Tag: Pro Tips

Unraveling Junk Mail Pre-approvals: 5 Ways They Exploit Consumers

Transcript

Ryan Hillard: Are you receiving junk mail saying you’ve been pre-approved or pre-selected for a mortgage loan that maybe sounds too good to be true? If you are, you’re going to want to watch this because I’m going to go through five different reasons why the letter that we received in the mail is not good for most consumers.

Ryan Hillard: I’m Ryan Hillard with Ford Mortgage Group, and this is a letter that we got in the mail the other day. And it says, “Congratulations, you’ve been pre-approved for a loan amount up to $566,950,” which sounds great, at an interest rate of 2.75%. Now you really have my attention. As I first look at it, like most people would, you think that that sounds like a pretty attractive offer. If you’re out there thinking about purchasing a home, maybe you’re going to want to pursue this a little bit more. 

The Letter is Meant for an FHA Loan so They Can Appeal to More People Even Though it’s Not the Best Program Based on the Terms Provided

Ryan Hillard: The first thing that I see when I look at this is that it’s for an FHA loan. Not that there’s anything wrong with FHA loans. We do a lot of them, but the problem with it is that it’s probably going to appeal to more people, and that’s why they put this out there rather than a conventional loan. With having this maybe more appealing, that they might be able to cast a little bit wider net. There’s a few reasons why they might do that. One of them is the debt-to-income ratio can sometimes go higher, although they cap that in this letter. Other reasons are that they can typically offer a better interest rate. FHA loans, with everything else being equal, we’ll almost always have a better rate than a conventional loan. This is an instance where. rate doesn’t always mean that it’s the best program for you, and you should explore other things rather than only the interest rate.

Rate Doesn’t Always Mean it’s the Best Program for Your Situation.

Ryan Hillard: As we get to the interest rate, we’re looking at this, and again, it was a rate of 2.75%, which, nothing wrong with that. I’ll take it. The problem that I have with this is that when we go out, and I take a look at where rates actually are or what rates we have available for an FHA loan with everything else equal in this letter, our rates aren’t in the upper twos, our rates are in the lower twos. And you might be saying, well, maybe there’s a difference in time between when they sent this letter and when you’re looking at rates and maybe rates have moved because they do change on a daily basis. And you’re right. They do change on a daily basis.

Ryan Hillard: The thing is that there has been a little bit of time since they sent this letter. And when I’m looking at rates today, but in that time, rates have moved up. You would think that the rates would be maybe a little bit more close, but their rate and the higher twos are rates in the lower twos, everything else equal shows that they’re already inflating this rate, which they’re going to be making more money on and charging a rate to the customer that doesn’t have the customer’s best interest in mind. 

The Rate in the Letter is Worse Than Current Market Rates

Ryan Hillard: When we talk about not having the customer’s best interest in mind, we’re going to my third point, which is in order to get the rate that they’re offering. There is a cost. When you go to the fine print, it says that it is a charge of 0.25 points. That means 0.25% of the loan amount. And so when you do the math, it ends up being $1,417. In order to obtain what we’ve determined is an already worse rate, they’re still charging you an extra $1,400 in order to get that. That doesn’t sound like a good deal to me, and I know that it’s not a good deal for you or for most consumers. There’s no reason why you need to pay more to get less. 

The Credit Score That the Letter Uses to Qualify Consumers is at 832, Which a Majority of Consumers Do Not Have

Ryan Hillard: Moving ahead to the fourth point is credit. Going through the fine print again on this, and that’s where everything is, you’re going to want to always read the details of these types of things. The credit score that they’re using is a score of 832. Now, I don’t need to ask anybody to raise their hand to show me or tell me who has a 832 credit score. If you do, and if you want to tell me that you do, you can leave it in the comments below. You can private message me if you don’t want that public. I’d be curious to know who has an 832 credit score and I’m talking about a FICO score, and there’s a difference between a FICO score and something that you might receive from Credit Karma or if you’re looking at the credit score that your banker or credit card gives you where we as mortgage lenders will always use the FICO scoring model and in doing so it is extremely rare to see an 832 credit score where I’ve not seen it once in the entire time I’ve been doing this. So they’re using a score that is an unrealistic level, and that’s one of the ways that they get away with re-trading on an offer like this, again, not having your best interest in mind. 

The Mortgage Insurance of this FHA Loan is More Than You Need to Pay

Ryan Hillard: Finally, that brings us to our fifth point, which is mortgage insurance. And you’re like, well, wait a minute, you didn’t say anything about mortgage insurance. When we look at an FHA loan, we know that there’s going to be mortgage insurance, especially because they say that this offer was written with 5% down. In this scenario, if we’re putting 5% down, we are always going to have mortgage insurance. And that’s just the way it is. If we go back to taking a look at our credit score of 832, what we would want to do is say, well, what would our mortgage insurance look like with a conventional loan? Is that better or worse for us than a FHA loan? And I can tell you without having to do anything, without having to look at the math or any of that, that you’re going to have a lower mortgage insurance cost with a conventional loan than what you will with an FHA loan.

Ryan Hillard: When we go through all of these things when we look at the program, and we look at the rate when we know that they’re charging you extra money to obtain that rate when they’re using an unrealistic credit score, and we look at the mortgage insurance that they’re going to be charging you. It’s not worth the paper that it’s written on. If you have this, if you are getting these types of offers in the mail, I would love for you to send it into me because what I will do that they are not going to do is show you with specific figures specific to your situation, which program is going to be the best for you.

Ryan Hillard: Is an FHA loan going to be best for you, or is it a conventional loan? And rather than you calling in and them saying, yep, great, we want you to do this loan because frankly, they’re. It’s not their decision. It’s not my decision. It’s your decision. And all I want to do is empower you to make the best decision for yourself.

Ryan Hillard: I’m Ryan Hiller with the Ford Mortgage Group, and look forward to helping you.

Achieving Homebuying Success: Key Strategies from a Client’s Journey

Transcript 

Ryan Hillard: I recently had a closing and this closing was made possible by three things that the clients did correctly. I want to share a little bit of their success story and some of the takeaways from that, that could be helpful for you as well. Just to give a little bit of brief background, I have clients that they were past clients, and they didn’t need to be because we could have worked the same way with anybody, but they knew that they wanted to buy a new home for a number of reasons, and also keep the home that they were departing, but they didn’t necessarily have the income to hold on to both at the same time and make the debt to income ratio work. There was a little bit of preparation that was necessary. In doing so, one of the first things that I would just say is beneficial for everyone is they reached out and got in touch with both me and their real estate agent at the same or similar time. I could help them understand and run the numbers, and then he could help them understand the markets that they were interested in. Identifying price points to see if these things would mesh and if it was something that was even going to be a possibility. If it was necessary to do the rest of the work that they needed to do. 

Improve Credit 

Ryan Hillard: One of the first things that they really needed to do beyond that… Was improve their credit a little bit, it wasn’t necessarily leaps and bounds that they needed to move their credit, but we were able to identify that if they got just a few points better on their credit score and If there were some things that they could do to take action on it was really gonna help them save quite a bit of money. They were able to do that, which was great. They took action. Where a lot of people don’t. But, because they knew what the goal was, they were able to take action. It wasn’t a ton of points, but it was enough to get them into that next tier, and that did two things. First, it allowed them to decrease their interest rate by about a quarter point. So a quarter point in rate would be moving from 3.5% to 3.25% or 3.25% down to 3.0%. On these loans, that obviously helps, and, you know, any savings is good savings. Even more impactful than that was the effect that it had on their mortgage insurance. Getting into the next tier for their credit score, it allowed them to decrease the monthly mortgage insurance payment by $300, give or take. That is a significant amount. I don’t care who you are; I would say that $300 a month on your housing payment is significant. There would have been a way that we would have still been able to work this, even if they hadn’t done those things, but it would have involved being able to close, working on the credit down the road, and then coming back, six or eight, nine months later. Rates would be different, other factors could be different as well, and then they’d have to refinance and incur some additional costs at that point that really weren’t necessary because they took action up front. 

Putting a Lease in Place to Offset the Departing Residence

Ryan Hillard: The second thing that they did, remember that I had mentioned, wanting to hold on to the house that they were departing and still buy the new one. Being able to fit both in wouldn’t have really worked with their debt-to-income ratio, and what you’re able to do in these situations, because this is a conventional loan, they were able to get a lease, have that in place, knowing that this would start once they vacated. The lease would be in place and allowed it to use 75% of that lease income to offset the mortgage payment. For example, if their mortgage payment were $1,000 and their lease payment was $1,000, they wouldn’t be able to use one for one. They would use 75% of that, so it would be $750, that would offset the $1,000, but instead of a $1,000 payment impacting their debt-to-income ratio, only $250 of that would. Now, if the lease payment is more than that and you take 75%, then it just offsets the departing residence’s mortgage payment, and that was exactly the case that happened here. Because of that, it freed up that cash, so to speak, that income and allowed it to make the debt-to-income ratio work with the new residence. So, it improved their credit and got a lease in place to offset the departing residence.

Worked With a Full-Time Professional Real Estate Agent

The third thing that they did was they worked with a professional full-time real estate agent who was able to understand what they want, advocate for them, and negotiate on their behalf. There were a few times during this process that things had arisen with the house that they were looking at. Knowing that the seller did want to sell and make a deal happen doesn’t mean that they’re just gonna give it away, right? There could be someone a week later if they put it back on the market, a number of things that could happen, but working with a full-time professional real estate agent who knew how to negotiate, allowed them to keep the deal together, so all of the hard work that they did up front was still able to pay off and be rewarded by them getting into a new home. 

Ryan Hillard: Just to recap, doing a few things by getting out in front of this process and weighing their options ahead of time, taking a little bit of action and working with a professional agent, allowed them to accomplish their real estate goals of maintaining an investment property while purchasing a new home in a new neighborhood with the school district that they wanted to be on so they could continue with their expanding family. 

Ryan Hillard: If you need help with any of that, if you have questions on how any of that might work, please feel free to reach out to me, and I’d be happy to walk you through the process, provide any insights that I can, or connect you with a real estate agent as well.

Ryan Hillard: This is Ryan Hillard with the Ford Mortgage Group. Have a great day.

Maximizing VA Loan Benefits: Leveraging a VA Loan for More

Transcript

Ryan Hillard: Let’s Talk About a Win We Just Had in This Market for a VA Client. Now, as a lot of people know, interest rates have moved up, so it’s kept a lot of people on the sidelines. But I’m here to tell you that people are still buying homes, and it’s still actually a really great time to buy a house, especially when you can negotiate a little bit more with the seller in order to potentially get some concessions and see how we can use those. 

Ryan Hillard: In this case, we had a VA client and the VA loan already has 100% financing with no mortgage insurance and will typically have a lower rate than conventional or other loans, which really just makes it the best loan out there, in my opinion. This client had a middle-of-the-road “risk profile,” meaning it was a very “doable” loan, but it wasn’t right down the middle, so there were a couple of things we had to navigate, but we were definitely able to do so. With the help of an experienced agent, we were able to look at the right properties to get the maximum amount of concessions. 

How do we use those concessions?

1. Pay off all the closing costs, so we didn’t have to come out of pocket for anything in terms of closing costs. 
2. Buy down the interest rate further than it already was
3. Prepay 12 months of HOA fees, which is the maximum allowed for a VA loan
4. Used seller’s concessions to pay off the borrower’s debt

Ryan Hillard: One of the things a lot of people don’t know that you can do with a VA loan is to use seller concessions to pay off the borrower’s debt. In this case, we were able to use additional concessions to pay off three credit cards. It really seemed like the borrower was making money on this. Not only did they get all of the earnest money back, they also prepaid 12 months of their HOA fees and paid off three different cards. 
Ryan Hillard: This was really a great win for this client, and it’s also just an example of the types of wins that can be had in this market right now!