Money Rehab with Nicole Lapin - Insider Tips from a Mortgage Broker

Episode Date: June 8, 2022

A lot of first-time homebuyers are intimidated by the mortgage application rigamarole, and have serious anxiety around screwing it up. To curb that anxiety and give industry hacks, Nicole talks to Eric Eisenberg, one of the best mortgage brokers in the country.  You can read more about Eric and his work at: https://www.experthomeloans.com/ 

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Booths are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

Hey guys, are you ready for some money rehab? Wall Street has been completely upended by an unlikely player game stop and should i have a 401k because you don't do it no i know you think the whole world revolves around you and your money well it doesn't charge for wasting our time i will take a check. I got a full-scope check. You recognize her from anchoring on CNN, CNBC, and Bloomberg. The only financial expert you don't need a dictionary to understand. Nicole Lappin. If it's your first time buying a home, the process isn't entirely new.

There's definitely overlap with the process of renting. If you've rented before, you know how to find a good spot, what sneaky issues to look out for, the types know how to find a good spot, what sneaky issues to look out for, the types of questions to ask during a showing, and so on. But what is completely unique to homeownership is a mortgage. A lot of first-time homebuyers are intimidated by the whole mortgage situation and the application rigmarole and have serious anxiety around screwing it up. So I wanted to take the time to tackle the topic with an expert. And today I'm talking to Eric Eisenberg, who is not only an expert on the

topic, but is one of the best mortgage brokers in the country. Eric, welcome to Money Rehab. Thank you so much. I'm happy to be here. Well, you certainly don't need Money Rehab, but I'm excited that you're going to help us mortgage rehab. Maybe we should have going to help us mortgage rehab. Maybe we should have a spinoff mortgage rehab. Okay. So much to learn. I'm down. Definitely. I do this every day. So I know you do. And I've actually used you to help me as I was looking for a home. What was that like five years ago? And you're so, so knowledgeable. You are like an encyclopedia for mortgages. So let's start in the beginning. What is the process for applying for a mortgage?

The first thing you want to do is choose a lender to work with, obviously. And basically, when you work with a lender, there's going to be a couple of different choices. You're going to have the big banks, which are Wells Fargo, Chase, Bank of America, whatever, then you're going to have independent mortgage banks. Now, these are the smaller neighborhood banks that hire loan officers and they actually fund their own loans and they sell them on the secondary market. And then the other option you have is what I do is a mortgage broker. Now, what we do is we work with anywhere from 10 to 100 mortgage wholesalers. And then we could actually shop around to get you the best deal rather than being stuck in one box for certain programs. Okay. So a mortgage broker works with the Bank

of Americas of the world and also the independents, totally agnostic and only works for the client to get the best deal possible. Yeah. So rather than going to the big banks, what a lot of people don't know is it's actually an even playing field between mortgage brokers and big banks. So when JPMorgan Chase gives you a loan, you do it through Chase Home Loans, which is a subsidiary and owned by JPMorgan Chase Bank or Bank of America Home Loans or Wells Fargo Home Mortgage. So we all sell to the same investors, which ultimately go to Fannie Mae and Freddie Mac. So it's an even playing ground, no matter who you use. So we typically work with wholesale lenders that will specialize, they'll give certain pricing incentives to certain types of buyers, rather than when you go to a big bank, you're kind of stuck with their programs only. Okay. So I just fucked that up basically. So you don't use big banks. You don't shop out to big

banks. No, I stay away from them. People don't have great experiences with big banks. And you always see a lot of information and people always think it's the best thing to just walk into their bank and get a deal. But working with a small business is a lot better. And working with an independent mortgage broker is a lot better for the consumer. Now, the way that I always explain to clients is imagine going to Pizza Hut or going to a mom and pop shop. Both will give you a slice of pizza, but sometimes a mom and pop shop where they've been

in business 80 years and they've got the recipe handed out to their grandmother and they actually care about you, it works out better for you. There's less paperwork involved, less people touching your deal. You have one point of contact throughout the process. And just like you said in the beginning of the podcast, how me and you were talking about your personal mortgage five years ago, I still remember our conversation. And that's how most of the clients feel. But you don't get that same level of service at a big bank typically. No, you definitely are so on it, by the way. I don't think you sleep.

You respond to emails and texts at all hours. So it's definitely really nice to have somebody holding your hand through an overwhelming process. But let's go back to pizza because I do love pizza. Getting a slice of pizza at a mom and pop is certainly more delicious. Probably less chemicals and all the things. Getting a slice of pizza though is different than the biggest investment you're ever going to make. So what if somebody is thinking like, sure, I could do that with a pizza. But if I'm putting all this money towards something, this is all my life savings, a mom and pop, I don't know. They could go under.

There could be issues. Maybe I want to stick to some name brand situation. Yeah. So it's about what works best for that particular consumer right now when you and there's nothing against the big banks at all really well they have a higher fallout ratio which means they're going to approve basically anybody and they're going to close I I don't want to spit out percentages but let's just say sixty percent of their loans I don't want to spit out percentages, but let's just say 60% of their loans.

Now, with an independent mortgage broker, you're going to have a lot more personalized service. So one of the biggest things that I get is I get calls like, hey, Eric, what do I need to qualify? Or how much could I afford? Or things like this. And very standardized questions. And what I always try to do is not categorize anybody into certain buckets and find out a specific plan and budget for every single person.

So with a big bank, you're dealing with a loan officer who basically is like an order taker, right? And you put in your information, they tell you, okay, yeah, you qualify, based on the fact that you're saying that you make $10,000 a month. But Fannie Mae, Freddie Mac guidelines

do not calculate your income the same way you do. So if you're making $10,000 a month right now, because you're getting a bonus this year, we actually look backwards for bonuses, for commissions, and we average out over two years rather than with a current salary, we look forward and what it is today moving forward. There's all these different nuances and a consumer, there's no way for them to know this. A lot of these order takers at big banks, they don't have the knowledge because they don't need to pass a test.

They outsource everything throughout the country. So you have maybe 12 to 15 people touching your deal. Where with me, I underwrite my loans. I process my loans. If you see me on the street, I'll tell you your phone number and your home address. It's a much different way of getting things done, I want to say. So fallout would be the amount that's approved? It's closing ratio. Okay. So a fallout rate is loan applications to loans closed. So if a bigger bank will submit 10 loan applications, then they're going to close maybe six or seven of those 10 deals. So they'll have a 30% to 40% fallout rate.

Now, for me, I'm a unicorn, but if I submit 10 loans, I close 10 deals. All these things that these big banks do, they keep this reputation because you go to banking them and there's always someone smiling. But I definitely don't think for first-time homebuyers or for people looking for a mortgage that a big bank is the right way to go because you do need that advice and you do need someone holding your hand through the process. So how does a broker help? What I'm going to do during a loan application is the basics are income, assets, credit. I want to know how much money you make. I want to know how much money you make i want to know how much money you

have or how you're going to put a down payment down and i want to see what your credit is and if you're paying your bills on time right now that's it any any bank for me personally what i'm going to do is i'm going to find out more about about the personal situation and are you having kids how long do you expect to be in this home? Do you have any bonuses coming up? Any distributions coming up? What's the income like that's not being shown? Do you have any side hustles going on? Things like this, because sometimes you have loan applicants that are qualified, but they can't afford the home. And then a lot of other times you have loan applicants that are qualified, but they can't afford the home. And then a lot of other times you have loan applicants that can afford the home, but they're not qualified. So my job is to make sure that people that are qualified

get into homes if they can afford them. And how do you determine that? So I'll look at a lot of different things. I'll look at, obviously, the income is the biggest thing, but, um, you know, I look at spending habits also. Like, I mean, I had a client last month had five different cars under his name. So he couldn't qualify, uh, with different banks. He made his way over to me. Most simple question you ask is, Hey, what, what's up with the five cars? You're a single guy. Why do you have five cars into your name? Oh, I rented out in Turo. I make $10,000 a month renting out these five cars. And I've been doing it for 10 months. So I can't use that income yet to qualify, but I could afford the home because I'm making $10,000 a month extra. So we figured out some alternative structuring and got his deal done for him.

So what would you recommend first-time homebuyers make sure they do when they start the process? So I am ready to buy my first house. I have $200,000 saved. I want to buy a million-dollar home. And I come to you. And I also go to my normal bank and I see what the difference is. I pull together all my taxes and all my paperwork. What are the things that I need to pull together, by the way? The documentation is determined on your income situation. So if you're sub-employed, you typically need two years tax returns. But if you've been sub-employed for five years or longer, you'll typically need only one year tax return. Okay?

Okay. If you're a W-2 employee, you work for a company, you'll need two years W-2s and last two pay stubs. If you're doing some sort of alternative financing, you could actually qualify if you're a business owner with your business bank statements. So let's say that I have a budget that I'm comfortable with. I have 200 grand saved. I want a million dollar home. I go to you and I try to get a mortgage. How would it be different than going to a bank? So the process would be the same in the beginning. You would submit your income documentation, either your tax returns, W-2s. You would submit

two months bank statements to show that your assets are there. You'd submit your photo ID, mortgage application, run the credit, and the process would be the same at that point. Now, once you go into escrow or you sign a contract and you're committed to buying a property, that's where we kind of differentiate on the way that we process loans. So at a big bank, you're typically typically they're going to submit your file to a processor who's going to you know disclose your loan uh disclose your team send you all the numbers in black and white process your loan order everything now with a smaller mortgage company um what we're going to do is we'll shop around the best deal for you and we'll typically do the processing in-house for you

do is we'll shop around the best deal for you and we'll typically do the processing in-house for you. So I process my own loans, but a lot of mortgage brokers, they work hand-in-hand with the processor who's on top of their pipeline. At a big bank, they're going to just send it out and they're going to work with whoever from wherever. And there's not going to be communication besides on the paperwork. So another big thing is we're going to require a lot less paperwork. And the way that we're going to look at loans is how do we get this done for the client? Now, and what are the reasons why we should close this deal? Typically, the big banks are going to take more of a look of what are our risks involved and what are the reasons why we shouldn't close this deal? So if Nicole Lappin missed a credit card payment two years ago, they're going to want to know, hey, why'd you miss that credit card payment?

I was traveling. How do we know you're not going to be traveling again and miss your mortgage payment in the next six months? So you're going to have to answer questions like this. With us, she missed the credit card payment. She was traveling. It happens. But you run a process. You go to different lenders to try to get the best deal. Yeah. And then you present those to your client? Typically, I'll make the choice for my client. I'll advise them that I made this choice and here's why I made this choice. And I'll give them the options if there's different options to be given. So if you have a 30-year fix at 5.25 or a 30-year fix at 5% and they're both qualified lenders, you go with the lower option. But if one lender is offering, you know, 5.25 with higher leverage, you know, a lower down payment or faster closing or easier underwriting

process, or another lender is offering an adjustable rate mortgage, which at a 4.75, something like that. Now there's options. I'll present them and I'll also make a recommendation. Hold on to your wallets, boys and girls. Money Rehab will be right back. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no

maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Ch chime.com slash MNN. Chime feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A.,

members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. Now for some more money rehab. What's your take on adjustable versus fixed? I think adjustable is, it's got a very bad reputation from 2006, 2005, 2004. Back then we were doing these these loans that were fixed for two years or three years. And two years moves very quickly when you're in the housing market. So so one of the best product specials is a two year adjustable rate mortgage.

So it's fixed for the first two years and it starts adjusting. And then you had a three year prepayment penalty. So you get this low introductory rate for the first two years and then you had a three-year prepayment penalty. So you get this low introductory rate for the first two years and then the third year, your rate could skyrocket and if you paid off early, you have to pay the bank all its interest.

And that's one of these subprime loans. So that gave adjustable rates a very bad reputation in the market. Now they offer adjustable rates for five, seven, or 10 years. I won't offer my clients a five or seven-year adjustable rate mortgage, but the 10 years. I won't offer my clients a five or seven year adjustable rate mortgage, but the ten years if they're incentivized

by good enough pricing, then depending on the circumstances, I might offer that to a client. If a client tells me we're definitely moving the next five years or seven years, then that might be a discussion. But if anything's up for grabs because plans change with real estate a lot, then I'll always stick with a 30-year fixed conventional rate mortgage. But in special circumstances, I understand that there's an asterisk. Generally, I would stay away from most folks as advice from... Generally, I would stay away from adjustable

rate mortgages for most people. You agree with that? Yeah. I have an adjustable rate mortgage on my home, which is interesting because I'll barely ever offer that product to people. But I have a 10-year adjustable rate mortgage, so it's going to be fixed for 10 years. But our plan is to sell this place in three to five years. Yeah. I certainly understand that there is an asterisk. If you want to pay off your house in 10 years, it could be a lot of different scenarios that could make sense. So you make your best recommendation, but all of the offers are coming from non-brand name places. You're not going to recognize the name of these companies, right?

It's interesting because it was one of the things that we discussed before the podcast started. So like United Wholesale Mortgage, nobody recognizes this name. People will recognize Rocket, which is owned by Quicken. Now, United Wholesale Mortgage is one of my top partners. Nobody knows who they are because they'll only work with mortgage brokers. They will not do retail. They will not solicit. They won't call and call, hey, can I offer you a mortgage? But they're actually the number one purchase lender in the country.

They're the number one wholesale lender in the country. They're the number two lender in the entire country. So they do $15 billion or $20 billion of loans every single month. But you have to go through Eric Eisenberg or your community lender in order to get a loan through them. Got it. But that doesn't mean that they're not reputable. They probably have more mortgages than many of the banks they do more they do more loans in Wells Fargo or Chaser and and the reason why

is because ultimately people want the process to be to be simple um you don't want to be getting asked by an underwriter for if your mother's giving you a $10,000 gift. You don't want to be getting asked from an underwriter. Can I see your mom's bank statements? And then they ask me, Mom, could you send me over proof of this deposit and that deposit? You know, why did you spend so much money at dinner? Because your mom's giving you a $10,000 gift. That's kind of like the process with a big bank.

People want a smooth process. gift. That's kind of like the process with a big bank. People want a smooth process. And especially with today's market, a lot of people need to go into these transactions with no contingencies. And with that full out ratio that we were discussing, you don't want to be waiting two weeks for a loan approval when a mortgage broker could typically offer it to you in 24 hours or 48 hours. So to kind of get that burden, that stress away from you, people just want to have a smooth process during it and have one person to call. They don't want to call up an 800 number, put an extension and wait for customer service. They have to speak to the manager either. For today's tip, you can take straight to the bank. Eric is an expert on making homeownership work for you. But it is true that there are some people

who are not ready for homeownership, and that is a-okay. That doesn't mean you failed some sort of adulting test. It simply means you're savvy enough to make the right financial choice for you at the moment. I strongly, strongly recommend listening to Money Rehab Episode 8, titled, Is Buying a House Actually a Bad Idea? To help you decide whether homeownership is right for you right now. To listen, check out the link in the show notes. Money Rehab is a production of iHeartRadio. To listen, check out the link in the show notes. Huge thanks to OG Money Rehab team, Michelle Lanz for her development work, Catherine Law for her production and writing magic, and Brandon Dickert for his editing, engineering, and sound design.

And as always, thanks to you for finally investing in yourself so that you can get it together and get it all.