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[Music] welcome to the pre-approval podcast my name is adam zak today with me is kristen sievault she's been in the mortgage banking industry for 16 years we talk about the three different buckets the conforming the non-conforming and then the non-mortgage so kristin is an expert in the conforming which is always the first spot that people should start going because that is your lowest interest rate usually your best option and so today welcome kristen to the pre-approval podcast how are you good thanks for having me all right so i gave a little qualifier on who this is for and who this is not for but just to remind everyone this is for the individual that went into their bank and the bank said no for those individuals what do you think are the most common reasons that the bank initially said no when typically the biggest reason is credit and what's on their credit report because most people don't actually know what is reporting on their credit report they have no idea that maybe there was a medical collection from six years ago for 25 that has been accruing interest up to this point because they've maybe moved a couple of times or never got the invoice or never got the statement so really the biggest thing is looking at to see what is on their credit report that's that's holding it up because that's usually the biggest factor as far as are there deregulatory accounts do they maybe not have any credit do they just not have enough um and so really that's the biggest factor the second biggest factor would be their debt overall debt to income so on the credit my goal is since i'm not a a registered mortgage loan originator not you know not in the banking industry my goal is on behalf of the listeners to ask really dumb questions because i don't understand it because you know or ask ask questions in the fact to help everyone understand so when someone says hey you know your credit score is low and understanding your credit i feel like that kind of gets into this black hole where nobody really understands their own credit like how do you look at past overdue payments versus recent inquiries versus you know overall credit usage is that something that you recommend an individual tries to learn themselves are there other resources that you try to point them towards you know we try to walk through the basics of what's reporting on their credit for example anytime someone applies for any type of credit whether it's a bank loan car loan credit card um cell phone inquiries can even be on on a credit report all those credit inquiries stay on your credit report for 120 days so the more inquiries that you have the more your score is going to drop so if you go and apply for a loan at car dealership a they're going to pull your credit and probably send it to their vendors maybe three or four additional people are going to pull it you wait a week and you decide no i didn't find a car i'm going to go into a different car dealership and they pull your credit an additional three to four people are looking at your credit score so now you have all these additional credit inquiries onto your credit report that are already starting to impact your score now let's say you have a mortgage inquiry or you applied for a department to store credit card all of those stay on your credit um and that's a pretty big factor when looking at overall credit the other thing on your credit report is how are you using your credit as far as total utilization some people have one credit card and they max it out every month because they only want the one credit card but then their revolving utilization is high and so they're just not aware of you know that's the second biggest factor as far as impacting their overall credit score what what is your experience on someone that finds you that says hey i have a i have a sub optimal credit score and for that i i've been and we'll get into some rapid fire questions here about you know some of the criteria of debt to income income requirements you know down payment interest rate and credit score but maybe if you hammer home on the credit score how long on average or maybe a broad range of what does it take for someone to quote unquote fix their credit score is that a hey it's going to take a week a month a year and i get that maybe depends on the situation but maybe in your experience it definitely depends on the situation um if it's say somebody that has no credit and they maybe um maybe the husband has no credit and they help go on to their wife's credit wife adds them on to one of her credit cards credit could be really updated and reflected as as far as one two month payments um once they've been on there for at least like two payment cycles now if it's a lots of derogatory accounts and no positive accounts it's going to take a lot longer because you won't be able to get any positive accounts until pretty much all those negative accounts are satisfied so it really just depends on the level of derogatory accounts that are reporting on the credit report sure so then the second one that you hit on was debt to income ratio um maybe just explaining what debt to income ratio is and then why some individuals find themselves in in or above the debt to income ratio yeah absolutely so your debt to income is how much money are you making each month versus how many payments are you making per month as far as liabilities a lot of times um for example student loans is the biggest one of the biggest factors out there um on an fha loan we still have to count one percent of the balance as as your monthly payment so somebody that has you know credit cards out there or student loans out there and maybe their student loans are deferred or their student loans are income based um and have no payment that's actually reporting or no payment that is due we still have to count a payment against them um and so that's a pretty significant payment on an fha loan it's one percent and on a conventional loan it's a half of a percent so that's a pretty big factor when you're looking at overall um impacting your debt to income ratios understood when well maybe just from a credibility standpoint how much has have have you kristen or have valley mortgage um done in overall um mortgage volumes let's say this this year oh no i didn't prep you on it i i probably couldn't even give you a number i mean was it two or was it more as far as i i realize that you're extremely busy and that you have done a lot and so i just wanted the listeners to know like this isn't something that you know kristin's done like hey i do you know one or two of these a year you are cranking out how many of these are are you would you would you estimate on a given month or day that you're helping individuals get into homes um as far as like applications each day um probably looking at about two applications every single day that we're reviewing of as far as two brand new applications so you guys are extremely busy given this time a couple things that you had pointed out was that um as we look into you know maybe some things that you want to talk about or share about the with the listeners where some of the historical low rates and some options for first-time homebuyers what what are those or do you mind speaking to that a little bit yeah absolutely so um the some numbers that i just ran for an individual today their interest rate of a mortgage that the house they purchased in 2019 was four and a half percent so when we're looking at overall um what they're gonna pay on their four hundred thousand dollar mortgage it they're they're gonna pay over seven hundred thousand dollars if they made just their single monthly payment if they look to refinance we would be able to drop their rate to under 2.5 and that makes them as far as like what interest rate they're gonna pay two percent less than what they're currently paying over that three year 300 360 months that they have left they're going to pay roughly like 568 000 in interest so a pretty big savings when you look at just two percentage points on that large volume loan pretty pretty crazy how about from first-time home buyers so first-time homebuyers there is lots of great programs out there especially on the north dakota side um just because north dakota's gives a little bit more flexibility in their guidelines as far as they're willing to work with a little bit higher debt to income or maybe credit that's that's a little bit shaky or a little bit newer and still provide three percent down payment assistance to help them get into that home wonderful and so just from a clarification standpoint where are you licensed at uh valley mortgage is licensed in north dakota and minnesota wonderful and so all of the context that we have here although there may be some north dakota and minnesota specific references i would still venture to guess that 95 of it is overall you know applies nationally whether it's fha conventional to what we're talking about here today is that fair to say correct yep awesome as we look at what what we are quoting as the ultimate rate sheet so i i have a a bunch of rows and those go from interest rate to down payment to fees to credit score income requirements debt to income ratio and you know minimum loan amount and what i'm what we're trying to do is have three columns where it's the you know conventional then the non-conforming and then the non-mortgage it just to give you a feel and so like the example being interest rate you might get a two and a quarter percent interest rate or maybe it ranges up to you know three or four depending on your credit score on the conventional side on the non-qm loan that's maybe four to six percent of what you would be getting because it's a little bit different program and then if you're going non-mortgage it may be higher than that even still because there's maybe even more exceptions that you're that you're making to the rules and so if we go through this and i realize it's tough and you know given tomorrow everything could change but do you mind giving a little bit on maybe the range and where you're seeing things um hit in regards to some of those categories and realizing that there's you know va where you can get you know something where it's like 100 you know loan to value um so there's gonna be this broad range here and so i'll try my best to qualify these as as best i can but in general what would you say from an interest rate if somebody was in a you know qualified mortgage program at what you think they'd be looking at on the conventional side uh you know we'd be looking at probably about 2.375 percent 2.5 right around in that range um also dependent on how much money that they're putting down are they putting the full 20 down are they putting you know maybe a mixture of five percent ten percent down uh on the fha side the va and usda usda type loans we're probably looking at about two and a quarter um as far as probably two and a quarter with no origination fee as well so i mean two on the on the government side two and a quarter is about the lowest that we've seen but i mean historically it's the lowest i've ever seen on a on a government loan that is incredible just saying just saying the word two and then anything after that i feel like is is just bonus if you can do that uh down payment requirements range i think you alluded to it a little bit whether i mean i'm gonna i'm gonna maybe answer this for you i mean it could be as simple as zero percent down to maybe up to 20 plus depending on what you're trying to do is that fair yep yep so there's programs for first time home buyers on the con it doesn't matter if it's conventional fha va usda but on conventional there is a um three percent down uh so it can be as little as three percent down otherwise uh you do pay mortgage insurance until you get to that 20 percent down fha is a minimum of three and a half percent down and then usda and va are both zero percent down awesome what kind of fees related to each one can they expect and the reason i'm asking that is non-qm and then maybe non-mortgage are you know maybe their own categories where they have origination fees where it's maybe one or two or three percent depending on what you're trying to get into and on the you know prepayment penalty side there's maybe some things that that individual will stick into there can you tell us the the differences on on a conventional side yep so as far as like prepayment penalties we don't offer any loans with prepayment penalties and and most most companies on the conforming side are not doing pre-prepayment penalties anymore um a long time ago they used to be a big deal now it's it's really i couldn't even give you an example of a bank that is doing a prepayment penalty um as far as the overall fees it can kind of depend because a lot of times your rate if you want the absolute lowest rate you're probably going to pay a one percent origination but you can also maybe you don't have a lot of extra cash on hand and so maybe you take a little bit higher interest rate to absorb some of that cost up front and then not have that you know one percent origination fee sure income requirements this is the biggest variance between the three buckets where we see most small businesses and and uh self-employed going the non-qm and the non-mortgage because they don't exactly fit into the w-2 box of the conventional style can you share a little bit on the income requirements on how you would potentially whether whether you fit inside one of those programs or not what you're looking for yep so on the self-employment side we're actually two years of of filed business tax returns so if somebody just started their business in 2019 and has only filed their 2019 taxes um unfortunately they wouldn't qualify even though we're at the end they would have to still file their 2020 taxes for to show two years of stable income uh the other thing with with being the self-employed a lot of times with the advantage of being able to write off a little a few more items you know making sure you're still showing enough income in actual once you once you take out all the expenses from from the income that you have making sure that there's enough left over to still qualify you for a mortgage sure how about for those individuals that are changing jobs i i believe there's something like if you're working in a similar field it counts otherwise you maybe have to have a certain number of months that you um are on a w-2 job does that sound about right yep i mean there there's always going to be an exception to that rule but you know if somebody is um you know a a personal banker at bank a and and for some reason now as a personal banker at bank b um but can explain that the reason that the change was maybe more money or better hours or closer to home then you know if we're going on the conventional side all we need is is their offer letter for their for their new employment there's no really waiting period um ideally on the fha side we like to see at least one pay stub um before moving as far as where are they at and job wise and we also need to see two year of job history total on on any applicant so you know if they took a year off to travel unfortunately that doesn't count we would need two years of employment if they had four years of or let's say two or four years of college experience and one year of employment but their employment is directly tied to what they went to college for that also would include be included in that two years wonderful next one you hit it already on some of the debt to income ratios but what percentage are you generally looking for do you do you know is there is is there a fair range yep ideally we want to be under 45 um including the new mortgage payment so we want you're all in payment of what is going to be your new principal interest um taxes insurance all of that plus the current debts that you have so if you have a current auto loan current credit cards current student loans we take all of that and ideally we want to be under 45 percent that's going to guarantee you the better rate um not only in interest rate but also in your mortgage insurance premium and those are the the big three the credit card the student in the car along with if you had when then factoring in the ew mortgage those i would imagine those are probably the biggest four that would count towards the debt for most correct yep the other thing that might be included in that is if somebody's paying child support or alimony that would also be included in that number understood where can you get a conventional loan anywhere i mean any anywhere that offers mortgages are gonna offer a conventional loan um some of the bigger places obviously are gonna have a little bit more more options as far as where is that loan's going to go if it's a smaller institution they're going to hold it internally they probably don't have the same right you know rules and regulations as what you you know a standard conventional mortgage is looking for so can you explain the difference a little bit on that and so from from what i'm hearing is uh kristen what what so number one can you say explain the difference between just a mortgage lender and maybe a mortgage broker on the differences between the two if i ask that correctly so we are um the nice thing about an institution just like valley mortgage so we have several different mortgage companies that we work with that we can find the best rate for the product that you're looking for for the criteria that you meet so we don't just have one you know one place that we're looking at rates we're looking at all of the different rates out there for the companies that um that we utilize here so really that's i guess probably the biggest difference is we're not just looking at one one company's rates we're looking at all the companies that you know to get you the best rate out there so let's let's pretend that there are between a to z there's 26 different mortgage companies out there valley mortgage may do you know have a relationship with a b c d you know jk y or xyz and you're able to pull from all of those as opposed to if someone just went to mortgage letter k and said hey what can you do and they would have a specific interest rate so the value of you know talking with a broker is that you're shopping around different ones but then what you alluded to is that there may be you know mortgage company s that keeps the loan in-house what's the difference there between the criteria that you're searching for and if you're trying to meet any fannie or freddie may guidelines versus what somebody could potentially do in home or in in-house yep so we follow all fannie freddie guidelines and any investor overlay so you know if we're gonna in your same scenario here let's say um bank b has the lowest interest rate and so that's where the loan is going we still follow whatever fannie freddie guidelines provides for that specific um loan product so you know we're following debt to income we're filling um loan to value any type of regulations and then we're also looking at that bank to see okay what other additional overlays might they have as far as maybe we need to have reserves maybe they have um additional job time that's required or maybe they have um you have to own the property for so long so we're always looking up to make sure whatever product they're looking for they fit into that category sure so just to break down overlays because i feel like that that is something that maybe is is potentially frustrating to home buyers not really knowing they're saying okay i can google search what a conventional mortgage requires from a credit score debt to income ratio interest rate all of that fun stuff and then i go to my bank and they say well that's not exactly the same thing that's the difference in the overlays is that what you're saying yeah yep so sometimes there's additional overlays as far as um you know maybe they want you to own your house for so long before you can take any cash out of it or um maybe they have restrictions on you can go up to 50 debt to income but maybe their overlays your credit score has to be 720 or higher so yes there's still a conventional product out there for you at maybe a 700 but you can't go you know you can't go as big a house as you want if for some reason you don't meet the additional overlays understood so from a minimum credit score which is a question we always get asked and it's maybe a tough question is there certain is there a is there a particular credit score that you're just like hey below this there's really not many conventional places unless you find you know a lender in-house that's willing to you know bend their own personal rules but is there kind of a a different lines in the sand as far as credit score thresholds you know with covid unfortunately a lot of lending has tightened up a little bit so really we're looking for anybody 640 and higher um not that 640 and below can't be done but there's a lot of additional you know pieces that would have to fit in or fall into that under 640 credit score understood we mentioned one thing earlier which is when some of our personal um [Music] tenant buyers that we're buying homes for and selling on lease options or contract for deeds you had mentioned something on you know potentially being able or how they use those rent credits every month to potentially you know get them into a home to refinance can you elaborate more on if you've helped someone do that and what that potentially looked like so if someone was you know living in a property and then they decided that they wanted to buy it at the end of it and and how you can potentially help so yeah so really just it depends on how that contract is set up but if for example um someone sets a contract that says as long as you rent for us for 12 months 100 of every payment you make will give back to you in the form of a credit for closing to help with your down payment or to help with your closing costs um that's absolutely doable it's just everything has to be well documented and really we just follow like so if you have a contract for deed and now we're changing that into you know permanent financing we just follow the letter of of what actually is you know can you verify that all those payments were made can you confirm that you know yes you're actually getting the hundred dollars per month certainly credit and so then um as as we look at maybe a contract for deed situation where someone's trying to refinance um is it truly looking at a refinance is it is it a is it can it be a first-time home buyer what what's maybe the differences between those so it really comes down to was that contract for deed recorded so once that contract for deed is recorded it now shows that the new who the no owner is on the property so if i am doing a contract for deed and i purchase the house my name is now going to show up on the property tax statement as as the new owner if it wasn't recorded it's going to be whoever the current owner still is so now if we're looking at we're basically just going to buy out that and turn it now it's it's really truly you're purchasing the property so that all of the guidelines would still fall into play of first-time homebuyer is it in your opinion is it better to be a first-time home buyer or refinancing i mean that's you could go either way on that question you know a refinance rate is always going to be just about like slightly higher than what a purchase is going to be um as far as how long you know what is that time frame going to look like is this going to be something that as far as that refinance is that going to be happening in a year is it two years how long will it truly take that person to reestablish their credit where they're able to get to that point um that could also play into into that factor so let's say someone does a contract for deed on a property that's you know worth a hundred thousand and they put five percent down and then they were amateurized on a contract for deed when when you are looking at that property and they're saying hey you know i now want to buy this property for it's been three years and now their principal payment you know started at 95 000 and it's down to 92 000 after three years how how does the how do you look at that from maybe a loan to value or do they still need to come in with a down payment you know that would be the standard five percent of the now the 92 000 to be able to qualify for a new loan well if they're basically refinancing it they're as long as we're under the guidelines for that product so for example on a conventional loan on a refinance we're looking to be under 95 so as long as they're under that 95 on a conventional yes they might still have to come to closing with some of their closing costs if they don't have enough equity to to use the equity in their house absolutely um we actually you know you can you can do that at any time now let's say that loan is now at at 95 percent already then yes they're gonna have to bring all their closing costs to the table to pay so then there would be some out of pocket on that wonderful so you it appears very well that you know your stuff so you've been in the industry for 16 years you've probably seen a lot of different things uh one one comment was that that you had brought up is about in-house underwriters and local decision-making as far as um you know maybe maybe key things to consider do you want to elaborate on that a little bit absolutely um at valley mortgage we do everything right here in our office in fargo so the loan is processed underwritten right here all decisions are made here in fargo so the nice thing about that is sometimes things can happen a little bit quicker um you have a little bit more time to explain situations that maybe are in the gray and we just need to document things but we have that face-to-face contact where we can say okay mr underwriter here's the situation um you know so-and-so was laid off due to covet so we have we do have a little bit of a gap in employment but we're back at the same job as the previous job and and being able to just kind of communicate that a little bit easier and not having to go through email or you know sending additional documents it's all done right here locally and it can be done very quickly so the the running joke is it's always the underwriter's fault and nobody knows who the underwriter is can you can you elaborate or um you know that that's maybe my experience somebody says oh you know we were good to go but all of a sudden the underwriter said you know they that this didn't work can you elaborate on maybe the difference between and i'm going to throw out a bunch of words because i don't understand them is you know loan processor versus loan originator versus underwriting can you elaborate on the differences and why someone should care absolutely so i am a licensed loan originator so i'm the one that actually takes the loan um i gather all the documentation up front um what the processor's job is is they're to basically process the information so they're going to verify the employment information they're going to verify the assets they're going to make sure that we've got title work and that it has the right legal description they're going to verify that the appraisal matches up and that the value they're going to make sure we have homeowners insurance so they're basically putting everything into the basket once they you know gathering all the exact details what the underwriter is going to do is they're going to make sure that all those items in that basket actually match the guidelines of fannie and freddie and that investor overlay to make sure that yes yep we only need one peso we got it we need you know two bank statements we've got two bank statements they're both corrected you know dated in the correct date so really it's it's kind of a checks and balance if you will you know making sure that what information did i gather if i missed something what did my processor get the rest of it you know making sure that we have no gap maybe i had a pay stub but now it's expired because of coved you know everything has to be dated within 30 days so now we have to get updated pay subs that's going to be where your processor is making sure that those dates are correct before sending everything into underwriting can you explain the process a little bit between the loan officer the processor and the underwriter on let's say we get under contract january 1 and we're hoping to close february 15th you know at can you talk through you know who is reviewing what how it works through before it's like hey you're initially pre-approved versus hey this looks like it's a go to hey this is fully being funded and you know that this is going through and the only reason i asked that is we've personally stepped in um not not for anyone through valley mortgage but for other lenders where all of a sudden the underwriter said it's five days beforehand and guess what either the homeowner screwed up and pulled out a different line of credit or the underwriter found something that you know should have been caught maybe a little bit earlier and all of a sudden they can't close on the home so can you talk through the timeline a little bit on when it's kind of like this is 25 chance of going through 50 chance okay now everything's 100 this thing's closing you know it's it that's kind of a a difficult question to give like exact details so as far as like the process with with me when someone takes an application i'm gonna ask for their credit report i'm sorry their tax returns and their pay stubs right up front because i want to know what we're looking at and and you can kind of gauge where as far as like income okay was there a gap in employment and that's why they've got three w-2s is there you can kind of gather that information before you even give the pre-approval process you can see what their debt to income is you can see what their income is going to be you can calculate what the mortgage payment is going to be on the house and kind of see that full picture now things that could change obviously once once the process is going through there could be something that shows up on title um which is something that wouldn't be known up front so when the title and the underwriter is looking at title and there's two liens against it is it lean against the property is it a lien against the person is it just a name match maybe there's two john smiths out there um and john smith a has has a tax collection from you know 2020 and and now i can't get this house because the the name match it's it's all of verifying those different things as far as kind of timeline how quickly are the files getting underwriting underwritten to fight to find out when are those are those situations being uncovered understood you had mentioned one other cool thing called the homes for hero program what is that so our homes for heroes program is um at valley mortgage we give 500 off of their closing costs on any purchases for all the heroes in our community so police officers fire department emts nurses doctors anybody that's out there that's really serving the community that is fantastic those were all the questions that i had anything else that you wanted to add that that we maybe didn't cover here on the pre-approval podcast i think that's everything well thank you very much you've been a wonderful guest and if you want if someone wants to get in contact with you kristin i'm gonna have some of your links in the show notes below but just for those maybe listening um you know uh in their car or as they're working what is the best way to get in contact with you yep so they can give me a call on my cell phone 701-371-7723 or they can go to our website and apply at valleymortgageinc.com giving out personal cell phone online that that's how you know you're committed so i have personally used kristin i can vouch for her she actually bought our home which is why i wanted to have her here as you know one of the first guests on this show so thank you very much and hope everyone is having a good day thank you [Music]