The 5 most critical things you need to know before you apply for a mortgage.

Announcer  0:05  

Advisors Mortgage Group is proud to present Indy's Real Estate Gurus hosted by Rick Ripma, the hard working mortgage guy, please contact Rick for all of your mortgage needs at hardworking mortgage guy.com That's hardworking mortgage. guy.com. Now, here's the hard working mortgage guy, Rick Ripma.

Rick Ripma  0:32  

Good afternoon and welcome to Indy's Real Estate Gurus. I'm Rick Ripma, the hard working mortgage guy.

Ian Arnold  0:38  

And I'm Ian Arnold with Advisors mortgage.

Rick Ripma  0:40  

And we thank you so much for joining us today. We appreciate it. We know there's a lot of things to do on a Saturday, especially Memorial Day weekend.

Ian Arnold  0:47  

No, nothing's better than spending time with us.

Rick Ripma  0:49  

That's true. That's true. That's why we're not doing this tomorrow. Because we want people to watch the race. Correct. Yeah, we didn't want them to be listening to us and not watching the race. I mean, the race is important around here. You know, it's funny how the race has changed from when I was growing up. It was a month long. And it was everything during the month of May.

Ian Arnold  1:08  

Yeah. Well, they, they somewhat tried to do that again, though. I mean, they've added a lot more races throughout the time. And now, I think the major thing was a sponsorship is they weren't doing a lot of advertising ABC when they owned it didn't do a lot of that. Now, NBC owns it. And now they're doing a lot more advertising. So I think you'll see a lot more change.

Rick Ripma  1:29  

Yeah, I hope so. And you know, now that it's owned by Penske and Penske seems like whatever he does works.

Ian Arnold  1:40  

Yeah. I mean, what is he trying to do? He's doing the lights now. He wants to light so they can do NASCAR races at night.

Rick Ripma  1:46  

I 100%. agree with that. I love racing. I don't go to the Indy 500. I've been 1 time, because I can't I cannot handle the heat. Just it's not it doesn't work for me. And the NASCAR race in July or August. And in the middle of the day, if you get that into a nighttime race, where you can sit, you're not in the sun. I think that would be fantastic. I hope they do that. I'm for that. And I think they were trying to get money from the state or from Indiana. You know, it's one of those things where it's it's a it's a big sporting event that they don't get anything really from what I hear from the from the state where, you know, you get a big NBA team, NFL team, they get they just get handed money, yet we have this huge event right here in Indianapolis. And I know we do things like they the police presence and all that. But it just seems like they've been a really good partner for Indianapolis and brought in a lot of money without without asking for very much. I want to talk about one of my pet peeves. It's why I rarely watch any news. In fact, I would say I never watched news, I don't read news. I don't read the newspaper. I stay away from the news. Because what I have found is when I know something about what they're talking about, they're always wrong. And maybe always is too strong a word. But the vast majority of time that I see it, it's wrong in this article isn't 100% Wrong. it is they're trying to portray it because it wasn't a real estate area, they're trying to portray it a little bit more positive. But the headline is a kind of a kind of mortgage that helped cause the housing crash is surging in popularity. So they want you to read it, right. And then it says here's why it's different this time. And what they're talking about is an adjustable rate mortgage, what we call an ARM, and they were popular back in 2008. In fact, they hit a 14 year high back in 2008 was the highest they've ever been. And so a lot of people blamed the crash on the on the ARM, the reason they did is because an ARM is an adjustable rate mortgage, it has a fixed piece, and it has an adjustable piece, the fixed piece you know as the the like the lowest the rates gonna go up being pretty basic here. And then the variable piece is how the it changes all the time. And it's called a margin and an index. Okay? The margin is the fixed the index is the variable.

But what really happened and they were ARM products, but they were non conforming arms, meaning that most of these people did not qualify for a conforming product. They didn't have the credit, they didn't have the downpayment, they didn't have the equity, whatever it was, they didn't qualify under a conforming product. What I saw back then was most of them didn't have the credit, they had credit issues but non conforming they would make the loan. The The problem is, is that these loans had what's called a prepayment penalty. It's funny today I get that question you probably do too, all the time, does this loan have a prepayment penalty? Well, on a conventional mortgage, you cannot have a prepayment penalty or FHA, you cannot have a pr payment penalty. So when you're looking at a normal conventional or you don't have prepayment penalties, the only time you have prepayment penalties in today's world is a non conforming type product. And that is anything that's not conforming, you know, VA isn't going to have a prepayment penalty, they aren't allowed. So what happened was is you would get a, a two one arm meaning that for the first two years it was fixed after that it could go up and it might be able to go up 5%. Now understand they qualify these people at the base rate. And most of them barely qualified. Two years later, the the rate goes flying up. Additionally, and it goes up because that's the two years, but they had a prepayment penalty for three years or four years or five years. So after the arm adjusted was when the prepayment penalty went away. So it'd be maybe a year, two years, three years after the adjustment. That's what one of the biggest causes of the problem was is that people could no longer afford the home, along with the fact that at that point in time that houses go up or down, you know, houses drop down really, right, they dropped what they're not like today where they're gonna fly in up as fast as we've ever seen right faster than they did back then. And there's a lot of reasons we don't believe there's a problem in the market. But that's what happened. And so arms in and of themselves are not a problem, conventional arms, if you're saving enough money, it can make a lot of sense, right now to go with an arm for the last three years, we didn't do any arms, it made no sense rates were so low, that you couldn't save anything. In fact, most of the arms were more expensive. But in today's market where rates have gone up some if you can save a little bit, and you believe that rates are going to go down in the near future. Okay, so let's say you take a, let's say, a seven year ARM. So it's fixed for seven years, and you believe in that next seven years rates are gonna go down and below where they are today, or even just stay the same as where they are today, it might make sense to do an arm for you, you just have to look at it and see if it makes sense. It's one of those things that we'd want to talk about. Again, as we tell everybody got a hard working mortgage guys.com at the top, there's a there's a Contact Us hit the Contact Us. And it gives you our information and you can send us a message from the website, and we'll get back with you. So again, hard working mortgage guys.com Hard working mortgage guys.com Hit the contact us and we can and we will get back to you. So the bottom line, Ian, is the arms in and of themselves are not a bad product. They can be a phenomenal product for the right situation. No, mortgage or no, there's no one right answer for everybody. We have to understand the situation. Correct? Correct. Yeah. So when you see these articles out there. Just don't take what they say as the gospel because many times there's more to the story. Yes, especially if all you do is read the headline, which I think is the biggest problem. A lot of times the articles cleared up a little bit. But most of us are busy and we read the headlines, and we don't dig into the article. But then a lot of times the articles are just flat out wrong. I'm sorry, they're just wrong. So it's really hard when they're just wrong. You know, with that you had a good idea about talking about experiences that  we've had, and our customers have had and what they might do or change or what they wish they had known or not known as they're looking at either buying a house or you know what's going to happen through that process. And what they wish they had known.

Ian Arnold  9:17  

Just like as you and I were briefly talking before this we were talking about, think about things that you do for the first time. So if you're building a table, you did it for the first time, it took you three or four times longer. Well, you do that two or three more times. Guess what? You worked out all the kinks, you know exactly what to do you know the ins and the outs. And is the same thing with a mortgage the first time you did a more do a mortgage. You don't know everything. I mean, when I first did one I was pictured in my mind was a 30 year conventional. I didn't want to pay PMI because I didn't want to pay the interest on it and I thought that was totally anti I was totally anti PMI. So I waited till I had 20% and then I went and got a house But thinking back Heck, I did it wrong way I could, I could have done something so much different and had a house lot sooner and had more equity and everything prior to even where I am now. So what that's what brought up the whole conversation is what do people learn later that they should they wish they would have known before? And I think one of the main things is, is when I did a mortgage, they actually quoted me a 30 year. I mean, in my mind, I thought that 30 year was great anyways. But did you know you know, 25 year? Did you know you do a 20? Did you know that just like you were talking there right now in arm, it might be the best, best way for you. But without those options, are you knowing, Hey, maybe I should ask that guy that question. You may not know. Yeah,

Rick Ripma  10:51  

and you know, what you said is absolutely. Spot on to me is, especially in our in our business today, we tend to, quote 30 year fixed. That's what the vast majority, that's what most people want. That's what everybody talks about. That's what we tend to quote. But there are a lot of other products out there that may be better fits. That's why we try so hard to ask a bunch of questions, find out what somebody's really what it really is thereafter, because a 30 year fixed might be right in is probably the best mortgage for most people. But there's other options out there that could be better. So it does make a lot of sense to understand that, you know, what's there, what's available? And how it what's the benefits? And what's the negatives of those products so you can make a good, honest decision and feel good about that not not question that later on that hey, maybe I made a mistake. Here. We're coming up to a breakthrough. After the break. We're going to talk about more of, you know, what questions should you have or what should you think about when you're What do you need to know when you're looking at doing a mortgage.

Unknown Speaker  11:58  

Advisors Mortgage Group is licensed by Indiana Department of Financial Institution equal housing opportunity? NMLS 33041 Rick Ripma's NMLS 664589

Rick Ripma  12:06  

Hi, I'm Rick Ripma. With the hard work and mortgage guys and Advisors Mortgage Group where we believe delivering the best mortgage for you is why we exist and it's how we all succeed. We believe

Unknown Speaker  12:15  

honesty, kindness and hard work are how we honor each client and hardworking

Ian Arnold  12:20  

mortgage guys, we believe in custom tailored loans, not a one size fits all approach.

Unknown Speaker  12:25  

We believe in always presenting you with all your options. So you get the loan you want the way you want it. We

Unknown Speaker  12:30  

believe in continually monitoring the rules, rates and market trends. So you don't have

Unknown Speaker  12:35  

to we believe in working hard to meet your closing date so that your entire plan isn't upended.

Unknown Speaker  12:41  

We believe in offering the same quick online process that the bookstore mortgage companies brag about whether you're refinancing or buying your first home,

Rick Ripma  12:49  

we believe there is the best mortgage for you and we believe we are the team to deliver it find us online at hardworking mortgage guys.com.

Announcer  13:01  

Brought to you by Advisors Mortgage Group, where we believe the more you know about financing a home the less stressful buying and refinancing will be.

Rick Ripma  13:15  

Welcome back and thank you so much for joining us. We appreciate it very much. I'm Rick Ripma, the hard working mortgage guy

Ian Arnold  13:20  

and I'm Ian Arnold with advisors mortgage.

Rick Ripma  13:22  

We thank you so much for joining us today. We do appreciate it. We were talking about you know what people wish they knew when they're, you know, before they buy a house something that way way.

Ian Arnold  13:33  

We're like Rick, Rick, you're forgetting the most important thing about this whole entire thing. What is it? It's the sponsorship by Debt Crusher mortgage that we do that does our question or the question or the week?

Rick Ripma  13:45  

Oh, yeah, I forgot I didn't read the script. Very well. Did

Ian Arnold  13:47  

I? That's all right. Now it's time for questions with the gurus. All right, so last last week's question was I add six to 11 and get five why is this correct? I'll let you think about that for for a second why read read this brought brought to you by The Debt Crusher mortgage improving your life by relieving the stress of debt. Now if we can get our government to call to call us we can knock out that national debt. Well, maybe not all of it. That's quite a bit high. Go to the Debt Crusher mortgage.com today and talk to Rick or me about the relieving your debt stress I get. So the question was I add six to 11 and I get five why is that correct? Well, you got to stop and think don't think of it as a as numerical numbers. Think of it as a clock. If you add if you have a lovin and you add six to it, it's now five o'clock. All right. So ready for Oh yeah.

Rick Ripma  14:57  

All right. Oh, I just thought it was somebody couldn't get an ad.

Ian Arnold  15:04  

That runs, that'd be really difficult for us if we couldn't do that. Alright, so the new one is, I am an odd number, take away a letter, and I become even what am I? So, Rick, let's get back to the whole questions. We have other questions or things that we can learn. So the other thing that I it really hit me is I did my mortgage, I think it my first mortgage, when it was my payments were like 650. I was like, awesome. Easily done, I can easily add more if I want to pay more to the principal. Great. Well, a year down the road, I get a new payment booklet. Now my payment jumped up. It was like 30 or $40, it jumped up. So you were on a fixed rate mortgage, I was on a fixed rate 30 year fixed. And I'm like, Whoa, what happened? And so I call the guy I'm like, hey, what's what's going on? Here? I thought I was on a fixed one. I mean, I've been on fixed ones with my cards, guess what? Every payment exactly the same? Until I paid it off. And then he broke it down. It was like, Oh, well, your escrow can change. And what is escrow? Escrow is your taxes and insurance. So let's so if you put that in perspective, so if your house value goes up, your taxes go up. So every year if your taxes go up, your payment could go up a little bit. So this is something that definitely keep in mind.

Rick Ripma  16:26  

Now, were you surprised when you bought a house? At the amount of money you actually needed for closing, not just down payment? But

Ian Arnold  16:36  

yeah, I mean, the Yeah, because everybody's like with me, it was oh, you need 20% down? Awesome. All right, well, if I ever I'm only gonna 200,000, our house 20% down, that's 40,000 done, well, then it's oh, well, now you need to pay one year advance for homeowners insurance, and then you need to get paid so much for taxes. Well, if you take home insurance, that adds up pretty, pretty quick, when you're pre paying for a year, it's not like you paid a couple months, you

Rick Ripma  17:06  

prepay for a year, then you have to add a couple more months, if it's $100 a month or at $1,400.12 plus two, then you have your property taxes, which depending on when it's due, is how much we have to collect, right. And then you have prepaid interest. So interest from the day you you close on a purchase till the end of the month or for most lenders, there are lenders out there that will charge you for from the day you close on a refinance, but it should be from the day you fund, but they double dip, and we do it from the day you fund till the end of the month. And then you can have other expenses, along with all that. So you have to really watch and understand there's homeowners association dues, if you have PMI, you might have some additional, so it is more money than what that just your down payment. Correct. And I know for me, it was somewhat of a surprise. The and I was like you I thought, you know, I have a fixed rate mortgage, my mortgage is gonna be the same, but taxes and insurance change. And so your payment can go up, your payment can go down. And it really gets difficult or surprising to somebody who buys a brand new home. Because in a brand new home in Indiana, we pay taxes in arrears. So the brand new home was being paid taxes were being paid as a lot not as not, not in any improvements. So a year and a half, two years, two and a half years later, your taxes all of a sudden, go from 50 $75 a month to $300 a month, and you're behind. And you also probably just got a whole bunch of money from the lender, because your escrow had too much money in it. And per federal law, we have to do an escrow analysis and it says, Oh, you got too much money. We send it all back. And then three months later, you get a thank saying hey, you owe us all this money because we're short on escrow. So it is a that can be a shock to people also.

Ian Arnold  19:02  

Yeah, that'd be a huge shock. Oh, now you owe three grand. Well, wait, hold on.

Rick Ripma  19:07  

Yeah. So it's due to taxes and how that the taxes in Indiana work. We're a little different than most. Now you you said you avoided PMI. But PMI isn't always bad, isn't

Ian Arnold  19:18  

it? No, I just had the mental attitude basically, that I didn't want to pay for something that I knew I was going to make payments on anyways. I mean, I understand the reason why it's there. It's to help banks, so people foreclose. But look, I knew I was gonna make my payment. My mortgage payment was gonna be cheaper than what I was renting. So it wasn't going to be hard for me to make that payment. It was just my mental aptitude that I just didn't want to do it. But as we were saying is it's one of those things that if you're having to pay, let's say $100 Let's just use that. And for PMI a month. Is it over? really bad thing, not necessarily. Because just like I just said, I was paying more in rent than I was gonna pay my mortgage. So even if you add the extra $100, I was still saving money. So, and then I have a house and I'm paying the principal down on, and the house is hopefully gaining equity. So I'm gaining value, I'm gaining more money in the long run. And if I would have done that five years ago, I would be in a whole different predicament than I am now.

Rick Ripma  20:28  

Right. But let's, let's clarify why PMI is in existence. PMI is private mortgage insurance. Now, if you're doing an FHA mortgage, it's called MIP. Mortgage insurance premium. That's because it's not private. It is exactly it's not exactly. It's basically the same thing. So it's mortgage insurance. That's what we're talking about. back many, many years ago, when people wanted to finance homes. First of all, there were no fixed rate mortgages, they were all done by the local banks, there was no Freddie Mac, Fannie Mae, FHA, none of that. And the banks wouldn't loan more than 20%. So if you have if you're trying to buy a $400,000 home, and you don't you only have $20,000, you can't buy a home, because they'll you have that 20% down, right? Well, private mortgage insurance came in and said, Hey, will insure that mortgage, this is a good borrower, we feel comfortable will insure that mortgage for an insurance but this is it's just insurance, it's no, it's not much different than you buy life insurance, you buy life insurance in the hopes that you don't have to use it. Right? Correct. But you want it because you want your family protected. This allows somebody to get into a home much sooner. Now that can be a huge bump bonus, especially when homes are appreciating at 18% a year, 19% a year. I mean, you keep saving and it keeps gets farther and farther away. So private mortgage insurance, nobody likes to pay it because nobody likes to pay insurance until they need it. The difference is, is that when you need it for a mortgage, it doesn't really benefit you as much as it does the lender. But it allows you to get the house that allows you to borrow the money. That is the advantage of private mortgage insurance. So it is, although nobody wants to pay it. I wouldn't look at it as it's the worst thing in the world. And you can, you know, hopefully quickly, especially in the high appreciation rates get out of it very quickly takes a couple years, but you can get out of it.

Ian Arnold  22:43  

So here's another one that I we see a lot more when we do somebody refinance, somebody that we didn't do their prior one is different lenders have different closing costs. So some people will shop around and call four or five different places and price out their closing costs. Like there are other people that will just take the first one think that that is what it is and go on. And I've we've seen that quite a bit. I mean, we've done refinances and people were like, What will your closing costs are only this Whoa, this is like half of what I did the first time and they're like, Oh, no. So then we have to break it down for people and people just don't understand that closing costs are not standard. So which is nice is with us we have one of the lowest closing costs in Indiana, if I'm not mistaken.

Rick Ripma  23:33  

Yeah, our closing costs are very low. Right. So there's there's lender fees. And then there's title fees, and there's appraisal and the title fees. We don't control that, right. We don't control what the appraisal costs. And what are title fees for people out there title fees, or you have title insurance, you have a closing fee. They have the exam title exam, there's a there's a variety of them. That's just a few of them. There's a few of them. And it just like any anything on a mortgage, there's some title companies that charge a whole bunch if they used to have either I think it's gone now but they used to have a fax fee, really like it cost 75 bucks a fax something, right now it's probably an email fee. And they'll even have a when they fund the loan, if you want it wired, they'll have a wire fee. So there are you know, there are fees there. But that's um, that's not controlled by the lender. No. And what you have to look at is, additionally, it's not all about those costs. Those costs are important, but it's about the entire deal. Correct. What's your interest rate? How long are you locking? How you know, there's a lot that goes into that you have to find a lender that you can trust because that's the other thing when you're out shopping for a loan. Let's say you're going to do a pre qualification or pre approval. You're out shopping for a loan, you talk to somebody, and they quote you a rate Well, they can quote you anything because you don't have a house yet. They can't lock it. Right?

Ian Arnold  25:04  

Yeah. So that's the nice thing we do is we try to make sure that we give you the accurate rate, we don't want to give you something that was good a week ago, we also don't want to try to give you something that we project a week from now. Right? We tried to give you what today. Now, again, if you wait to tell us to lock in a week, things can change. But we notify you we keep you up to date, which is awesome. But we both do

Rick Ripma  25:27  

we give them a rate accurate at the time, based on the information that we have. Yep. If we haven't run credit, we don't have all the right information, we're based off of what they're telling us if you know we debt, the debt to income ratio, we may or may not have the credit score, we may or may not have the loan to value, you know, we probably have a good idea of that. But there's a lot a lot of that we don't necessarily know 100%. So we're just giving them the best we can at the time, but it's going to be accurate based on that time. And then also, if your rate can change by how long you need to lock it in 30 days, 45 days, 15 days, 60 days, 120 days, what do you need? Right? Yep, that can change it also. But what about the difference between a pre qual and a pre approval? I, I think that's important to talk about because there's, there's a variety of, you know, the pre qual, I don't do pre calls, I just, to me, it's not enough information, I need enough information to give a letter a pre approval letter that says they can buy a house, nobody wants to go out with a pre qualification letter that says they can buy a house but credit hasn't been pulled, you don't know their debt to income ratio, you don't know really their their assets and their their that you haven't gotten their bank statement, you just don't know enough. So I think you have to get approval to do it, you have to get a pre approval letter, not a pre qualification. Also in this market. If you were selling your house, and you had 10 offers, and you had three of them that were pre qualification letters, and seven with a pre approval letters, what would you do with the pre qual letters

Ian Arnold  27:07  

straight to the trashcan,

Rick Ripma  27:08  

that's right, you aren't going to look at that option. Right now. There's not an agent that's going to look at that. So that is not even going to matter. It's not going to benefit the customer. They need a pre approval letter.

Ian Arnold  27:21  

All right. So as our Time is winding up, so we definitely want to let people know we have a Father's Day special going on, going on for the weekend of Father's Day. So if you are a father and you've been wondering what to talk about your kids, no matter what ages about, what about credit about looking at a house, all that stuff and you don't know how to do it, sit down with them on the phone, and or on the on the radio, not really on the phone and listen to us, and we'll go through everything with you.

Rick Ripma  27:53  

Yep, I think it's gonna be awesome. Thank you for bringing that up. If you have any questions, go to hard working mortgage guys.com That's hard work in mortgage guys.com. And we again, we thank you so much for joining us, and you have a great weekend.

Announcer  28:07  

Brunch NMLS number 33041 Recruitment NMLS number 664589. And Ian Arnold's NMLS number is 1995469. Equal Housing opportunity, some restrictions apply.