Home mortgages can be a complicated and intimidating subject. Media projects that it is only for the wealthy and that there should be fear over interest rate volatility. However, I am here to education you on how you can bypass some of that noise and stay focused on what truly matters. To purchase a home you will need a Pre-Approval letter from a Mortgage Advisor (MA), but what this MA can offer you is not always the same as what you feel comfortable or willing to pay for your future mortgage expense.
Here are 3 things that are different between a Loan Approval value and a Loan Affordability value:
If the MA you are working with does not ask, "What is the amount you would feel you can afford on a mortgage per month?" I would consider this a red flag and look for a different professional to work with.
If you would prefer I help you figure out that number, reach out and I am happy to assist. The more equipped you are in what you can afford the more likely you will feel confident and in control of your home buying process and not influenced by the noise around you.
Mortgage Advisor vs. Originator
I have recognized that there is a confusion as to what the difference is between a professional in the Mortgage space and who is the best individual to select when looking for a mortgage. Although not everyone is going to want a Mortgage Advisor, they are truly who I would recommend. Here are 5 ways a Mortgage Advisor is different than a Mortgage Originator.
Before reading these 5 items, think of your profession and then consider how you might be miss-understood based on your title and the various ways you can be identified in society. For example, when I hear someone say they go to Therapy, I wonder... are you seeing a Counselor? Is the Person a Licensed Therapist? Do they prescribe medications to you? They are then a Psychiatrist, but do they also do talk therapy? Or are they a pastoral counselor? Maybe they are more of a life coach? All these titles are different and their objectives, skillsets and boundaries within what they are legally obligated to uphold are different.
Knowing who and what a professional is able to do prior to working with them is a helpful resource in preserving your energy towards accomplishing your goal.
1. A Mortgage Advisor typically provides advice on a wider range of mortgages, such as fixed-rate, variable-rate, and reverse mortgages, while a Mortgage Originator typically focuses on originating home loans. Although it is really helpful to understand that a Mortgage Advisor is also a Mortgage Originator. They, however, have a wider range of knowledge in recommending the most ideal product for your specific financial situation. Not all traditional home loans fit all borrowers when considering purchasing a home. Time frame, current market conditions, goal of the asset and purpose of the purchase are all variables that need to be considered when selecting a liability for the transaction. A Mortgage Advisor can do what a Mortgage Originator can do but with a bolstered knowledge of alternative solutions to meet your goals.
2. Mortgage Advisors are often independent, while Mortgage Originators are typically employed by a financial institution and are required to work based on regulated hours and duties. As a Mortgage Advisor has the freedom to create their business as they desire. Hours, borrower engagement, referral partnerships etc. A Mortgage Advisor has more freedom to create a brand that aligns with their specific skill set. This is valuable in providing a borrower with transparent knowledge and interests to align with an ideal match for the two parties. As a Mortgage Originator they are often not looking for their own business. They are often provided business through the financial institution; they are hired by and complete each loan per the institutions brand and identity.
3. Mortgage Advisors often recommend specific lenders and loan products, while Mortgage Originators provide assistance throughout the loan-application process. Similar to #1 a Mortgage Advisor can also be a Mortgage Originator. This is accurate in this case. A Mortgage Advisor will recommend a specific lender and loan product as well as maintain and provide assistance and advice throughout the loan application process. In addition, a Mortgage Advisor will provide supervision of the file from the point of approval through the closing. Having a General Contractor overseeing your file is critical to the success of all parties executing on their commitments. A Mortgage Advisor is equivalent to a General Contractor.
4. Mortgage Advisors may not be able to provide the same level of customer service as Mortgage Originators, who can address all inquiries related to the loan process. All though this sounds like a negative, it, in my opinion is not. I believe a strong Mortgage Advisor knows their strengths. Removing the Mortgage Advisor from needing to understand the complete nuances of the file requirements is ideal for you as the borrower. Although they might not know the answer to all your questions, they know who does and can provide you with that information. As a Mortgage Originator, they are often consumed by the ins and outs of the file regulations and document handholding with a borrower. This does provide more consistency for professional interaction and is often someone who is very detail oriented and is able to do both the building of a file and the communication between borrower and Originator to provide seamless interactions. Less hands in the cookie jar.
5. Mortgage Advisors often provide advice and guidance on all aspects of the loan process, while Mortgage Originators are typically focused solely on the origination. This, I believe, is the most critical of differences. A Mortgage Originator is skilled at the back end details to get a file into a query. However, a Mortgage Advisor is a supportive professional from pre-application, during application process through every step of the transaction. They are also often professionals who will answer calls and emails post-closing. Mortgage Originators are often limited in their ability to engage post-application process due to their duties and responsibilities within their workplace.
Although I believe a Mortgage Advisor is the best choice, that is a personal recommendation. I think this way because it is what I would enjoy and do enjoy for my transactions. I want a comprehensive approach to my liability acquisition. I however, understand that everyone is different and personal preferences are what help both Mortgage Advisors and Mortgage Originators from having successful businesses. When it is time for you to look into acquiring a large asset like a home. I recommend you look into what parts of the transaction your mortgage professional will and will not be part of. This will likely help you narrow in on who you desire to work with.
Let's Talk about authentic profit
“A lack of profitability is consistently the major reason cited for business discontinuation,” - Mike Michalowicz.
In his book Profit First , Michalowicz goes on to say that 8 out of 10 business owners fail due to lack of profitability. This post is to encourage you to help discover your authentic profit and help you tend to it well. Let’s define some terms real quick:
NET PROFIT: Net profit is the difference between what you make and what you spend. However, what you spend on the profit and loss report is not all that you spend as a business. There are other expenses (assets that cost money) that remain on the balance sheet, but the balance sheet isn’t a report that reveals your net profit. It is there for accounting purposes.
CASH FLOW: Next, we have the cash flow document its goal is to combine net profit + asset expenses – cue the CPA’s crying as they read this! CPA’s don’t want these areas merged together for tax purposes.
While I understand this, this exercise is not for tax purposes. This exercise is for the financial health of your company. Both can exist and both can be tracked properly. As business owners, we need to merge them. So, my formula for Authentic Profit is the following :
Income - Expenses - Asset Expenses = Authentic Profit or True Profitability.
*Asset Expenses include:
Liability payments & Shareholder distributions. We exclude asset responsibility because this is not something that can be liquidated to pay payroll, if needed. Authentic profit, as a reminder, is a great tool to show true cash that can be utilized to keep the doors open and the lights on to run your business.
Knowing the Authentic Profit of your company is the cornerstone of running a successful, lifegiving business. Remember – authentic profit is the 20% of funds not covered up by advancements via line of credit or a rolling credit card balance.
As a business owner, if you use your authentic profit as your gauge for growth, I promise you will live a happier, more balanced life. In my opinion, growth does not always mean more sales and greater income – although greater income is needed! Growth comes when what you have is managed with excellence. This goes deeper than just numbers in a bank account. This sets your heart in alignment, by seeking financial health from the bottom up. This is a priority!
Authentic Profit can’t always be seen or communicated the same way that the growth of a new product, greater sales, or new client acquisition can, but this true profitability is the heart of your company! When tended to with excellence, true financial growth will come.
What is going on?
What is going on? I have found myself saying this often. As I read news headlines. I hear experts talk about inflation, a possible recession, the fed hiking the interest rate, again, nurses and railroad workers striking, grocery and gas prices reaching an all time high. It all seems unbalanced based on compensation of the American Worker. If I am honest, it is really depressing to focus too long on.
All though I do not have any answers to how to resolve the bad behavior of our economy. I can highlight what is going on in some more specific areas.
Real Estate Market (Minnesota & Colorado): The Market has began to shift based on how it was performing 3-6-9 months ago. We are no longer seeing homes selling in 24 hours with 20 offers. The cost to borrow is rising as rates have hit a high that my peers and I have never seen. This has caused sticker shock for most of the buyers who continued to lose during Q1 and Q2. Stas Manchik with Monoceros Real Estate believes that there will be a decrease of transactions by 50% going into 2023. This will require the most serious of buyers to be shopping as the cost to borrow is sky rocketing and not everyone can afford the monthly payments. Sarah Bates of Compass Real Estate in Colorado says that the greater metro market of Denver has seen a slight increase of inventory compared to the first part of the year. She believes this is a great time for anyone whom can afford a slightly higher payment to start shopping again. Homes are slowly becoming more available and prices are competitive. If you are waiting for rates to drop to get back in the market you will likely be waiting for an extended amount of time.
Federal Interest Rate: This week the Fed is set to announce what their plan is with the federal interest rate. The Feds are hoping that the increase of rate will continue to curb the rapid climb in inflation. Many economists are worried this could send our economy into a recession because the increases are happening so fast and without concrete data to know if they are helping or not. In the interim, the rate hikes are directly impacting both the Mortgage Market and the Stock Market.
Both are showing, to the majority, a negative impact to the general consumer as they are unable to purchase the homes they desired 9-12 months ago with their new projected payments. The dollar is not stretching like they once believe it could. In addition, the general consumer is seeing their investments losing ground more days than not all while their daily expenses are reaching an all-time high. All of these factors are making it very difficult to cover ends meet.
Like I mentioned earlier, I do not have a solution to tell you to do that would allow you to snap your fingers and see this all disappear over night. What I can say is, I don’t believe we have hit the bottom of this cycle. I think rates are going to continue to climb, the dollar is going to continue to be more expensive as a resource, and money management is going to require an even tighter awareness. I believe life got sloppy financially during the pandemic as payments were deferred, money was being passed out to anyone willing to take it and consumerism was trapped at home while we were all bored. I believe the pendulum is swinging and the intensity of the squeeze is just beginning.
My recommendation: is to get serious about knowing exactly where your money is going. This starts with login onto your bank accounts and tracking your spending habits. This is recommended to bring awareness to you. Take an honest look at what expenses are needs and what are wants. Eliminate the wants as fast as you are able. Then start to save or pay down your debts smallest to largest. Even if it is a little bit at a time. Due to the stock market behaving as it is, it is actually a good time to buy into the market. In theory, when the market is down you want to buy in. When it is high that is when it is recommended to sell out of the market. If you have extra funds available after all debts are paid off per month. I would recommend saving into a mutual fund. This will be a small step to start your investing journey. Although, the economic forecast seems a bit depressing at first look there are opportunities to still win within it. It will just take more intentionality than it has over the last few years.
Preparing for Homebuying
Have you thought about or are you currently thinking about buying a home? Being married to Real Estate Agent and being a Mortgage Originator myself, we have a few recommendations as to what are great next steps. What most people do not realize is, there is work you can do before going out to look at homes.
CREDIT SCORE CHECK
Have you recently checked your credit score? You can receive a free credit report, one from each credit reporting agency: Equifax, Experian and TransUnion, per year. According to Experian a credit score between 800-850 means you have exceptional credit, 740-799 very good, 670-739 good, 580-669 fair, and 300-579 very poor. Knowing where you are with your credit will help you gauge how realistic obtaining lending could actually be.
DETERMINE WHAT YOU ARE COMFORTABLE SPENDING
Do you know how much you could afford in a monthly payment? Do you currently Rent? If you do, do you plan to expense the same value toward a mortgage, or do you plan to increase or decrease. Knowing the amount you desire to spend is helpful when working with a Loan Officer. When I am working on a pre-approval for a borrower, it is important for me to know what they are comfortable spending.
DO YOU HAVE CASH
Do you have liquid cash? I am not talking about investments, I am talking about cash you can access today. As part of the pre-approval process, I ask all my borrowers for a statement that verifies they have the funds needed for the earnest money and the down payment.
As a Mortgage Loan Officer I find myself starting the teaching portion of my meetings by educating borrowers on the difference between what they can afford and what they are/could be preapproved for.
WHAT CAN YOU AFFORD?
Knowing what you can afford is knowing your comfort number. Ask yourself, what are you currently paying and what amount of money do you have extra per month that you can increase your housing payment by? Sometimes this answer is, $700 currently and we are saving $300 monthly to be applied to our housing. Other times the answer is, $1000, but we are not saving anything per month. Knowing what you can afford is critical. Unlike other areas of life, your housing payment is not one you want to inflate or push yourself on. If you do not feel comfortable, I do not recommend stretching yourself. Comfort in your housing payment is essential when exploring future mortgage payments.
HOW TO DETERMINE WHAT YOU CAN AFFORD
Start with knowing what you currently pay in housing. Write this number down. From there, review what you are currently expending for fixed and variable expenses. A fixed expense is one that does not usually change, and one that is required to maintain your current, ideal lifestyle. A variable expense is one that can change, be canceled or adjusted at your discretion. Arrive at a total monthly expense number (TME).
Next, calculate your total income per month. It is best to calculate ONLY on your guaranteed income. If you have variable income calculate off your average or lowest months income. If you have a side hustle, do not include this amount unless you have an average that has stayed consistent for 6-12 months. Both, what you can afford and what you are preapproved for will be calculated on the conservative side of your income, so be honest with yourself when doing this calculation. It will not help you in anyway to believe or inflate what your income is just to make yourself feel better.
Once you know your income minus your TME. The amount you have left over is the amount you have to either save, invest or re-prioritize (SIRP). I am not going to suggest you take this value and leverage it as a direct amount to apply to your housing, but it helps you understand what cash you have available to work with. From there, you determine how much of your SIRP are you willing to tie up in a larger fixed expense, ie. your future mortgage.
In addition to determining your SIRP. It is also critical to determine if your current housing payment plus your chosen SIRP increase is 20-25% of your total income. You can determine this by taking your total housing payment + SIRP/Total Income=.00%.
Knowing what you can afford before you start house hunting or meeting with a Realtor and Loan Officer is a step that puts you in the drivers seat of your financial destiny.
Let me be honest for a second, 8 years ago I had no idea what Net Worth meant, so if you do not know. It is totally okay!
I remember the moment we went into our Financial Advisors office and he said, "Spencer and Amber, I am going to calculate your Net Worth before we begin. It will help me understand your overall financial health!" I can only imagine the look on my face, straight confusion. I likely was thinking, you did not ask me to bring a document for that. I only remember you asking me for bank statements and tax returns. Net Worth statement was not on the list.
He proceeded to ask us for our Assets and for our Liabilities, which again, so confused. It was as if he was speaking a different language. I now can see how other can be confused when I start talking and I use these terms. He proceeded to tell us that our Net Worth was POSITIVE, he said this is a huge deal. You are 23 and 28 and your Net Worth is POSITIVE. Looking back now I see why this was a big deal...
Let me explain...
Net Worth is the total of all your assets/resources that can be converted into cash value: Savings Accounts, Checking Accounts, Cash, Retirement, Cash Value Life Insurance, Wedding Rings, Automobiles, ATV's, Boats, Antiques, Home Equity, etc. added together and then subtracted from your liabilities/debts. The things that you owe money on: Mortgage, Auto Loans, Student Loans, Credit Card Debts, Personal Loans with Mom and Dad etc. When the Assets (Cash equivalent values) - the Liabilities (Debts, what you owe money on) are subtracted from one another you will arrive at a positive or negative number. This value is called your Net Worth.
What does this mean and why do we care what it is? For me it is a measuring tool. It is a value in our family that we would leave a financial legacy. That we would steward our money wisely with the goal of growing our wealth. Our Net Worth is a fast way to measure growth. I often describe it to be like going to the doctor and getting a physical done. Your Net Worth is like a physical assessment of your overall financial health. If everything was called due on all your debts could you afford to pay them all in full. The answer for us at 23 and 28 was a positive yes. Our goal is always that our answer would be YES!
Now at 30 and 35 our Net Worth has increased by 876% of the amount our Advisor calculated for us 8 years ago. Knowing we would be financially secure on our own dollar if all our debts were due is a refreshing and relieving feeling. If your number is negative. Do not be discouraged see it as an opportunity to begin refocusing where you spend your money and start building towards a positive net worth today!
COmmission & Realtors
As a Mortgage Loan Officer, Real Estate Agent/Advisors (REA) relationships are the bread and butter of my business. One of my main sources of referrals comes from REA. I am not writing this post to brown nose with them, I am writing because I want them to get the honor they deserve. Listen-these people need a standing ovation! You as a consumer have no idea the amount of work they put into their jobs. I know the stereotype is that REA's are over paid for the work they do. I hear statements like, "How hard can it be to let someone into a home and write some paperwork?" "I can't believe you will make x.x% on the purchase of this home!" "I can totally do this myself, the REA fees are ridiculous!" "All it takes to become a REA is a few classes and a test."
I am going to take a second and give you a snapshot of what it looks like to be married to a REA and walk you through the first 30 minutes of Spencer's schedule. My hope is maybe just maybe your tone will change when you realize what it is like to walk in the shoes of REA.
DO YOU GET THE POINT YET? He has not even opened his eyes before his phone is on rapid fire. I know what you are thinking, can't he wait to take care of this stuff? No he can't, why? because if he does not get to it someone else will. Our society is pretty demanding when it comes to the home buying and selling process. As a general statement, most consumers think REA do not deserve to make what they make, so it is a common thought to blow through boundaries and make their commission "worth it". It is also a common assumption that the Agent is only working with you. Let me bust your bubble, a Full-Time agent needs to keep as many balls in the air as possible to keep the momentum of their commissions constant. They are not only talking to you. They are also talking to the client that they have been showing homes to for 3 years. Their newly widowed aunt who does not like technology and wants everything in paper, or the neighbors who are calling off their listing sign because they want to know how much Jan and Bob are selling for.
I am sharing all of this not because I want you to feel bad for them, rather I want you to understand that they are worth their commissions. It takes being intentional, disciplined, organized, and a crazy amount of patience to do what they do. They do not get to put an away message on their emails, or postpone responding to a client about showings over lunch. They are honestly ALWAYS on!
If you know a REA and you know they are really good at what they do. Do me a favor and give them a hug, a shout out or a simple, thank you for all their hard work and dedication.
Starting a business
It seems that saying you are starting a business, going off on your own or being an entrepreneurial is really trendy right now. It seems like some see entrepreneurial employment as the entry into adulthood. Somehow you have made it, or you are better than your friends because you are not a slave to your employer and your desk job. I am not sure how entrepreneurial-ship has become such a prideful term, but I unfortunately do not feel it needs to have that stigma. My personal story with entrepreneurial employment is all I know. My Dad has owned his Commercial Landscaping business for 30 years in Central MN and before him, my Grandpa started a local Glass Company in the same town. Yes, I have highly influential family members in the traditional work sphere, but for some reason I personally was more attracted to my Dad and Grandpas work style than others.
In 2011, Spencer started his Real Estate Company. He left his University Recruiting/Golf Coaching position for the unknown career of Real Estate. The leap into Real Estate was so unknown to both of us. Spencer was highly confident in his abilities, but I was highly incompetent in my abilities. I promoted myself to CFO quickly and decided I wanted to make sure all the income Spencer would generate would be managed with excellence. I knew that his income was our only source of 'steady' income. I was pregnant and working a part-time bookkeeping job. I took the job to be taught by someone and make money as the same time. I wanted the job to be a launching pad for our business. It was exactly that. I am forever grateful for my first bookkeeping job. I learned SO MUCH! In the first year of our business these were the steps that were most critical to our success:
Good luck and let me know if you have any questions!
My Business model
It seems to me that most people, including myself, have a very small understanding of what others do for a living. I know I will be the first to admit that I have a narrow understanding of what others do even if I am in close relationship with them. That is why I felt it would be a good idea to give you a glimpse into what it is that I do and how I have developed a successful business model.
RELATIONSHIP & FREE ADVICE
For me, my business model begins at the point I am in a conversation with someone. This conversation can be between myself and a friend, family member, realtor referral or a cold lead. It could also be someone I met at a social hour, at the local park, a community event, or a coffee shop. The options of beginning a conversation are endless. It is my responsibility that I am not out looking for business on a regular basis, but instead that I am in tune to opportunities to let others know that I might be able to help them, should they need help, with their finances. However, I believe there is so much more to who I am then my career as a Mortgage Advisor. Often times I steer clear of discussing finances and mortgages, unless I am approached with the topic. I understand finances can be a very touchy subject so I do my absolute best to respect when and where I bring the topic up. Though these encounters are rare, they do happen. When they do, I work with the individual to schedule a private discussion at a later time.
Once a discussion around finances has begun with said individual, I see this as my chance to let them know my business model. Here is a snapshot of how that discussion might go:
Me: "That is amazing you just got a bonus at work, thank you so much for sharing that information with me. Do you mind if I ask how you plan to utilize it?"
Future Borrower (FB): "Oh, I have no idea, I usually just put it into savings and then see what happens from there."
Me: "Very cool, well if you ever want to discuss further how you can utilize those funds to get ahead financially feel free to reach out to me. I love finances and it is my joy to invest in others in this way."
This relationship and discussion may never develop into anything. However, that is okay because it is one more person who knows my business model. I know you are wondering, but Amber that was not a discussion about a mortgage or them needing a mortgage. You were just talking about their bonus. My response to them would be, "you are correct! My business model is built in such a way that I work to build trust first on a non-expense service basis and then share with them the second part of my business model.
Fast forward to 6 months later when I receive an email that reads the following: "Hey Amber, I am reaching out because I was thinking about my finances today and thought you would be a good person to talk to. I am not sure if you remember me, but we met at Snail Lake Park and you had mentioned to me if I ever needed help with my finances to reach out." We schedule a 30 minute call and I give my advice on all finance questions they have. At the end of the call I am always asked, "how can I compensate you for your time?" My response is the following,
"Thank you so much for asking, however this service to you is FREE. All I ask of you is that you would share my information with anyone you know who is in need of a home loan either purchase or refinance."
My ambassadors are all over, they are spreading my business model to their spheres. The reason this business model has been successful for me is because it is my heart. This is not a model that I found in a book or heard on a podcast. It is exactly what brings me the greatest joy professionally. I love to teach above all else. I love to empower others, and the area I love the most is, finances! I am so thankful for each ambassador that is out and about sharing my vision. I would not have the reach I have today if it was not for you, so THANK YOU SO MUCH!
So what happens next, FB is in a conversation at work and hears a co-worker discussing their frustration with their confusion around the mortgage process and FB sees an opportunity. No FB does not have experience with me as a Mortgage Advisor, but they do have an experience with me and how I approach finances. This experience is all they need. My approach toward general or comprehensive financial advice and mortgage advice is cohesive.
I just happen to get paid when someone chooses to use me as their Mortgage Advisor. My passion is to teach, educate and protect.
If you have any finance or mortgage questions you want help with, please email me at email@example.com. I am always looking for more people to share my passion with, and engage in wealth building discussions.