The Sunshine State is Hotter Than Ever
August 11, 2021
Helping clients understand home financing
As a member of the real estate and lending world, I have to say the ride has been wilder than an E TICKET ride in Disneyland back in the 60’s. As a lender for almost 30 years and a Real Estate License holder for over 40 years (just gave my age) the volume has been INTENSE. Who would have ever thought 2020 and 2021 would see an increase in values and rates as low as we’ve seen in 30 years – all while our world was dealing with the worst pandemic since the Spanish Flu.
I have been called the “Blue Jean Banker” as I have never been one to sit in an office 9-5, and living in Arizona, wearing conservative business attire is not the norm and honestly even before the pandemic it was very normal to not meet a client in person until the closing. I grew up with an Engineer father who quizzed me on percentages and word problems and my Mom was a mental health crisis nurse. These things in mind, I was destined to make a living using my calculations and sensitivity to my clients.
There are so many myths in the lending world: You need 20% down – you can’t be self-employed – you need to give your firstborn child. Keep in mind for your clients, it’s three main items to verify: continuity of income, credit that shows a history of paying bills, and verifying the source of funds used for the down payment and closing costs. The one other MAIN factor is that the payment compared to their qualifying income is within the guidelines of the banking industry.
Lending is all about risk. It still “makes sense underwriting” as long as we are able to document per lending guidelines the income, source of funds and credit. If they want the low rates, we have to satisfy Fannie Mae or Freddie Mac or any investor that is offering the program they need. Whether it’s conforming (under $548,250) or JUMBO, there are standard guidelines that all lenders must follow that are created to reduce the likelihood of default.
There is another misunderstanding that happens every time the Federal Reserve has a meeting. The Fed is the Central Bank of the United States. It was created by the Congress to provide the nation with a safer, more flexible and more stable monetary and financial system. When they say they lowered the FEDERAL FUNDS RATE – it’s the rate that banks, savings and loans and credit unions charge each other for overnight loans. The DISCOUNT RATE is the interest rate that Federal Reserve Banks charge when they make collateralized loans – usually overnight to depository institutions. The current Fed Funds rate is 0 – 0.25. Usually, the long-term interest rates have already adjusted in anticipation of the Fed meeting. The fed rates mainly affect short term rates like the prime rate, rates on deposits, bank loans, credit cards and adjustable-rate mortgages.
When it comes to quoting mortgage rates – there are many variables – it’s all about FICO Score – Loan to Value and how long a LOCK or how long the lock is prepaid is needed. It’s not always just the rate that makes clients happy – it’s about customer service – going over and beyond in our fiduciary duties to our clients and KYSO (as my company calls it) KNOCK YOUR SOCKS OFF service.
I kept my Real Estate License active even when lending became my main focus. I am educated and licensed in both worlds and am able to understand the Realtors needs as well as my clients. It’s all about the Team – the Realtor – the Lender and the Title company. Knowing both sides of the equation makes it easy to solve the puzzle. I encourage you to explore the other sides of the equation for your own industry – whether you’re real estate, appraisal, mortgage, home inspection, or insurance. Perspective will help your own understanding, your clients, and your professional relationships.
It’s all about supply and demand and the economic conditions in our industry when it comes to values and interest rates. As we all saw, life and circumstances can change in the blink of an eye. The most important message I like to share with my students when I teach Continuing Education classes or Mortgage classes is to be a GOOD LISTENER and always BE HONEST! Communication is the KEY!!