Category: General

In many of my past newsletters, the title has been a little cryptic or you had to dig into the body of the missive to see what I’m talking about. I’m sure there are some weeks when you finish reading the newsletter and say, “I still don’t know what Capuchin monkeys have to do with The Fed, but oh well.” Well, this week, I’ll get right to it. I’m going to talk about “deferred” student loans.

Naturally, if someone’s student loans are “deferred”, that means they don’t have to pay on them at the present time so their monthly income is freed up for life’s necessities (like rent, food, clothing, etc.) and occasional luxuries (like a vacation, a new outfit, a Slurpee, etc.). Well, that’s PARTIALLY true. When you’re thinking about purchasing a home, even if your student loans are “deferred”, and they’re not costing you anything right now, they could be costing you the ability to get a nicer home. Let me explain it very plainly:

If someone has $25,000 in combined student loans that are deferred, a loan originator has to take 1% (on a conventional loan) of that amount, which is $250, and subtract it from a borrower’s monthly income when considering her/his ability to pay a monthly mortgage. In other words, if a borrower with deferred student loans has $4,000 in monthly income, the underwriter is only going to allow that borrower to qualify for a mortgage based on a monthly income of $3,750 (a simplification of the term “debt-to-income ratio” or DTI) – it doesn’t matter that the loans are deferred, the underwriter is going to subtract out that 1%.

Let me put this in a little different perspective: on a 30-year loan at a 4% interest rate, a borrower can get a mortgage for over $40,000 higher with that $250 difference in their DTI. Review the listings for a single neighborhood and note the difference between a $300,000 house and a $260,000 house. Makes sense, right? So, what the heck?! If they’re deferred, why are they still counting against a borrower? We could debate that all night long, but we’d be better off trying to explain the reason behind Justin Bieber’s popularity.

The government HAS offered some help that every prospective buyer who has student loans should seek out RIGHT NOW. It’s called the Direct Loan program, and the part that affects potential home buyers works like this: they obtain a letter from the Direct Loan program that acknowledges that they have student loans totaling $XXX, but their payment is $0.00 at present. This satisfies the underwriters and enables the loan originators to NOT factor in ANY of the loan amounts when calculating DTI – and the borrower gets a better house!

There are some upcoming changes to the way underwriters will be factoring student loan debt into their calculations for DTI, so the sooner a borrower pursues the Direct Loan option the better. We’re happy to field any questions and offer any assistance in this process – it’s not rocket science, and it’s certainly easier than addressing the Justin Bieber question, that’s for sure!

In a podcast recently, the guest asked the host an interesting question that went something like this: “If you walked into a local coffee shop and you saw a 50-year-old woman with thick-framed glasses and greying hair pulled back into a bun, would you think she’s a librarian or a sales person?” The host, while he knew he was being set up for something, said, “Naturally, my mind would immediately go to librarian.” The guest went on to explain that this is the natural presumption based on appearances and our predisposition toward certain images we as a society have of particular occupations. Then he added, “There are over 300,000 sales people here in the United States, while there are probably around 30,000 librarians. Statistically, the likelihood that the woman you see in the coffee shop is a sales person rather than a librarian is ten times greater.”

Interestingly, the guest used this example not to make a point about how we need to shed our prejudices and join hands to sing along to a Joan Baez record. He actually used it to set up the following point: while there are times when our presumptions are dead wrong, quite often they’re right on the money because they’re based on a wealth of past experiences. This caused me to think about something I had read that same day about appraisals.

It was recently announced that housing giant Freddie Mac plans to dispense with traditional appraisals on some loan applications for home purchases, replacing them with an alternative valuation system that would be free of charge to both lenders and borrowers. The folks at Freddie Mac confirmed that they could begin the no-appraisal concept as early as next spring. You read that correctly, ladies and gentlemen: NEXT SPRING!

What does this have to do with the example with which I opened this week’s newsletter? Instead of using professional appraisers, Freddie plans to tap into what it says is a vast trove of data it has assembled on millions of existing houses nationwide, supplement that with additional information related to valuation, and use the results in its assessments of applications. In other words, they’re going to use their wealth of past experiences.

For consumers, the company believes, this could not only eliminate appraisal expenses – which typically range from $350 to $600 or more (some areas are seeing these costs bumping up against the $1K mark) – but could cut down on current closing delays that are related to the appraisal process.

The spring is still a number of blizzards and a long thaw off from today, and it remains to be seen how all this will take shape, but it’s a breath of fresh air to see things in this industry evolving with the times – sort of like the card catalog at the library going computerized!

It’s always interesting when you learn an odd little fact you didn’t know before – it ‘s like the universe is sharing a little secret with you. Generally speaking, it’s a “fact” that has absolutely no bearing on the direction of your life or your ability to get a better job, but it’s still fun to know. Let me give you an example:

Back before he started hanging out with super models and being the unofficial poster child for Botox, Mick Jagger had been accepted into the London School of Economics. In fact, even after reuniting with Keith Richards (they had been friends in grade school) with the idea of starting a band, he attended classes as an undergraduate at LSE with the plans of becoming either a journalist or a politician. I guess the groupies for journalists and politicians aren’t quite as thick on the ground as they are for a rock n roll icon.

Now, it’s not likely you’re going to walk into the office one morning and find everyone gathered around the boss’ office worked up into a slight frenzy, and when you ask Phil in accounting what’s going on, he’ll say, “The boss says he’ll give a big fat raise and a promotion to the first person to name the college Mick Jagger attended before he started the Rolling Stones with Keith Richards.” But the next time you’re watching concert footage of Mick strutting across the stage and singing “Start Me Up” and “Satisfaction”, you might muse to yourself: “Wow! I wonder what Brexit would have been like under the guidance of The Right Honourable Mick Jagger.” Boggles the mind, right?

Here’s a little bit of trivia that will not only boggle your minds but could actually have direct bearing on the direction of your life, whether you’re an agent or a prospective homebuyer: in parts of Arizona alone, over 85% of the homes qualify for down payment help. In Florida, Texas, California, and Illinois – just to name a few others – those percentages range between the 80s and 90s. Did YOU know that?

All too often, when agents are asked by their clients about the availability of down payment help, they’ll respond by saying they think the clients don’t qualify because they make too much money or the house in which they’re interested isn’t located in the right part of town. Sadly, all too often, these statements are made incorrectly and without even checking – and the clients take their word for it. There are many reasons this occurs, but the most common reason is simply due to the fact the agents don’t have the time to keep up with the changes in these programs.

“Down payment assistance tends to suffer from lack of awareness,” Mark Hughes of First Team Real Estate, in Irvine, California, told RealtyTrac in 2015. “Guidelines and specifics tend to change with economic swings. Agents typically don’t keep up with the changing requirements,” he said.

The same thing happens with prospective buyers BEFORE they even approach an agent: they’ve had certain things incorrectly drilled into their heads about down payments that they preemptively exclude themselves from considering the housing market. To use the slogan from the Arizona state lottery: “You can’t win if you don’t play.”

There’s a lot of money to be saved and houses to be purchased by first-time homebuyers with the help of these down payment assistance programs. Give us a call to learn about what’s available to you. We’ll tell our multitude of groupies to have a cucumber-infused mineral water so we can concentrate on YOUR needs.

Said with enough conviction, you can make almost anything sound true. Preface the fabrication with “according to a recent bi-partisan government study,” and you’re three quarters of the way to selling the lie to a lot of people. Seriously, try this.

The next time you’re at a dinner party or having coffee with friends, pepper this little tidbit into the conversation: “I read something really interesting the other day. According to a recent bi-partisan government study – I think it took them three years to get it all done – middle-aged men who drive either a Toyota Camry or a Honda Odyssey have more testosterone than younger men who drive either a Ford F150 or a Dodge Charger.” You’ll get some raised eyebrows and looks of mild disbelief, but don’t let that deter you. Just lift up your hands, palms outward, and say, “I just think it’s interesting, and it makes sense when you think about it” – and then change the subject to something completely unrelated. Guaranteed, your friends will repeat what you said in another setting no more than two or three days later: at the office, standing in line at the grocery store, overthrowing a Marxist regime in a third-world country, etc. It’ll take on a life of its own, believe me.

In the real estate and mortgage world, we’re driven by data – and that’s not necessarily a bad thing. We want to be sure we’re spending our time and resources wisely, so we want to know what’s been proven successful and where the next trend is going to take us. However, we have to be careful how we receive and interpret that data – it behooves us to do some digging and get to the heart of whatever piece of information is being shared with us. Here’s an example – and it’s true:

• A study conducted this summer revealed that an overwhelming majority of a person’s “digital time” is spent on a mobile device (smart phone).

If you took that at face value – there’s nothing false in what was stated – that might lead you to believe that you should devote all your marketing budget to mobile devices or that you should spend all your time house hunting only on your phone. Before you do anything hasty, here’s the statistic in its full-blown glory:

• A study conducted this summer revealed that 57% of a person’s “digital time” is spent on a mobile device with 32% spent on a computer and 11% spent on a tablet.

Nothing in the first statement was false or even misleading. A “majority” simply means the bigger half – the use of the adjective “overwhelming” is simple poetic license. However, if you took that statement to mean that you’re wasting your time on anything other than mobile devices, you’re cutting yourself out of exercising 43% of your options. If I’m an agent, I’d rather have 100 potential clients than just 57. If I’m looking to buy or sell my home, I’d rather have an agent who reaches 100 people than just 57.

For example, whether you’re an agent or a client, telling someone that you won’t entertain a VA loan offer because “they’re too complicated” or “they take too long”, you’re cutting out a large number of potential buyers – and you’ve obviously had a bad experience with the wrong lender because neither of those reasons is remotely true. There’s something to be said for the old saying, “You can’t be everything to everyone.” However, the more options you make available to yourself, the better off you’ll be. That’s simple logic – and you don’t need a bi-partisan government study to tell you that.

As a result of the election, Facebook has been full of a lot of bad stuff. In an effort to provide a tiny bit of healing, I’m going to share something a friend of mine had written in a humor column over seven years ago THAT HAS NOTHING TO DO WITH POLITICS – honestly, it has nothing to do with real estate either, but I figured you could all use something that will make you smile. Never worry, though, as I’ll bring it back to the real estate world at the end.

All told, I believe there are at least 764 shades of the color blue that are completely indistinguishable to my eyes, but my wife has the innate ability to differentiate each and every one. Stranger still, when I tell her that Cerulean and Celestial look identical to me, she’ll say things like, “Oh, come on. The Cerulean has way more red in it, and the Celestial tends to be more yellow.” How can “blue” be red or yellow? Aren’t we talking about the three primary colors, the basic building blocks of all other colors?

I would like to say that this truly shouldn’t matter to me, but I just spent my afternoon painting an entire wall Blue #429 – it has a name, I’m sure, but I dare not mention it for fear that one of you out there will send back to me a twelve-page thesis on the distinguishing characteristics of this particular shade of Blue. Exhaustion has overtaken me, and I just couldn’t take that. I’m not so exhausted from the physical labor involved; my arms are a bit fatigued, but that’s most likely due more to my personal lack of muscle. The exhaustion, quite honestly, stems from my watching a non-stop virtual tennis volley between my wife’s two minds on the subject of the color. “I think that will go really well with the couch and the black chairs.” “That’s way too nautical blue.” “It really softens up the room.” “I was going more for the color of that pillow.” Just when it seemed like one side had smashed it over the net to decide the match, the other would make an unexpected comeback that seemed just as devastating. Am I rooting for the side that likes the color as it is? Of course! More to the point, though: I just want it over. As I write this, I believe my wife’s in bed right now muttering pros and cons in her sleep.

Earlier today, before the paint was purchased and ushered into our home, I went on a hike with our oldest son. While we were out communing with nature and swatting at mosquitoes, I decided it was a good time to spring “the Birds & the Bees” talk on him. As I finished the short discourse, I asked him if it made sense, and he said, “Sort of.” I could tell from his befuddled response that I had taken him completely by surprise, and the topic of discussion was so far from his view of the world, he thought I had been out in the sun too long. I got that. So, I gave us both an easy out and said, “Well, when you start having questions along those lines, just ask me.” His response to this was calculated and well delivered: “You wanna throw rocks at that flower on top of that cactus?”

I can honestly say that the details of my explanation were pretty straightforward but limited to fit the audience. However, maybe the approach was all wrong. Granted, I don’t want my children getting their information from other kids at school, television, or a Hollywood figure – so I do need to get them the facts. But while I’m preparing them to embrace the responsibilities of adulthood and married life, I should begin the discussion with the question: “How many shades of blue do you think there are in the world, son?”

If you’re a realtor, you need to know when to say something (and how to say it) and when to just nod your head and go with the flow. If you’re the client, you need to make sure you’re not avoiding questions you should be asking – you could end up with something far worse than a house painted the wrong Blue.