One of the things about running a mortgage company that I miss is taking a loan application with people who are buying their first home. Oh sure, I still get my fair share of loan volume but frankly, my clients usually apply online or had previously purchased a home. Just the other day, I took one of my rare face-to-face loan application meetings from a couple buying their first home. These first-timers typically ask the very same questions, only worded a little differently. But no matter how much technology has impacted mortgage lending… some things never change.
The most common reaction from first-timers is one of surprise, surprised at how much they qualify for. First-timers are usually renting an apartment, or a house, somewhere and then something happens to them, and they think “Eureka! I’m going to buy a house!” But the enthusiasm soon turns to confusion.
“How much house can I afford?”
This really means, “How much money can I borrow?” My response is usually quite startling to them… I begin by asking them what they would feel comfortable paying each month, and work from there. For example, a couple nearly fell out of their chairs when I told them they could qualify for up to $350,000 in mortgage money, based upon their gross income and current rates. Their new house payment would be around $3,000.
“Oh no,” they replied, “That’s WAY too much!” So, we went back to their rent payment, which was $750 per month. “Can you afford to pay more each month and if so, at what point do your hands start to tremble when writing a rent check?” “About $2,000,” they both answered.
Even though standard debt ratio “guidelines” are used to pre-qualify someone for a house payment, typical first-timers are hard-pressed to take the entire qualifying amount. Instead, it’s common for them to compare their new house payment with their old rent. Makes sense, doesn’t it?
First-timers also get a funny look when they see how interest rates affect not only how much they can borrow, but how lenders can offer “no closing cost” loans simply by adjusting their note rate upwards.
Just as a borrower can “buy down” an interest rate by ¼ percent by paying 1 discount point, a lender can also “buy up” the interest rate by ¼ percent by applying 1 credit point towards their closing costs. At which point you’ll usually see “A-ha! So that’s how they do it!” materialize on their faces.
Start by showing them how interest rates are priced, who prices them, and how most lenders are all about the same in interest rates, it’s usually a difference in costs. Soon, the fog of mortgage lending begins to lift and they feel more comfortable. When they feel more comfortable, it’s usually easier to establish trust.
I think if mortgage lenders would spend less time talking about indexes, velocity of money, margins, or prepayment rates and more time on how mortgage lending actually operates on a day-to-day basis, the customer satisfaction rates would go up, and stay up. People are more open to options when they feel like they have a firm grip on what’s going on. You’ll typically lose them if you just sit behind your desk and rattle off terms they’re not familiar with.
Sometimes it takes another session, with a first timer, to appreciate how much our industry has to learn. It comes down to education, educating loan officers on how to work with people who don’t know escrow from an omelet. A young couple, excited about their first home, asking the same questions I’ve answered thousands of times walks in. While answering their questions I realize, I’m still having fun.
Written by David Reed