Home Mortgages 101 (First Time Buyers Guide) Part 2

Christian: [0:11] Welcome to another episode of the Awesome in Seattle podcast. This is your host Christian Awesome, of the Awesome Nossum Group. And once again, I am joined by Mr. Dan Keller of New American Funding. This episode is episode two of a two-part series called Home Mortgages 101. If you missed the first one, that goes over the process before you actually get your offer accepted on a house, so basically everything leading up to making an offer. Today's episode is all about from the time you get

Dan: [0:39] your offer accepted until the time you become a homeowner and beyond. So let's get into it with Dan Keller of New American Funding

Christian: [0:48] So Dan, this is a big step. You finally got your offer accepted. You found a house. What's next? What the heck happens now that you've… You've done all the pre-stuff. Now you're under contract. How does this

Dan: [0:59] work? Yeah. What I like to do in our office is the day that we get a contract over, that means you got your offer accepted, um, I like to have a quick call with my clients. Mm-hmm. And I call it the rate lock strategy call. Mm. Okay? So we do a strategy call up f- or we do a strategy meeting up front prior to your pre-approval. We walk you through everything. We dial in your budget. We walk you through the pre-approval process. We get you pre-approved. Normally, we'll do a, a Zoom call or pre-approval call- Mm-hmm … once you're pre-approved, kinda go over how everything looks, next steps there, get you out shopping. Okay. Yep. Got your offer accepted. You're under contract now. I need about five minutes of your time because I believe that it's the largest financial decision of your life, and mortgage rates move often. They move daily. And so d- and right now we're in a very, very turbulent market. We have been for the last year. And so I think it's really important, my job is to get you the interest rate and the fees that we helped you budget for, right? Mm-hmm, yeah. And sometimes the market can move so fast, and it might move out from under us. Mm-hmm. So the day that we get that offer accepted, I wanna connect with you because now I can lock your rate if we have to. Oftentimes we don't. We wait. So that's the next thing that's gonna happen. And then from there, because you've already been fully underwritten, approved, I'm gonna let you know that the appraisal is next. Mm-hmm. Okay? So we're gonna either lock your rate or float and be in touch to lock your interest rate based off the advice that I give you. Next up, within three to five days, the appraisal will happen, and we'll have it back on our desk. Mm-hmm. And then from there you get to focus on planning to move- Yeah because most lenders, banks, and credit unions do it opposite. Now they're reaching out to you- Exactly … to get you an underwriting and ask you for more documents, and now you're getting emails from title and escrow and realtors and us. It's super

Christian: [2:43] confusing- Yeah … if you wait to- Yeah … get underwritten until after you get your offer accepted. But that's how, what, 95% of- Yeah … banks do it. Yes. Lenders do it. So try not to do that. It's gonna be so much less stressful if you get pre-underwritten upfront. Yeah.

Dan: [2:58] Focus on what matters, and that's planning to move because now you've- Yeah … got probably, what, two weeks, three weeks-ish, uh, till you need to be… And hey, guys, moving is a little bit more stressful than even getting a mortgage sometimes. Yeah. So that's why we do this upfront- Yes … so you can plan for the tough stuff.

Christian: [3:12] All right. So after you get your offer accepted, there's something called earnest money that needs to be deposited. Now, earnest money generally is 1 to 3%-ish- Of the purchase price. It's money that you deposit within two to three days. This is all negotiable. You deposit it within two to three days of getting your offer accepted. Now, this is not in addition to your down payment. This is part of your down payment. You're just depositing it a little bit early. So it will sit at the escrow company, and this is your good faith deposit saying, "Hey, if I back out for any reason not indicated on the contract or within the contract, then seller, you get to keep my earnest money." But there's a lot of ways that you can get your earnest money back if you have contingencies in place. This is something we'll go over when that time comes. But that's one of the first steps after you get your offer accepted and you start that conversation with Dan and his team to get your loan underway, is earnest money. Now, the next thing that you talked about, and I wanna touch on, is appraisal.

Dan: [4:13] Mm-hmm.

Christian: [4:13] So what does an appraisal cost? Does that come out of my pocket at the time of the appraisal? Like, how does that whole process work?

Dan: [4:20] Yeah. G- great question. And so I think it's important to start off by, by letting you know, as a home buyer, the appraisal, due to recent guideline changes and laws in- Mm-hmm the mortgage and real estate industry, you own the appraisal. So yes, you pay for that up front, but it's included in your closing cost. So what you should see is it s- you'll see it subtracted from your closing cost. Mm-hmm. But you do pay for that upfront. The, um- So you

Christian: [4:44] can, like, use your credit card- Yep pay for it. It's what? 700 to

Dan: [4:47] 1000 bucks? It's 700 to 950- Okay … typically. Ish. Yeah. And then, uh, you pay for that upfront. We order it, we manage it, and then when it comes in, it's automatically emailed to you, so the link- the, the lender, the banks aren't holding it- Mm … and holding you hostage sometimes like they did in the past. Yep. So. Yep. Yep. True.

Christian: [5:02] Yeah. And that, that whole process now is much smoother than it used to be- Yep … before the Dodd-Frank Act came into play after the 2008 bubble bursting and that whole thing. There was a lot of issues with that. So I'm glad that this is the way it is now. Much easier. Uh, much better for the, for the consumer. Is there anything that you suggest that people hold off on buying- When they're under contract and hopefully soon closing on their house. So they got their offer accepted. They're about to close on the house. Should, should they go out and start buying furniture? Should they get a new car? How… What, what's the, what's the advice there?

Dan: [5:36] Yes. I give two pieces of advice, and this is just from 15, 16 years of, "Oh, crap, I wish I would've told my client- Yes … this upfront." So what I tell all my clients upfront, just two really simple things. Once you start the home buying process, just don't give your Social Security number out to anyone, unless you ask me or until you close on your home loan. Okay. Okay? That's the big thing because you're gonna start planning to maybe buy or upgrade appliances or furniture, whatever, and then you're gonna go to a store, and it's Memorial Day weekend, and they have a Memorial Da- Day 10% off sale if you open up a credit card with us. Yep. That could ding your credit score. It could impact your debt-to-income ratio. So just refrain from doing that, or worst case, just reach out to me first, okay? Yes.

Christian: [6:16] And that could stop you from being able to purchase the house potentially. Yeah. Like, you don't wanna do this.

Dan: [6:21] Yeah. You don't wanna. It's a big deal. Yeah, it's a big deal. The second thing is, like I said a minute ago, just, just reach out to me. Just reach out and ask, but I never want you… Like, for example, if you got plenty of money in the bank, and you've got great credit-

Christian: [6:33] Mm-hmm … Dan: and you wanna start planning to have furniture delivered or appliances delivered on moving day, it's not a big deal most of the time. Yeah. But if it's tight, it could be a big deal, so just run it by me. Yeah. Just ask. Yeah.

Dan: [6:44] Yeah.

Christian: [6:45] All right. Thank you, Dan. In terms of, like, paperwork that they are going to need to provide to you after they get their offer accepted, so what does that look like? I know they've already gotten pre-underwritten, but I'm sure there's some additional stuff that, that you need to see and-

Dan: [7:00] Yeah, I mean- in order to get their loan going … the good news is we're 99.9% paperless now. Yep. And so really you're gonna have to print off and sign one form, and that's your intent to proceed. Um, and that's it. And so really as far as additional paperwork that you need to provide us, it's very minimal. Uh, you know, we'll go back of course. We gotta go back in for final underwriting after we have your appraisal and your rate lock. Mm-hmm. Right? And then the title.

Christian: [7:25] Mm-hmm. ' Dan: Cause underwriter's gonna wanna look at all of that stuff. And so, like, for example, if your pay stubs are set to expire in regards to we need the most recent 30 days, or your bank statements are set to expire, we may ask you for updated pay stubs or bank statements, but that's about it. That makes sense. Yep. Yeah. All right, so going back to the appraisal, let's say that you're buying a house at, for easy round numbers, let's say a million dollar house, and you're under contract for it for a million dollars. Let's say that for some reason, the appraisal comes in low. Let's say 975. What are the options?

Dan: [7:59] Yeah, so the first thing that we do is we notify your agent. So if obviously you're a buyer and a borrower with us, and let's say you're working with Christian, um, we get that in right away. The, the, the, the reason why the first thing we do is call you is because you're getting that email just like we are.

Christian: [8:15] Yep.

Dan: [8:15] So the last thing I would ever want is for one of my clients to open up an email and be like, "Wait, I thought we bought this for a million. The- this says 975." Mm-hmm. And then they call you and you're like-

Christian: [8:25] Wait,

Dan: [8:25] what? … "What the hell is going on?"

Christian: [8:26] Yeah.

Dan: [8:26] You know? So we'll know right away, 'cause our appraisal management company will say, "Hey, this one came in a little bit low." We're gonna pick up the phone right away and we're gonna call your, your real estate broker. Yep. Okay? 'Cause you're gonna get a copy of that. And really, there's a few things that you can do depending on the market. One, you can dispute the value with the appraiser. Um, I spent a lot of time prior to getting in the mortgage industry 15 years ago coaching college and semi-pro baseball, and I can tell you, I have never ever, ever, ever, ever won an argument with an umpire.

Christian: [8:56] No.

Dan: [8:57] And it's kind of like arguing with an appraiser- Yeah … you very rarely win, right? Yeah. So yes, you can dispute it. Yes, sometimes they do make an error. Mm-hmm. Um, but very, very rarely, okay? A lot of the times we've gotta go back and it's up to you and your agent to-

Christian: [9:12] Yeah … Dan: basically renegotiate. Yeah, so the options from the real estate side, from the contract side are, you can either pay the difference out of pocket, which depending on if it's a competitive market or not, that might be what you wanna do. You can renegotiate the price. So, "Nope. Hey, seller, the price, I know we said we're gonna pay a million, but the appraisal came down, or came in at 975. We need you to drop the price, otherwise we're not buying it." Depending on the situation, the seller might be willing to do that. The third one is you can kind of back out. As long as you have your appraisal contingency in place, you can choose to not go ahead with the purchase. So those are the big three that you can do. On top of what Dan was saying, like maybe you could try to dispute it with the appraiser. If we see some, like, obvious issues, maybe it's a four-bedroom house and they called it a two-bedroom- Yeah that's, that's kind of a big deal. That could definitely change the value.

Dan: [10:03] That's- We should note this too, though. Over the last four years, three years, my team and I have funded well over 1,000 transactions, a lot.

Christian: [10:11] Yeah.

Dan: [10:12] And I can probably count on one hand in the Seattle area how many appraisals we had issues with. Very, very, very rarely. Yep. And so you need to know that first off. The second thing that you need to know, the first thing that we do, we do a full audit of the appraisal. Anytime it comes in low, my processor and I, we're gonna sit down, I'm gonna shoot it over to you, the agent- Mm-hmm … and say, "Hey, did, did this guy miss anything or did this person miss anything?" Yeah, "Let's look at this together.

Christian: [10:32] Let's see what's going

Dan: [10:32] on." Yeah,

Christian: [10:33] yeah.

Dan: [10:33] We got your back.

Christian: [10:34] Yeah, exactly. Yeah. We are here as your team trying to help you out.

Dan: [10:37] Yeah.

Christian: [10:38] Okay, so let's now pretend that you're still under contract, but you're only about a week away from closing on the property. How does the whole down payment thing work? When is that due? Who do you give it to? How does it get there? Do you bring it in a wheelbarrow with pennies? Do you have a briefcase full of cash? Do you wire it?

Dan: [10:55] Do you give our Bitcoin away? Give- Exactly … Bitcoin over to us. Yeah. Yeah. So about six or seven years ago, I learned this idea from another mortgage professional in Florida that I know, and he's, does a really great job. And he said, "Dan…" 'Cause I was having some issues, not issues, but sometimes we'd have a little bit of a bumpy landing into escrow. And he goes, "You know, one of the things that I've always done is," he goes, "about a week out, I do what's called a pre-funding review."

Christian: [11:20] Hmm.

Dan: [11:20] And I was like, "Tell me about that." And he goes, "Well, I call up the borrower, and we go over the closing disclosures, and we go over their name, the correct spelling of their name, how they're vesting on their deed- Mm as a borrower, co-borrower. Um, we go over their total monthly payment. We go over their interest rate. We go over their final cash to close. We go over their first payment due date, and then we walk them through how to get their money to escrow." And I'm like, "Why in the heck have I not? I've, you know- Yeah been doing this for the previous eight years." So I started doing that about six, seven years ago, and it's helped out tremendously. Mm-hmm. So about a week out, you're gonna get that phone call from me.

Christian: [11:52] Yep.

Dan: [11:52] But better than that, you're gonna get an email from my loan processor, Dan Dietrich. Mm-hmm. And so you'll have it in your inbox, and then we'll just go over it. Most of the time we spend three to four minutes to go over it, and there's clear instructions. And now new laws have changed in regards because there's been a lot of wa- uh, money laundering fraud. Mm-hmm. Okay? People phishing. They know that you're doing a, a real estate transaction, so they'll fake an email, and they'll say, "Hey, wire your money here."

Christian: [12:17] Yep

Dan: [12:18] We will never tell you or give you instructions on where and what. We'll tell you what to wire, but you will get private, secure emailed instructions from the title and escrow company- Mm-hmm … on how to get that money to them, 'cause they manage the money. Yeah. So that's really important. We-

Christian: [12:32] Same with us. As real estate agents, we're never gonna give you any sort of wiring instructions. Correct. Never rely on either the lender- Yep … or the agent to give you those wiring instructions. That is 100% on the escrow company. Yep. They are the neutral third party. They are the ones in charge of that. Any time I'm buying a property and I'm wiring funds, I call, 'cause I know the number of the escrow company. I don't look it up in an email that I got from them, 'cause that could be a fake number. I will Google them. I will find the branch. I will find the right person on their website that I know is the closing person, the escrow closer, and I will call them directly and say, "Hey, can I just verify these, uh, wiring instructions real quick?" They're… They get this call every day numerous times, 'cause this is what everyone should do. Yep. And you call them, you verify it, and you go, "Cool. I'm sending this over now."

Dan: [13:15] Very important.

Christian: [13:16] Very, very important step. Yeah. Okay, so we got the, the down payment funds figured out. About a week before, that's when you should start this process. Do all the funds have to come from one bank account? Can they come from numerous different funding sources? How does that whole thing work?

Dan: [13:30] Yeah, great question. So if you're getting gift funds, one of the ways that we like to structure gift funds, because it's less paperwork, let's say your grandfather is giving you, you know, $20,000. We have your grandfather connect with escrow, like you just said. Mm-hmm. And escrow, where we, we'll reach out to them and give them wiring instructions. So grandfather could actually wire the money to escrow- Mm-hmm … from his account.

Christian: [13:53] Directly. Yep.

Dan: [13:53] Directly. And then you could wire your money from your account. So it doesn't always have to come from the same account. Yeah. Um, but t- typically, you as a borrower, what we'll do on that pre-funding review call, we'll ask you, "Hey, it looks like you have $78,250 due at closing."

Christian: [14:09] Yeah. " Dan: Is that coming from your BECU checking account, for example?" ' Speaker: Cause

Dan: [14:13] you have

Christian: [14:13] the bank statement.

Dan: [14:14] You already have it. There you go. We have their bank statement. We already know. Yeah. Yeah. And then so they'll say, "Yeah, it's all there." Good. Okay, so it's all being wired from there. But it doesn't necessarily have to, but we'll plan that in advance if it's gonna be coming from multiple accounts.

Christian: [14:23] Cool. All right. Closing costs. Everyone's probably heard of closing costs. Yep. They don't really know what that means, what they entail, and how much. Yeah. So let's talk about closing costs for a second. We tell our clients to assume about 2% of the purchase price are going to go towards closing costs. So that's in addition to your down payment. We like to say that amount, 'cause we like to be conservative. I'd rather tell you too much than not enough. So plan for that. In a market like this, where there are some deals to be had potentially, you might be able, might, not every situation, but you might be able to convince the seller to pay some of your closing costs. Yeah. Which would be awesome. Yeah. But if not, then these are funds on top of your down payment that will be due at closing. So what is included in your closing cost statement? Yeah,

Dan: [15:12] that's a really good question, and on a podcast it's hard, 'cause, you know, if it was a video or if we were sharing this in person, we could show you, like, a closing

Christian: [15:19] disclosure-

Dan: [15:19] Yes where there's a breakdown. Break it down. Yeah. Yeah. We use mortgage coach software that gives you a really detailed breakdown. Yep.

Christian: [15:24] Which if you have a strategy session with us- Yeah … you will walk away with one of those breakdowns. There you go. It's super helpful. Yeah. So again, if you want a strategy session, AwesomeNossumGroup.com/schedule. You can schedule a strategy session with us, the Awesome Nossum group. We'll bring in Dan. He'll be on the call. It'll be awesome. Yeah.

Dan: [15:40] And that's important, 'cause you're gonna have those numbers up front before you even apply. Yeah. So and we're very transparent with those. We want you- Mm-hmm … to know those numbers. So closing costs in general are broken down. Now, like, let's use Christian's example. Million dollar purchase. Yep. 2%, let's do the math, that's 20K. You're like- Yeah … "Oh my God, that's a lot of money."

Christian: [15:58] Mm-hmm.

Dan: [15:59] Please know that that's not just lender money. In fact, very, a very small amount of that $20,000 is/are our lender fees, okay? Yep. So the lender fees really, let's say there's about 10 different line items for closing costs. Three of them have to do with the lender. The rest are third party, they call them. So you're gonna have loan fees- Mm-hmm … which is basically underwriting and processing. I've seen anywhere in our industry between 900 and $1,800 in loan fees. We're right down, we're right smack in the middle. We're about 1,400. That's your processing and underwriting fee, okay? Mm-hmm. And then you've got discount points. Uh, and that's-

Christian: [16:36] Which is basically if you're trying to pay to have a lower interest rate, you can pay extra money to try and do that. Yeah, yeah. Sometimes worth it, it's sometimes not. That's where we, in the strategy session, and as you get your la- rate lock- Yeah … uh, conversation with Ben- Strategy,

Dan: [16:52] yep … Speaker: yeah, that's where you come up with that that makes sense. We'll go over… Yeah, we'll go over does that make sense or not. And then some lenders do charge, like banks and credit unions will charge a loan origination fee. Mm. We do not. I, I, I, I would encourage you, if a lender is charging a loan origination fee, it's a, uh, it's a, I don't know, a foo-foo cost. I don't think it's necessary, right?

Christian: [17:12] Foo-foo cost.

Dan: [17:12] Yeah, I don't think you need to be paying that. It's

Christian: [17:14] official, official name.

Dan: [17:14] Yeah. You'll see that on the- Or what do you call it? Junk fee? Junk fee, yeah. Yeah, I think it's junk fee. So loan fees, processing and underwriting, discount points, and then your appraisal we'll show under there, and then you might have credit report. Mm. Which is like 45 or $50. Everything else are third-party costs, title, and escrow, and recording fees, and county fees, and flood certificate.

Christian: [17:33] Yeah. Yeah. A lot of that is you prepaying for property taxes and your property insurance. So this is your money that you are prepaying upfront. It can be anywhere from a few months worth to possibly 18 months worth of prepaid property taxes or, or homeowners insurance.

Dan: [17:52] Yep.

Christian: [17:52] So that's a big chunk of that. That is your money. Yes, you are prepaying it. Yes, it's part of your closing costs as when you close on the home, but if you go to sell, anything that's left over in that account will still be yours. Yep. Which is huge. That's super, super kind to know.

Dan: [18:08] Yeah.

Christian: [18:08] That they're gonna give back your money.

Dan: [18:10] And you see it every single month on your mortgage statement. So as long as you make your mortgage payments every month, you don't dip into that fund, that's your money and it comes back to you.

Christian: [18:17] So let's say that I, my transaction is closing on the 15th. When should I expect to sign my loan documents?

Dan: [18:26] Great question. So in our office, we want you signing those at least three days before your closing date. Now, that's ideal. Best case scenario, yes. Sometimes we're doing a really quick closing, like a 10-day closing-

Christian: [18:38] Mm-hmm … Dan: um, or we're battling through an appraisal issue or something- Mm … or the seller has caused a delay, or whatever it might be, but ideally in a perfect world, we try to get you to escrow at least three days before closing. That's why we send a pre-funding review a week before closing. Yep. So there's plenty of notice there. And, uh, and then plus that gives you plenty of time to wire your money and take a deep breath and, and plan. Yeah. That said, if it is a super fast closing or we're in crunch time, you could potentially sign the morning of the closing date.

Dan: [19:07] Yeah.

Christian: [19:08] Which, when it's a super competitive market, that very risk- Yeah … very realistically might be what happens.

Dan: [19:14] Yeah,

Christian: [19:14] yeah.

Dan: [19:15] Rush, rush,

Christian: [19:15] rush Yeah, rush, rush, rush. So logistics of actually signing that stuff, you could potentially have someone come to you, uh, either at a coffee shop, at your home, at your office, um, or you can go into the escrow company. But they will send either a notary to you, or you go to them and you sign there. That's kind of the logistics. Yeah. I know people like to know that and how that works. When do I actually get my keys? That's a question I'm gonna take.

Dan: [19:40] I was gonna say, yeah.

Christian: [19:40] Yeah. So that is on the day of closing. Now, generally, the property will close between, you know, 4:00 and 6:00 PM that day. So don't plan on getting the keys that morning. A huge tip that we can share, we share this in our home buying class every single month, don't plan to move in that night. Just don't. The reason why is because, one, there can potentially be delays, and if you have a moving truck sitting outside and you can't move in because there was a delay and you're not closing until the next day, that's not fun. You don't want that to happen. Number two, technically the seller has, per the contract how it's written, the seller has until 9:00 PM to stay in the home. So they don't have to totally be out of there. They could be cleaning up until 9:00 PM and then we get the keys. But Generally, it's between 4:00 and 6:00. At that point, us, as your real estate agent, will plan a time, schedule a time to meet you at the house. We'll give you the keys, and we'll celebrate, like, however we do that. It's, it's usually pretty fun, but it's, uh, uh, generally toward the end of the day. But again, do not plan to move in that night. That is a recipe for disaster and heartache and extra stress. Just don't. Give yourself a day or two or three, or plan to move in that next weekend just to reduce your stress if you can. All right. So now that you've bought the house, you have the keys, you're moved in, how the heck do you actually pay your mortgage? Like, there's a lot of common questions that we get now after it actually closes. So let's, let's kind of go over those. So that first one, how do you actually pay your first mortgage payment?

Dan: [21:18] No, we suggest your first one is done through carrier pigeon. It's really simple. We send you the pigeon as a closing gift.

Christian: [21:24] Little rubber band on the foot.

Dan: [21:27] No, we're super techy. Like I said, we're, we're 99% paperless. So-

Christian: [21:32] Mm-hmm … Dan: we will send you a via, via direct mail, you will get a, um, a, a welcome package. Yep. And it'll tell you about your first payment, and it's due. Welcome to New American Funding. But you can set up online bill pay, and it's, it's awesome. You can do it all online. Mm-hmm. And then the really great thing about our setup is, you know, you have direct contact information to me if you need anything when you set that up on your little online portal. Mm-hmm. But you have all of your closing documents there, your tax documents for next year, your appraisal. Everything is found within that portal. Ooh, that's nice. So it's super, super helpful. Yep. Set up an online account, and you're good to go. Okay. Or, or you'll get a statement every single month where you can hand write a check- Mm-hmm and send it in if you need to. Yep. So in terms of what is included in your mortgage payment, let's go over that, 'cause I know I get that question a lot- Mm … as well. So what is included in your mortgage payment?

Dan: [22:22] Great question. So, uh, the, the first part is your principal and interest.

Christian: [22:26] Mm-hmm.

Dan: [22:26] Okay?

Christian: [22:27] So principal, let's explain what that is.

Dan: [22:28] Yeah. So based off of the loan amount-

Christian: [22:31] Mm-hmm … Dan: okay, so let's say you bought a million dollar home, for example, just making up a round number, and you put $200,000 down. So you owe- 800,000 … Dan: $800,000. Yep. And then with that comes an interest rate. So let's say you bought right now and the interest rate's 6%, and it's a 30-year fixed. So- Mm-hmm … 6% against 800,000, they're gonna give you a principal portion of that- Mm-hmm … and then an interest portion of that. Yes. So interest is based off of the 6% interest and the loan amount. So the principal part of that payment every single month pays down what you owe against the loan- Yep, your loan balance goes down. Yeah Yeah. Pays down your loan balance. The interest is the price for financing a home. Yep. You don't wanna pay interest, then pay cash for the home. Yep. So principal and interest. Now, if you put down less than 20%, so the example that I just gave you, a million dollar home, $200,000 down, you put down 20%, so there is no PMI, private mortgage insurance. If you put down less than 20%, you have monthly PMI. Mm-hmm. So you would see that as a line item on your mortgage statement. And then we're gonna help you set up homeowner's insurance. Mm-hmm. And then based off of the county that you purchased the home in, there's gonna be property taxes. So all of that's included on your mortgage statement. Here's a big question I always get. "Dan, I'm buying a condo. Where's my HOA dues?" Let's say it's a $500 a month HOA fee. Yeah.

Dan: [23:43] That's not associated with your mortgage, so you'll get that from the homeowners association-

Christian: [23:48] Yep … separately. They will bill you directly. Yeah. Yeah, not through the mortgage. Yeah. Yeah. So let's go PMI, 'cause we get that question a lot, too. I know we kinda touched on it, but what is PMI, private mortgage insurance, and why would you have that?

Dan: [23:59] Yeah. So real quickly, private mortgage insurance, just like it is, the I in it is insurance- Mm-hmm … but it's insurance to us the lender-

Christian: [24:07] Not you, the borrower

Dan: [24:08] not you. It's we're charging you an insurance premium because you put down less than 20%. Mm-hmm. And when I say we, it's Fannie Mae and Freddie Mac. They make the rules- Yep … we just enforce them. And so if you put down less than 20%, you're required to pay private mortgage insurance, okay? And so once you do pay down your principal balance to where you're in an equity position of greater than 20% or more equity-

Christian: [24:31] Mm-hmm

Dan: [24:32] you can apply to have the PMI removed.

Christian: [24:35] Yep.

Dan: [24:35] Okay? So typically it's about, if you did nothing, it's about a two-year window of where you have to pay private mortgage insurance. But you could bonus.

Christian: [24:42] Mm-hmm.

Dan: [24:43] And two months down the road say, "Hey, Dan, I just got a $50,000 bonus. I wanna apply it toward principal reduction." Yes. And if you're under that, that e- if you have 80% loan-to-value or better-

Christian: [24:53] Mm-hmm … Dan: then we'll help you petition to have your PMI removed, and you can remove it. Yep. So there's two different ways that your property value or your equity position can increase. That's the market just appreciating naturally- Yep or you adding a ton of value to your house. And we have a podcast all about how to spi- find- Oh, yeah … a deal. And on there you can get, learn a lot of the tips and tricks, and if you need more info, just reach out. We can set up a strategy session. We can try and help you find that deal. But by adding value to your house, maybe you finish off the entire basement, and you add another bathroom and a bedroom and a big rec room or media room or, or whatever, and you redid the kitchen, and you whatever, you increase the value of the home. Now, you could potentially have an appraiser come out, reappraise the house, and apply to potentially get rid of your private mortgage insurance at that point.

Dan: [25:46] Yep, or get a bonus and pay it down. So there's really three ways there. Yep. So yeah, a lot of it is just staying in communication with your mortgage professional. Big banks, credit unions, you're an account number to them, right? Mm-hmm. They're not gonna check in on you- They're not gonna check … and say, "Oh, hey- Yeah … it looks like you have equity." So- Yep … it's kind of on you. But yeah, if you, uh, if you're adding value to your property, that's a really easy one. "Hey, we did this. What do you think?"

Christian: [26:05] Mm-hmm. And then

Dan: [26:06] we can help you that

Christian: [26:06] way. Yeah. And reach out to us as your agent and your lender to see if we can figure out if it's worth going down that route before you go down it and you spend any money or anything like that. Yeah. All right. When is your first mortgage payment due? That's the huge- Yeah … question that we always get asked. Everyone assumes it's the first of the month for the upcoming month, just like rent.

Dan: [26:26] Well, you asked me er, a minute ago, so hey, we closed on the 15th. So- Yep … let's say, I don't know, it's February and February 15th, you close on the day after Valentine's Day, okay? Mm-hmm. Your first mortgage payment would not be due March 1st. It's actually due April 1st.

Christian: [26:41] Yeah. Yeah. So you're paying in arrears.

Dan: [26:43] Yep. Yeah. Plus- And you'll see that on your closing disclosure- Yeah … too, that you're paying from the 15th to the 1st of March, you're paying- Part of your … for that interest. That's that prepaid interest. Yep. And then your first month is actually tacked on. It's t- you don't really start your amortization at that point. So yeah, it's… The best way to explain it is when you pay off a mortgage- Mm-hmm … you're like, "Oh wait, I thought I owed this." Your first payment didn't start. You don't get a free… Yeah. A lot of lenders will say- A free month … "You get a month off. You get a free month." No, you don't.

Christian: [27:11] You're still gonna pay it.

Dan: [27:12] You still gotta pay it,

Christian: [27:12] yeah. Okay, so along, or in addition to that paying your first mortgage payment, uh, can you use like a credit card to pay your mortgage?

Dan: [27:22] Um, no. I, I don't think you can finance financing.

Christian: [27:28] But man, if you could, you could rack up some serious airline miles.

Dan: [27:31] Serious. I would not doubt that someone's gonna try to crack that code one of these days, but no. Yeah. You're gonna have to set up i- set up payment through your checking account.

Christian: [27:40] Okay. One thing that has happened, and I know a lot of people have heard horror stories of this happening, I've had it happen to me a lot, but it's not really that big a deal. I close on the home, I get a letter two, three, four months later, "Your loan has been sold." What does that mean, and how does that affect me?

Dan: [27:58] Yeah, that's frustrating, and you know, I, I, I was at New American Funding for a big part of my career, and then I left and went to a couple different mortgage companies, um, chasing that greener grass- Yep and found out that the grass isn't necessarily greener. One of the reasons why I'm at New American Funding is we are 100% servicer. Mm. And nothing's more frustrating as a mortgage professional getting a call from a client or a realtor going, "Hey, what happened with my mortgage? I thought it was… I thought… Are you still my lender?" And so-and-so. Yeah. So they sold, what they did is they sold the servicing. Yeah. And, and mortgage companies do that, but that's, again, why I'm here, because they don't do that. They service 100% of their mortgages. Mm. Which is, for me, it's valuable. I think for the, the borrower, the home buyer, it's, uh, very valuable too. Mm. Because now if it does sell, you've gotta change how you, you know, how you pay your bills. You don't know if it's valid. You know, you don't know this company. Yeah. A lot of, a lot of the times these servicers are no-names. Yeah. They are. And then you go look them up and they have a million bad reviews.

Christian: [28:53] Exactly, and y- the letter that you get looks so generic and- Yeah … bad that you're like- Yeah … "This can't be real."

Dan: [28:59] Yeah. Yeah. So- So just be careful of that. Yeah. But it, it happens.

Christian: [29:02] When in doubt, reach out to your lender. Yeah. That's really the-

Dan: [29:05] Yep … Speaker: the rule of thumb. Yep. Let's pretend that, you know, I got a 30-year loan. After a year and a half, uh, I wanna refinance, or I wanna pay it off, or I wanna sell. Are there prepayment penalties? For paying that off before that 30-year term? Really great question. Um, not with me and, and we don't do that. We wanna, we want to see you pay off your mortgage or pay down that principal balance. Mm-hmm. Uh, some lenders do charge prepayment penalties. That's a valid question to ask. Yeah. And then you're gonna wanna see that in writing, too. So on your closing disclosure- Mm-hmm … um, it should, it should show that, and then you can… It's just a, a good conversation to have with your lender. Yeah. There's a kind of a sub question to that, too. What if you were to refinance or pay off your mortgage within the first six months of the mortgage? Mm-hmm. Uh, it's not advised because the mortgage, the, it hasn't seasoned yet. These are 30-year fixed rate mortgages. These are home purchases, not hard money- Yeah … like flip loans. And so that could cause an, an audit or an investigation, but there's no… no, there are no rules saying that… Let's say you get a mortgage and two month, two months later, it's rate, rate, rates dropped 2%.

Christian: [30:12] Yeah, and you wanna refinance 'cause you

Dan: [30:13] can get that better rate. You need to refinance- Yeah … because that could go away. Yep. And so some lenders will say that you have to pay your mortgage for six months. That's just not the truth.

Christian: [30:21] Yeah. Yeah. It's 'cause they don't wanna have to pay back bonuses- That's it … and, and stuff that they got paid.

Dan: [30:25] We wanna help you, and if it benefits- Yeah … you to refinance, then we help refinance you. And like I said, we're the servicer, so it makes sense.

Christian: [30:33] Mm-hmm.

Dan: [30:34] We wanna keep your servicing. Yep. We wanna retain you as a client, so- Yep … yeah, no prepaymen- no prepayment penalties.

Christian: [30:39] So we talk a lot about house hacking. We talk a lot about buying a property as your primary home, and then after a year, because in your loan term, in your loan documents, you're saying, "Hey, I'm gonna live here for at least a year." Mm-hmm. After a year, then I'm gonna buy my second house and do that over and over and over again. Am I in violation of something if before a year is up, I move out and I'm not living there anymore?

Dan: [31:04] Great question. So it all comes down to, uh, sort of a gray area. It comes down to intent. Got it. And we all wanna do the right thing. Christian and I both love our jobs, and we don't want- Yeah … the CFPB or, or DFI or anyone coming down- We've

Christian: [31:16] both been doing this a long time. Yeah. Our reputation is gold. We do not want to tarnish that- That is- … for any dumb reasons. Correct.

Dan: [31:22] Yeah. So what, what I'm gonna tell you is that to get an owner-occupied mortgage rate, which the mortgage rates for owner-occupied purchases are way lower than investor purchases- Yep, and

Christian: [31:32] you don't have to have as much of a down payment, either.

Dan: [31:34] Correct. Yeah. You're putting less down, so you gotta follow the rules. The guidelines state that your intent has to be to purchase the home to occupy it. Now, life happens. Job transfers happen. Mm-hmm. If you call up Christian and go, "Hey, you sold me a home eight months ago. We've got tenants to put in it, and a home came for sale across town that we can get a smoking deal on and we're gonna move into that." We're gonna have to have a conversation about that one-year mark, 'cause the guidelines say you need to occupy the home for one year. So you have to be cautious of that. But if something were to come up, like life happens, you split up with a partner, um, you get a job relocation- Yep … something like that, then life happens, and- Yep obviously the regulators understand that. Yeah. It's fine

Christian: [32:13] there. And we've definitely had situations where, you know, people did get a job, or like their dream job happened, even just months after- Yeah … which has happened, more than once. We've been doing this a long time. Yeah. We've seen a lot of things. Yeah. Um, and it, it makes sense. Like, you can write a letter, you can explain it, and they're not gonna… Like, you're not gonna get in trouble for that.

Dan: [32:32] Here's the hard part. You're not gonna cheat the system. Yeah. Because what happens when you buy a home, there's a note. Mm-hmm. And it's recorded, and that note says that it's for an owner-occupied purchase. Mm-hmm, mm-hmm. And then the rates on it, the underwriter is gonna see that, not only that mortgage on your credit report, but they're gonna see the note recorded with that county.

Christian: [32:49] Yep.

Dan: [32:49] And they're gonna question it. Yep. And the last thing you wanna do is lie on a mortgage application. Oh, yeah. Please trust me on that. It's

Christian: [32:54] called fraud. It's called fraud. Yeah. That's a big deal. Don't do that. Don't do that. Don't ever do that. Okay, so I think that's it. Yeah. Um, anything else that you wanna add to that?

Dan: [33:02] Man, this was thorough. This was a lot- Yeah … deeper than I actually thought it was gonna be. I mean, there's everything here that you, that you at least need to know. I would encourage you. I… Like, we say this all the time at our class. Yes. If, if, if my sister were to come to me and say, "Hey, I wanna buy my first home." Mm-hmm. "What do you suggest?" I would say, seriously, I would literally say this, Angie, if you're listening to this. They already bought a long time ago, but I'm just saying family members or friends, I would say come to one of our home buyer classes.

Christian: [33:25] Yes.

Dan: [33:25] It's gonna give you the 30,000-foot view. Yep. Then sign up for a strategy session. Yep. That's where we're gonna take that view and zoom in on your own- Mm-hmm … personal situation. From there, have a private mortgage planning consultation, then have a buyer's consultation- Yes … with your realtor.

Christian: [33:40] And then start looking for houses. Then start looking. Not until then.

Dan: [33:43] Yes. That's the winning formula. This is

Christian: [33:44] the process. Yeah. Like, it- get your budget figured out, then, like, big picture. Yeah. Budget figured out, then start looking for a home. Yeah. But there's numerous steps to get your budget figured out. So be smart about it. Don't go shopping for a home before you've figured out your budget- Yeah 'cause that's when we see a lot of issues. Yeah. Um, most of our cl- um, I don't know any of our clients over the last at least 10 years that have done it that way, because they've come to our Beers and Home Buying class. Beersandhomebuying.com (opens in a new tab). We have a class every single month, other than December, all throughout the year, all throughout the Puget Sound. So go there, see where we're at next month. Come to the class. It's only an hour long. There's no pressure. It's not a, not a timeshare presentation or anything like that. It's literally an hour long, free beer, sometimes food depending on the venue, and, uh, it's super no pressure and fun. Um, and then we'll stick around and answer a bunch of questions. We usually stick around, I don't know, 20, 30 minutes. Last class, we were there almost an hour after- That's awesome … answering questions. Yep. Um, but you can get up and leave after we're done with the presentation. But if you wanna stick around and listen to those questions, feel free. So that, that's really the, the steps. If you're ready to have a strategy session, you can always do that. AwesomeNossumGroup.com/schedule. Totally free. Again, there's no obligation to do anything. We're not gonna pressure you. Neither of us use any sort of sales techniques or pressure or anything like that. Well, we, we'd offer

Dan: [35:04] you a

Christian: [35:04] beer. We just don't believe it. We'll offer you a beer. Yes. That's what we'll offer you. Yeah.

Dan: [35:07] That's it.

Christian: [35:07] And- and a bunch of our smarts. We'll share that with you as well.

Dan: [35:11] You get so much value out of it. By following that formula I just discussed- Yes … you're gonna understand the market. Mm-hmm. 'Cause the market changes. It's seasonal and it's cyclical. Yep. You're gonna understand the market, and you're budgeting, and you're just gonna be so… You're gonna be educated when it comes time- Yes … to making the largest financial decision of your life, versus just, "Hey, let's give this a shot and see how it goes."

Christian: [35:28] Exactly. Yeah. Don't do that. All right. Well, thank you Dan so much for joining me. Do you wanna see your, eh, whatever number it's called? Yeah. Just t- just to… I know you don't need to probably, but just to, just to be safe.

Dan: [35:39] On YouTube we'll have it on the screen. Yeah. But yeah, we gave a little bit of mortgage advice today. And so I am a licensed Washington State mortgage professional. My MLO number is 115349.

Christian: [35:51] Niner.

Dan: [35:51] Niner-niner.

Christian: [35:53] All right. Thank you so much for listening to this podcast, The Awesome in Seattle podcast. If you got some value out of this, please leave a review. The only way that people listen to us is… Not the only way, but a big reason that people find us is because of these reviews. If you like it, subscribe. We have a new episode every other Thursday. We've been doing this nonstop for over three and a half years at this point. Tons of information, tons of helpful stuff. So please help us out by returning the favor and subscribing or leaving a review or both. That's it for us. We'll see you in two weeks. Bye.