November 13, 2023 • 29 mins
On this episode, mortgage veteran Jeff Smith of Tiger Home Loans opens the vault on his 18-year tenure to share a meticulously crafted method that has cemented his reputation as a linchpin in the mortgage industry.
For Realtors:
- Learn how Jeff's pre-qual consultation ensures a seamless, transparent, and supportive journey for your clients, setting the stage for a harmonious homebuying experience.
- Discover the strategies that pre-emptively tackle common questions and objections, fostering a proactive environment that cultivates trust and eases anxieties.
- See how partnering with a lender who prioritizes client education and preparation can elevate your service and client satisfaction to new heights.
For Lenders:
- Gain insight into an expertly refined process that addresses every conceivable client concern, equipping you with the tools to enhance your consultation effectiveness.
- Understand the nuances of a system that not only wins clients but also establishes a foundation of trust and authority from the first interaction.
- Consider the opportunity to join forces with Jeff at his brokerage, where this proven process is just the beginning of setting industry standards.
This episode doesn't just spotlight a successful consultation—it invites you to witness a masterclass that transforms potential obstacles into stepping stones for client assurance and success. Whether you're guiding clients through the thicket of mortgage planning or looking to sharpen your own advisory skills, this is your roadmap to a process that guarantees success.
Tune in and redefine your approach to the pre-qualification consultation with insights that only decades of experience can forge. Elevate your practice, join an alliance of excellence, and ensure every client journey is not just a transaction, but a milestone of financial triumph with Jeff Smith.
Important Links & Info:
Follow Jeff:
Instagram: https://www.instagram.com/jeffsmithaz/
Facebook: https://www.facebook.com/profile.php?id=100002927397116
LinkedIn: https://www.linkedin.com/in/jeff-smith-40627016/
Jeff Smith - Tiger Home Loans
📲 480.909.4000
📩 jeff@tigerhomeloans.com
🔗 www.tigerhomeloans.com
Equal Housing Opportunity
Tiger Home Loans NMLS: 2425582 NMLS: 413643
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Welcome to the show fairways and finance.
My name is Jeff Smith.
I've been in the mortgagebusiness for 16 years top
quarter percent LL nationwide.
And you know this podcast.
We want to talk about yourfinances, how to grow and
accumulate wealth and all thingsrelated to the mortgage
industry.
But we're golf lovers here aswell, so we're going to work in
some golf.
Don't worry for my golf loversout there.
(00:26):
We got you and I hope you enjoythe show.
Hey, welcome back to thechannel Jeff Smith, fairways and
finance.
And today I want to take youthrough an example of a client
(00:47):
prequel consultation.
So what is a prequelconsultation?
Well, I think it's the mostimportant client interaction
that I have, and so my process.
To give you just a quicksummary, I have an initial call
with the client.
That's a needs analysis call 15, 20 minutes of information
gathering to find out what theirgoals are, what their needs are
(01:07):
.
Then I have them submit anapplication online, submit their
income and asset paperwork.
When that comes in, I reviewall that paperwork, run their
credit, put together the numbersand, if I have them pre
qualified, I issue their prequalification letter From there.
There's a link in the emailtemplate that I use for my
(01:29):
buyers to schedule aconsultation on my calendar for
the prequel consultation.
That is, an in a video meetingwhere we will spend 30 to 45
minutes going through all thedetails of their mortgage free
approval.
The numbers look like willreview what I call the most
(01:50):
important two numbers in thetransaction, which is cash to
close and total monthly payment.
I'll give them an overview ofthe Arizona Purchase Contract.
And then I've got a documentthat I like to review with seven
tips for not getting yourselfin trouble after being free, for
being free approved for amortgage.
So you know that that mortgagefree approval is based on
(02:11):
someone's finances as they standat the time they submit the
application.
But there's several things thatcould trip them up down the
road, like getting a new carloan or or taking out additional
debt, and so I've seven sevenkey points I like to go through
for folks to make sure thattheir finances stay in a
position to qualify for amortgage.
So during that pre qualityconsultation, I like to do it
(02:34):
over video.
It allows me to see my clientsinteract with them face to face,
but because it's virtual, it'salso much more convenient for my
clients.
They don't need to drive acrosstown to meet with me at my
office and get your kids as wellthat stuff.
So video is preferred.
If they can't do video, we'lldo a phone call and I just think
it's absolutely crucial thatyou do a professional loan
(02:57):
presentation giving the clientall the information they need.
This is where you can reallybuild back rapport and trust and
educate your client.
This is where you make surethat there's no surprises when
they go through the the approvalprocess for the mortgage and
this is where you can make surethat they're set up for success
when they go out with theirrealtor to start shopping.
So I did this call today.
(03:20):
If I recorded a lives call thatI had with Paige Morlino at
limitless real estate, shewanted to see what that that
consultation looked like inperson.
So she joined me and somewhatpretended to be quiet.
So it's just crucial to have asystem and a process in place.
One more thing before we gointo this recording this is the
(03:44):
same process that I use everytime in a prequel consultation
and I've refined thispresentation over the years to
answer every client questionthat could come up.
I've added things, havesubtracted things, but the the
outline that you're going to seehere moving forward is one that
I've been using for severalyears now, and after I go
(04:04):
through all that information,it's rare that I really get any
questions or clients, becauseI've tailored the information to
answer every question that isgoing to come up for most people
.
So hope you enjoy it and let meknow what you think.
Okay, so I would start anyprequel consultation just with
some small chat for a minute ortwo to break the ice and then
(04:27):
open it up with.
Do they have any questionsabout the process at this point?
A client I've already reviewedall of their paperwork.
They've submitted theirapplication, I've run their
credit and I've issued a prequelletter.
So when your clients are goingthrough this meeting with me,
you will have already receivedthe signed prequel letter from
me and now they're schedulingthis appointment to go through
(04:49):
it.
All the numbers would look like.
So then, the first thing thatI'll do is take the client
through a couple financingoptions that I've put together
for them.
So I'll share my screen andwe'll go through two options
that I put together for a clientabout a week ago.
(05:10):
Now this client their creditscores are pretty good, but
they're not like in the top tier, so the rates are higher than
that it would be if they had toptier credit.
And so for these particularclients, they had submitted an
offer on a property and we had alender credit.
So I'm going to explain how wewere utilizing that.
(05:32):
So this is very specific towhat they're looking for.
So I've put together twooptions.
So we're going to go through alower interest rate option 8.125
.
And then we're going to gothrough a higher interest rate
option at 8.5.
And we'll explain thedifferences there.
So purchase price or propertyvalue 395,000 in this case, and
(05:56):
this is a purchase, 30 yearfixed rate mortgage, $100,000
down, which is what we haddiscussed at the application
stage.
So that's a financed amount of295,000.
Primary residence is theoccupancy.
Interest rate on this firstoption is 8.5.
And then the APR is over hereit's 8.668.
(06:18):
So the difference between APRand interest rate is the APR
takes the closing costs,converts those to a percentage
and then adds it to the rate togive you an idea of what the
overall cost is of the loan.
But what you're actually payingto borrow the money is the 8.5%
the interest rate.
So then we're going to gothrough all these closing costs.
(06:39):
First I'm going to skip downhere to the payment and we'll
talk about the payment in thisbox.
So payments down here in thelower right 2004.99 a month and
that's comprised of fivedifferent or four different
components.
So the first is the payment forthe mortgage itself.
We call this principal andinterest 2002.68 and 29 cents.
(07:00):
So this is an exact payment forall 30 years on a 30 year fixed
rate mortgage.
That will never change.
Next item is homeownersinsurance or hazard insurance.
That's insurance policy that aclient would take out through
whatever insurance company theyprefer to use Geico, state Farm,
whoever that protects theproperty for major hazards like
fire or water damage, and so,especially when someone's buying
(07:23):
a home for the first time, it'simportant to think about
homeowners insurance as likecatastrophic coverage.
It's not a policy that you wantto use very often, like with
car insurance, like if you gotinto a fender bender, you would
use your car insurance.
With homeowners insurance, youonly want to use it if it's some
sort of expense that you cannotpay for out of pocket, because
(07:46):
what the whole insurancecompanies do is they track your
claims.
Even if you move to anothercompany, they know if you've had
claims, and that goes againstyour record and makes your
premiums a lot more expensive,and so the other thing that you
can do is, depending on whatyour cash savings position is,
you can select different levelsof deductibles to go with the
(08:07):
policy.
So, like for me personally, Ialways select the highest
deductible I can, because I knowthat I'm only going to use my
homeowners insurance if it's abig ticket repair item.
You know, if it's a couple ofthousand dollars, I'm going to
pay for that out of pocket.
So I've got our insurancedeductible at $10,000, which is
pretty high.
That might not, you know, thatmight be too high for some
(08:28):
people, but a lot of times theinsurance company will put you
with, like the lowest deductiblewhich, if it's a thousand
dollars or $500, you don't wantto use your homeowners insurance
for $1,000.
You want to use it for a$10,000 claim, you know, or more
.
So that could help to savemoney on the monthly premium
when you have a higherdeductible.
(08:48):
Then I put these worksheetstogether based on a specific
property.
So the taxes for thisparticular property are $95.73 a
month.
If we didn't have a propertyidentified, then I would just
set that estimate percentage andthen the HOA views for this
particular home are $53 a month.
So all of that totals up to$2,499.
(09:10):
Now the HOA will be a separatebill.
So the 2,500 encompasses all ofthose items.
But the HOA will be paiddirectly to the Homeowners
Association, either quarterly ormonthly or however they bill it
.
Next we're going to go throughthe closing costs.
So this top section is lenderfees or origination charges.
(09:32):
So on this interest rate, whenI ran pricing on this day the
8.5% interest rate had discountpoints of $687.
So on this particular day wecould have gone to 8.625 and
eliminated any discount pointsso that there would be zero
lender fees.
But I thought this made senseto select this option because
(09:55):
when I put this worksheettogether we're working with some
credit from the seller that weare anticipating, so we're
utilizing that.
You'll also notice that I haveno flat lender fees that I
charge.
So most mortgage companies inthis section you'd see like an
underwriting fee between $1,000to $1,500.
I don't have any flat fees likethat.
(10:15):
Next section here is servicesbar work and not shop force.
This is third party charges.
So we've got the appraisal fee,which I'm estimating at $600.
I'd expect it to come inbetween $500 to $650, depending
on the property Credit report.
I estimate $100 upfront.
The actual cost of the creditreport is $72.50.
Sometimes we have to get someadditional supplements to go
(10:38):
along with that.
That could push the cost to$100.
Flood certification $25.
We work with a third partyprocessing company to do all the
verifications of employment,fraud checks, tax return
transcripts, all of that stuff.
So they charge $995.
And then if we had to pay toget a verification of employment
(11:02):
through your employer, this isan estimate of what that would
cost.
If we can get a verification ofemployment with no charge, like
through your manager or HR,then this gets deleted.
So that's third party charges.
This next section, servicesborrower can shop for.
This is an estimate of what atitle company is going to charge
in the transaction.
(11:22):
So my computer system justestimates this based on a
percentage and the title company.
They do a few things in thetransaction.
One, they provide a titlereport and the title report
tells us who's had ownershipinterest in the property over
its history and whether or notthere's any liens against the
property and that's a reallyimportant part like tax liens or
(11:45):
judgments.
Title company provides two titleinsurance policies a lender's
title insurance and owner'stitle insurance.
The title insurance guaranteesthat that title is free and
clear at the time that you close.
So if a lien holder were tocome after you for payment on
some lien that had been putagainst that property previously
(12:06):
and it didn't come up on thetitle report, that in effect
could be something that you owed.
But if you have title insurance, the title insurance would pay
off any liens that did not comeup on the title report at the
time you close.
So it guarantees that you havea free and clear title at the
time that you close.
So there's an owner's titleinsurance, which is paid for by
the seller, that protects youfor your ownership interest of
(12:27):
the property.
Then there's a lender's titleinsurance which protects the
lender for their amount of themortgage and that's paid for by
you as the buyer.
And then the last thing thatthe title company does is they
handle the siting of all of yourclosing paper.
So at the end of thetransaction you're going to pay
your down payment money plusclosing costs to the title
company with like a wiretransfer or cashier's check and
(12:50):
they will do the siting of allof your closing paperwork with
you and then they'll distributeall of the money at the end of
the transaction.
So my system always estimatesthese title fees a little high.
But I like to have things alittle higher.
Up front.
Numbers go down, everybody'shappy with the numbers go down,
everybody's happy with thenumbers go up.
So definitely don't expect themto be any higher than that.
(13:10):
The county will charge about$60 for recording the deed of
trust in your name at closingthese two boxes here, prepaid an
initial escrow payment atclosing.
So a few things we got going inhere.
One the first year of yourhomeowner's insurance right here
is going to be paid at closing.
This is 12 months of passwordinsurance.
(13:32):
So let's say your insuranceprovider is GEICO.
This 987 will cover yourhomeowner's insurance policy for
the first year that you're atthe home.
That is, you're making yourmonthly payments.
Throughout that first yearYou're going to put 12
additional months of homeowner'sinsurance into your escrow
account to cover that GEICOpolicy when it comes to do again
the next year.
(13:53):
So it's paid once a year inadvance.
So this is the upfront amountthat gets paid.
And then the lender is alsogoing to collect two months of
reserves right down here to gointo the escrow account in case
that policy cost increases overtime.
That way there's enough inthere to cover it.
And then same thing with taxes.
They're paid every six monthsin October and April, and the
(14:17):
lender is going to put twomonths of reserves into your
escrow account at closing.
So there's enough money inthere at the time that we close.
So there's enough money inthere when that next installment
payment is due.
You'll also get a credit fromthe seller for the amount of
taxes that they owe up throughthe date of closing.
And then the last slide item iscalled 關係 security information
(14:39):
prepaid interest.
That's right here, and so I'vegot this set at 15 days.
This covers the interest forthe remaining days in the month
that you close.
So say, for example, you closeon a home on November 15.
First new mortgage paymentwould be due January 1.
That January 1 payment coversthe interest from the month of
December and only December.
(15:01):
But if you close on November 15, you'd have the mortgage for 16
days from the 15th of Novemberthrough the first of December.
So the lender will collectthose days of interest at
closing.
That's called prepaid interest.
That's just a one-time thingthat happens on closing and it
depends on what day of the monththat you close.
So I've got this set at 15 daysto give you a middle figure
(15:23):
there and then.
So, with this offer that theywere submitting, they were
asking for 11,400 in concessionfrom the seller as to go toward
closing costs.
So one of the things we addedin there was a two-one temporary
buydown.
So the cost of the two-onetemporary buydown in this
(15:45):
scenario was 7,209.75.
So the two-one temporarybuydown, the way that works is
they'll be making a paymentequal to a rate of six and a
half percent in the first year,so 2% lower, and then 7.5% in
the second year, 1% lower, andthen 8.5% from year 3 through 30
(16:07):
.
So this payment down here isthe 8.5% interest rate payment
and then that year one paymentwas going to be about $400 less,
so 2100.
And then that year two paymentwas going to be $200 a month
less and then it would go tothat full payment amount in year
(16:27):
3.
So this temporary buydown moneythe thing that's great with the
two-one temporary buydown is the7.209 goes into the escrow
account at closing.
So it's not like a fee, it'sthe interest that's been repaid
up front over those first twoyears.
So if this buyer refinancestheir mortgage within the first
(16:48):
two years that they have in thehome, whatever is unused out of
this, 7.209 gets refunded backto them.
So that's payment that getslost.
So, like in year one, eachmonth that they're making the
payment, it's $400 a month lessthan what this stated payment is
down here.
So $400 a month is coming outof the escrow account out of
(17:09):
this 7.209.
So that's how that temporarybuydown works and it's got to be
paid for fully by the sellerbecause if the buyer were to pay
this, they're not actuallysaving themselves any money.
They're just repaying theinterest up front.
You know it's not costing themmore money but it's not saving
them money.
So the lenders want the sellerto pay for that.
(17:31):
So down here we've got theirtotal estimated cash to close at
$104,000.
And that is the down payment of$100,000 plus all the closing
costs we went through, plus thattemporary buydown and then
minus the $11,400 credit fromthe seller.
So you know, with all of thesecharges here, including that
(17:54):
temporary buydown, they'rebasically paying $4,000 of it
and the remainder is all paidfor by the seller.
So that's option one, okay.
And then option number two isbasically the same thing with a
couple changes.
So the interest rate here islower, so we're at 8.125.
(18:15):
Discount points are higher$3,950.
And then that makes thispayment a little bit lower.
So $2,421 versus $2,499.
So that is $24.99 minus $24.21.
(18:36):
That's $78 a month less ininterest because of the rate,
but they're paying more in costup front.
So $3,950 versus.
So they're paying $3,263additional with this option
(19:02):
right here to save $78 a month.
So if I take the $3,263 dividedby the $78 a month savings, it
is 42 months to break even onthat money, meaning it's going
to take 42 months to save theadditional $3,300 that they're
paying up front.
(19:22):
So unless they're keeping thatmortgage for 42 payments, which
is 3.5 years, they're going tobe better off taking the higher
rate with less points.
And I especially wouldrecommend that in this
environment because I think thechance of them refinancing to a
lower rate the X3 and Aptio isjust pretty high.
(19:44):
So we don't want to invest abunch of money in points when
rates are up.
When rates are down it makesmore sense to invest in points,
but not in this environment.
But yes, so we'll go throughthat and then answer any
questions.
And cash to close here is alittle higher because the
closing costs are added at thediscount points.
So that's all taken through theworksheets and we've had a
(20:08):
discussion up front.
So, even if they don't have aproperty picked out, I know what
their goals are in terms oftotal cash to close, monthly
payment, all that.
So I'll dial these numbers inso that it's fitting exactly
where they want to be.
And then this is a good timefor us to figure out.
Okay, so this is what you toldme your goals were.
How did these numbers matchwith your goals?
And then sometimes it's like,well, that payment is too higher
(20:30):
or well, we'd really like ahigher purchase price.
What does that going to cost?
And so then we'll kind of ironthat out.
Next thing we'll talk about isjust some dos and don'ts moving
forward in the process.
So now that we have the buyerpre-approved, it's all based
upon their finances as theystand today.
(20:52):
So we don't want to have anymajor changes to the buyer's
finances between this point andclosing on a haul, because it
could impact what they'requalified for.
So these are some things thatI've come across over the years.
So they've tripped buyers up ontheir pre-approval.
So we don't want any financedpurchases major purchases like
(21:13):
furniture, appliances, jewelry,that kind of thing, cars not to
say they can't do it, but ifthey're going to do that, I
recommend that they contact mefirst so I can review that on
their application.
Let them know if it'll impactthem.
We don't want buyers to changeor quit their job.
Now the one that catches peopleby surprise is sometimes people
will get a promotion or they'lltake a new job at a higher rate
(21:36):
of pay and they don't bring itup because they're thinking, oh,
I'm making more money and it'sa good thing and that generally
is.
But if their structure of paychanges, like they go from
salary to then like a salaryplus a commission type of
position, unless they have ahistory of that commission, then
we can't use it.
So even though their overallincome may be going up
(21:59):
significantly, what we can usequalifying income may be a lot
lower because it's part of itsvariable.
So that's always important.
Someone's going to change theirjob.
I want to know so I can tellthem if it'll impact them.
We don't want people to movelarge sums of money, not that it
causes an issue for gettingapproved, but it just creates a
situation where we have to getmore paperwork documenting the
(22:20):
money going out of one accountand into the next Wire transfer
policy with your banks.
So this can come up withoutestate buyers.
Some small banks require anin-person signature to initiate
a wire, and years ago I had abuyer who had to fly back to
(22:40):
Minnesota just to sign onedocument to get a wire transfer
out of for checking, and so itwas a bad situation.
And so this I always like tobring up for people, especially
if they're out of state.
You know, if they've got a bigone of the big banks that are
nationwide, it's not anything toworry about, but that's why I
have that on there.
(23:02):
Also, anybody receiving moneyfrom someone to go forward cash
to close in the transaction, aslong as it's from a family
member, it's an acceptablesource.
We call that a gift and we candocument it appropriately.
But buyers could not get moneyfrom a non-family member to go
toward down payment and closingcosts.
We don't want an increase indebt because that could impact
(23:23):
their debt to income ratio.
That could also impact theircredit score.
And then we want to make sureall bills are paid on time.
You know so, especially forsomeone who has had some credit
history challenges, one 30-daylate payment can torpedo a
pre-approval.
So we just want to make surepeople are really careful with
paying their bills.
So I'll send this document toclients right after the meeting
(23:49):
in docusign, and then I just gettheir initials on it in the
middle here, just so we're allon the same page.
That's great, yeah, just sothey know too, this is important
.
You know this could really tripyou up.
So so that's that.
And then the last thing thatI'll take them through is just
some high points of the ArizonaPurchase Contract, just so
(24:11):
they're hearing it again andstarting to get a better idea of
how that whole process works.
So you know now that now you'repre-approved, you're going to go
out, you're going to shop foralms.
Once you find a home that youlike, paige is going to write up
an offer and send it that tothe seller and their agent with
your terms for the offer, so youmay negotiate back and forth
until you've agreed on terms.
So then, once you've agreed toa term, to what we call under
(24:33):
contract.
So the first thing that happenswhen you go under contract is
you need to write a check to thetitle company for the earnest
money deposit.
The earnest money is typically1% of the purchase price and
that is a non-refundable depositthat the title company holds
during the approval process ofthe transaction.
It's refundable in some casesand we'll go over that.
(24:55):
So the first 10 days of thecontract is called your
inspection period.
So Paige is going to set you upwith a home inspector to go out
and do an inspection of theproperty.
So they're going to do athorough review of the physical
condition of the home and thenthey'll give you an inspection
report with what they came upwith in terms of the condition
of the property.
So you know, especially forsomebody buying a home the first
(25:15):
time, I was like to warn people.
You know there's going to be 30items on this inspection report
and that doesn't mean that thehouse is falling apart.
You know every home, even abrand new home, is going to have
items that come up on aninspection report.
But the home inspector andPaige will guide you through.
Like here's items that's normaldeferred maintenance you'd see
on any home and here's itemsthat we should be concerned
(25:36):
about.
So the cost of the homeinspection you know it depends
on the size of the home, butanywhere from 4 to $700 I would
plan on for a home inspectionand you're going to pay that
inspection fee directly to thehome inspector.
They'll take like a credit ordebit card from you.
So that's like the one fee thatI don't have accounted for on
my worksheets.
(25:57):
During that 10 day inspectionperiod your earnest money is
refundable and you can cancelthe contract for any reason.
So that's like your duediligence period over those
first 10 days.
So that's your kind of researchneighborhood you know, get
homeowners insurance, do theinspection, all of that.
During that process we'll startthe approval process for the
(26:18):
mortgage.
So once you have an acceptedcontract, that's the point at
which we could lock your rate.
So these rates we reviewedtoday are today's rates.
Whatever you go under contracton a home, we're going to
reprice the rates based on whatrates are on that day.
But then, once you're undercontract, we have the option to
lock the rate, which would setit at where it's at.
We'll have disclosures for youto sign, a little electronic
(26:40):
signature.
You're going to hear from myprocessor, erica Dobrinski, and
she's going to be a point ofcontact for you, helping you put
together the paperwork we needto approve your loan and then
we'll go through two rounds ofunderwriting.
So first time we go through,the lender will say okay, loan
is approved, pending someadditional items, and Erica and
I will let you know what thoseare Once the home inspection is
(27:03):
done.
If that all looks good, thenwe'll order the appraisal.
So once we order the appraisalyou're going to get an email
with a link to charge yourcredit card for the appraisal
fee and that's a non refundablefee once we collect it.
So we like to wait until afterthe appraisal is done to make
sure there's no deal breaker, orwait until after the inspection
is done to make sure there's nodeal breakers on the inspection
(27:24):
and then, once the appraisal isdone, we'll take that along
with any additional paperwork wecollected from you, submit that
back to underwriting for asecond and final review.
That once we have final approvalon the loan, the title company
is going to schedule you to signclosing paperwork and at that
point then we'll have an exactnumber for your cash to close.
(27:44):
So up until then we're going tohave a projected number which
is going to be reasonably closebut not exact, and at the very
end what the exact number.
So typically you'll sign acouple of days prior to closing
and then the title company willhelp you set up that wire
transfer or have you bring in acashier's check, sign closing
paperwork and then on the day ofclosing, that's when the
(28:05):
transaction funds and closes.
So the lender wires the moneyfor your loan to the title
company and once the titlecompany records the deed of
trust in your name with County,that's the point at which the
property is officially yours.
And so you know we like forapplies to plan on that
happening by the end of the day,because there are several steps
(28:26):
that take place during duringthat time and sometimes there
can be delays with wiretransfers going through banks.
So you know, typically page isgoing to be giving you those
keys late in the afternoon onthe day of closing.
Hey guys, thanks for listening.
I hope you enjoyed the show andgot some valuable information
out of it.
I want to help to educateothers and help people grow
(28:48):
their business and build wealth,and I can only do that with
referrals and your help gettingthe word out about this podcast.
So if you come across someoneyou think have benefit from this
, please share it with them andif there's nobody who comes to
mind, a five star review go along way in helping me to grow
this podcast and grow the brand.
So appreciate your support.
Welcome to the show fairways and finance.
My name is Jeff Smith.
I've been in the mortgagebusiness for 16 years top
quarter percent LL nationwide.
And you know this podcast.
We want to talk about yourfinances, how to grow and
accumulate wealth and all thingsrelated to the mortgage
industry.
But we're golf lovers here aswell, so we're going to work in
some golf.
Don't worry for my golf loversout there.
(00:26):
We got you and I hope you enjoythe show.
Hey, welcome back to thechannel Jeff Smith, fairways and
finance.
And today I want to take youthrough an example of a client
(00:47):
prequel consultation.
So what is a prequelconsultation?
Well, I think it's the mostimportant client interaction
that I have, and so my process.
To give you just a quicksummary, I have an initial call
with the client.
That's a needs analysis call 15, 20 minutes of information
gathering to find out what theirgoals are, what their needs are
(01:07):
.
Then I have them submit anapplication online, submit their
income and asset paperwork.
When that comes in, I reviewall that paperwork, run their
credit, put together the numbersand, if I have them pre
qualified, I issue their prequalification letter From there.
There's a link in the emailtemplate that I use for my
(01:29):
buyers to schedule aconsultation on my calendar for
the prequel consultation.
That is, an in a video meetingwhere we will spend 30 to 45
minutes going through all thedetails of their mortgage free
approval.
The numbers look like willreview what I call the most
(01:50):
important two numbers in thetransaction, which is cash to
close and total monthly payment.
I'll give them an overview ofthe Arizona Purchase Contract.
And then I've got a documentthat I like to review with seven
tips for not getting yourselfin trouble after being free, for
being free approved for amortgage.
So you know that that mortgagefree approval is based on
(02:11):
someone's finances as they standat the time they submit the
application.
But there's several things thatcould trip them up down the
road, like getting a new carloan or or taking out additional
debt, and so I've seven sevenkey points I like to go through
for folks to make sure thattheir finances stay in a
position to qualify for amortgage.
So during that pre qualityconsultation, I like to do it
(02:34):
over video.
It allows me to see my clientsinteract with them face to face,
but because it's virtual, it'salso much more convenient for my
clients.
They don't need to drive acrosstown to meet with me at my
office and get your kids as wellthat stuff.
So video is preferred.
If they can't do video, we'lldo a phone call and I just think
it's absolutely crucial thatyou do a professional loan
(02:57):
presentation giving the clientall the information they need.
This is where you can reallybuild back rapport and trust and
educate your client.
This is where you make surethat there's no surprises when
they go through the the approvalprocess for the mortgage and
this is where you can make surethat they're set up for success
when they go out with theirrealtor to start shopping.
So I did this call today.
(03:20):
If I recorded a lives call thatI had with Paige Morlino at
limitless real estate, shewanted to see what that that
consultation looked like inperson.
So she joined me and somewhatpretended to be quiet.
So it's just crucial to have asystem and a process in place.
One more thing before we gointo this recording this is the
(03:44):
same process that I use everytime in a prequel consultation
and I've refined thispresentation over the years to
answer every client questionthat could come up.
I've added things, havesubtracted things, but the the
outline that you're going to seehere moving forward is one that
I've been using for severalyears now, and after I go
(04:04):
through all that information,it's rare that I really get any
questions or clients, becauseI've tailored the information to
answer every question that isgoing to come up for most people
.
So hope you enjoy it and let meknow what you think.
Okay, so I would start anyprequel consultation just with
some small chat for a minute ortwo to break the ice and then
(04:27):
open it up with.
Do they have any questionsabout the process at this point?
A client I've already reviewedall of their paperwork.
They've submitted theirapplication, I've run their
credit and I've issued a prequelletter.
So when your clients are goingthrough this meeting with me,
you will have already receivedthe signed prequel letter from
me and now they're schedulingthis appointment to go through
(04:49):
it.
All the numbers would look like.
So then, the first thing thatI'll do is take the client
through a couple financingoptions that I've put together
for them.
So I'll share my screen andwe'll go through two options
that I put together for a clientabout a week ago.
(05:10):
Now this client their creditscores are pretty good, but
they're not like in the top tier, so the rates are higher than
that it would be if they had toptier credit.
And so for these particularclients, they had submitted an
offer on a property and we had alender credit.
So I'm going to explain how wewere utilizing that.
(05:32):
So this is very specific towhat they're looking for.
So I've put together twooptions.
So we're going to go through alower interest rate option 8.125
.
And then we're going to gothrough a higher interest rate
option at 8.5.
And we'll explain thedifferences there.
So purchase price or propertyvalue 395,000 in this case, and
(05:56):
this is a purchase, 30 yearfixed rate mortgage, $100,000
down, which is what we haddiscussed at the application
stage.
So that's a financed amount of295,000.
Primary residence is theoccupancy.
Interest rate on this firstoption is 8.5.
And then the APR is over hereit's 8.668.
(06:18):
So the difference between APRand interest rate is the APR
takes the closing costs,converts those to a percentage
and then adds it to the rate togive you an idea of what the
overall cost is of the loan.
But what you're actually payingto borrow the money is the 8.5%
the interest rate.
So then we're going to gothrough all these closing costs.
(06:39):
First I'm going to skip downhere to the payment and we'll
talk about the payment in thisbox.
So payments down here in thelower right 2004.99 a month and
that's comprised of fivedifferent or four different
components.
So the first is the payment forthe mortgage itself.
We call this principal andinterest 2002.68 and 29 cents.
(07:00):
So this is an exact payment forall 30 years on a 30 year fixed
rate mortgage.
That will never change.
Next item is homeownersinsurance or hazard insurance.
That's insurance policy that aclient would take out through
whatever insurance company theyprefer to use Geico, state Farm,
whoever that protects theproperty for major hazards like
fire or water damage, and so,especially when someone's buying
(07:23):
a home for the first time, it'simportant to think about
homeowners insurance as likecatastrophic coverage.
It's not a policy that you wantto use very often, like with
car insurance, like if you gotinto a fender bender, you would
use your car insurance.
With homeowners insurance, youonly want to use it if it's some
sort of expense that you cannotpay for out of pocket, because
(07:46):
what the whole insurancecompanies do is they track your
claims.
Even if you move to anothercompany, they know if you've had
claims, and that goes againstyour record and makes your
premiums a lot more expensive,and so the other thing that you
can do is, depending on whatyour cash savings position is,
you can select different levelsof deductibles to go with the
(08:07):
policy.
So, like for me personally, Ialways select the highest
deductible I can, because I knowthat I'm only going to use my
homeowners insurance if it's abig ticket repair item.
You know, if it's a couple ofthousand dollars, I'm going to
pay for that out of pocket.
So I've got our insurancedeductible at $10,000, which is
pretty high.
That might not, you know, thatmight be too high for some
(08:28):
people, but a lot of times theinsurance company will put you
with, like the lowest deductiblewhich, if it's a thousand
dollars or $500, you don't wantto use your homeowners insurance
for $1,000.
You want to use it for a$10,000 claim, you know, or more
.
So that could help to savemoney on the monthly premium
when you have a higherdeductible.
(08:48):
Then I put these worksheetstogether based on a specific
property.
So the taxes for thisparticular property are $95.73 a
month.
If we didn't have a propertyidentified, then I would just
set that estimate percentage andthen the HOA views for this
particular home are $53 a month.
So all of that totals up to$2,499.
(09:10):
Now the HOA will be a separatebill.
So the 2,500 encompasses all ofthose items.
But the HOA will be paiddirectly to the Homeowners
Association, either quarterly ormonthly or however they bill it
.
Next we're going to go throughthe closing costs.
So this top section is lenderfees or origination charges.
(09:32):
So on this interest rate, whenI ran pricing on this day the
8.5% interest rate had discountpoints of $687.
So on this particular day wecould have gone to 8.625 and
eliminated any discount pointsso that there would be zero
lender fees.
But I thought this made senseto select this option because
(09:55):
when I put this worksheettogether we're working with some
credit from the seller that weare anticipating, so we're
utilizing that.
You'll also notice that I haveno flat lender fees that I
charge.
So most mortgage companies inthis section you'd see like an
underwriting fee between $1,000to $1,500.
I don't have any flat fees likethat.
(10:15):
Next section here is servicesbar work and not shop force.
This is third party charges.
So we've got the appraisal fee,which I'm estimating at $600.
I'd expect it to come inbetween $500 to $650, depending
on the property Credit report.
I estimate $100 upfront.
The actual cost of the creditreport is $72.50.
Sometimes we have to get someadditional supplements to go
(10:38):
along with that.
That could push the cost to$100.
Flood certification $25.
We work with a third partyprocessing company to do all the
verifications of employment,fraud checks, tax return
transcripts, all of that stuff.
So they charge $995.
And then if we had to pay toget a verification of employment
(11:02):
through your employer, this isan estimate of what that would
cost.
If we can get a verification ofemployment with no charge, like
through your manager or HR,then this gets deleted.
So that's third party charges.
This next section, servicesborrower can shop for.
This is an estimate of what atitle company is going to charge
in the transaction.
(11:22):
So my computer system justestimates this based on a
percentage and the title company.
They do a few things in thetransaction.
One, they provide a titlereport and the title report
tells us who's had ownershipinterest in the property over
its history and whether or notthere's any liens against the
property and that's a reallyimportant part like tax liens or
(11:45):
judgments.
Title company provides two titleinsurance policies a lender's
title insurance and owner'stitle insurance.
The title insurance guaranteesthat that title is free and
clear at the time that you close.
So if a lien holder were tocome after you for payment on
some lien that had been putagainst that property previously
(12:06):
and it didn't come up on thetitle report, that in effect
could be something that you owed.
But if you have title insurance, the title insurance would pay
off any liens that did not comeup on the title report at the
time you close.
So it guarantees that you havea free and clear title at the
time that you close.
So there's an owner's titleinsurance, which is paid for by
the seller, that protects youfor your ownership interest of
(12:27):
the property.
Then there's a lender's titleinsurance which protects the
lender for their amount of themortgage and that's paid for by
you as the buyer.
And then the last thing thatthe title company does is they
handle the siting of all of yourclosing paper.
So at the end of thetransaction you're going to pay
your down payment money plusclosing costs to the title
company with like a wiretransfer or cashier's check and
(12:50):
they will do the siting of allof your closing paperwork with
you and then they'll distributeall of the money at the end of
the transaction.
So my system always estimatesthese title fees a little high.
But I like to have things alittle higher.
Up front.
Numbers go down, everybody'shappy with the numbers go down,
everybody's happy with thenumbers go up.
So definitely don't expect themto be any higher than that.
(13:10):
The county will charge about$60 for recording the deed of
trust in your name at closingthese two boxes here, prepaid an
initial escrow payment atclosing.
So a few things we got going inhere.
One the first year of yourhomeowner's insurance right here
is going to be paid at closing.
This is 12 months of passwordinsurance.
(13:32):
So let's say your insuranceprovider is GEICO.
This 987 will cover yourhomeowner's insurance policy for
the first year that you're atthe home.
That is, you're making yourmonthly payments.
Throughout that first yearYou're going to put 12
additional months of homeowner'sinsurance into your escrow
account to cover that GEICOpolicy when it comes to do again
the next year.
(13:53):
So it's paid once a year inadvance.
So this is the upfront amountthat gets paid.
And then the lender is alsogoing to collect two months of
reserves right down here to gointo the escrow account in case
that policy cost increases overtime.
That way there's enough inthere to cover it.
And then same thing with taxes.
They're paid every six monthsin October and April, and the
(14:17):
lender is going to put twomonths of reserves into your
escrow account at closing.
So there's enough money inthere at the time that we close.
So there's enough money inthere when that next installment
payment is due.
You'll also get a credit fromthe seller for the amount of
taxes that they owe up throughthe date of closing.
And then the last slide item iscalled 關係 security information
(14:39):
prepaid interest.
That's right here, and so I'vegot this set at 15 days.
This covers the interest forthe remaining days in the month
that you close.
So say, for example, you closeon a home on November 15.
First new mortgage paymentwould be due January 1.
That January 1 payment coversthe interest from the month of
December and only December.
(15:01):
But if you close on November 15, you'd have the mortgage for 16
days from the 15th of Novemberthrough the first of December.
So the lender will collectthose days of interest at
closing.
That's called prepaid interest.
That's just a one-time thingthat happens on closing and it
depends on what day of the monththat you close.
So I've got this set at 15 daysto give you a middle figure
(15:23):
there and then.
So, with this offer that theywere submitting, they were
asking for 11,400 in concessionfrom the seller as to go toward
closing costs.
So one of the things we addedin there was a two-one temporary
buydown.
So the cost of the two-onetemporary buydown in this
(15:45):
scenario was 7,209.75.
So the two-one temporarybuydown, the way that works is
they'll be making a paymentequal to a rate of six and a
half percent in the first year,so 2% lower, and then 7.5% in
the second year, 1% lower, andthen 8.5% from year 3 through 30
(16:07):
.
So this payment down here isthe 8.5% interest rate payment
and then that year one paymentwas going to be about $400 less,
so 2100.
And then that year two paymentwas going to be $200 a month
less and then it would go tothat full payment amount in year
(16:27):
3.
So this temporary buydown moneythe thing that's great with the
two-one temporary buydown is the7.209 goes into the escrow
account at closing.
So it's not like a fee, it'sthe interest that's been repaid
up front over those first twoyears.
So if this buyer refinancestheir mortgage within the first
(16:48):
two years that they have in thehome, whatever is unused out of
this, 7.209 gets refunded backto them.
So that's payment that getslost.
So, like in year one, eachmonth that they're making the
payment, it's $400 a month lessthan what this stated payment is
down here.
So $400 a month is coming outof the escrow account out of
(17:09):
this 7.209.
So that's how that temporarybuydown works and it's got to be
paid for fully by the sellerbecause if the buyer were to pay
this, they're not actuallysaving themselves any money.
They're just repaying theinterest up front.
You know it's not costing themmore money but it's not saving
them money.
So the lenders want the sellerto pay for that.
(17:31):
So down here we've got theirtotal estimated cash to close at
$104,000.
And that is the down payment of$100,000 plus all the closing
costs we went through, plus thattemporary buydown and then
minus the $11,400 credit fromthe seller.
So you know, with all of thesecharges here, including that
(17:54):
temporary buydown, they'rebasically paying $4,000 of it
and the remainder is all paidfor by the seller.
So that's option one, okay.
And then option number two isbasically the same thing with a
couple changes.
So the interest rate here islower, so we're at 8.125.
(18:15):
Discount points are higher$3,950.
And then that makes thispayment a little bit lower.
So $2,421 versus $2,499.
So that is $24.99 minus $24.21.
(18:36):
That's $78 a month less ininterest because of the rate,
but they're paying more in costup front.
So $3,950 versus.
So they're paying $3,263additional with this option
(19:02):
right here to save $78 a month.
So if I take the $3,263 dividedby the $78 a month savings, it
is 42 months to break even onthat money, meaning it's going
to take 42 months to save theadditional $3,300 that they're
paying up front.
(19:22):
So unless they're keeping thatmortgage for 42 payments, which
is 3.5 years, they're going tobe better off taking the higher
rate with less points.
And I especially wouldrecommend that in this
environment because I think thechance of them refinancing to a
lower rate the X3 and Aptio isjust pretty high.
(19:44):
So we don't want to invest abunch of money in points when
rates are up.
When rates are down it makesmore sense to invest in points,
but not in this environment.
But yes, so we'll go throughthat and then answer any
questions.
And cash to close here is alittle higher because the
closing costs are added at thediscount points.
So that's all taken through theworksheets and we've had a
(20:08):
discussion up front.
So, even if they don't have aproperty picked out, I know what
their goals are in terms oftotal cash to close, monthly
payment, all that.
So I'll dial these numbers inso that it's fitting exactly
where they want to be.
And then this is a good timefor us to figure out.
Okay, so this is what you toldme your goals were.
How did these numbers matchwith your goals?
And then sometimes it's like,well, that payment is too higher
(20:30):
or well, we'd really like ahigher purchase price.
What does that going to cost?
And so then we'll kind of ironthat out.
Next thing we'll talk about isjust some dos and don'ts moving
forward in the process.
So now that we have the buyerpre-approved, it's all based
upon their finances as theystand today.
(20:52):
So we don't want to have anymajor changes to the buyer's
finances between this point andclosing on a haul, because it
could impact what they'requalified for.
So these are some things thatI've come across over the years.
So they've tripped buyers up ontheir pre-approval.
So we don't want any financedpurchases major purchases like
(21:13):
furniture, appliances, jewelry,that kind of thing, cars not to
say they can't do it, but ifthey're going to do that, I
recommend that they contact mefirst so I can review that on
their application.
Let them know if it'll impactthem.
We don't want buyers to changeor quit their job.
Now the one that catches peopleby surprise is sometimes people
will get a promotion or they'lltake a new job at a higher rate
(21:36):
of pay and they don't bring itup because they're thinking, oh,
I'm making more money and it'sa good thing and that generally
is.
But if their structure of paychanges, like they go from
salary to then like a salaryplus a commission type of
position, unless they have ahistory of that commission, then
we can't use it.
So even though their overallincome may be going up
(21:59):
significantly, what we can usequalifying income may be a lot
lower because it's part of itsvariable.
So that's always important.
Someone's going to change theirjob.
I want to know so I can tellthem if it'll impact them.
We don't want people to movelarge sums of money, not that it
causes an issue for gettingapproved, but it just creates a
situation where we have to getmore paperwork documenting the
(22:20):
money going out of one accountand into the next Wire transfer
policy with your banks.
So this can come up withoutestate buyers.
Some small banks require anin-person signature to initiate
a wire, and years ago I had abuyer who had to fly back to
(22:40):
Minnesota just to sign onedocument to get a wire transfer
out of for checking, and so itwas a bad situation.
And so this I always like tobring up for people, especially
if they're out of state.
You know, if they've got a bigone of the big banks that are
nationwide, it's not anything toworry about, but that's why I
have that on there.
(23:02):
Also, anybody receiving moneyfrom someone to go forward cash
to close in the transaction, aslong as it's from a family
member, it's an acceptablesource.
We call that a gift and we candocument it appropriately.
But buyers could not get moneyfrom a non-family member to go
toward down payment and closingcosts.
We don't want an increase indebt because that could impact
(23:23):
their debt to income ratio.
That could also impact theircredit score.
And then we want to make sureall bills are paid on time.
You know so, especially forsomeone who has had some credit
history challenges, one 30-daylate payment can torpedo a
pre-approval.
So we just want to make surepeople are really careful with
paying their bills.
So I'll send this document toclients right after the meeting
(23:49):
in docusign, and then I just gettheir initials on it in the
middle here, just so we're allon the same page.
That's great, yeah, just sothey know too, this is important
.
You know this could really tripyou up.
So so that's that.
And then the last thing thatI'll take them through is just
some high points of the ArizonaPurchase Contract, just so
(24:11):
they're hearing it again andstarting to get a better idea of
how that whole process works.
So you know now that now you'repre-approved, you're going to go
out, you're going to shop foralms.
Once you find a home that youlike, paige is going to write up
an offer and send it that tothe seller and their agent with
your terms for the offer, so youmay negotiate back and forth
until you've agreed on terms.
So then, once you've agreed toa term, to what we call under
(24:33):
contract.
So the first thing that happenswhen you go under contract is
you need to write a check to thetitle company for the earnest
money deposit.
The earnest money is typically1% of the purchase price and
that is a non-refundable depositthat the title company holds
during the approval process ofthe transaction.
It's refundable in some casesand we'll go over that.
(24:55):
So the first 10 days of thecontract is called your
inspection period.
So Paige is going to set you upwith a home inspector to go out
and do an inspection of theproperty.
So they're going to do athorough review of the physical
condition of the home and thenthey'll give you an inspection
report with what they came upwith in terms of the condition
of the property.
So you know, especially forsomebody buying a home the first
(25:15):
time, I was like to warn people.
You know there's going to be 30items on this inspection report
and that doesn't mean that thehouse is falling apart.
You know every home, even abrand new home, is going to have
items that come up on aninspection report.
But the home inspector andPaige will guide you through.
Like here's items that's normaldeferred maintenance you'd see
on any home and here's itemsthat we should be concerned
(25:36):
about.
So the cost of the homeinspection you know it depends
on the size of the home, butanywhere from 4 to $700 I would
plan on for a home inspectionand you're going to pay that
inspection fee directly to thehome inspector.
They'll take like a credit ordebit card from you.
So that's like the one fee thatI don't have accounted for on
my worksheets.
(25:57):
During that 10 day inspectionperiod your earnest money is
refundable and you can cancelthe contract for any reason.
So that's like your duediligence period over those
first 10 days.
So that's your kind of researchneighborhood you know, get
homeowners insurance, do theinspection, all of that.
During that process we'll startthe approval process for the
(26:18):
mortgage.
So once you have an acceptedcontract, that's the point at
which we could lock your rate.
So these rates we reviewedtoday are today's rates.
Whatever you go under contracton a home, we're going to
reprice the rates based on whatrates are on that day.
But then, once you're undercontract, we have the option to
lock the rate, which would setit at where it's at.
We'll have disclosures for youto sign, a little electronic
(26:40):
signature.
You're going to hear from myprocessor, erica Dobrinski, and
she's going to be a point ofcontact for you, helping you put
together the paperwork we needto approve your loan and then
we'll go through two rounds ofunderwriting.
So first time we go through,the lender will say okay, loan
is approved, pending someadditional items, and Erica and
I will let you know what thoseare Once the home inspection is
(27:03):
done.
If that all looks good, thenwe'll order the appraisal.
So once we order the appraisalyou're going to get an email
with a link to charge yourcredit card for the appraisal
fee and that's a non refundablefee once we collect it.
So we like to wait until afterthe appraisal is done to make
sure there's no deal breaker, orwait until after the inspection
is done to make sure there's nodeal breakers on the inspection
(27:24):
and then, once the appraisal isdone, we'll take that along
with any additional paperwork wecollected from you, submit that
back to underwriting for asecond and final review.
That once we have final approvalon the loan, the title company
is going to schedule you to signclosing paperwork and at that
point then we'll have an exactnumber for your cash to close.
(27:44):
So up until then we're going tohave a projected number which
is going to be reasonably closebut not exact, and at the very
end what the exact number.
So typically you'll sign acouple of days prior to closing
and then the title company willhelp you set up that wire
transfer or have you bring in acashier's check, sign closing
paperwork and then on the day ofclosing, that's when the
(28:05):
transaction funds and closes.
So the lender wires the moneyfor your loan to the title
company and once the titlecompany records the deed of
trust in your name with County,that's the point at which the
property is officially yours.
And so you know we like forapplies to plan on that
happening by the end of the day,because there are several steps
(28:26):
that take place during duringthat time and sometimes there
can be delays with wiretransfers going through banks.
So you know, typically page isgoing to be giving you those
keys late in the afternoon onthe day of closing.
Hey guys, thanks for listening.
I hope you enjoyed the show andgot some valuable information
out of it.
I want to help to educateothers and help people grow
(28:48):
their business and build wealth,and I can only do that with
referrals and your help gettingthe word out about this podcast.
So if you come across someoneyou think have benefit from this
, please share it with them andif there's nobody who comes to
mind, a five star review go along way in helping me to grow
this podcast and grow the brand.
So appreciate your support.
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