EP 04 — The Mortgage Episode (ft. Ron Schwartz)

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Welcome to "Real Estate: It's Not That Complicated". Broker Ryan Cook and Curious co-host Kent Thaler guide you through buying and selling minus the jargon. Here's today's episode. Take it away guys.
Hey, I'm Ryan and I'm Kent, and together we're Real Estate Navigation Team, welcome to today's episode of "Real Estate. It's not that complicated" podcast. Today we're going to discuss
mortgage lending. A very exciting topic. It is actually very crucial if you want to become a homeowner, whether that be a single family residential, a condo, a multifamily, anything in the residential space is what we're covering today.
Very important episode to understand why things are the way they are.
People have a lot of misconceptions about mortgages. They look at them as a weight around their neck. And I think a lot of people tend to think that the.
Loan officer that you may be dealing with whatever [00:01:00] institution, is an adversary, and actually they're really part of your financial team. We purposely brought in somebody today who is able to explain how the mortgage fits into the whole process, which is important.
When you think about it, this is one of the largest, if not the largest purchase you're gonna make until you buy your next house. And understanding how it's financed from the bank's perspective gives you a heads up as to what you're gonna need to do to be able to afford that particular investment.
And we actually discuss, a number of interesting stories, wrenches that can be thrown into the works and how to get around them. And some processes and maybe folks don't like to talk about process. We go over them pretty quickly. But it's vital to understand what some of those processes are so you can actually make the process go along much more quickly.
Yes. Little things like understanding what credit is or that you can't actually use cash doesn't mean show up with bags of cash. Correct. People make the mistake [00:02:00] of changing documents or financial commitments that they have, during the, purchase process, which in turn throws their ability to get the mortgage off and they see someone's advertising a lower rate and they think it's just easy to swap over. And they don't understand what goes into getting a mortgage or the liability they may be creating for themselves. Yes. And, hopefully this podcast, makes it a little less complicated.
Alright so why don't we get into it at this point. Today's guest is Ron Schwartz. Ron Schwartz with Embrace Home Loans. Yep. He's a senior. He's a senior mortgage loan officer. He's been doing this for 20 plus years, and he's down in the DMV, the DC, Maryland, Virginia area. So he is out of our area.
We're reaching out to other people, because, things do actually happen outside of the New England region. Don't tell anybody. Yeah, don't tell. I lived in California for five years. I know. Stuff goes on outside of here. Yeah. [00:03:00] See I may have lived in other places also, but I'm not willing to acknowledge that stuff happens anywhere else other than in my immediate world because, in the end it's all about me.
It is all about you. Okay. So let's get into today's episode.
Today we have with us Ron J. Schwartz, senior mortgage Loan Officer, NMLS, number 4 7 1 4 8. Licensed in Washington, DC Maryland, and Virginia. And Oh, and Florida. It's not in your sig file, Ron. Thought I'd throw that in there in case my mom's listening. Who is, going to talk to us today about the exciting world of mortgages?
Ron has been a licensed mortgage officer since 2002 and has worked in mortgage brokerages as well as large banking institution and privately held mortgage companies like the one he currently works in, which is Embrace Home Loans. Ron has been recognized as one of the top 100 mortgage originators in the United [00:04:00] States and is presently licensed, as I said, Maryland, DC Virginia, and Florida.
His varied business experiences include several years of information technology and software solution sales, as well as seven years in commercial property and casualty insurance. Ron is also. A native Warwick Rhode Island. That is correct. How cool is that? That's right. It's not. It's really not. Yes. Go Tollgate Titans.
Anyways, welcome to the podcast. The, excuse me, real estate. It's not that complicated podcast. Ryan and I are really excited to talk to you, Ronnie, because not only do you, you bring the mortgage experience to us, you also bring a perspective that is not Rhode Island and, Massachusetts centered in real estate.
It's very clear that different regions look at things and [00:05:00] trends very differently. And we're not necessarily saying that we're, aware of what even all of them are at this point in time, but we acknowledge that they're there and we don't want to be boxed in and, have our listeners feel that everything that we're doing is only for New England because a lot of our experiences can be translated and.
Shared across the country. So we're really excited to have you today to talk to us about the mortgage experience.
Thanks guys for this opportunity. It's great to be here and, be able to give you some perspective on a more, national basis.
Okay. So to that end, Ron, so that we can get started, tell us a little about how you got into the mortgage business.
It's an interesting story to basically no one, but, that's the way to start a podcast in September 11th, 2001, the world changed. I was active in, selling software solutions to Fortune, 100 companies and government agencies. [00:06:00] Obviously September 11th changed the priority of those organizations, and I found myself as the only non-billable.
Guy at a software and solutions company and soon found myself between careers. A buddy in the neighborhood said, why don't you come and send out your resumes from our little office full of desks, where we have guys who are doing mortgages for local families. And then within a month of that, I was one of their top mortgage originators.
I found that working with families, had a lot smaller decision criteria for the decision makers than I would add a big corporation like Daimler Chrysler. At the time, we would sell our solution to a committee of 25 people, and by the time they made a decision, 10 of them had already left and gone to another position.
So when you work in the mortgage business, to me the greatest part about it is the math of the situation, tells the customer whether or not what you're proposing is [00:07:00] valuable. If the math works, it makes sense. If it doesn't, you can still be friends with the consumer and they can send you to their neighbors to see if the math works for their neighbors or their friends.
To me, this was the greatest, opportunity and I became a more transactional professional than I had previously. And, like I said, I've been here for the longest part of my career. I worked for a long time at a big bank that used to be called SunTrust for many years I was in their chairman's team and I happened to love when I can help a family, particularly first time home buyers or immigrant families purchase their first piece of the United States.
It's, that's how it happened. That's an interesting path that you took to get there, but not one that is uncommon in your industry. I don't remember any kids running around in the neighborhood saying, I wanna be a fireman. I wanna be a policeman, I wanna be a mortgage.
I wanna be a mortgage officer. Look, Kent and I also grew up working together in a ski in sporting goods store at Warwick, [00:08:00] and none of us were like, Hey, I'm gonna be a great mortgage guy. Yeah. That never happens. I wasn't gonna be a professional skier. And Kent can attest to that.
You were not gonna be a professional skier. That is true. I might have been pretty, but I was slow. I would argue about the pretty part, he's crushing your dreams. No, it's okay. That's okay. No Ron could sell skis incredibly well. Thank you. there's an old adage those that do those that don't sell.
Oh, I'm sorry. Those that don't teach. That's, yeah. In any event, i'd like to get, now that you're, in the business, explain to us, what a mortgage really is, and is it just a fancy loan with a house attached to it, or is there more to it than that? And, how does it differentiate itself that it needs its own word from a fancy loan with a house attached to it?
That's a really good question. Particularly when I work with families or first time home buyers, it's this sort of mysterious thing that everybody does [00:09:00] because they wanna own a own, let's break it down a little bit. A mortgage is basically a promise. The consumer promises that they will pay back the loan that they took out on the house they want to buy over a 30 year period.
That promise is very often referred to as a mortgage note. It's the agreement with the homeowner and the lender that the homeowner will make payments, make them on time, and continue to make them through the term of the loan in exchange for the right to borrow that money to buy the house. Over that term, it is different than most other types of loans, mainly 'cause of the collateral.
So the collateral is a piece of real estate, be it a lot, a trailer, but usually it's a condominium, a single family home or a townhouse tied to a piece of land. And that mortgage note is also different because it is recorded [00:10:00] at the recorder of deeds in the jurisdiction where the ownership of property is recorded and guaranteed to the homeowner.
Okay, so there are a lot of laws there. Go ahead. So yes, it is looked at differently also in terms of the consumer's credit, because the risks associated with owning a home are different than owning a car or a couch or a tv. Okay? Certainly the loans are larger, but someone who invests in a home is less likely in most cases to go bad on that debt because that's the roof over their head.
So there's a lot to it. There's, there are a lot of things that we do to make our mortgage underwriters feel comfortable that the consumer is going to be likely to pay back the loan. And as we get into this more, I'll explain those. Factors that make us more likely to be approved for a loan [00:11:00] versus those that make it unlikely for us to be approved for a mortgage loan.
So I wanna stop you and I wanna go back and focus on one specific point that you just made that I think is incredibly important. And that's the fact that the mortgage is recorded, as a deed. So Ronnie, I wanna go back a second, and focus on something that you, mentioned that I think is really important in as a differentiator between a mortgage and a actual, or a regular loan. And that is that the deed or that the mortgage is recorded, legally as part of it, as the part of the deed process?
That's correct.
So a lot of people probably don't understand what that means, and how that affects them going forward and their ability to, sell or improve upon that piece of real estate that they just purchased a mortgage for.
A lot of people think when they get a mortgage, they're actually buying a house.
They're really not. They're buying a piece of paper that describes a piece of land that the structure [00:12:00] happens to be on. Or if it's just raw land, it's just the land. They're not actually buying a house. They're buying a piece of paper that gives them the legal right that says they're the owner of that piece of land and what's on it and below the ground.
And that right includes the typical language is the right to use and enjoy, that piece of property that they, legal term is chattel, throughout the term of their ownership. What happens, actually in most states, there's a thing called a mortgage note that gets recorded. But in many states there is a thing called a deed of trust, which refers to the promise.
And some states record the mortgage note. Some states record the deed of trust that says there is a mortgage note between Joe, the buyer of the home and the lender from which he borrowed the money. The terms of the agreement between a buyer, a borrower, and the lender are in the [00:13:00] note. And that is why some states only record the deed of trust, which describes the property.
And the parties to which the deed business was done. Okay? So it is a big deal that when you owe, when you provide the payment to the seller of the property, again, in legal terms, they call that payment consideration. And in the old days, that consideration could not, might not just be money, it might be a number of chickens and goats or whatever of value you are exchanging with the seller of the property to receive the value of the right to enjoy and use that property throughout your period of ownership.
That's how that's essentially what those agreements between buyers and sellers and the description of the property that is contained within that agreement. That piece of paper is what gets recorded at the courthouse.
Okay. So now that you've put me to sleep, sorry. [00:14:00] And I appreciate it. An exciting business.
It is an exciting business. I guess that, you focused on and answered the question of what's actually going on and what's happening so that people get back to where Ryan's point, which is, people misunderstand what a mortgage is. And understanding that it's basically,
you're buying the land and it's giving you permission to then, because you now own the land, you now have the right to enhance your land, and then you put the land up as collateral against the house that you're now you're going to build on the land. So in theory, you could take a mortgage out on your land, you could build a house on your land, and then you could take that house and you could move it someplace else.
The land is the piece that stays permanent because it doesn't move
that might seem logical. However, the terms contained within the mortgage note, would prevent you from de devaluing Exactly. The property Exactly. Without the lens [00:15:00] knowing. It's very important. A lot of people don't actually read it.
They just go to the closing meeting sign the papers and they go off and sip champagne and celebrate and carry their spouse over the threshold. But there are a lot of things that you cannot do to that property unless you're willing to violate the terms of your agreement with your lender.
But generally, those things which make the property that you're using as collateral less valuable would be very disappointing to me as a lender. If you had a. Million dollar house on a property and just decided you would rather have just the raw land.
We would probably call the note, meaning make that note due and payable. Very important to understand that your agreement with the lender includes things you really can't do like that. Or if you're borrowing a primary residence, you're not allowed under the standard note throughout the United States, you're not allowed to build a bomb factory or a gas [00:16:00] station or change the use of the property without notifying your lender.
So let's talk about that though. Why does the lender care? Because they have an interest in your property. 
They are your partner. They have a fiduciary interest in that property. They don't really care what you're doing. They're only concerned about their investment.
There's actually a little bit more than that. Your statement about they don't really care is really inaccurate.
And the reason being is they don't care, on a specific one-to-one basis because there are other authorities, if you want to add onto your house, you gotta go through a building department or a planning department or a zoning board to be able to get the approvals that are still keeping their, interest protected.
there are other authorities in between, especially with, single family and multifamily homes, not condos. They care, because their money is on the line and they wanna make sure that you're not doing something of devalued. Just like in your mortgage it says you have to carry insurance, if you get a note from your insurance provider in coverage, a letter goes the lending, servicer as [00:17:00] well, because they're like, Hey, wait a second, you gotta have insurance.
Yeah. Our if our collateral, by the way, is not insured, we will force place insurance upon you, which protects the lender's interest in the property, but it's not gonna help you if your house burns down and you lose your couch. That forced placed insurance doesn't cover your interest in the house, just the lender's interest.
We'll get into that later. Yeah. Okay, I got it. It's a legal document. It's different than my car loan because my car loan is not registered. It's a different process. Correct. So how does it get started? How do you originate?
I guess what actually happens when you're getting. Mortgage, what's the process? People talk about pre-approval versus, pre qualified, how does that whole thing work and what does it mean? And then we'll get into what happens once the purchase and sale happens we actually have to get the actual mortgage [00:18:00] in place.
The great question. I'll tell you that there is a lot of mystery around the terminology in our real estate practices these days. A prequalification, a pre-approval, a fully underwritten pre-approval. Let me explain these things. First of all, most of the consumers I work with come to me on referral, either from their real estate agent or their CPA 
They hear about me through things like this podcast or, my reputation in the local market. I actually am on lists of prefer or approved lenders from local government agencies. When we do specific types of housing, they, they inevitably, don't know a lot about the process. So the first thing we do is meet with the customer.
I prefer to meet with people in person here at my office and sit and look them in the eye and educate them, just like we're talking about today, about the process and what we're doing and why we are asking them to do certain things. Let me go back one step and say a prequalification versus a pre-approval.[00:19:00] 
These are degrees of work done by the lender. To properly vet and determine the qualifications of the consumer who is asking us to lend them the money. Most real estate agents, when they see a letter that says Requalification, which tends to be the lowest form of diligence by the loan officer these days because of our, technology and our knowledge of what it takes to get a loan done as an industry, I'm speaking about not only the mortgage folks, but our partners in the real estate business.
A prequalification letter is not really worth the paper it's written on. Essentially, a pre-qualified borrower is somebody who may have had a conversation with me and I may have put a mirror under their nose, and I've determined that they are capable of putting a fog on that mirror. And that's about all I know about them.
I may or may not have looked at their credit. I don't know anything else about them other than their name, phone number, and [00:20:00] email
it's not, it isn't an industry standard. 'cause I've had some lenders in the area I'm in that they would say they're pre-qual, they've already been through underwriting and we've pulled their credit and we've verified their, w twos, et cetera.
So there isn't necessarily an industry standard on it. The challenge is when you have. A lender that isn't following, say, the norms, realtors, standard realtors, licensed agents out there in the field. When we have a listing, we get offers, we wanna see a pre-approval. We don't want a pre-qual because we look at it and go, we have no idea.
This is like stated income. I have no idea if this person can actually afford the house. I really appreciate the fact it is semantics. Within our business. There's no legal standard for a letter that I give that says, I've looked at what this borrower can do in my lexicon.
In the terminology I use, I have, three levels of diligence. The next level after prequalification, which for the most part I don't even use because my realtors [00:21:00] wouldn't touch it. I'll explain what that means. Pre-approval means the borrower. For example, when I put a letter of, in my case, any kind out to help a borrower try to purchase property, I require that borrower to not only meet with me, but provide me with 100% of the documentation I need to support the information that I will present to an underwriter.
That includes things like income history, which is done with pay stubs, w 2's, tax returns, assets, meaning how much money has this person or family saved? What do they have in their 401k? Are they gonna be receiving help from a relative or down payment assistance from a government authority?
And of course, the C word credit. I wanna know if in the past this consumer has a history of wisely using credit and paying off their bills and paying them on time. That's usually shown on a credit report. [00:22:00] So the diligence, the level of diligence is what we as professionals are trying to display on a pre-approval letter.
Most of us these days also go one step further if the consumer will allow us a little extra time, which I demand. I'll take all of that and actually have an underwriter. Review my work, fully underwrite the file before, before you get too far. Before you get too far. We know at least you and I know what an underwriter is.
Most people, an underwriter is like. The, the wizard behind the curtain, we could pay no attention to the underwriter behind the curtain. It's, people have no idea what an underwriter is and what an underwriting process is. Can you just touch really quickly on, on what an underwriter is and what role that one, it's an individual for people who don't know what that individual's role?
Absolutely. A lot of people think that a loan officer is a person who makes the loan. A loan officer like me is a professional salesperson. Only we sell the consumer that we know how to make an underwriter make a decision. The [00:23:00] underwriter is actually the person delegated by the investor in your loan to decide whether or not the loan will be made.
That person is a decision maker. So my job has two sides. It has the side where I collect all the data and sell myself to the consumer as a loan officer. And then it has the side where I present the consumer's information to the decision maker, in this case known as an underwriter, which is a colleague of mine that reviews the file of information and makes a determination based on certain standards as to whether or not that loan would be acceptable for us.
To complete an underwriter. It's like a big, mysterious person. No, it's a lovely person sitting in an office of a colleague of mine who I can have a conversation with and say, look, here are the things. Here are the reasons that Mr. And Mrs. Jones should be able to borrow $500,000 in order to help them purchase this property.[00:24:00] 
Underwriter is nothing more than a decision maker these days. A lot of the underwriting criteria are done, through a system that's been around for a long time. Underwriting before, it's before ai. And, underwriter basically fills out a bunch of check boxes, but also there is a degree of common sense involved in the underwriting process.
They get done and they hand me a document that says, we will commit to lending the money to this consumer. So after so the third level that you're saying is, what do you call that? So is that pre, pre-approval? Is that approval? Is that semantics? At our company, we call that approved to move, but that's a marketing term.
So mostly when I speak with my realtors, let's say Ryan is the listing agent on a property, and my customer and their real estate agent have proposed that they would like to buy the property that Ryan's customer is selling. I will call Ryan and say, Ryan, thanks to advance for taking my call.
I want you to know that Mr. And Mrs. Jones here have not just been [00:25:00] pre-qualified. They've not just been pre-approved by me. I've actually taken their information, completed a file, had an underwriter here, review it, and what you're seeing is an actual. Commitment from the underwriter. The thing that's missing is a property.
The property that fills in the blank of subject property on the proposed contract. So there really are, there's a spectrum of diligence is what I call it, that a loan officer should be doing. I, in my opinion, because the property, once it goes under contract is no longer on the market.
It really is an important process because that seller may have another property to buy, but every day their property is not on the market is potentially a, liability for them. Yeah. And we can actually, we can pull in a little bit of our conversation recently with Lori Seavey, who's on the listing side.
If you remember our conversation there. I do. And where Lori, when she's got a number of offers, is validating, calling the lenders, checking, trying to make sure that what was written in the offer. They wanna see how [00:26:00] strong it is. And I will tell you right now, when it's a tight inventory market, it's the little things that help.
Sure. The dollars help, as you like to say, Kent, I just wanna know how big the wheelbarrow of cash is that's being wheeled up to my house. And how many zeros are after it? Yep, absolutely. But you wanna make sure that if they're making a promise of lots of zeros, they can actually move forward. And so that's where you get the pre-qual, which is very low level, that most agents we're not gonna accept an offer with a pre-qual.
A pre-approval, and then every different lender has a different term for pre-approval. It's actually been through underwriting. We joke around. It's oh, it's a super duper pre-approval, but yes. And I don't know who started it. I remember probably a decade ago that, Quicken Loans had started doing, something similar to that to try and make, and not saying one lender is good and one lender's bad.
It's just, I think it was about a decade ago or so that we started seeing Quicken loans start to do something. And when, marketing idea takes off and someone sees the lender get in market share [00:27:00] that, the biggest compliment is to copy what someone else is doing. If it's effective, and obviously if it's legal.
And it's certainly very legal. And it's not only legal, it's prudent, especially in a market like ours. Frankly, there's a reason I have a federal license to do this job. And it's because when I say I have done something, I have done it. If I say that I've reviewed somebody's credit and I haven't, I'm committing fraud.
And that is a potential, litigious opportunity for someone who finds out that I didn't do what I said I did. That diligence is the standard of my profession. So call it what you will, a pre-approval or I literally just break it down like we are today and say, this is a fully underwritten loan file here and I can actually put it in writing.
And a underwriter's name is a TAs on that. It says that as long as the financial features of the property fit the approval criteria, meaning the borrower can borrow this much, then the house fits in the [00:28:00] box that the letter describes and the loan can proceed subject to whatever the terms of the contract.
So only because, I like to talk in more specific, explain to me a little bit about credit and what goes into and what you look for and documentation and what you really need to be able to get somebody qual, I'm gonna use the word qualified with a lowercase queue,
qualified for a mortgage. I know that there are three credit reporting agencies. Is there one that you use over a different one? What happens if there's discrepancies? How do you guys determine that, somebody's credit is accurate, both on the positive side, oh, we're gonna write this loan.
And on the negative side. Oh, they're at 6 51 and we don't write loans unless it's 6 52. There's a lot. It's a huge, we could do a whole podcast just on credit, but I'll give you the basics, which is what you're asking me for. Yes. There are three credit agencies [00:29:00] that we use in the mortgage business.
Those are TransUnion, Equifax, and Experian. We look at all three reports simultaneously in one document. We call that a tri merged credit report, meaning all three bureaus report on one document. Yep. Hey, great. Kent, real quick quiz. Which score do you think they take?
Do you think they take the highest score or did they take the lowest score? Oh, the lowest, of course. Oh that's not the case. We actually take the middle score, so it was a trick question. We don't average the scores. We don't take, I felt like I just got three card monti. It's just very much like three card credit Monte. So we, and if there are two borrowers, we take the lowest of the two middle scores. Those are the basis for the loan underwriting criteria and also the basis in some cases for the rate, and we call the pricing of the loan. Obviously, someone who has a lower credit score can represent.
A higher risk to the lender, [00:30:00] and they have loan level pricing, meaning down on the loan level, someone who has a six 20 score is a higher risk than someone with a perfect, maybe an 800 or 800 plus scores. The range in credit scores goes from 400 to 850, generally, a consumer should fall somewhere between 740, let's just say 640 and above is fine.
There's always a loan there. And as you get below 640, you start to have challenges. And we have loan programs that help consumers that have lower credit scores. But, we'll let you ask questions about that. So when somebody comes and says, I'm worried about my credit because I'm a new buyer I just graduated from college and I've got a job, I never bought anything big.
How do you evaluate that credit versus somebody who says, I'm 50 years old, I've been in the same job for 30 years, and. I ran into some problems a couple years ago, but they're all resolved now and we'll fi we'll fix the [00:31:00] question to start with. It's not someone fresh outta college.
At least have them working for at least two years and then we can Okay. Two year, somebody who's been out of school and, has her MBA, for example, and has been out of, her graduate program for now three years. How's that? First of all, a college education is not a requirement for a mortgage loan.
Okay. And, anyone over the age of 18 it is eligible to apply for a mortgage loan and hope that, they wouldn't be rejected for their age. There is no age, criteria. Someone who's 97 years old is still entitled to apply for and, be approved for a 30 year mortgage note, believe it or not.
So age is less of a factor. Credit history is displayed on a credit report, whether the person has established credit, if there's sufficient credit for a score to be generated is the key criteria in mortgage credit analysis. So you may have someone who is a sophomore in college or an 18-year-old who just graduated high school and [00:32:00] had maybe already had a couple of credit cards and has great credit and left high school and got a great job and, is now wants to buy their first home.
All of those persons are eligible to be reviewed. If the credit report shows me that there is any credit history and a strong enough score to meet the lending criteria, I'm happy to offer them the opportunity to purchase a home. Some of the first time home buyers also get what's known as a co-signer.
So maybe that 18-year-old has their dad, mom or a relative, co-sign to back them up with the underwriter and offer additional, stability and likelihood that the loan will be paid back.
And the co-signer, I'm assuming, is also financially liable for the loan? That's correct. The co-signer would be essentially like a backer.
Yep. And say, look, not only is this person qualified, but I am, I'm guaranteeing I'm standing up behind them and saying they're a good kid and, I'm gonna help them out. If they need to change jobs in a little short this month, [00:33:00] I'm gonna help them make the mortgage payment
I wanna ask, real quick, does a co-signer need to be a family member or can it be any consenting adult?
It does not need to be a family member, by the way. It can be any consenting adult and some programs vary in that area, but for the most part, it's anyone who is credit worthy and, it is gotta make sense to the underwriter. Yep. Is there types of credit that are better than others when looking at for example, is paying a car loan religiously better than say a credit card loan?
Let's talk about that. Okay. A car loan and a student loan and many other types, for example, people buy furniture on credit usually. Usually these are called installment debt. And the regular payment and timely payment of installment debt is a good thing when it comes to, establishing credit history.
Revolving credit, most commonly known as credit cards or charge cards in the past, is also a good thing as long as the consumer [00:34:00] uses that credit wisely. Using it wisely in the eyes of the people who make up credit scores. Usually some actuary in some deep, dark basement, at a lending institution or government agency, but these folks, analyze risk based on the consumer's establishment and use of credit over time. So someone that borrows $10,000 on a $10,000 credit card and drives the balance up and then never pays it off, is probably not likely to be a good borrower of. $300,000 against a house.
Conversely, if someone who has a car loan as and it's $20,000 and they made every single payment over 60 months on time, and then they have a couple of credit cards that they borrow, go do their grocery shopping or go on vacation and they pay it off in a timely fashion, that credit history will show that person wisely uses consumer credit and is likely in the opinion of these [00:35:00] actuaries.
The foundation of credit scoring, is that person is more likely to be a good risk, a low risk to a lender. Does that make sense? You actually bring up a really good, point I wanna bring up when it comes to analyzing what's good credit risk, bad credit risk, people paying bills, has there been any changes, proposed or, credit scoring or, changes adopted by lenders?
Because what we've seen over the last, as long as I've been in the business, say certain, folks who, the family doesn't have a history of owning anything, but they've had apartments and they've been paying their rent regularly. They've been paying the utility bills, but those generally haven't been included in credit scoring.
Have we seen any changes to those where, folks who are trying to become first time owners and have been making those types of payments but maybe don't have credit cards, or they never had a car payment 'cause they paid cash? Finding a way to, I guess analyze and verify someone like that, that they are, a good credit risk.
There is a whole segment of my, work where we do what's [00:36:00] called establishing non-traditional credit. So the consumer who is maybe just old school and just likes to do everything in cash and never wanted a credit card, and maybe they're adverse when it comes to, they don't wanna be in debt to anybody ever.
We have, the ability to look at their utility bill payments. We can look at their rental history. We can look at, other aspects of their credit, primarily those things, utility bills, and rental history. And establish a credit score. Very often when I work with consumers that I pull their credit and there's literally no score because they have no history of using credit.
It takes some time but we can pursue what they call non-traditional credit and look into how we can help them to establish a credit score. It's not something that happens overnight. Sometimes takes several, maybe six to 12 months to establish non-traditional credit. Sometimes it can be done a little quicker, but yes, those [00:37:00] consumers are not barred from access to credit.
In the mortgage side is, is a consumer penalized for paying off a loan faster than it needs to be paid off. For example, if somebody were to finance a car and they were able to pay it off in, say, two years instead of the four years of the term of the loan, right? They would then have two years where they don't have a payment, but they own the car.
Does that penalize them in the eyes of the credit reporting agencies? No. It actually would indicate a wise utilization of credit. And while the lender, when you paid off that car early, the lender didn't get the interest that they hoped to get over the full term of the loan. 
They can't fault you for not wanting to pay all that interest. So paying off an installment loan ahead of time is actually a wise utilization of your ability to use credit. So it should not penalize you because it can, but it shouldn't be.
There's a lot of delicate balance between utilization of credit and not, but [00:38:00] if you don't want to pay the interest, you borrowed 20,000 but you pay it off in two years, you should be looked at as a, I agree totally. And when you pay off a car loan, depending on how high your credit score is, your credit score drops.
And that's why one of the things, like when I'm talking to clients early in my career you didn't know. I try and give my clients advice, but before they do anything on payments, whether it be paying off a credit card, paying off a car loan, taking on any other debt, I'm like, before you do anything, talk to the lender.
'cause we wanna make sure you think you're doing something good and you actually make a credit score go down. So we wanna make sure get, talk to the lender, get approval first. Yeah. I'll say this, that the biggest mistake consumers make, particularly with revolving with credit cards, is paying them off and closing them.
The reason that impacts the score negatively is that when you are scoring somebody, you have to base that score on open and available [00:39:00] credit. Meaning if you got a $10,000 credit card, you did something and you borrowed $5,000 on it, then you paid it off, and then you turn around and close the card. There will be no history anymore.
There's no history of a CL when the account's closed. The history says in the time the card was open, it worked out really good for the lender and for the consumer. But now there is no mark, there is no open trade line for us to analyze. Similarly, if you feel that an installment debt has the closure of an installment debt, has reduced the credit score, it's because that's no longer an open trade line.
It's not because the consumer's behavior was bad or good, it's just that there's less credit for the analysts to analyze and therefore it has a harder impact. If you have five credit cards, all of which have zero balance on them, you're much better in much better place. You have much available credit and you're very low risk because you haven't used all of it.
On the other hand, if you have [00:40:00] five credit cards for $10,000 each and every single one of them is maxed out and you're only making the minimum payment for several years, it's not, doesn't bode well for the analysts to say that lending you more money is a good idea. That's generally the trend.
There are smoke and mirrors underneath the credit world that even I, after 25 years of doing this, I don't understand some of the logic and reason, But generally a consumer's goal to improve their credit score can be impacted. The great strategies are try to keep, for example.
If you have a $10,000 credit card, try to keep that balance below 50% of the available credit, and you tend to have higher scores. Always pay at least the minimum on time. Paying things on time is the most important part of credit scoring on revolving credit. If you miss a payment, it's gonna have a real negative impact on your score.
So I guess where I'm going with this is, do you as a [00:41:00] mortgage or a loan originator, do you have the ability to look at somebody and say, okay, she had this loan, or he had this loan on a car and they paid it off, the credit score went down, but I saw that they paid it off.
They have two open credit cards and they are keeping the balances low. Do you have the ability to say, although the, although Experian has that rated at 710, I really think that's closer to a 740 behavior or no, lemme say that, that's the question.
I really liked the way you put that because even when Ryan said, Hey, I had a consumer who paid off an installment loan and their score fell, remember their score fell from seven 40, which is excellent to a seven 10.
It's still excellent. But if it went from 710 to 680, that might be enough to get them from an a loan to a B loan. It might be enough to change the interest rate, that's six 80 might be Tuesday and the following month, on the [00:42:00] same Tuesday, he might be back up to seven 10.
These are short-term impacts for most consumers. The things that really move the credit score dramatically are, payment history, meaning, making your payments on time, judgments, collections, bankruptcy also remember paying child support late is something that can impact your credit score.
There are it's really what we call adverse credit. That is the thing that consumers should be most, diligent about. It's really important to understand that yes, the movements, these small movements where you pay off a debt and you have fewer trade lines. For example, let's say you had three credit cards and you closed two of them after paying them off, and then you went 30 days late on the one credit card you had left.
That's gonna have a much higher impact on your score because you're going bad on the small amount of available credit that you have left. The mo the movement [00:43:00] of credit scores within 10, 20 points for consumers can happen day to day. I don't actually know every minute, every section of why that happens.
Maybe we can work with a credit expert on that going forward, but the truth is, if your score is pretty good today and you pay off a car, it'll still be pretty good tomorrow, in terms of mortgage lending. It's still gonna be viewed that I don't play the game of, for example, some people say I had a 780, what can I do to go over 800?
My advice to any consumer is don't play with it. Gotcha. Keep doing what you're doing. If you're excellent today, you don't have to be more excellent tomorrow. The truth is, it's like being pregnant. You're either excellent or you're not Excellent.
It's simple. You're gonna have any, anywhere over, say, a seven 20, you're gonna have a great loan. And the movement of the loan, the pricing changes on your loan interest rate is not that dramatic. Got it. So we've got all of [00:44:00] our data. We have our approval, we have our, guidelines or criteria for being approved.
We found a piece of. Real estate. We make an offer. What type of loans are available? Meaning, what's the difference? You hear about things like Freddie Mae and, excuse me, Freddie Maye, Fred May, Fannie Mac. Yeah, exactly. Freddie Mac and Fannie Mae. You hear about FHA, you hear about, a bank loan versus a credit union loan versus, a community bank loan, versus a federal backed loan versus private lenders who aren't banks at all.
What does it mean? Why do I want to be involved with any of those things? How does it work and how do you pick which one works? How do you know which one is the right one?
Yeah, that's, the greatest question of the day so far. It is very confusing. There's all this terminology, this type of loan.
Do I get an FHA if I'm a first time home buyer, don't worry about it. Your loan officer is compensated to help you find the [00:45:00] loan that suits you the best. Okay? So whether it's a government backed loan or a conventional, and I'll explain the differences. Sit down and relax, meet with your loan officer and discuss the most important things, which are, how much cash do I have to contribute to a transaction, and what are my monthly obligations or payments going to be 
Let's get into that a little bit more. What, government backed loans in the United States, there are really three types of government backed loans.
Those loans are FHA, which is a federal hou, a fair Federal Housing Administration, which gives the lender a guarantee against it's an insurance policy for the lender against foreclosure va, which is a great loan. It's specializing for a specialized for those who have served in our armed forces are active or retired military and have been honorably discharged, for example.
And then there's USDA, which is the US United States [00:46:00] Department of A, a Department of Agriculture also has a guaranteed home loan program for more rural areas in the country. And you'd be surprised what the definition of rural area is when you speak with your loan officer, you can give them the address of the property you're looking at.
I wouldn't be surprised because two of my neighbors have USDA loans. So again, we just talked about government backed and conventional in our terms. Let's talk about, let's talk about, for a minute, let's define Freddie Mae and Fannie Mac, I'm sorry, Freddie Mac.
Freddie Mac and Fannie Mae. They are investors in what they call mortgage backed securities. When we as a lender make a loan, they write the guidelines that tell us if the loan is gonna fall within these guidelines, Fannie Mae and Freddie Mac, these quasi government institutions will fund and warrant the loan for us.
Meaning they'll give us back our money that we lent out. They create the credit market for [00:47:00] 90%, in my opinion, maybe 80% of the, no, I've seen numbers as high. It's higher. I've seen, yeah, I've seen numbers as high as 95%. And that's because most consumers, borrow in that category, that the, they're either borrowing in the government backed or they're go, they're borrowing in the Fannie Mae, Freddy Mac consumer, we call conventional loan scenarios.
Okay. So what's the difference between the two organizations or the two loan things? Is there a difference? Not really there. As far as the consumer's concerned, they have minor differences in the way they. Provide guidelines. There's certainly, independent, financial institutions, but most lenders like our, like ourselves, we'll just underwrite to, to those two guidelines simultaneously.
And someone and deeper in the organization decides who is going to be the investor behind that loan. It's all done in the back room. It's above my station in the organization. So what [00:48:00] you're saying is, it is the same thing for a consumer. They are a guideline creating organization who sets the standard for what, in what loans they will invest in.
And they therefore are underwriters. Earlier I said there was like a checklist. Yeah. Underwriter says bang. This loan meets the lending criteria. So what really, that's what those organizations do. So what's really going on and for what our listeners need to understand is that embrace home loan probably is not putting its money up for my loan.
It's putting up, it's putting it, it's, it, but it's gonna get its money back very quickly. That's the point. But that's the point. As long as it meets the criteria for Fran, Freddie, and Fannie, then it knows that it's money is only gonna be at play for say, 30 days versus 20, 30 years. That's correct.
And that's why you get the letter that says your loan has been sold to a new institution. No, that's not exactly the same thing. Okay. So where you're crossing over is [00:49:00] the difference between the servicer of your loan and the guarantor of your loan. The servicer of the loan. When you get a 30 year fixed, and it starts today, as my company here at Embrace Home Loans, we will eventually, in most cases, sell that loan.
That loan is an asset. We'll bundle it with other loans and package them and sell them to a servicer. Okay? The guarantor of the loan is strictly where we get our money. We lend our money and we get it replenished by the guarantor, Freddie Mae, Freddie Mac, or, the government agency, whatever it is. If your loan is with me today and tomorrow, it's gonna go to US Bank for Servicing.
Yep. US Bank has purchased that loan as an asset with a bunch of other loans from us, and US Bank will be servicing that note. You'll be paying them directly instead of paying my company. So it is a little bit confusing, but I will say this, you should expect that the Mortgage servicing will be transferred from [00:50:00] time to time from US Bank to Wells Fargo.
But the terms of mortgage loans cannot change unless you change them. Meaning you sell the home, pay off the loan, or you refinance the loan. Into a better deal for you, and then you'll start again with a new institution. Does that help, Kent? Yeah, that helped. So now that I understand how the loan originates and who's loaning me the money, right?
The next question that I would have is how do you guys determine what the rates are and what fees you're going to put into that mortgage in order for it to close? That me, that's complicated, but not that complicated. Okay. I like to explain this to the consumer and say, look, the mortgaged rate very much like a stock or a bond actually, it's bond based.
It has to do with what the status of the market is at any point in time. So today, for example, let's say that a 30 year fixed rate mortgage on $300,000 is [00:51:00] 6.5%. As the loan officer, I'm getting that interest rate published by my organization based on another part of my organization, which analyzes the market and tells me where the market is and what the cost.
The loan is to our company. It's like buying potatoes a commodity. We actually have a big trading desk called the secondary marketing desk that publishes our interest rates day in and day out. Sometimes that interest rate will change even intraday. It, no, it the, when I say how do you, when I'm using the word establish, I mean what, when you say to, when you say to me the rate is 6.5%, right? Does that mean that's the rate at that moment? Does that mean that's the rate we're gonna close on in the next 30 days? Are you guaranteeing me that rate?
Good point. And then what's included in that closing rate do you guys acquire anything? And, how does it work so that I can actually buy this [00:52:00] house? Good.
Alright. So when I say that the interest rate is 6.5% to you, just over the in, in conversation like that does mean at that moment in time.
Let's say it says 11 o'clock this morning, my interest rates have just been published at 2:00 PM That interest rate may change based on the movement of the market. Our mortgage backed securities desk. Like a trading desk at a stock company,
what does it take to lock in that rate?
So let's say it's 1130, the rates haven't changed. You look at a document, hopefully a piece of paper that shows you that interest rate and the fees associated with it. And those fees, actually a lender should be showing you both your their fees and they call an A PR. An annual per percentage rate is a function of the rate plus all of those fees.
It creates a slight, in case of a 30 year fixed rate mortgage, a six and a half percent interest rate. We'll usually have a slightly [00:53:00] higher A PR, which we'll get into, not in too much detail, but an A PR tells you how much the fees are above the rate.
The goal of an A PR is so that consumers can compare a six and half percent offer for me at Embrace Home Loans. To a same, the same six and a half percent offer from Wells Fargo. One of us may have higher fees associated with the rate. And that's something that's really important for consumers to watch out for.
That is why all of us at any loan officer really should be not only talking about the rate and the a PR, but showing the consumer these days. We can show the consumer either through a web-based demonstration, ideally we'll show them through a PDF that we send them, or if they're here at the desk, I can show them two different offers and compare the offers based on, what the fees are to get to that. Rate. Fees, by the way, from a lender are often calculated and all kind of pushed together, create what they call loan [00:54:00] origination fees, and they can vary greatly from one lender to another. The great thing is that these days, because we have the ability to share documents and information instantaneously, a consumer can look at exactly what they're getting.
When they get a certain interest rate, I may have an interest rate of 6.5%, and a competitor may have the same interest rate, but they may have to charge $3,000 to the consumer to arrive at that same interest rate. These are the kinds of things that consumers will be comparing from one lender to another.
And there's a big difference in how that's all changed. When I purchased my first home in 1999. There were no consumer disclosures available. And I ended up finding out after I sold, when my house was under contract to be sold, and I was trying to move back to New England, that I had a negative amortization loan.
Whoops. And that was never disclosed. They never disclosed there was a yield spread premium. Basically, I get screwed, and paid a [00:55:00] crap ton of fees. And that lender made out like a bandit. That's right. Made a whole bunch of money. So all of these laws, but that's why lot of these laws have come into play.
So when Ron's working with someone and he, goes to quote, he is gotta actually produce a document that and Ron, correct me if I'm wrong on this, that lists all the potential fees and then they have to break it down. Now they've really, I think it was 2017, they changed this where not only you have to break out the fees, but the fees you're allowed to shop for and the fees that you're not allowed to shop for so that someone can look at a loan and be able to go line by line and say, oh, okay.
Yeah, no, I understand. Because they have to understand what the person, what the lender is charging, because it didn't used to be that way. It was pretty deceptive. In the past, most of which changed with the te respa, combined act, in around 2010 actually. That's called Dodd-Frank.
There's a number of laws that really helped us to be more accountable to the consumer, [00:56:00] to the point where the laws, some parts of those fees, if I, let's say Kent, let's say today's the day it's 11:30 or whatever, we lock your loan, meaning you and I have agreed that when you get to closing that lock, that rate and fee is exactly what's gonna be there.
At closing. I am required to deliver the loan as promised. Yep. Particularly lender fees. If I charged you more fees at closing, I would be, I couldn't do, it's against the law.
You should, as a consumer, know what you're going to be paying at closing. If I get that wrong. These laws are so strict that many cases, we, the lender, actually have to, we have to cover the difference. That's good. Very careful. About how our fees are quoted, and there are some fees that can be off within a reasonable tolerance.
I won't get too far into it, but our lender fees, if I tell you that I'm gonna charge you 6.5%, nothing else in the way to get the rate, and my underwriting fee is [00:57:00] $595. If my underwriting fee comes to the table at a thousand dollars I pay the difference. You as a consumer, cannot be required to pay those fees above what was locked on the day we locked the loan.
There are times when things change and those are very well tracked by your lender, so that in due diligence you can always go back and say, Hey, it's the 15th of May and you locked my loan at this level. This is the rate, and these were the fees on the 20th of May, something changed. The lender is required to have an audit trail of any changes made and re disclose those changes to the consumer within a reasonable period of time so that the consumer is made aware.
So I'm assuming that's the reason why, you always hear, mortgage officers or loan officers, say We can lock this for 30 days. We can lock this for 45 days. We can lock this for 20 days. When part of the terms of a loan include the lock period.
[00:58:00] If I think your house is gonna close in 30 days, I'm gonna offer you a 30 day interest rate lock. That means that we're gonna be there, we're locked date. If for some reason that deal goes long, either you're going to, as a consumer, have to pay an extension fee to extend that lock, or we're gonna lose the lock and you're gonna go to the current market at the time.
So it's very important to understand what the consumer is getting. The loan officer, as Ryan said, should be disclosing the term not only of the loan, but how many days do we have in this loan? How many days do we have before we have to have closed it within the lock period because the market can change.
How long does it take you to close a loan?
Ryan and I will probably disagree on this, but I will say without creating a crazy fire drill on every loan, the standard around most of the country is 30 days is a period in which we. Contract and [00:59:00] underwrite and close. I can certainly do it quicker depending on how, what level of cooperation the consumer gives me.
And very often if I've already fully underwritten the loan, meaning not me, but the underwriter we've talked about has already blessed this thing, certainly I can close sooner. There are several processes that consumer needs to be aware of that are going on between the period of time when they get a ratified contract to purchase a home and the day they go to consummate that transaction and close the loan.
Those processes do include the lenders underwriting and review of the papers, but there is also title work, meaning a research project from a title agent or attorney, depending on your state that researches who has owned the property and who has an interest in the property, and whether that property will be delivered to the consumer free and clear of surprise liens or defects in the ownership.
It's a very [01:00:00] important process and only it can only start at the day of the contract signing, so that has to get done between contract and closing. Same thing with an appraisal, which we'll get into, but I can't order, in most cases, an appraisal for a property that we're gonna do a loan on until I have a contract between the buyer and seller.
And if it's really busy, those. Appraisers can take two days, they can take 30 days depending on what's going on in the area.
So Ron goes ahead and has a client and gives them a 30 day rate lock. And something goes on, something comes up with title, most purchase and sale contracts have an automatic 30 day extension built into them. If something comes up with title, you don't need a special permission, no fees to either party.
And now all of a sudden it goes beyond the 30 days and Ron says if the rate lock period has expired, you can pay to extend the rate lock. Or you're basically back in the [01:01:00] pool and you're getting a rate at that day. Now say, rates have gone down and that's the reason why I'm asking this question.
'cause the buyer will think, they can just say, we'll, just let it expire and we'll get this new rate. It's not that simple, is it Ron? No, unfortunately it is not. You're right. I did miss that question. Yeah, it sucks for the consumer, but when a lender locks the rate on day one, if the rate expires on day 30, either we can relock at the same deal.
Most, lenders will say, okay, we could relock for another 30 days at what you've already been, locked into for a fee. Usually that would require a fee to extend the investment behind the scenes. There are real costs associated with the timeline between when we securitize or lock the loan onto the property and say, within 30 days we're gonna have a loan on this property for someone else to invest in.
And when that 30 days goes beyond, there's a cost to the [01:02:00] lender to wait for the, to the transaction to close. They pass that cost on to the consumer if the interest rate market is better. Unfortunately the consumer still gets the rate they locked in. Mo and I'm not aware of a lender who would let them float to market if it improves.
So lemme ask you, it gets worse. No, wait. If the interest rate market is worse and the lock is not extended they, they get screwed. Yeah, they get screwed. They get to go current market, which is worse than what they lost.
So it, we can, it's not usually a problem, but it can be. It has been in the past. No, but what the reason why I'm asking that question is you can stand on your laurels and you can say to, to me, Hey Kent, the 30 days past interest rates have dropped a quarter of a point. We're not gonna drop your rate the quarter of a point.
And I'm gonna say, okay, rocket will. That's right. But you gotta stop back at square zero. You were contacted to close in two weeks. Yeah. And you think you're gonna close in two weeks with a new lender. [01:03:00] That's the game, right? To make this a little less complicated for the consumer.
The game is all about getting the best deal for the consumer. You just had money that was locked up that you couldn't use for anything else, held for 30 days and for a reason that was beyond your control.
Either the house didn't appraise out or there wasn't a clear deed or there's a lien or whatever. You weren't able to put that money into play at the end of the 30 days. So what you're saying is, because we couldn't have this money, earning money the last 30 days in order for this money to be available to you the next 30 days so that you can get all of these issues fixed, right?
You are either gonna have to pay us a small fee or
we're going to, charge a higher interest rate. But what we're not gonna do is give you less of an interest rate. Currently and me as a consum, me as the consumer, it's terrible. But that is the reality, right? Yeah. And then me, as the consumer, I get to make a [01:04:00] choice. I get to decide am I going to stay with the person that I'm with?
Or, it was pretty close between Embrace and Rocket and, guaranteed rate, I was gonna say Citizens Bank, and all of a sudden now I'm wondering why, I, it's worth a phone call for me to call Citizens Bank and Rocket Mortgage and see if they can close. And yeah, there's just, there's a lot of steps in the background.
So all, closing dates the title work, if you're getting FHA financing and the appraisal is attached to an FHA file number, if the appraisal didn't come in and you have FHA financing, you can't just go to another lender and hope for a better appraisal because that appraisal is attached to that FHA file number, which folks don't understand.
There's just a lot of stuff that goes on in the background. It is unfortunate. Ron had made the statement that there aren't any lenders, and I know there are lenders that have special programs where, especially when times are tight and all the lenders are fighting because there haven't [01:05:00] been as many deals over the last couple years, they'll try to do some sort of float down because many lenders would rather make half of something than none of nothing.
Exactly. The general. Modus operandi of a lender is the loan officer will help you. They place that responsibility on the consumer who signs the rate lock agreement. The consumer should be aware of when the rate lock is gonna expire. The loan officer should be helping you remember that date and offer you for the small fee, the privilege of extending the lock.
Remember, 50% of the time, market rate is worse. So extending that lock is a better idea, even if you have to pay a small fee, to do. The other risk, Ryan, I'll ask you if you're with me on this one. When you switch lenders in many jurisdictions, the contract can be, you're opening yourself up to risk.
Risk that you may not make it to closing on Time is clearly the easiest one and the most important one is risk that you don't show up at settlement on time and [01:06:00] risk losing the deposit you gave the seller called the earnest money deposit, Ryan, over to you.
So that, so Ron's a hundred percent right on that, that there's always a risk in everything, right? In our job, whether it be Ron as a lender, myself as a realtor. Whether you're working in a state that, does closings with attorneys or states that do closings with title companies, there, there's a risk associated with changing because you are now essentially changing the terms of the purchase and sale contract you've signed.
And now I'm not an attorney, so I'm not gonna give any legal advice, but you're changing terms and if you're unable to perform and I've been through this on both sides of the equation, and typically what ends up happening, because here, Massachusetts and Rhode Island, we are attorney states. So the attorneys handle our closings.
They also act as the title agents. The advice would generally give our clients, if the other party's not performing, is we'll just send a very simple message to the other party. [01:07:00] Says, closing today is Thursday, May 15th. We'll say, the closing's supposed to be tomorrow. We'll see you, at 10:00 AM tomorrow for our closing as scheduled.
We know at that time they have now been put on notice that they're not following through on their contractual obligations. And that earnest money, what we call liquidated damages. And so if you don't show up and perform, the seller has the right to keep those deposits as liquidated damages.
That's why in that negotiation process. When I'm on a listing side, I want big deposits as much as I can get because that's doing everything I can to protect my seller client and ensure if something goes wrong, they get a nice chunk of liquidated damages. And if I'm on the buy side, I'm trying to limit my buyer's exposure in case something goes wrong.
I haven't, run into two or three cases and I've been doing this for 17 years now, where we've run into challenges with that. It doesn't happen often, but that's generally the hammer that is held [01:08:00] over a buyer to perform. If they decide that another lender has a better rate and they want to try and switch, they're making a fundamental change the terms of the purchase and sale, there are risks that they may not get the same rate, they not be able to get the same size loan, may not be able to close on time, and they are risking their deposits and the seller would be able to take those as liquidated damages.
And a lot of times the attorneys end up negotiating those damages too. But you're gonna lose some money for sure.
Lemme ask you this, Ryan, is the earnest money deposit the exclusive remedy? It depends on the terms of the purchase and sale contract.
So in, our standard form purchase and sale through the Massachusetts Association of Realtors, which most agents, in the Commonwealth of Massachusetts utilize. It's the same in the, standard form purchase and sale contract, for the state of Rhode Island, that the only remedy they list are liquidated damages.
That does not mean that other states don't allow additional [01:09:00] damages. But in our standard form contracts, and a lot of attorneys model their purchase and sale contracts off, our state association forms, but a lot of 'em will add addendum or they'll make modifications, and I generally look for that, within liquidated damages.
If it says, and this is their sole remedy additional legal terms and equity or whatever, but Right. So I asked this, that's not necessarily the case. Because I asked this for a consumer needs to know in that contract that you're signing with your realtor, in some of the states that I am, have been and continue to be licensed in, the loss of your earnest money deposit is not the only risk you take if the seller can prove other damages, in terms of, quantifying them and saying, look, we didn't close on time because of the buyer's behavior.
I'm going to keep the deposit, but. That also had another impact on me in that I couldn't purchase my home and I had to [01:10:00] pay, storage for the movers. And who knows what other damage can be calculated. That was done to the seller. In many states and in many contracts within those states, the earnest money deposit is not the exclusive remedy.
It is only one portion of what the seller can do to hold the buyer to, meeting the terms and performing on the contract. Worst case scenario, I lose my $10,000 deposit. No, it can be a lot worse than that. It could be. And I wanna make sure I clarify something as well.
That is a super important, aspect of this. What we've been talking about between Ron and myself, is true as long as the contract specifies that time is of the essence correct, the state of Connecticut and their standard form purchase. Now, I'm not licensed in Connecticut. I have a lot of friends who are licensed in Connecticut.
The standard form purchase sale contract in Connecticut [01:11:00] does not include time is of the essence. And if the buyer doesn't perform on time it's very different. I would never have my client sign a contract that doesn't state. Time is of the essence.
Just says dates and times are important and you're held to those dates and times without it. Dates and times are merely suggestions. Kent, generally as a lender, basically, I'm a party to your transaction in that I am tasked to get you to the closing on time and I use this comedic, thing as a part of when I show up at settlement, I walk in like a pizza delivery man, and I say, who ordered the big bag of money?
You were mentioning the term fiduciary. I have a requirement by the nature of my trade, the ethical standard and the legal standard is to deliver my solution, my money. In a timely manner. In fact, the consumer is held to the standard. Using that time is of the essence language in a contract, but I am also responsible to get the consumer there on time.[01:12:00] 
As a consumer, as somebody that wants to use my money and bought, if you wanna get a mortgage and you're a consumer, you have to remember that your job becomes being the partner in your own success with your lender. When I am 10 days into your process and I've got your loan approval subject to certain conditions that have been given to me by the lender, by the underwriter, it'll say, this loan is approved.
The underwriter might say, but I need two most recent pay stubs to complete my audit file so that I can sell the loan to Fannie Mae, Freddie Mac, whoever's gonna invest in it. If you, the consumer lost your job that day, the condition of the loan isn't met and we may not be at settlement on time. So if you apply for a mortgage, we always say, do your best.
Don't change jobs. Don't run out and buy a new car. Wait until your loan closes so that snapshot in credit time that I [01:13:00] have used to propose your loan to the underwriter, that snapshot should be stable. Keep your job, pay your bills on time. Don't run out and run. Run up your credit cards and buy furniture before your home closes because that can have an adverse impact on your loan approval.
And by the way, underwriters not only have the right, but these days are required to verify your employment. Usually even two to three days of settlement. So if you work, at a job at, general Dynamics, two to three days before settlement, we're going to contact the Human Resource Department at General Dynamics and say, Hey, Kent, tha is our favorite borrower.
He's got a great loan coming to him from us. Thanks a lot for your help. General Dynamics, is he still working there? And if you're not working there, your loan isn't gonna fund, you're not gonna meet your company. Very funny. You mentioned General Dynamics. That was my last, I was a senior principal [01:14:00] engineer at General Dynamics.
That was my last W2 job 17 years ago. I happened to be a huge fan. But so the interesting thing he mentioned is change of jobs. And what we haven't covered are responsibilities of buyers. Once we enter into a contract to purchase a home, maintaining your job. We've had it before and it happens regularly.
Even though we tell clients, they'll go I changed jobs, but it's doing the same thing. And it was for more money. Why? Why can't I just be approved? Why is that, Ron?
Let me say this. If you were at General dynamics. As a contract administrator, and then you took a job in the middle of my mortgage process at Lockheed Martin as a contract administrator and you got a raise that won't, it shouldn't impact your underwriter.
How, what if you are at General Dynamics as a contract administrator and then changed jobs for more money, but actually you're a consultant, do earning bi earning self-employed income on a 10 99 basis. [01:15:00] Underwriting guidelines will kill your loan because self-employed borrowers need to show a two year history of being self-employed and having consistent, dependable, and predictable income.
It's a very important feature of an income analysis, so you have to be very careful. Generally the rule is please don't change jobs in the middle of this 30 day period, even if you know you got a new job coming. Wait, yeah. Until we're done then have that not so out. Ronnie, lemme see if I to clarify this because I think that some people might be interested in this.
So is very important. You can, if you are a gig worker, as long as you can show two years of doing the gig work, you've got a shot at getting a mortgage. Explain what you mean. Let's say that you, let's say that you were to work for, I don't know, you drive for Uber. Yeah. Drive for Uber. It, what [01:16:00] you're saying is that because you're a 10 99 employee, two years of history could get you qualified.
The underwriting standard for a self-employed person is to show a two year history of consistent earnings. And the most important thing, for example, for an Uber driver is not just what you earn, it's that it's consistent also, it's your expenses.
Uber drivers do quite well here. You may have 120,000 a year in Uber receipts you receive 120,000. The average Uber driver spends a lot on their car, gas tolls, faires fees to Uber. So that $120,000 earnings gross may have a net after expense of only 50,000. Either way, I need a 24 month average to show what that consistent net earnings is for my calculations that I present to an underwriter.
So you have to be very careful about changing jobs. [01:17:00] Call your loan officers but my larger point is that. Traditional employment isn't the be all end all in getting a mortgage. That is correct. Lemme say this, that's point also, and Ryan, I do have programs for 10 99 employees that do look exclusively at the gross income.
Those programs are not conventional. They are not FHA and they do tend to have higher risk and therefore come in at higher interest rates. Very often they will also limit how much you can borrow as a percentage of the value of the home. They call that the loan to value ratio. Most lenders that would do that specif special loan, a 10 99 based loan will not lend you 95% because their risk is higher.
They may only lend you 80%. I have to come up with 20% is what you're saying in that particular case.
It depends on the loan program, depends on what your income is, what the individual lender's guidelines are. If you're talking to a local [01:18:00] bank and they're like, we think this is fantastic. I know this traditional lender said they couldn't do it. We're gonna do this as a portfolio loan because we still like it and portfolio loan means we're never selling this in the secondary market.
We will always be your servicer. And there are great banks that do portfolio loans exclusively. The neat thing about that is, unlike my Fannie Mae and Freddie Mac guidelines, a lending institution local, for example, community bank, TD Bank is an example. They only portfolio most of their loans.
They have lending, guidelines and criteria that are up to them, whatever their risk tolerance is. So there's always something out there the consumer can do. The thing I wanna represent here is that remember, the risk is what bases the lender's decision on whether they're gonna lend you a hundred percent, 90%.
The risk could be your credit score might be higher or lower. That impacts what the lender's gonna lend you. You may not have a dime in the bank. We call that you have no [01:19:00] reserves after closing. That is a risk to a lender on the other end. If you have tons of money in the bank and you're borrowing wisely, then you're lower risk to a lender.
Thanks Ryan, for pointing out. And a great example of that is I had a client who grossed over a million dollars a year in income, but his credit score was trash because he had started a company and had used a whole bunch of credit cards and they were all maxed out. So he made over a million dollars a year in gross income.
The lender was willing to move forward, but he had to put 50% down. You go, it's perfect example. Risk in the risk scales, the higher the risk something has you've gotta give the lender a reason to mitigate that risk with either a higher investment in the property, meaning a larger down payment, higher credit score, lower credit score, so forth and so on.
We even do loans for, some folks wanna buy an investment property. We have [01:20:00] the ability to lend much like a commercial lender, even on a residential property, based on the debt service coverage ratio. Meaning if it's an investment property and you're going to pay $2,000 a month to own the property, but you can charge $4,000 a month in rent, seems like a pretty good ratio.
Lender's gonna say, that's great. Remember, we're not looking at traditional income, so we'll only lend you 80% on that home, but we don't have to go through the fact that you're a self-employed person and you only report net $20,000.
You have enough cash to put 20% down on the house. Debt service coverage ratio works great. Your credit score is strong enough, it's a good loan. So it's really good. So I'm glad Ron's actually saying the terms, 'cause typically. In the field in lingo when we're writing an offer and we're, presenting it to another agent.
We'll just talk about LTV loan to value or DSER. And I know your [01:21:00] eyes would've glazed over, but the important part to understand here, what Ron's explaining, and I hope people understand this because sometimes we can get really wrapped up in the technical side of things.
'cause there's a lot that goes into lending is that pretty much no matter what your situation is, if you are working with a skilled lender, there is a program that likely meets your needs. Whether you are W2, whether you are 10 99, whether you are, a W2 of your own corporation, like I am. There are different programs available and a skilled lender will understand how to match you up with the right program that will make the best sense, and help you achieve that goal.
And I just wanna go back really quick on the changing jobs thing. I need folks to understand changing jobs isn't the end of the world. If you have an opportunity and it's in the, doing like the same thing, like if I was still doing engineering work and at the time I was at General Dynamics. As a senior principal [01:22:00] engineer and I had an opportunity, I had another senior principal engineering job at another firm doing the same type of work for more money.
One, I would talk to the lender and the way we've gotten around that in the past is an offer letter signed by the company on company letterhead that talks about the new income will be in the position. They go, okay, he's doing the same thing. We just need to see 30 days of pay stubs and we'll be able to move forward.
Sometimes the lenders, they've gone to whoever they gotta go to get approval, but, in a situation like that, don't think you can't take an opportunity, talk to your lender that relationship with a lender while you're going through it. I always remind my clients, before you do anything, talk to your lender, talk to your lender, talk to your not the attorney.
Let me know. But the lender's the one that they're ultimately making that decision. Talk to your lender. It's a very important relationship. Don't hide stuff. Thanks, Ryan. Think of it this way, during the period of time where you've applied for and are hoping for a [01:23:00] loan to be approved, your loan officer is a member of your financial family.
That should be informed of any move you make. And I would much rather as a loan officer have a consumer that is nervous and says, I'd really like to go out and get this car, but. I'm not sure how getting a new car will impact my loan. I'd rather have that consumer than the consumer who is in the middle of getting their loan approved and is so excited about their new house.
They run out and get a Rolls Royce to park in the garage without realizing that doing that may really impact their ability to get the loan approved. Most lenders, by the way you ever heard of, you guys ever heard of credit monitoring? Yes. For the consumer. Like we as consumers have the right to know who's pulling our credit and all that stuff.
Once you have, submitted your loan application and you're in the underwriting phase, I don't know of a lender in the United States today who doesn't monitor that credit during the underwriting period. So if a [01:24:00] consumer applies for a $500,000 loan with me on Monday, and then, two weeks into the process, they run out and buy a car and they're increasing their expenses by $400 to $800 a month to make a car payment, the underwriter knows that a consumer has gone and applied for additional credit.
There's no, it's not secret. It's everything is monitored. There are no secrets because that can impact your ability to make the payment going forward. There are no secrets. So Ron, I want to ask you this.
Because I know over your career you've dealt with this and I've dealt with this and it's funny and I'd like to hear some, stories. 'cause stories are really how people learn. I got the stories. Oh, we got the stories. So people will talk about down payment. So I'd like to talk about, getting, help for deposits from family members.
This was one of my favorites where, a father said he was gonna help with the down payment and literally showed up with stacks of cash. And the same thing I had at a closing, they, I don't know why these particular clients thought it [01:25:00] was okay, but literally showed up with a briefcase of cash at the closing for their settlement cost.
Can you go over what, if that's good or bad, what sort of challenge that, brings up? And if you've got any good stories to go along with that. Okay. And where to park the wheelbarrow. Yeah, and where park the wheelbarrow. .
Today in our, regulatory world, cash has to be traced. All lending institutions, title companies, and even the real estate agents that you work with, we are all held to a certain and very important regulatory standard. We're required to know the source, maybe not the realtors, but I as a lender and required to know the source of any funds used in a real estate transaction for cooperation with the USA Patriot Act and many other federal laws that govern and protect our country against the laundering of money that would otherwise be used for nefarious purposes, such as [01:26:00] in the drug trade or in funding terrorism.
And, there was a period of time in our country where many banks were convicted of, not carefully monitoring where cash was coming from into real estate transactions. Real estate is a place where money can move quickly in large amounts and be used to wash that money clean. Then the real estate gets sold and the funds are used for God only knows what.
So showing up at settlement with a brief, a briefcase full of cash is no longer something that is allowed because it puts the lender and the title company at tremendous risk. Relative to being complicit in an act of terrorism or other nefarious purposes, we are required to know what funds are being used in a real estate transaction, where those funds are parked before they're used in the real estate transaction, and for how long those funds have existed in a traceable format.
Usually [01:27:00] these days it's a 60 day standard, meaning if dad's going to help you out and give you a hundred thousand dollars, thanks Dad, towards the purchase of your home because he's a lovely dad. I am going to ask that dad provide me with a bank statement that shows that a hundred thousand dollars exists on paper somewhere within his financial control, ideally for a period, not a less than 60 days prior to the use of those funds in a real estate transaction.
This process of documentation is known as the gift funding or gift sourcing process in the lending world, and it's very important that we not confuse this gift funding and sourcing with a taxable event for the consumer. They're very different things. It is the consumer's responsibility. To report the gifting of money.
It has nothing to do with, when I look at it as a lender, I just need to cooperate with the law to [01:28:00] know where the money's coming from. I'm not creating a taxable event when I help my kid buy a house. As far as the lender is concerned, you're not reporting that. No. It's not only transaction.
Yeah. We, I like to, this is my own terminology. There is no nexus in terms of reporting between the taxable event that, that may be and the use of the funds. The purpose of a lender tracing the funds is to cooperate as a responsible lender to know that we as the lender, are not complicit in the use of illicit funds.
And mean you don't wanna go to, you don't wanna go to jail. Ron. I did spend a good amount of time at Sockanosset when I was a kid, but that had nothing to do with this, which is really fascinating because when you were a kid, Sockonosset was closed. But that's okay.
But that's okay. But it didn't stop my parents from threatening me. Yeah. And mine did as well. 'cause we lived maybe you live right there, maybe a quarter mile from there. Now it's where the, some of the nicest restaurants in the state are.
The point I'm trying to make is, the [01:29:00] consumer, generally a borrower needs to understand that a lender. Is held to, I think as a patriotic American, I'm held to a very high standard to participate in, prevent the use of illicit funds in real estate transactions.
Ryan, I'm sure you're a fan as well. And that is why your lender will always want to know, do you have the money today? Show it to me in a bank statement, a stock bond mutual fund. If it's in cash, it's gonna have to sit in a bank for a period of time so that I can know that it's funds that I'm allowed to help you use towards the transaction.
Big buckets of cash raise a lot of questions in real estate transactions, and no consumer should assume that's gonna be okay when you go to closing. So I have a slightly tangential question. If somebody's been turned down how long should they wait before they apply again? Because you're told every time your credit history is pulled, your credit goes down.
Man, I love this line. This [01:30:00] question is really important to me. First of all, when the mortgage lending institution turns down a borrower for whatever reason, either their expense is too high, their credit score is too low, they don't have enough funds to close the transaction. There is no reporting back to credit that there was a denial.
That is not a reported function in terms of the consumer credit reporting. What is reported to consumer credit is the event that at certain points in time, a mortgage lender did pull your credit. That's it. If we turned you down, we don't turn around and say we turned them down. Lower the credit score.
Gotcha. Okay. That's the first thing I want to put out there. The second thing is there is a lot of myth surrounding if this mortgage guy pulls my credit, my score's gonna go down. There's also craziness, in my opinion out there about soft consumer credit polls or hard polls. Listen to me carefully, folks.[01:31:00] 
As an experienced mortgage loan officer who has closed thousands of purchases for families around the country, your mortgage loan officer, who you should credential, you should have a, a federal license like mine, and you should be able to very easily look them up on the NMLS consumer access.
You should be able to know that your loan officer legitimate, you have credit scoring so that guys like me and institutions like mine can lend you money. Do not be afraid of a loan officer pulling your credit. You have credit because you are applying to borrow money. It is true that if you have credit hold by me and then you run out and go to the auto dealer, have the credit pulled there, and then you go to the furniture store and have credit pulled there and you go out and get a credit card and all these different inquiries on the same day, yeah.
Your score is gonna suffer because you're applying for credit all over the place. But you [01:32:00] must take this journey of home ownership by taking the first step, which is having a licensed qualified loan officer look at your qualifications. So what Credit, if you have great credit, be proud of it and Yes.
Protect it. So you're able to tell, that my credit score has been pulled several times and that it's shown on the credit report and as long as it's in the, if I'm out shopping for a mortgage and that three other mortgage companies have pulled my credit, that's very different than if I'm out shopping for a mortgage and two car dealerships and two credit companies have pulled my credit on the same day.
That is exactly right. Here's the thing I can't say that it is always in actual practice, the case, but I can tell you the law is that if you as a consumer are out shopping for a mortgage and you have three or four of us pull your credit within the same, say 10 day window that is supposed to count as one inquiry. That also presumes that the credit agency knows that. Joe's Mortgage Shop is properly registered [01:33:00] with a credit agency. So there can be some variation there, but you're right.
Hold on. So to people, if you go out and you shop four or five banks, and then you look at your credit score and you find out that your credit score has gone down just from shopping and you didn't open it and you didn't inquire anywhere else, you have, a, you should be contacting Experian, TransUnion, or Equifax and say that's false reporting.
It was one transaction. You can do that. I don't know. Lemme say this. They're very good about responding to my advice. If you were, if you remember my family and that was the case, I would say how many points did your score fall? Usually a one inquiry is gonna affect your score, maybe five points.
If three or four people from the same industry vertical, pull your credit. If it does, the thing I would advise you is make sure that you get the credit report from that lender. Ask them for a copy of it, and look at who was pulling your credit and make sure that in that process there wasn't an institution that you didn't apply for, because maybe [01:34:00] that institution is.
Yep. All of those things are discussable with the three credit, reporting agencies Absolutely. I wanna state this emphatically, with having no financial arrangements or agreements or anything with them. They're actually pretty good about, correcting your report if you can show them that something is wrong.
They're timely and they're good at it because they're one, they're legal responsibilities that they have. They're held to a legal standard by the Consumer Credit Reporting Act. And the second thing is it doesn't help them any if their information is not believable. Yeah, that's right.
A couple of things. Don't listen to anyone who demonizes the credit reporting agencies. They do the best they can with the data that they have. Don't expect them to act overnight because just because you tell them that this inquiry from this institution over here wasn't authorized, they also have a responsibility to research [01:35:00] and confirm Yep.
What you're saying. So it does take a little while to correct things in the consumer credit world and in, in the credit world. But you are correct if you cooperate, if you help, if you're a wise consumer once a year, you can go to and get ready to write this down, folks, annual credit report.com. You should go once a year and check it out and make sure you know who is authorized to pull your credit and that you did authorize them to do that.
I would say one of the great benefits of applying for your mortgage loan is that we, the loan officers. Are able to tell you who's been looking at your credit, and you can see whether or not you authorized that. It's a huge opportunity to stamp out identity theft in a different podcast that Ryan and I will do at some point in time when, we hope to be able to get a representative from one of the credit agencies online.
We'll talk also about credit locks. I have credit locks on, myself, my wife, and both of my daughters. Meaning that [01:36:00] in order to get access to pull their credit report, we have to physically unlock the account for 24 hours. Correct. And then we put it back on immediately.
As a loan officer, we work very fun. We function well with this. I, this happens all the time, not it's not a bad thing. It's a very good thing in my opinion. I'm like you. Kent, I have my credit. Frozen. No one is allowed to pull a written inquiry on me unless I specifically authorized them to do that.
And by the way, if you already are with a lending institution. Usually that's a default, meaning they're already authorized if they, yes. If they're already a client of theirs. But, simply for the loan officer, if your credit is frozen, you should inform the loan officer of that. You should go and unfreeze your credit for the loan officer.
Inform the loan officer that unfreeze window is now open for say, a 10 hour period of time. The loan officer can retrieve the data and then automatically the credit will close again. A couple years ago, my wife and I refinanced, this house [01:37:00] and, I sat there in the loan officer's office with my phone and I said, okay, you wanna pull the credit?
Let's go. And I think that's smart. And we did it and I gave them a, we basically had a 15 minute window. That's it. Once you authorize them to do it.
I'm gonna throw something else out there I think is really important. Listen carefully. When I, as a loan officer retrieve your credit report, the data in that credit report is personal and private information that I am not legally allowed to share with anyone as you should expect.
Yep. However, the credit bureau records the event. That trigger event in time that I have pulled your credit as a mortgage lender, that event is a valuable little piece of data that most of the credit vendors, the consolidators of credit sell. They don't sell the data within the [01:38:00] report. They sell the event that the report was pulled.
So what's happening is that consumer who had me pull their credit the next hour is bombarded by inbound phone calls. Even if they're on the do not call list. Beware those people that are calling you other than the loan officer you authorized to pull your credit in my opinion, and the opinion of our industry are violating your personal and private information.
No one should know what activity you are performing on your credit other than the person you have authorized. Those things are called trigger leads and there is legislation pending in Congress. They can't get rid of those fast enough. But that's a different discussion.
The fact that you are applying for credit as it, the event itself should be considered as personal and private as the information within the report. And in my opinion, opens the consumer up to a tremendous risk of identity theft. That event is a personal, it is a private event. It's personal [01:39:00] information that should not be shared, let alone sold.
It's ridiculous. Yep. Thank you. I'll get off the, so that's fine. I, because I a hundred percent agree with you and could easily soapbox that one.
We still haven't really gotten to the answer to my question though. Once you've been turned down, right? Oh, okay. Yes. Should, lemme broaden it a little bit. Should you immediately reapply if you're, if, or and should you change the type of institutions that you're applying to? Good question.
Meaning, meaning. Lemme say this, reapplying will not hurt you. Okay. The challenge is this, you as a consumer, when you're turned down from a loan, will be informed. It's the law. If I turn you down, Kent, I have to explain to you why. Okay? I turn you down. Listen, there is a reason you were turned down. As a consumer, it's prudent for you to know and learn the reason. If you apply with another institution, that [01:40:00] reason will still exist. If you know that reason, that'll help you determine whether it's time to reapply the next minute, or do I, as the consumer need to wait a month or two, maybe pay down some credit cards, maybe save up some more cash.
Find out from your lender, not only will they be happy to tell you they're legally obligated to tell you why they could not extend credit to you, find out why. And knowing that will guide your decision about whether you can just turn around and apply for another loan. A hundred thousand years ago, because I'm that old, I purchased a condominium that Ronnie has had been to more than a few times.
Yep. And when I went to the first loan officer, I was turned down. Not because I didn't have enough cash in the bank, and not because of credit, but it had to do with where the condo was located [01:41:00] and the type of organization that I had gone to, to ask to write that mortgage.
And as I was getting really frustrated, when the person said to me, they're not gonna write the, she then said to me, call so and back then it was, Pawtucket Credit Union, which is, it's not anymore.
And she said this is the type of loan that they write. And I called them let's step back into this for a second. Yep. So what you did is exactly what Ronnie, the lender told you to do. Yes. The bank that you first went to determined that the collateral for the loan in the form of that condominium did not meet their lending standard.
There was nothing wrong with you as the consumer in terms of your income, your assets, or your credit as it was represented on the loan application. It was simply that the collateral, in the case of the con the we call a condominium, the term we use is warrant ability. Meaning will Fannie Mae, Freddie Mac, FHA, will they invest in that loan because the [01:42:00] collateral has a feature that maybe the lending standard doesn't like.
Yep. Your collateral was eligible for financing through the local credit union who makes local decisions. So that's a really great example of a consumer who said, okay, I was turned down over here at Big National Lending Institution, who had a great rate. Maybe if I go to the credit union, the rate will be, probably be similar, maybe a little higher, but either way, I can still pay the damn loan.
I paid an eighth of a point more and I got the loan. And what was interesting about it, it was my first time really doing a financial transaction like that. I was 24 at the time. I wasn't dealing, my parents were not involved, although my mother came over the day that I moved in and rearranged things like moving into the dorm room.
Yeah. It was a real interesting eye-opening learning experience because I had never had any financial problems. And [01:43:00] I felt the bank mortgage person was saying to me, no, I felt like I had done that.
That I was doing something wrong. And the credit union person explained it to me, in a way that reassured me. She said, not every peg fits in every hole. And she said, it's our job to figure out which pegs fit in the hole that we supply.
That's right. And she, and they did. And it was great, from my perspective. And I had that condo for five years and sold it, and then eventually bought this house. This is an example of what I was saying before. If you're turned down for a loan, be a smart and savvy consumer, don't get angry,
find out what the reason was. Take ownership of that reason. In your case, Kent, there was absolutely nothing wrong with you as a prospective borrower. And that unique case, and by the way, condominiums can be risky for a lender. We'll especially talk about that if Ryan wants to ask. [01:44:00] But collateral hold on.
Loan was simply not what that institution wanted. So you went to the credit union and it was what they wanted, but more importantly, col as a consumer, right? As a 24-year-old who had never had a car payment because I had always paid cash for cars, right? Who had no student loans because my family was able to afford to write a check for my student loans.
And who at the time had, any consumer debt that I had, I paid off at the end of the month. It was difficult for me to understand why the bank didn't look at me as a great opportunity. And yet credit union did, one of the things that I want people to understand is that, circumstances and opportunities are different in all situations.
And Ryan and I have talked about this a little bit in the podcast regarding, buying a house and selling a house. What's good [01:45:00] for you might not be good for Bob down the street. The other example that we like to use is the advice that uncle, excuse me, that uncle, Jack gives because he bought a house in 1965, is only good advice for Uncle Jack when he bought his house in 1965. Very important point. And Uncle Jack, by the way, is giving you advice very much like your rabbi, your pastor, your neighbor down the street. They're giving you advice because they care about you and they want you to get the right information.
Yep. And, but make sure you know who's giving you the information. Because today, not like in 1965, the ground and the lay of the land and the rules and the regulations and the WA banks underwrite loans very different than it might. It's, I will give you a good example. So I have been working with my mother.
And we actually had a condominium, I was working with my mother to get a condominium on the contract [01:46:00] and the, there were a number of issues with the condo association, number of issues with reserve funds.
But one of the challenges that came to the lending is I had introduced, I have a number of lenders I work with and one of the lenders now, my mom of course, had not purchased a house. The last time she purchased a house was 1979. And so she said, I don't understand why this is so difficult. I don't know why they need all this stuff.
They required her to take a class on basic finances and budgeting and she, it was like four hours and she was so aggravated by the whole, and she's I don't understand. It's not like I'm a new buyer. It was so much easier the last time I bought a house. And yeah, the process changed and she was mad at the lender who I've worked with before.
I said, it's not a matter of the lender. It's the federal guidelines for whatever the program that's best for you. And it's a requirement regardless of the fact that, [01:47:00] my mom was a person who put money in envelopes for budgeting. And when we went to the grocery store as kids, I walked around with a calculator, calculating stuff but the point is that it changed her perception of what she remembered in 1979 from buying the last house, that I, grew up in to now, very different. And the expectations are different. And working with, a skilled agent and a skilled, lending officer and letting my mother know where she was.
She was angry with the lending officer. I said, it's not the lending officer, it's the federal guidelines that have changed and the particular program you matched with, it's a requirement of underwriting that this has to be done or you're not gonna get approved for the loan. It is what it is. So you just have to take four hour course.
I hope our listeners understand that the golden rule, many parents don't teach the golden rule, these days. No one is entitled to borrow money. The real golden rule is that those with the gold make the rules. [01:48:00] And I don't mean that to be a wise guy.
What I mean is that. A lending institution is gonna do whatever it can to make less risk in their lending decisions. And if that means I'm gonna lend you $300,000, but I'm gonna ask you to attend a class for four hours in exchange for me lending you $300,000. When you put it that way, does it really seem like, a little bit of time invested in making sure you as a consumer understand the obligation we're putting you under.
When I put it to most consumers that way, they're like, oh, this is such a pain in the neck. I'm like is it a pain in the neck worth 500, $300,000 to you? Because if we're gonna lend you that three or $500,000, this is one of the rules that we have. Our rule says that we wanna lend to consumers who will be successful homeowners and likely to pay us back for the money that we've lend them.
I just don't understand why you wanna get paid back, but that's a totally different [01:49:00] discussion. Let's not even go there. Yeah. But general, generally, if you step away from all the terms, the insurance, the DTI, the DSCR, the LDV, put all that stuff away, that's good. 'cause I don't know what any of that meant.
Most consumers don't. Not only don't, they know they don't care and I'm glad. Yeah. Let's boil it down to brass tax. You are asking a lender me to lend you a large sum of money. If I'm gonna make a decision to lend you that money, I'm gonna set some rules. And those rules, you as a consumer may have bought 10 homes in the past.
The rules today, say the lender makes the rules. The rules are for even a consumer who has owned a home in the past, under certain circumstances, I as a lender, am gonna be required to make sure they've completed a home buyer's or consumer counseling, home buyer's education class. That for the lender is risk management.
It [01:50:00] means the lender is going to feel comfortable lending you the money because the lender has been able to certify that you as a consumer have been educated on the mortgage process and what is gonna be required of you in order to pay that money back over time. Not all loans require home buyers education, particularly because I never buyers.
I require it. I think it's a great idea. Alright. I never took one. Maybe I should have. I'll send it to you. I would, I will wait with bated breath. It's fascinating. Scintillating and exciting. Yep. Ronnie. I, we've covered an awful lot today. And I really appreciate both of us. Really appreciate your time.
As a final takeaway, what's the one thing you wish that every buyer knew? Going into the mortgage process that would make their lives easier?
Strictly from the loan officer standpoint, I want the consumers in the United States to know [01:51:00] your loan officer is normally compensated based on how many loans they make and what the size of those loans are not on the interest rate or the fees.
And the reason I need you to know that is I have to know that a consumer understands I'm not incentivized to raise their rate. The rates are subject to the market forces. My job is to get you to closing on time and loan officers are compensated usually within 30 days of your closing based on the size of the loan, not based on the rates and the points and the fee.
We're actually incentivized to be as competitive as we can on that because we want you to have such a good experience as a consumer that you'll recommend us to everyone else. Ryan had an experience. They can, they tell 'em, something that was untrue to get a higher commission. None of that exists today, and if it does exist, it's illegal. Know your loan officer, meet with them in person, use them if you are comfortable with them, that is the number one thing I can say.
[01:52:00] Should make you excited about home ownership. You should start working with your loan officer early and celebrate the process all along the way. Partner with your loan officer to help you get to the closing table on time and don't forget to invite them to your house warming party.
Thank you so much for your time, Ronnie. My pleasure guys. Great speaking with you. Good to see you. It was great to see you. It was great seeing you. And we'll talk again, as other mortgage issues come up. We'll be doing more podcasts and hopefully we can invite you back and have you on again.
Thanks a lot guys. Thanks Ron. Thanks Ron. Bye. that was a lot of fun. Who doesn't feel that they know a lot more about mortgages now that we've listened to that? Yeah, now I've been doing this a long time and I always, my goal is never to assume I know everything. And so my goal in getting into here was to be able to pull a couple of nuggets out here, that make me a better realtor and make me a better, person to serve my clients and help them, with that.
And I think, for me, I certainly [01:53:00] achieve learning a couple of extra things that are gonna be vital to, my continued success. from my perspective, I think that, the biggest takeaway that I had from talking with Ronnie was the idea that. The mortgage, officer or the loan officer is part of your team and that he or she is there to facilitate your ability to get financing for what is probably the largest purchase you're gonna make until you make another one just like it.
Yeah. How am I gonna afford that house? How am I gonna afford that piece of land? Or even the basic question, how much can I afford? Or, should I be looking in this town or that town, or this neighborhood or that neighborhood?
Do I need a ranch or a split level or a colonial or I work for myself, can I get a mortgage? And all of these things are reasonable questions that, I thought Ronnie did a really great job addressing. More importantly, I think that we have a better understanding [01:54:00] of how the finance piece fits into the overall real estate puzzle.
Yeah. Without diving too much into the weeds, I think we covered it pretty well. At a very high level. We could have spent probably hours. Yeah, because there are so many different lending programs out there, whether you are doing conventional financing that can be sold to Fannie and Freddie, whether you're doing, different types of loans like A-D-S-C-R loan, which we covered. So if you have a dream of becoming a homeowner, which everybody in the country should have that dream of becoming a homeowner, there is a program out there.
And finding a good lender who's, one, a good listener, two knowledgeable, and three is gonna be a good financial steward and help you find the right program, to get you to that goal of becoming a homeowner. They're a very important part of the process. I don't think we can emphasize that enough, is the flexibility that the mortgage officer needs to have when dealing with the potential homeowner, and getting them into the right [01:55:00] piece of property and the right loan.
You don't want somebody to be in a property that they can't afford, nor do you want somebody to be, in a piece of property that they probably could have done something better if they had wanted to. And I think you learned something really important too today, was that, just because you're denied a loan.
From one lender doesn't mean you shouldn't talk to another, because different lenders have different specialties. And in your case, you were trying to purchase as a 24-year-old young man, your very first property as a condo and the first lender you went to denied you. And it was because they really weren't focused on financing condos.
But that lending officer you worked with at that time, actually I didn't talk about on the podcast, but did a fantastic job of one networking and understanding who's a lender who could help you to do that, as opposed to just saying, I'm not gonna get paid. Screw you. I'm out. They directed you to a financial institution that worked specifically on those types of properties.
When we went to buy this house, I wanted [01:56:00] to talk to that, lender again, the one who I, first time and unfortunately they were no longer in the business. And so we used another, lender and they were great. And then when I went to refinance, I went back to the original one, or at least I thought I did, but he had retired.
And so I, and another one. But it, the process just, it's so overwhelming. Its yet, if you break it up into small pieces and you keep it uncomplicated and you don't fight a battle until you have to fight the battle, you can simplify it, or as I like to say, it's not that complicated.
And two. You can get what you want, which is the whole point of what you're doing is to get a piece of property and it really is a matter of having the right team in place. So between your lender, between your realtor, or if you're in a state that doesn't require, licensees to be realtors.
Just a licensed real estate agent, whether it be a title [01:57:00] company, or a closing attorney, depending on the state you're in, the folks you surround yourself with in the process really matters. Are they skilled? Do they make things easy? Do they explain things so they understand? Because it can be frustrating.
You're gonna question things at time. Why do you need this? Why do you need that? Why is this so hard? Why do I have to take this class for some certain programs? And the reality is, everyone's trying to help you be successful and move forward and become a property owner. And sometimes there is, unfortunately, there's a little bit of a process to it, a lot of it regulated by the federal government.
A lot of regulations have changed even since I first bought my home, my very first property 26 years ago. Understand that everybody has the same goal as you do, and they should be communicating that, and you should be relying on them when you have a challenge, reach out and you got a good team member, they're gonna explain it to you and why it's necessary.
And if you can get things to them when they need it. Ask questions, don't be afraid that there's a dumb question that they're gonna be angry. Ask the question because, I'll tell you directly as me, we wanna make it a great experience for you. We [01:58:00] wanna make it so that you feel confident in what you're doing, that you have the information you need to make a good decision for you.
Because it's not about me, it's not about the lender, it's not about the other parties in there. It's about you as a consumer. And we wanna make sure that we're providing fantastic guidance for you that you feel very confident in moving forward. I think we've pretty much put the mortgage discussion to bed for today.
We reserve the right to bring it out in future podcasts. We have, yeah, especially when we talk about specific programs. We may have a specific discussion about, FHA, which is Federal Housing Administration, va Veterans Administration, and all sorts of different programs out there.
We even do some stuff on, new construction loans, renovation loans. We could talk for hours and hours about lending. We probably put people asleep doing that. However, if we break it up into chunks and they can pick up exactly what they wanna listen to, they're gonna get an awful lot other conversation we're having with these other experts.
Our next podcast, is going to be with the, president of Bad [01:59:00] Elf, an electronics company, they have, introduced or are in the process of introducing a external GPS receiver for your, phone or tablet that allows us to get incredibly accurate, measurement as to where you're standing on a property.
Because I get asked all the time when I'm out there with buyers, where's the property line? I've been playing with it for a couple of months now with my clients, and we are able to say with great confidence, and not to replace surveyors by, in stretch of the imagination, but for us to be able to, in the field very quickly assess and understand to a high degree of accuracy where property lines are, where challenges may be, maybe the property you're looking at.
You can't even tell from the plot plan how it's actually laid out. But I've actually taken those plot plans and been able to walk it with the clients and so they can get a better understanding of the type of property that they're actually at and what it means. Yeah, I'm really excited about this because it's also a chance for us to talk [02:00:00] about how technology is going to change or is changing the, real estate industry this is a next level. Because all the technology is supposed to make things easier and make a more informed consumer or informed, guide like myself as a realtor or other folks out there in the field with consumers, we wanna be able to get you as much information as possible.
The consumers are gonna wanna understand where exactly to a high degree of accuracy where property lines are, the agents are gonna wanna understand whether they're working with buyers or sellers. It really does make a difference, especially when you have a really large property or a funky shaped property, or a neighborhood with easements and all sorts of stuff.
You know what, we can go out there and we can see, you don't even need that. All you need to know is, is the, playhouse that's in the back of your yard, actually in your yard. Is that fence on my property or my neighbor's property? It doesn't matter whether they have, three acres or if it's, 5,000 square feet.
All of these are reasonable [02:01:00] questions and prior to the introduction of this device, it would cost you time and hundreds, if not thousands of dollars to figure out the answer to those questions. Absolutely. Yeah. And time we just don't have, especially in a tight market. So anyways, till next time, I'm Kent.
And I'm Ryan. We are the real estate navigation team, and thank you for listening to real estate. It's not that complicated. We'll see you next time.