Working With Lenders
Monica first came across Dan Green while she researching mortgage reports. He actually started two separate ventures — first, was The Mortgage Reports, and second, he recently moved into a broader personal finance field with his project Growella. This project extends beyond mortgage and real estate, although that’s where Dan’s passion lies. In today’s episode, Monica and Dan discuss relationships and communications with lenders and details about some of the products, as well as suggestions on how to keep in touch with clients.
There are many people who want to buy a home but don't think it's possible because they're not getting access to the information that lets them know how possible it really is. It really means a lot for people to own their own home, and it is a privilege here. For the next generation of home buyers, many of their opinions about finances were shaped by the negative attitude in the economy in the previous decade. One of the things Dan strives to do with his team is to empower people to let them know yes, you can get a home.
As REALTORS®, we need to recognize that we don’t know it all, and it’s important to have a mortgage lender that you know and trust and that you can recommend to your clients. How can real estate agents work with lenders and help facilitate the process without giving advice on something we don’t know about? When REALTORS® are working with mortgage lenders, both the REALTOR® and the lender are working toward the same goal. The situation for each buyer will be different, and in the end, both parties want to do what’s best for the client. As a REALTOR®, it’s important to read and keep up with mortgage-related news so you can be aware of when your client may be missing a piece of information. In these instances, it’s important to refer your client to a lender, who can handle the details of the situation better than you can.
It may be more likely you’re in a situation where you don’t know your client’s mortgage lender. It can be hard to put your faith in someone you don’t know, but we must remember that any mortgage lender who is serious about their business will hold each of their clients to the highest regard. Lenders who you don’t meet face to face often put a different standard of care on being available for communication.
Proactive communication will help everybody be in the know more quickly and can pave the way for easier communication moving forward. It can prevent a lot of miscommunication and potential drama. Many lenders are using their open communication as a selling point to clients. This helps REALTORS®, as well, and it's important for REALTORS® to respect the two-way channel of communication between themselves and the lender.
There are several different types of loans. Conventional mortgages are any mortgages that are backed by Fannie Mae or Freddie Mac. They make up about two-thirds of all loans that are done. The stereotypical conventional mortgage borrow no longer exists. This is in contrast to the FHA, which used to be thought of as a home affordability product, and used to have a stigma attached to it for several years. There are also VA loans, which are loans that are available to people who are active military or veterans. They are most well-known for being 100% mortgages (the average down payment is 2%). The USDA loan (United States Department of Agriculture) are also 100% mortgages, and they offer lower interest rates as compared to other loan products. These are meant to promote home ownership in less densely populated areas.
For these four types of loans (conventional, FHA, VA, and USDA), many borrowers can move interchangeably between these four. You can't necessarily know what’s best for you client without talking to a loan officer. Dan talks about some mortgage options that exist within these four categories, and the goal of the mortgage lender is to figure out which option is going to be best for the borrower for their specific home in this time. It is a constantly moving target, trying to find where a borrower fits best at any point in time.
Jumbo loans are a subset of a larger group of products called portfolio loans. These are non-government supported loans, where the mortgage lender keeps the interest. Some of the loans don't meet the government’s requirements. A jumbo loan is a loan that is too big to meet the government's rules. There are other mortgage programs that meet government regulations, but the lender still wants to keep the interest. Dan talks about a few different varieties for medical professionals, teachers, and first responders within a community.
The market has broad, overarching products from the government, and then individual products from different banks. It is a good idea to talk to two or more lenders, so you can get the best possible product and the best possible price. It’s important for lenders to communicate those niche products because buyers need them! By talking to a mortgage lender early in the process, you set yourself to be in a position where you are in control of your options.
Dan shares some current statistics regarding conventional loans and the FHA loan. They each have different insurance regulations and different interest rates. Right now, the FHA is good for people who have below-average credit scores and are buying multi-unit homes. People who previously held FHA loans have been refinancing their FHA loans into other categories. It’s a strange situation right now but it could change at any time. It is a good point of contact if you need to contact your clients.
Many states have organizations within the state that offer first-time borrower programs or other specialized programs. States try to promote home ownership within their state lines, and there are some quality programs out there. Many are trying to reach out to first-time home buyers. Many states also have down payment assistance programs. These programs are very beneficial and it is definitely worth researching which programs are available for the area your client is buying in.
Education is one of the most important ways to reach and inform your clients. Younger buyers typically want the education but part of the challenge is having the benefit of experience. You can’t get everything online, and you need to talk to people who are experienced and who spend a lot of time researching.
There are several other niche products with more narrow markets than the categories previously discussed. They might be the right product for a specific person, but it’s important to discuss with a loan officer who understands how the products work and whether they will really be beneficial for you or your clients.
For condominiums and other communities where there are a lot of investors, sometimes homeowners have a hard time getting a loan. There has been a loosening in requirements for condos, especially when it comes to investors. They now allow more investors in a building, but still make a loan to your borrowers. This is a great example of how mortgage lending is changing based on today’s market.
Is it a good thing for clients to buy down a mortgage rate? The idea here is that there is some type of market rate, and by pre-paying some of your mortgage interest, you can get a lower interest rate. A home buyer can get access to lower mortgage rates by paying an upfront fee. There is a reverse to this, where if you accept a mortgage rate that is higher than the market rate, the mortgage lender will give cash to you. Dan prefers this second option because even though you pay a little more each month, you are able to stay as liquid as possible.
One important takeaway for real estate agents is that they shouldn’t necessarily be concerned with the interest rate that their client has. The lowest interest rate is not always going to be the lowest cost. What you want to be looking for is the lowest overall cost. For a lot of people, the zero closing cost mortgage is often the best option. The main job of REALTORS® is to get your clients to a good lender, who will present them with all the options. It is important to stay up to date on what’s happening, so you can be informed for your clients.
About Daniel Green
Daniel Green lives in Cincinnati, Ohio. He's currently the CEO of Growella, a publishing company that helps Millennials do more with their money and get more from their life. Dan’s last project, the popular mortgage website The Mortgage Reports, was recently acquired, which was his third sale of a web-publishing business.
As a part of Dan's successful entrepreneurial career, he has spent a chunk of his time writing software and lending his expertise as a top-producing mortgage loan officer. Dan's market insights earned him a reputation as a top mortgage market commentator. Dan has been frequently cited in print, on the radio, and on television.
Before Growella, Dan founded and directed the popular mortgage blog The Mortgage Reports. The Mortgage Reports is widely recognized as the top consumer-focused mortgage blog in the country. The site offers unbiased mortgage loan advice to first-time home buyers, seasoned homeowners, and real estate investors, and has been informing its readers for more than a decade.
Dan Green lives in Cincinnati with his wife and three children, all of whom enjoy living an active and healthy lifestyle. When Dan is not busy running road races and web publishing companies, he can be found playing hockey, goofing in the kitchen, or logging 40-mile weeks on the streets of Cincinnati. Dan is also a self-taught guitarist and enjoys playing and singing loudly for his two dogs — a Great Pyrenees and an Old English Sheepdog.