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Stop Paying Rent – A Home Ownership Strategy

November 1, 2016 / Tom Bonetto

I have the privilege of talking to many would-be home-buyers, that’s what I do. You would be surprised how much they understand the market relationship of low inventory at particular price points and high rent. High rents are partly caused by declining inventories of available, affordable homes.

It’s frustrating to spend a significant percentage of monthly income on rent – and rent doesn’t generate any equity. To add insult to injury, the renter misses out on significant tax advantages of a mortgage.

How Do We As Agents & Lenders Help These Customers?

Long Term Relationships –It is important that buyers develop long term, trusting relationships with real estate agents and mortgage lenders.

Agents and lenders are competing for buyers – and buyers are competing for the affordable listings that are available, putting the sellers at the advantage. Sellers often receive multiple offers and bidding wars have become quite common. It is important that agents and lenders have strategies, outside of just the highest offer, to make their buyer the most attractive.

However, we must realize a competitive market is not necessarily a bad market. Homeowners are certainly due their return on investment. Obviously, the renter wants to enter the ranks of homeowners so they can get their return on investment too.

Back to the question – how do we as agents and lenders help these customers? The answer is relationships, knowledge, and execution.

The agent who understands the needs of the buyer reacts quickly in a changing market. The lender who has a keen understanding of all mortgage products equips the buyer to present a compelling offer relative to other bidders. The point is this, relationships between buyers, agents, and lenders are crucial in a competitive market.

Relationships & Knowledge – Keys to Strategy

Knowledge – Understanding the connections between a buyer’s financial condition, housing inventory, and mortgage products is vital to purchasing a home.

A reputable lender has many wonderful mortgage products at their disposal. These products give financing options to a lot of potential buyers. Products such as USDA, VA, Conventional, FHA, and Non-Prime all have features that make buyers attractive to sellers. If your lender doesn’t have a working knowledge of these products, the buyer will be at a competitive disadvantage.

Likewise, the real estate agent that has knowledge of the market will give a competitive advantage to the buyer. These agents act quickly and fulfill buyer requirements while meeting the financial expectations of the seller. A strong relationship between the agents, the buyers, and the lenders ensures the perfect home is financed with the right mortgage.

The Execution Phase

Execute – The real fun begins once the relationships are in place. Naturally, the nest step is executing a Purchasing Plan and visiting listings. The Purchasing Plan must match buyer’s needs, financial ability to purchase, and seller requirements. A well-executed Purchasing Plan will maximize the buyer’s ability to own their dream home.

Maximizing purchasing power relative to the available inventory requires constant communication, partnership, market research, and financial review by the real estate agent, the lender, and the borrower. It is a team strategy that requires knowledge, relationship, and communication. Executing a well thought-out Purchase Plan usually results in happy homeowners.

Closing Timeframes Continue to Lengthen

October 24, 2016 / Tom Bonetto

Since the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule last October, continuing evidence shows the impact of TRID in lengthening the time to close real estate transactions. Both purchase and refinances have been severely impacted by these new regulations.

Now, a report from Ellie Mae shows more statistical evidence on how deeply the impact of TRID is being felt, with the time to close a mortgage loan climbing yet again. Additionally, 2016’s average time to close a loan is 10 days longer than just one year ago in 2015, when the average time to close a loan was 40 days.

If you find 50 day closes unacceptable (as I do), please reach out to me so we can get your customer in their new home sooner rather than later! Take advantage of Equity Prime’s 30-day On-Time Closing Guarantee.

The gist of TRID is that mortgage lenders must send particular paperwork to mortgage borrowers 72 hours prior to closing, and that changes to any of the documents require a re-disclosure of said terms and another 72-hour waiting period.

Since October 2015, then, closings have had an additional 3 days tacked on; a government-mandated delay affecting all closed loans. But Equity Prime is still holding to it’s 30 day on-time closing guarantee!

The faster you can close on a mortgage, the lower the mortgage interest rate can be and the faster your client gets into their new home! Know the steps in a mortgage approval, and where you cut time and corners to get to closing quicker.

Source: The Mortgage Reports

Warrantable & Non-Warrantable Condo Mortgages

October 17, 2016 / Tom Bonetto

There is confusion about condo financing versus financing for detached single family residences. I suppose this is why buyers and agents ask me about the financing differences between these two property types. It really is important to understand what “warrantable” means and how it impacts the condo sale transaction.

Source: The Mortgage Reports

What is a “warrantable” condo and does it affect financing?

A warrantable condominium is a condo unit or building that meets specific financing and operations standards required for a government-backed mortgage loan approval.

These condos satisfy Fannie and Freddie conventional financing guidelines…and therefore qualify for purchase and sale on the secondary market. This is important because lenders buy and sell mortgages this way.

If you are an agent working with buyers interested in condos, make sure you have done the research to determine the warrantability of the condo.

A qualified lender can give you guidance and a condo questionnaire – and the ownership of the condo complex should provide the information for the questionnaire. Once complete, the lender can send it to underwriting for evaluation to determine its warrantability.

To be “warrantable” a condo community must meet certain requirements. For example, the condos can’t be part of a timeshare, and at least half of the units must be owner-occupied. In addition, the community must contribute at least 10% of its annual budget to its reserve account every year.

Do lenders think condos are more risky than detached homes?

Yes, condos are more risky for a lender than a detached home. The lender on a single unit shares some of the risk for the entire complex. Because of this shared risk items such as liability, fire, foreclosed units, vacant units, and delinquent HOA fees are all risks carried by both the lender and the individual owner. Before the lender will loan money for the condo, the lender does the research necessary to quantify the financial risk of the property.

What happens if the condo is “non-warrantable”?

A full service direct lender has access to a multitude of financial products. There are products for both warrantable and non-warrantable condos. Since the non-warrantable condo does not satisfy conventional guidelines the cost of financing will show increased risk.

It’s important to understand that non-warrantable condos aren’t sub-standard, they just don’t meet the lending guidelines for Fannie Mae, Freddie Mac, and the FHA.

A non-warrantable condo is also one that can operate as a hotel or provides short-term rentals. Therefore, these types of condos are sometimes located in touristy areas like beach resorts and in college towns.

Other features of a non-warrantable condo can include:

a single person or entity owns more than 10% of the units
many units are rentals
more than 25% of the space within the community is used commercially
the community is involved in a litigation

Click on the article linked at the top of this blog for more information. Gina Pogol wrote the article for The Mortgage Reports.

If you are a buyer looking at condos, make sure you have the warrantability conversation with the agent early in the process. Nothing is more heartbreaking to find the condo of your dreams only to have the financing fall through late in the approval process.

Hitting Mental – Planning to Hit

October 10, 2016 / Tom Bonetto

The mental game of baseball is always a great topic – because it is important, clearly has value, and players perform better the more time they spend on their mental game. One of my favorite reads is Justin Dedman’s “Hitting Mental” blog – he has great content for players looking to better themselves at the plate.

“Failing to prepare is preparing to fail.” – John Wooden

Says Dedman “Wooden nailed it when it comes to hitting, too. Whether you are a college, high school or travel ball coach, or a hitter working on his craft during the summer or winter months, you better have a plan.”

Year-Round Planning

Dedman talks about how his team plans for the fall – they plan in segments.

“Over the course of a fall season, we have a skill work segment, team practice segment, and then more skill work. Our first set of skill work is three weeks, with one hour each week to work with a hitter, divided into two, thirty-minute sessions. Without a distinct focus and direction, we couldn’t optimize the time allotted to help our hitters improve.”

They then begin video work of their mechanics, although there is very little talk of mechanics in the first three weeks. Their plan is to develop rhythm, tempo and timing (their approaches) first. Justin believes that when a hitter implements these things first, there are fewer mechanical adjustments needed.

“Our plan also includes side work (next to the main BP cage) of exit velocity testing, forearm/grip strength development, mental game training, breathing techniques and mirror work. In the cages, during those two weeks, hitters throw to each other, work tee drills, overload and underload train, front toss, do mirror work and hit mini wiffle balls with a taped broom handle.”

Source: Justin Dedman’s Hitting Mental Blog

The Mental Workout

Secondly, Justin shares his “Mental Workout” – a pre-game process that will help players focus on the tasks at hand:

1.) Centering breath: Breathe in for six seconds, hold for two, breathe out for seven.
2.) Identity statement. Say a preconceived personal mantra to yourself that reflects your strength and desire for success.
3.) Personal Highlight reel: Spend 30 seconds visualizing three “done-wells” from the previous 24 hours, and then spend another 30 seconds visualizing three things you want to do well in the upcoming 24 hours.
4.) Repeat your identity statement (same as Step 2)
5.) Centering breath: Take another centering breath to prepare yourself for the upcoming performance. Again, breathe in for six seconds, hold for two, breathe out for seven.

If all hitters would take the time to see themselves doing great things – and breathing effectively to slow things down, I guarantee their success rate will go up!

There’s No Rule Against Re-Applying For A Mortgage

October 4, 2016 / Tom Bonetto

According to Ellie Mae, the 75% mortgage loan approval rate is at its highest level in more than a decade. That is obviously great news for those purchasing a home and for those existing homeowners who are taking advantage of the robust refinance market.

Source: The Mortgage Reports

What Do The Other 25% Do?

Denial of credit is, usually, not permanent. This is good news. Loan offers and underwriters analyze many financial factors in every loan file. Automated underwriting systems (AUS), FICO scores, debt to equity ratios, loan to value ratios, and the appraised vale of the home are indicative of a borrowers ability to repay a mortgage.

None of these factors are permanent and all can be improved with good financial planning.

A reputable lender will work with borrowers who are denied credit. The loan officer must take time to explain the reasons for the denial and offer suggestions for improvement. For a nominal fee, credit repair companies provide recommendations for retiring debt that is responsible for the mortgage denial. Frequently the loan officer will check the AUS findings and make recommendations that will improve FICO scores.

Small Changes, Big Impact

Most lenders approve or turn down a loan based an Automated Underwriting System, or AUS — software that weighs all factors of your loan profile.

The algorithm is not super predictable. In fact, a small tweak can move you to “approved” status.

For example, an applicant might have perfect credit, but a high debt-to-income ratio, and a small downpayment. He does not receive an approval.

But he pays off a high-payment credit card. His debt-to-income drops, and he is approved.

Lenders see these reversals in fortune all the time. Often, they keep mental notes of what works and what doesn’t. If your loan is not approved, ask your loan professional if there’s anything you can change quickly to get approved, such as the following.

Make a slightly bigger downpayment
Buy down the interest rate by 0.125%
Obtain a rapid rescore to raise your credit score a few points

You could be surprised at what a seemingly small change can do to your approval status.

Remember, the financial factors that result in credit denial are not permanent. Credit can be improved. In many situations the borrower can improve credit within a month or two – quick enough to change the denial to approval.

The attached article provides a road map for next steps when you or a customer are denied credit. Make sure you are working with the right lender as well. A reputable lender welcomes the opportunity to help a potential buyer improve their credit so they can own a home.

The Lending Coach

Page 69 of 80

Stop Paying Rent – A Home Ownership Strategy

How Do We As Agents & Lenders Help These Customers?

Relationships & Knowledge – Keys to Strategy

The Execution Phase

Closing Timeframes Continue to Lengthen

Warrantable & Non-Warrantable Condo Mortgages

What is a “warrantable” condo and does it affect financing?

Do lenders think condos are more risky than detached homes?

What happens if the condo is “non-warrantable”?

Hitting Mental – Planning to Hit

Year-Round Planning

The Mental Workout

There’s No Rule Against Re-Applying For A Mortgage

What Do The Other 25% Do?

Small Changes, Big Impact

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