Start With A Win - 20% Down Myth

Episode Date: April 10, 2019

On this episode of Start with a Win, our guest is Ward Morrison, President of Motto Mortgage. He explains to listeners the difference between traditional banks and mortgage brokerages when it comes to getting home loans and demystifies the mortgage process for those who are considering purchasing their first house. The main thing to keep in mind is that mortgage professionals at brokerages such as Motto Mortgage are able to shop around for the best loans for their customers. Gone are the days of a mandatory 20% down payment and only being able to choose between the few loan options presented to you by your bank. Much like independent insurance agencies are able to curate policies from multiple sources for their customers to review, mortgage brokers put in the extra effort to find loans that fit their customers’ specific situations. For instance, the typical down payment for conventional loans such as FHA is 5%, but sometimes 3.5% is all that is required. Through VA loans, veterans are able to secure home financing with 0%, and people living in rural areas can take advantage of the 3-5% down payments through USDA loans. If homeowners do not put 20% down, they are subject to monthly mortgage insurance payments, but a loan professional would be able to talk them through that process and ways to avoid these payments with things like piggyback loans.Overall, Ward wants to encourage potential homebuyers to be aware of their credit scores, take any necessary steps to improve them, and think through their sources of funds before seeking a home loan. But once you are ready to take the first step, a mortgage professional will be right there to meet you and guide you the rest of the way.Links:Motto Mortgage: https://www.mottomortgage.com/ Connect with Adam:https://www.startwithawin.com/ https://www.facebook.com/adamcontosREMAXCEO/ https://twitter.com/REMAXAdamContos https://www.instagram.com/REMAXadamcontos/ 

At top of the 12th floor of the REMAX World Headquarters, you're listening to Start With a Win with CEO Adam Kantos. And from top of the 12th floor of REMAX World Headquarters here in Denver, Colorado and Motto Mortgage World Headquarters, mind you, Adam Contos here with Start With a Win. Today, we have the pleasure of having with us the president of Motto Mortgage, Ward Morrison, right here in the studio to talk about mortgages. How are you doing, Ward? Great, Adam. How are you today? Doing great. Thank you. You are our first repeat guest on the show. You know that?

I am honored, man. That's exciting. Hey, it's awesome. So, hey, we have a lot of questions that come in about mortgages. So we want to talk to you a little bit about getting a home loan today, if you have a few minutes to share with us. I'd love to talk about getting home loans. That's what we do. There you go. That's right. Motto Mortgage. So real quick, briefly, why don't you tell us about Motto Mortgage before we get started here? Sure. We're a mortgage brokerage franchise. We've been in existence a little over two years. We've sold about 120 franchises in our first two and a half years, which puts us in some of the top, fastest-growing franchises out there.

But our main goal is to serve families. Obviously, get home loans for the right people in the right homes. That's what we've been mainly concentrating on. We figure the rest will take care of itself. That's awesome. And you guys also participate in a community give back, the Model Mission Against Hunger. Tell us about that as well. Yeah, it's been a great program. All great companies, much like, you know,

REMAX with you guys, want to give back. We want to give back to our local communities. So with ours, we developed the Model Mission Against Hunger. We know hunger is a growing issue. Home affordability is a crisis. A lot of different things are going on that can be, um, detrimental to people and, uh, put them on the street or just make them, you know, hungrier than ever before. And so we're trying to give back in our local communities. We connect our motto franchises with local food banks, local food pantries, churches, charities, whatever it might be in their communities so that they can do food drives to try and feed the hungry. That's awesome. Thank you for doing that, Ward. I appreciate all the, all the efforts you guys

have to help the community. You know, there's, there's nothing, you know, nothing worse than a child going to school hungry in the morning. So, you know, you guys do so much to, to help with that. So let's get into the topic of mortgages here. And really some of the, you know, one of the biggest myths around mortgages, that myth being that you need a 20% cash down payment to buy a home. So, you know, this is a challenging thing for new first time home buyers, for people who don't know what the rules are in getting a mortgage to buy a house. And we've always been told you need that 20% down. So is that true?

You know, absolutely not. I mean, that's the biggest myth out there is I think it's our, you know, parents generation or, you know, prior generations talked about 20% down, that was sort of the standard, the norm. But you know, very short order, probably the last 20 years or so, we've seen that mortgages are not one size fits all. There's different levels of down payments that you can do. You just have to get the right loan originator to work with you to understand, you know, the programs that are out there. And it's a journey, right? You want to make sure that, you know, the millennials out there are understanding or new people getting in the market that 20% down is not mandatory that, you know, because saving for a down payment can be tough. And we want to be very clear to them that you don't have to save 20%. So on that $200,000

home, you don't need, you know, $40,000 to put down. There's alternatives that you have out there. So you mentioned something that I want to dig a little bit deeper into here. You talked about getting the right mortgage professional to help you. Tell us, what is the difference between the right mortgage professional and the wrong mortgage professional? I mean, give us some insight into the spectrum of service you can expect from people out there. And what do we need to look for when it comes to choosing a good mortgage professional? Yeah, I think the first word that you said there is professional, right? You got to find somebody who's doing this as a full-time gig, a full-time career. That's the first thing so that you have somebody who's professional. Second is somebody who can, I think, provide you options. Options are some of the most important things of,

you know, looking at you. No one loan is the same. Nobody's just a vanilla product. Nobody's walking in with an 850 credit score with, you know, perfect everything. So it's finding a person who can shop options for you. And that's why I think in the model concept, we are mortgage brokers, as opposed to let's say a retail bank gives us a ability to shop loans on behalf of our consumer and a professional manner to make sure we get the right product with them. That's the most important thing is finding the product that fits you and the type of income you make, the type of money you have to be able to put down, the type of liabilities you have. That's the key. And you just brought to me another question here. So you talk about the difference

between a bank loan officer and one of the motto professionals. And you talked about a bank bringing you product versus motto bringing you product. And there's a vast difference there. What, I mean, you know, a bank only has to show you so many products and it's theirs, right? Yeah, it's always theirs for sure. That's the first thing. And I think, you know, the bank, you know, I can't totally pick on them, but the retail loan officer who's sitting in a bank is expecting customers to walk into them. The ones who are in mortgage brokerages, like model mortgages, are hunters. They're out there trying to find consumers. They're trying to work hard for that consumer because they don't get paid unless the loan closes.

Whereas sometimes in a retail situation, that person is a salaried person who, you know, not necessarily is hungry or looking at options for you. They just want to put you in the first product they can get you in without understanding everything about you sometimes and getting you the right product. So I think the mortgage broker just tends to be hungrier and wants to work better for the consumer. Wow. Some great ideas there. So let's get into some popular alternative loan options for that 20%. What are some of the alternatives that are available here if you don't have to go get a 20% loan? Yeah, I mean, the biggest one that people pretty much always understand is the FHA loan. The FHA loan is one of the best loans out there, particularly for new home buyers to get into. And you can put as little as three and a

half percent down on a home. So, you know So that's probably the one that comes to mind for most people. But I want to be very clear, there's other conventional loan products out there that will offer anywhere from 3% to 5% down. Five is probably the typical on a conventional product, but there are some that will go all the way to 97% loan to value. Got to make sure I explain some of that terminology. So if you put 3% down on the home, the loan that you have is 90% of the value of the home. So if it's 5% down, then 95% is a loan.

And in that case, 5% is pretty standard on conventional. But I take it from your perspective, Adam. I know you're a veteran and been in the military. People forget about VA loans. A lot of people have veteran status. And you can get those down at 0%. And that's one of the biggest benefits of being a veteran in the United States here is that 0% VA loan. So that's one of the most exciting opportunities, particularly for our veterans out there. And then last, I would say, you know, you can look at USDA or the rural loans.

Similar in nature, you can put a very little amount down like that 3%, 5%, depending on the case. Yeah, so those are some of the options. And there are a couple stipulations for these different types of loans, I assume. I know there's, you know, mortgage insurance, some things like that. Can you give us a little bit of insight into, you know, kind of the overview of that for somebody who's never dealt with this type of situation? Yeah, there I think, you know, consult with your professional. Always talk to the loan originator. But on programs like FHA, the VA, the USDA, there are income requirements. So you can only make so much in your particular marketplace. You can only have so many liabilities. So each one of those

products are going to have some different stipulations or conditions. And the key is to consult with your professional, tell them I'm looking for all the options where I can put as little amount down on this house as possible. We want you to talk to them and talk through those scenarios because, you know, putting that amount down means you have more money to put into the house, whether you need to fix it up, whether you need to buy furniture for your first house, whatever it might be, you want to free up your money by borrowing a little bit more a lot of times. But one thing I do want to remind people that if you don't put 20% down, you will have what you call that a mortgage insurance. And they're all alternatives to even

get away from that nowadays. So something that's making a comeback is called a piggyback loan. So with that case, you put 5% down, you actually get a 15% second loan, and then you have an 80% first loan. And so that first loan is no mortgage insurance. And then you have that small little second, that's 15%, and you only still put 5% down. So there's some great alternatives. You just got to talk to the right great model loan originator, and they'll help you through that particular product. Awesome. That's some great insight. What are some of the things that people need to keep in mind if they plan on putting less than 20% down? Anything else that comes to mind about this? Or really, let's just expand that question. What should people be keeping in mind when they go to apply

for a loan as well so that they can make themselves as presentable to the lender as possible? Yeah, I think the first thing everybody should know is their credit score. And that's probably the most important thing. You see it all the time on, you know, Credit Karma or all the different credit commercials out there, but it is one of the most important things that we rate people on in the mortgage industry. So it's always finding out what your credit score is. And it's typically from 850 on down and question on where you're at. And typically a lot of the rates that are beneficial consumers start right at about 720. So if you're below that, the key is, is how can you quickly, rapidly fix your credit score by maybe, you know, sending a letter to a union or doing something to improve your credit by paying

off a certain credit card, whatever it might be. Those are some of the things that we always tell people first. And then I think, you know, looking at ways to get funds to put down. You don't always have to save it yourself. You can receive gift funds. We all hope that we have, you know, people who want to gift us funds, whether it's parents, grandparents, you know, other people. We just have to make sure always in mortgage that it's truly a gift. It's not another loan. And if you have that, that's a great way to get a head start on getting your first home by having some support through a gift. So you can even do things like that. That's some great information. I feel like we just did a crash

course on getting a loan today. Yeah, a little bit. Hopefully we didn't overwhelm anybody with the vernacular of mortgage, but you got to start to learn some of it if you start looking at homes. That's right. I guess the biggest thing I took away from this is this is not as scary as everybody thinks it is. I mean, you know, a lot of people look at the home buying process and they say, my gosh, I don't know what to do. But really, the best thing to do is to start by talking to a professional and they can kind of hold your hand and walk you through this. And it's not that difficult. It's really not. I mean, you got to have somebody who's doing it on your behalf, that professional who's working on behalf of you to get you in the

right loan product that fix your lifestyle. Whether you're a veteran, whether you're not a veteran, whether you're just a normal person walking in for the first time buying a house, just find that professional who's going to fight and advocate for the best loan for you. That's the key. Awesome. Well, thank you so much for being with us today, Ward. And where can people find out more about Model Mortgage and where to reach out to if they have any more questions? Yeah, at Model Mortgage, you can always go to modelmortgage.com. That's our main website. And then the key there is you can click on our office link and find offices near you that are ready, willing, and able to assist you in that loan process. So we're excited to be there.

And come on out to modelmortgage.com and look us up. Great. Thanks a lot, Ward. And I appreciate you being on Start With a Win. Thank you so much for listening to Start With a Win. We hope you enjoyed today's episode. Don't forget to go onto iTunes and subscribe, write a review, or rate the show. It helps us get the word out and reach more people.

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