Jason Hartman talks with one of the Seattle based lenders in his network about nationwide mortgage financing. You’ll gain insights from Steve’s 25 years in the mortgage business and you will learns some important distinctions between mortgage brokers, mortgage bankers and commercial banks.
As a mortgage banker with several warehouse lines exceeding eight figures, Steve and Jason bring power to overcome financing challenges. A good mortgage banker can offer the greatest number of options with the power of direct funding control. Here are some additional issues addressed in this episode:
Counting rental income at 75%
Property management agreements
DTI or Debt-to-Income Ratios and examples
FICO scores and credit repair issues
Impact of positive cash flow and negative cash flow
Fannie Mae four and 10 financed property thresholds and limits
Cash reserves – banks vs brokerage accounts
Self-employed borrowers and their write-offs
Tax benefits like depreciation
Interest rate forecast
Community property states
ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth Show! This is episode number two hundred and sixty-four, and this is your host, Jason Hartman. Thanks again for joining me today. Today I’d like to skew toward the practical side of the ledger, and we are going to have a guest talking about the subject or mortgage financing. And maybe the next show, I just—boy, I’ve been into some great books lately, folks. And maybe on the next show we will do the interview on abundance, which is a book I’d highly recommend. Just recorded that interview with one of the authors, Steve Kotler, yesterday. And the book is entitled Abundance: The Future Is Better Than You Think. Highly recommend that book. So, maybe we’ll do that one for episode #265. But today, I want to talk about some practical stuff—the good old subject of obtaining financing, how you can do it, how you can overcome the challenges and difficulties and experience the wonderful benefits of what I call inflation-induced debt destruction.
So, that’s what we’ll do with our guest today here in just a moment. And I should also mention and thank a lot of our clients who have been recording episodes with me lately, where we’ve just been collecting more and more practical case studies, client experiences, hearing what they’re doing to build their real estate portfolio, and have a much, much more abundant and successful and easier, including passive income, financial life as the time passes. Really, what this is all about is it’s putting time on your side. When you hear the news stories about the government overspending, and you hear all the bad news in the world, all of that really pretty much, most of it at least, if not all, plays into good things, when you follow my plan for investing in income properties. That will all be available to you on this episode, in future episodes as well.
And I just want to remind you, we’ve got a couple of events we will announce very soon. We’re just getting the details finalized for an income property tour, and a Creating Wealth in Today’s Economy seminar. Our first time doing it on the east coast. Yes, it will be in one of my favorite markets right now: Atlanta, Georgia. And we will do the same thing we did in St. Louis, but we’ll do it in Atlanta, where we’ll arrive for a reception on Friday evening, probably in late September, somewhere around there, and then we’ll have the reception Friday night, we’ll have the Creating Wealth in Today’s Economy Boot Camp all day Saturday, and then we’ll have a property tour on Sunday. So this will be in the Atlanta market, and look for details on that real soon. Soon to be announced. And as soon as we get everything finalized, it’ll be on the website, www.jasonhartman.com in the events section.
And then we also have our semi-annual Meet the Masters of Income Property event coming up. And we have not finalized our location for that—whether it’ll be Southern California or Phoenix—but I will say that we are going to have a very different Meet the Masters event this time. You know, we keep kind of playing with it, and seeing what works better. But what’s going to be different about this event is not really the format, but the speakers themselves. And we’re doing this especially for you regulars who come to every single Meet the Masters event. We just love seeing you come twice a year, and coming back all the time. But what we’re going to do, is we’re really going to mix up the speakers this time, and have some different speakers, some different topics, so that we keep you stimulated and thinking in new directions about your portfolio, and about your retirement, and your passive income, and building wealth in your real estate business.
So, look for that on future show. I’ll keep today’s monologue really short, and hopefully do a longer one next time, and you guys tell me you like my long monologues, so, [LAUGHTER]. Some people say I go too long. But I’m gonna skew towards the longer ones, because I get more people saying they like the long ones. And then having the guest after that. So, let’s go right into our guest today, where we talk about mortgage financing, and exploiting the great lending opportunities. You know, as one of our affiliates and prior show guests Randy always says, most people think of the property as the asset and the mortgage as the liability, when in some ways, it’s really the other way around. So, let’s talk about that mortgage asset here. And we’ll be back with that, in just a moment.
ANNOUNCER: What’s great about the shows you’ll find on www.jasonhartman.com is that, if you want to learn about investing in and managing income properties for college students, there’s a show for that! If you want to learn how to get noticed online and in social media, there’s a show for that! If you want to know how to save on life’s largest expense, there’s a show for that! And if you’d like to know about America’s crime of the century, there’s even a show for that. Yep! There’s a show for just about anything. Only from www.jasonhartman.com. Or type in Jason Hartman in the iTunes store.
JASON HARTMAN: It’s my pleasure to welcome Steve to the show! Steve is one of the top mortgage people that we work with, and he finances properties all over the country, and has vast amount of experience in the mortgage business. So it’s great to have him here to talk about that all-important aspect of financing. Steve, how are you? Welcome!
STEVE: Good, Jason, and thank you very much for the opportunity.
JASON HARTMAN: Good, my pleasure. First of all, where are you located?
STEVE: Seattle, Washington.
JASON HARTMAN: Beautiful place when it’s not raining!
STEVE: Yeah, that’s a good point.
JASON HARTMAN: It is a beautiful place though. So, Steve, first of all, give us a little background. How long have you been in the mortgage business?
STEVE: I’m an old timer. I’ve been in the business for approximately 25 years.
JASON HARTMAN: Okay. And are you a mortgage broker, a mortgage banker, or do you work for a bank directly? Maybe talk to the listeners for a moment about—the reason I ask you that, I mean, I know what you are. But for the benefit of the listeners. Talk about the different types of mortgage people there are out there.
STEVE: Well, our company—we’re a mortgage banker. We’re probably a little bit different than some of the other kind of companies, in that not only do we fund loans and do the underwriting. We also service the majority of our portfolio. And so that kind of sets us above what so many other folks. We handle everything, all the way from the prequalf all the way down to the servicing.
JASON HARTMAN: And prequalf means prequalification when somebody’s shopping for a mortgage.
STEVE: Prequalification, yeah. And, in the broker community, typically what they’ll do is they’ll work through a third party, and that acts as a funnel. In other words, they might put together a loan with the intention of that they’re gonna run it through another bank, or possibly a mortgage company.
JASON HARTMAN: And I remember—I’ve been involved in several different types of mortgage companies over the years, and I remember when I had my own mortgage company, we were a mortgage broker. And the thing we always aspired to be, Steve, is we always aspired to be a mortgage banker. Never quite got there, never got around to it, but, the thing with being a mortgage banker, is that then you have a warehouse line, and so you fund loans directly off your own warehouse line. And that gives you more control of the financing, right? Is that the benefit to the consumer?
STEVE: You know, that’s absolutely correct. Being able to fund the product, and utilizing those warehouse lines—it’s a big step for anybody to take. And that—so, yeah, it’s a great way to be able to do it. A lot of us could fund a lot more products. And we’ve got several—I think we have three or four pretty big warehouse lines, and we’re talking, 8 figures and above.
JASON HARTMAN: Wow. Those are big warehouse lines. Big company, for sure. Well, Steve, what are some of the myths and misconceptions, and misinformation, that you hear out there from your competitors? And just kind of researching the competition? And let’s drill down and talk about how people can have a more successful financing experience. It’s challenging for investors to get financing nowadays. But in a way, that’s what makes it such a great opportunity. Because if you’re willing to jump through the hoops, other people may not be willing to, and that lessens the supply of rental property out there for tenants, thus increasing your rent, and lowering your vacancy, and just making your properties perform better all in all.
STEVE: I guess there’s really two buckets that I see, as far as borrowers. You get those entry-level borrowers that just want to get in, they want to get started. And then you’ve got the borrowers over on the other side of the fence, who are experienced people. Now, the entry-level borrower, their first question is, how do I do this? How do I get in to start buying investment properties? And that’s where somebody like myself is gonna come in. What I’m gonna typically do, and when a borrower contacts me, I want to try to find out where they want to go. Not only their short-term, but what their long-term goals are. At that point in time, what I’m going to instruct them to do is to go to my website, and have them complete my online loan application. With that, once that’s done, what that allows me to do is download the application, pull the credit report, run it on Fannie Mae’s desktop underwriter, so now what I’m—now I got a blueprint. Once I’ve received that approval back, I’ve got a blueprint as far as the documentation.
Then once I get that documentation back, what I’m gonna do is I’m gonna review that to make sure that everything fits in line, get with the borrower, kind of go over the approval process, reserve requirements, because typically on investment properties, they’re gonna have to have a little bit of cash. And after those reserves, and then of course, it’s always nice to have a little on hand—I use the term slush fund. In case the appraisal doesn’t come in, or just for whatever reason, it’s always nice to have a little bit of a cushion to fall back on. So, that’s really where I start with my borrowers. Some of the areas that I see where there’s some misinformation out there is, let’s talk about rental income. You know, if somebody buys a property, and we don’t have a two-year landlord history experience, typically that is—it’s an investor overlay. So what it allows me to do, if a borrower’s buying a $50,000 property, and they’ve got a mortgage for $400 a month, and let’s say the property rents for $750, I can utilize 75% of that amount. And that basically, what that does, is that pretty much washes the payment. Or maybe shows some positive cash flow from day one. In addition to that, it doesn’t even have to be rented at the time. So if the appraiser, when he’s out there inspecting the property, the property’s vacant, they’ll provide in that appraisal a comparative rent schedule, which if the appraiser says is worth $850, again I can utilize that 75%. So, that really—you know, for that borrower that wants to get in, wants to get on as far as buying properties, it’s very beneficial to him.
JASON HARTMAN: Okay. So first of all, we’re talking about beginning investors here. So, maybe the typical beginning investor—they own their own house, and they’re looking to purchase their first couple, three, four, five rental properties. And when they do this, I mean, what is it going to take for them to qualify? The rental income—the projected rental income on those property—will count towards qualifying, right?
STEVE: Correct. That’s correct.
JASON HARTMAN: Now, will it count at 100%, or at 75%?
JASON HARTMAN: Okay, so that’s what we’re referring to earlier.
STEVE: And I go a step farther. Because let’s face it. The majority of my investors are out of state. So I know that they’re going to have a property management agreement. So I’ll hit them another 7-10%, just to take that into account. And again, it’s just—like they say, I know that 95% of all my investors are buying out of state. And I know that’s an added cost. And that’s something that Fannie doesn’t factor in.
JASON HARTMAN: Okay, so let’s make sure people understand this. So, in other words, just for simplicity of example, if you are purchasing a rental property, and that income property is projected to rent for $1000 per month, the bank is only going to assume that you’re going to receive $750 per month. In other words, 25% less than your projection on that property when they’re qualifying you in terms of your what’s called DTI, or debt-to-income ratio. Right? So, can we run through an example on this?
STEVE: Sure, you bet. So, let’s just say—well, let’s just take that same example. So what you would do in that is, it rents for $1000. Now, Fannie tells me—Fannie Mae, because we sell all of our loans directly to Fannie Mae, and they [unintelligible] 25% right off the top of that. So that’s 750. I’m gonna knock another 7-10% off, because like I say, they’re gonna have a property management agreement. So in theory, let’s just say I’m gonna—for all practical purposes, I’m gonna utilize 65% of that a month. That’s gonna put them at $650 a month in rent. Now, if they were to have a mortgage of say, $75,000, they would have a total payment of $560.01. So what I would do is subtract that 560 from the 650, which is gonna be $90. And so they’d actually show a positive cash flow of $90.
JASON HARTMAN: So, that’s the way it works. So, what happens here is, unlike a home mortgage—I mean, if people—people need to have extra income in order to start buying the income properties. Because the bank is assuming you’re receiving a lot less than you really are. So, each property sort of—it becomes really, in the bank’s eyes, it becomes a debt, even though you may have positive cash flow on it. If you don’t have more than 25% positive cash flow, then the bank will think oh, this property’s losing money, right?
JASON HARTMAN: Yeah. So, that’s a good way to look at it. Now, what about credit scoring? How are we dealing with credit scoring nowadays?
STEVE: Well, there’s two elements on the credit scoring. When you have one to four finance properties, you have to have a minimum credit score of 620.
JASON HARTMAN: That’s not too difficult.
STEVE: No, that’s not—now, correct me—here’s the reality. At 620, you’re gonna probably have some derogatory information, so that’s not absolutely a guarantee that you’re gonna get approved.
JASON HARTMAN: So in other words—now, just explain that, though. So, what you could have, is you could have a 620 or above FICO score, which would qualify you on the score category. But if there’s something derogatory on the report itself, which there would be, if it’s 620, because that’s not a super high score—if there’s something derogatory on the report, they can kick it out for that reason, right? For example, if you got your score—say you had a foreclosure, and you got your score back up to 640, which, you know, you’re moving up there. But there’s still that foreclosure on the record. What would that do? Would they give you the loan? Or how far back does the foreclosure need to be?
STEVE: The foreclosure’s gotta be seven years.
JASON HARTMAN: Seven years, not three?
STEVE: It’s gotta be seven years from the date that it was actually foreclosed upon, to be able to buy another property with Fannie Mae.
JASON HARTMAN: Okay, now I hear conflicting numbers on that. I hear three years. And then it also depends—maybe they’ve used one of those credit repair services, and they’ve been able to remove a foreclosure on their credit report. But let’s assume it’s on there. Let’s assume it’s on the report. You’re saying seven years. I’ve been told three. Who’s right?
STEVE: Well, seven years is the number. The only exception to the rule, and this hasn’t to deal with foreclosure, it’s on a short sale—
JASON HARTMAN: Okay, a short sale, how long in the past can that be?
STEVE: Two years.
JASON HARTMAN: Oh, not so bad. Okay.
STEVE: Yeah, not so bad. But seven years, I don’t know where people come up with three years. I mean, FHA’s still only at two years, on their foreclosure. On the conventional seven years, no exception.
JASON HARTMAN: And so that’s conventional loans versus FHA loans.
JASON HARTMAN: Alright. Talk more about scoring, and derogatory remarks. Anything else?
JASON HARTMAN: You talked about foreclosure. What about a bankruptcy?
STEVE: Bankruptcy, you have to have four years.
JASON HARTMAN: So four years beyond a bankruptcy, for FHA and conventional?
STEVE: No, FHA is only two years.
JASON HARTMAN: Okay, so FHA makes it easier than conventional financing, right?
STEVE: That’s correct. The FHA is not gonna be utilized to buy an investment property. And that’s only for primary residents.
JASON HARTMAN: That’s for homeowners. Okay. Alright. Good. Go ahead, tell us more.
STEVE: The other element is, once you go past four finance properties, the score increases 100 points. So it’s a 720 minimum score, once you go about four finance properties.
JASON HARTMAN: Okay. So the four finance properties—now, there’s been conflicting information about the limit. Is it 10 finance properties? Is that the limit?
STEVE: That is the Fannie Mae limit. Of 10 finance properties. Now, what that does not include—that does not include any commercial properties, bare land—they only count in the mix, 1-4 family units.
JASON HARTMAN: Okay, now, does it matter if those have been financed by Fannie Mae, Freddie Mac? Or is it just if they’re 1-4 units, which is considered a residential property, and they’re financed by anybody? So, even if you bought one and the seller carried back a note, or, you know, we have some special deals around the country in different areas where we’ve got community banks that are smaller, community banks that are making some pretty attractive portfolio loans. Does it matter if, say, one of those community banks financed it, or the seller carried back paper?
STEVE: That’s a really good question, because there’s a lot of confusion out there—what constitutes that financed property with the Fannie Mae limit? If there’s financing on it, irregardless of whether it’s Fannie Mae, Freddie Mac, if it’s private financing, community bank, as long as it’s got a mortgage on it, it’s counted as a financed property.
JASON HARTMAN: Okay, so here’s the other thing. And this is where it all gets so murky, folks, by the way. A lot of lenders will say well, if you had a seller carry back, or some sort of unconventional financing, it doesn’t count, because maybe it doesn’t show up on your credit report. So that’s like another layer of murkiness, right Steve?
STEVE: Yes, absolutely correct. But, if they’ve had it for a while, guess where I’m gonna pick it up? Under tax returns.
JASON HARTMAN: Right, right.
STEVE: And they’ll write the interest off.
JASON HARTMAN: Okay, good! Now, what else do people need to know? If someone—let’s do kind of another example here. Maybe this is the borrower. This is a borrower who is doing pretty well, they’re making $15,000 a month. And maybe you just want to have your software open, or your calculator, to go over this example with me. They make $15,000 a month, and it’s a couple, and one of the spouses does not work, one works and makes $15,000. They’ve got a house payment of $3500 on a primary residence, and then they’ve got two car payments of $500 each. And their credit score is 720 or above, so, they’ve got good credit. How many properties can a person like this buy? Well, it depends on how much the properties are, in terms of investment properties, of course. But, because that 25% imputed vacancy rate, that false imputed vacancy rate starts to kind of destroy, or wither away at their debt-to-income ratio—how can they do? Can they get up to 10, you think?
STEVE: Yeah. Absolutely. Well, you know, the other determining factor that I’m gonna look at here, are assets. Because once those asset reserves that they have to have when they own investment properties—now, what I’ll do is I’ll define it between one and four finance properties, they have to have six months principal, interest, taxes, and insurance, and the subject property.
JASON HARTMAN: Okay. So, if they’ve got—you said if they’re above four, right?
STEVE: No, that’s one to four.
JASON HARTMAN: Oh, one to four. So if they’ve got four financed properties, or anything less than four financed properties, they’ve gotta have six months PITI, principal, interest, taxes, and insurance, in reserves in the bank, right? Now, if it’s in a brokerage account, or does it—
STEVE: Yeah, I can utilize that. We can get—we’ve got some flexibility as far as the reserves. They’ve gotta have the six months PITI on the subject. And then if they want other investment properties and/or a second home, they have to have two months PITI on each one of those.
JASON HARTMAN: Two months on each one, plus six months on the new one that they’re buying, to get them above—well, no, they’re still below four, financed properties?
STEVE: Yeah. So, they can—let’s say, hypothetically, a person owns a primary. They’ve got a second home, and two rental properties. So, on the subject property, I’d have this six months, and then I’d have to have two months on the second home, and two months on their additional rental property. In reserves. The primary residence—now, this is what I do see. I see some lender include the primary in there. That is not a Fannie Mae requirement; that’s a lender overlay.
JASON HARTMAN: What’s a lender overlay?
STEVE: Well, this is where Fannie Mae, they’ll write the guidelines. And what lenders will do is they’ll say well, that’s fine. I’m giving an example. 10 finance properties. We’re not comfortable with 10 finance properties—we’ll only go to four. So we’ll restrict it at four. You know, they have—Fannie Mae doesn’t have a two year’s landlord history experience requirement. Investor may say, I’m not comfortable with that. I want to see one. So they can always make it more restricted.
JASON HARTMAN: Investor meaning the lender. See, when you say investor, the people listening think they’re investors. But when you say investor, you mean the lender.
STEVE: That’s correct.
JASON HARTMAN: What else do people need to know?
STEVE: You know, that done correctly, the ability to buy these investment properties are attainable. They just have to get with somebody like myself that’s gonna be able to help them through this financial maze. And I say that it’s a maze, because when I look at lending right now, we’re back to lending what it was 20 years ago. Now, we’ve got some—obviously we’ve got some tools that assist us that we didn’t have 20 years ago—automated underwriting. So, those are great tools for us to have. But people get scared! They don’t think—they hear all these rumors that financing’s not attainable, it’s tough to get a loan. And I tell people, I say, as long as you pay your bills, you’ve got money in the bank, and you’ve got a job, there’s a good chance that you can do this. And you know, people shouldn’t be scared. If you never ask, you’ll never know.
JASON HARTMAN: Right. Steve, that raises two questions. I want to talk to you about self-employed borrowers, because that’s a huge segment of our economy nowadays, of course, and I also want to talk to you about—I mentioned, and asked you about the more serious credit issues, bankruptcies and foreclosures. We did that. But what about more minor credit issues, like some late payments, medical bills, things like that.
STEVE: Again, that again obviously has some impact on credit. I see a lot of people that will have some, they’ve had a couple of late payments a couple of years ago. I’ve seen when they have some more recent ones, like in the year that they’re trying to apply for financing. A lot of it depends on the number of payments, the severity of the payments—in other words, was in 30 days, or 90 days? That could have some effect on the underwriting decision. I have yet to see is disqualify anybody, unless—well, let me recap that. I’ve seen some people [unintelligible] with their student loans, because that’s become pretty big, where they’ll fall way behind on their student loans. That could definitely get it to where we could not get it approved eligible.
JASON HARTMAN: What about self-employed borrowers? If they’re—or, self-employed, or in a commission—they’re employed, but it’s like a commission-only position, or it’s really maybe only a base salary, or commission, whichever is higher, and they want to be qualified based on the commission amount. And say for example this borrower, say they’re new—they’ve only been in this business, or this career, or with this company—let’s distinguish all of those—for maybe six months. Do they have to have a two year history? Are they going to average their income for two years? Or how does that work?
STEVE: Well, let’s first address the person that—if a person is straight commission, where they don’t receive any base, I’m gonna have to have two years of returns. Or two years to show that they’ve been receiving commissions, and I have to average those over two years.
JASON HARTMAN: Okay, so it’s going to be based on two years tax returns. So if your first year in the business you didn’t do very well, but in your second year if you did great, then it will be averaged over the 24 months. Correct?
STEVE: Yeah, correct. And the other thing is, sometimes you’d get a little [unintelligible]. I might have one full year of tax returns and maybe we’re in month number ten or eleven. There’s some discretion there, as long as the income remains consistent. As long as it keeps going up, you’re probably all right.
JASON HARTMAN: So the question there is, what if they change jobs but they’re in the same industry? They’re not gonna start the two year clock all over, right?
STEVE: No, they will not. As a matter of fact I have a gentleman who did just that. Same type of business, he just moved from one company to the next. All we did was we wanted to see 30 days worth of pay stubs, or his commission schedules, to make sure that his income wasn’t going down.
JASON HARTMAN: What about a business? What about someone starting a business?
STEVE: Business, typically you’re gonna want to see two years of returns on any self-employed individual. And somebody like myself, and really, it’s a matter of going back and looking at the returns on a self-employed individual, and asking the right questions. Because that’s one of the things that I see a lot of our competition doesn’t do, is ask the questions for self-employed. I’ll give you an example. Had a borrower that comes in. He’s self-employed, he’s got a lot of credit. And so, when I looked at his adjusted income, he doesn’t qualify. Well, lot of people would stop right there. I go a step farther, in that I know, like I know a lot of self-employed individuals—tell me what you’re writing off on the business. And 9 our of 10 times, every bill they have on their personal credit report they write off to their business expenses. And as long as we can get the documentation, and what I would request is probably 12 months worth of cancelled checks, to show that they’re actually paying those bills through their business.
JASON HARTMAN: I was going to ask you about that, because one of the big things that business owners do—Kiyosaki talks about this in the Rich Dad books—is that you get the benefit of spending the money on a pre-tax basis—well, maybe I’m saying that wrong. You spend the money, take a deduction for spending it, and then you pay your taxes based on the net, the adjusted gross income. And a lot of expenses entrepreneurs do find a way to put those through their businesses. And so that makes their income lower, but really, their income is higher, because they’re getting a lifestyle benefit of all these things. They always buy themselves a company car, maybe two. Maybe there’s even a company yacht. Who knows. A company plane. And these are things that they, if they weren’t self-employed, they would have to pay for outside of that, and pay for on an after-tax basis.
STEVE: Yeah, and again, it’s back to it. And that’s the responsibility of the lender—to get with his client. And having that experience level working with self-employed individuals is to be able to go back and ask those right questions, and say okay, so, I know what you do. Now if you can provide the documentation, we’re probably good to go. I’ve got a guy that makes—his net receipts are 160 grand a year. He’s able to expense everything—his house, his cars, his credit cards, everything. Shows he’s making 1200 bucks a month.
JASON HARTMAN: Yeah, and that’s not gonna qualify him for anything. What did he do? Were you able to get him financing?
STEVE: Oh, absolutely. He’s on his third property.
JASON HARTMAN: Okay, good! Talk to us a little—did we cover the self-employed, and the commission only issue pretty well, or is there more you want to say about that?
STEVE: You know, and I think what it really comes down to is, especially with your self-employed borrowers, because they have a tendency to be a little bit more complex borrowers. Is, just being able to go back again, ask the right questions, be able to go through their tax returns—there’s items you can pull out of tax returns, which you can add that for income, i.e. giving an example that of depletion and the depreciation. You can look at that. And then if you get some of these other borrowers, business owners, when you look at their balance sheets, there’s items that underwriters specifically look for. Again, as a lender, you have to be able to go back and say that okay, so I know you’re looking at that, but here’s why they have this. And so again, it’s just a matter of being able to do a really thorough job analyzing the tax returns.
JASON HARTMAN: And that’s where experience comes in, doesn’t it?
JASON HARTMAN: Let’s talk a little bit about those credit repair agencies, and things like that. People recovering from financial hardship. Certainly there’s a lot of that that’s gone on in the past few years. And there are a lot of these places out there that make a lot of promises, and I’ve had one of those companies on my show a long time ago. And, just wanted to get your thoughts on how those things work, if they work at all.
STEVE: You know what, they do. And you’re absolutely right. It’s like our business, in that there’s a lot of people that they’ll promise the world, but can they deliver? And you see the same thing within the credit repair agencies. And that in itself, that’s a very, what do I want to say, kind of a complex environment. I mean, it’s not as simple as what everybody thinks. There’s a lot of value into it. Again, if you get with the right company. And the right individual. So, we kind of—and there’s some things that I can do on my side that don’t require credit repair. I mean, occasionally something will be placed on a borrower’s credit report in err. Well, it’s easy for us to just say, okay, so we see that the borrower said this is not mine. They go back to the original creditor, they get a letter, they provide us with that letter, I can get it removed. It’s only when you get into the stuff that’s really deep that you want to go out there are look at credit repair.
JASON HARTMAN: And the thing I would say is, don’t pay big huge up front fees. Those are where the scammers are. If it’s more than a few hundred dollars—if they want to charge you two, three thousand dollars, I would say that’s probably too much. Run for the hills. And it’s probably worth doing a Google search on the person’s name, the company’s name. The problem is, there’s so many ways to hide from this kind of stuff. But it just doesn’t hurt to take a look. Or get a referral from someone you work with, someone you believe is reputable, and do it that way. What do you think, Steve?
STEVE: Yeah. That’s absolutely correct. When you come to me, I mean, my job is to gather information for my clients. And I do work, and I work with a couple of different companies with credit repairs. We’ve had good success with them. And they don’t—again, they don’t charge a lot of up front fees. If they’ve gotta work with them for a period of time, their fees are really, really affordable for the clients. But you’re absolutely correct. If you get that person who says I need $500, $1000 up front, that’s probably time to turn tail and run.
JASON HARTMAN: Oh, see, I would say $500 is probably okay. But if it’s more than that—yeah, I mean, they’re gonna charge you something, right? How much do some of the agencies you work with charge?
STEVE: You know, they’ll start—again, it’s gonna vary from client to client. $500 is probably going to be a little on the higher, for a more complex client. But a lot of it is the depth of repair that they see to be done. I mean, I had one of my credit customers come back they suggested that you talk to the credit repair person. The credit repair person called the customer who called me, had me on a conference call and said, you don’t need me. I’ll tell you what to do. And you can do it without me. See, that’s the kind of people that I want on my team.
JASON HARTMAN: Sure, sure. And one of the people that you work with in the credit repair world, we’ve put out a request to get that person on the show here. So, look for that on an upcoming episode. Just—if you just find these guys on the Internet, a lot of them are total scam artists. So be careful. I think the best thing is a professional referral. Here’s one more question I want to ask you, just in closing. How long does it take to close a loan? I mean, are you getting them done in 30 days or less, or is it about 45 days?
STEVE: Well, I’d say 30 days is probably a pretty good way to gauge it as far as time. Now of course there’s always exceptions. There’s always things that can come up. Typically, where I see the majority of items come up that could possibly delay closing it is when they start to do the rehab process, the remodel on a property. And so, that can delay things a little bit. But I tell you, between 30 and 45 days, that’s doable. That really is.
JASON HARTMAN: What happens when you start crossing state lines? Are there any funny little quirks that you want to mention, going from state to state? We do business in many, many states, and just always look for the best markets in which to be investing at any given time. But a lot of real estate laws and customs are sort of state by state. What do you see when you go across state borders?
STEVE: You know, I haven’t really seen anything where it’s really impacted my clients. You know, it’s like anybody—the state of Washington, for example. The state of Washington is a community property state. Some of the other states that you buy property in aren’t. So I think this is where, when the clients are making those moves, they have an attorney in their home state, to where they can get it set up as far as asset protection and that sort of thing. When they start crossing at these state lines. But on my side, the Fannie Mae guidelines are the same in Washington as they are in Tennessee.
JASON HARTMAN: Let me take a brief pause; we’ll be back in just a minute.
JASON HARTMAN: Did you know that you can call in to the Creating Wealth Show? Yes, you can call me and talk to me direct, for later broadcast on the show. The number is 949-200-8009. Or via Skype, JasonHartmanROI. Please make sure you have a good connection when you call. Get your questions answered, participate in the show, and share your experiences with other investors. Call in, 949-200-8009, or Skype, JasonHartmanROI, and participate in the Creating Wealth Show.
JASON HARTMAN: Steve, last question for you. And this time I really mean it—it is the last question.
JASON HARTMAN: What are your thoughts about the investment market? I mean, you’ve been in the business well over 20 years now. 25 years. A quarter century. So you’re like me; you’re a veteran. You’ve been around a long time. What are your thoughts about the opportunities for investors nowadays? What are clients saying to you? What is their outlook, what is your outlook.
STEVE: You know, there’s a lot of people that’ll run around and talk about how bad the real estate market is right now. And anybody that buys investments are making bad decisions. Now, it’s actually contrary, because this is the time they should be buying. I say that simply because of the fact that I see so many of my clients do so well on their properties. They buy these properties, they’re making money right off the bat, it’s a great time. They’re affordable, and—when clients tell me about the bad times, I want to point them back to the mid-2000s, when the market was at a high, and you had a lot of people buying properties at the auctions and the foreclosures. They bought high, and guess what? The market tanked. And so, a lot of those people that made those errors back there in that time, are the people who are the inventory right now that investors are buying. Because they made some bad decisions at buying times. It’s a great time to be buying. Rates are very conducive for investors. But they’re at 4 right now, on 30 year mortgages. You can get down to almost 4% on a 15 year note.
JASON HARTMAN: I mean, what an unbelievable opportunity. You know, the great thing for us as investors, Steve, is that we outsource our debt to tenants. Investors don’t pay their own debts; tenants pay it for them. It’s a great scenario. And right now, even if we had a property sitting vacant for 30 years, if it was vacant for three decades, I say, with the real rate of inflation, we’d still be getting paid to borrow that money. Because if you ask me, the real rate of inflation now is about 9-10%. And if you can borrow in the fours, you’re getting paid to borrow the day you borrow. And then if you don’t pay your own debt—if you outsource the debt to the tenant—you’re getting paid a ton of money to borrow that money. So, mortgages become a huge asset, don’t they?
STEVE: Yeah, they really do. And the more and more people—we go back to what I was talking to people that may hear this, now’s the time to buy. I mean, the market is softened that there’s just a ton of opportunities out there for people to buy these investment properties. The financing is there. What they need to do is just take that step and ask and see if they can do it.
JASON HARTMAN: Good stuff. Well Steve, thanks so much. People can get a hold of you through any of our investment counselors. Just visit www.jasonhartman.com, and start communicating with one of our investment counselors, and we will put you in touch with Steve and his team. You’ve got a big team there, and you just run a good operation. So thanks so much for joining us today, Steve.
STEVE: Thank you very much, Jason.
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The Jason Hartman Team
Episode: CW 264: Credit Scoring, Short Sales and Nationwide Mortgage Financing
Guest: Steve (Mortgage Broker)
iTunes: Stream Episode