How to Choose the Right Mortgage Lender

You're the only lender who's mentioned this thing.

That's right, we're the only one that's ever done it. I'm dumbfounded that others haven't figured it out, but we've been doing this for 20 years.

Typical mortgage loan process take?

We do loan approvals in less than 15 minutes and we don't pull credit.

How can buyers ensure they are choosing the right lender and mortgage product to fit their needs?

You need the confidence that they're going to work in your best interest and to provide you meaningful options that you can understand. I'm the only licensed broker in Northern Michigan, I believe. They get a credit towards— that they can use towards a new escrow account, homeowner's insurance paid up front, or even do a principal reduction if they want, if we want to use it that way. That credit ranges anywhere from 10 basis points to 40 basis points depending on the size of the loan. So in that case, the buyer went from 30-year mortgage to a 15-year mortgage. It saved them $270 a month in interest, and it actually paid them to do it.

You say we've been doing this for 20 years.

The free refis. We've been doing the free refis.

You're helping them determine whether an error has been made by the tax assessor.

What we do is we actually look at that assessment notice. We know what it should be, and then we see what it is. If it's wrong, we will prepare a property tax review petition on their behalf in at no charge, and you need to be more versatile. Push comes to shove, I can build the buyer's agency commission into the loan.

And these are the little nuances that you really educated me on. And what's the rate?

Rates? Yeah, the rates are, you know, there's several factors. First of all, loan product, whether it's FHA, VA, Rural Development, they're all different. There's a lot of content here. So let's talk about stage 1 and then the If they follow the plan, I will guarantee the results. I've talked to people that said, "Yeah, I got, you know, so-and-so quoted me this, and your rate is higher." Yeah, but I'm not charging you $5,000 for it. If you took the higher rate, which made a difference in $20 a month, but you're saving $45 with a higher rate and lower cost, are you not ahead of the game? We rarely, rarely ever lock a loan at application. That's something that's probably uniquely different from us versus our counterparts. Because we're paying attention to what's going on in the market.

First-time homebuyer asks, "How much money am I gonna have to have down?" Can I do this as a real development loan?

I can get you to the table with no money out of your pocket, period. You'll get your earnest money check back.

For sellers or agents representing sellers, they need to really ascertain, is this a pre-qualification letter or is it a pre-approval letter?

I don't think you're gonna be able to talk to anybody that's ever seen a letter come from personal mortgage that didn't close. If we tell you it's going to close, it's going to close.

Given these pre-approval letters, and they really aren't worth the paper that they're printed on.

That's right.

So why is that?

Experience. They want the deal, so they're putting anything they can out there to try to get the deal. You ask a question, how long does it take us to close a loan? Right now our average is 13 to 15 days.

Wow. What would go into your advice to a buyer about choosing among a 30-year, 15-year, or an adjustable rate mortgage?

A lot of it has to do with what their plans are for how long they plan to hold.

So we're here in your office, Versatile Mortgage.

I'm the only licensed broker in Northern Michigan, I believe, right now. Really? Yep.

Wow.

That has the broker license in Traverse City.

Yeah. Okay. And what does that do? I mean, if we, if we think about these from the, uh, what that audience, you know, like most Viewers of this video are going to be relatively green as it comes to mortgages. What does that do for the average consumer who's seeking a loan, the fact that you're the only mortgage broker in Northern Michigan? Or at least that you know of.

And don't get me wrong, there are other people that call themselves brokers that work for a broker like myself, but that broker may be based downstate. Yeah, somewhere mostly, but they're an LO. They work for that place downstate or out of state.

LO meaning loan officer.

Loan originator. Yeah, MLO, mortgage loan originator. They have all different acronyms for them now. They may work for them, but they're not the decision makers of their resources.

So that was one thing that in a previous discussion that I had with you that was really eye-opening to me was that, and I use it as the example of my son's a finished carpenter, you know, he is limited in some of the things that he can do that obviously knowledge is one thing, but the tools that are available to him to use. And so often, in order for him to up the product that he's able to deliver to the end consumer, requires an additional tool or an upgrade. And that was what, what was interesting to me is that in a conversation we had, that some of these loan officers that are working for a traditional bank or a credit union or what have you, They are, because they're dealing with kind of this corporate atmosphere, they are only given a certain set of tools versus what is available to you.

Here's the big difference. All loan originators have to have a National Mortgage Licensing System number. You'll see that on the bottom of applications. They all have a number, and the institution that they work for will have a number. So there's going to be two numbers. BankAid and their NMLS number, and then the originator has their number. They have to have that number, but they don't have to pass the same tests of the federal and state licensing requirements to become independent, meaning that they can only sell the products that that particular bank offers. As an independent, I can close a loan with any lender in the country. Okay, the difference is A consumer walks through that front door and they sit down, they talk to the mortgage loan originator at the bank, and they— and here's the products that we have and here's the pricing. They don't get to control it.

So sort of like an independent insurance agent, they are the ones matching the— if they're selling homeowners insurance, let's say, that independent agent is the go-between the homeowner and Auto Owners, big corporate auto—

right—

the insurer. Right. Independent agent makes their money by playing that match, right? Hooking them up. And, uh, and that's what you're saying that a loan officer is in a lot of ways. And if they're not independent like you, then they are limited by who is the auto owners, who is this the, the big mortgage that they're going to end up selling the mortgage to. But because you're independent, you have everything's available to you, whereas if they go to Huntington Bank Fifth Third or whatever, a credit union, that loan officer only has the tools in their toolbox that that institution provides.

Correct. And you have personally seen this. I'm not going to mention the names here, but you've seen this to where, in fact, it was another national lender actually that was struggling with this file for months on end. That had more to do with the level of experience that that person, that application taker at that call center, had.

One of the pieces of advice that I always give is go with a local lender, especially in a hot seller's market. The fact that you're not able to do cash, that's going to make it tough to compete. But especially if you're, if you're going to have to use a mortgage, make sure you use a local lender that the listing agent or the seller's agent knows, likes, and trusts.

Has some level of confidence.

Has some level of confidence, because it's all about the confidence and the purchasing power of buyer, right? So a cost to a buyer at closing is going to be the seller buys— the buyer pays for title insurance to ensure the buyer against the claim of ownership coming out of the woodwork, right? The buyer buys a policy to protect the lender, and it's called the lender's policy.

It's always been that way.

Okay. And that costs typically on a $500,000 house, what What does, uh, $1,800, $1,800, uh, so that's money that's good. This goes to the total cost of, of a deal, not necessarily a loan, but a total cost, correct? So you got real estate commissions, you get, um, you know, the total cost of a loan and all the escrows, escrows, everything else that's a part of those closing costs. And in this case, you're saying that you are working with lenders who are not requiring a lender's policy be delivered to instead they get an opinion letter.

We get a lawyer's opinion letter. Yep.

And so that, and that, the cost of that is?

It's a flat fee now. What they're doing is they do a flat fee, but in consideration of that process, they get a credit towards, that they can use towards a new escrow account, homeowner's insurance paid up front, or or even do a principal reduction if they want, if we want to use it that way. That credit ranges anywhere from 10 basis points to 40 basis points depending on the size of the loan. As an example, if the loan is, say, $300,000, they'll get a 40 basis point credit. That's a $1,200 credit that they get that shows up on that closing statement. We did one here recently. I can share with you, redacted of course, where the total closing costs were $1,600, but they ended up with a $3,500 credit. Now, I can't give them that difference back in cash, but I can fund a new escrow account with it. And then the loan that they paid off, they get whatever is in their escrow account. In this case, it was $1,800 or $1,900. They get that in the form of a check about 10 days after the loan closes. So in that case, the buyer went from— the borrower went from a 30-year mortgage to a 15-year mortgage. It saved them $270 a month in interest, and it actually paid them to do it.

So, so using the money that otherwise would have gone to pay for the lender's policy, they used an attorney's opinion letter and took the difference in that and applied it to the loan, which took them from a 30-year to a 15-year mortgage, right?

And saved them $270 a month in interest.

So not only did they cut their term in half But they also saved—

Wow. The interest was huge. It was really a no-brainer. And it actually paid them to do it. It didn't cost them anything. There's no payback period.

Yeah.

It actually paid them to do it. And that's probably—

You know, you're the only lender who's mentioned this to me.

That's why we're the only one that's ever done it. I'm dumbfounded that others haven't figured it out. But we've been doing this for 20 years, which is why our pipeline— you don't see us advertise. This is how we—

This piece of the attorney opinion letter has been around for that long?

No, that's brand new. It's been out for 2 months.

You say we've been doing this for 20 years.

The free refis. We've been doing the free refis, and we do that by— when they— right now, the yield curve has been inverted over the last year and a half, which means that investors aren't paying a premium. In fact, back in October, as we were talking earlier, you actually had to pay a premium for a rate that was 8%. Now we're just seeing that we're, we're getting some love, we're getting some credits if you take a slightly higher rate. It's just that that rate hasn't compressed enough and the credits haven't grown enough because investors in the bonds haven't had a comfort level to where they're no longer afraid that they're going to use the loan, uh, lose the loan to a refi at a lower rate. They got to get comfortable that we're settling down at a level that we're never going to get back to the 2s, I don't believe, okay? But I believe we can get to mid-5s. But they got to get comfortable to where they understand that, that they get a return on their investment without risking losing it. So as they get more comfortable, that yield curve will flatten out, we'll get more credits for it, rates will come down. But it's not just the rates coming down, it's the value of those rates.

So let's expand on that no-cost refi. So in other words, you work with a home buyer and providing them the loan, and then at some point in the future, they may— rates go down, they want to refi, it makes sense for them to refi. How does that work where it's no cost?

6 months. First of all, they have to be in the loan for 6 months. The reason for that is, and to be completely transparent, the buyers don't pay our commissions. That's not how we make our money. How we make our money is the lenders pay us a commission for us to help them build mortgage-backed securities in bundles of $50 to $75 million at a time. Those are then sold to Wall Street investors through the open outcry trading platform at the Chicago Board of Exchange, CBOE. We get a commission to help them bundle those loans. However, if I pay that loan off in less than 6 months, they're gonna want the money back because that 6 months is about their break-even for what they paid me. And if I churned that loan and paid it off in say 30 or 60 days, they'd want the money back because I'm costing them money, or they're not gonna want to do business with me. So the rule is there has to be 6 months from note date to note date. Then the market also has to cooperate to where we're able to get enough credit that we can cover those costs. In some cases there are costs,. But if I can show a payback period that's maybe a couple of months, and we've done that, where it's like, listen, yeah, it's gonna cost you $300 or $400, but I'm gonna save you— if I save you $100 a month, $100 a month, and it costs you $400, and you can break even in 4 months, you can't not do it. Or you can wait until we get enough juice that we can make that happen. But at 6 months, we start tracking that on behalf of the clients.

So one other service that you provide, which Really was interesting to me and took me by surprise. I learned about it because you were helping a buyer client of mine with a loan, and you came to closing and said, make sure you give me your tax assessment, the first tax assessment that you get, right?

So whenever I go to the closing table, if I don't, I'm, I'm always texting them. They get a text message that has two important dates. One is that 6-month window where we're going to review the interest rates at that point. If we can make an improvement at that time, we're going to go ahead and pull the trigger and make that improvement. But if we can't, then that's when we start tracking their loan. So they'll get a notification from us if and when the market conditions allow us to make an improvement. The improvement has to be at least a quarter point in rate, not just an eighth. It has to be at least a quarter, otherwise we wouldn't be able to handle the volume. But the second date that I have them add to the calendar is February 20th. Of every year. By February 20th, borrowers should get a property tax assessment notice. Now they'll look at that, there'll be a lot of numbers on it, they won't understand what they mean, but all I ask is they take a snapshot of it with their phone and text it to me. That's all they got to do. If they don't have that notice by the 20th, they need to call the township and ask where it is and get a copy of it, but they need to get it to me because those are time-sensitive.

So this is the thing you get in the mail that says, "This is not a bill." Right.

It says, "This is not a bill." So what do they do with it? They file it.

Yeah.

Okay. But what they don't understand is there may be a significant error there that needs to be corrected. And if it's not corrected, they'll get a surprise next year. Because when the next bill goes out in July, it's going to be for more.

There is this critical window of time that if they don't take some kind of action to address what could be an assessment that's on the high side, obviously, on the— an error on the high side, that then that assessment sticks.

It's—

they're stuck with it.

And every time, in every year after that, that error is compounded. So the last 2 years, uh, taxable values went up 5%. If, if you're going up 5% of the error, you're— it's not only are you— not only did it go up 5%, but it went up 5% of the difference that you didn't correct.

And so then the service that you provide, you give them the heads up, you say, "Hey, when you get that assessment that says this is not a tax bill, this is your tax assessment," they send it to you, but you're helping them determine whether an error has been made by the tax assessor.

What we do is we actually look at that assessment notice, we know what it should be, and then we see what it is. If it's wrong, we will prepare a property tax review petition. On their behalf at no charge. We send it back to them as a PDF. All they have to do is print it, sign it, and get it to the review board before they meet. And the review board meets in the first 10 days of March. You can't call me or send this to me on the 9th when the board is meeting on the 10th. We require that we have all of those by the last Saturday in February. I come, we come into the office, the staff comes in at 10 o'clock on Saturday morning, We knock them all out. It's an assembly line. I review every single one of them before they go anywhere. Last year, the minimum one that we did was $250 a year. Not a big deal. The biggest one we did was 3 grand a year. That's a big, that's $250 a month. Okay. The average is about $900 a year. Some townships, they've all gotten better. Way better in the last couple of years. I went to 4 review boards last year and I don't usually do that, but I did this year because of the extreme appreciation that we're seeing in assessed values. And they understand there's a consequence. A lot of that, we can go into why, but you're an agent, you know what's been going on. The Airbnbs have been driving property, you know, list a house at $400,000, sell it for $450,000 cash. Those have caused all the boats to rise with the tide. And so people will say, "Oh, no big deal, my assessed values go up, great, you know, that means when I sell, can sell the house, I can sell it for more." Maybe. But when you're on the buyer side, when you're looking at what property taxes are going to be, that can be a make or break. And I already have seen a number of transactions where they said, no, I'm not going to do it, the property tax is just too much. Yeah, so it's, it's hitting the market.

Yeah, yeah, that's also another video I shot about how to go on to the— yeah, the website and calculate your taxes.

Sure.

But that is an important piece of the calculation that you're— when you're trying to work with a buyer and say this is how much house you can afford, you can afford up to $500,000 or up to X amount, right? Property taxes is a part of that calculation, of course. What else is a part of that calculation?

Well, we're going to show them what— and the other thing about that too is we're going to show them what we believe the taxes are going to be, and it may not be what they are. If they're looking at a house that's been owned for 20 years and that taxable value is $150,000 and they're looking at paying $600,000 for this place because of the cap, right? Because of the cap, because they've been capped, it's not going to be a surprise that the property taxes are going to double or possibly triple based upon 50% of the price that they pay.

Yeah.

Now, it doesn't always mean that. We just, we did a town hall with an assessor from Paradise Township here a couple weeks ago. It was in the office here, and, and it wasn't anything really that we didn't expect, but it was important to understand that they understand what's going on too. But unfortunately, the way that, that the tax laws are written, there's not much they can do about it. And there was an— I saw another lender talk about— in fact, I'd asked in March before the new taxes became of record, I asked a buyer's agent to get a copy of the assessment notice from the seller because I knew they had it, but it hadn't gone through the reassessment yet. And so I was interested to see what that was going to look like so I could educate the buyer and also make them qualify because we're in this window where if I start a loan like in March and the taxes are not of record yet, now I got to get third-party verification and all so far all I got is last year's. I think it'd be reckless of me to go ahead and close the loan based on last year's taxes when I know that taxes could go up $300 a month and bury these people. So we need to get third-party verification which we do by asking the title company, please fill out this tax sheet. They know what that is. They're going to go to BSA, or they may call the township. The township's going to say, yeah, here's what the taxes are. They're not telling them what they're going to be. And we're in that window where that last property tax review has not made of record yet. And so I was concerned about that. And, you know, I've heard one of my counterparts say, oh, it doesn't matter, it's all of record. No, it's not of record. That's why I ask. The buyer's agent to get it from the seller so that we know what we're going to have. So there's a lot of disinformation out there.

Yeah.

And it's dangerous. I know of a property just 3 blocks this way. I didn't do the loan, but the agent called me and said, Randy, is there anything you can do with these kids? Their payment went up $300 a month because their tax went up $300. No, it didn't. It went up $150 a month is what happened. They ignore the notice, and when you ignore that notice, the bank will double that difference until they get the cushion back. It's all RESPA compliant. If you're upside down and the bank is protecting their interest, they're going to adjust your escrow amount and send you a bill for that difference. And if you ignore it, they're going to give you options on how to handle it, and one of them is going to be changing your payment amount. But if you ignore it, they're entitled to double the difference until they get that cushion back.

The cushion if they're escrowing for taxes and insurance. Right.

Yeah, RESPA requires that an escrow account— there is a rule where the lender can't just say, hey, we want you to put $10,000 in this kitty, we're going to hold on to it, not pay anything for it. They have to provide an analysis at least once a year that shows that the money in escrow for property taxes and homeowners insurance comes to 1/6 of the annual expense at one time during the year. So if they got too much, they're going to write you a check back. If they don't have enough, they're going to send you a bill. If they send you a bill, you can—

You true up at the end of every year.

Yeah, you've got to pay attention to your mailbox.

Okay. So, well, you had mentioned a client that was able, through doing the attorney opinion letter, to go from a 30-year to a 15-year. I think that's what most people are used to. 30-year loan, 15-year loan, fixed terms, and then— but there are other loans. There are adjustable rate mortgages. There are— what, in addition to a 30-year fixed rate and a 15-year fixed rate, what other loan products are available to buyers out there?

There's dozens. The mainstream is a 30-year fixed. Why? Because it has a warm fuzzy feeling. It's an emotional decision. You know, when you're buying real estate, you have emotions, you have logic, and you try to rationalize it somewhere in between. But the emotional element of a 30-year fixed is that that part of their life is never going to change. A lot of people are reluctant to do ARMs because they think it was the ARMs that caused the last crash in 2009.

ARMs, adjustable rate mortgage.

Adjustable rate mortgage, yes, thank you. You know, and that's not the case at all. That's another story, but you don't hear much about ARMs right now because they are not favored. In fact, the terms that you can get on ARMs are actually worse than 30-year fixed. And that has to do with the appetite for risk of the investors that buy that paper. Yield curve being inverted to get a 5-year rate, that rate for the same cost is going to be higher than a 30. So why would you do it? That's why you're not hearing anything about it. Now, the end of the year when the Federal Reserve reduces rates, that doesn't immediately affect mortgage rates. There is an influence because remember, they compete with each other. Those are two different markets, but they compete. So to be competitive, you're going to see mortgage rates come down because the 10-year is going to get relief.

So an adjustable rate mortgage, there's like what, a 3-in-1, a 5-in-1?

You can do— there's 1-1, there's 3-1, 5-1, 7s, 10s.

Which means that if it's a 7-1, that means for 7 years it stays consistent?

It's fixed for 7 years, and then subsequent to that, it can't change by more than 1% per year.

That's why it's called a 7-1.

Yep. And there's 5/2/5s, which was a common product. So starts out at 5%, uh, the first adjustment could change by as much as 2%, but, uh, total adjustments over the life of the loan can't change by more than 5. So they call it a 5/2/5. There's all sorts of products. You're not going to see much of those until our market returns to some semblance of normal. It's way off.

Yeah. Well, let's say we are in a normal market, then what would go into your advice to a buyer about choosing among a 30-year, 15-year, or an adjustable rate mortgage?

A lot of it has to do with what their plans are for how long they plan to hold that. And I'll give an example. Members of the Coast Guard, they'll have a stint here that can be 4 or 5 or 6 years, and then they gotta move. Well, they buy a house because they wanna understand the cost associated with that loan, whether it's going to be worth it, are they going to be able to break even if they're paying a lot of closing costs. So if you're a coastie, I'm going to say you want to get the highest rate you can because you're not going to be able to recover the difference in the cost in the time they're going to be here. But if you do an ARM and there's a benefit to the ARM, the adjustable rate mortgage, where it's lower than the 30 and the cost is the same, that might make sense because you know you're going to be leaving anyway. But then here's what happens. The market changes, okay? Property values have diminished and you can't sell it for what you bought it for, and you're in an arm. So what's the worst that can happen? Well, you get that first adjustment, the rate could go up, okay? Doesn't necessarily mean that it will, but if it did, it's not, you know, 1% isn't going to put you into foreclosure. It might be painful, you're not going to like it,. But maybe you have to weigh that against selling it at a discount to what you paid for it. Now I'm going back 15, 20 years in these cycles. I don't see that happening going forward because, you know, there's a lot of controversy. Are we in a bubble now with these accelerations? I don't think we are, and I've wondered that myself. But this last week or so, I, you know, we go through continuing education like everybody else, and it has to do with birth rate. And the study that I saw had to do with when abortions became legalized and what that did to the population relative to new builders coming online. There's a lot more to it, but the bottom line is I believe that real estate values are going to be sustained and they're going to continue to rise. Part of Northern Michigan is, you know, dealing with clients yourself, they're coming here from other markets where we're still cheap compared to where they're coming from. Yeah, the remote worker More remote workers than ever. That's what technology has brought us. We don't have fires, tornadoes, droughts, you know. Yes, the bay's down 2 feet, but we got a lot more water than anybody else in the world does. Yeah, you know.

So how long does a typical mortgage loan process take? I mean, it's in terms of getting approved, uh, for a mortgage.

We, we do a great question. Thanks for asking that one. We do loan approvals in less than 15 minutes and we don't pull credit.

So because then if you're pulling credit, that can impact your credit score?

It can, because in, in this market, here's why that's such an important feature. First of all, I can't do that unless I've been doing it long enough where I know I can ask you 10 questions, I'll hit your score within about 10 points. Our new guy here can't figure out how I do that. It's just because I've done it so long, okay? If I make a hard inquiry or even a soft inquiry now And with the credit bureau, and you can't find a house for 60 days, which isn't uncommon in this market. People, it takes longer for them to find a place. And so I don't want to risk having to make yet another inquiry, which could have a consequence. And the consequence could be maybe you're a 782 the first time I look, and if I have to look 60 days later, it might only drop 3 points, but now you're 779. What did I just do? I just cost you half a point. Point. If it's a $500,000 loan, it just cost you $2,500 to get the same rate that it could have got you if I'd only pulled it once.

Yeah, so these are the nuances.

I can't be that reckless with other people's money. Sure.

And these are the little nuances that you've really educated me on, which is again one of the reasons why I want to do this interview, because I want to be able to—

sure—

make sure others are aware that so much of what everybody just understands about loans is what's the interest rate, what's the term, is it a 15-year or 30-year fixed, and what's the rate. They don't understand how everything works into that rate calculation, and again, the total cost of the loan like we talked about. But so let's talk about how mortgage interest rates are set and how they're determined, right?

Rates, yeah, the rates are, you know, there's several factors. First of all, loan product, whether it's FHA, VA, Rural Development, they're all different. And the loan size matters because if they don't have to pay a commission to me, you're going to get a better rate. And our commission structure is we have to maintain a certain volume level to make this work. I took that risk 20 years ago. It's been working. We're untouchable. The bigger the loan is, the more competitive we are.

And because of setting that $250 cap.

Yeah. Yeah, yeah. So when we make no money, then when the lender doesn't have to pay us anything over $250,000, the bigger the loan is, the harder we are to compete with.

Yeah. So, um, actually, I'm going to take a step back to the mortgage application process.

Yes.

One of the things that I think in my working with different first-time home buyers was, you know, in order for you to do your job as a lender, the home buyer, the future home buyer, has to supply with all the information that you need, right? And a lot of times, if that's going beyond 60 days, they need to be updating you, giving you updated bank statements.

Correct.

Updated pay stubs, right? So can you talk a little bit about— if this is a video right now, this section for first-time home buyers, or for people that maybe haven't done a loan in a while— how important is it the home buyer wants a certain outcome Right. Yet they can't get there without assisting you and getting you the documents that you need to be able to provide them the loan.

Right.

And there could be a tension there where they're not understanding, they forget to give you stuff, and yet you're like, I can't, I can't follow through with this until I get your—

sure—

pay stubs or whatever.

We're very clear with how to manage expectations, um, and it can be redundancy. So let me explain what the process is. I get a phone call from John Q. customer. He goes, "Hey Randy, this agent said I need to call you and get a pre-qual letter." So the conversation is going to be, "Okay, tell me about yourself. Where do you live now? Where do you work?" And I'm looking for a 2-year window. Where do you work? Where do you live? Are you paying for rent? Are you paying rent? Do you live with family? I want to know what your current housing expense is, because there's some products I got to take that into consideration. If you're paying $1,000 per month rent and you're looking at a house that you qualify for, for $1,600, it's called housing payment shock. I got to be careful of that because if our debt-to-income, your total obligations, car payments, credit cards, student loans, all that stuff, I can't put you in a loan where your housing expense is more than 150% of what your current rent is. So I got to be careful of that. And if you're living with family where you have no housing expense, then I got to stay pretty close to the program guidelines. I can't get what they call a racial waiver or an exception to go beyond, beyond certain debt-to-income.

So what you're saying is it's a first-time home buyer who's living with parents wanting to save up to buy a home, that may actually be counterintuitive, it may hurt them?

Maybe, you know, rather than being out on their own renting and be able to show a payment You know, the problem with staying at home and saving up money, they usually can't save enough of the difference to compensate for the difference in prices that real estate is appreciating at.

This is an example, back to our earlier discussion about the tools that are available to certain loan officers, right?

Depending on how they work. Retail banks, it's not normally— I think they get a rate sheet in the morning, hey, this is our rate. You can get a discount point here, or you can charge this much more for a different rate, or whatever. In this particular case, this person been with this bank for quite a while, had worked for me years ago. It's— that's another story, I won't get into that. But they left the industry when the market crashed, came back to it, and you have to be able to produce, uh, or you're going to die working in a place like this because it's straight commission. If you can't produce, you're not getting a paycheck. But that makes everybody better, you know, it makes you hungrier, it makes you work harder for it, it makes you need to know more, and you need to be more versatile. Excuse me, I know it was— I had to go there. But the point is, in that particular case, I said, I looked at the pricing, I said, you can bump that interest rate by a quarter point, the difference in payment is going to be $30 or $40, and they won't need to bring anything to the table. And I know you can do it. But if you can't, I'm going to tell you right now, I'm going to do that loan. I could not even call you and just say, don't worry about it, I can handle this for you guys. But, you know, I'm not looking to, you know, be that guy, you know.

So you gave them a fair shot.

Gave them a fair shot and they did it. But they had to go through—

Oh, they did it. They did it.

They did. And I don't know how much red tape or how much of a hassle that was, but they were able to do it. And that person said, hey, if we can't do this, Randy Brown's going to do it. And this is what he's going to do. He told me, you know. So I said, good for you if you can do that. Now, the other loan products like FHA loan, the limit is 6%. VA loans, it's actually 4%, and there's other limitations with VA loans too, as far as—

So FHA, the limit is 6% seller contributions. VA loans, the limit's 4% seller contributions.

Right. And RD, RD is 6%.

6%.

But RD also has another unique little feature. Let's say you, let's say you have a deal under contract, it's $300,000. And the appraisal comes in at $306,000 or $305,000, you can actually change the loan amount to $305,000 and cover all the closing costs in the loan with no seller contributions.

Yeah, you know, so this, this actually, this discussion has to do with the discussion around seller contributions is rather than lowering the price, which they could do, they could contribute by, by lowering the price of the home. But what they're really doing is by participating in seller concessions, they're aiding the buyer in the procurement of a loan.

Correct. But the seller's still going to net the difference less— I mean, that, that lower amount, right? Because it's money coming off that.

It's basically providing— the seller is basically providing assistance to the buyer in the procurement of a loan, they could just lower the price. I mean, the net is the net is what you're saying, right? They could lower it from— let's say it's for $300,000 with 3%, 3%. And so what is that?

They can lower it to $291,000.

Yeah. And, and so, um, but instead they say we'll keep it at $300,000 and we'll contribute 3% seller concession. So it's the same diff to the seller.

They're not— yeah, exactly. Their net is still going to be the $391,000. Now if they say I'm not going to give I want $300,000.

$291,000, right?

Yeah, $291,000. Yeah, $291,000. I want the same dollar amount.

I'm—

$300,000, the thing's been on the market 2 days. We don't know that we can't get that. So if the customer wants this, then we got to write it up at $309,000. Then I'll contribute $9,000, not 3%, because we don't want 3% of that 3%. We're compounding the problem here. Just put a dollar amount in there. Seller to contribute $9,000 for closing costs and prepaids. That would be 3% based on $300,000, but it would be $9,270 if it was 3% of $309,000. You see what I'm saying? So to get the net number back to the $300,000, just put a dollar number in there, and please don't put "up to." This is where I found so much value in working with you.

There are these little nuances.

Sure.

Because I'm not in the biz all the You know, in that loan structure. I'm not writing mortgages, you know.

Right. But loan structure is an integral part of the process. Yeah. You know, here's the other thing I see. People go, okay, I need $9,000 for closing costs. Okay, so you're all proud, you got $12,000 in the bank, and you're happy to put down $9,000, you get a house. That leaves you a $3,000 cushion. So one of my famous sayings that everybody here has heard me say it is, look, You're buying a house that you've never had before. You're living in a 2-bedroom apartment, you're buying a 3-bedroom house, right? I don't know what you're going to put in that third bedroom, but you probably don't have it unless Mom and Dad's going to help you furnish another bed, a guest room, or a desk for an office, or whatever you're doing. Nor do you have a lawnmower, nor do you have the rakes and the shovels to, to do any landscaping, let alone the landscaping itself. But $3,000 is going to go very far. So here's what I'm seeing. Is all of these incidentals are going to start with a new shower curtain and they're going to go downhill fast. I don't know if you need a washer and dryer, maybe you need a new upgrade.

I've always been amazed at the amount of money that I spent in every move.

Oh yeah, yeah.

Oh yeah, little things that you just don't think of ahead of time.

I'm in the business. When we bought the house that I'm in now, I'm like, I know it's a lot bigger house, I know I'm going to need more furniture, and I had a budget. When you take a budget, when you're doing that, just multiply it times 2 and you'll be close. Yeah, but don't think for a second it's going to work out like you think.

Yeah, so I want to test my thinking against yours relative to this lawsuit related to the sellers buying the— paying for the buyer's agent commission, and that now morphing into something like contributing to the seller contributing to the buyer's closing. Closing costs, or, or not at all. But whether the buyer is paying for their buyer's agent commission or not, what, what I've been saying is that, that you're— it doesn't change the total cost of the deal, right? The buyer, before this lawsuit, the buyer was coming with $300,000 and then giving that amount of money to the seller and then the seller was paying the buyer's agent and the seller's agent out of that amount of money, right? Now what we're saying is, well, you know, we're just going to shift the calculation. They still need to come with a dollar amount that's going to satisfy the seller. The seller has just shifted the math problem from themselves and calculating their own net sheet. They've just shifted the cost of the buyer's agent over to the buyer, so the buyer has to calculate Now the, the, uh, so anyway, that was where my thinking stopped, and then I've had some further thoughts on that. Well, let me get your feedback on that portion.

Well, what we're seeing is that fundamentally not a whole lot has changed other than the fact that the list agent can't post what the buyer's agent is going to be paid. They're still probably going to write listings with a 6% concession commission rate, right?

I see, I see 6% less and less. It's about, it's 5% generally. Is this 2.5? 2.5.

But yeah, prices are going up as they continue to rise, you know. Yeah, I can see that. And sellers are becoming more sensitive to that. Yeah, I can see that. But fundamentally, the buyer's agent needs to still negotiate their compensation with the seller's agent. Without having the benefit of seeing it online in the MLS, right? Yeah, yeah.

So the one thing—

doesn't mean it's not there.

Yeah, so I've been all over in my thinking about this, and the one thing that I can't— because, because it's like, I, I believe that not much is going to change ultimately. I mean, I think it's in the seller's best interest to offer a buyer's commission. I think you want basic law of economics as people respond to incentives. And so incentivizing buyer's agents— the only part that I can't seem to get over, whether it does make sense to me, that in some ways a buyer's— this is where we, we differ. The code of ethics training that I just came from talks about the agreement to cooperate with other brokers. Right? Brokers owe a cooperation, but they also owe allegiance to their client, put their client's interest above all others. But they also, right, this cooperating, that's an interesting, um, intellectual exercise with what I'm about to say, which is I do understand from the seller's perspective where I'm like, hey, I'm, I'm actually paying for the buyer's agents commission to negotiate against me? You know, I mean, that's one thing that, that I do understand. Like, wow, you know, you in a, in an advocacy— because in some ways it's adversarial, at least from the seller's perspective.

Counterintuitive.

It's, it's adversarial, just like a court proceeding.

Sure.

Right. With, in a civil case.

Yeah.

You have a plaintiff.

Why'd you pay the competitor's attorney?

Yeah, you're not paying, right? You're not paying— a plaintiff is not paying defense's attorney or vice versa. So anyway, that's, that's what I also, uh, seem to— that's part that I can't— I, I do think it's still in the best interest in terms of getting the best price as far as marketing goes. Now when you come down to the nitty-gritty of negotiation, that's right. Yeah, I'm kind of like, gosh, it does seem kind of weird for sellers to be paying a buyer's agent to negotiate against them?

I don't think most sellers think about it that deeply. I don't think they get, they, you know, this is, this is a way that it's been for so long. I don't know that anybody has thought any different. Now, I have had a number of questions from my buyers saying, hey, what about this? You know, I'm hearing this and this and this. How am I going to navigate that? Well, I can actually build the, if push comes to shove, I can build the buyer's agency commission into the loan.

Back to the seller's concession piece?

No, not even from that.

Oh.

And a lot of lenders, they used to have a dropdown in all the software for that.

So relate back to Versatile Mortgage.

And by the way, not to interrupt you, but by the way, doesn't come out of their pocket. They don't have to bring that to the table. I can build it in the loan. It's another circumstance how we do that, but I won't get into it.

Yeah. So basically dealing with the uncertainty going forward of the messiness with the calculation about how the buyer's agent may or may not be compensated, that's it to me. Another reason to really work with a lender who can navigate— not, you know, I mean, you and I had a good discussion about being creative can sometimes mean being fraudulent or illegal, but rather than being in this case really just understanding all of the complexity involved in how to do— how to stay within legal and ethical bounds and yet still help the client achieve the goal that they want to achieve, right? Um, because a lot of that just comes down to not, not understanding, um, how to structure the loan, right? And, and all of the options that are available for that particular client given their particular circumstance, right?

There's things that we did in 2009 and '10 that we never did before and we haven't done since. Those opportunities are going to come back to some level.

Because they were changes based on the Great Recession.

Yeah, yeah, yeah. Is that what they call it? Yeah, yeah, yeah, it was.

It was the financial crisis.

Yeah, and I remember people saying, when's this going to be over? I don't know, but I never want to do another short sale. Well, you're going to do them.

Yeah.

Okay, this ain't over. You just need to learn how to make it, to compensate yourself. It wasn't worth it for what they were doing for the 3%. You just have to learn how you can compensate yourself more. It'll be great. You can present it to a buyer like, "Hey, listen, if I can find you a bank-owned property and probably get it at a discount of 10 or 15%, are you going to have a problem paying me 1% of that? I don't think so." Right.

What is private mortgage insurance? And who's paying for it and who's getting protected by it?

Great question. So when investors buy mortgage-backed securities, they're buying them with the confidence that they have the hedge. The hedge is equity, 20%. If they don't have that hedge, that investor needs— still needs the confidence of being protected so that if that loan should fail, that his exposure, he's got a cushion of 20% either from the person's down payment money or a third party that's insured him to protect that investor.

Okay, so before the invention of private mortgage insurance, lenders just simply would not lend any money unless you had 20% down.

Typically.

That was kind of the— okay, and then, and then as it progressed, it was like, well, lenders still need the security of a— of that 20% equity before loaning the 80% to buy the home, right? And that, uh, providing the lender the security is what private mortgage insurance does.

Exactly.

And the buyer is paying a monthly fee, premium, monthly premium, and private mortgage insurance to this third party. And, and then that, that is the third party then is basically taking the risk.

That's right.

Off the lender if this, if this individual fails to perform on their mortgage.

That's right.

Foreclosure. So, okay, the third party who's providing the private mortgage insurance, then if this borrower does default, they have to take that hit on their financial books.

That's right.

The bank gets to say, hey, pay me because I'm collecting my insurance policy.

That's right. Okay. So now the next question is, how is mortgage insurance calculated and how is it factored? It's factored on several components. One is credit score. The higher the score, the lower the rate. I mean, you can be as little as 12 basis points to 71 basis points, depending on—

which, that makes sense because that's sort of like life insurance companies running blood tests and asking if you're a smoker They, they want to ascertain all these risk factors to see whether to bet on you or not.

It's like an actuary.

Yeah, in this case, that's what the credit report is doing as far as private mortgage insurance.

That's plus— that plus the loan-to-value. So the more— so if you're only putting in the minimum down and your credit is crappy, you're going to pay the most in mortgage insurance. Yeah. Now that leads me to another thing that's kind of interesting. If you have, say, marginal credit We'll say if your credit is under 700, then instead of doing a conventional loan with mortgage insurance, which would be very expensive with a score under 700, the terms are actually better going FHA. Now FHA, you have an upfront funding fee, which is 1.75% of the loan. Plus, they have a monthly multiplier, which has gone from 135 basis points down to 85, down to 55 now. If you put 5% down instead of the 3.5%, then it's only 50 basis points. But the difference is it used to go away, and the conventional loans goes away at 20% when you have 20% equity, okay? With FHA, it stays on for the life of the loan, but it diminishes each year. Every 12 months it gets recalculated, that percentage goes down. That's what one of the former admin— I think it was the Obama administration changed that to make home buying make it more affordable for people. So they moved it from 135 down to 85. It's gone from 85 to 55 and 55 to 50 if they're putting 5% down instead of 3.5%. There's a lot of content here. And Rural Development loans figure the same way. They start out at one number. Every 12 months, that number goes down based on the outstanding balance. It gets reset. That's not the case with conventional loans. That multiplier stays the same. It doesn't go down each year, but it does stop at 20% equity.

How can buyers ensure they are choosing the right lender and mortgage product to fit their needs?

How do you choose a lender? You need the confidence that they're going to work in your best interest and to provide you meaningful options that you can understand. You know, to simply ask the question, "What's the lowest rate?" and I've talked to people that said, "Yeah, I got 'You know, so-and-so quoted me this, and your rate is higher.' 'Yeah, but I'm not charging you $5,000 for it.' And if you take the value of that $5,000, which is worth about $650,000 to begin with, now we're at $45 difference in payments. So if you took the higher rate, which made a difference in $20 a month, but you're saving $45 with a higher rate and lower cost, are you not ahead of the game? You need to understand that. So when you get a quote from Versatile Mortgage, whether it's me or anybody else, you're going to get at least 3 options and we're going to have a discussion about it. Some of them are going to be centered around how long you plan to hold the house. When people buy a house, they think they see themselves being there for the foreseeable future.

Yeah.

They don't have a checkout time. Yeah. You know, but it's important to understand what that looks like so that you have a realistic perspective of what to expect. Yeah, you know, if you don't see yourself— is this a starter home and you don't see yourself being there more than 4 years, then don't take a low rate with costs that will take you 8.5 years to break even. That doesn't make any sense. And we'll show them how that works.

You just mentioned the Dow being down. How do economic factors such as inflation, unemployment rates, the overall economy— how does that affect the mortgage industry, or most importantly, how does that affect a potential buyer who's going to be seeking a loan to purchase a home?

Well, we can't ever dictate what the market's going to do in real time within the time period of someone searching for a home. If they're intending to buy a home in the next 30 or 60 days, the rate is going to be the rate. We rarely, rarely ever lock a loan at application. That's something that's probably uniquely different from us versus our counterparts because we're paying attention to what's going on in the market. Now yesterday when the Fed Chair made some comments that inflation was more stubborn and looked like it was going to hang around longer than we expected, the market didn't like that. And so it sold off, bond yields dropped, made the interest rates raise, I don't know, probably 25 basis points to cost, okay. Meaning a $400,000 loan yesterday by 3 o'clock increased by $1,000 in a matter of a couple of hours. Now, today we got relief.

$1,000, not $1,000 a month.

No, the $1,000 in total cost. But this is one day we're talking about. Now, today we got most of that back. Why? Because securities were selling off. And when people sell their securities, they don't just put it in the back pocket. They buy something. What do they buy? They buy bonds. 'cause that's considered more safe. So if they buy bonds and you're the bond department and you say, "Okay, maybe I'll take your money, but I really don't need it, so we're not gonna pay you as much," they'll see pressure that causes rates to improve. And so it's a matter of supply and demand and risk. Where do investors see the greatest risk? If they think they're gonna get better risk a better risk-reward with NVIDIA. They've done really well those last year and a half. In fact, they did 8 or 10% today when the rest of the market sold off, tripled their sales in the last—

so the biggest thing, the biggest message to potential home buyers seeking a loan is that it's— it would be important to have a lender who really is in touch with the day-to-day fluctuations of interest rates how to best advise them given their particular, their individual particular circumstances and where that lender sees the market going.

Yeah, and we're not perfect. We don't have a— I bet we're well over 90%, but it's been years since I've locked a loan in application, and I see all my counterparts do that. They've sold the loan. Why wouldn't they? They've sold the loan. People are comfortable. They know what to expect. No one's going to lose sleep.

But that's the difference between acting in your client's best interest and acting in the institution's best interest. Correct. That locking them in at origination may be in the bank's or that particular lender's best interest. It may or may not be in the client's best interest. Is that MICE?

Yeah, pretty much. Pretty much. And the other— and the other thing is they lock it. So how far do they lock it and what kind of headwinds are you going to run into? I have a situation I got referred to last Friday with another lender in town, locked the loan, write an application. Guess what? They got a problem with the foundation and now they got it inspected. Now they're trying to get somebody to get an estimate how much they're going to fix. The seller's not going to fix it. The buyer can't because they don't own the property and the lender's not going to let them ask for the repairs. What are you going to do? You got a locked loan. If you come up with a solution and you're able to close that loan and it's not within lock period, who pays that rate lock extension? It's not the lender, it's the buyer. So we want to always get some idea. We look at the properties at least online. In some cases, if they're small deals and we're concerned about property condition issues, we'll actually go out there and crawl around to see what we can see.

Well, that's one thing that I wanted to make sure we got back to. We talked about a unique service that you provide in terms of helping your previous clients look at their tax assessments. But one of the things you bring up at trainings are some of the other services that you offer your buyers, which I thought were kind of unique, including like some assistance with moving with a covered— oh yeah, enclosed trailer. Yeah, you've got an ozonator. Yeah. Um, and then the thing I think you just do for fun is the electric bikes, right?

So electric bikes. Yeah, there's, um, yeah, that one that's set up against— I just put that together last night. That's sold, they got to come pick it up. And the one in the hallway is sold too. I've got a problem mounting the fender.

You're not a dealer of electric bikes, right?

I am a dealer.

Oh, okay, okay.

I'm a dealer by accident. I'm not in the electric bike business. I want to be clear about this. Here's what happened. So 2 years ago, I could see the market changing. I'm looking around, you know, when you go on vacation, I'm always happy to come back to Traverse City. When I lived in Flint, we'd go on vacation, I always hated going home. You know, that's not the case here. But while we're here, but I also noticed that at my age, I'm not really using Traverse City the way I'd like to use it. I've got a boat on the bay on a lift. I used it 2 times last summer. That's not happening this year. I bought downriggers, I got them coming. The boat's going in. I don't care if I got to push it off the lift or use a crowbar. It's going in. Tomorrow, I said.

Good for you.

Yes. So I'm committed to trying to use what we have right in our own backyard. And one of the big things is bike trails. I've never ridden a bike. Actually, I rode a pedal bike, mountain bike, whatever, to Sutton's Bay one time. There's that 5-degree climb outside of Sutton's Bay for about a mile. It's grueling if you're pedaling.

So this bike is an electric assist?

But this is electric assist. You can use a throttle, or there's 5 levels of this, and you can go anywhere. I've challenged it up Wayne Hill. I've challenged it up place over here by the base of the peninsula, it's like you're pedaling on the flat, you know. People go, well, you don't get any exercise. You get just as much exercise on an e-bike as you can on a regular bike. The difference is you're covering more ground. Yeah, way quicker.

Okay, yeah, exhausting yourself as quickly.

Well, you can, and if you get tired, just stop pedaling, use the throttle, you're still going to get there. Yeah, you know.

So, and so how did you come to be dealing with—

so I— with the way I started it, it's like, you know, What can I do to share Traverse City with my clients and people that I do business with? That's kind of how it came. Years ago—

Build a community type of a thing.

Yeah, I did this with windsurfers and Hobie Cats back in the '80s. You know, I had them sitting over at East Bay. I had a concession over there. The guy would rent them out here, do up which one, I just provide the hardware. But if my clients come over and want to use it, it's no charge. So we did that for a couple of summers. So then the e-bikes, it's like, you know, just, hey, let me know how many you want. You know, they got to be 16 or older, they got to wear a helmet, and they got to listen to my spiel for about 7 minutes prior. And I'm going to take you out and show you how to ride them because you're doing like test drives and all that. Oh yeah, we go right out on the trail, we'll go down to Three Mile because it's not as busy that way. You can open them up, you can go.

Then if somebody likes it then they can buy one through you?

They can buy one. They get them at cost. Yeah, yeah, that bike right there.

You're not in the business?

I'm not making any money on them.

You're just doing it to really encourage that kind of lifestyle, and they get it at your cost?

They get to participate.

Yeah, the other thing was the ozonator. That's something that basically draws nasty smells out.

Yeah, you just— I just came back this morning, in fact. It was downstate. They had a wood-burning fireplace. After they took all the furniture out, they could smell the fireplace from the carbon or whatever, you know, just smelled like a burnt wood. Said, "Here, set it on a stool or something, point it right at the fireplace and put the fan behind it." They ended up going upstairs and downstairs. What it does is it adds an extra O2 molecule that attacks organic matter, and that's usually odor. So it's extremely effective in cigarette smoke. We had it out in Leelanau County on a place that was built in the '80s with Doug fir beams. You know, they were open, just soaking up cigarette smoke. And a guy sitting in one chair, and you could tell where he was because of the nicotine around him on the walls. You know, get a putty knife out, the carpet was nasty. It's like, okay, they took everything out and they used Kils on everything, but they couldn't get that smell out. The Osonator did it. Sometimes you got to use it more than once and there's different settings. We should show people how to use it.

And you have to be careful about pets in the house.

No animals, no.

Because it'll dry out the mucous membrane.

Right.

You also have to be careful about sucking the gaskets out of it. I mean, so there's a lot to it.

There's actually a video, a YouTube video, on how to use it that I've authored that we can point people to. There's also You know, if it's pet odors like cat pee, I'll tell you about a couple of things and what to actually do about it. Somebody in Kingsley wanted to use it. They said they thought— there was a girl that lived upstairs and they thought she was peeing on the carpet. I'm like, wow, that's weird, but whatever. So I went out there and looked at it. They said it's not working. So I went out and I said, is there organic matter? If there's organic matter there, you have to remove it. It will take care of the odor. It's not going to dry anything up. Okay, but it was— it had the knee walls in the upstairs.

So in other words, there was pee-soaked carpeting, they got to rip out the carpeting and then put the ozonator.

Yeah, in this case there was 12 dead mice and probably 30 cartons of decon in the attic. Okay. Somebody needs to get up here with a coal shovel and put all this crap in bags and get it out, then use the ozonator. Yeah. Okay, the cigarette smoke, we just did one where somebody passed away and they didn't know It was a dead body in the house for a month. It was pretty bad. They should have taken the wood out, the boards out. They didn't. They put several coats of Kilz on it, but the odor was still in the house, and this took care of that.

And then the covered wagon, the— oh, I call it a covered wagon. Yeah, an enclosed trailer.

Enclosed trailer. Here's how that works. We don't loan that trailer out, very, very few exceptions. Typically what we do is it's got a ramp door that you can wheel stuff up on. We provide the furniture dollies, we provide handcart, and we provide the moving blankets. It's all in there. You can tie stuff to the wall, there's ropes, there's straps, all of it's provided. But what we do is we say, okay, where are you moving from? We will take the trailer out and stage it there. You get 4 locks, locks the side door, 2 in the back door, and one on the hitch. So somebody can't take off with the trailer and nobody can take off with your stuff. Fill it up at your leisure. When it's full and you want it moved, you know, there's a, there's a little bit of a setup fee to put these legs down so that if, if you got something heavy going up the ramp door, that the trailer, uh, trailer won't tip up. I don't like letting people do that because if they don't do it right, there can be serious consequences. Yeah, or mess up my trailer. I don't want that to happen. So, and a lot of people can't back up a trailer. Yeah, that's a big main reason why I don't let them do it. So let me know when you're done. Lock everything up, you get the key, let me know when you're done, I'll come back, pick it up, and take it wherever you want. I'm gonna do the same thing, I'm gonna back it up to wherever you want it, put the locks on it, I'm gonna leave it there, you let me know when you're done.

And, uh, I tell you, I used an enclosed trailer. I moved so many times in my previous career as I kind of advanced through the educational system. One time I had an enclosed trailer and it made a huge difference. Oh yeah, because you can just piece away at it, right? You don't have to do it all at once. And because without that, as soon as you get your truck loaded, you've got to get that to its destination. It just puts— takes all the pressure off.

It's really a nice thing. Um, I had one guy that had it for 5 weeks. I'm like, dude, I've got several other people like to use it. I didn't know that you're going to replace your floor and do massive remodeling before you moved in, you know.

So please, you gotta be careful. It's like no good deed can go unpunished, you know.

We don't charge for it, but please try to be respectful, you know, let me know what your plans are and I can probably work around that. It's like with the ozonator, if you're going to take it for a couple of days, okay fine, but don't keep it 2 or 3 weeks and have me have to chase you for it because other people want to use it too. And I don't charge for it.

So let's do a couple of quick hitters. Sure. First-time homebuyer asks, how much money am I going to have to have down? What's the answer?

There's no real fast answer to that without understanding What your income is, can I do this as a real development loan? I can get you to the table with no money out of your pocket, period. You'll get your earnest money check back too, which they don't see very often. They're like, wow, got that back? Yeah, no, no down is no down. Earnest money you should get back. I'll build it into the loan.

So it depends on their personal circumstance and what the market's doing and your—

The credit and the property, yeah. But, you know, in most cases, how much do they have to— You know, it depends on their circumstance and what they want to do. I think we talked about when I write an approval letter, especially now because RD is such a powerful product that people, they're concerned about it because they don't know if it's going to take longer. Okay, I'm not talking about an RD direct loan, I'm talking about an RD guarantee loan. Directs, yeah, you're going to be in there 2-3 months. Guarantee loans, we got one clear to close last night. It's not going to go to the closing table until the 31st. We're a week ahead of schedule. No, actually.

So this would be a— you and I have had a previous discussion about the difference between the different type of approval letters that lenders might give. So for sellers or agents representing sellers, they need to really ascertain, is this a pre-qualification letter or is it a pre-approval letter?

I can't—

to what degree are they backing whether or not this person is is actually going to qualify for a loan.

The difference is experience. I don't think you're going to be able to talk to anybody that's ever seen a letter come from Personal Mortgage that didn't close. I can count on one hand in the last 12, 13 years that that's happened. And in those cases, it's based upon something that happened that the buyer did that we had no control over. But if we tell you it's going to close, it's going to close.

But we've had some discussions—

We don't even use the word pre-approval. And I don't use the word pre-qualified and I don't use the word pre-approval. There's some people that want to get into the definition. When you get a letter from me, it's going to say, "We're— you have come— this is a commitment." Yeah. Okay. Now, it still is subject to the appraisal's got to work. Yeah. Okay. I don't have any control of that. I got to have title that doesn't have 13 tax liens that the seller hasn't paid off yet. Okay. That's happened. Did we close the loan? No. Because that's not a phone call to the IRS.

We have encountered some loan officers or mortgage brokers who have given these pre-approval letters and they really aren't worth the paper that they're printed on.

That's right.

So what— why is that?

Experience. They don't— they're, you know, they want the deal, so they're putting anything they can out there to try to get the deal, you know, and then they're working on a reactive basis instead of proactive. The difference is experience. Yeah, fundamentally.

Um, and that's again why it's important as a seller to have a listing agent that's connected and really understands who these—

what they're looking for.

And that's one thing that I always do is, you know, if I don't know that lender or that lending institution, I'm— when I'm representing the seller, I'm calling and having a conversation with that lender.

Sure.

Trying to understand at the deepest level that I possibly can, and that they're allowed to share with me what the purchasing power of this individual is, right? So I can advise my client the best way.

The difference is you're actually reading the letters. Most agents don't, which blows me away. Now, I was kind of— I've been working with the client for a long, long, long time, and I said, and it was this particular situation, he was a maritime sailor. He's laid off in the winters. He's got to go back to work when they put the boat back in the water. My concern was if that boat's in dry dock, what if it needs a new propeller shaft or a dumaflachi or something? I don't know, but the parts are probably going to come from Sweden and it's not going to go back in the water on time, and therefore he's not going to be back to work, and therefore I can't close the loan. Now the agent, of course, the buyer's agent wanted a pre-approval, a pre-approval, and I'm like, all right, listen, I really don't feel comfortable writing this because there's some things I can't control, but I'll put it in writing. And I thought, there's no way the seller's going to take it off the market. They did. They took it off the market and put him under contract because they didn't read the approval letter. In the approval letter, I said this person is drawing unemployment now. It's contingent upon him going back to work. And I actually had the concern about the boat being seaworthy. Lo and behold, it was exactly what my fears were. They needed parts from Sweden. I was just pulling it out of my hat. So that's the damn boat didn't go in the water for like a month. And the listing agent who had been a lender prior said, you should have never written an approval letter for this person. I said, well, you should have read it. You just stuffed it. That's what you did. You know, you read the letters. I didn't write them just, you know, if I knew you weren't going to read it, I just throw the same thing out there every time. I went to the trouble to articulate what my what their concerns were. And I was quite frankly shocked that you took the property off the market with that letter. I wouldn't have done it in your case. But I'm like, well, okay, good for my client, good for me. We'll get the loan done eventually. And we did. But it took 60 days or something like that. Not our normal. You ask a question, how long does it take us to close a loan? Right now our average is 13 to 15 days.

Wow.

And the holdup is always third parties.

Like, who are the third parties?

Title. Title is all the appraisals sometimes, not so much now, but it's usually always a buyer.

Well, the market was going crazy, it was appraisers.

Sure.

We're having a hard time keeping up.

But it's buyers. Buyers, you're asking for stuff, ask for 3 things, they give you 1. Ask them for 2 more, they give you 1. Ask them for all pages of something. You know, that's probably the biggest sticky point is agents, then is the buyers. The number one holdup is homeowner's insurance. Start shopping, give us, you know, figure out who you want to use, just give us a name and a phone number and we'll handle it from there. Don't wait till 3 days before closing.

We talk about getting stuff for buyers and, you know, you help me drop off my car.

Yeah.

And we drove by one of our clients, the first client that you represented, her home. Well, she to me was such, you know, as I'm listening to young first-time homebuyers say it's just, it's impossible to buy a house in Traverse City, there are no affordable housing. Here's a, was a single gal fresh out of college, but she worked the plan. Yeah, she, she did her job. Yeah, she worked it and bought, and also bought in the Traverse Heights neighborhood. She didn't try to buy on 6th Street, right, with all the mansions, you know, right? She didn't buy out on Old Mission. So she, she bought in an affordable Traverse City neighborhood. We drove by her house and I'm like, there's a perfect example of if you follow through, you have your ducks in order, and you work— you, you get a plan and you work the plan, you can make it happen.

Sure.

Yeah.