Lead Generation, Part II: Taking your business to the next level

The most successful mortgage professionals consistently close more than 5 loans a month. Some approach 10 loans closed every month, consistently. Does this seem possible? It is, but time and a systematic approach are involved.

Successful mortgage professionals have built a network over time through consistent professional service that keeps leads coming. They are disciplined, organized, persistent, and knowledgeable. Here are a few key steps.

• 1. Don’t expect success to come overnight.
• 2. Pick the right niche and master it. Don’t attempt to be all things to all people. This is where your network comes in.
• 3. Don’t be afraid to market.
• 4. Don’t overlook technology. LoanSystems can help with this.
• 5. Discipline and organization are essential.
• 6. Take good care of your network.
• 7. A solid team is essential. Your team consists of your loan processor, appraiser, escrow company, and lenders.
• 8. Take great care of your clients.

Successful mortgage professionals know the value of their client database. If you run your business properly, each client can be serviced multiple times. What starts as a new purchase may later produce a refinance, and possibly later, a second mortgage. When that client is ready to purchase a rental unit, or buy a larger house, if you’ve done your job properly, you will get the call.

Where to focus? For starters, you may need to focus on anyone who comes through the door. But with time, and volume, your focus may narrow. What you most want is the client with a low debt-to-income ratio and a descent FICO score. But due to its importance, we will focus on the debt-to-income ratio.

The most ideal debt-to-income ratio is in the range of 36%, or lower. This person, especially if their FICO score is good, can likely qualify for the most attractive rates being offered. They also give evidence of financial stability and discipline. If this is your client, treat them like royalty. But this client does not appear every day. To be successful, you will need to work with clients with less than perfect credit. But there is more to it. Never turn a client away because you think they cannot qualify for a loan. It is advisable to speak with your broker or the manager of your office first.

What about your network? Potential borrowers are only half of the equation. You need to develop lasting relationships with real estate agents, and others who interact with potential borrowers. The list includes contractors, escrow agents, credit repair specialists, appraisers, and anyone else who touches on the real estate industry. However, it is also crucial for you to have loan products that are competitive; that match the needs of the market you are targeting. And you must have a team who can produce results fast. You also need to be responsive, both to your associates, and their clients.

This is one of the huge pluses of LoanSystems. It allows you to build connectivity with your network and respond immediately when one their clients has a question, wishes to request pre-qualification, or submits a loan application.

What about the FICO score? If the debt-to-income ratio is high, the FICO score may not matter. The FICO score only reveals your reliability as a creditor. It lets potential lenders know that you pay your bills on time, or not. But when the debt-to-income ratio is in the acceptable range, the FICO score will still be an important consideration.

A FICO score of 620 or higher is what most lenders are willing to work with. Borrowers with FICO scores above 720 can usually qualify for a conventional loan, which have fewer requirements but generally require a larger down payment. Borrowers seeking a conventional loan with a down payment of less than 20 percent will need to obtain Private Mortgage Insurance (PMI), which will add to their monthly payment. But once the loan-to-value ratio reaches 78 percent, the PMI payment can be cancelled. There are a few disadvantages to conventional loans. Conventional loans have pros and cons. You will need to compare the specifics with the lenders.

The above information is not to say that you will not find a lender who will underwrite a mortgage for a borrower with a FICO score below 620. Individual lenders determine these conditions.

If you identify a lender who has loan products for difficult to qualify borrowers, this may give you a great angle to work depending on your target market.

What about the client with less than ideal credit or limited funds for a down payment? There are options for borrowers with less than ideal credit, high dept-to-income ratios, or who do not have at least 10% for the down payment. These products could include negatively amortizing loans, or other products with high fees. Clients with high debt-to-income ratios, and limited funds for the down payment, may qualify for a conforming loan. FHA loans may also be a viable option.

A conforming loan is one that adheres to size limits specified by Freddie Mac and Fannie Mae. These are the two US corporations that purchase mortgage loans. The maximum conforming loan limits for a mortgage involving a one-unit property, as of 2018 in most areas of the US, is $453,100.

Should you find yourself looking in this direction, be sure to fully detail exactly what the loan entails. And be sure to track this client, like all others. Once their credit worthiness improves, they may want to refinance into a more attractive mortgage.

FHA Loans

An FHA loan is a mortgage that is insured by the US Federal Housing Administration (FHA) and financed by an FHA-approved lender. FHA loans are conforming loans, and therefore, cannot exceed conforming loan limits. When a lender offers an FHA loan, the US Government guarantees to repay the lender if the borrower defaults on the loan. FHA loans essentially protect the lender from losses they would otherwise incur if the borrower defaults on the loan.

FHA loans are designed for first-time buyers and allow purchases with as little as 3.5% down and lower FICO scores as compared to conventional loans.

It will be imperative to have FHA loan options among your programs.

VA Loans

A VA loans is a mortgage that is guaranteed by the US Department of Veterans Affairs (VA). Since banks do not require a down payment for VA Loans, they are one of the only loan programs that still offer 100% financing. However, the borrower will still need to pay closing costs, which average between 1% and 3% of the loan amount on higher purchase prices, and between 3% and 5% for less expensive homes. The borrower may also receive credits from the seller or lender to cover the closing costs.

VA loans generally have lower interest rates than other loans. VA Loans also don't require PMI. They are great loan products for the mortgage professional who has any inroads into the veteran community.

What about income? Income is the key variable when qualifying for a mortgage loan. As mentioned above, high debt-to-income ratio homebuyers may still be able to get approved for a qualified mortgage (one without excessive fees), although there are exceptions. Debts include all revolving credit, loans, and other financial obligations.

The most ideal debt-to-income ratio is in the range of 36%, or lower.

Moving from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage

Adjustable-Rate Mortgages (ARM) start with an interest rate that is lower than prevailing fixed-rate loans. This lower rate may lower the payment into the range needed to qualify a borrower. With an ARM, periodic, usually annual, rate adjustments may increase the rate if the prime lending rate is going up. An ARM can be a good strategy if the borrower anticipates an increase in income in the coming years. As interest rates and the borrower’s income increase, this borrower may choose to refinance for a fixed-rate mortgage to protect against future rate increases.

On the other hand, if the prime rate is moving downward, a borrower may wish to refinance into an ARM to reduce their monthly payment, or even pull out some money and still achieve lowering their monthly payment. Once rates begin to rise, the same borrower may consider refinancing for a fixed-rate, which may keep the payment low depending on timing. You, as the mortgage professional, are there to assist your clients in making the most of a favorable interest rate move according to their unique situations and needs.

Reducing the Terms of a Mortgage

Another strategy of wise borrowers, and savvy mortgage professionals is to take advantage of falling rates to reduce the terms of a mortgage. The most common term for a mortgage is 30-years. But if interest rates move down a few points, a 30-year term can be refinanced into a 15-year term for almost the same monthly payment.

As you can see, knowing the circumstances of your clients and the terms of the loans that they are in can help you know when to reach out to them and how to help them get into the best mortgage for their current situation.

Home Equity Lines of Credit

Home equity lines of credit can be just what a borrower who is considering a remodel or some other major project needs. An advantage of a home equity line of credit is that the interest paid may be tax-deductible under some circumstances. Under the new tax law, home equity interest from 2018 to 2026 may be deductible if the money is used to buy, build or substantially improve the home that secures the loan. Your client should be advised to consult with their accountant on the details prior to deciding. Since there are many disadvantages to refinancing to pull out equity, the decision should not be made in haste.

Many homeowners refinance to pay off consumer debt. The problem is that, with debt paid off, they may be tempted to make new purchases, running up their consumer debt again. The burden could become heavy and there may be no more equity to borrow from. Thus, a dangerous cycle that may lead to financial calamity may have begun.

If the money pulled out of your client’s equity produces tangible benefits, such as a remodel that increases the home’s value, or to pay for a child’s education, the benefits may outweigh any downside. Equity also provides a degree of financial security in case of a medical or family emergency. Pulling it out is a decision that should be carefully weighed.

A mortgage professional should be acquainted with the pros and the cons and arm their clients with this information. In this way, should the client move forward, they will have the confidence that you have their best interest at heart.