Insider’s guide to buying your home
Today is all about mortgages! John Murphy, vice president of mortgage lending at Consumers Credit Union, discusses the importance of pre-approvals, improving your credit score and prepping your savings account for unexpected expenses. Listen today for tips and tricks to make sure you’re ready to buy your first home!
Lynne Jarman-Johnson (LJJ): Money I’m home. Welcome in everyone. This is Lynne Jarman-Johnson with Consumers Credit Union and we’re talking finance to fitness today. Today is a very important conversation. Why? Because it’s about you and your home, and joining us stay is John Murphy, he’s our vice president of mortgage lending. John, thanks so much for being with us.
John Murphy (JM): My pleasure Lynne, my pleasure.
LJJ: Hey, you are an expert in mortgage lending. Tell us a little bit about yourself. How did you get here and a little bit about your experience in home selling, home buying and getting the people their first home?
JM: Well, it’s been a long journey about 30 years’ worth and…
JM: Experienced, seasoned and I’ve done pretty much everything in the business from processing loans to underwriting loans and originating loans. And ended up here from Atlanta. I’ve been here for almost seven years, and of course love it. And we’ve grown it tremendously from six people, to now almost 40, so it’s been a real fun, fun journey for us.
LJJ: The goal in home ownership is really to be able to have someone take pride in how smooth a process went. It’s an emotional journey.
JM: Well, it is and so much of this journey is dictated by outside parties, mainly the federal government, and that’s what all lenders have to struggle with right now is we constantly hear why it shouldn’t take this long, right?
We just sent a rover to Mars. It seems like it’s a trip to Mars, six months to do a mortgage. It shouldn’t take this long but it’s not entirely in our control, so we try and make it as easy and transparent as possible, even though that we know that there will be road bumps or speed bumps in every process.
LJJ: So, let’s talk about the process and the different people that are involved, it seems like. Well, jeez, this is easy, I’ve seen it, I’ve seen it on TV. All I got to do is push a button and I got a mortgage.
JM: Right, right, and you can push a button and there’s the exact same people that we have everybody else has, which is your loan officer, your processor who handles the flow of paperwork, the underwriter reviews it for a final decision, and then you’ve got outside parties, appraisers, title companies surveyors, home inspectors, realtors, everybody has a piece of the pie, and regardless of whether you go to a very small one-man or one-woman mortgage broker shop or the largest lender in the country, the process will still fundamentally be the same.
LJJ: So, what is the differentiator or what can be the differentiator to make someone smile once they take those keys and open up their door.
JM: Well, I think for us, the competitive advantage that Consumers Credit Union and lenders like us have is consistency of communication.
The larger you’re as a lender, the more fragmented you have to be when you’re processing ten thousand loans, it will not be a personal experience. When you’re processing a thousand loans you will lose that experience when you’re processing 200, we can still afford, at this point, to have very personal communication from the loan officer directly to the member or the borrower in this case, and that’s something that’s a differentiator for us, and creates an overall much better experience from initial application to close of escrow.
LJJ: How important is a pre-approval? And when someone has that, is that pretty much then a done deal? Hey, I can get that house.
JM: Well, that’s good question, to a pre-approval differs from a pre-qualification in that we do check income, assets and credit for a pre-approval, and that’s really what… That’s the gold standard for realtors to know that you’ve been going through the pre-approval process by a local lender.
LJJ: So, there’s not going to be a surprise at the end.
JM: Well, that being said, it’s a pre-approval, right? It’s not a, an approval. So, the documents that we used to generate that pre-approval as we go through the underwriting process, there may be additional questions that come up and occasionally the pre-approval doesn’t yield a final approval because of things that we were uncovered during the processing and underwriting of the loan.
About a two out of 100 that will happen, and that’s not pretty but it’s for us, it’s minimized because we do such a good job of front.
LJJ: Right. So, when someone is looking to buy a home, what should they first get a realtor should they first get an MLO? You mentioned an MLO, what does that stand for?
JM: Well MLO is a mortgage loan officer. And right now, the industry is kind of split half people. Half the people get a loan officer first and half people get a realtor first. Alright, really when you’re thinking about it. Realtors get excited when they get a phone call from somebody who wants to buy a house, or that said that’s how they make their living.
But a lot of people that call that realtor have not gone through the process of seeing what I can actually afford. So, we like to say, get your finances in order first before you get excited about looking at homes and school systems, and pretty scenery in the backyard. Let’s do the nuts and bolts first, and then you pick a realtor on line or we can suggest a good realtor partner, but let’s take care of the details first ’cause they’re not very fun.
LJJ: They aren’t, are they?
JM: No, they’re not.
LJJ: I listened to somebody the other day, they were talking about putting it off around a home, and they said, “You know we’re going to wait two months, because we really do want to tweak our credit score up a little bit.
Why is that important?
JM: Well, it is, I mean, that’s smart thinking it, it’s smart thinking. The idea sometimes differs from the execution, because it’s very difficult to manipulate your credit score and a 60-day window. That’s a topic for another podcast.
LJJ: Well, let’s do that, and that someday.
JM: Alright, let’s do that again. Because people have that misconception that I can change my score almost overnight or within one reporting cycle, but yes, a score in the mid-six hundreds will cost you versus a score in the mid-seven hundreds will cost you on a typical loan an extra 10 to 15 thousand dollars over the life of the loan.
It’s that significant.
LJJ: That significant.
So, let’s get into some of the basics. So, when we talk about… You’ve talked about what an MLO is, a mortgage loan officer, for someone who’s coming in right at the gate, and they just say, “You know what, this is what I want to pay per month, this is what I can afford per month. Is that a smart way to think, or should you really know like, what does rate mean? What does APR mean? What are the things that are making up that number?
JM: Well, we like to keep people a little bit above the acronyms of the mortgage business, like APR and PMI we’ll explain all of that. But you’re exactly right. Most people come in and say, I can afford 1200 a month total that’s it, that’s it. Now, it may be 1210 but not 1500. So, we’ll back into property taxes, home owner’s insurance, private mortgage insurance, and then what’s left over goes for principle and interest, and these are all guesstimates at this point, but we can usually narrow down to within a 10% range, and then we provide that information to the realtor. So, they don’t oversell them, or upsell them on a house, they really may be able to afford on paper but not personally.
LJJ: And then it becomes stressful.
JM: Well, very stressful. And that’s when you end up with bean bag chairs and two by four tables which might be back in style.
LJJ: Well, you know, I like that, I like the thought of, what is it you forget? You mentioned one of the things the words and the terms is escrow and those dreaded taxes. People just forget and then all of a sudden if they didn’t do an escrow what happens?
JM: Well, yeah, we really recommend people even if they’re putting down 20%, which is really the breakpoint of non-escrow vs escrow requirement that they always say. We hear this all lenders, here this, I want to control my own money. Earn the interest. Well, on a typical escrow account, you earn, maybe a dollar or two a year, in interest, but what you’ll give up is the discipline of having 3000 to 4000 in December when you can least maybe afford it, versus 12 payments during the year and you build up to that point.
LJJ: Right, right. You know, you’re also really you forget, so you just go through life and you forget.
JM: Well, there’s other priorities. Vacations, etc. and you say, “Well I’ll get caught up next month. So, escrows, unless you’re very savvy and sophisticated, but even some of our high-end borrowers’ members want to escrow, because it’s simpler for them to manage their money that way.
LJJ: Well, it’s almost like a savings account that we’ve talked about, about important those sub-savings accounts are for home maintenance.
LJJ: Which… How much do you counsel on making sure people really look at the maintenance that is involved?
JM: You know on an existing home; our kind of standard is 1 to 2% of the purchase price per year in maintenance and upkeep and just think about it.
JM: A furnace will blow right through that on 150000 house that’s going to be 5000 to 8000 dollars, but you should be allocating 1000 to 1500 a year just for the painting and the interior minor innovations, without having to go into debt without… Yeah, we got having to use a 26% card at one of the big box stores.
LJJ: What’s your favorite part about… Is it seeing the individuals who succeed? Is it helping your team help our members succeed?
JM: Well, I think it’s, for us, it’s seeing the entire team come together and have a successful transaction, which is an on-time closing that was reasonably set at the outset. So, the loan officer did their job by not over-selling, over committing, over-promising. So, we manage expectations. The realtor supports our decision, and we get continued business from that realtor because it was a successful transaction and people were smiling at the closing and we’ve been to closings where people are not smiling.
So, we like to have closings that are always successful, and everybody’s happy and satisfied with the job that we did.
LJJ: You can’t over-communicate on a mortgage.
JM: No, you can’t.
And especially when the news is not good, it’s even more important to communicate when that’s not going right, because it’s so complex. There will be things that come up that people need to know about, and it doesn’t mean it’s going to kill the deal, but they need to know the good, the bad and the ugly. So, there are no surprises at the end.
LJJ: Where do you think that people are most surprised when they get into the process and they think that they’ve got it all figured out on the outset. But truly what you’re telling me this, this is a lot more complicated than I think the general population even thinks.
JM: Well people get educated online, many people do their research online in terms of what the process is like, but it’s always in almost all cases. Lynne it’s a shock, just how involved it is. We look at individual deposits, we look at sourcing individual dollars, where it’s coming from? Where did it go? We get into more detail than they ever thought would be necessary to get a simple mortgage loan. But the factor remains is there’s no such thing as a simple mortgage loan anymore. LJJ: Right.
JM: Because the federal regulations and the consumer protections in place, they’re there for a reason, so that we really have to go overboard to make sure you’re making the right decisions.
LJJ: And that’s why the partnership’s so important.
JM: Absolutely the realtor has to support us in that and actually participate with us, in getting additional documents and questions answered. Because they have a dog in that fight, as well, they want to get successful closing.
LJJ: So, the home owner really needs to know, look at there’s going to be questions you might not have thought you were going to have to answer and that’s okay.
JM: Right, right, and our loan officers are highly trained and very skilled at saying Lynne, this is going to be a difficult process. Call me if you have any questions, you may hear from other people here at Consumers Credit Union, but we’ll be asking for a lot of information from you that you may not have a ready access to.
So, let us know how we can help you in this discovery process.
LJJ: Right. Well, we’re going to talk next time about common mistakes and that is the things that people maybe stub their toes with when they are thinking about purchasing a home. They might have already purchased a home, and it’s the second time around and they still stub their toes.
JM: You allocate an hour for the common mistake sections.
LJJ: We got that coming.
LJJ: John Murphy, he is a Vice President of mortgage lending here at Consumers Credit Union. Money I’m home! From finance to fitness. Thanks so much for joining us!
JM: Thanks Lynne.