What Makes a Home Loan Fall Apart? with
Matt Vogel of Wells Fargo Bank

House Talk Episode 3 – What Makes a Home Loan Fall Apart?

with Matt Vogel of Wells Fargo Bank

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Karen: Hi, this is Karen Malanga with Nest Bend Real Estate in another edition of House Talk. Today, I’m so fortunate to have Matt Vogel from Wells Fargo and he actually got permission from Wells Fargo to be here with us today. Welcome Matt.

Matt: Thanks! It’s good to be here!

Karen: I’m glad. So I have some questions for you and I think question number one is, “How can borrowers prepare to buy a home?”

Matt: That’s a really, really great question especially in this environment. I think it’s just super important that people have their ducks in a row. So one of the things that we look at as lenders is – you can think of it as a box. We’re going to look at what’s called debt-to-income ratio. We’re going to look at reserves and money for downpayment if they even want a downpayment or utilize that. We have programs that you don’t need a downpayment from. And then, job stability, how long have they been in their job, so on and so forth.

So when people are preparing to look and found the home of their dreams, it’s just good to have that information ready to go and clarified for us. So we’re looking for, really, three years in a job. That’s really important. Someone who has stability, that’s going to be something that the investors are looking for. The other piece of that is debt, that they have their debt under control.

So normally, on a conventional loans which is under $417,000 (we’ll just talk about that for a second), we’re looking at a maximum of a 45% debt-to-income ratio. So what that means is we take their gross income and divide it by their debt, how much of that debt is that gross income. It needs to be below 45%. The whole debt needs to be below 45%.

Now, that doesn’t include insurance. It doesn’t include groceries. It doesn’t include babysitting, any of that stuff. It’s really credit stuff – installment loans like your car, it’s going to include your credit cards, stuff like that, your plane payments, all that fun stuff. That’s what it’s going to include. That just really needs to be under control.

And then they have to have the money saved for whatever they chose and the product they chose (meaning the loan) for downpayment. So that’s really a key component too.

And so talking to these people earlier in the process and educating people with that information is truly important for people to be able to secure a loan these days.

Karen: Yeah, I understand that. I have a few other questions, but I just wanted to digress a minute because where we do live in an area where people tend to want to move to. It’s like a magnet. Some people may not have the same job with the same company when they moved here. But can it be a like company? If they’re a pharmaceutical sales rep for Merck and they moved here and be a pharmaceuticals rep for Pfizer, it’ll cover that two years because they’re in the same job category.

Matt: Exactly! That’s a really, really great question. Yeah, we have a lot of that too. A lot of people come up here. And actually, in this environment here in this town, people will come up here and telecommute. So they’ll keep the same job and get permission from their employer to have that same job.

But to your point, yes, 100% someone could do that. The issue is that commission. So if someone is working sales, for instance, and they are with one company and go to another company and a majority of their income is commission, that’s going to be a problem. So we’re going to look for a higher salary for those kinds of jobs.

But other jobs like a pharmacist or something moving from Tennessee over here to Bend, that happens. These things happen. They’re in the same line of work, and absolutely, that will work.

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Karen: Yeah, that was what I was looking for, the same line of work. It was somewhere in the back of my brain.

So what are the pitfalls that you see? I know you’re stressing people be prepared. I know just in my own family, my children are busy paying off their credit cards before they even decide to buy another house and kind of getting, like you said, their ducks in a row. But what are some of the major pitfalls that you’ve found in recent history here with Wells Fargo and borrowers.

Matt: Yeah, another great question. Well, one of the big pitfalls, going over, once again, thinking back on what we just talked about, having a lot of ducks in a row, this is really the opposite – not really having…

Karen: …any ducks?

Matt: Well, there are things that come up and it’s really funny. So let’s just talk about Sally Spender. That’s just a fictitious name, but let’s talk about her. She applies for a loan, she is excited, she’s got her downpayment, she’s all ready to go. And then, one of her friends had just bought a house, but she’s got a brand new car too.

And so she’s looking over at the neighbor’s and thinking, “You know, a new car will look really, really great in my drive way.” So she goes out and unbeknownst to us (because we already have her pre-approved, she’s ready to go), she goes out and says, “You know what? I think I just want to go buy a new car,” doesn’t tell us, well, we find out near the end…

Karen: …when you re-pull the credit, right?

Matt: That’s right. Right. Exactly! Or she drives up in her car.

Karen: With the stickers still on the outside. You’re like, “Oh, my gosh!”

Matt: Well, she said, “Yeah, I just bought this car. It’s a $600 payment. I’m so excited.”

Karen: And you’re not.

Matt: Yeah! We’re not. And we think about that, the income ratio, that could potentially push us right over the edge. And so we want to really be careful of those things.

Or the situation where someone wants to buy their furniture before they move into the house…

Karen: And they buy it on time?

Matt: Yeah, exactly. They buy it on credit. And all of a sudden, we have this beautiful couch and we don’t have a loan anymore.

Karen: And you don’t have a living room to move it into.

Matt: Exactly! And then the other part of that is people changing jobs in the middle of the loan. You’ll have somebody that finds another position that’s just wonderful, it’s a great opportunity, we don’t talk about it –

So communication’s really super important on these loans. We don’t talk about it. They’re all of a sudden in another job and then let me know.

Karen: Yeah, that’s not good.

Matt: It’s not! And if we’re talking about a job that has a commission or bonus or some kind of a sales position, we’re in trouble.

Karen: I know. People in banks hates sales positions like me being a real estate broker.

Matt: We like them actually. But there are some other things as well. The other things that are a really big pitfall for people (and why communication is super important too) are addendums, addendums to the loan. And in the case where realtors (not yourself, Karen)…

Karen: Definitely not me.

Matt: Not you. But when we get addendums at the end, so there are some re-negotiation during the process and it’s not communicated to the lender because we come to the end with RESBA and all these new rules that have been active where it takes longer at the end of close, these new things coming in will hurt us as well.

Another thing that people should watch out for, let’s say they own another property. They’re buying another property. They told us they were taking their downpayment from their savings or their 401k or they’re going to borrow some money, but all of a sudden, they’re taking a home equity out on their second home…

Karen: Yeah, people do that all the time. They don’t tell us either though, us realtors, when they’re doing that. Sometimes, they tell me one thing and they’re doing another.

Matt: So that’s why it’s great that we’re talking about it right here, so people can hear that. But that’s just a couple of many, different ways that things can fall apart.

So once again, a review, keep your job the same, keep your money in your pocket.

Karen: Well, keep your job. I remember we had one client that lost his job, didn’t we? And then he found a new job. But it was the same.

Matt: And that’s okay.

Karen: Yeah, that’s okay.

Matt: And that will work, yeah. So those are some of the other pitfalls, yeah.

Karen: I think what I’ve always appreciated about you in the past is that we’ve sent you some potential buyers. And sometimes, we meet people, they get referred to us and we don’t really know them and they haven’t been able to qualify for a loan and you’ve been able to help them get qualified. I know that that’s a long process and it takes a lot of patience, but you’ve been great with that. Can you go over that briefly?

Matt: Yeah! Thank you very much. Wells Fargo really offers some really great program. So the thing is when people come in and they’re looking to buy a house, if they are in a position at some where they’re just not quite ready, the last thing I would want as a person (and you may agree with this as well) is to have someone say no to you and then goodbye.

Karen: No, because there’s always hope for the future.

Matt: Exactly! So we want to really facilitate that. We’ve developed something called My Home Roadmap. And what that is, if and when people get declined on their loan, we actually put them in this program and we pay for two full hours of a certified financial advisor to help them with credit and all the pushes they may have.

So there’ll be four different meetings that they set up with this accredited person and they’ll talk about how they can change their situation.

Karen: That’s terrific!

Matt: It really is neat. “How do we improve our credit?” These are experts who know how to do that. What are we looking to do in the future that will help us not have a decline but an approval?

So we’re working through that. It’s kind of a mentor situation. And then we’ll send them over a period of time 13 different emails that will help them follow up with their plan. So whatever their plan is…

Karen: And it’s personalized obviously.

Matt: Absolutely! And there’s a hand-off too as well back to me and letting us know (with the approval from the client obviously) that – we will follow up and say, “How are you doing on your plan? How is it going? What can we do to help you?” and just periodically follow up with them.

So it’s just really important especially in this day and age to have people understand the process, how can we help them and how we can turn them into a customer later on and help them actually fulfill that dream.

Karen: Yeah, and be a homeowner.

Matt: Exactly!

Karen: Well Matt, it’s been great having you here today. Is there anything else you’d like to say before we sign off here at House Talk?

Matt: No, I just think it’s important that people just really take this seriously. We’re here to help. It’s a great business that we’re in. We’re in the business of helping dreams. We really want to help those people. So I look forward to doing that in the future.

Karen: Alright! Thank you so much for your time. Appreciate it!

Matt: Thanks Karen.

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