The Talk (Yes, that talk)

Well it finally happened, I had to give my little man "the talk". Yup. That one, "Where do mortgages come from?"

It was a regular morning, I was making our cereal while he played with the puppy and without looking up he asks "Hey Dad, where do mortgage come from?"

Caught off guard I blurted out something about how the government insures Fannie Mae and Freddie Mac, but he brushes that off "No, Dad. We learned all that economics stuff in school already"

"Oh, well uh, what do you mean son?"

"I mean… what did you and Mom do?

… You know, when you guys decided to have a mortgage?"

"Oooooh… I see. Well, you've got a bank account now… and a savings. In fact you're even starting to earn a little interest"

"..."

"Alright, let's sit down. I'll tell you how it works"

And with a flash he grabs his bowl and spoon and pulls up to the edge of table "

First Question

Before I could think of a good place to start he pipes up with "I already know how credit works! Your credit score and mommy's credit score mixed together to make our mortgage. Right?"

"No, not quite"

"Oh… so, it's just mommy's score? Because her score is higher, I heard her say so!"

"(laughing) Well your mother does have a higher credit score, but mortgages don't just use the highest score"

His eyes wide like he saw a ghost, he stuttered out "Y-y-you m-m-mean they use the… the l-lowest… score??"

I reached over to pat him on the back "Listen champ, it's a little more complicated than that…"

"What do you mean?"

"To start with, everyone actually has three credit scores"

"Three?"

"That's right, three different credit scores. They're usually about the same, but sometimes they can be very different"

"So… which credit score does our mortgage have?"

"For married co-borrowers like mommy and me the mortgage gets the lower middle score"

"Huh?"

"Your mommy's scores are 702, 683, and 679, but my scores are 695, 689, and 658"

"Uh-huh"

"So the mortgage compares our middle scores, 683 to 689"

"Does that mean our mortgage has… your credit score?"

"Right! Our mortgage has the lower middle score. Make sense?"

"Not really… But I think I'll remember that" he said beaming.

With the technical stuff out of the way I knew I could move on to more sensitive topics. "I'm glad you understand, and now it's time we talk about your down payment…"

The Down Payment

Already he starts to get visibly embarrassed "It's okay bud. Why don't you tell me what you already know about down payments"

Nervously "Umm.. I know that Billy's dad had a really big down payment"

"Yeah?"

"Yeah! He said you're not a real buyer unless you've got a big down payment"

"Hmmm.. So did Billy's dad actually tell you how big his down payment was?"

"Uh, well no… But it must be really big! He's got a lifted pickup truck and they have a giant TV in their living room!"

"Well son the truth is Billy's dad and his lender are the only ones who know how big his down payment is.

You see, sometimes a buyer thinks their down payment is really big, but it's actually pretty small"

"What do you mean?"

"Some mortgages are fine with a small down payment, and other mortgages won't be satisfied unless they get borrower with a big down payment"

"So will I have a big down payment when I grow up?"

"I hope so buddy, but remember: when you find the right lender to get a mortgage with they'll be satisfied with your down payment no matter how big it is"

"Really Dad?"

"Really" I said, smiling at the look of relief and excitement on his little face

The Last Part

Then I chimed in with "but there's one more thing you need to know about making a mortgage son"

"What's that Dad?"

"Besides the credit score and my down payment…"

"It was really big wasn't it!?"

"(laughing) It was big enough, and anyway I know the lender was satisfied"

"Yeah!"

"But besides my down payment your mother played a big part in making our mortgage too"

"She did?"

"She did. We would have never had our mortgage without your mother's nest egg"

"Her nest egg?"

"That's right, your mother had a nest egg that she had been saving all her life"

"Uh…"

"You see once every month your mother make a deposit in her nest egg"

"Really? I never knew that!"

"It's true, as you get older you'll begin to notice when her and your sister deposit to their nest eggs every month"

"How will I know?"

"Well, putting that money in her nest egg is very painful for your mother. And for a few days she'll be grumpy and might sit around eating chocolate just watching TV"

"Oh yeah, like when she was mad at you last week…"

"Yup, but she knows it's worth it. If it hadn't been for your mother's nest egg our mortgage wouldn't have a safe foundation to grow strong and build equity"

Conclusion

"Wow…"

"So now that you know where mortgages come from what do you think soon?"

"Some of it's kind of weird, but… I guess it will be a while before I meet a co-borrower"

"That's true, but you know… there's no shame in getting a mortgage all by yourself 😉"