were running through their account each month. They thought this was a positive point. But sadly, the bank doesn’t care.

A lot of self employed individuals also think that those deposits should count towards their income. Not at a bank, they still ask for 2 years of taxes.

Now, how is a mortgage specialist better?

1. Bank statement loans – private lenders offer bank statement loans. In simplest of terms, the lender uses your deposit history over 12 or 24 months (most common, there are even shorter!) as your proof of income. This substitutes for taxes! There are additional requirements and more money down and a higher rate than a conventional or government loan, but this can open the door to a LOT more self employed borrowers!
2. There are additional options including a conventional loan product with ONE year of business taxes (you have to be in business for 5 years), and other options that some banks just don’t have.

Whether you are self employed or not, there are advantages of having more loan options. But if you are self employed in particular, you must seek out a true mortgage professional and not a bank if you want to get all the best mortgage loan options including bank statement loans.

Don’t be real estate rich and flat broke!

I am often asked, should I get a mortgage, or just pay off my house? Well, why would I choose a fake house in a wrapper for this? Because that’s what can happen if you payoff real estate and can’t get to it! I have known many “millionaires” in my banking career who didn’t have bank accounts, didn’t have money on the side, etc., literally all of their assets were tied up in real estate. I remember one of them coming in with loose change to come up with payments on other accounts.

So it’s literally possible to be “rich” in real estate, and have nothing else to show for it. Of course, someone will argue about the rent that they can get, or they can just sell it, etc. But there is nothing certain in life. As many have said, plan for the best, prepare for the worst. We keep hearing the bust is coming, how can you prepare for it? How can you plan for the best at the same time?

So how can you make sure you aren’t paid off and have nothing to show for it?

This is not an exhaustive list, this is just some of the ideas that I have seen others use over the years:

1. Use the BRRRR method and cash out those paid off properties.
2. Setup a line of credit or commercial line of credit on your properties so you can “tap” that wrapped up equity.
3. Consider keeping a mortgage instead of paying off so quickly. Yes, this might go against a lot of older wisdom, but there are advantages to your credit, property taxes, and maybe even income taxes by maintaining a mortgage on the property. Bonus: you keep your cash for something else.
4. Pay yourself first. Yes, you may have said you were by paying off those rental properties, but you can now pay yourself through the rents. Make sure you put aside at least 10% if not more in savings, investments, or a retirement account.
5. Take advantage of grants and local redevelopment opportunities. Keep an eye out for opportunities to liquidate property that may be needed for government or utility use. Also keep an eye out for local grants to improve frontage, signage, etc.
6. I know someone who put up a billboard, while possibly not the prettiest thing, it is another source of earnings on his land. Whether it’s a cellphone antenna or a sign, it can mean extra income for you monthly.

None of these are new, or fantastic, but currently rates are historically low still, and people are talking about paying off mortgages?!? It seems like the wiser thing would be to hoard cash at super low rates and invest wisely at a better rate of return…

Start your plan here…

Conventional is just plain hard!

Daily, it feels like, I am being asked by realtors or clients to approve them for a conventional mortgage loan. This may be the tough buying market, prejudice against government loans, a fear of what the government standards might ask them to repair first, or just somehow thinking that’s a better offer. I have heard of this prejudice extending to and affecting veterans (VA loans), first time homebuyers with credit issues (FHA), zero down payment customers (USDA Rural Housing), and even low to moderate income buyers looking for down payment assistance. This is not an argument over the unfairness of the situation for the affected groups. This is an argument against thinking conventional is automatic or good. You see, the flip side is that everyone thinks they can qualify conventionally! That’s simply not true.

Why is conventional just plain hard?

1. Because as I have written about before, the standards are not as clear as meet this criteria and you are automatically good. I had an unfortunate soul the other day tell me he just needed 620 to qualify. While that is the MINIMUM score to qualify, it’s certainly not automatic. Let me put it this way, if you were letting your brand new licensed 16 year old drive a car, would you give him the brand new luxury car or the old beater? Why? Because having the minimum age to drive does not mean you are going to give him the same thing as an experienced driver that has no accidents and you can tell from their driving record is not a high risk. Similarly, credit score being the minimum will require the MAXIMUM elsewhere to qualify. Something else has to be outstanding, you can’t expect a 750 credit score to have the same rate, terms, and qualifications as a 620 credit score, it doesn’t match the risk.
2. As I have written before, desktop underwriting systems are clouded in obscurity. It’s often not clear what is the magic item to change to get an approval. Forums of loan officers often debate how to get a very good client past these systems that are denying them. More money down, more money in the bank, less debt to income, even the lack or addition of mortgage insurance, are just some of the things that can mean the difference between approval and denial.
3. As I have written before, conventional lending’s requirements are much more strict on the borrower. This means that many more people would qualify with government loans (FHA, USDA, and VA) than conventional, unfortunately they don’t know it because they are only dealing with a lender who thinks conventionally. They call them after all “conforming loans,” because you have to conform to their standards. Those standards are very strict on self-employed, investors, and credit risk. Some of those are addressed in FHA loans, others are addressed by non-QM or non-prime loans (see those articles or more).

This is not to say that a conventional loan is bad, just that it might not be the right thing for you, nor if you are a realtor, for your client! Beyond discriminatory issues, it’s important to note that conventional lending has it’s own challenges and those challenges have been made harder by recent developments with adding a refinance fee, self employment scrutinized more, even 2020 COVID-19 pandemic checks on how it affected the business, etc. So look to other options and a lender who knows how to use them, I have closed more USDA and VA loans this year than previous years, and I would love to help you!

Be prepared: part 1 $9,125

Are you ready to get in your new home this year? Are you thinking towards the Spring of 2022? How will you get there? By being prepared. Let’s talk dollars and cents this time…

What in the world is $9,125?

Would you like to have $9,125 more towards closing costs and down payment? Find a way to save $25 each day. Maybe it’s a bagged lunch, or no every week night out with friends. Or maybe a few less lattes and a few more free office coffee. Whatever way you choose to save money, $25 times 365 days is $9,125!

Sound like a lot? It could be for most people, so here are some money saving tips: move back home to save rent money. Move in with a friend to share expenses. Sell items you don’t use regularly that you may be still making payments (second vehicles for example). Check out what those antiques, collectibles, or other valuables might be worth. Find a few more deductions this year to get a little more tax refund next year. This is all things you can control and not just gifts.

Yes, USDA and VA loans and maybe even some forms of down payment assistance do have the possibility of going to the closing table with little or nothing or even the unicorn transaction of getting some of your earnest money back! But those cases are rare, and they still don’t address the other items you still need.

You see, the bottom line is that you can’t expect to get into a home for free, no matter what the propaganda says out there. There’s moving expenses, turning on the utilities expenses, decorating expenses, etc. Your best bet to get the home you want is to show you have cash whether it’s required directly or indirectly by the loan you qualify for. The best thing you can do is plan ahead to have the cash you need to offer and buy a home with confidence and the right partners in place to do so. Start with me here.

$0 down doesn’t mean nothing needed!

Maybe we have over-advertised zero down payment programs (down payment assistance). Or some unnamed multi-billion dollar company has emphasized push a button and get a mortgage. Or maybe we just have become like the movie Wall-E and just think it should be easier? Or maybe we once got one of the legendary stated income loans before the crash of 2008?

Why does ZERO down still require something?

1. As I have explained in other blogs, it still requires reserves (Reserves, it’s all about the assets…)
2. As I have explained in other blogs, it still requires other fees to move (All about the Benjamins in buying a house…)
3. Here’s a couple new ones: I recently had a customer who couldn’t even afford the appraisal fee. Realtor threw a fit like a crying baby about it. My question is, then how are they going to afford a plumbing leak, broken appliance, or worse, the roof and air conditioner? You see, the mentality of a renter, “the landlord will fix it,” is way different than the homeowner, “I better learn to fix it or I have to pay someone to.” I feel like every single foreclosure is due to someone really not being prepared to be a homeowner. There are costs, unforeseen costs, and ongoing maintenance costs ALL the time, seriously, speaking from my own experience, so you have to be mentally prepared for them and the first step is to start by learning to save money (The crucial ability to save for a down payment)!
4. You have to put earnest money down. Just like buying a car Friday night (and you want to check your bank Monday morning), the dealer is going to want money to hold that car for you and not sell it to someone else. The home seller wants to know that you are a serious buyer and will hold it for you pending your acquiring financing. This isn’t Craigslist and you can’t hold a house until you get around to it, this is a tough market with multiple bids on every home and you need to be prepared ahead of time.
5. You need movin’ money! I know, it sounds silly, but it’s true, even the underwriter wants to see that you aren’t putting your last penny into buying a home, you have money to move into it!

1. You need decorating money, there is always blinds, paint, carpet, rugs, furniture, even maintenance items of something that doesn’t work or something that you will want to do that the previous owner didn’t leave behind or didn’t have, when you move in your new home.

What does all this mean? It means zero down is zero down payment. It doesn’t mean you don’t have to have (or better said prove) a penny to your name and you can get in a home. It’s just not realistic and it’s setting you up for failure. Yes, you can get a gift towards down payment and closing costs. You can get the seller to pay your closing costs. But it’s just not a good idea to go into a home with the rental mentality. You need to take a class, think it through, and be prepared. When you are ready, my team and I are ready to take you from A to Z…