“It’s simple arithmetic: Your income can grow only to the extent that you do.” T Harv Eker
The pandemic year of 2020 caused some business people to prosper, and others have had to struggle to survive. As a mortgage officer, I have heard customer stories as they describe their trek to keep home and business lights burning. Mortgage rates are low and expected to stay relatively low through the year. However, the price of those rates has been rising over the last couple of months by about a half-point since January 2021.
Business owners and workers who have experienced a gap in income during the lockdown period last year have been trying to recover as the marketplace opens again. For these beleaguered borrowers, we, as lenders, need to spend some time finding ways to get them enough income to qualify for the home loan they need to move forward with the life they want.
Here are some solutions we have found for borrowers who were off work for a few months but returned to work.
W2
If you are an employee on a salary or paid by the hour, you still may be able to qualify if you are back to working in the same line of business where you have the experience, and you have guaranteed income from your employer.
Search for other income sources such as investment income or pension income. Consider adding a co-borrower or cosigner to the loan if the borrower has additional resources to make the mortgage payments easily. Explore ways to restructure other debts or pay off some debt to reduce the amount of income needed to qualify for the mortgage.
Self-employed
If your business suffered last year, but you still show enough net income after expenses on your 2020 tax return, you may still be able to qualify to buy a home or refinance your existing loan to better terms. Your lender can go over your tax return to find expenses that are sheltering you from taxes but can still be added back to your income for loan qualifying purposes.
Some of the expenses that can typically be added back to qualifying income are depreciation or depletion write-offs, depreciable business miles, deductions for business use of your home, and once-in-a-lifetime expenses.
Other solutions for getting self-employed borrowers approved for a mortgage are to document debts paid by the business for the last 12 consecutive months that are already deducted from business income. Suppose the car payments and other debt appear on the borrower’s credit report but are paid by the business, and the payments on those debts have already been deducted from business income. In that case, the chances are good those debt payments can be omitted from the total income-to-debt ratio.
As real estate and mortgage professionals, taking the extra time to explore the best solutions for our customers gives us trusted advisor status with the people we serve. The solutions we help them find gives our customer hero status with their loved ones.
Consumers have choices, so how do you stand out as the logical choice in your market? As always, differentiation often wins the day. My friend and longtime real estate expert Steve Harney would always say, “10% different is 100% better!” Since Steve helped build a hugely successful real estate company and then founded the highly regarded “Keeping Current Matters” platform for real estate professionals, I think he was on to something!
So how do we create that 10% difference? How do we win more opportunities for ourselves, our clients, and our referral partners? I think in today’s market we can do this by helping set the stage for our clients and referral partners, as well as improving the quality of the experience for everyone by doing a great job upfront.
When a prospect calls, do we remember to ask them how they came to call us and to take a few minutes to explain to us exactly what they are trying to accomplish? Allowing the client to speak first and share their desires will help you respond to the issues that are important to them! Once they feel like you understand them, they are much more likely to accept your strategy for them to succeed! When you explain the benefits behind your strategy, the client and the agent representing them are armed to make the strongest possible offer and close in the shortest period of time.
By working with your clients and their selected real estate professional be prepared as best they can, the buyer and that agent can set the stage for the seller and that listing agent why your offer is a strong one, and one that will close quickly! In today’s market, it isn’t always about the most money, but speed and confidence in the deal closing and closing quickly can often win deals, even against higher offers that are lesser known or less reliable because you have set the stage by explaining the detail behind your preapproval process and your ability to close fast!
In this market it isn’t all about rates or money. Many deals are won because of confidence and speed! As I always say, “The rate isn’t great if the closing is late!” So look at your systems and your process. Take your time and help your people to an exceptional experience by setting the stage with a powerful success strategy!
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John Capozzi- “Dig where the gold is unless you just want some exercise.”
“Location, location, location,” experts say is the most important real estate facet. If you are a homeowner, a home seller, or a homebuyer, the timing element determines the amount of gold you mine from your home or your financing. “Is there still gold in them there hills?” Watch out for the effects of inflation.
Inflation is pushing onto the scene, and inflation is the archenemy of low interest rates. This week the Federal Reserve chairman, Jerome Powell, announced that the Fed would continue keeping their rate low, even in the face of rising inflation. The Fed vowed they would continue to buy mortgage-backed securities to keep mortgage rates affordable. However, the bond markets have been running against the Fed's efforts like a game of chicken. “Is there gold in them there hills?” When it comes to your real estate and your mortgage financing terms, better look at laying claim to it now, before the economic landscape changes.
We still see a hot real estate market for both buyers and sellers from the mortgage office. High demand and the short supply of homes for sale are bolstering home values on the high side. High home values are golden for home sellers. Buyers see the still low fixed mortgage rates as a goldmine for them also. Buyers can lock in fixed rates that are still giving them a house payment much less than what they would be paying to a landlord for rent on a similar home.
Ways to mine gold from your home and mortgage
1. First-time homebuyers feel a lot more secure knowing the principal and interest payment on their new fixed-rate mortgage will not be increasing year after year, like when their landlord would knock on the door and raise the rent.
Johnny and his family had been paying about $1,000/month in rent in a crime-ridden area. They wanted to move to a safer neighborhood with a larger house to accommodate their expanding family size. Johnny was short on funds for a down payment, but he did have a lot of patience and persistence, and with a little bit of help with the down payment from a local agency, Johnny’s family bought the home they wanted with less than $1,000 down and a total payment under $800 per month.
2. Home sellers are bragging about the profits they are pocketing selling their homes. For example, for March 2021, Realtor.com shows the national median home price was $353,000, an increase of 13.7% from $310,000 in February 2020.
3. Refinancing and restructuring finances are still happening for homeowners. Today the pace is more frantic since mortgage rates have been climbing steadily over the last month. It is hard to find mortgage rates in the twos with no extra costs, but there are still rates to enjoy in the threes for many borrowers.
A. Refinancing to lower your rate and lower your mortgage payment
B. Refinancing to lower your rate and shorten the term on your mortgage
C. Refinancing to lower your rate and combine other debt to improve your home or reduce overall payments per month.
Strong buyer activity and the rate at which listed properties are flying off the market make it important to recognize opportunities when others miss them. Right now a real untapped market for opportunities is investors! Let’s take a look at a few reasons investors are now great targets:
• COVID 19 has allowed people not to be evicted for non-payment of rent. No rent, no cash flow!
• Colleges and Universities are limited or empty, leaving student housing units to remain vacant. No rent, no cash flow!
• Property values in many areas have risen significantly in the past few years, making properties far more valuable than thought.
• Potential changes in investment property financing may make it less attractive to continue purchasing investment properties and creating the possibility for the search for other investments.
• Potential changes to the tax code may also make it less attractive to hold investment property long term and open the door to other potential investments or allocation of assets.
So why not have the conversation with our investors about selling now?
Why not have conversations with our real estate partners to discuss the situation with their investors?
Isn’t this a good time to speak with our accountants and financial planners about this subject?
Wouldn’t this be a great time for a video or videos with your other professionals about this topic to share with your people, their people, and social media?
It’s easy for people to complain about the market; why not create useful strategies for your clients and referral partners on how there are opportunities to be had if you only look for them!
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Kathy Schmalen is the owner of Che Sguardo in Chicago, IL and has extensive experience as an expert in both the professional image and beauty industries. A Miss Illinois winner and Miss USA semi-finalist, her career accomplishments include international modeling for top fashion and beauty industry icons such as Vogue and Harper's Bazaar, commercial styling/beauty consultations, national esthetic trainer for many international companies, and prominent activism in the Chicago area non-profit and philanthropic communities. Kathy established Che Sguardo/makeupstudio in 1984 with a focus on serving the commercial beauty industry, but also anyone who is passionate about healthy and vibrant living.
The mortgage and real estate industries are bound by a series of rules, regulations, laws, and hopefully by ethics. While there has always been a few that have avoided or just plain disregarded the rules, most of those in the professions of mortgage and real estate have paid attention to the rules and were likely held to task when they didn’t.
The mortgage meltdown led to a huge collapse in the markets worldwide. Most responsible for the violation of trust placed with them have never been held accountable for their actions and some that were, didn’t suffer more than pennies on the dollar for their crimes, forget going to prison for a long time.
Today we are facing larger and more overt violations of rules and regulations than we saw prior to the mortgage meltdown and nobody seems to care! Major companies openly violate norms that have been well established and yet NOTHING happens.
How is it possible that these things happen in broad daylight and it goes almost accepted as part of the new world? How is it possible that companies can violate some of the most basic of all ethics in the real estate community, not communicating with or marketing to, a seller who is already listed their property with a licensed real estate agent and share with them specific strategies on how to terminate that agreement and the benefits of listing with a different agent, one that the company soliciting that seller will be happy to direct them to? You just have to go back last week to the National Real Estate Post and see their piece about the story of an agent in Washington State and wonder how this is possible, but nothing has even been done about it!
Is it possible that the National Association of Realtors® could have missed it? Is it possible that the local real estate board or the State of Washington could have missed it? Is it possible that collecting dues and thinking about what to lobby for is all any of these people are good for? Please go to www.nationalrealestatepost.com and look at the March 1st video. Then ask yourself what is going on?
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