Tag: mortgage

Talking is Still in Style

This is a few days later than usual – sorry – but the first part of the week had me doing some other things that, quite frankly, were more important.  I attended the funeral for the teenage son of some very dear friends of ours.

The last gentleman to address all who were gathered at the funeral made a comment that reminded me of a very important lesson for those of us who work in the real estate and mortgage world.  He made it clear that he was not decrying technology and what it affords all of us, but he said we should make a concerted effort to talk more to one another – actually TALK, not communicate through email or text messages.  If one were to start a list of people guilty of using email and texts more than making phone calls and speaking face to face with other human beings, I’d very well be near the top.

Talking affords everyone the chance to get immediate feedback and see if their message was received as intended.  Talking allows us to show emotion (excitement, concern, worry, etc.) and spur others to give it right back to us.  Don’t fool yourself into believing that was the reason emojis were invented.

We argue that email and texts are a much more efficient way to communicate.  No, they ARE more efficient means to DELIVER a message, but that’s not communication.  Long ago, before email and text messages existed, I learned that in order for actual communication to take place, the message has to be delivered and FEEDBACK has to be given.  All too often, we forget about that second part because we feel our message is more important than anything else and don’t care how it’s received.

While I’ll certainly admit to being guilty of using technology more than I should, I always try to meet with people whenever possible.  I want to see the expressions on their faces when I say something; I want to be able to read their body language to make sure we’re COMMUNICATING.  Meeting someone in person is worth 100 times more than the time I’d save by talking to them on the phone instead of driving across town or to another metropolitan area to make that meeting.

If you think about it, this article is the perfect example of NOT communicating – I’m basically talking AT you rather than WITH you. In that vein, give me a call and let me know what you think about this and what you do to communicate better with your clients.  I’m all ears!

Keep it Basic

Fair warning:  I’m going to brag a little, but there’s a point to it – I’m not just taking this moment to crow while I have a captive audience.  (Come to think of it, you’re not a captive audience at all.  You can leave anytime you like.  Are you still there?)

When I started my career in the mortgage world over four years ago with Priority Lending, I made a point to meet with as many real estate agents and escrow professionals as possible (to this day, I STILL do).  You’re my partners in this, so it made sense to talk with you and find out as much as I could with respect to how you viewed mortgage folks.  I was regaled with a lot of stories, both good and bad as you can imagine, but one of the most common themes I experienced was that they noticed how loan originators hop from one company to the next every 18-24 months.  To a newbie, that was odd and, I’ll admit, a little troubling.  Troubling, of course, because I was wondering what I go myself into.

The reason I found this so odd, though, was that as I looked at the other loan originators working at Priority Lending, that timeframe didn’t apply.  One of the loan originators had been with the company for over eight years, and another had been there for five.  Fast forward to now, and those folks are still with us, and we’ve brought on more loan originators who have made Priority Lending their home.  Buckle up, kids.  This is where I’m going to brag a bit.

What creates an environment at Priority Lending that makes it so we want to stay and keep this our home?  ABCAssortment & Breadth of product offerings:  other lenders have 10-15 core products (with some, that number is high) that they offer, and if the borrower doesn’t fit into one of those products, they’re told “thanks, but we can’t help you”, and they’re shuffled out the door.  We have over 80 different products so we’re NEVER the “thanks, but” guys (I have to admit, though, that “The Thanks, But Guys” would be a good name for a band).  In other words, we have no reason to leave because if we did, we wouldn’t be able to help you close those transactions that don’t exactly fall under the “standard” category – and we all know, the population of that category is dwindling.  Consistency: as you know, this industry isn’t for someone who expects things to stay the same; at times, we see things change on almost a daily basis.  However, amidst all the change and upheaval (that’s a great word that just doesn’t get used enough) in this industry, we know that our operations remain consistent.  That doesn’t mean they don’t change – of course they do – but the approach and the attitude remain the same so we know what’s coming.

Whether other loan originators are hopping from one company to another is due to the company changing the game plan midseason on them or because they’re just restless souls who are always looking for the greener grass (I used two wholly unrelated metaphors in the same sentence – sorry), I can’t say.  What I CAN say, though, is that because we have an ASSORTMENT & BREADTH of products found nowhere else and we’re CONSISTENT, it doesn’t make much sense to follow an LO from company to company because you never know where her hands are going to be tied or when he’ll have to come back to you and say, “thanks, but . . .”

When You Don’t Have a Rich Uncle

What you are about to read isn’t for everybody – that sounds sinister, right? – but you really should read all the way through because you’re going to want to be prepared when the appropriate situation presents itself.  We’re talking about Jumbo Loans . . . well, sort of.  We’re really talking about coming up with the down payment and how that becomes a slightly larger feat when the purchase price starts climbing northward.

We have a partner who is looking to help your clients either come up with enough money for a 20% down payment or increase your client’s down payment so they can purchase a larger house.  Let me break this down for you:

The limit for a conforming loan is $484,350 as of right now.  That means any home that has a purchase price of $605,438.75 or higher is where this partner of ours is helping your client.  (Here’s the math: $605,438.75 – 20% for the down payment = $484,351, which is the point where the loan steps out of “conforming” land and into “jumbo” land.)

This partner of ours is NOT a lender; they’re an investor.  In other words, they’re not loaning your client the money to help with the down payment; they’re becoming an investing partner with them who will share in EITHER the gain or the loss of the change in value of the home.  There’s NO interest being charged, and there’s NO monthly payment – as I said, it’s an investment.  Let me be clear right here: I am not trying to sell this to anyone; I’m simply presenting you with an option that could be that extra help your client needs to purchase that dream home.

In broad strokes, here’s how it works:  they will invest between 5-10% to be coupled with your client’s down payment to total at least a 20% down payment on a home.  This could mean that your client brings 10% to the table, and they contribute 10%, so your client can buy that $750,000 home.  Or, let’s say your client has $150,000 for the down payment already, but the home your client REALLY wants is $815,000.  Our partner could come in with the additional money needed, and your client’s monthly payment for the $815,000 home would be the same as the $750,000 home.  In many cases, that extra 10% they can bring to the table is the difference between a great home in a great neighborhood and THE home in THE neighborhood.

Now, here’s how the investing partner makes their money – they’re not doing this for their health remember:  The home your client purchased for $750,000 you’re now selling for $850,000 ten years later.  The mortgage balance is $470,000, which means your client has $380,000 in proceeds.  The investor gets their initial investment of $75,000 plus 35% of the change in value of the home.  In this case, the home increased in value by $100,000, so 35% of that is $35,000.  All told, the investor gets $110,000 ($75,000 + $35,000) out of the proceeds of the sale.

Remember how I said they’ll share in your client’s gain OR loss?  Different scenario:  your client purchased the home for $750,000 with 10% down from their pocket and a 10% investment from these guys.  Five years later, your client needs to sell the house at a loss – it’ll only sell for $650,000.  The investor’s initial investment of $75,000 was for a 35% share of the “change in value”.  In this case, the change is $100,000 (in the negative), so they’re going to take a $35,000 loss against their $75,000 investment.  In other words, your client would only owe them $40,000.  If the negative change in value were more than $215,000, your client wouldn’t owe them anything ($215,000 X 35% = $75,250 > $75,000 – anything beyond the investor’s initial investment cannot be recovered).

There are other details in the agreement that range from time periods to fees, but I won’t bore you with those at this point.  If this is something you can see helping your client get into THAT home, I’ll be more than happy to sit down with you and your client and go over ALL the details so everyone’s fully informed.

In addition to this helping you with existing clients who are currently frustrated because they need that little extra something, this could help you start a new marketing campaign to find more of those clients who just need that little extra to help them get into the home of their dreams.  Also, you could use this tool as a way to attract more listings in these higher price points because you have a way to help them attract more qualified buyers.  Call me.  We can sit down and brainstorm other ideas where this could help.  Get me a 44-oz Coke, and I’ll be ready.

Pretty Soon Now, They’re Gonna Get Older

Without any apology, I fully admit that this and the last few blog entries have been lifted from previous entries.  You might think this is the result of a recent streak of laziness, but I can assure you that I’ve always had a certain degree of . . . well, I wouldn’t call it laziness, but it’s certainly a penchant for finding the least complicated way of accomplishing something.  Most importantly, though, don’t fault me for dispensing timeless but relevant wisdom.

Speaking of wisdom, someone much wiser than I – which, let’s be honest, is a fairly large group that might have trouble finding a meeting space big enough to get together – once shared this little nugget with me: “Seek first to understand, then to be understood.”  As mortgage and real estate professionals, we’re required to take a gajillion hours of classes and then take a crazy confusing test JUST to get our licenses, so it’s natural to THINK we know a lot right out of the gate and that the world is just waiting for us to share it with them – and that feeling of being omniscient only grows over time.  (I’ll pause here if that last sentence made you laugh and caused you to shoot milk or another beverage through your nose and onto your keyboard.)

The cold hard truth, really, is that someone with absolutely no experience in our industry could run circles around a 20-year veteran if she follows my friend’s advice, and the veteran relies solely on his expertise.  Paperwork, forms, negotiation, the art of the deal:  all of these things can be learned along the way (and fine-tuned and improved, of course, over time), but understanding the client, her needs, her goals, and her viewpoint HAS TO take place BEFORE anything gets accomplished. Failing to do so or expecting to learn it along the way will only lengthen the process far more than necessary and waste a lot of time.

With that said, I have to make a confession: until I read a recent article from NerdWallet, an online financial consulting company, I thought Millennials (as a home-buying group) were just a bunch of whiners living in their parents’ basement waiting for an inheritance.  Obviously, I didn’t seek to understand; I just thought everyone understood and shared my viewpoint.

For the sake of reference, Millennials are those folks who were born between 1981 and 1997: 22-38 year olds.  Here are some of the items the smart ones over at NerdWallet shared in their article that caused me to look at this group of 66 million people a little differently:

  • The median age for first-time homebuyers in 2015 was 31 years old as compared to 30.6 in 1970-74
  • Two-thirds of these folks haven’t even reached that home-buying age of 31, and 22% are under 25
  • Millennials are renting for a median of six years before buying as compared to five years in 1980
  • Millennials are expected to form 20 million new households by 2025

Also, to add further to my understanding, Fannie Mae conducted a survey among Millennials and found that more than a majority had a positive outlook about purchasing a home; two-thirds of the respondents felt it was a good time to buy even after the housing market collapse. Looks like these young folks DO want to purchase a home!

Lastly, Fannie Mae’s survey found that one of the biggest factors keeping Millennials from buying a home is perception, not reality. When the surveyors dug into the answers like “renting is a more affordable option” and “cannot obtain a mortgage”, they found that these answers were largely based on the belief that a 20% down payment is required and a 750+ credit score is the low bar.  (Some of you may be shooting milk through your nose again.  I’ll wait.)  Reality is more like 3-5% and a credit score of 600+, generally speaking.

There’s a giant wave of Millennials coming, and they obviously need to be educated.  Are you ready?  If you want to make yourself even more invaluable to this huge bloc of future homebuyers, offer to teach them how to drive a car with a clutch.

Shiny Objects Can Be Pretty . . . Expensive

A few years back, Trulia determined that new homes cost roughly 20% more than similar existing homes (by the way, the same study probably concluded that the sky is blue and that water is wet, but that’s another discussion for another day).  Regardless of the somewhat obvious nature of Trulia’s findings, here are some other things to share with buyers – especially first-time buyers – and they probably all fall under the heading of “Duh, I already knew that, genius!”:

Disadvantages to Buying a New Home
•More expensive than buying used
•Location probably isn’t ideal (new homes are usually farther out from downtown)
•Despite being new, workmanship might be questionable
•Could be subject to costly HOAs
•Neighborhood dynamic is unknown
•Property values might be more volatile
•Construction nearby (eyesore and noisy)
•More cookie-cutter, less unique

Advantages to Buying an Existing Home
•Possibly cheaper
•Better, more central location
•Can buy in an established school district
•Can own in a more reputable and recognized neighborhood
•Old house might have new upgrades
•You can always renovate if need be
•Older houses tend to have more character, custom design
•Could actually be built better than a new home

Most buyers, I’m sure, would be surprised to hear you giving them advice to spend LESS money on a home – and that should give you even more credibility.