Oftentimes, people are confused about how many factors actually go into being able to buy a new home. Taking that first step to get financing for your home might seem simple at first, but truthfully, there’s so much to consider when figuring out if you can get the loan for your home. Scott Carson is joined by mortgage and finance professional, Debbie Bloyd. Together, they talk about a few strategies and necessary steps you should be taking to secure the financing you need. Scott and Debbie break down these strategies so you can understand it better, and help yourself in the long run.
Listen to the podcast here:
Home Buying Strategies With Debbie Bloyd
I am excited to have a fellow mortgage expert on the show. Maybe you know that I got my feet wet originally in the mortgage industry back in 2001. I started a mortgage business and I was doing mortgages in 30 states for investors. I always loved talking mortgage rates in the markets with other experts and brokers out there. I am honored to have one of the best in the industry, who is absolutely killing it. She’s doing amazing things for her clients as well. She’s been helping her clients for over 23 years of their mortgage, investment, and insurance needs. She’s the CEO of DLB Mortgage Services and helps create wealth and peace of mind for clients across the country. She’s also a radio show host of Money Strategies with Debbie, where she hands out advice on how to live within their means, how to make money stretch, and show them the risk in their plans. She makes complicated financial news easy to understand. Our guest, Debbie Bloyd, focuses on her client’s finances and speaks frequently with university students in business classes about money and finances for themselves and their small business. We’re honored to have the mortgage rock star, Ms. Debbie Bloyd.
Thank you so much.
We’re talking into the year and a lot of things are going on. We’re always trying to get things closed up by the end of the month or the end of the quarter and things like that. How’s the year shaping up in the industry and for you, Debbie?
I have personally been slammed. It’s been good. It’s always a good year. You have to look for the upside on everything. We do still have people trying to get their houses done. They’re still trying to move here from other places. Maybe they’ve gone somewhere for a couple of years and they’ve come back to wherever back is. They want to retire and move somewhere else and we’re “the somewhere else” and I have their loans. I’ve got people moving all around the place, Canada back to Texas, California, Colorado to Texas. I do loans mostly in Texas, Arizona and Florida. People are still moving around. I don’t know what this talk is about, a slow down because I’m not slowing at all.
You’ve been in the industry for a little while and those that have been around through a couple ups and downs. It’s been interesting times, but that’s what I always say and we see that, especially in Austin and in Texas, a lot of realtors, a lot of mortgages, brokers and bankers jump in when the market’s going up. It’s those that have been through ups and downs that you want to work with because they understand the market. They have to have a true business. They’ve seen it. They’ve been to the circus a couple of times and they can advise clients on what’s good and what’s bad these days.
There’s always an upside to the market. When times get tough and people go through foreclosures, you buy. There is a benefit. When interest rates were high, not everybody could afford to buy. If they were renters, it’s a great time to be an investor. The same thing happens nowadays, rates are low and a lot of people are jumping in and buying. They’re upgrading. They’re spending more money, but at the same time, it comes down to what’s going on with your family, your little dynamic of your slice of the world. A lot of people don’t care who the president is, if they’re impeached or not. It makes the markets go crazy, but it does not affect you or me, personally, unless we know them. I don’t care. I’m still going to have to pay my bills at the end of the month regardless of who’s the president.
The days of either Obama or Trump coming in to save you, it has never existed.
Nobody’s saving me. If they’re saving you, God bless you.
We’ve got a lot of different people who are reading this. We’ve got investors. We have people looking to invest. We’ve got people looking to buy maybe for the first time. I’ve got a couple of friends that have been going through the process here locally or outside of the state, getting started some things. What are some of the biggest mistakes that you see that first-time home buyers are making out there that maybe gets them in trouble or they don’t think about?
I had a closing that took two weeks because the home buyer decided to not do what we said and created a lot of havoc. I have an old lady. She’s super nice. She was buying a second home in Texas and getting out of California. Part of the qualifications was she had to pay off some bills at closing. The title company will give her checks to pay those bills off. We were supposed to close and then she started doing stuff by herself. She got online and decided to pay off all these credit cards over the weekend before her closing. It’s terrible. The credit report now didn’t match anything. The title company didn’t have the right receipts. She’d spent some of the money that she should have had as a reserve. You’d done all this. People, quit doing crap we are telling you not to do. I definitely tell people, “Do not do anything that I don’t tell you to do,” and they still do it. That happens all the time.
It happens out there. “Let’s go pay off some bills. Let’s go buy some new furniture for the new house.”
There’s a sale on and we’re going to get all of our appliances and it says that we don’t have to pay now, we just put it off and they’ll bill us. It’s postponed. It shouldn’t affect our credit at all. No, because they did a credit inquiry. They found out that you went to Lowe’s and spend $5,000 and you don’t qualify because they got to hit you with that payment whether you have to start paying now or in 90 days. When we say don’t buy a new car, we mean don’t buy a new car. We know if you buy a new car, so knock it off. That’s awful. The way people live is weird and they don’t think they’re weird, but to come to my world, it’s super weird.
I had a client who wants to buy a house. He works at a company. It’s a mom and pop company. They write checks, like we write checks out of a little checkbook, if anyone even has one of those anymore. He doesn’t have a normal pay stub like everybody else. They think that’s okay to qualify. Nobody does this, but this company does this. I was like, “This company is not allowing you to buy a house because this doesn’t fly in our world.” It looks weird. It’s a general ledger. Who even keeps that anymore? You know it’s true.
I know exactly what you’re doing.
I had a guy called me. He was self-employed. He was trying to call a client and writes everything off on his taxes. I said, “Tell me about your work history.” I asked him if how much he made in 2019. He goes, “I didn’t work a lot in 2019 because I was sick. I got hurt and I stayed home.” I was like, “What were your taxes?” He was like, “Maybe $12,000.” I was like, “You’re not going to buy anything with that. What have you saved for a down payment?” He was like, “I was going to talk to you about that. How does that work?” I was like, “You have to have money for a down payment.”
There are a few loans that still do zero down, but those are few and far between and you still have to qualify. It’s a lot of education. If everybody says everything’s on the internet they should know, yes, they should, but they don’t. I spend my time telling people, “Don’t pay off your bills after we’ve qualified you. Don’t be sick for a year and not work and then expect to buy a house. Don’t come to me with no down payment. Don’t come to me with handwritten checks.” All those things are bad. I’m supposed to make sense of them.
Let’s talk a little bit about that. We’ve got a lot of entrepreneurs in our network out there, out in note nation. You brought up a couple of points and I’ve talked to people that are like, “I can’t qualify for a traditional house.” I’m like, “If you start planning ahead, if you start putting the things in place, you can qualify.”
We know they have some new loans now. The world that you remember pre-2008 is coming back around and they don’t call them a stated loan or a no doc loan because those are bad words. We now call them bank statement loans. What that means is I take 1 to 2 years of your bank statements and we send those to the underwriters, hundreds of pages of bank statements. They add them all up, divide by 24 months, and they give me the income that you’re going to be using. That is if you make the deposits. If you live on cash, I’m still not going to be able to help you. As long as it gets to the bank at some point and we can show deposits, you win. It’s a great system. You pay a little bit higher interest rate by a couple of points so everybody’s in the threes usually, with good credit. These people are paying in the sixes. In theory, you haven’t paid taxes probably on some of that money, but it did hit your bank so then we can use it to qualify you. These loans are becoming more prevalent for all my self-employed people because they have been on the sidelines for years.
As they are closing on deals or doing things like putting the money in the bank, put it in your personal accounts, run it through there, it looks like you’re paying yourself.
You don’t even have to pay yourself. All I care about is the deposits. If you have a personal account, fine. If you have a business account, fine. Get the money on one side or another and we call it income. If you sell a property, that’s income. If you spend it, we’re not seeing that. The beauty of it is like the stated loans where we’re not checking on what you spend it on, we’re checking on what comes in. If you can bring it to the bank, we can use it. If you cash it before it gets to the bank, I can’t use it. If people are self-employed, what you’re asking for is a bank statement loan. That’s what you’re going to tell people. Not everybody’s signed up to do those. I was a vice president of a bank for a few years and I turned a lot of people away. I don’t like that because everybody counts on you in the lending business. They make a mess and we’re supposed to make them and package them enough to get a mortgage. I had to turn too many people away. As a broker, I’m able to do a lot of bank statement loans and help people. There’s even some bad credit score loan still out there. As long as you’re 580 or above, you can still get along. It’s going to be a little pricey, but you can get it.
That was going to be my next question. What are you seeing with subprime, which is now called the non-prime loans?
Don’t say that word. That’s a dirty word.
It is a good word in my neck of the woods because we do buy a lot of that stuff. What are you seeing out there in the market? You’re primarily doing Texas, Arizona and Florida, which is three of the big markets that we do as well. What are you seeing as far as non-prime programs, the credit scores and down payment requirements or anything like that?
The bank statement loans, the catch on those is you’ve got to have 10% down. If you’re bringing all that money in, you shouldn’t be able to scrounge up 10%. That can’t be gift money. It has to come from your account. The subprime loans that we used to call, go down to 550. They’re going to charge 8% and you have to put 10% to 15% down. There are penalties for that, but at least you get to do it now where before we couldn’t do it at all. That blessing is there. You’ve got to pay more for it. A lot of people when we do the analysis of their self-employment, where they rather pay Uncle Sam or whether pay a higher interest rate, they’re going to pay somebody, it’s just who do you want to pay? You can’t keep it all unless you save it all up and buy cash. You can always do that.
In my office, where I used to live, there would be new mortgage companies popping up every day. I’m sure you see a lot of these companies popping up. I think back to when the New Century was in business and you had Option One and First Magnus. Everybody was getting greedy trying to do anything.
I had a Rolodex of subprime lenders and then when Bank of America failed that day, I remember that day was a terrible day. Rates were 4%, and then all of a sudden they shot up to 6% in one day. All the subprime lenders went out of business that day. The phones disconnected and we lost everything that was in the pipeline because there was nowhere to replace it. We don’t miss those days with stated stuff. It’s not quite the Wild Wild West, it’s like the Midwest now. There are some problems but not a lot. Most people, when they come in, if they have bad credit, they tell you that upfront. I can tell them upfront. We’re more educated now. Back in the day, I used to print off a credit report many years ago, the bank-owned it. I couldn’t show it to the person. I merely said, “I’m sorry, I can’t help you. Come back when you’re better.” That’s all we could say. Nowadays, people can get a free credit report every six months by all of the three. There are ways to do it. Some of the stuff that’s out there is not real. People say, “Credit Karma, I’ve got whatever score.” I was like, “That’s not real.”
That’s a FAKO score versus FICO score, as our buddy, Merrill Chandler with Credit Sense would say.
You would think everyone was educated. When I first got on the radio, I thought, “If I could tell people how to fix their credit and playing stuff up. If they were educated, they’d be so much better. I’ll do this for a couple of months and I’ll clean up my town.” That didn’t work. I’m still seeing the same things.
Those are some of the things that we deal with. We deal with a lot of borrowers that have stopped making payments or been hit and miss so we buy that debt in people. We’re working with trial payment plans, even loan modifications to get a good, to go out and get refinanced out. Somebody who was looking to get refinanced, they still need to have 24 months or 12 months of on-time payments.
They can’t have been late in the last twelve months. They’ve got to be current on their taxes. A lot of times, at the first of the year, we’ll have issues with people not paying their taxes. I think that speaks to the overall financial and you can speak to this more than I can. Most people don’t have a lot saved up. When they come to me, I’ve got a couple I’m refinancing and living in a $400,000 house. They have $1,000 in cash. They have maybe $800,000 in a 401(k) that they don’t have access to yet, but they’re cash poor. A lot of people are stuff rich but cash poor. That doesn’t help when you finance either because everything is automated. We vary. The only loans that are truly underwritten, the way we remember it is a real underwriter person is these bank statement loans. Everything else goes through an automated system. I always explain to people, “I’m not going to make you cash out of your 401(k). Just give me the balances and the statements. I have to make you look good on the computer.” They’re like, “What?” I’m like, “The more stuff we give it, the happier it is and the easier you are to get approved. Give me all your stuff and let me sort it out to get you an approval because we’re making a computer happy and not a person. It’s the same premise.”
We’ve heard that. We’ve got a sponsor, Merrill Chandler does that with Credit Sense. He went to FICO World, which is the big annual conference that they do in New York every eighteen months and came back talking about all these little things in the algorithm that you’ve got to make the computer, the AI happy versus common sense underwriting in a lot of cases.
I talked to a kid, he’s a few payments away from having his car paid off so we don’t count it, but his score is still low. He’s maxed out on all his credit cards. I was like, “If you could get those down to 30%.” His attitude is, “Why am I getting down to 30%? I’ll pay them off.” I was like, “That would be the best, but the maximum amount of 80% to 90% is lowering your credit score. If you can get a payday loan or some loan to pay those off, then you admitted that you can’t do this by yourself. The algorithm knows that.” They say, “You can’t manage money then that hits you too.” A lot of us don’t live like that. The way everybody pays their bills and lives is the way they think everybody pays their bills and lives. That’s not true. They don’t. They’re not taught that. No one’s taught that. They should teach that in school. I taught my kids that. I talk about it all the time.
We live in such a highly financially uneducated society. They barely taught us how to balance a checkbook when I was in high school. They don’t even do that anymore.
My kids swipe that card and as long as they’re swiping, my daughter and my son are in college. I don’t give them debit cards. I give them a credit card because they had no idea. I tell them how much they can spend and they have to keep track of it. They get in trouble if they go over, but they would swipe that debit card. They would be somewhere to eat and they are swiping up like, “I hope it works. I hope I get food.” I’m like, “We don’t do that.” People do that with their checkbooks and this is the time of year while people are trying to figure out how to get more cash. I do a lot of cash-out refinances and they said, “I’m going to pay stuff off.”
I was like, “Let’s pay it off responsibly. Let’s pay off the high-interest rate stuff first.” I have a car note for my son. He’s on credit with me so that he gets to have a credit score. I’m trying to help him. We’ve got to keep paying on that note for at least nine months for that to affect his credit score and him to have a credit score. I’ve got 2% interest. For 2%, I can get my kid a better credit score, I’ll do it. I put my daughter on my American Express card, I pay on time and that’s going to benefit her. Once they’re out of college, they’re on their own. They’re going to have a credit score. Many people don’t help their kids. They give them stuff, but they don’t teach them how to fish themselves. If I can provide them with a decent credit score going out there, then the rest is up to them. They can do that. If they have a credit card, they can put their kid on it and help their kids along too.
Those are some great tips and advice for people who got kids in college, who are getting ready to go to college, and that aspect of things. I like the idea of putting a credit card because there’s a limit, there versus swiping a debit card and then suddenly you’ve overdrawn your account.
Years ago, remember the Experian hack that there was. I got my credit stolen. Out of personal experience, I can say it’s not fun. They took money out of my account. My kids were minors then, so the money went from my account to their account and then the people ACH stood out. It would come out of my kids’ accounts. We had to break up all the accounts so they weren’t connected. My kids were all by themselves. They thought that was amazing until they found out that I could not put money in their account. If you’re not on the account, you can’t put money in. You have to put it in check. You can’t put in cash or cashier’s check so that they can trace it. Being all alone and being all grown up is great if you know what that means. For some of our borrowers, they’re first-time home buyers. They’re still on their parents’ cell phone bills. They’re still covered under their parents’ insurance. They don’t know what any of this means.
Do you foresee or are you already seeing pick up PACE coming back into the market like they used to be?
I think so because people are stretched. I don’t care how pretty of a house you live in, how beautiful of a car you lease. You’re probably only a few payments away, a few paychecks away from not being able to afford that lifestyle. I don’t think people think that. They think everybody in those million-dollar houses are flush with cash. Now’s the time to leverage money. Money is cheap. There is a fine line in between. Some people say, “I want to put 20% down or I’m not going to do it.” You don’t have to. Leverage your money while money is cheap. Do it smartly and know what you have to be responsible for. When money is this cheap, now is the time to buy stuff. Now is the time to do what you do and invest it.
If you can get into a similar loan with 3% down versus 20% down, that is a 17% difference in what you’re putting down. It isn’t making any money. It’s sitting there saving you 3% on that $17,000 when you can be out making 6%, 8%, 10%, 12% or greater percent by leveraging.
Do you know who you’re going to see more as investors? These older Baby Boomers. I am a Baby Boomer. I didn’t know at 55, I’m considered a Baby Boomer. A lot of my clients are doing reverse mortgages and everybody thinks it’s a last-ditch effort to survive. That’s not true. I had a guy in Georgetown sell a million-dollar house. He bought a brand new David Weekley House. It’s a new construction made just for him. It was $400,000. He heard me talk about reverse mortgages and he ended up putting $182,000 down and never making another house payment. He only pays his insurance and taxes. That extra $200,000, he went and bought two rental properties. Now he has cashflow. It’s reutilizing your money. Moving your money into something that is making you money because at a certain point of your age, it’s not about your stuff anymore and the golden egg that you’re sitting on, it’s cashflow. You need more cashflow to pay medical bills and health issues. We don’t think we’re going to get old and so we’re not planning for it. It surprises everyone when they hit 70, and they have a health problem and they need cash out. That’s what I’m seeing as well, but they are buying rental properties.
We were seeing some things based on the stats. We see that one out of every ten individuals is already 30 days late on their mortgage, which is sad. They’re not saving where they have a negative savings ratio. We mentioned the pick-up PACE and I want to discuss that a little bit because most people don’t know what that is. It’s a mortgage where you’ve got four options. You’ve got the option to make a full 30-year mortgage payment principal and interest.
These were all the rage. I don’t know why they all stopped because it was a great premise for people.
They were a great premise because you could do a partial interest payment of 1% to 1.5% of your primary residence or 2.5% if it was an investment property. If your interest rate was 6% or 7%, that difference between the 1% and 6% went onto the face amount of the loan. That could grow until you hit 125% LTV and then you had the 15-year to 30-year partial payment or the full interest payment. Most people paid that partial interest payment and then they did that for a while until the market changed. Suddenly, they’ve got to pay the full 30-year mortgage payment with all this extra amortization. They’re upside down with their houses. I think that’s what led to the downfall.
It worked out well for certain income people.
That took that difference and leveraged it and went and bought real estate. They went and invested that difference and we’re able to do that. You’re 100% right on that. It wasn’t for everybody. It wasn’t even for most people. It was only for partial people but everybody will say, “I can only buy and I can get a 1% interest rate.” It’s like, “No. Your loan is 6%. What do you think is going to have with that different 5%?” “I want the 1%.” I was like, “It doesn’t work that way.”
It worked out well for people that didn’t have consistent income, but they have to be regulated. That’s your realtors, your self-employed people. If you didn’t make any money for two months, you could make that minimum payment and then you could move it back up when you sold that big thing, whatever it was and get caught up. Nobody self-regulated very well, so they spent it all and then they had nothing. While that was a great premise to help them, they weren’t very well regulated to start with.
With the investors’ loans out there, is it still a maximum of ten mortgages on it for someone to get a traditional mortgage?
It is, but that non-QM stuff, that weird non-prime stuff. Some of those have more properties in ten. You pay that in the interest rate, but they let you do more than ten. They are out there. There are companies cropping up that do that.
What are you seeing with a lot of those programs that require for underwriting? We are talking about two years of bank statements and a pretty decent FICO score, I imagine.
You’ve got to have 680 or above. Some of those things require 720 or above. That’s the max that they require, 720. If you can get it up there, you can do a lot. That’s the magic number nowadays. You do have to realize that there’s a payoff for that. There’s going to be a payoff down the road and you’re going to have to pay. It may not be right upfront but it does enable people. There are wheeler-dealers, you’re one of them. You find a good deal, move it around here, sell that and do this. It’s a game. If you think about money as a shell game, you’re fine, but you better win at that game. I don’t say go to Vegas. I’m not a Vegas girl. I can blow $100 at the Blackjack table and then I’m done. That was my fun money.
To play that game, you have to be able to buy the market right and sell the market right. Very few people are that good. Buy and hold is always been the strategy. I know you’re taking people out of distressed instances and moving them into a better spot. You hope they learn their lesson, but this is a great time to take advantage of the market. People say, “What does 2020 look like?” There’s going to be a lot of political unrest. It doesn’t matter to most of us who is in where, but it makes the markets crazy. We look at our families and if you think you have great job security, you’re in the upper management, owner of a business, all that is thriving, you’re going to keep going and it doesn’t matter.
If you’re a wage earner at the bottom part and you’re not sure if your company is going to keep going or not, if you’re going to get laid off, you’re not going to move. That means you’re not going to improve things. You’re not going to go buy any new things. If you’re renting, you’re not going to start buying, you’re going to stay a renter. As people don’t pay their taxes, as interest rates go up, as people fall behind, you’re going to come in, take over their properties, they’re going to stay renters. It is a great time for investors. Someone asked me, “What does 2020 look like?” It’s a great year on one side or the other. Either we’re going to be buying stuff that we can afford or we’re going to be buying stuff that other people couldn’t afford as investors. There’s always an upside to every market. If the stock market goes down, there are people waiting for it to bottom out so they can buy all that stuff on sale and bring it back up. It is the same thing with rental property.
There are ups and signs. If you know how to make money, whether you’re buying or you’re taking over what somebody else can buy, there are opportunities there. You’ve got to know where to look in. You’ve got to be a little flexible. You said something critical before that. If people are looking at their income, whether they’re working entry-level or they’re upper management or in the middle management stuff, one thing they’ve got to do is to make sure they’ve got some reserves more than anything else in case of drop or loss.
Out of the 10 to 12 loans I’m doing, there are probably six that have reserves. Everybody else is a couple of paychecks away. They have enough to get to the new house to the computer likes them, but they don’t have anything else. If they lost their job, they don’t have two months of reserves, let alone six months. They’re not ready. They’re not prepared. We’re not prepared for a downturn as an economy. If we have one, not a lot of people are prepared. That means great news for your business. I’m looking for rental property also all the time. I’m up here in Dallas and I can’t find any foreclosures. I can’t find some of the stuff that I want to buy so I wait. There are a lot of people with cash on the sidelines and we’re waiting for something to happen because there’s not a lot of for sale by owners that open door and all that stuff have taken over that part of the market and that’s fine. We also see a lot of first-time home buyers that don’t want to fix and flip. They don’t want to even fix. They want to come in to gorgeous. That is a benefit to people like us that can do those things and make the property look nicer and put renters in them.
I know that we see the higher-priced homes, the $500,000 or higher loan property starting to soften, days on markets are starting to increase. Short sales in those markets are starting to increase. People bought too high. They thought they can fix and flip and then the market has turned a little bit on them. Pay attention, it is a great time. We hold one on money when something does come in or even look at maybe into secondary markets, maybe not Dallas, maybe outside of Dallas, maybe Paris or Greenville or some places like those areas.
I had a guy moved to Paris. He closes from Colorado. He is tired of the snow. Things are very affordable. I’ve been googling Paris and finding out what’s in Paris. It is very beautiful, nice homes at a fraction of what it would cost you in the big city. I think the suburbs are growing. If you know anything about all of our markets, if the suburbs are a part of Austin, it’s a huge mecca and you can’t tell the difference. People are driving an hour to get to work one way. You’re going to see a real resurgence of downtowns because these Millennials don’t want to do that. They don’t want to sit in their car for an hour. They’re going to change the way downtowns were.
They can, for half the price of a downtown condo, get a house with a yard. Especially, if they start having families and pets and going through that transition. One of the things that we get from time to time from banks, we’ll get lists of reverse mortgages that we can cherry-pick by buying the debt on. Can you go through if what the basis is of somebody that’s going to go in looking for a reverse mortgage? What’s the age? What are the LTV percentages that you see and what it is?
The way a reverse mortgage works, there’s an FHA reverse mortgage and then there are proprietary products. The companies that do the FHA loans have come up with their own things that maybe fit a niche. The rules of FHA is you have to be 62 years of age or older. These proprietary products by two big companies started 60. They’re trying to undercut the FHA. FHA has mortgage insurance like they do for first-time home buyers. If you have mortgage insurance with a first-time buyer, you have mortgage insurance as an FHA reverse. Mortgage insurance is expensive and never comes off the loan. It doesn’t for first-time home buyers and it doesn’t for reverses. These proprietary products don’t have mortgage insurance. That means your money lasts longer in the product and it’s going to another fee.
That’s why some people like these. Basically, what we’re doing is taking their age, birthday, name and address, how much they owe on their house, and how much their house is worth. We put that on the computer and the algorithms, you’ve got to make the computer happy. The computer spits out to us. We all run the same software. It’s called ReverseVision. You put it in there, it tells you how much you can get out based on your age. The algorithms should take you to 80. Have you noticed that there are a lot of people that are at 100 now? They had to change the programs. They’re taking us out to 99. They’re saying, “We are probably going to live indoor 90s.”
They had to leave enough equity in the house for the house to pay for itself until they die in their 90s. For me, that’s affording more years of stuff that I’ve got to pay for. I don’t get that much equity out. What we were doing and what we saw, why the reverse has got a bad rap is, when we started many years ago, we were giving them a lot of money out. People that are right at the edge. When you’re right at the edge and you have no money, your house is safe, we somehow thought that they could not manage the money very well, so we’re going to make them pay their own taxes and insurance. A lot of those people took all the money that we gave them out and went spending on things.
The next year, they didn’t have time and money saved aside to pay their taxes and insurance. The headlines were, “Reverse mortgages, oust grandma from her house.” We were the bad guys when grandma was told to pay taxes and insurance. You’ve got to pay it or we would also get kicked out of our house with Wells Fargo if we didn’t pay our taxes and insurance. It got a bad rap. The too much money was given without any strings. The loans have been changing over the years. There’s an investment vehicle inside there so you can leave money in the house if you don’t need it as cash out in a lump sum or a monthly salary, it earns 5% interest. Now, people are going, “I can leave it in there and it can make money. I can have it if I need it like an emergency.”
We have a more sophisticated buyer doing it. We have people buy-in in their $600,000 houses that they pay cash for. Maybe we don’t believe in this, but everybody else seems to, you’ve got to own your house free and clear and then you’re set while your taxes and that’s not true. Why do you want all of your money at that golden egg that you’re sitting on that you don’t have access to? They come to do a reverse, but they can’t. The reason they’re doing reverse if they can’t always qualify for a refinance as you and I could is number one, they don’t have any income. There may be on Social Security and their bills are probably higher. They’re charging more because Social Security is not enough to keep them.
They have high credit card bills, which means their credit scores are a lot lower. They’ve also co-signed for their kids and grandkids on cars and stuff. Those kids do not make payments. A lot of times, grandma and grandpa have crappy credit where they used to be in the 800 and now it’s down in 500 because someone has gotten a car taken back. They’ve run into problems. Reverse is the only loan that’s out there that is not credit driven. The house takes over the payments. The house ensures the house, not the people. It doesn’t matter if grandma has bad credit. If grandma has a decent house, the house can pay for the house. That’s enabling people to get more money back in circulation. Also, because it’s not a desperation loan, it’s considered a financial tool. We’ve attracted a lot more sophisticated people doing it. In Georgetown, where you’re at, I’m there doing little dinner talking and explaining to people how they can utilize this to spread their money out. Instead of taking money out of their IRAs and their 401(k) that they can get back, they take it out of their house first. Let that money continue to grow in their IRAs and it’s restructuring their financial status, not just taking money down. When you start taking money out of an IRA, it’s going to be gone.
I’ve taken a lot of that equity and turning the house into an annuity aspect of things that allow them to grow, controls that stuff, and gives them some of the equity back to do some things. What happens when they pass away?
That’s the big myth of information. They go, “Does the bank own my house?” I’m like, “No more than Wells Fargo would own my house if I died. I have a will hopefully and a lot of people don’t.” That’s another thing. Get a will. You have an executor of that will and that person has to get rid of all your stuff, invest all your stuff or move all your stuff. It’s the same thing with your house. They have to sell the house and pay off the loan. If there’s any equity left between what you owe and what you earned, the state gets that. If there is a shortfall, if you owe $300,000 on your house and your house is deteriorated, it’s only worth $200,000, that’s $100,000 spread, you would consider a short sale.
In our world as a reverse mortgage, that’s not a short sale anymore. FHA comes in and pays that difference, so the estate’s not on the ticket. Otherwise, the estate would have to pick up that $100,000 and all that money grandma kept in her IRA or mutual fund is now gone to pay off an upside-down house, like it would for me or you. Once it’s in a reverse and it’s an FHA guaranteed reverse, FHA pays for that. It’s a safety net. You’re using grandma’s money to let her live on rather than she gave it away when she ages. That’s the other wrinkle that makes a lot of families mad. This is a very volatile subject and it happens around the holidays because I’ve talked to several parents in their 70s and 80s. They said, “Let me run this by my kids and let them know.”
I’m like, “That’s a blessing and not.” If your kids want the house free and clear, they’re going to be mad and not going to want you to do it. If their kids are so much better off than you are, they’re not going to care. They’re going to want mom and dad to have the money that they need to survive. If mom and dad can’t make their bills, then the kids are going to have to pitch in or mom and dad are going to have to sell the house and move in with the kids. Do you want to help them or do you want them to help themselves with a reverse? It is your choice, but someone’s going to have to help somewhere. The big information that people don’t understand is that it is safer for your family.
People need to make decisions based on their financial situation, not what their kids are, not what the grandkids are doing and what’s going to take care of them. I hear your heartstrings in there, how big of a heart you have to help people.
It’s sad because all these ties into the other stuff that I do. I also do long-term care insurance. I do insurance. A lot of people don’t think they need long-term care. One lady said, “Debbie, I don’t want to hear about long-term care anymore. I’m going to die healthy.” I said, “You keep thinking that, but for me, I got long-term care a couple of years ago.” I told my kids, “Merry Christmas to you. I’ve got a long-term care policy.” They’re like, “Do we care?” I’m like, “You will because you’ll all be taking care of me.” There are hybrid policies that will pay off. If I’m hit by a bus, it pays off a death benefit. If I don’t die by bus and I get to live to 90 and I need someone to come and take care of me, that long-term care policy kicks in.
Many of the older long-term care policies people bought many years ago are now surfacing because people are going to need them and they’re reading them. A lot of them like mine kicks in after 30 days. It does two different things, those old policies. That’s why people should take them out and look at them because we can flip them over before you get so old. If you get too old, we can’t. A lot of these policies make the families pay the first 90 days. I’ve had several families that can’t afford to pay the first 90 days. If they can’t afford to pay it, they lose the policy. All of that money gets lost because they cannot pay the first 90 days to get it started. That’s a huge problem. They never looked at them until they got to be 80 and they didn’t realize. Now, they don’t have enough money to front that first 90 days.
If they’ve gotten into health issues and expensive care or whatever it might be, medical costs are not getting cheaper by any means.
I think people greatly underestimate what they’re going to spend their money on in retirement. I do financial advising and one lady said, “Can I retire now?” She was 52 and I said, “What do you want to do in retirement?” She had about $400,000 saved up. Her house is paid for. She’s got a good pension from where she worked. She goes, “I want to knit.” I’m like, “You want to knit?” She goes, “I want to sit in my house and knit.” I said, “As long as you don’t want to knit in Switzerland or on a European tour, go ahead and retire. You have enough money to knit. If you want to knit on a cruise, you’re not going to be able to afford all that.” How do you want to retire? Do you want to retire eating cat food or do you want to retire in a nice home?
They all have to make up their mind and nobody wants to think about getting older. The sad thing is we’re usually not going to fall asleep and go in our sleep peacefully. You’re going to have some hospice. You’re going to have some long-term care and someone’s going to have to pay for that. Heaven forbid, you lose your mind in the middle of all this. We could probably keep working in our 90s as long as we have our mental capacity. If something happens, we can work without an arm. We can’t necessarily work without knowing who we are. A lot of times, it’s sad with these opportunities, whether it’s long-term care or reverses. If people do not make decisions, they’ve made a decision. I’ve gone back to see people 2 to 3 times and they can’t make the decision. The next time they call me, one of the people in play, husband or wife has dementia. They never got a power of attorney. I can’t help them and they have to sell their house. They’ve left themselves no alternative and that’s the sad thing. Everybody has alternatives until they exhaust them.
That’s the thing in choosing not to make a decision. It’s the whole thing. If you’re failing to plan, you’re planning to fail, whether you believe it or not. It’s something to look at.
It’s sad to say that the market is going to see more of this as people age, they’re not making good decisions. Your business is going to do well, my business is going to do well, and it’s going to be off the hardship of others, but there’s always someone to buy the house, bring it up to code and put renters in it.
It’s the truth. At least we got backs in some of the things you do. We’ve got to call borrowers that we’ve taken notes back on when we’re basically in wheelchairs and couldn’t do mine. We negotiate with them like, “You can live in the house for free. We’ll take the taxes. Go ahead and sign some documents so that when you do pass, the property reverts back to us so we can take care of it.”
How long do you keep those notes? How long do you let that go on?
It’s varied. I’ve got a couple that are in it the four-year mark, but they’re usually lower value properties. We usually bought them for a nickel and a dime, very inexpensively. It’s us helping to give back. There have been a few where we’ve donated the property back to the homeowners. I did that in Cleveland a couple of years ago. We had a lady, who is a single mom of four kids. I paid $1,000 because it was a bulk offering. The property was worth maybe $16,000 and she owed $40,000. She was upside down, not anything of her own. I basically said, “Christmas comes here, here’s your release of mortgage. You own your house. If you file it, you’re going to pay taxes on it. Don’t file it and keep paying this.”
What happens when she owns the house? You saved her.
We’ve got such great stories of helping people stay in their house or modifying and taking them from high-interest rates down to something that makes sense. It all depends on what we end up buying that debt for. Especially when we see people that have their way upside down because the market dropped in value. We’re like, “That’s not their fault, but you still need to make some payments. Let’s figure something out. You’ll make a payment for every $100 extra you pay, we will forgive $200. Make an extra payment and we’ll forgive a payment. Make it for twelve months and then we’ll reappraise the loan for the current value versus what it was 2 to 3 years ago and forgive it $25,000.”
You’re actually buying the notes. You become the bank. I have more about what you do too.
It’s fine. Sometimes I’m doing wrong. I feel foreclosed on a bunch. I’m foreclosing on a guy in Miami whose house worth is $160,000. He only owes $80,000. He hadn’t paid in three years. I was like, “You’ve got to do something. If you don’t pay, you don’t stay.” We’ve got another borrower who is doing as best she can. We dropped her payments. I was like, “Let’s start making a payment, half a payment and we’ll credit it the first of the month when you make two payments.” We did that for two years and she came to me and looking for a payoff. I am like, “Really?” She’s like, “My credit is good enough now and I’ll get a traditional loan.” I’m like, “That’s good.”
When you take those properties back, are you then rehabbing them and putting them out for sale? Are you putting renters in them? What is your long-term play on there?
I prefer to keep people in their houses, so if we can get them re-performing, that works for cashflow for us. I’d rather be the bank versus dealing with toilets, tenants and trash outs, but when you foreclose, we try to list it. We have it go to auction and a price that makes sense to sell it at auction. If not, we take the property back or we’ll do Cash for Keys, the balloons and then we’ll do some repairs and then usually sell the property, all for the most part. I don’t want to own rentals outside of Florida or Texas. A lot of our students, they use that as a way to add rental properties to their portfolio in areas that they like because they buy it cheap enough. In some cases, we’ll offer up owner financing or contract for deed, depending where it’s at. We’re going to have to come and do a lot of heavy rehab. If we have to do heavy rehab, we try to sell it to local investors and double down, take the money back, take the profits, and go buy two more notes or as much as we can.
I have to start reading your blog because I need to know where I can pick up some of these. I talked to somebody else and they said they were in New York and they bought a property in Chicago. They paid $16,000 for it. I’m like, “What could you possibly buy for $16,000?” It’s a little house. It was cute. They sent me the picture.
The thing you’ve got to realize is sometimes you can pick up stuff that’s cheap. I don’t like Crook County or Chiraq for the most part. It’s a tough place to foreclose on if you need to, but other counties around Crook County are great. It just varies. There’s a lot we’ve seen in Ohio and Michigan.
How do you manage that? That’s far away. Isn’t that scary for you as an investor?
You hire the same people you would if you were local. Hire a property management company, find a local realtor, you’ll leverage your business with local investment clubs or meet up groups with those professionals and then go from there. With a note, we do their servicing companies that are licensed to do business in multiple states. They do a lot of the borrower outreach, the communication and collect the payments, then we get a wire and a statement. It’s not quite as hands-on as somebody who has a rental property or an Airbnb that they go out every day to do it.
I don’t want to go out every day and do it. Most of my people don’t. I want to have it, I want someone else to mess with it. I’ve got to learn more about what you do.
For those that want to learn more about what you do, where can I get more information about you, Debbie? How can they connect with you?
I have a couple of websites. I have a mortgage website, DLBMortgageServices.com. It’s nuts and bolts of what mortgages are and what I can do and how to contact me. I can email them a loan application. I work like that. The phone is always good, (979) 220-3018. I do work a lot of nights and weekends and I do this radio show once a week in College Station, Texas. It goes out to a lot of different markets. The website for that one is MoneyStrategiesWithDebbie.com. That’s where everything is housed. This interview will go there, my YouTube stuff will go there. A lot of the interviews that I do nationally and international TV as well. I’ve got a blog that’s there and people can find me the same way as you and give more information. I think education is what we’re trying to do.
That’s MoneyStrategiesWithDebbie.com is the best way to check her out. She has her other stuff there. Go there and check her out if you loved what she shared here because she dropped a lot of knowledge nuggets. She’s got some great stuff online there as well too. Debbie, once again, thank you so much for coming on the podcast and sharing many great things for people out there.
Protect your credit, save money, don’t spend it all.
Take what you learn and apply it to your finances. Don’t wait around to make decisions until you’re 90. As Debbie says, start making decisions now and be kind to your future self. Go out, make something happen. We’ll see you all at the top.
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About Debbie Bloyd
Debbie Bloyd has been helping clients over the last 23 years with their mortgages, investments and insurance needs. Debbie is CEO of DLB Mortgage Services and helps create wealth and peace of mind for her clients across the county.
As a radio host on her own show – Money Strategies with Debbie – she hands out advice to her listeners on how to live within their means – how to make money stretch and shows them the risks in their plans. She makes complicated financial news easy to understand.
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