Loan Officer or Debt Strategist?
In your last mortgage transaction were you working with a true mortgage professional? I believe that a true mortgage professional should be more than a Loan Officer, they should be your Debt Strategist. Many people have professionals managing all other parts of their financial picture, so why not their debt? Read on to find out what your Loan Officer should be doing for you.
Has Your Mortgage Banker Committed Malpractice?
I was fortunate that early in my career one of my mentors gave me some great advice: “prescription without diagnosis is malpractice”. That advice has helped me build a thriving mortgage practice with thousands of followers. I realize that what separates the average Loan Originator from the great ones are the questions that they ask.
By not asking the probing questions that a consumer doesn’t know to ask, you may end up with a loan that costs you thousands of extra dollars over time. This is no different than a doctor not asking the questions necessary to make a diagnosis before he starts writing a prescription.
A home is frequently your largest investment, and your largest debt! Your mortgage is no longer just a mortgage, but more of a financial instrument. It should literally weave into your long and short term financial, investment, and life plan. Together with my clients, we form a debt strategy that leads to wealth creation over time. To truly understand a client’s needs, these six questions are crucial:
1. What is important to you about this mortgage?
The questioning process needs to start with a clear understanding of what is important to YOU about this mortgage. The answers usually start with “lowest rate” or “lowest payment”. It takes further questioning to get to the underlying importance. Why is it important to have a low rate or low payment? An underlying reason might be that you want your family to be put in the best position for their future.
2. What is the length of time you expect to live in your house?
This may influence your loan program, and also your how you should structure your closing costs and interest rate. For instance, if you are only going to live in this house for three years, it doesn’t make sense to pay points to buy down your interest rate. The lower rate will take years to offset the fees that it takes to buy down the rate. On the other hand, if you plan to live in your home for 15 years then it might make sense to pay extra fees to buy down the rate.
3. What do you expect to happen to your income over the next 5 years?
This will usually fall into three categories: slight increase (cost of living), major increase, or slight decrease. Understanding what is likely with your income can make a difference on the size of your house and mortgage. It is normally advisable to be conservative when you buy so that you can avoid being house-poor. However, if someone will see a large increase in pay then it might be acceptable to stretch into a bigger home. This will help avoid moving again in just a few years. If your income is going to decrease in a few years then you should make sure you can afford the payment with your reduced income.
4. What Life Events are likely to happen in the next 5 years?
Hindsight is 20/20, but foresight can be close to 20/20 if you slow down to think about what is likely. Are you at an age where it is likely that you’ll meet someone and get married in the next five years? Will you be having kids, starting a business, paying for private school or college. Are there rumors that your company will be downsizing, will you need a car, or are you approaching retirement. Predicting these life events will change your financial decisions.
In my 14 years of managing life events in the mortgage industry, I’ve discovered that people only come to see me as their lives are changing. I’ve also come to learn 2 things:
1.)The life events that cause us enormous stress weren’t planned.
2.)That we will all suffer one of two pains. The pain of discipline or the pain of regret. I can guarantee you that the pain of discipline and planning for life events weighs ounces. While the pain of regret and the cost of unplanned life events weighs tons. And in some cases can devastate a family or destroy a dream.
I’ve personally lived through all of these life events, that’s why I love what I do. I get to give my clients peace of mind when they’re prepared. I hope to build stronger families and communities by eliminating much of their stress. What have you done to be sure you and your family are prepared?
5. At what age would you like to retire?
Many have a goal to own their house free and clear before retirement. If this is important to you then it won’t happen by accident. Being very clear on the amount of time you have before retirement may change all of your financial decisions.
6. What is your timeframe to pay off your house?
If your goal is to pay off your house within 20 years, but you are taking out a 30 year loan, then the timeframes don’t match. We can do an amortization schedule to know how much extra you have to pay to meet your 20 year goal.
Once these five questions are answered, it is time to start looking at your loan options. For evaluating loan options, it is important to use a tool to understand the analytics. I create a private website for each client to compare several loan options.