Tag: mortgage

What You Lose When Saving

This is taken from an edition of Priority Pulse that I wrote almost four years ago.  You may think I’m doing this because I’m lazy or I spent the weekend doing something other than think about what to write for this week’s edition – and you’d be right on both counts – but this is something that needs to be repeated.  In fact, it’s something that we (real estate agents and mortgage folks alike) should be screaming from the rooftops.

Buckle up and get ready to have your mind blown! Okay, it’s not THAT mind blowing – some of you might even say, “well, duh” – but it’s still interesting.

The New York Federal Reserve’s economists recently published the results of a study: changes in down payment requirements have MORE influence over home buyers’ willingness to buy than changes in rates.

Surveying both buyers and renters, the Fed found that the effect of interest rates may be overrated when compared to even small changes in down payment requirements. The study found:

• Dropping the down payment from 20% to 5% increases the willingness to purchase, on average, by 15% among buyers and 40% among renters
• Decreasing the interest rate on a 30-year fixed-rate loan only raised the willingness to purchase by 5%, on average

Here’s what we should be putting in front of those folks who are sitting of the fence.  Right now, rates for an FHA loan are almost 1% lower than a conventional loan.  Even with mortgage insurance, waiting to save a 20% down payment as opposed to 3.5% will cost a buyer A GREAT DEAL.   Take a look at the numbers for a house with the purchase price of $200,000 with a 30-year fixed mortgage:

WAIT
$40,000 down payment
Total Loan Amt: $160,000
Interest Rate: 4.875%
Monthly Mortgage (P&I): $858.91

versus

BUY NOW
$7,000 down payment (3.5%)
Total Loan Amt: $193,000
Interest Rate: 3.875%
Monthly Mortgage (P&I) + Mortgage Insurance: $1059.03

No doubt $858.91 is better than $1059.03 for a monthly payment – that’s not what’s at stake here. The difference between those two payments is $200.12. In order for a person to save the additional $33,000 to go from a 3.5% down payment to a 20% down payment at the rate of $200.12/month, it would take just under 165 months – 13.75 years! – to get to that point, which is almost half the life of a 30-year mortgage.

For many prospective buyers, that additional $200 is significant, no doubt.  I’m not in favor of pressuring these folks into doing something that makes them feel uncomfortable, even if I think it’s in their best interest.  However, I would add this: in 13.75 years, where do you think interest rates will be for a 30-year mortgage, and will the type of house you want to buy still only cost $200,000?  Food for thought.

Reminding an Old Dog of Old Tricks

This will be a short entry for this week, I promise.  Short or not, I believe it’s a good reminder for all of us in the real estate world about asking the right questions.

Recently, an agent asked me if we did hard-money loans.  “Of course,” was my response.  She gave me a quick sketch of what her client was looking to do and why he was looking for a hard-money solution.  For those of you who are playing at home, if you guessed “fix and flip”, you’d be right.  Gold star on your forehead!

She explained that he was being quoted interest rates in the low teens, which is certainly nothing out of the ordinary for a hard-money loan, and she asked if we had something that would be better.  I asked her to give me the evening to look into a couple of things, and I told her that I would call her and her client back the next day.

That same evening, I was lying in bed when an awesome idea came to me.  Unfortunately, no one was around so I had to give myself a high five.  At any rate, I went to bed that night thinking I was the cat’s meow (don’t tell my dog I said that).

Next day, I reach out to the agent and her client with my wonderful plan.  It would be a straightforward 30-year fixed mortgage with interest rates in the mid 5s.  Since this was a fix-and-flip project, the down payment requirement was 20%.  When they heard that the interest rate would be in the mid 5s, the agent and her client danced a little jig (I’m picturing it now), but when they heard 20%, they stopped and asked if there was anything we could do to take that down to 10%.

My mind started buzzing to see what possibilities existed, and as I was coming up with a couple of things, the agent said, “That’s great!  Can we close on (insert a date in the VERY NEAR future)?”  I was about to launch into an explanation of the process involved with this type of loan and how some of the factors, time wise, are out of our control, etc., and that will make closing in that short of a period of time doubtful.  I stopped myself and asked, “Is that date the lynchpin in all of this?”  They both confirmed that it was, and we began discussing other hard-money options.

In the end, everything was fine, but this exchange reminded me of one of the most fundamental truths in business: ask the right question so you can give the right answer; don’t ask questions to match the answer you think they need.  Lesson learned (or re-learned).

The Truth Behind a Review

In some industries, customer service isn’t nearly as big a deal as it is in others.  For example, when I roll my garbage can out to the curb the night before trash day, I really have no other expectation than the woman or man driving the truck the next day will extend out the big mechanical arm, grab my garbage can, empty it into the gaping maw in the back of the truck, and return the can in the same spot (or within a reasonable distance of the same spot) for me to retrieve and put it back behind my fence later in the day.  The only other expectation I have is that someone in a similarly equipped truck will come back the next week and repeat the process.  End of story.

In the mortgage and real estate world, customer service is a HUGE deal, of course, and a lot of the reason is we’re guiding a person or group of persons through a process that takes more than a day or two.  On top of that, no transaction is exactly like another one, so we’re constantly “on call” to face whatever curve ball the underwriter throws at us or overcome whatever roadblock an unwitting buyer (or seller) throws up in our path.  But you knew all that, right?

Whenever I see someone post a review from a client on Instagram or Facebook, I laugh a little to myself.  The source of my subtle mirth doesn’t stem from the typeface they chose (while I would strongly recommend against Comic Sans) or the format in which they created the post but from the fact 99.9% of the people leaving these glowing reviews (because who’s going to post a bad review) only know about 10% of what went on to produce such a positive result.  It’s the iceberg phenomenon: 10% is what you see, 90% remains below the surface and invisible to the casual observer.  And that’s the way it should be!

I’m reminded of a transaction I did last year that looked like the most generic real estate purchase you could ever find.  It closed in 30 days, and both the listing agent and the buyer’s agent walked away very pleased with the whole thing.  I can’t speak for the seller, but I know the buyer was ecstatic over how easy it seemed.  That’s the 10% everyone else saw.

However, during that 30 days, all sorts of nasty stuff was flung at us, figuratively speaking.  Had we called all parties involved with our hair on fire each time another negative thing occurred, we would have caused a great deal of unnecessary panic.  This is where TRUE customer service plays out: behind the scenes that no one knows about.  That’s not being sneaky.  That’s being smart.  And in those moments when we did need to bring a problem to everyone’s attention, we already had a solution or group of solutions in place.

So, the next time you read a rave review about a real estate agent or a lender, ask yourself what she or he kept back from the customer to ensure that positive experience.  What’s NOT said is going to tell a much more interesting and compelling story!

Don’t Talk to Strangers

Regardless of how you generate your new business – there are SO MANY different ways to do it – there is one common thing that applies to all the referrals generated: they need to be qualified.  (Even if they’re buying a home with cash, someone is going to step up in the beginning of the process and ask for proof, right?)  When we make contact with prospective buyers to get them qualified, we experience a lot of different personalities and approaches to the process.  Some are an open book and give you all their information without your even needing to ask – that can be a good thing, but it can get a bit cringe worthy when they go from providing information about their finances to providing information about their last colonoscopy, their divorce, which of their kids was fastest at potty training, and so on.  Others, when you ask them for their personal information, act like they’re trying to determine whether you’re a spy from another country or some creep who’s going to stalk them.

Recently, an agent asked me to contact one of her prospective clients and help him qualify for a mortgage.  We had a very pleasant conversation where he told me about his family and what they enjoy doing on the weekends (nothing weird, fortunately).  However, when I asked him for his Social Security number, he went dead silent.  I wasn’t sure if it was my phone going on the blink or not, so I asked if he heard me ask for his number, and he told me that he has never met me and didn’t feel comfortable giving me that piece of information.  Before I could walk him through the process and the reason this piece of information was so vital, he hung up on me.

I called the agent immediately and told her what had taken place, and she assured me that when she had originally spoken with her client, she had told him that I would need these items to help him qualify.  She promised to call him at that moment while the situation was still “fresh” to see if she could smooth things over.  No more than five minutes later, she called me back and said he was less than helpful – she then recommended we wait a bit before running this one up the flagpole again.

For the most part, I don’t have trouble getting what we need to pull the credit report and determine whether a borrower qualifies or needs some help building/repairing their credit.  Occasionally, though, I get folks who just don’t feel comfortable sharing their personal data with a stranger.  (While I don’t find myself all that “strange”, I’m willing to accept the fact I’m an unknown entity to these good people, and they may have ample reason to be wary.)  Because of that, we’ve come up with something that, I believe, everyone is going to love (prepare for the shameless promotion).

On our website, we have a short application that doesn’t ask for a birthdate OR a Social Security Number.  Just the person’s first and last name, phone number, physical address (no PO Boxes), and email address.  Yeah, that’s it.  Once they’ve input and submitted that information, we can pull a credit report and have enough information to call your clients and start discussing options at that very moment.  Sure, birthdates and Social Security Numbers are going to be needed at some point, but if we can call your clients and get them excited about their prospects, sharing those pieces of information won’t seem strange.

I shortened the link, and it’s easy to remember.  Here it is: bit.ly/ezqual.  Yeah, that’s it.  They’ll type that in, click on the EZqual box, and there’s the application in its entirety – just the four pieces of information.  Once they click on “Next”, they’ll get an email letting them know that we’ve received their information and will be contacting them shortly to discuss their options – that should warm up even the coldest of folks, right?

Having this option should practically eliminate a potential borrower being leery to share their information with us.  It might even help cut down on the number of people who overshare, and that’s not a bad thing.

A Fantasy’s Reality

Contrary to popular belief, I’m not a psychiatrist or psychologist, and I don’t play one on TV.  However, over time, I have come to learn that there’s a great deal of psychology involved in sales – all types of sales – but this is especially true in the real estate/mortgage world.

Buyers don’t “pay” for a real estate agent to represent them in the purchase of a home.  Because of this arrangement (and there’s absolutely nothing wrong with it), we could say the Buyer’s Agent is like a Fairy Godmother (or whatever is the male fairytale equivalent – I’m not up on my ‘tales jargon these days, sorry), helping dreams come true.

Lenders on the other hand, unless we’re a sterling referral from a friend or family member whose recommendations have never failed and whose views are unassailable, are viewed as a necessary evil.  To some, we’re seen as the old crone living in the forest who holds the one item standing between the home buyer and their dream.  To others, we’re one of a handful of shady characters living down by the docks who will take their soul if they don’t choose the right shady character.

We as lenders can tell people about great products and programs until we’re blue in the face, and we might attract a few stouthearted individuals who are curious, but we don’t have the “credibility” of the Buyer’s Agent in the eyes of the average home buyer.  I don’t say that to complain or to advocate better conditions for us on the lending side – it’s a statement of fact in more than the majority of cases.

Because Buyer’s Agents have the Fairy Godmother effect, they have that built-in “credibility”, and we as lenders would do well both to recognize that and team up with agents to become advocates to home buyers for the programs and products we see as being the best fit for market conditions.  Let me give you an example – it’s one I’ve sort of been harping on for the last little while.

A Reverse Mortgage Purchase is a REALLY good thing for certain people whose home buying goals and objectives align with what a Reverse Mortgage has to offer.  However, due to some less-than-honest people in the past, there’s a lot of lost credibility and we lenders get lumped in with the bad apples.  An agent, on the other hand, who has sold two or three houses to the same individual over the last thirty years is in a perfect position to bring this up and plant the idea in their client’s head.  The same words could come out of both a lender’s mouth and the agent’s mouth, and they’ll be “heard” completely differently by the buyer: the former might make the buyer cringe, the latter could make them smile from ear to ear.

I’m going to date myself here, but I’m okay with that.  In the old Saturday morning cartoon “Super Friends”, there’s a sibling team called the Wonder Twins.  They had powers that were distinct to each individual, but those powers could only be activated if the two came together.  Apart, they were mere mortals with funny names.  Together, they could take on the world.

THIS is the psychology of the sale in the real estate/mortgage world.  Lenders and agents SHOULD be a perfect complement to one another and play to one another’s strengths.  Too often, though, individuals on both sides of the table think they don’t need their counterpart or that they’re more important than the other.  Following the psychology theme, that’s crazy!