Austin's Current Mortgage Enviroment
Ryan Rodenbeck Interview with Max Leaman, Austin's number one mortgage broker
SGR: Okay so what we're doing today is we're interviewing my good friend Max Leaman from Prime Lending. Max is the number one volume producer of loans here in Austin Texas and before we go there. I'm going to kind of give a little history. I met Max probably about five years ago. And you know I just started becoming more of a top producing Austin listing agent having more listings than buyers and we kept getting pre-approval letters through our clients and our listings. With Max's name on them and they just went really flawlessly so I decided you know let's have Max let's just schedule lunch with Max and talk to him. And see if he can be our preferred lender. And we did. And we became friends after that. Now he's our go-to lender. So Max would give us a little history about how you got into the mortgage business. And how long you've been doing this. And how you got to be where you are now.
Max: Yes, so I've been doing this actually July 9th 2001 was my first day as a loan officer. I was selling cell phones in a car wash and a lady came through. And I sold her a couple phones and she said you'd be good at this mortgage thing you should give it a try. And I was twenty years old and didn't know what a mortgage was and figured let's see what happens so.
And kind of doing this ever since.
Max:: So you know I mean we just I've always kind of looked at it differently and always tried to take a different approach. Always trying to give back to the agents that referred me business. Obviously, customer service is the most important thing to us. And so we've just kind of been able to build a team around that.
Max: And talk about that when did you start your team, the Max Leaman team at Prime Lending?
Max: So I hired my first team member Amy 2010. Actually, my wife and I went we were celebrating our one-year anniversary. I went to Greece for ten days and it was just me by myself and I didn't really have anybody. And Amy was working at a branch that I co-managed in around Rockton. And so I reached out and asked her if she could kind of help cover for me while I'll be gone. And she did and it worked really well. And it was kind of like you know there can be more than one of them. And we really just grew from there. I've got a great marketing department. You know my team makes those maps that are sitting behind you.
Max: So you know its customer service is really everything from Realtors to buyers.
SPR: And how many people do you have on your team these days?
Max: So there's a total of 26. There are five loan officers and then we've got one assistant. The rest is all operations, processors, junior processors and my marketing depart.
SPR: Awesome. Well yeah, I wanted to give a little history about you know where you've been. How you got to be where you're at. And give a little bit of credibility, not that you need any but for those who may not be in the know for Austin real estate watching, kind of let them know how you know what you're doing so. Let’s talk about Austin mortgages here. What’s the history? What's been going on the last 12 months in mortgages in Austin?
Max: So you know really guidelines haven't really changed much. I mean lending is pretty easy so I'll turn that down. Letting itself is pretty easy obviously the big news is interest rates and what's going on there. And obviously, since the election, they've been on the rise. After the first Fed meeting back in December. Where they raised the rate that caused rates to come up a little bit and you know I mean they've steadily been increasing. We still have runs where we'll see decreases in rate. The last about two weeks or so we've had a pretty good run of rates coming back down and then yesterday, Friday really yesterday and today we started to see the price worsening.
SPR: So tell me what happens when I mean what cause is the rate to have a dip like that?
Max: A lot of different things in general kind of rule of thumb is bad economic news is good for it interest rates. You know people investors you always hear about when you're watching CNBC or whatever. They’re always looking for this best place to put their money in. There's always what's called a flight to quality when you have bad economic news now unemployment numbers are worse than expected things like that. So you'll see people pulling their money out of the stock market and putting it into the bond market 10-year Treasury notes right. That’s kind of what's going to dictate our rates getting better our rates getting worse. And you can kind of track it a little bit you know. If you watch the ten-year Treasury yield as that yield gets lower. And we're about 2.31 today but as that yield gets lower rates tend to get better. And as that you know goes higher rates tend to get worse.
SPR: Got you. And what do you think is going to happen in the America to predict a future but like if everything stays you know I don't know like it is now? Are there any predictions you see in mortgage rates?
Max: Yeah you know I think kind of through the end of this year and the next year It's reasonable to think. A couple of things I mean look rates most likely will continue to rise in my opinion. And talking with some of the experts at my company and the financial analysts and whatnot. You know their big thing is the president needs a win with regards to tax reform infrastructure spending. Things like that. Okay, so if he doesn't get that quote-unquote “win” if you will, and get things to go his way with regards to that. That could keep rates down where we're at. You know otherwise I think it's reasonable to think you're going to see rates in four and a half, four and three-quarters somewhere kind of in that range maybe by the end of the year into next year.
SPR: Okay let's talk about debt to income ratio so if you can explain that to like the average consumer and with that what that looks like?
Max: Yeah, so basically the deck ratio needs to be somewhere depending on what cap alone it is between 43 and 45 percent. There's definitely ways you can go higher on debt to income but the general rule of thumb in for qualifying you really want to be 43, 45 percent. It's a simple mathematic equation. You basically take the minimum payments on your credit report that you owe monthly, plus your proposed housing payment divided by your gross monthly income and that's your debt-to-income.
SPR: Okay and if you have a lower debt to income ratio does that affect that the pricing of the loan? Or the interest rate or anything like that?
Max: No, really mortgage rates are really credit score driven more than anything. When you put more of a down payment you know it certain breaks 25 percent for some products, 40 percent for some products. You will see a little bit better pricing. When you're looking for that kind of five to twenty percent range there's not really a difference. It's really just credit score.
Max: You guys the debt to income ratio is going to call going to determine how much you qualify to be lent.
SPR: Okay and I skipped this question before but this is something we get asked a lot in real estate. If you have a $300,000 and the interest rate goes up half a point, what would it what does that do your payment?
Max: About 80, 90 bucks. I ran some calculations earlier and I did it based on a $300,000 loan amount. And it was a half appoints about $90.
SPR: ok, what about $500,000?
Max: On a $500,000 loan it's about $150.
SPR: Okay let's switch gears just a little bit I want to talk about condos. I'm assuming that one of the cons of a condo is that you're you know you have a high HOA fee of $250, $350. Some are even higher. Does that count against your debt-to-income. How does a loan officer qualify you that with that payment?
Max: So, first of all, you'll always qualify for more of a single-family residence then you will for a condo just because of that reason. It’s really difficult when someone's tr to prequalify that variable of the HOA does is really difficult to kind of pinpoint. Because they can be all over the map you can have two identical $250,000 condos and one has an HOA fee of 200 and one is 350.
Max: I subscribe to the philosophy that when pre-qualifying people I'll use one percent of the sales price as the HOA fee because I have to put something in there. So if it's 250 purchase price. I'm going to use $250 for the HOAs. Sometimes that's too high, sometimes it's a little bit low but it's really kind of the best way to gauge it.
SPR: Yeah, what's interesting is you know. I've had people that are looking for condos for simply the reason that they like don't want to do any yard work. I could get it if you're like if you don't want to do yard work, you don't want to be responsible for their for the exterior maintenance things along that those lines. But I thought people say I just don't want to do artwork. And $250 a month pays for an awful lot of hard work in my experience.
SPR: How much do mortgage rates jump up on condos vs single family homes?
Max: That’s a great question. So in general if you put less than 25 percent down and the loan term is greater than 15 year, there is a condo hit to the pricing Fannie Mae and Freddie Mac, it's three-quarters of a discount point. So you'll see that reflecting the interest rate depending on where rates are pricing. It will increase the rate anywhere from 0.125 to 0.25 percent. Not a increase you know 1/8, 1/8 of a point or so in your payment. Not huge on a $300,000 loan. a quarter points going to change it about 40, 45 bucks somewhere in that range.
SPR: Where if you put more down you don't have to pay that extra amount?
Max: So once you put 25% down again if the term is greater than 15 years of 20 25 or 30 and you put 25% down then you're not subject to the to the higher interest rate. On a 15-year you're never subjected to the higher rate. There is no condo adjustment on a 15-year loan.
SPR: Got you. Okay.
MaxOther thing. Detached condos, which there's a lot of them around here now. Where the developer will go in and knock a house down and built two separate structures and condo them off. If you're buying a detached condo and nothing on that condo touches the neighboring unit then the fully detached acts just like a house then you don't have the condo charge either to the rate
SPR: Yeah, And so for a lot of people that may even realize that they look just like single-family homes. And they're in the condo regime. And a few years ago you got into this practice in Austin where I think the Austin board of realtors would want it listed as a condo even if it was in the condo regime. You had to list as a condo. Now the rule is if there are no common walls then you can call it a house. But I think that that's really a good point for you to point out. If there are no detached walls then the bank treats it as a condo. And you see more that where it’s a house rather and you see more than Austin I think like PSW Homes does these developments like that. And I think the reason they do that is because it's easier to build they don't have to pay for the development of cutting up the land and attorney fees and all that. So yeah, that's a big trend in Austin real estate that you're basically there a single-family home and a condo regime so.
Max: Not to cut you off but it allows more density as well.
SPR: Yeah right, they don't have to deal with quite all of the city regulations which of course we have that here. But that's for another time so I want to switch a little bit to like construction loans and before I do that you know Max does all of our personal loans. And you know we have been buying duplexes either with cash or mainly through a line of credit. We will buy an Austin investment property rather in most cases pay cash. We get the property for you know say 200,000. I'm just using that round number and then if we put $30,000 into it. Then within six months I can refinance or actually delayed finance it for up to what is it seventy-five percent of the value?
Max: The single-family at 75 percent of the as of the current value for multifamily its seventy percent.
SPR: Okay, so you know if you're watching this and you know if you have some kind of way to you know get cash from a family member or whatever. This is a really great product for several reasons and one of the reasons is, you know if they're in a multiple offer situation cash it's always king if all the other terms are alike. But the other reason is if you think about it like on that duplex where we paid $200,000 for that home. And we did recently one within last year where we put $40,000 or renovations. I’d actually paid 210,000. We put $40,000 into it. Well, the house was worth 330,000 after we were done with it. So you know if I would have bought that Austin duplex for $210,000. I'd be out $40,000 for the down payment, plus another 40,000 what we put into it. So it's a really good way to leverage your money do I have that whole process. Does it sound right Matt?
Max: Yep, you got it. Yeah, you should know.
SPR: Yeah what it's 70 percent up to the value that you paid for it correct?
Max: That's correct. So you can't get out more than what you paid for the property.
SPR Yeah and you can refi for more after one year right?
Max: Yeah, after a year it's no longer delayed financing. Delayed financing is really that first six month period from when you bought the property cash to when you're trying to pull out your money. If you go past that six month period it's no longer delayed financing it's just a cash out refinance to be able to do just a normal cash out refund.
Max: And so typically you need to wait 12 months to be able to do just the normal cash out.
SPR: Okay is there a product like this for someone looking for a distressed property who wants to remodel it or tear it down and rebuild for their own occupant. What kind of products are out there for that?
Max: Yeah, I mean we've got a couple of different things obviously there's the Austin real estate construction loan. Which it's pretty simple you, buy a property so you've got your price plus whatever construction is going to be. You put your down payment based on whatever that total cost is. As money gets drawn you'll have a draw to buy the property. You'll have a draw to demo the property. You’ll have a draw to frame and pour the slab and all that. As money is drawn you're making interest-only payments on money that's been drawn.
Max: Once it's complete then it's just a regular refinance we take whatever balances owed and refinance that into a 30-year loan.
Max: That's really more for people who are doing complete tear downs things like that. We also do renovation loans and we've been doing a lot of you know there's a lot of stuff there's a lot of Austin fixer-uppers in this town now. And it's a way for people to get into a home for sale in Austin for a little bit less money. So you buy a property that needs to have the kitchen updated or the bathroom updated or foundation work whatever that may be. We can actually get bids from your contractor and roll that into the loan. So say you're buying a place for 250,000 it needs $50,000 worth of work. You’ve got to have some contingencies for overages in there but for this example, we're just going to go to 50 and 50 so you're at 300,000. Houses to appraise for 300,000 and your down payment which can be 5 percent is based on that 300,000.
SPR: Wow okay.
Max: And then you close that loan. You 180 days to complete the work the contractor gets four drawers and you're done.
SPRr: Okay, so it's it to qualify that loan it's five percent down?
Max: Yes, it's a conventional loan. It's a conventional renovation loan. So it's treated like qualifying and the down payment is all treated just like a normal conventional purchase loan.
SPR: And what about the interest rate is it higher?
Max: A little bit more depending on how the market prices again it can be an eighth of a point. Usually, it's an eighth of a point. Sometimes it could be a quarter there's an additional fee of about $865 because we have to order inspections and handle the drawers and things like that. You know if you're doing five or ten thousand dollars maybe not always worth it. We kind of got to compare with what that does to the payment long term cost. But you know when you're getting in there forty fifty sixty a hundred thousand. It’s a pretty good deal.
SPR: And that is up to jumbo right for that right?
Max: Correct. 424,000 in Austin right now. We do have some jumbo renovation products as well.
SPR: Okay, let's talk about that. So that was actually good segway into my next questions of jumbo loans. So if you would do over how jumbo loans are structured, what do you need to put down you know what's the cutoff for jumbo loan in regards the interest of that.
Max: Virtually anything over 424 100 is a jumbo loan. Jumbo loans are more nitpicky with qualifying, in other words, everything has to be verified whereas on the conventional loans you can get around some stuff. You know jumbo loans, once if you're if you've been renting for the last two years, we have to verify that your rents been on time for the last two years. You know we don't have to do that on a conventional so there are just different nuances that jumbo loans have but and typically people will do 20 percent down. That's really where you get the best rate there are 15 percent options. There is 10 percent down options and you know sometimes we really need to look at that. I generally encourage people to put 20 percent down because that's where you are going to get the best the best financing.
SPR: And how does that rate compare?
Max: A lot of times these days jumbo rates are actually a little bit better than conventional rates conforming loan rates. I think that's partial because there's a lot of banks trying to add those loans to their portfolio. It’s so much like I said earlier they're more nitpicky loans when it comes to documentation that you need. I guess you're considered a little bit more qualified on those so it's a little bit less risk.
Max: I mean it's we've doing jumbo loans I don't know we're probably doing 20 percent of my business to 15percent of my business every month is jumbo financing. Sometimes even we've had a couple of people where we've gone for 424,200 instead of for 424,100. So we could get a jumbo loan and get a little bit a little bit of a better rate.
SPR: Wow okay, and then so on a jumbo loan, there’s a certain amount you go to what you know it one-and-a-half million, 2 million, 3 million?
Max: I mean we'll go up to uh two and a half or three million thanks.
SPR: Okay and it's still kind of the same principle with your debt to income ratio and right?
Max: Yeah, now jumbo loans are real strict with debt to income and I was kind of saying between 43 and 45 jumbo is 43 percent.
Max: A couple years ago the government put out what they call QM qualified mortgage which are the guidelines to which most jumbo loans are underwritten so it's got to be that 43 percent debt to income ratio. Everything has to be verified where you have variances on that with the conforming stuff to 424 100 stuff.
SPR :Okay, so I think our final subject here is talking about you know multiple offers situations in Austin. We listed three Austin properties on Thursday. I think we had over 25 offers on Monday and you know we see so many bad habits with real estate agents right now when they submit multiple offers in Austin homes. One of the main things we see is you know they'll have a lender letter with no phone number on it. You can't get in touch with them but many of the big banks as a listing agent. I have to tell you we hate working with the big banks it's horrible. Bank of America, Chase, Wells Fargo, all of those guys they make us cringe. And you know I've been working with Max and when you know I'm on the buyer side of it we do some pretty aggressive things. And you know one of the things we do is we bring our third-party financing; in layman's terms there’s a date on a contingency the financing contingency form that tells you how long you have to qualify for the loan. Well I, use max and I know Max does a really good job of qualifying. So we put you know very little days on that form for financing to seven days. You know when I'm talking to a buyer that comes to me that does not use Max that comes with his own lender and I kind of try to tell them about that but I worry about that because I don't know what this lender has done for them. So when you're talking to people that are getting pre-approved through somebody else what do they need to do? What all do they need to do to know that they're there they're going to be approved so they can make these aggressive movesMax :So your I need a loan application filled out that part's really easy. Its takes about 10 minutes to do online. We send instructions when we send the link to the application so. And we tell people if you do it if you spend more than 15 minutes filling this out you're thinking about it too much. I just need some basic information and then essentially it's pay stubs, bank statements and tax returns. That’s all we need and when we have that we're pretty good now. If you're self-employed I need to go through business returns and if you're commissioned or bonus we might have to send something off to your employer to get a break out so we know we can use for income. But we're going to do all of that upfront. What I have found is although it is annoying, it is best for the buyer. You’re going to have to do it anyway. But it's better to do it up from so you know there's no problems rather than waiting, like you said, on the big banks or whomever to do that at the end of the process. Which is why you always hear about these horror stories about they said I was approved and then I wasn't. And it all fell through and this and that. The other reason the big mortgage companies fail because they don't do their due diligence upfront.
SPR: Yeah, so there's that. That’s obviously a key component especially you'reself-employed but you know I think another key component of what happens when people get in trouble is strictly negligence. And I don't remember if it was last year or the year before Max but we had three deals during spring and summer. Where I was a listing agent and one was a two of those deals was with one company. And you know who I'm talking about and I won't mention names here. But it we got, you know five days away from the closing table, and they would say that they couldn't close it. And so basically what we said is like if they want an extension they had to release earnest money to the buyer and to go get approved with Max and then we would issue an extension based whether Max says he can get it done in two weeks three weeks whatever that date was.
And I just remember when we got in on all three of those deals we got to the finish line and I go back to Max and I said: “what was the problem there?” And I remember you were just like I don't really know and there should have been not been a problem though. I think if you're out there and you're actually looking for a mortgage broker what you need what you do when you're looking for a real estate agent. You need to look at the reviews. You need to talk to some of their past clients. And you know obviously we recommend Max Leaman and his team, they're the best. But I think you really need to look into who you're working with because these type of things happens all the time. But now some agents aren't going to go through that you're just going to cut the deal. You’re going to be out your earnest money. So this has been really good. I think we went over everything I wanted to go over. Max, I really want to thank you can you tell everybody where they can find you. Max: Yeah, always you can go to my website www.MaxLeaan.com. We’ve got our local number is 512-765-4300. We also have a toll free number (800) 301-3405. You can also email us at [email protected]. And you can always give me a call 512-617-5636.
SPR: Awesome man well, thanks again.
Max: Yeah thanks for having me man I appreciate it.