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.
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?
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)!
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.
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!
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…
So I started this (see Part 1 and Part 2) to show the difference between a bank and a mortgage specialist. I have the unique perspective of having been a banker. So what is part 3?
CREDIT BASICS
Bank: I worked at 3 banks, almost 4 (my work history is on LinkedIN here). All of them had some form of restriction on poor credit. At one, the minimum score was 640, no loans under that, another was 670! And on top of that were debt to income restrictions, one was so ultra-conservative, they were at 36% debt to income! I even mentioned to them that conventional, government, and other mortgage lenders were much higher than that and I received “we don’t care what others are doing, we are are protecting our assets.”
How did they handle collections? At one bank, no collections at all were allowed, none. If someone had a collection, they were unable to get any consumer loan. At another bank, they required all collections paid off. One other mention on collections, there was no way to dispute anything. I think this is a very important distinction. When I was a banker, I had to self-educate myself on credit, the bank was not doing it for me and they definitely were not instructing customers how to improve or change their credit score! I was told that telling them anything more than “fix your credit” was equivalent to manipulating the credit score! That attitude generally led to one and done (they went elsewhere the next time) applicants with lower credit scores. I don’t have proof of this, but I felt that 20% or less of the customers that I dealt with on a daily basis, and were account holders, qualified for a loan from at least one of the institutions and I would challenge any bank on whether they could say they could lend to over 50% of their deposit holders (or do)…
Where did this affect customers? I remember clearly one day telling someone that they had a collection ($29 for something meaningless) and they had to pay that off and show proof before they could apply again with us. After a short rant of “you have got to be kidding me,” he stormed out. The ridiculousness that a collection of $29 (when an overdraft fee was more than that, so hypothetically a bank could cause a checking account collection of even more than that with one overdraft fee!), could prevent you from getting a loan is just really hard to justify. They also supported each other, a bank or check cashing company collection was a non-negotiable issue, the customer had to make that right before we would even consider extending a loan to them.
Mortgage Specialist:
Sorry doctors, medical collections are ignored. Other non-medical collections may require a calculated payment that affect your debt to income. Government loans are more forgiving than conventional loans, which may require you to payoff a number of items as late as at the closing, but either way, collections ALONE should not stop you. Keep in mind, a new collection or nothing but collections on your credit report could affect your score and your score determines rate, what other hoops you have to jump through, and even which program you may or may not qualify for, so it matters a lot in that sense.
Credit repair / counseling is encouraged. If you don’t qualify either for the loan you want or for any loan, you are counseled on what to do, what might boost the score in just 30 days, or what you can do longer term to improve. If it’s bad or poor enough, you are then sent to credit repair. Credit repair is like a muddy old truck going to a car wash, they can clean up your credit and get it shiny new for a mortgage loan. This is very different from going to a normal credit repair that just disputes everything negative, this is instead focused on how to qualify for a mortgage, so the specific things that will improve your presentation for a mortgage loan are being addressed. Be prepared to spend some money and do the work, but it’s worth it. Do it yourself just doesn’t work as well and like washing your car yourself, takes a lot longer! See this for more on other benefits of credit repair!
Credit counseling is priceless. Let’s say for an example you don’t qualify for conventional and the only offers being accepted are conventional, we will simply tell you how to qualify for conventional. It probably takes some work and maybe some money on your part. Typically you have to pay down or pay off something, or acquire credit and use it. Or maybe it’s a matter of showing that someone else pays your co-signed loan, or have them refinance it in their name. The possibilities are endless, but the suggestions are tailor made for you! I see all the time on forums questions about credit, the only way to answer them correctly is to see your credit report and then advise you personally. From taking applications over the years, I can assure you, no matter what service you use to monitor your credit, what you think matters to the lender and what actually does is two different things. We are here to help you make the right decisions now and in the future to qualify for a mortgage loan.
Many have felt roughed over in the process…
One customer came to me dejected that they would never be able to buy a home. This experience actually happens daily it feels like. Their bank had told them that their credit wasn’t good enough, no further explanation. When I looked at their credit, it really wasn’t that bad (could it have been one of those, only above a certain score at the bank scenarios?). With a couple small tweaks, they not only qualified, they qualified for a $0 down loan! Not only did this completely shock them, but they went from the banks’ response of “I have to save and fix my credit,” to “let me get that done in the next month.” A credit re-score then led to closing on a house within 3 months of first application! This is repeated regularly, because this is what we do, we get you from point A (application) to point Z (closing). You may have to do a few steps in-between, but I simply don’t give up…
Next time we will touch on a specific product to help you that the banks simply don’t have…
So I started this (see Part 1) to show the difference between a bank and a mortgage specialist. I have the unique perspective of having been a banker. So what is part 2?
QUALIFICATIONS
BANK: In all fairness, many bankers are college educated and many workers are dedicated to their customers. But the question is are they qualified? They often point to NMLS registration (Nationwide Mortgage Licensing System and Registration). Let’s be clear, being NMLS registered is not the same as education. Most have their proprietary training or on-the-job (sink or swim). The banks have gotten a pass on their NMLS licensing, while they have to take the logistical background check, credit check, fingerprints, and registration, they do not have the same training as a mortgage specialist (more about that later).
I don’t want to make too much of this, but I think it is worthy of note. I worked at a bank with someone who was selling paint at a hardware center one year and was selling mortgage loans the next. He spent about 6 months in a banker position in-between and was mediocre at best at that as well. So the question is, what qualifications did he have? First he learned bank products to cross-sell, then he was told to “go sell mortgages.” I am not implying everyone is like this, but it does make you wonder if the person telling you what you could qualify for even knows all the options? Or at least just theirs?
MORTGAGE SPECIALIST:
With the initiation of NMLS, a mortgage specialist had to take education of 20 hours minimum and take a test to get a license. Then they have 8 hours minimum of ongoing education and re-registration every year. We learn about things like money laundering, state laws, federal laws, fair lending, and some product information. This constant reminder system helps us to stay up to date with laws, helps us to be up to date with fraud cases, and although none of us would choose it, provides the benefit of keeping us legal. What do the banks do for their personnel to even come close to this rigorous and yearly renewal?
I wanted to share a potential benefit of this training. Recently, while getting one of my 7 states’ license renewed, I had to take that particular state’s education on their laws and regulations. I learned something that I wasn’t doing so that I could make that change in my operation. I wanted to mention this because I have been in this system doing this for 4 years, licensing in and then renewing 7 states, and I learned something new in my CE (continuing education).
Looking forward to sharing some customer experiences and product differences in the next few…
I used to work for banks. Now I am a “reformed banker” and work as a mortgage banker (you are welcome to see my history here). For many, it’s the same thing, but the difference is so great that I feel that I have to say something. I am afraid that I can’t even begin to cover this subject in one post. So I have decided to write a series of articles to lay out the fundamental differences. It might drag out and it might cause some ruffled feathers with my banker friends. I apologize ahead of time. I think it’s really important to understand that you have more options available and there is a simple process to making sure that you get both the best terms and service in your hunt to finance a property.
So let’s start with this, I am discussing the difference in financing your owner occupied home (where you live), 1-4 unit investment properties, and second homes (usually in a resort area). I am not speaking about apartments, commercial properties, land, farms, etc.
Let me start with the fundamental difference, what the bank is looking for and what a mortgage banker is looking for.
THE BANK SIDE:
The bank employs people at entry level positions with low wages and works them through the system usually training and developing them as well as taking them from other banks, turnover is constant. So they develop the brand, the bank, as the source of all services, and not the employees. Even in smaller community banks, they hesitate to advertise the people as much as the institutions. They leverage any celebrity or fame of the individual employees to add to that of the institution. It becomes not a matter of the employee graciously allowing himself to be employed there, no, it’s more of a privilege that the bank has bestowed on the individual. I don’t mean this to sound ungrateful to the thousands of people who work for institutions, but it’s key to understanding that it’s all about the institution and it’s all about the returns to their shareholders. This manifests itself with pushing cross selling of products. They have to make you “profitable” as a customer and they have figured out that the more products that they sell you, the harder it is for you to leave and the more “captive” you are to their next series of products. This leads you to being looked at not just as a customer, but as a profitable or not customer. The sad fact of the matter is that the bank makes more money on overdraft fees and other like charges than they do from other operations. Sometimes those returns are good, everyone is happy, at other times, cuts are necessary, sometimes even programs that they consider unprofitable.
At one of the banks I worked, they had a full local mortgage team, including underwriting, processing, and conference rooms for closing. It was “consolidated” to a “centralized” operation and all of those people lost their jobs. At another bank, a buyout left much of the staff turned over. I had seen that a number of times but not with as much ruthlessness as that particular occasion where everyone was promised jobs for 6 months, but by shortly after that, all of the duplicate positions were eliminated!
At another institution, although being a community bank, the entire focus was profit to the shareholders. No risks were allowed that would shatter their income stream. This is not a bad thing, it just comes in conflict with the work of being customer focused and trying to help people to buy a home. Here is the first example…
RANGE OF PRODUCTS:
A bank, especially the smaller ones, does not have a range of products and services that a mortgage lender has. This is not only the standard items like conventional and government loans (they may have FHA but not USDA, or no VA, or they have “overlays” to prevent the bank from having more risk so they do additional requirements beyond what FHA, USDA, VA, and conventional lenders actually require), but also a number of other items such as bank statement loans (you would think a bank would have this, literally EVERY customer I talk to thinks it matters that they have their accounts with the bank when they go for a loan, but stunningly, it simply doesn’t), debt service coverage loans, and foreign national loans. I will cover each of these in future posts.
Why are options better?
Why is the mortgage industry and a mortgage specialist better?
Our only focus is getting you a mortgage, not a checking account, credit card, or making you a profit machine for the bank. One shot we have to make you a customer for life. One shot we have to get you into a home, refinance, or remodel a home. Usually that creates a repeat customer, but as you know, we do the same thing the next times as well, fight for you to get a great loan and give you your best options. At one employer, I had over 200 options at one point! When we don’t have it, we try to find a lender that does so that we can broker with them and still get you taken care of, for example, bank statement (yes non-banks have a bank statement program!), and debt service coverage loans for rental properties.
Here’s an example repeated a thousand times over, a customer came to me and had been turned down by his own bank. He didn’t make enough money on his taxes. We were able to help him with a bank statement loan to purchase a home.
More to come, please tune in for the next time, I will try to have an interesting customer story with each one…
Shopping for a mortgage? I have heard it all, “the guy down the street is offering .125% less!” “My neighbor (friend, coworker, uncle, cousin, enemy) got X.X% last week (month, year, century)!” And I understand, interest rate is tangible, it’s comparable, it’s easy to remember almost, except for all those digits after the decimal point…
But why should you care about the rest of the equation (see my article on the housing payment components)?
Because there’s SO MUCH MORE than rate to the equation!
The principal matters, assuming it represents the majority of the purchase price being financed, arguably the most! Yes, I will get some flack on this one, it might be that someone will do the math on the rate and challenge me, but here’s the truth for most of America: you can’t afford a several million dollar home even at 0 percent! So the principal does matter, it’s the biggest part of the payment in many circumstances and with simple interest it drives what interest is eventually charged during the course of the loan. Everyone knows that, but it’s easy to forget in the heat of the moment. We see it’s just $20 more a month to get that little bit bigger home. Now we want to lower the rate to get the payment to go back down. Or maybe we think that an online calculator (without examining it’s flaws like the fact it assumes that you put down 20% to avoid #5 below, see my article on PMI) is correct and we really can afford that mini mansion! This often happens in refinancing where I have had someone tell me that going from 4% interest rate to 3% interest rate should save them at least 25% of their payment (ignoring principal, taxes, insurances, etc.)!!! I have many times sat across from someone with a HUGE car payment who proudly tells me they got zero percent on that, but it’s still a large payment…
Those who quote the lowest interest rate are sometimes like some of our favorite, or for others least favorite, fast food joints. There’s a dollar menu and then there’s something you want to eat. The dollar menu is often not the tastiest, definitely not the healthiest, etc. Assuming all loans are equal is a VERY BIG mistake. The first part is that there could be points to get that rate. The second is that they may not be able to deliver on that rate. I have had people leave me for a super low competitor who then couldn’t deliver on their promised rate and offered instead to match my “higher” rate (how noble of them) so the customer didn’t have to start over with me!!! The other thing is that rate can and will change daily and literally is tailor made to your situation (such as loan to value, credit score, and debt to income among other things) that particular day, so unless you apply (not a good idea) and ask various competitors to run a full underwriting analysis, you simply won’t be able to know for sure that you are qualified for that rate, no matter what they say.
Insurance is a big part of your payment. Think of it this way, you have no control over where insurance goes in the future and it might be hard for you to switch insurers, so isn’t it better to shop for that now, and start out low NOW? Start with your car insurer, but quickly you can find good rates out there. It’s important to make sure the company is strong, though, this goes right along with the lowest rate isn’t always the best deal.
Property taxes – really hard to explain this, but I have seen two homes very similar (they were comps for each other on the appraisal) and yet very different assessments which means very different property taxes. Again, you can’t control where it goes completely, more than likely it’s going up, but you can control what you buy now by making sure you buy a reasonably assessed property, check for all your discounts being filed immediately, and then monitor your property tax assessment and discounts throughout your loan whether it’s going up like everyone else’s property or if you can provide something to show that the assessment is off.
Mortgage insurance, whether from a government entity (FHA and USDA that never potentially goes away) or private mortgage insurance (similar to a homeowner’s insurance company) for conventional loans, this is a BIG part of your future payments. Some call it a waste, but basically the lender wants to be covered if you don’t pay.
Homeowner’s association / condo association – call it whatever you want to, many communities have formed a homeowner’s association to provide order, services, and bureaucracy to where you live. In the case of a condominium, they provide maintenance services as well and often call it ‘a maintenance fee.’ Either way, you can bet that as inflation costs rise, so will your HOA fee. Again, you can’t control the future, but you can control where you choose to live and whether the fee is acceptable to you today. Side note: I don’t know of any escrow account that covers this fee, so it will be another bill for you to worry about, but it is counted as part of your “housing” payment.
It’s important to note that property taxes, insurance, and homeowner’s association fees, the rest of the housing payment, is there even when you payoff the mortgage! So shouldn’t it get a lot of your attention going into the property (buying it)?
This next year is continuing the trend of last year, low inventory of homes, higher and growing prices, and outrageous competition! Why would anyone buy now you might ask? Because we have been cooped up so long that we are tired of our surroundings. Because people naturally want to upsize, downsize, and just have a new place to call your own, regardless. And because historically, we are still in a great time as far as low interest rates go.
So what can you do to have an offer accepted in 2022?
Plan ahead. I still get clients having one month left on their lease (and having to re-sign) and asking for a preapproval on a new home mortgage loan. Sorry, that’s not going to work in this environment unless you have a pre-arranged deal. You need to plan ahead to be preapproved earlier than you lease is up. You need time to get preapproved, time to shop, and time to find the perfect home for you after multiple offers.
Prepare your documents. Make sure your offer is a solid offer. Make sure your offer is actually backed by real documentation, it’s a true preapproval and not just a prequalification. If your lender doesn’t ask for any proof, be wary. You may not see the closing table and worse, may not have the sellers accept your offer because word gets around.
Go with a lender that helps you. I have called sellers’ agents, chatted with sellers, and pitched my clients to everyone that would listen. Other lenders are too busy to get involved. Or they leave that to the agent. There is no more powerful testimony than that of the lender themselves talking about how great financially or the character and family of the borrower.
If you are ready to put the time in, I am ready to help you…
No, not fake money! I know, I know, you probably think this is about debt consolidation, but actually it’s about something else entirely (at least the first part)! It’s about the difference a credit guru, credit repair, and a true homebuying consultation with a mortgage expert can make in your life and finances, as told by the experiences of 3 customers.
The actual customer I am referring to had a bankruptcy, there was an account left over, or still reporting on their credit report despite being included in the bankruptcy. Most of the time this would be ignored or the customer would have to dispute it themselves. But it was significant enough that I ran it past my credit repair expert and boom! He was able to get it to a lawyer and the customer will likely make money off of this. Before everyone with bad credit calls me up to look at theirs, I have to say this was a rare event, but just shows how much incorrect information is out there and how it can affect a person’s life for a very, very long time. See my warning on getting the right person.
The second actual customer came to me with scores in the 500’s and was challenged to ever get higher on their own. It seemed like every step forward they took, they were knocked back 2 (or 3!) with a new collection or late payment showing up! So they came to me and I offered my standard set of suggestions such as never pay late again, stop collections before they start, and build positive payment history which means far more than negative credit (see my multiple blogs on this subject). After just 6 months, their score went up considerably and after 12 months, boom! Landed in their new home!
The third actual customer is something I did a lot as a banker, now looking back, in all the wrong ways. The customer needed to lower their bills, what we like to call giving yourself a raise. The customer was on a limited income and the small emergency loans had really put a burden on them for monthly payments. With a debt consolidation refinance, they were able to lower their debt by over $300 a month and reduce what they were paying in interest. This isn’t always the case, but when it happens, it’s great.
So what’s the moral of the story? Check with an expert, you never know how you might give yourself a raise, raise your credit score, or even find some hidden money in a bad situation! Start here.
Recently a home mortgage loan closed quickly and easily, it seems that I have challenged files a lot of the time, so this surprised me. I just wanted to reflect on 2 things that this particular customer did right and why that led to the result of a quick closing.
The customer had credit issues and addressed them IMMEDIATELY. This means that a debt was paid down, paid off, or an account closed or opened, there are so many ways to fix a credit issue, but they got right on it and the results showed quickly on their credit report because they did what was asked of them quickly.
The customer responded to our requests for documents IMMEDIATELY. I love when they even say ‘let me know if there’s anything else you need.’ Yes, we need A, B, and C, and it’s sent to us the same day.
After many years of lending, it seems that the same thing is true in life, right? We often talk about dieting, changing something else, etc., but until we are ready to do something and ACT on it, it’s just talk.
Are you ready to change your housing? If you are serious, you will put forth whatever it requires to fix your credit, prepare your finances, and provide whatever the documents are needed quickly, or else it’s just talk. So are you really serious about a change? I look forward to working with you! Start here…
YES! I don’t understand why this is an issue, I believe it may have something to do with the fact that we say 2 years of work history (2 years required of what?) and maybe that makes it appear that it is “work,” but the correct term should be earnings history. The problem with putting earnings history is then it sounds like someone didn’t qualify when they just retired, or just became disabled, etc.
So anyway you want to phrase it, the idea is yes, ongoing earnings count and that earning in particular could be enough for you to buy a home.
Now, let me tell you a story, a customer who was under a contract sale at the time, came to me after having been turned down elsewhere, and applied for a refinance to pay off the contract. We were able to count the income from SSI disability payments and add a little more to it (it’s called grossing it up) due to not having to pay taxes on the income. That allowed the client to more easily qualify and refinance.
And another story, someone was turned down at another lender and told to “get a co-signer” (this is a fun article I wrote about that answer: Co-sign is so yesterday… We were able to use the gross up of the SSI disability and they are closing on their new home with 100% financing (Why Success Mortgage Partners?)!
These are just a few of the people I have been able to help recently using SSI disability income. How can I help you make your home purchase, remodel, or refinance dreams come true? By the way, equal housing opportunity should mean just that…
Corey Vandenberg - Mortgage Loan Officer - NMLS 563900 