Mortgage Considerations

Jonathan, good afternoon.

How we doing, George?

Doing very well. How are you today?

Great. Happy to be here.

Good. Thank you for joining me. I think this is episode nine of our building your wealth bridge podcast. This is kind of a newer segment. Been looking to implement think about different names maybe call it professionals corner but the idea is bringing in some outside specialists who are much more knowledgeable about different areas that even you know day-to-day what we do we're around the financial world and we're dealing with numbers every day but you know it seems like every area's got its own level of expertise that that you may need in order to properly make good financial decisions and I know really your daytoday deals with mortgages and you're a loan officer at Compass Mortgage and I'm a good example.

I was a first-time home buyer like a year ago and even doing what I do now for eight to nine years, I thought I would have some at least basic knowledge going into the mortgage process, but I really didn't. You know, it was it was a lot more of a process than I initially anticipated in terms of the amount of documents that were needed to kind of get that application started and taking a look at, you know, what we could afford, but then maybe what we should afford and all things of that nature.

So, I know one thing maybe we could start with that that you and I were talking about when we first got on the horn and start talking about doing a podcast was, you know, the way that your company was structured versus maybe the diff different ways that you can go get a mortgage. I know probably a lot of people just start with their bank wherever they bank. And I know my wife and I, we were using like a third party mortgage specialist where that's was really he didn't work for any specific company, but he kind of was going out there and looking to find which companies were offering the best mortgage rates at that point in time.

But I think you even said your company more does everything internally inhouse maybe was the term you used. So maybe we I thought we'd start there. Maybe if you wouldn't mind giving me some detail on how your company structured, maybe how that differs from some other avenues out there.

Yeah. Yeah, that'd be great. Obviously I'm biased, but you know, I think we've got a pretty good structure and we're not completely unique. There's plenty of us out there as well. So we are an independent mortgage bank. And I always kind of describe that as a key distinction because a lot of people will say, "Oh, you're a you're a mortgage broker. How's it going?" You know, and I don't correct people usually, but to me, a broker is a little bit more of like a middleman where, "Hey, I'm happy to help you, guide you through this, but ultimately your loan might get underwritten and approved at this bank over here or this big huge lender here.

We don't really know until we kind of sort through your stuff." and the thing I don't love about that is that you lose a little bit of the control of the process. So, that to me is kind of a broker situation. And then obviously there's the brickandmortar bank, you know, the big the big ones that do checking and savings and CDs and everything you can do and also do mortgages. So, to me, we fall kind of in the middle a little bit of we are a mortgage bank.

So, why we are distinguished as a bank is the fact that we have our own, excuse me, funds. So we are the ones controlling the funding of a loan. So we keep everything in our control. We will underwrite the loan, process the loan, close the loan, fund the loan all the way across the board from our first conversation to you having the keys. Keeps us in control, which I really like. We can be very efficient and maneuver quickly and get things done to the best of our abilities.

I think a lot better than others. So that is kind of the bank side. Now, we do operate a little bit like a broker in the sense that if you said, "Hey, what's the Compass mortgage interest rate today?" Well, we don't have one. We are a brokerage in the sense that we aren't servicing loans. So, once you close on your loan, our goal is to sell that loan to a servicing company that replenishes our capital to go out and help more families in the origination of a loan.

That's why we are a mortgage bank loan originators. We just want to help originate that loan, lock it in, help you get that home and then no offense to you, we don't want to service it month after month. We want to help more families get into the home. So in that regard then we are looking at all these different what we call investors or like end servicesers that will handle the servicing of the loan to lock in that interest rate. So if you say what's your interest rate at Compass Mortgage?

Well, depends on your situation and I'll take a look here at the 56 different investors that we have and who likes your loan situation the best and how they're pricing. So, we kind of I describe it a little bit as being the best of both worlds. Like I'm a bank. I'm controlling the entire process, but I'm not just stuck with my Compass mortgage rate. I've got all kinds of servicesers to look through to find the best rate for you to help not have to go shop around, you know, every local bank and find out who's got the best rate today.

Okay. Okay. And I know one thing you mentioned as you were making your comments was, hey, everyone's situation is going to be different. You know, there's no guarantees when it comes to applying for your mortgage or rate that you're going to get. I think for a lot of young people, and I think you had mentioned to me your specialty was kind of firsttime home buyers. Correct me if I'm wrong, but I know as a first-time home buyer, the first thing I thought is what are what are the important things I need to know before I go apply for a mortgage in terms of making sure I have u very good base in terms of my financial situation.

And I know one thing that comes to my mind is maybe like your credit score, you know, want to make sure your credit score is in good shape. Is something like that your credit score is that what are some of the main things that you want to keep top of mind as you're preparing like a year or two out before applying for your first mortgage or and maybe I'm wrong maybe it's like hey you know people think that these three items are really important when it comes to applying for a mortgage but they're actually not nearly as important as the medium makes it out to be.

Yeah. Good question. Credit score is certainly important. When getting approved for a mortgage, I that's I'm having a hard time describing it. It typically when we go into an initial buyer consultation, let's say, and we bring up credit, it's usually we're quickly down one path or the other, right? It's quickly, well, okay, let me explain to you kind of what happened.

I had this, you know, collection come through. I didn't know about it and this happened. And it's a little bit of like explanations as to why our credit has potentially been damaged. And credit is is a fickle thing. I always explain it. It can go down in a hurry and it comes back slowly over time. So, it's tough. We see it all the time. On the other hand, sometimes I'll, you know, kind of ask you guys know what your credit scores are kind of like and they're like, "No, not really.

I think hopefully fine. Have never really delved into it, you know, and usually that is my key of like there's no past issues, there's no problems with our credit, so we're going to be in that a-okay position. So, for a lot of people, if credit has never been an issue, as long as we, you know, have some credit lines, it is important to have credit history. So, as long as we have a history of, oh, yeah, we've made our car payments or credit card payments or, you know, things like that, you're going to have that credit history, you're probably going to be in a great position creditwise, in order to purchase.

And so, a lot of times, you don't need to worry too much about it as long as you're there. Now, if you've had certain things in the past that you know, hey, my credits could be better, then, yeah, there's some steps to take potentially to work on improving it. And those are a little bit case by case, you know, specific all the way from, hey, we just need to credit lower some of our credit card usage that's a little too high. If we do three little things, we can bump that up pretty quickly.

Or hey, there's some there's some past issues here and we might need to bring in a different professional that we could have on this podcast, you know, a credit repair company, and actually dive into the specifics. They can speed up the process of improving that that credit score. Does that kind of answer your question?

Yeah, I did. Did it. It sounded like definitely having a credit history is helpful. Even if you've had some, I'll call it mishaps with your credit, it's not the end of the world if it's explainable. It sounds like that's part of the process. Like, hey, just having, you know, three of these historic dings on your credit score may not be the end of the world if you can go and say, hey, here's why each of these happened. The only follow-up question I had on that is I'm assuming in terms of you know, the rate you may get or how much you may get in terms of a loan, it's not like, hey, if my credit score 750 versus 805, I'm going to get such a better, you know, deal here or it'll be such a smoother process for me.

I'm assuming as long as I think you said, hey, you're in a comfortable range where you're not at a very low point with your credit score, being at the absolute highest point is not going to be so much more beneficial to you. But maybe I'm wrong in that.

Yeah, it's funny. Sometimes, you know, we'll pull credit and someone will ask, you know, oh, so what did my scores come in at? You know, and I'll say, 780 something, you know, which is great. It's great credit, you know. And they'll kind of get they'll kind of get mad. I swear I was over 800. This stinks. Like, can I still get a mortgage? Like, yeah, absolutely. Like, it kind of goes in tears. Just like you're saying, as long as we're 750 and above, 751 or 821, you're going to be in the exact same category for rate, terms, whatever it might be within that that mortgage product.

So, okay, everything in there is is all gravy. You'll see small adjustments mainly on rate as you go lower. Okay? So like 720 to 750 you might see a eighth to a quarter% higher interest rate based on that credit score. You get dinged just a little 700 to 720 maybe a little bit more. When we get under 700 that's when it gets a little bit more penalizing. And this is kind of another I don't know route that total tangent to go down is is the different loan products, right?

So that's all based on just the kind of traditional conventional loan financing. Soon as we pull a credit report and I see credit, let's say under 700, it initially makes me look at a potential FHA mortgage. So, an FHA mortgage is a government u backed program meant for lower down payment options and lower credit score borrowers. So, if you've got, you know, 660 on a credit score or 780 on a credit score and you need FHA because, you know, we wanted the lowest down payment or for whatever a few different reasons we could be looking at it, you won't get penalized on your interest rate based on your credit score in the FHA.

Very minorly versus the conventional space 780 credit versus 650 credit that rate on the 650 is going to be quite a bit higher than the 780. So the FHA is a great product if we do have a lower credit score we can still get a pretty solid interest rate and a couple of other parameters but I don't need to go too many of those details that could be a long rabbit hole.

Yeah. Yeah. Yeah. No, but it's interesting. I think the key there is, hey, there are strategies you can use depending on what your circumstances are. So, it's not just, hey, you know, based on what your credit score is, it's probably going to be this rate no matter what you do. It sounded like you were saying no, there's, you know, different types of loans that you could take out that may affect the interest rate that you get. So, that's very helpful to note. One thing that that brings me to is if you determine, hey, you know, we think we're in a good enough spot where we want to apply for a mortgage, is how much can we afford?

And I think I think of this in maybe like two buckets. One would be, hey, I think everyone thinks about what their down payment's going to be. Here's what we could afford based upon how much we could put down. But I'm thinking probably the more important number is what could we afford as our monthly mortgage payment. And so, I was wondering, maybe we'll start with that that second item, the monthly mortgage payment. I know there's like simple calculators out there online. Are those helpful for people to get started?

Are they misleading in a sense? Is it maybe a bit of both? Like, yeah, to give you a ballpark of where you stand, you can use one of those, but then maybe there's like two or three other variables that are costs that maybe you're not accounting for that you need to be. So, could you maybe speak to that? Calculating, you know, what you could afford as a monthly mortgage payment.

Yeah. Yeah. I don't have any problem with, you know, some of those calculators. Even if you're looking at a property you're kind of interested in on a Zillow or a Red Fin or whatever, and you can go down and play with the little U monthly payment calculator. They're not bad by any means. I think it helps to have a little bit of knowledge as to like, well, what rate am I actually looking at? You know, they kind of give you a rate and it might be accurate, it might not.

The one thing that can vary quite a bit is the tax bill. So sometimes they might be pulling in a tax bill that has senior freezes, senior exemptions on them, and you think, you know, oh, this place is great. The taxes are low and blah. And then when you get into actually financing the mortgage, we realize, well, you're not a senior, so you're not going to get the senior freeze and tax exemption. And so this monthly payment is actually a lot higher. So there's a couple of, you know, things to be you know, careful about in that regard.

But that's definitely not a bad place to be looking at it. In terms of that monthly payment and you're spot on. What our job is in the mortgage space is keeping people's minds focused on that monthly payment because most of the time when we're thinking of buying a house, you know, kind of like you mentioned, you're focused on the down payment. What I see really is is you're focused on the purchase price and you're focused on the interest rate. That's what everyone wants to talk about.

You know, I want to buy, but things are too expensive. I want to buy, but rates are too high or whatever it might be. When really what matters at the end of the day is that monthly payment and what's comfortable for you as a individual, you know, on your on your life, right? So, that's where we try to really show our expertise and keep people kind of grounded in that like just because we're buying and we want to target this type of a purchase price. Well, that purchase price for someone putting 5% down in, you know, Chicago, Illinois, and someone same purchase price, someone putting 50% down in wherever, Rockford, with different tax bills, it's going to be a very different monthly payment.

So, that's kind of, I think, the obviously the most important part that we're trying to keep people focused on. And then from there, what you're hopefully trying to do is is target that monthly payment. So, you know, that's one thing I want to bounce back to you. And a topic that I often am trying to get borrowers and buyers to lean on their financial advisor with is what should I really be targeting on that monthly payment? You know, it goes back to kind of budgeting principles.

What is comfortable short-term, long-term, you know, sometimes we talk with borrowers, oh, we really want to have this type of monthly payment. Okay, that's great, but how long do you think you want to be in this house? Well, you know, pretty long. Okay, do you think that monthly payment might look different in 10 years from now when you're making hopefully a decent amount more money, you're feeling more comfortable, you know, a few things like that. Yeah, you're right. We might, you know, one of the I always share this.

One of my not regrets, but one of the things I would have done a little bit differently, you shared about your buying your first house is buying my first house. I wish I would have looked a little bit further into the future. I was a little too focused on purchase price. Oh man, houses are expensive. And, you know, wanted to keep that monthly payment as low as possible. And we did and it's been a great home. But we could have stayed in that first home a little longer if I would have thought that out a little farther because soon as we had, you know, child number two, we didn't have a basement.

We once saw a garage. Things were really cramped and we kind of needed to move for that, you know, move up home where if I would have had a little more advice from myself, someone like myself, hey, think about this more on a five, seven, 10 year plan, you know, would you afford a little bit more home to stay a little longer? Yeah, I think I potentially would have. So, there's a lot that kind of goes into that, but you know, keeping a key focus on that that monthly payment you know, is is the biggest thing.

Do you guys have kind of a rule of thumb or you deal with that a lot in terms of you know, helping people look at their budget and have an idea of what they should maybe spend on a on a home in terms of a monthly payment?

Yeah, in terms of a monthly payment, I think kind of the triedand-true principle. And I would even extend this out a little bit more when it comes to your home, but you know, everyone talks about, hey, having an emergency fund, you know, 3 to 6 months worth of expenses for just a what if. And a lot of times I'll work with people who are thinking about buying their first home and have a down payment ready that they've saved up for. And it can be tricky in their minds because they're like, I feel like I have too much cash on hand and I'm not making anything on it at the bank.

Should we be dumping all this into the stock market for the next 24 months until we're ready to buy? A lot of times we'll say particularly now the interest rates are higher. We'll say hey that's you can do that but that can be a gamble in very select markets like 2001 2008 2020 where things fall fast. You don't want to be taking too many chances. Now that may be a little bit conservative, but I would say on a from a monthly perspective, you know, trying to have like 6 to9 months worth of a mortgage payment just in the bank for a what if something happens with your family, that can just give you really good peace of mind that you're going to be okay.

And I think the other thing as you were talking that's not always intuitive when it comes to real estate, particularly your family home, is I think a lot of people think, hey, once I put this mortgage in place, like it's not going to be changed. I'm locked into that amount for the next 30 years. But you can always refinance. You know, for the most part, as circumstances change, I believe, you know, if you build up equity in your home, you can turn around and use that in the form of a of a heliloc.

I know. So I haven't had a lot of clients that have done that, but and may maybe I'm wrong, but there is some flexibility even within the purchase of your first home. Correct.

When it comes to that monthly payment.

Yeah. Yeah. Yeah, it's a great it could become a great tool. You know, helocks have become very popular right now because a lot of people are sitting on a ton of equity.

You know, we've never had more equity in the market than there is right now. And people have the lowest interest rates still and now, well, I don't want to move because I don't want to go to this higher interest rate. So, hey, why don't we redo that kitchen, add on that spare bedroom, you know, whatever it might be. And so they're looking to utilize that equity for a lot of different purposes.

Okay. Okay. Going back to the first bucket of that thinking about a down payment for people that say, "Hey, maybe I do have a lot of flexibility. I've got a lot of cash. We have a good sense of what our monthly payment is going to be. We're comfortable with it, but we're trying to decide how much we want to put down." again, particularly in a higher rate environment compared to where we were four or five years ago. I feel like some people may be thinking, you know, this is a good time to put a lot more down, you know, on my down payment.

But what's your opinion on that? Is I think I know the tried and true is like, hey, putting 20% down. But I know there's some flexibility there where some people are able to put less down, but I think a lot of people ask themselves, should I be doing that? So, I know this is a very open-ended question, but yeah. Is 20% usually a good fit for like the bulk of Americans that are buying their first home or does it really depend on people's individual circumstances?

It totally it totally depends. Yes, if we can get to 20%. You know, if we're have someone that kind of comparing. I just have people right now that are kind of going through it and they're kind of h we'd like to put in my in their minds they have kind of a dollar amount, right? We want to put $75,000. That's what we want to be out of pocket. Okay, great. Well, because of their purchase price and things like that, that ends up being I think it's 17% down, you know.

So, in my mind, you know, one of the things I showed him is, hey, here's 17% down what you want. Here's 15% down. Here's 20%. Okay? Because we don't see any real benefit between 15 and 17% down besides, you know, just kind of a smaller mortgage. Monthly payment was very small. So let's, you know, either maybe back it down to 15%. Keep a little bit more cash wherever you might want it, or if you can, you know, getting to 20% is nice because you do eliminate that mortgage insurance.

So less than 20% down on a purchase does require mortgage insurance. Typically, we use it just as a monthly payment. Now, a lot of people have, I think, misinformation on mortgage insurance. A lot of people maybe put too much stress on needing 20% down. Oh, I can't. I don't have my down payment saved. Why do you feel like you need to save up? You know, well, I don't want to pay mortgage insurance. And I don't mind those conversations. A lot of times, more often than not, I surprise people with how cheap mortgage insurance is. Mhm.

Now, I still would love to get to 20% down, but like for these individuals, I think the mortgage insurance per month came out to $31 a month at the 15% down option. Save, you know, another I don't remember what it was, 17 grand in your pocket, maybe for a rainy day or some improvements to the new home and pay $32 in mortgage insurance a month, you know. So, that was kind of what their theirs looked like. So, and could you just real quickly could you explain the concept of mortgage insurance?

What they for people that are like, I'm not even sure what that is.

Yeah. I mean, the way I kind of describe it is putting less than 20% down. And it really kind of goes back to like homes become have become more and more expensive, right? So, getting the 20% down payment is limiting. If you had to do 20% down like it used to be it would limit the buyers that can afford a home. Hey, when am I ever going to get 20% down on these homes and they keep getting more expensive and it becomes very difficult. And so that's when they implemented mortgage insurance basically just as an extra guarantee I guess to the lender to lend those funds and say okay you know what we will go ahead and extend you this mortgage at 10% down or even all the way down to 3% down is going to be kind of your lowest down payment option.

But to do that, we are going to collect because basically we're taking on not me but as a lender taking on a little more risk. You haven't put enough of your own equity in this home. So technically you're a little more risky to us as a lender and so we're going to require this extra make sure you can afford with this extra piece of monthly payment kind of put your money where your mouth is a little bit. So, you know, 5% down payment is going to be a more expensive mortgage insurance versus 15% down, right?

The more you get down, the less the mortgage insurance is because you're less risky in the eyes of a lender.

Okay. Okay. And so one thing that that that brings me to, was thinking about, you know, when we initially talk about, hey, there's a couple of different ways that you can go find a mortgage, is people thinking, do I need to get multiple quotes? You know, how does that work? What is your recommendation? It may feel like a lot of work to like go to, you know, five different companies, see what they all say. Is it pretty standardized? Is it very competitive or that that that does pay a lot to do a lot of homework and see how rates compare from one company to the other? Is there a recommendation that you have for people that wonder about that?

This is a tough question for me. You know, in some ways I don't necessarily push it because I do love the fact that we get to shop a bunch of interest rates and make sure we can find the best and I think nine times out of 10 we can. Which is great. That being said, if you really put in the time and effort, could you find someone with a little bit of a better interest rate? And I'll tell people, yes. You know, it's certainly out there.

You could call around. You could find someone. There's discount somebody for almost every industry, you know. And so I also kind of give advice, you get what you pay for, right? So, we kind of pride ourselves on being that extra level of expertise, handholding, communication and guidance throughout the process, things of that nature. So yes, I do think that, taking a look at extra estimates is certainly not a bad idea. The pro the reason I mentioned it's kind of a hard answer for me is that unfortunately I feel like I work in an industry that isn't the most upfront and honest.

So the amount of times when I've seen loan estimates from other companies, someone says, "Hey, I've got a loan estimate from so and so and so and so and I'd like to get one from you to compare and shop interest rates." Great. Not a problem. Let's take a look. They'll put together best I can for you and hope we can work together, you know, and I always try to get the loan estimate from another company just to, you know, help compare and contrast because in a loan estimate in the mortgage world, it is confusing.

If you've never bought a home, you look at all these numbers, what in the world am I looking at? And some of these online discount lenders, you're not going to get the guidance and the help to walk through all these things. Just had one literally last week. They wanted a second opinion. I came in, I looked at all the numbers, a lot of errors, tons of errors. I don't want to get into all the details, but you know, title costs were extremely high. They weren't collecting the right number of months for taxes.

They were charging extra for a transfer tax, which is in a city where the seller actually pays for the transfer tax. They weren't aware of that. You know, kind of a online lender, right? So there were tons of errors that I'm pointing out now. That being said, they had a very good interest rate. So ultimately, you kind of have to leave it up to the borrower. Hey, I can't quite match that interest rate. However, I'm worried that they're going to mess this whole thing up and cause you not to buy the home and close on time.

So, in some ways, which would you rather have? You know, the sure thing that this company knows what they're doing in some ways some issues over here, but I really like, you know, saving that $20 a month on the interest rate side of things. One step further. The times and I've potentially lost in that kind of a situation. It's happened. The amount of times that that borrower then calls me back three weeks later and says, "Hey, what they said they would give me now has changed and I'm supposed to close on Monday.

Is there anything you can do for us?" And it's like, "Oh man, I'm so sorry. Yes, I'd love to help you and we could, you know, do everything we can, but from now until Monday, you know, we're gonna have to push the closing back, you know. So, they unfortunately I feel like I work in an industry where there's a lot of players that can kind of fib the truth a little bit at the beginning and then show their real hand closer to the closing and hey, there's kind of nothing you can do if you want to close on time.

We just kind of have to move forward, which just stinks, you know. Yeah. So yes, this is a way roundabout answer for your question. Yes, there's nothing wrong with, you know, getting you know, additional looks of advice. The thing with the lender situation is on a loan estimate, there's 40 different things of numbers and stuff like that. The one that we can control is the lender fee and the interest rate. That's it. So a lot of times lenders will kind of try to almost mislead and oh look at this and look at my cash to close is so much lower for you.

Don't you want to use me? Well c you don't control the cash to close. You have the wrong taxes calculated the wrong this the wrong like I could manipulate my thing to make it look like your cash to close is so much better with us. That'll get adjusted later on. So, that's kind of where I always try to advise people is you can, but let me help you look at it and make sure you look at the right things. What is the lender costs? Are they hiding anything for the rate chosen?

A lot of times there's discount points or extra fees that you don't know about. And the interest rate, that's all we really control. Everything else we put on there is from the title company, from the taxes, from the We organize it all and help you understand what is actually due and we lend on it. But what we actually control is just that lender fee and their interest rate.

Okay. Okay. Yeah. When you were describing that about you could do this and yeah, technically in most cases maybe you can get a little bit of a lower rate, but is it worth it? And I think of it when people ask me from time to time of like I feel like my banks not give me enough in what I'm getting in my savings account. Like and I heard people go around to other banks and the next couple cities over and they find a better rate.

Should I do that? And it's like, yeah, but that's going to probably take a lot of your time and effort. And how much more interest are you really going to be able to lock in? And it might be like one of those bigger national chains where they're focusing on the wrong thing where they're getting a little bit of a higher interest rate, but they don't have maybe a dedicated banker that they know and trust that's right down the street from them. And the second thing I think you were describing when it comes to mortgage, it sounds like the education part of it is key because there's so much information involved and it sounds like not a lot of players in your space are taking time to educate people on what's in their control and what's outside of their control.

So, it sounds like that's something that your company is kind of focused on as a differentiator is like that education part of it. And that's the thing that people should focus on more and less maybe about some of the numbers. They should focus on the numbers but not as much as they are maybe.

Yeah. Yeah. I think so. You know, ultimately if you think about a mortgage and you think about it in a 30 years, you know, hey, it's tough to pay a lot more on an interest rate for 30 years, you know, like I get that you gota you got to make sure the numbers make sense. And that's why we I think we stay extremely competitive in the interest rate because, you know, I'm not one that subscribes to well, we provide a better, you know, overall, you know, we do provide a better mortgage experience, but we don't we don't go so far above and beyond that people should be willing to pay for it.

No, like you still got to be really competitive and give the best rates terms of the mortgage on top of providing the best service that you can in my opinion. So, yeah, it's got to be both.

But, yeah, I tend to align, you know, with those that appreciate that level of help and assistance in walking you through kind of that process. You know, the example I shared of last week, this gentleman was extremely appreciative and he told me three different times like, "Wow, I learned so much more from you on this 15-minute call than I have from this other lender in the few times that we've met with them and all this stuff like praising me, praising me, and ultimately, you know, but we just we feel, you know, we my company knows this relationship and we're too far down this road and, you know, it's like, hey, I do the best I for you and hopefully our paths cross, you know, again, that's all you can do.

Yeah. Yeah. No, absolutely. Could you speak to that that process, the kind of the logistics? That was eye openening to me. Number one, how many steps there are in the process from getting like pre-approved to providing the documentation that they needed to make sure, you know, my finances were what we represented them to be. And then even working with like getting our own attorney, working with the seller's attorney, and just making sure, you know, that we were available to address anything that came up during the process.

Are there any tips you have for people of like, okay, you know, make sure you have your bank statements and tax returns in order before you even start the process and, you know, candidly be available because, you know, the closing date is the closing date. It's not easy to move it around. And make sure that you're available, you know, x amount of days before. There any kind of good rules of thumb that you've would be helpful to people when it's like, hey, I've been through this process a thousand times and like here's, you know, and I think the biggest thing is working with a company like yours that is big on educating, being available, you know, guiding you through that process.

But just for people to tell themselves as they prepare for it, is there anything helpful you can pass along to? Yeah. I mean, number one is don't go finance like a new car or a boat in the process. That could always throw things off. No. My advice is always to start early. The more that we can get prepared ahead of time, the more hurdles we can clear, the more stress-free the actual process from purchase to closing happens. You know, nowadays in a competitive market, every agent wants to write an offer with a really quick close because that will potentially make your offer look a little better.

They're looking for everything they can to win against someone else's offer, right? Quick close. We won't ask for anything from the, you know, after the inspection stuff. Plenty of things like that. So, my advice is always like, let's get in, let's get all the documents in place. One of the things that we do a little different at Compass Mortgage is instead of just going to a pre-approval and then allowing that borrower just to go out and shop and find a home and we just wait for a contract, we actually try to get everyone to do a full underwrite approval beforehand.

So, give us a good 30, 45 days before we're even wanting to submit an offer and we'll get that loan completely approved already. So now once you get a contract, you're worried about the inspection. We have to order the appraisal. You're worried about are we going to need some work done on the home? Who are we going to hire for movers? You know, there's a lot that goes into that process. Wouldn't it be nice to have the mortgage piece already done? You know, so instead of just a pre-approval and then we got to underwrite it, we got to process it, we got to clear conditions, we got to get to the closing team, we got to get to the funding table, all those things.

If we have all that done beforehand, now all you need to do, hey, make sure you get homeowners insurance. Send us over your agent. We'll take care of it. We're going to order the appraisal. We're going to have some new documents for you to sign because now we've got the specifics of the property. And we'll get it clear to close really quick. And be a lot more stressfree throughout the process. So getting in early is kind of my main advice throughout that.

Okay. Okay. No, that's the first time I've heard it explained that way and I think it makes a ton of sense. And it kind of gives you peace of mind that things aren't going to go haywire at the last minute or the morning of morning of the closing.

So thank you for that explanation. Those were all the main items that I had just as again just recently having gone through the process myself and just thinking of my younger clients some things they may be thinking as they're either going through the process themselves for the first time or they're considering going through it like in the next six months or so. But any other areas or questions I neglected that that you think would be pertinent to go over for some of these first-time home buyers?

Well, I didn't get to throw it back to you. I think the main spot where when I'm working with potential borrowers that I advise them to kind of go back to a financial advisor for additional help. One is kind of on the budgeting that we talked about. You know, how do you dial in what you should be focused in on a monthly payment? But number two, kind of like you had asked me is is that down payment piece. You know, if there's a borrower that's got, you know, plenty of assets, let's say, and they're kind of questioning, do I, you know, I definitely want to do 20%.

That's no brainer. I got to do at least 20%. But I'm trying to decide with high interest rates if I want to do maybe 30 or 40 or even 50% down because I've got the assets and I don't like you know, the interest rate right now. So, I'm thinking I want to put more down. So that's where, you know, one of the areas I'm always kind of trying to have them lean back on you. I can show the numbers. I can show what it does for the monthly payment, but what does that do in your guys's world from the overall wealth plan, you know, moving forward? Do do you have some advice or you know, knowledge to share on that with me?

Yeah, I would say there's a couple different considerations at play, but you know, one of the big things in general would just be risk. You know, I think what's appealing to people that want to put that much down, 30, 40, 50 in their minds is like, this takes a lot of risk off of the table right away. You know, I've got half of my home paid off and I only have to worry about paying off the other half over the next 20 to 30 years. I think the interest rate environment plays in big into it.

You know, if you would have told me three, four years ago, if I had a client that was asking me that, I would say not a good opportunity probably to be doing that because again, when you're structuring mortgages, a lot of times they're 20 or 30-year terms. And from an investment perspective, the longer route you go with investments, more confidence you can have in terms of the overall return you could achieve over that period of time, just looking at the course of history, what the S&P 500 has done.

And so in an interest rate environment where rates were like two and a half 3% I think a lot of adviserss were saying more confidently yeah an after tax rate of return that's a lot more achievable basically keeping some of that money invested there's no guarantees obviously but that's a more achievable benchmark. I think the ones that are still saying that today where they're saying, "Yeah, absolutely. If you're locking in six per six and a half percent interest rate, after tax rate return, we can beat that.

No problem." I think that that's a that's a little bit harder to achieve. Even over like a you know a 10-year period because that after tax part of it is key. People think, well, all you got to do is make more than 6 and a half%. Well, you know, if you're making 8% on a taxable account, you know, and you're a high earnner, you might fall into the 20% capital gains bracket. So, you're really looking at 80% of whatever your rate of return is after taxes.

So I think that's a big part of it. I think another thing too is particularly for high earners, on your first home, I believe up until, 750,000, you know, the interest that you pay on your home is tax deductible. And so a lot of people think like, you know, if I'm getting killed on the interest rate, that's just money that I'm never going to get back. But it's kind of a net from a from a tax standpoint. A lot of interest that you pay on other types of debt doesn't fall into that category.

And so I think again, it just depends on what the interest rate environment is. It depends on how aggressive you are as an investor. If you're more on the conservative side, you know, it's going to be harder for you to achieve that after tax rate of return that you're looking for. So I guess I'll pause there to see if there's anything additional you want me to cover on that topic.

No, that's great. I mean, you're showing some expertise there just in terms of because that I would fall into that camp of well, it's whatever your interest rate is, whatever you could make, you know, in your investments. Well, there's a whole another layer of taxes there that I don't think about, you know, so that's great. And yeah, I think I think the other piece you kind of mentioned is it's a little bit individual by individual. You know, I' I've had some individuals that are just, hey, I'm risk adverse.

Like, it doesn't really matter in some ways what the interest rate is. I don't want debt. So, I want to put a huge down payment down because I want as little debt as possible. My life goal in the financial space is to pay this house off. I want to have it paid off in 10 years because I want to be debt free.

Others, this is great debt. 4% interest rate. I'll keep that forever. I'll cash out refinance. This is good debt versus what I'm doing here. So, in a lot of ways, yeah, it kind of depends on just your individual like outlook on debt and risk from a lot of different standpoints.

Yeah. Yeah. And I even think flexibility to a certain extent, you could speak to this better than me, but for people that do achieve that goal and they're like, "Hey, I paid off my house a lot sooner than I thought and I feel great that I just don't have any debt on my balance sheet anymore." You know, now you've got a lot of your equity maybe tied up in your home and it's, you know, available to tap into that maybe through a heliloc. But there's some more flexibility of movement, you know, over like a 20 to 30 year period by saying, you know, I'm going to pay this off over time and eventually it'll be paid off.

But if I pay it off in the first 5 to 10 years, now I've got this huge lump sum, it's tied up into my home and the home, you know, maybe or maybe not.

In most cases, it'll appreciate over time. But even after you pay it off and you've stopped looking at it from the perspective of, you know, the rate of return I get on my portfolio versus the interest rate I'm paying on my mortgage. Well, even after you pay off the home, now it's like now I've got this money that's tied up in my home and basically I'm just looking at the appreciation on my home that that's money that's no longer invested or money that I can't use for X, Y, and Z purposes.

So, I think there's a qualitative aspect to it as well. Where it's like, hey, it gives me the peace of mind, but do I have a little less freedom of movement now that I've tied up a lot of money into my home?

Yeah. Yeah, I totally agree. So, in other words, there's not really a clear answer.

Well, I think you know, I always say we don't want to use this podcast as a commercial for professionals like you and I, but there's reason why I have people like yourself on is because I think it's number one just eyeopening how deep into the weeds you can get on these seemingly common topics like filing for a mortgage. Like, oh yeah, everybody just does that, you know. So, it should be pretty straightforward to tackle, but it's just not, which is why there's whole industries that are developed and dedicated to, you know, solving for that purpose for consumers.

And so, I think like anything else, you got to take a close look at it and you got to say, hey, I got to get somebody that I trust and that, you know, charges me a reasonable fee. But the idea is that hey, the advice that I get allin is going to be, you know, better for my overall financial picture in the long term. So, yeah, I appreciate you taking the time to come on today. Hopefully very eye opening for a lot of our clients and I think particularly the children of their clients.

So, again, for any first-time home buyers, feel free to reach out to me. I'm happy to give you Jonathan's information. And Jonathan, thank for thank you for the work that you do for people that are looking for their first home.

Absolutely. Thank you for having me on, George. It's great.

This transcript was generated from the episode audio and may contain errors.