The Secret Steps to Getting Qualified for the Best Mortgage Possible

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 303, where we interview Jon Lallande and talk about mortgages, lending, and real estate investing.

Jon:
It depends what your goals are. Primarily, there’s two different types of lenders, right? You’ve got your residential mortgage lenders. They have three different occupancy types typically, right? You’ve got your primary residence. You’ve got your second home, and you’ve got your investment property. So those types of lenders are going to be backed by agencies, such as Fannie Mae, Freddie Mac, Ginnie Mae. And Ginnie Mae does all the government loans, FHA, VA. Fannie and Freddie are doing your standard conventional loans. You can do a primary residence with them. You can do a second home, or you can do an investment property.

Mindy:
Hello, hello, hello. My name is Mindy Jensen, and with me today is David. Hip, hip, hooray!

David:
I never should have told you that.

Mindy:
It’s funny because you’re such a tough guy. David and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

David:
Whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate, or start your own businesses, we will help you reach your financial goals and get money out of the way so that you can launch yourself towards your dreams.

Mindy:
David, I’m so excited for today’s guest. It is Jon Lallande, who used to be my go-to lender until he left. He decided that he wasn’t going to be in lending anymore, but that doesn’t mean that all of the information that he’s had for years of being a lender has just suddenly left his brain. So he is joining us today to talk about lending and how to set yourself up to be approved for the most money, to have a smooth experience with your lender. In today’s market, you really need to be able to act fast in order to be able to close. What I’m seeing when I’m making offers is that it’s not necessarily the highest offer that gets accepted. It is the one that can close quickly, the one that is most assured to close. And saving 50 cents a month on your payment isn’t the same as having a lender that can close for sure as quick as possible.

David:
Yeah. Jon, aside from being not only the world’s okayist Recondo, a Marine Corps reconnaissance veteran, which I tried to get you to say, but you skipped over in my intro that I wrote out because, you know, I’ll offend him. No, so Jon and I are, I guess you could say, borderline besties, right? I mean, he lived in a room in my house for a year during the pandemic in San Diego. Both of our spouses lived out of state, and so he rented out the room on the bottom floor of my house. We worked out together, lived together, whatever.

David:
I got to witness him getting his MLO license. For his entire first year, year and a half, he was crushing loans. I mean, he was my go-to guy for anything in California, and he was phenomenal at it. And then he was also really good at other investing and found that to be a little bit more enjoyable and a little bit less time consuming. So he kind of moved more towards that route. But Jon’s just an awesome dude, one of my favorite people, and it’s fun to get him on the show and hang out and talk.

Mindy:
Yeah, he has a really great money story apparently, which I didn’t realize until after we were done with this whole conversation. So Jon is definitely going to be back on the show in the future to tell us how he’s able to save something like 70% of his income living in a high-cost-of-living area. So that’ll be a lot of fun. Jon Lallande was a former Recon Marine. He was my go-to lender for several years until he left me to go do real estate investing. So Jon, welcome to the BiggerPockets Money Podcast. It’s super exciting to actually see you in real life for the first time. You were at the BPCON in… Where was it? New Orleans. And I got COVID five minutes before I was supposed to get on a plane to come down, so I didn’t actually get to meet you in real life. At some point, we’ll connect in real life. But I’m so excited to talk to you today.

Jon:
I was going to say, I don’t feel like this is real life.

David:
I agree with you. I didn’t think this was real life either. We’re still virtual, Mindy.

Mindy:
Okay, fine. It’s nice to look at you on a computer screen.

Jon:
COVID real life. It’s nice to see you too, Mindy. Thanks for having me on.

David:
Thank you for your support.

Jon:
Thank you for your support.

Mindy:
Thank you both for your support on being on my show today, because I have a lot of questions about lending, and David doesn’t know anything. So I thought I’d talk to Jon.

David:
It’s true.

Mindy:
Jon, brain dump. Tell me everything you know.

Jon:
Everything I know. Okay.

David:
It’s going to be a very short podcast.

Mindy:
There’s a lot of confusion. Yeah. Shush.

Jon:
Yeah.

Mindy:
You’re going to make everybody turn it off before they even get started. So there’s a lot of confusion in getting a loan. Even if you bought a house a few years ago, things have changed. It seems like things are always changing. Almost like as soon as you know the rules, they change them on purpose just to keep you on your toes.

Jon:
Maybe.

Mindy:
It used to be you just, you gathered your W2s and your check stubs, and you gave them to your lender, and blam, you got a loan. And now there’s a lot more involved. So let’s play pretend. Pretend I need a loan. What can I do to make myself the most attractive to a lender so that they give me lots and lots of money?

Jon:
Okay, so there’s really… It depends what your goals are. There’s two different types of lenders, right? You’ve got your residential mortgage lenders. They have three different occupancy types typically, right? You’ve got your primary residence. You’ve got your second home, and you’ve got your investment property. So those types of lenders are going to be backed by agencies, such as Fannie Mae, Freddie Mac, Ginnie Mae. And Ginnie Mae does all the government loans, FHA, VA. Fannie and Freddie are doing your standard conventional loans. You can do a primary residence with them. You can do a second home, or you can do an investment property.

Jon:
We’ll talk about that first. They’re primarily going to be looking for a couple of things. Now, when I talk about residential mortgage lenders, they all have generally the same guidelines. Some companies have something called overlays. An overlay is exactly what it sounds like. It’s an additional guideline that comes on top of the Fannie, Freddie, Ginny Mae. It’s an additional guideline to kind of make their criteria a little bit more strict. So generally, what you’re going to be looking for on a Fannie, Freddie product or any sort of agency product is stable income and good credit. Those are two of the really… really the things that you’re going to be looking for.

Jon:
So what does that mean? For self-employed borrowers… And that’s what we call them in the mortgage world. We call them borrowers. So for self-employed borrowers, with any sort of Fannie, Freddie, or any sort of agency-backed loan, they’re going to want a two-year history because they want to show that… Let’s say you have a one-year history and you were in a field. You were selling ventilators, for example, in 2020. Well, you had a pretty good year in 2020 selling ventilators. Does that mean that you’re always going to have a… Let’s say you made a million dollars in 2020 selling ventilators. Does that mean that you’re always going to have a million-dollar year? Probably not. We probably won’t need ventilators for, hopefully, let’s knock on wood, for the next five years, right? Let’s hope that that dies down.

Jon:
An underwriter’s not going to look as much as like, okay, well, what type of job is it? Are you going to continue with that income? They’re going to want to see stability there. So for self-employed, one of the best things you can do is you have that two years of history. And they’re going to even it out, so they’re going to average the two years of income. What they don’t want to see is they don’t want to see an incline. So I know you might have mentioned I’m not actually a mortgage lender anymore, so the guidelines could have changed, but typically they don’t want to see more than a 20% decline in income from the two years. So if your income’s declining, then they’re probably going to wonder why, right? They’re going to ask you questions. Maybe you have to write a letter of explanation saying, “Hey, this is why my income’s declining.” And they might just use the lower of the two instead of averaging it. So that especially, that applies just, for example, we’re looking for stable income.

Jon:
So when you’re self-employed and you’re looking for an agency finance, typically, if you’re looking for a primary residence or a second home, there were recently some pretty crazy changes with the interest rates for second homes. My theory is the big agencies don’t want people buying second homes because they’re realizing they’re risky. A lot of people have been buying them lately, making them Airbnbs. They don’t have any income. They’re a second home. So what are people likely not going to pay for when they lose their income, right? Their second home. They’re going to keep their mortgage. Everybody wants to keep a roof over their family’s head, but a second home, maybe they let that go.

Jon:
So the agencies have tightened up a lot on the second home. They put something called Loan-Level Pricing Adjustments, which is just an adjustment to your rate. They’re going to make it more expensive for you to get that loan. So, anyway, I know that’s a lot of information just for your self-employed borrowers. But for your self-employed, they’re going to want to see reserves, and they’re going to want to see stable income, right? So a lot of people are like, “Well, what if I don’t have the stable income, or what if I just started my business?” Well, if you’re trying to buy a primary residence, it’s going to be tough, but you can also look into something called a DSCR loan, a Debt-Service Coverage Ratio, if you’re looking for an investment. They’re basically lending against the asset instead of your personal income. So that’s a great option for people to ask your lender about if you don’t have sufficient income and you want to get a DSCR loan. Yes, Mindy, I can’t tell. It looks like you’re raising your hand.

Mindy:
I am raising my hand. Can you get a DSCR loan for you to live in, or is that just for an investment property?

Jon:
I can’t see any reason that… No, you wouldn’t be able to get a DSCR loan. I’m not 100% on that, but I’ve never seen anyone get a DSCR loan for you to live in, because how would you pay your… What income’s coming in if you’re living in the property? What I don’t know is, I don’t know if you’d be able to get one for maybe a multifamily property, if the property was generating enough income to make sense. I honestly don’t know the answer to that.

Mindy:
Okay.

Jon:
But I know they’re primarily for investment properties.

David:
So just to kind of drive this point home, as Jon actually did a mortgage for myself. I left the military and was in this exact spot, where I have… I’m self-employed. I make a decent amount of income, and none of it shows on tax returns, because it either hasn’t been around long enough or I wrote stuff off or whatever. And I ultimately ended up having to do… We did a 5% conventional, and I had to gift my wife the down payment via the fancy gift letter. And then she bought the house without me on the mortgage at all because my personal finances were essentially dragging us in the hole, even though ironically, in a gross sum, I make more money. But it doesn’t show and so it-

Jon:
David has a good CPA.

David:
So it works out. But there was one other thing you mentioned that I wanted to touch on real quick before we moved on: the overlays piece. You said it, and you said it all smooth, and everything was great, but I don’t know that people realize how important that is to understand. And we’ll just use as a super-brief explanation something with the VA loan. The VA loan, the guideline has no minimum credit score. There is no requirement whatsoever. Every lender and their mother has a credit-score requirement. Most are probably like 620, but I’ve seen some 580. I ran into a guy online the other day who got approved for a loan with a 570.

David:
So it’s important to understand that an overlay… If a lender tells you no or you’re not qualified because of such and such, you want to make sure that you understand if that’s an overlay or an actual guideline from the lending side, because it’s quite possible that you could say, “Oh, okay,” and then go to another lender, and they tell you yes. So it’s valuable to understand the difference, just so you know if you’re being told by that bank no, or if you’re being told by the actual powers that be no.

Mindy:
Ooh. So how would I ask my lender that?

Jon:
Yeah, that’s a great question, and I was just thinking about that. Typically, a lender is not going to tell you… Your loan officer’s not going to say, “Oh, hey, this is an overlay. If you go somewhere else, they might be able to do it.” So that would be kind of tough. But what you can always do is, if it’s an agency loan, Fannie, Freddie, Ginnie Mae, you could always… I should also include our friend USDA. The USDA loans, I think, are under Ginnie Mae. So you could always go and Google the guidelines, and a lot of people don’t know this. And it throws lenders for a surprise when their clients come to them and they go, “Actually, I Googled this guideline, and this is what the guideline actually says.”

Jon:
So if you go on Fannie Mae, Freddie Mac, Ginnie, if you go on any of their websites, and Mindy, I’m sure you could put it in the show notes so everyone could go back and look at it if they want to. You can Google the actual guidelines and then you can see, okay, is this something that’s in the guidelines, or is it something that my lender is making an overlay? For example, VA loans with the credit score. If a lender comes back and says, “Hey, your credit score’s 600, and you’re not getting approved for the loan,” well, and you would say, “Is that an overlay?” Then they might say, “No.” Go back, look at the guideline, and you’ll be able to get a straight answer from there, which means you can go to another residential mortgage lender.

Jon:
Now, a lot of people make the mistake, and Mindy, we spoke about this before, and I believe you posted it in the Facebook group, where they will… They get the advice, “Just call a million different lenders until somebody tells you yes.” Great. That’s great. However, if it’s an agency guideline, for example, let’s say… Let me think of one that would apply. If it’s an agency guideline… Let’s just use the example for self-employed borrowers. Let’s say that they’re looking for a two-year average, and the guidelines are pretty clear that you’re looking for a two-year average.

Jon:
If it’s an agency guideline and you go to 50 different lenders, they’re all going to… 50 different residential mortgage lenders that work for a mortgage company that are selling their loans to Fannie and Freddie, they’re all going to tell you the exact same thing. They’re all going to tell you that we need to average your income over two years. So for something like that, you can call 50 different lenders. It’s not going to matter. So then you would have to go to a different lending type. So that’s where you could go to a portfolio lender or a local bank, somebody that has flexibility with their own guidelines. They’re not selling their loans to Fannie and Freddie, so they’re able to give you a lot more options.

Jon:
I remember people really attacking that Facebook post because they didn’t really understand the point of it. Yes, some lenders have overlays. Yes, some lenders’ underwriters can either miss… They can miss things. That happens. Underwriters are human. So they miss things every once in a while. Some are a little bit more lenient, a little bit. But if it’s a general Fannie Mae, Freddie guideline, they’re going to tell you the same thing. So it’s important to really know, is this a guideline, or is the company being strict? And if it is a guideline and you’re just not able to meet that, then go to a different lending type. Go to a portfolio lender, or go to a local bank, somebody that has a lot more options, right?

Mindy:
Can you define what a portfolio lender is, just for people who are listening who may not know?

Jon:
Yeah. So a portfolio lender, the big difference is they’re not going to be selling… They have their own loan products. They’re not going to be selling them to Fannie, Freddie, or Ginnie. A lot of times, they’ll have the options to do those loans. At least, sometimes they will, but they typically have their own guidelines. They’re going to underwrite it.

Jon:
Dave and I own a good bit of property. We use portfolio loans on… I believe everything we own is under portfolio loans, and the terms are crazy. So if you look at… It’s been a minute. So I believe a max cash-out refinance is typically 75% on an investment property. But our lender at the portfolio loan, he was able to give us 85% and no balloon, some really crazy terms because he trusts us. He sees our competence. He looks at our P&Ls. He looks at our personal financial statements, which is something that they typically won’t ask you for in residential mortgage lending. They don’t care what your personal financial statement looks like. They want to underwrite it to the Fannie and Freddie guidelines. So portfolio lenders just, they have other options, and they’re going to look at different things. They’re underwriting the risk in a different way.

Mindy:
So how do I find a portfolio lender?

Jon:
Ooh, there’s an app. Actually, David gave me this app. Let me look. If I can look on my phone [inaudible 00:16:37].

Mindy:
There’s an app for that?

Jon:
There’s an app for it. There’s an app for everything.

David:
ICBA.

Mindy:
Oh, okay. Are you even old enough to remember this ad? “There’s an app for that.”

Jon:
There’s an app for that.

David:
If you-

Mindy:
Yeah, you have to say the exact right words. You might not be old enough.

David:
If you go in the app store, look up local community bank or community bank locator. It shows up as ICBA. I’ve never figured out why it’s an I instead of an L, but whatever. And yeah, it literally just opens as a zip code, and you type in the zip code and it pops up all kinds of local lenders in your area.

Mindy:
ICBA. That’s awesome.

Jon:
Another kind of more intricate hack for people that are really good with data and maybe really good with pulling data and skip tracing, like the real estate investors that are listening to this podcast, one of the things that we did recently, because we’re trying to establish a good relationship with a local bank for a lot of our flips, is we pulled a list of all of the home sales that were bought in the last 12 months. And then we looked at who the lenders are going to be used for commercial loans. And so you could filter all that if you go through ListSource, and you could see who’s being used the most and you can call them and find out. That’s typically who all the investors are working with. If you pull a list of all the commercial loans that have closed on residential properties in the last 12 months, you can see… You can just filter in Excel by the most common name, and you can call them. A great hack if you’re good with data.

Mindy:
Okay, let’s get back to residential lending because I think that most people are interested in the residential lending.

Jon:
Okay.

Mindy:
Why does my credit score… When you pull my credit score, why is that different than when I go to Credit Karma?

Jon:
There’s a reason that Credit Karma’s free. I love telling people this because it always surprises them. Credit Karma gives you an estimate of what your credit score is, but really what that app… If you look at how much Credit Karma, how much income they bring in, I bet it’s a good bit because what they’re really doing is they’re selling your data to credit card companies, to mortgage companies. That’s why they exist. They’re able to give you kind of a round number of what your actual credit score is, but it’s not a real credit score. It’s just an estimate. I’ve seen credit scores… From what people tell me their Credit Karma is, I’ve seen them off up to 80 points.

Mindy:
Really?

Jon:
Yeah.

Mindy:
That much?

Jon:
It can be pretty significant. Yeah. They don’t have a full history of your entire credit. It’s not going to be accurate. So if you are looking at your score, Credit Karma can give you… A lot of times, it’ll be a good indicator, 20 points hit or miss a lot of times. But don’t fight your lender and say, “Hey, my Credit Karma says that I have a 720, and you’re telling me I have a 690.” They’re right. They pulled your score. That’s what it is. So I think at that point, your best option is to ask them if they can run something called a credit simulator and see what kind of debt you can pay down, if any, to help improve your score, because there’s some things you can do immediately that will help improve your score overnight. And you can do what’s called a rescore.

Jon:
So if you have bad credit, maybe for… The most common is over-utilization. So if you’re utilizing 90% of your credit limit, a lot of times, if you just pay it down to 20%, maybe 30%, then you’ll see an improvement overnight. And all you need to do is send that to the bureaus, and your lender can do this for you most times. They can send it to the bureaus, and the bureaus will come back and say, “All right, here’s your updated credit score.” I don’t know if all lenders have the ability to do that, but I know the company that I used to work for, they were really good about that, and they can get your credit score changed overnight.

David:
I’d be willing to bet they have the ability, and it’s just a matter of whether or not they’re a lazy lender.

Jon:
If they’re lazy, yeah. Yeah. But I mean, now everybody knows that that’s an option, that you might be able to improve your credit score overnight by doing something called a credit simulator or a rescore.

Mindy:
I’ve never heard this, and I feel like a snob for saying this, but I’ve never needed it because my parents gifted me their credit score. When I was 17, I graduated from high school. They said, “Well, now that you’re out of high school, you can have a credit card.” So they opened up a credit card for me in their… Well, I was a signer, and then their amazing credit score transferred to me when I turned 18. So I’ve had an 800-plus credit score my whole life.

Jon:
Yeah. You [inaudible 00:21:01].

Mindy:
But I didn’t know that you could do this. This is amazing. So holy cow! I just marked this, and I’m going to make that a whole little clip that I’m going to put on social media, because that’s amazing. That is a fabulous tip.

Jon:
Another thing that a lot of people will run into is accounts that are in collections, and they believe that if they pay them off, then they’ll go away. But a lot of times, that’s not the case. Sometimes that can actually make your score worse. I say a lot of times, so take it with a grain of salt. But what you can do is you can reach out to them and you can say, “Hey, I have this account in collections. It’s got $20,000. If I pay it, will you give me a deletion letter?” And if they give you a deletion letter, you can bring that back to your lender, and that means that’s wiped off your account. Now, you’ve got a little bit of leverage here because you owe this company money, and they want their money. So if you pay it off, you’re probably not going to get that deletion letter. Why would they help you? They’re already good. Why waste their time?

Jon:
Now, I will say that there’s a couple of times that I’ve seen where the company won’t give them a deletion letter. They’re like, “You could pay it off, but we’re not going to give you a deletion letter,” even if it’s a small amount. And I honestly don’t understand why. They’re getting money for the company. I’m thinking it’s just a lazy employee that works for the company, and that’s why they’re not doing that. But something else you can do if you’ve got an account in collections, is you can say… You can call whoever owns that account and say, “Hey, I’ve got this account in collections. If I pay this off, will you give me a deletion letter?” And then you can improve your score right away.

Mindy:
Do you have any other tips for improving your score?

Jon:
I mean, the basics that a lot of people already probably know. But try to keep your utilization around 10%. Don’t take out loans and then pay them off immediately. Some people think that that helps. It doesn’t. It doesn’t look good on your credit if you take out a huge loan and then pay it off immediately. You want to actually have utilization. If you keep it under 10%, even better. A long history helps. Don’t make any late payments. That should be an obvious one, but late payments really hurt your credit score. So yeah, those are just a couple of them that I’ve seen.

Jon:
Typically, when I’m running a credit simulator, when I’ve ran them in the past, what I’ll try to do first is I look at the utilization, and I put it all at about 9%, because I’m looking to save the client the most money and be able to improve their score the most. So I’ll put all their utilizations at about 9%. I’ve seen that to help the most. And then I will then look at collections accounts. Okay, what happens if I remove some of these collections accounts? And a lot of times, that will help. And then there’s credit repair companies. You want to make sure you vet them because not all of them are that good. But credit repair companies can also really help your score. It typically takes about six months.

Mindy:
Oh, six months. Okay. What is a good score? What is a mediocre score? And what’s a bad score?

Jon:
I love when I see people online and they’re saying, “I have an 850 credit score. I’m so much better than you.” It’s like, okay, cool, that doesn’t do anything for you at all, other than boost your ego, which is awesome. But if you already have a giant ego like me, if you have anything over 740, then you’re completely solid. As far as at least the agency guidelines, if you’re over a 740, there’s… That thing I told you earlier called a Loan-Level Price Adjustment, at least for the company that I worked for, if you have over a 740, there’s zero Loan-Level Pricing Adjustments. So you could have a 740, 741, 850, it doesn’t matter. You’re going to have the exact same interest rate as long as you’re over a 740. So I would always shoot for, hey, try to get a 740. If you have an 850, maybe use your credit a little bit more. Take out some more loans. I know some people are against that, but money can work for you pretty well if you use it right.

Jon:
There’s really no benefit of having over an 800. I’ve never seen one. I never have worked in the auto financing space, but from what I’ve seen, I guess, with some personal stuff, I’ve never seen any benefit for having over a 740 in the auto space as well. And then the personal loan, I don’t have a ton of experience with that, but I’d imagine it’s probably pretty similar. Now, if you’re looking for government loans, 640 is actually… At least at the company that I worked for, if you have over a 640, there’s no Loan-Level Pricing Adjustment. So if your rate was 2.75 and you have a 641… It doesn’t matter if you have an 850 credit score; your loan’s still going to be at a 2.75. And those rates don’t exist anymore, but just something to take into consideration, so…

Mindy:
I want to correct you really quick. You said 640. Did you mean 740?

Jon:
Nope.

Mindy:
You can go down to 640 credit score and still have no Loan-Level Pricing Adjustment?

Jon:
Pricing adjustments for… Yeah, for VA loans, that’s how… Those were our guidelines for the VA.

Mindy:
VA loans. Okay. I missed the VA.

Jon:
For government, yeah. Yeah, yeah, yeah. Sorry. I should definitely clarify. So for VA loans, that was our guideline. At the time, it was VA and USDA. I do believe that FHA had… It was a 680, and then there was no LLPAs for 680. So that’s why a lot of times when people come to me, they’re like, “Hey, I want to do a 3.5% down FHA loan because it’s the best loan, and I’m a first-time home buyer.” Well, not necessarily. So if you have bad credit or your credit’s under a 680… And every lender has different Loan-Level Pricing Adjustments, so you’d want to talk to your actual lender about this. But if you have a lower credit score and you’re going higher on what’s called your debt-to-income ratio, which we haven’t even talked about, but that’s 100% how residential loans are qualified. It’s called a debt-to-income ratio. I could explain that a little bit later.

Jon:
But if you have bad credit and you need to go higher on your debt-to-income ratio, maybe you’re trying to buy more house, then an FHA loan could be a great option. For 3.5% down, you’ll have better rates. However, conventional loans, a lot of times for first-time home buyers, they have 3% down options, and the PMI is actually a little bit less, the private mortgage insurance. So that can be a better option for people that maybe they want to put 3% down. They have good income, and they want to benefit from the actual lower monthly payment. So a lot of times, the conventional 3% down, if you have good credit, can be a better option for you.

Mindy:
Okay. I am hogging you. David, you’re welcome to ask questions, but not right now, because I have more. So you just mentioned private mortgage insurance, and you mentioned 3% down for a conventional loan for first-time home buyers. Is that only available one time, or can I use a 3% down again?

Jon:
It really is because, a lot of times, FHA loans are supposed to be for first-time home buyers. There was a time period that you had to wait [inaudible 00:27:52] in order to qualify. And I believe for the conventional, you actually had to do a course online to qualify for the 3% down. There was a time limit, and I want to say it was seven years, but don’t quote me on that. Definitely, that would be something to reach out to your lender about.

Mindy:
Okay. And then let’s talk about MIP and PMI, which is the same, but different, because I think a lot of people don’t recognize that this changed.

Jon:
Yeah, the upfront mortgage?

Mindy:
Yeah.

Jon:
Yeah. Just the upfront mortgage insurance premium and then the PMI. The funny part about PMI is a lot of people think that it protects them in some way. It doesn’t protect you in any way. The bank is still going to take your house if you don’t pay them. Basically, what they’re looking at-

Mindy:
Oh, I’m sorry. Stop. Say that again slower.

Jon:
The bank is still going to take your house, slower, if you don’t pay them. Always. So the reason that there’s something called private mortgage insurance is if you’re a bank, right, and you’re going to lend money to people, well, if someone puts 20% down, so they’ve got 20% equity at the very minimum, assuming no market changes, then if the bank has to take that house back, then they at least can make a little bit of money if they sell it at market value. Or if the market dips, they’re at least covered, right? If the market dips 20%, they’re at least covered, that they can sell that house and they can break even, right?

Jon:
Now, what happens if the bank lends you 97% of the value of the home, the market takes a hit at 20%, which it did in a lot of markets in 2008, and you stop paying your mortgage? What happens then? They lose money, and they don’t like losing money. They like to make money. So that’s why they have that private mortgage insurance. It helps mitigate some of their risk. It doesn’t protect you in any way. So if your lender ever tries to sell you private mortgage insurance and you’re putting more than 20% down, you’re doing a VA loan, zero down, then you need to run.

Mindy:
I didn’t even realize that people might think that that protects them. Yeah, no, if you don’t pay your mortgage, they’re going to take that house every single time.

Jon:
Yeah. It’s a good idea to pay your mortgage.

Mindy:
It’s a very good idea.

Jon:
If you’d like to keep your house.

Mindy:
Yeah. I support that decision.

Jon:
On time too. That helps.

Mindy:
Okay. Back to David’s comment about how he didn’t have the history to buy the house, so he had to gift money to his wife. And you said, “He has a very good CPA.” Let’s talk about that because I have seen in the BiggerPockets forums where people say, “Hey, I had so many deductions on my taxes that now I don’t qualify for a mortgage.” And I’ve seen other people say, “Oh, a good lender will be able to see through that and see the underlying income.” And that doesn’t make sense to me, but I’m also not a lender, so I don’t know. But it seems to me that if I say I made $12 in my taxes last year, you’re going to see that and be like, “Oh, she made $12.”

Jon:
Well, first I have to ask if any of your listeners work for the IRS.

Mindy:
Probably.

David:
Yeah. Let’s not dig into my specific return.

Mindy:
No, no, no, no, no. I just-

Jon:
Dave has like the most complicated tax returns that I’ve ever seen. He has Schedule F income, which I’ve never seen before. Dave has income streams coming in from everywhere. So they probably just looked at his tax returns and said, “I don’t want to do that.” Dave has a lot of different streams. Probably not a good example because that doesn’t apply to 90% of the people out there, and the people that it does apply to, they’re typically sophisticated enough to just go into a portfolio loan.

Jon:
So I guess, to keep it more simple, what you’re asking is, do they give you any money back, right? You have these deductions. Do they give any money back? Yes, they do. For your rental income, you have some of your deductions, but they understand that some of that isn’t your actual deductions. So they do… We have a calculation, and it’s given by Fannie and Freddie. It’s basically a calculator, and they have guidelines for it and say, “Hey, we can give you some of this money back. We can give you, let’s say, 50% of your meals and expenses back. We can give you…” So they will give you some back.

Jon:
Now, that doesn’t mean that you’re going to qualify for a loan if you wrote off everything and they’re going to give you back all of your deductions. There’s a calculation for that. And it would be way too intricate… To teach someone how to calculate income as a lender would be… It would take a lot more than the rest of the time that we have on this call. But there are some things that they can do to help you out, but generally…

Mindy:
Okay. So it’s not totally false the information that they’re giving. I think that-

Jon:
No.

Mindy:
I mean, every loan is different. Every situation is different. There’s no way that you can cover every single one. Oh, let’s have every single listener call in, and you can give them a quote, over and over a quote.

Jon:
Yeah, of course.

Mindy:
Yeah, that’ll be great.

Jon:
Let’s reiterate that I don’t work for a mortgage company.

Mindy:
Yeah. But that’s interesting that that is available because it doesn’t make any sense. The government says that I can take depreciation on my rental properties, but then when I do, that reduces my taxes. Now I can’t get a loan.

Jon:
Correct. Yeah. That’s a really good example of that, and a lender will give you some of that depreciation back, because that doesn’t actually… That’s not actually coming out of your bottom line. That’s still money that’s coming… You’re still getting money in your pocket, even if you’re showing zero. So yeah, they’ll give some of that depreciation back. That’s a really good example of one for regular residential mortgage loans.

David:
The other thing that’s probably worth clarifying when you’re hearing that online is when you go online… And I tell my story, right? Like, “Oh, well, I couldn’t qualify for a mortgage because of the way my income is set up, so I had to gift money to my wife so she could get the mortgage.” Well, that’s because it was a residential primary residence mortgage. I have gotten a ton of loans, like $4 or $5 million worth of loans over the last two years, on commercial, rental properties, investment loans, whatever.

David:
So you see these battles going back and forth, and somebody’s like, “Well, I don’t have any income that I show on my taxes, and I qualified for a loan.” Well, yeah, but if that’s a portfolio lender or an investment loan or something, an investment banker’s going to be able to be like, “Oh yeah, you’ve got this income coming in. Da, da, da, da, da, da. Cool. We feel safe with this,” whereas a residential guy is going to be like-

Jon:
Yep.

David:
Literally, Jon and I were having the conversation, and I’m like, “Dude, you’ve lived with me. You’ve seen how much money I make.” And he’s like, “I know, and I can see it, but it doesn’t count because of this guideline.” And I’m like, “Aaahhh, okay, well.”

Jon:
Yeah. And that’s something to take into consideration because I see this a ton online, and it used to drive me crazy as a lender, is you have a lot of people that will flaunt around their scenario. “My lender did this. I was able to get this.” Well, that’s great, but they probably don’t have the exact same scenario as you, right?

Jon:
So I would see that a lot online where people would refinance primary residences. They would do a primary residence refi with a 40% loan to value, and they were bragging about their 2.875. And then someone was like, “Well, I just purchased an investment property with 15% down, and I got a 5.25. Why are they so different?” Well, because it’s a completely different loan product, and yours is a lot riskier.

Jon:
So it’s something to understand, that you really have to compare apples to apples if you’re going to be looking at someone else’s scenario. Your best option is just not to compare. Maybe use them as a baseline, but if you really want to compare them, you have to call that person and you have to know all the guidelines and where the Loan-Level Pricing Adjustments come from. So you really need to do a lot of homework if you’re going to compare apples to apples.

Mindy:
I think the bottom line here is just don’t try to get a loan in five minutes. Talk to your lenders, especially, oh, I’m thinking about buying a loan. Great, call up a lender. Talk to them. “Hey, this is my situation.” “Oh, okay. Well, these are the products available.” “Okay, well I’m trying to do this. Do you have anything else?” I mean, don’t call them five minutes before you need the loan done and ask them 500 different questions. You have to give them time to do research and explain things and understand stuff. I don’t know. Help me out here, Jon.

Jon:
No, that’s a really good point. Especially if you’re self-employed, it’s a good idea… If you do plan ahead and you’re not like me and you plan ahead two years in advance, which is good on you if you do that, but if you do that and you’re saving up for a primary residence and you’re self-employed, it might be a good idea to call your lender and say, “Hey, I’m trying to buy a house in the next year or two. This is my scenario now. Is there anything I could do better to set myself up for success?” And they’ll tell you. They’ll tell you, “Hey.” They’ll look at your tax returns. “You want to show this much income next year.” They can’t necessarily… Your income is what it is. So they can’t tell you, “Hey, don’t deduct this. Don’t do this.” That’s illegal.

Jon:
So you would definitely want to call your lender in advance and ask them those questions. What can I do to set myself up for success? This really applies for people that have income which would be considered unstable. So anybody that’s 1099, anybody that’s self-employed, anybody that’s part-time. A lot of times, the weird ones are like some of the teachers that work for different schools, and they’re part-time with different positions, and they’re not full-time altogether, and they don’t have two years; that’s stable. Now, the people that are in the safe zone with residential mortgage loans are people that are full-time W2, and they’ve stayed in the same field for the last two years. You have the most stable income. That’s what a lender wants to see, a full-time W2.

Jon:
Now, if you came out of college, you finished your degree, you don’t need a two-year history most of the time. Your degree will count. Some of your schooling will count for some of that employment. So you can go straight from school into a full-time W2 job, and a lot of times the lender will give you that W2 income right away. So that’s something that people also don’t understand. They’re like, “Oh, I have to wait for my two years.” Well, it depends what your history is. So it’s always good to just ask. Don’t take anyone else’s word for it. Ask a couple of different lenders. And when you are asking, go back to the guidelines and say, “Hey, is that a guideline? Is that an overlay?” That will help you out a lot. Does that answer your question?

Mindy:
Yes. No, that’s very helpful. Now let’s talk about that recent college-graduate thing. So I just graduated from college. I have no work experience. How long do I have to work there before I can get a loan?

Jon:
I mean, if you’re a full-time W2 and your degree is applicable to whatever field you’re in, a lot of times, a day, or even an offer letter. An offer letter, and you can close after one pay stub. That’s really specific to the lender. My company was pretty lenient with that when I was lending. So it’s something to ask. But a lot of times, an offer letter. And I know that my company was more lenient because I had other people get turned down from other companies, and my company was able to do it with just an offer letter, and they would be able to close as soon as you get one pay stub.

David:
Just for the record, because Jon’s not going to dump it out there, that company is CrossCountry Mortgage. I’m going to throw it out there because you just said “my company” like 10 times, and Mindy’s going to get blown up asking what company. So at least it’s-

Mindy:
Oh, I was just going to forward them all to my new contact there.

David:
It’s out in the ether.

Jon:
Oh, if we can name drop, yes. She is way better than I was.

Mindy:
Yes. Yes. So if you need a reference-

David:
Mindy said yeah.

Jon:
Yeah, there was no hesitation.

Mindy:
Well-

David:
She definitely is.

Mindy:
No, she… So I actually haven’t done a loan with her yet.

Jon:
Oh, you’re in for a treat. She’s awesome.

David:
Yeah.

Mindy:
I’ve been transferring my clients or referring my clients to my partner, Libby, who’s wonderful. If you need an agent in Colorado, Libby’s amazing. But-

Jon:
I love Libby. Yeah, I got to work with her a couple of times. She’s awesome.

Mindy:
I love Libby. So Libby is… Well, Jale is my new contact at CrossCountry Mortgage. So yeah, if you need somebody, please email me [email protected], and I will connect you. They are licensed in all 50 states. I can’t guarantee that they will approve you for a loan, but they will at least explain to you-

David:
Good disclaimer, Mindy.

Mindy:
They will at least explain to you why they can’t approve you for the loan. “Your credit score is 403. We can’t give you a loan.” But let’s do a credit simulator and a rescore. I love that tip. Holy cow! That’s a great tip.

Jon:
Yeah. This company is really good at doing them efficiently, so.

Mindy:
Something that came up yesterday… Oh, I’m sorry. David, I have been hogging Jon. You ask him a question, and then I have one more before.

David:
It’s okay. I just had some self-interested questions such as if we… Well, I guess my first would be, do you have a favorite loan product?

Jon:
Oof. As far as for what audience, because that’s really… [inaudible 00:40:56].

David:
Well, you’re supposed to say VA loan so that I could lead into everybody thinks the VA loan’s impossible to get approved for in this market. How do-

Jon:
Yeah. I was hesitant to say that because not everyone is a veteran, and I don’t want to give everyone FOMO. But you should join the military and serve your country, and then you get awesome benefits. And if you’re scared, don’t be scared because you’ll be okay. Yeah, the VA loan is by far the best lending product. Obviously, you need to serve your country first in order to benefit from the VA loan. But the VA loan’s really awesome. It’s a zero-down loan product that has no mortgage insurance. It has the highest debt-to-income ratio as far as qualification. So you can get qualified. I’ve seen loans go up to over 70% on debt-to-income ratio. That doesn’t mean that you’re going to get qualified, but that does mean…

Jon:
Let’s stop for a second. And let me just actually talk about debt-to-income for two seconds, because I know we’re running short on time, and it’s really important that people know this. So what your debt-to-income ratio is, it’s the ratio for how much income you’re bringing in versus how much debt you have. And that includes your housing payment. So for conventional loans, as of April 13th, 2022, at least as of when I was in loans, it was 50%. So 49.999. So as long as you’re making twice as much as the debt that you have, you’re good, right? You can qualify for a loan. Assuming all of your other credit, good income, good credit history, all of those things, some reserves, you can afford your down payment and closing costs, you’ll be able to qualify for a loan.

Jon:
VA loans are really awesome because they look at your income different. They look at something called residual income. So basically, what they want to see is, hey, after your mortgage, after all of your… they do a small calculation for how many family members you have, and all of your debt, how much income do you have left to pay for your groceries, to pay for your gas, blah, blah, blah. How much income do you have left? That’s called your residual income. They qualify you based off of that, which is really awesome because it allows you to qualify for a lot higher of a purchase price than you would if you were going conventional or FHA, and you go zero down. Dave and I used to work with a ton of veterans, both being veterans ourselves. And I’ve seen people that are in the military making $110,000 a year get qualified for a $2 million house. Yep.

Mindy:
What?

Jon:
And they had some income coming in from some of the additional units. They were house hacking. But VA loans, that’s the only product that you’d be able to do that. I don’t want to hit on that too much because not everyone’s a veteran. But if you want a really good loan product, join the military, and you can use a VA loan. That’s my best advice for the podcast.

David:
The biggest one we saw, right, it was… Was it 1.93, zero down?

Jon:
Yeah. I don’t remember the exact amount. But yeah, it was almost $2 million.

David:
Yeah, in LA County, Venice Beach.

Jon:
And he was active duty in the military.

Mindy:
Yeah. I don’t qualify for joining the military anymore. I aged out.

David:
I more or less wanted to throw that question out there because, for whatever reason, the VA loan has this stigma between agents and lenders. And you hear all the time that you’re not going to get an offer accepted with the VA loan because of X, Y, Z. And I always tell people that if you’re getting told that you can’t get a VA loan in today’s market because it’s too hot or whatever the reason is, then either your agent or your lender or both are garbage. Go somewhere else. They just don’t understand it.

Mindy:
I’m in this market right now as an agent, and I am going to tell you that your listing agent, the one who is advising the seller, is either uninformed or misinformed about what it is to do a VA loan.

Jon:
Yes.

Mindy:
Or they are advising their clients. Their clients are uninformed, misinformed. I mean, there are people who think that the VA loan comes with massive headaches and hassles. Well, if you’ve got a house that’s about to fall down, yes, the VA is not going to approve the property. The appraisal’s going to be all messed up. But I mean, Jon was telling me one time, he was like… I was like, “Do they have to have a dishwasher?” He’s like, “It has to have an oven. That’s all it has to have.” I’m like, “Really? That’s all it has to have?”

Mindy:
And he’s done three VA loans for me. He closed in 17 days on two of them and 21 days on the other one, just because the load of what he had that week, he couldn’t do a 17-day or whatever. But I was like, “17 days! Really?” I even was talking to a fellow agent. I’m like, “Yeah, he says he can do a 17-day VA close.” He was like, “No way can he do a 17-day VA close. He’s just saying that.” I’m like-

Jon:
Yeah. And there’s-

Mindy:
Wait. And it was my first one with Sean. Hi, Sean. And he closed, and I called up that agent. I’m like, “He did it. He did it in 17 days. If you need a VA lender, call Jon because he’s amazing.” And you have to know how to work it. You can have a really terrible experience as a listing agent accepting a VA loan. There are no shortage of terrible VA lenders out there because they don’t know what they’re doing. They’re doing it wrong. They don’t understand how to tweak the system. And I don’t want to say that because it’s not like you were doing anything illegal or immoral or wrong. You were working within the guidelines, but you figured out how to manipulate those guidelines so you could get it done fast.

Jon:
Yeah.

Mindy:
If you need a VA loan and you’re not using CrossCountry Mortgage, you are doing it wrong.

Jon:
And just so you’re aware, when you go to any company and you hear a blanket mortgage company, you have to understand that… Let’s look at… We can use names, right? Company names?

Mindy:
Sure.

Jon:
Just any company name? Okay, cool. Let’s look at eXp, for example. You can’t say that every real estate agent that works for eXp is a great real estate agent, right? You just can’t say that. But there are some teams-

Mindy:
Right. Just like you can’t say that every eXp agent is a bad agent.

Jon:
Right, 100%. You cannot. You can’t say that. But there are some teams that are, let’s say with Keller Williams or eXp, that have really dialed-in systems. The company provides the platform, but the teams inside have really dialed-in systems, and it’s up to that team, and that’s why the loan officer is the face of it because they make… They are the ones that really structure that team, put that in place with the right processors, the right underwriters. Some of them have them in house. Some of them have their own in-house processors that are directed specifically for their team, and they create a well-oiled machine to make the system flawless. So that is really what… When people are like, “Well, what makes a good loan officer?” Oh, who has the lowest rates. Okay, that’s something that can help. But a lot of times, that means that they can’t afford to have the really good, dialed-in, oiled machine that makes your loan flawless.

Jon:
And another thing to take into consideration is a good loan officer should be a really good salesperson because they should be assisting the agent on selling your loan, selling your deal. So a lot of people will go with the company with the lowest rate, and they are a call-center lender. So the loan officer doesn’t actually exist. It’s just a call center. Rinse, wash, and repeat. They really don’t care about you, and no one’s going to call the listing agent and give them any updates. Well, you have to remember, that’s who’s getting you the house. So if your loan officer is calling the listing agent and saying, “Hey, my client is super well-qualified,” I’m going to close this loan in 17 days. And if I’m late, I’m going to offer you a per diem. You’re probably going to get the house, which matters a lot more than… To me, it matters a lot more than the interest rate, if it’s a good deal.

Jon:
So I think a lot of, especially a lot of first-time home buyers that are very scarce in their mindsets will go straight to, “Well, I’ve just got to shop around. I’ve got to get the lowest rate.” And that’s typically going to be with the biggest companies that have the lowest overhead, because that’s how companies work. They need to make their profit somewhere. So they have the lowest overhead, which means they have the worst service, typically. I’ll just say that as that’s what typically happens. I’m not saying that the highest rates have the best service, because that’s definitely not true as well, but it’s not the only thing that matters.

Jon:
So a good loan officer should have a really dialed-in team, and you want to ask them about their systems. And they also should be able to help sell you as a client to the listing agent, if that makes any sense. I wanted to put that out there because a lot of people look for some of the wrong things, because a mortgage is just a mortgage, right? It’s just financing. But to get into a transaction, that’s a whole nother story. There’s another aspect to it. And there is a good bit of sales that goes into that.

David:
I’m glad you said that because that’s what I was going to say, is ultimately Mindy’s right. It is the listing agent, which is why, if your agent and lender can’t sell the VA loan and can’t articulate why things are misrepresentations or misunderstood and what the actual case is… I mean, Jon was literally guaranteeing per diem if he didn’t close in X number of days. I mean, I don’t want to mess up numbers, so I’m going to just say ballpark. I think Jon closed close to $20 million in mortgages last year that I sent him, and I don’t think he… And he never paid the per diem. So it’s all about having a team that actually knows what they’re doing and specializes in something like that. Otherwise, it’s just like… Yeah.

Jon:
I think it was around 20 just from you that you sent over.

David:
Yeah. I wasn’t trying to shortchange you. All right? Okay, we get it. Have you read this book, Ego is the Enemy?

Jon:
You were shortchanging [inaudible 00:50:42]. I was like, man, he’s got a lot of time.

Mindy:
Well, and one other thing I want to point out is the difference in rates is like an eighth of a point. It’s not like you’re quoting me 5% when everybody else is quoting me 2.25.

Jon:
Yeah. It’s usually comparable with similar companies. So you go from company to company, it’ll typically be pretty comparable, a quarter percent, three quarters. I rarely see a 1% difference. That would be pretty extreme.

Mindy:
I rarely see a quarter percent difference. I mean, we’re really talking about splitting hairs on these things.

Jon:
And some people will do that. I can give an example on a property that I sold and just kind of the mindset of a seller, which a lot of first-time home buyers don’t understand, because they’ve never sold a house. But I just sold a house in Oceanside. It was an investment property. I had a couple of different offers. I didn’t go with the highest one. I went with the one that I felt was going to close the best. And I knew that by lender reputation, and I actually have the benefit of having some background in lending. So I was able to look at their desktop underwriting approval and see that they had a lower debt-to-income ratio and higher reserves. So I was able to look at that and really understand, okay, this loan is going to be the most likely to close.

Jon:
Now really, if the listing agent receives five offers and one person calls them and says, “Hey, I’m going to close this deal. Watch me. And I’m going to give you a per diem if I’m late,” they’re going to be like, “Okay, I like that person.” They may not be the highest offer. So you could save $10,000, $20,000 by going with a really good team just because they called and they sold you as a client. So a lot of people miss that factor, and they’re worried about the eighth of a percent that saves them $20 a month when they could save $20,000 just by getting their offer accepted.

Mindy:
Jon, I have a question for you about mortgage fraud. In most residential loans, it says that I, the borrower, must move into the property within 60 days.

Jon:
Yep.

Mindy:
That’s not extendable. That’s 60 days. That’s like a law or a rule or something. I’ve never seen it longer than 60 days. But in one of my real estate Facebook groups yesterday, somebody was saying, “Oh, just write up a longer lease.” And everybody was jumping on this person saying, “No, that’s mortgage fraud.” It’s mortgage fraud if you sign a document that says, “I promise to move in within 60 days,” and then you don’t move in within 60 days and had no intention to move in within 60 days. I think it’s different. Like, I bought from David, and then he wouldn’t move out. That’s different. I’m not talking about that, where you’re unable to move in because of circumstances outside your control. I’m talking about going in there. But also, rates are going up. I don’t know if you know this. Rates are going up. They’re 5.5 today.

Jon:
Yeah, I heard that.

Mindy:
And by the time this show comes out, who knows? Maybe they’ll be like 27%, but they’re going up. So people are tempted to buy and just say they’re going to live in the property, but then turn it into a rental, and that’s mortgage fraud. I want to talk about that because there’s this… I think a lot of people know this, but I also think there’s a greater percentage of people who have no idea that this is actually a felony punishable by up to five years in prison. I mean, it’s a big deal. And you have this mentality where, if you don’t know, you’re like, “Oh, well, what does it matter? I’m just lying to a bank. It’s not like a real person.” So I can get that. 30?

Jon:
Yeah. I could be wrong here. Like I said, I have data dump, some of the stuff from when I was in the mortgage world. But I believe it was up to 30 years and a million-dollar fine. So I could be wrong.

Mindy:
Oh, that’s even worse.

Jon:
It’s not something to take lightly. And I have a really simple explanation for anyone that wants to play the line with mortgage fraud. It was my favorite line back when I was lending. A lot of people will come to me, and they’ll give me hypotheticals. “So what if I were to do this? What if I were to do this?” There’s plenty of what-ifs. And especially with veterans, they were always, “Well, if you intend, quote-unquote, to occupy the property,” and it would drive me crazy.

Jon:
So there’s a simple answer to this. Can you explain what you’re about to do to the FBI in court? If so, go ahead and try it. And if you’re willing to risk the 30 years in prison or the million-dollar fine, then do it. Why not? Right? But the answer is typically it’s not worth it for a 1%, 2%, even a 5% difference. So the real answer is… A lot of people will ask the lender, “Well, what about if I do this? Is that considered mortgage fraud?” And the lender’s not going to be the one… The loan officer, I should say, is not going to be the one that’s going to be interrogating you in court. It’s the FBI. So if you can explain it to them, and you feel good about it, and you’re confident that no one’s going to think that you’re doing any sort of mortgage fraud at all, then fine. Then you’re good. Okay. Do it.

Jon:
I’ve had people that… because I’ve had some clients… Especially in the military, they’re like, “Well, I might get orders. I don’t know, but I might get orders in the next six months to get somewhere else.” There’s something called getting HSSTed, and it means you’re going to be told that you have to go somewhere else. It doesn’t happen to everybody. It might happen. And I had clients that were like, “I’m hesitant to buy a house because that could happen to me.” And I tell them, “You’re fine. You’re intending to live in the property, and you really are. And as long as you don’t get HSSTed, you’re going to continue to live in the property, so you’re fine.”

Jon:
And then I’ve had other clients that have come to me, and they plan on never moving in the property. That’s mortgage fraud. Or leasing it out for another six months. It’s not black and white. It’s very obvious what’s mortgage fraud, and you know. So if you can explain it to the FBI in court, then go ahead and do it. If not, maybe reconsider.

David:
Yeah. I mean, it’s as simple as if you actually intended to live in the house and then something changes, okay. But if you were planning on something changing before you got the loan and you knew… So an example that I’ve heard in my Facebook group, where someone managed to get this okayed by their lender and they were telling everyone it was a great strategy, is this person had a disability claim for back pain or knee pain or whatever, right? And they bought a two-story house. And then two months later, they’re like, “Oh my goodness, stairs! I can’t do stairs. I need to go into another house. I can’t occupy this house.” So they rented it. And it’s like, okay, well you have documented history of that prior to getting the loan. So if anyone wants to come after you, it’s going to be a pretty easy like, “Well, you knew that, so.”

David:
So it’s like if you know that you’re going to play this game, then you’re in the wrong. And if you know that you’re going to live in the house and then something changes, anything changes… I mean, there’s all kinds of justifiable reasons, assuming that you intended to live in the house, then you’re good. It’s easy. And the risk is not worth the reward at all.

Jon:
Yeah. One more thing to add on that is people do get caught.

Mindy:
Thank you.

Jon:
Like, on this team, people get caught and people… I’ve seen it where people go to prison. So don’t think that you won’t get caught because you could, for sure.

Mindy:
Thank you for addressing that.

Jon:
And also stop being cheap. This kind of goes into another aspect of it. But you are trying to set yourself up for success as a business owner or as someone that’s trying to gain financial independence if you’re listening to this podcast. Do you think you’re stepping in the right direction by committing fraud over a 1% interest rate, 2%, even 5%? No. Follow the rules, play the game, and you can make a ton of money.

Mindy:
Okay. This is the second time that you’ve capped it at 5%. I’m capping it at a billion percent, infinite percent.

Jon:
A hundred thousand percent. It doesn’t matter the percentage.

Mindy:
Do you know what it’s like to be in jail? I don’t, and I never want to find out. I bet it sucks.

Jon:
Yeah. It doesn’t sound fun.

Mindy:
You don’t get to do all the things. Yeah. And then you’re a felon for the rest of your life. So that sounds terrible. But I’m really glad that you brought up that people get caught, because that’s another thing. You’re like, “Oh, what are they going to do? Drive past the house?” I don’t know how they catch you, but they will catch you. Not all the time, no.

Jon:
There’s a lot of ways they can catch you. You think that they don’t have any sort of systems in place that they can catch you committing mortgage fraud?

Mindy:
Well, and here’s another thing to consider-

David:
So wait, the FBI can’t see what address you filed on your tax returns? Oh, hang on. You said this was a primary residence, but you don’t live there. Hmm, odd.

Mindy:
And when you have a mortgage of 3%, 2% way back five minutes ago when they were that low, and then it changes, maybe that gives the lender more incentive to see if that’s really your primary residence. I don’t know. I’m not a lender. I just know that it’s mortgage fraud, and it’s not worth it. And I’m glad you addressed that. Thank you very much.

David:
Yeah. And again, don’t miss payments because if you want to see if a lender’s going to drive by your house, just give them a reason to.

Mindy:
Okay, Jon, is there anything else that we should ask you before we let you go from this time? This was so much fun. I’m definitely going to have you back on the show.

Jon:
No, I think I’m… I mean, if there’s any other questions that you guys have, then I’d love to answer them. I think that it’s impossible to go over every single aspect of lending in 60 minutes. It’s a very intricate business. And I would just say that when you’re reaching out, you can trust, but verify. But if you really are interested, you can look at guidelines. People don’t do that enough. They’re like, “Well, my lender told me this. Well, my lender told me this.” Why don’t you just Google the guidelines? And you could find out for yourself, and then you’ll be a lot more resourceful as a person.

Jon:
So I think that’s the best advice that I could give anyone that’s struggling with getting qualified for a loan. And then if you’re a little bit more on the advanced side where you’ve already owned a couple of houses, then maybe start looking at portfolio loans, where they aren’t lending against your personal credit. You’re using your personal financial statements. They’re not on your credit report. They’re not hurting your debt-to-income ratio, and you could save your debt-to-income for a primary residence with a lower interest rate. I think a lot of people… That’s something that seems to be missing in the financial space, at least of what I’m seeing around BiggerPockets, is people don’t understand the benefits of going into the commercial world once they have a couple of properties under their belt. The first time definitely take advantage of those agency-backed loans, but there’s more products out there as well.

Mindy:
Okay. So the end of the show, we ask two… We’re going to ask two questions today. What’s your favorite joke to tell at parties, and where can people find out more about you?

Jon:
All right. So what did one snowman say to the other snowman, Mindy and David?

Mindy:
What?

Jon:
It smells like carrots.

Mindy:
Okay. And where could people find out more about you?

Jon:
Just general information, you could follow me on Instagram. My Instagram is JonLallande22. That’s J-O-N L-A-L-L-A-N-D-E. And the number is 22. And then if you have any lending-specific questions, you could always reach out to my old partner, Jale Goztepe, and you could reach her at [email protected]. That’s A-L-S-E-D-T-E-A-M.com. And that’s Jale, J-A-L-E.

Mindy:
Great. And we will put all of these in our show notes, which can be found at biggerpockets.com/moneyshow303. Jon, this was super fun. You’re so good at this. I can’t believe you’ve never done a podcast before, except David’s, which doesn’t count.

Jon:
No, it doesn’t count.

Mindy:
This was fantastic. I’m so glad I finally got you on this show. This is super helpful. Thank you so much for your time today. I really appreciate you.

Jon:
Thank you, Mindy and David. I appreciate both of you.

Mindy:
Okay. That was Jon Lallande. I don’t think I ever said thank you, David, for introducing me to Jon in the first place. The whole reason that I know him is because of you. My client, Sean, reached out to me and said, “I’m having some troubles with a VA loan.” And I’m like, “I know a guy. Let me call him up.” “David, do you know any VA lenders?” And you’re like, “Jon Lallande.” So I reached out to him, and he’s like, “I can close super quick.” And I’m like, “Well, we’ll see. I know the VA loan’s really tough.” And then he did and now… Well, and then he was my go-to guy for the longest time until he left me. But he was a wealth of information. That whole recasting your loan or rescoring, I’m sorry, rescoring your credit score, that was really great information. I’m super excited for that and for just all the stuff he shared today. This was a lot of fun.

David:
Yeah. No, he’s a phenomenal human being and did not disappoint on the show. And yeah, you actually threw enough business his way that he had to get licensed in Colorado just to keep up with it all. He wasn’t at the time, and his company was like, “You just need to get a license there, because this is a lot.”

Mindy:
When you can do what he could do, I’m not shopping around. I don’t need to. He had the same or so-close-it-didn’t-matter rates, great closing costs. And he could close in 17 days. I have other lenders, they’re like, “Hmm, I might be able to close in 30, 35 days.” I’m like, “Might? I’m competing with people who can close in 20 days. I need to close faster than that.” And then Jon’s like, “This week I can’t close in 15. It’s going to have to be 17.” I’m like, “Okay. That’s okay too.”

David:
As we say all the time, right, real estate’s a people game.

Mindy:
It is. You really need to know somebody who can get the deals done, and he could get the deals done. It was awesome. From episode 303 of the BiggerPockets Money Podcast, he is David Pere from the Military Millionaire group, and I am Mindy Jensen saying, “Don’t open up any new credit cards when you’re about to buy a house.”