Can you have a mortgage without interest?

The NPR podcast Planet Money (one of our team’s favorite listens) recently featured a story on Stephen Ranzini, who runs a community bank in Ann Arbor. Stephen’s bank had been given an award for serving the often under-served members of his community, but was confronted by a community member whose demographic needs were not being addressed by the bank.

As it turns out Stephen’s bank is located in part of the country with a huge Muslim population, and this community member said that Muslims are not supposed to pay or receive interest. Naturally, Stephen didn’t think it was possible to offer products, such as mortgages, without charging interest, but was intrigued by the challenge.

Stephen decided to take on the challenge and did his research as he tried to create a financial product that would be conform to his Muslim customer’s religious needs.

It turns out you can create a mortgage without interest. Well… sort of.

You’ll have to give it a listen to this great story from NPR to hear all the details.

http://www.npr.org/player/embed/477956675/478009318

Our product development philosophy

For our team, there’s an adrenaline rush that comes from making something new and sending it out into the world to have it impact the lives of our customers. We love building.

Below are a few of the ideals that drive our product development. Hopefully a few of these will help explain the method behind how we work.

Make something people love

It’s tempting to make a product that 100 people use and like (sort of!) instead of making a product that 10 people love. Our product decisions will help create fanatics.

Listen to what’s not being said

Anyone can ask what features should our product include. Then do all of those things and end up with bloated software. We spend time with users observing behavior beyond what is said.

Empathy first

We view every interaction as a way to gain empathy. We aren’t defensive about critical feedback, rather we use that as a way to deepen our empathy for those that use our product.

Learn fast

Each release of a new feature is meant to help us learn something about the world and those that use our product. We readily admit, that we don’t know everything right now.  On the contrary, learning quickly means that we accelerate our knowledge over time. This is the beginning, not the end.

Prioritize ruthlessly

One way to build bad software is to do everything suggested by every user. Beginning with empathy first, we can focus on the features that deliver the most value. If everything is a priority, nothing is a priority.

Focus on outcomes

We exist to help lenders become more successful. Currently, that means saving time chasing down paperwork. We never want to lose site of the end goal. Every feature, every release should help us move towards our end goal.

Productivity and the Digital Revolution

I just realized there are only 24 hours today and I will consume those hours in approximately the following way:

  • 7 Hours: Sleep
  • 1 Hours: Workout
  • 1 Hours: Get ready for the day
  • 2 Hours: Prepare and eat food
  • 3 Hours: Commute to and from work and attend client meetings
  • 2 Hours: Product demos with potential customers
  • 3 Hours: Catch up on email and phone calls
  • 1 Hours: Create this content
  • 2 Hours: Weekly team meeting and goal setting
  • 1 Hours: Attend a dinner meeting
  • 1 Hours: Maybe an a tv show before falling asleep

And yet after I get to the end of the day and still have a long list of outstanding items to do in my backlog. I’m sure many of you have felt the same way.

During my commute yesterday I listened to a podcast by Freakanomics in which the host, Stephen Dubner, interviews Charles Duhigg, author of Smarter, Faster, Better on the topic of productivity. Freakonomics had recently asked their listeners what they most wanted to improve about themselves, and the overwhelming majority of listeners responded that they would like to be more productive. Preach!

Productivity is everything. If we can become 10% faster at a task, then we have 10% more time to do things we would like to do, right? Well where is that 10% disappearing to?

Supposedly, we are experiencing a technological revolution which is supposed to increase our efficiency with each new app or desktop widget, yet we find ourselves having a harder and harder time keeping up with the demands of our busy schedules. So what is happening? Is this technological advancement not a revolution after all?

“There’s actually a big tension and a difference between efficiency and productivity.” Duhigg explains,  “There’s this debate about whether the digital revolution is really increasing productivity. And when economists and people with common sense take a step back, what they say is, ‘Look, it’s not about all these gadgets and apps; it’s about learning new ways to think about possibilities, new ways to think about our capacity for work.’ And when that really gets spread through the population, that’s when productivity really increases.”

So while we have been equipped with more applications and tools to increase efficiency, we need to rethink how best to use them and to what end, and thus increase overall productivity.

“Ah, but what are some deeper strategies for becoming productive?”, you may ask. Duhigg suggests the following strategies specifically for your workplace.


Motivation – We trigger self-motivation by making choices that make us feel in control. The act of asserting ourselves and taking control helps trigger the parts of our neurology where self-motivation resides.

Focus – We train ourselves how to pay attention to the right things and ignore distractions by building mental models, which means that we essentially narrate to ourselves what’s going on as it goes on around us.

Goal Setting – Everyone actually needs two different kinds of goals. You need a stretch goal, which is like this big ambition, but then you have to pair that with a specific plan on how to get started tomorrow morning.

Decision Making – People who make the best decisions tend to think probabilistically. They envision multiple, often contradictory, futures and then try and figure out which one is more likely to occur.

Innovation – The most creative environments are ones that allow people to take clichés and mix them together in new ways. And the people who are best at this are known as innovation brokers. They’re people who have their feet in many different worlds and, as a result, they know which ideas can click together in a novel combination.

Absorbing Data – Sometimes the best way to learn is to make information harder to absorb. This is known in psychology as “disfluency.” The harder we have to work to understand an idea or to process a piece of data, the stickier it becomes in our brain.

Managing Others – The best managers put responsibility for solving a problem with the person who’s closest to that problem, because that’s how you tap into everyone’s unique expertise.

Teams – Who is on a team matters much, much less than how a team interacts

I would highly recommend you take 38 minutes to listen to the entire interview, as I found it extremely interesting. AND I bet you will find yourself with an extra 38 minutes throughout the day if you can apply his recommendations to your daily workflow.

Maximizing your returns on your tax refund

If that title isn’t click bait, then I’m not sure what is. Regardless, you might want to hear me out because I may give you an idea that will help you earn a return on that tax refund that you are [hopefully] receiving.

It’s that time of year, again. Today, April 18th, is affectionately referred to as “Tax Day”, and many of us will be receiving a tax refund from Uncle Sam. Last year, about 109M tax refunds were sent back to taxpayers, and that number will remain relatively unchanged this year. The total amount doled out was just over $306 billion, with the average refund right around $2,800. That’s a nice little chunk of change considering many individuals don’t even have $1,000 in savings!

So, if you will be receiving one of these deposits back from Uncle Sam I’m guessing you have been considering what to do with it. Maybe a nice bathroom remodel, savings for your kids’ school tuition, or maybe even a vacation. There are plenty of options (some smarter than others) that you can do with that refund check this year.

Some of your may consider putting this refund directly back into your savings account, BUT if you have a mortgage there might be a better option for you. You should consider applying your tax refund to your principal mortgage balance to pay it down quicker. This could be a great (or dare I say “the best”) option to earn a return on your refund this year.

What’s my rate of return?

Simply put, when you apply your money toward your mortgage you’re earning a rate of return (ROR) equal to the rate of interest on your mortgage. So for example, my mortgage rate is currently 3.73%, so my ROR on my refund will be about 3.73%. Now let’s compare that to a “high-yield savings account” at your bank with a return of 0.99% (clearly, that name is a bit of an oxymoron if you ask me).

Let’s say your have a mortgage of $200,000 on a 30-year fixed set at 4% and put that $2,800 refund toward the principal balance. You’ll save about $6,300 in interest over the life of the mortgage and the mortgage will be paid off roughly nine months sooner!

A word of warning

Now to be clear there are always exceptions, this may not be the best decision for everyone. If you are one of the aforementioned individuals with minimal savings I would highly recommend putting your refund in one of those “high yield” savings accounts so you have some cash accessible in case of a rainy day. But for those of you looking to stretch that refund a bit further consider putting it directly to your mortgage principal balance.

The Truth about Pre-Approval Letters

Every real estate agent would love their client to jump into a car on a Saturday morning before looking at homes and hand over a pre-approval letter from a local lender. As we’ll explain, the new TRID regulations have made obtaining a true pre-approval trickier. Instead, we’re beginning to see lenders shift to tiered scales of pre-qualifications, which in many cases are just as good. Agents and loan officers should be aware of the distinctions when communicating to each other and when educating their homebuyer.

We’re wary of any lender offering instantaneous pre-approval letters. “Approval” is a weighty term, implying that the lender has taken steps tantamount to issuing a commitment to underwrite the applicant. A true pre-approval means that the lender has reviewed borrower documentation – such as proof of income (W-2 and paystubs), tax returns, assets (relevant bank statements) and pulled a tri-merge credit report. Where this gets difficult, however, is that under TRID guidelines, lenders are no longer able to require documents from a borrower or that the borrower submit themselves to a credit pull. A borrower may certainly provide documents voluntarily – but it’s a thin line that we find lenders are wary to cross.

A quick word on TRID: a loan application is considered “received” when 6 pieces of information have been provided to the lender, including the address of the property. Once these six pieces of information are received, the lender is required to issue a Loan Estimate and other disclosures. It is only after accepting the Loan Estimate that the borrower can be required to provide documentation by the lender. Challenging right? Let’s make it even more challenging: the lender is now bound to this loan estimate, even if some circumstances change. That means they’ll have to cough up money to cover any changes in their estimated costs.

In our view, the industry should shift to a standard tiering of pre-qualifications, which provide the homebuyer with a robust understanding of what they can afford without putting the lender in an awkward position should new information arise.

  • Basic Pre-Qualification: Phone or in-person discussion with the borrower with only self-reported credit score. This would not be a reliable pre-qualification, but does comply with ECOA, Reg B.
  • Credit Pre-Qualification: Phone or in-person discussion with tri-merge credit report pulled by the lender.
  • Full Pre-Qualification: Phone or in-person discussion, documents voluntarily provided to the lender (and even potentially reviewed with an underwriter), and tri-merge credit report pulled by the lender. This is the most reliable.

What would make a full pre-qualification even better? Ask the borrower to take some time to sit with the loan officer and talk through any issues that came up after reviewing their files. Not only will they have a good understanding of what awaits them when the process begins, but they’ll have much more confidence when they put their signature on that offer contract.

The way we built Maxwell should help agents and lenders accelerate their homebuyers to a full pre-qualification conversation. Our system makes it simple for the homebuyer to assemble their core document set voluntarily, and guides them through the process. It’s not uncommon for an agent who referred a client through Maxwell to have a full pre-qualification in-hand within 24 hours.

Now that’s refreshing!

 

The Maxwell team recently had the privilege of sitting down with Christina Whelan at Cornerstone Home Loans to ask how she built her business and advice she would give to new loan officers.

Christina Hi res2Maxwell: Real estate is a relationship-based business. What advice can you give to new or young loan officers who are starting to develop their referral network of trusted partners?

Christina: Yes, I agree, this business is highly-relational and it can take a lot of time to develop a network of really great partners. As one of the two primary quarterbacks in the homebuying process you [the loan officer] need to be working with realtors that truly align with your values so that both of you can deliver a great homebuying experience for your customers.

Start building your network with your natural connections and people within your office. This is almost always a good place to start because you have already established rapport and trust, and should be able to quickly determine if they are someone you want to work with on a continual basis.

Another way I build my network is through clear communication with sellers’ agents. If you are working on a deal and can communicate clearly, consistently and calmly with the seller’s agent it makes everyone’s lives easier. Often I get to the closing table and the seller’s agent is now eager to work with me again! Don’t forget, there are a lot of people in every transaction, so you need to deliver exceptional customer service to all of these people. If you can do this, your referral network will begin to grow naturally.

M: That is great advice. It is true that there are so many different moving parts and people in each transaction, so communication is critical. So when you are looking for new referral partners, what qualities do you look for in a realtor that make a good fit with how you do business?

C: I actually love to work with realtors who are also mothers. This may sound funny, but mothers can make great realtors because they naturally show empathy with their homebuyers, are often great with problem solving, and are good at remaining calm and collected if issues arise during the process. Obviously, I don’t work exclusively with mom’s but they often have exhibit these qualities, which I highly value in my realtor partners.

M: What is some advice you might offer to someone who is thinking about becoming a loan officer?

C: I would highly recommend that new loan officers work for a large, well established lender. These larger companies can provide a new loan officer with a great deal of training resources, and often have a very structured training program.

It is important for you to really get a grasp on the basics of lending as an agent through a program such as this before you move to a smaller office, which often doesn’t have the same amount of resources to commit to your training. You will also get exposed to a lot of different types of mortgage products, and it is so important that an agent have a good grasp on different mortgage options to truly serve and add value to their future homebuyers. Having a good grasp on basic fundamentals is key to growing your business down the road. Become an expert!

Don’t forget your job is going to be to educate your homebuyer with their options!

M: Are there any things that you do, which other lenders may not think about, which will help you grow your business?

C: I go to 100% of my closings! Even if they closing is a long drive I make sure I can be there at the table with the homebuyers. More often than not this is purely relationship building, but if for some reason there are questions or issues at the closing table I am right there. I already know the loan better than anyone else in that room, so we can quickly work through any things that might arise. Don’t forget, there is a very human side to this transaction, it can be so rewarding to sit with a homebuyer as they get the keys to their house!

M: Christina we really appreciate you sharing some of your advice with us, and our network of lenders.

C: Thank you! I could talk about the industry all day, so I’m always happy to answer your questions.

We always love meeting with Christina. She is a wealth of knowledge and always challenges us about how we think about building our business. Thanks Christina!
Christina has been opening the doors to homeownership for her clients for over 32 years across multiple states. In addition to being a very active loan officer at Cornerstone, Christina serves on the Board of Advisors for the Opportunity Coalition, which is a Colorado non-profit that provides leadership, collaboration and support to help grow businesses and create economic vitality.

Featured Guest: Christina Whelan from Cornerstone Home Loans

Buying vs. Renting is Not Always What You Think

Last spring I decided to buy a house. I made 12 above-asking-price offers, threw out contingencies, and lost plenty of sleep before getting an offer accepted. I hadn’t even begun the mortgage process and I was already a wreck. I was sorely underprepared for the emotional rollercoaster and, like many of my peers in a similar situation, ready to throw in the towel when I finally had an offer accepted.

As much as I hate to admit it, the decision to buy a home was largely emotional. I had spent very little time evaluating the financial impact of continuing to rent versus buy. Homeownership is part of the American dream, so how could it possibly make more sense to continue renting?

Many of my millennial friends seem to leave the rental marketplace (some for good reason!), but few of us seriously consider the important factors that should be influencing our buy vs rent decision.

For most young homebuyers the thought of detailed financial analysis and spreadsheets is overwhelming yet the most neglected part of the homebuying process.  We would prefer to spend our evenings lusting over the most recent listings on Zillow and dreaming of the day our home will be a featured post on Houzz. Our lack of financial knowledge and apathy could have a huge financial impact on our lives, yet we largely ignore it!

Enter the “Rent vs Buy Calculator” published by UpShot. This is BY FAR one of the most comprehensive (yet easiest to use and understand) tools I’ve seen to compare the financial impact of renting versus buying a home.

For those of you considering a home purchase take an hour or two to work on this tool before you enter into the largest purchase of your life. Don’t waste your time with lousy affordability calculators on other popular websites.

Here are a few variables you will need to consider before buying a home (many of which I did not):

Initial Costs: For many cash-poor millennials this will be one of the most important variables to evaluate. This includes your downpayment and closing costs (aka cash at closing!). Don’t be afraid to ask your lender to explain their closing costs because they may seem confusing for a first-time homebuyer. You may be surprised to learn that you can get a mortgage with far less than 20% down, so a good lender is important to walk you through your options.

Recurring Costs: These fees can add up quickly. Condominium fees, maintenance fees, association fees, etc. Oh, and when the dishwasher breaks a month after you move in that expense is now coming from your pocket.

Tax implications: Buying a home can have significant impact on your taxes, so don’t forget to take that into consideration. (I got some money back from Uncle Sam, which I’ll be using to replace the fridge from the 1980’s).

Future plans: timeline, inflation, home price appreciation and other future plans may have a significant impact on your decision to buy vs rent.

So, as tempting as it might be to partake in the American dream of homeownership, take some time to evaluate your financial situation. You might be surprised, it could make more sense to stay with that evil landlord of yours for a bit longer!

 

Should 5-star reviews be a thing of the past?

Last night I rated the restaurant where I had dinner on Yelp, the Uber driver that provided me transportation home, and even my eye doctor who updated my glasses prescription with a glowing Google review. Everywhere I turn I am asked to provide feedback on the brands I interact with each day, and maybe it’s just my Millennial nature, but I never go anywhere or buy anything without first reading feedback from previous customers.

Admittedly, I gave the restaurant, the Uber driver, and the eye doctor all 5-star reviews because I was satisfied with the service I received, but now I am wondering if I could have been more helpful by providing them with a lower rating. Companies are often working hard to garner a 5-star online rating, but what if that badge of honor isn’t all that it’s cracked up to be? Could the golden mark be hurting your business?

A recent study out of Northwestern University found that, in moderation, negative reviews can actually boost trust and revenue for brands online. And contrary to what some businesses might think, products and services with ratings between 4.2 and 4.5 stars were more influential on positive consumer purchase decisions than those with the illustrious 5 stars.

So has the new generation of consumers lost their minds settling for sub-par brands? No, I would propose we are just seeing consumers’ need for authenticity and trust. Let’s be honest, as consumers we are each slightly cynical and realize nothing in this world is perfect (although I might make an argument for the Cole Haan shoes I recently purchased on Zappos). So when we can find any negative feedback online our natural reaction can be doubt and we think “What’s the catch?”.  

In an economy of online interactions and transactions (sometimes between complete strangers) consumers are demanding authenticity, so when brands have some mixed or negative (and hopefully constructive) feedback we feel more comfortable trusting them. We think, “Hey this company is willing to be vulnerable and transparent, and thus is likely more trustworthy”. Rachel Botsman’s TED Talk on the currency of trust is a great example of how our online economy has evolved to trust total strangers and brands in an increasingly-digital world.

So what, you might ask, should I provide sub-par service or a slightly-flawed product to get a few negative reviews? Absolutely not! Keep providing exceptional consumer experiences, but make sure your online reputation is authentic and in-line with reality. While it is important to have a healthy mix of positive and negative feedback online, don’t forget to emphasize some of the most meaningful top reviewers!

Let’s face it, nothing is perfect and not every transaction you work on will go 100% to plan. But don’t let that prevent you from asking for and sharing less-than-perfect feedback. Who knows, maybe a little criticism will yield a few more deals for you this year!

 

How to Win with Millennials for Their Mortgage

Millennials are the largest generation in America. Approximately 86M people were born between 1980 and 2000, meaning they outnumber the Baby Boomers. As the largest segment of homebuyers for three years running, Millennials are already a homebuying force to be reckoned with —

This new segment of homebuyers represents a  substantial opportunity for mortgage lenders. But it can’t be the same old way anymore. Lenders  will need to throw traditional processes out the door and get ready to adapt to the unique generational personality. Here are a few tips from the Millennial team at Maxwell:

  • Technology is great service. Does your website look like it’s from the 1990s? Does your mortgage process require endless forms with repetitive information? Do you require faxes or scans? Do you need wet signatures? Do you shun cloud storage, communication by text and elegant design? If you answered yes to any of these questions, you’re not ready to deliver top service to a Millennial.
  • Phone calls are a nuisance. Uncle George may appreciate getting updates by phone, but for most Millennials having to interact over the phone is actually a bother. Voicemails? Don’t even waste your time. When I can track my Uber car location through an app, my mortgage should be no different. Get used to this hierarchy of communication with Millennials:
    1. Text: Use sparingly. Action required reminders and quick response. Request for phone call (e.g. “Can you talk at 2PM?”). Big milestone updates. Expect 1-3 hour response time.
    2. Email: Long-form requests and education. Expect 3-5 day response time.
    3. Website or smartphone app: Self-service status updates, document exchange, task and document lists, main workflow tools. Expect 3-8 hour response time.
    4. Phone or Voicemail: Use for initial meet and greet and for pre-arranged conversations. Don’t expect a response to voicemails.
  • Answer the “why.” Most Millennials are first time homebuyers. Spend time up front explaining the mortgage process, rate structures and the documentation requirements. Simple definitions to commonly used terms will be helpful (e.g. What does it mean to buy a point? Why do I need title insurance?) Be prepared to answer questions patiently — Millennials will certainly have done online research before speaking with you and may have mis-set expectations. And finally, have technology tools they can use themselves to get to an answer.
  • Build an online presence. Unlike their parents, Millennials don’t trust referrals, they need additional peer validation of your expertise. This does not mean building a 5-star review profile online, it means opening yourself up to reviews by every customer, even the unhappy ones. A 4.5-star average with 75 reviews is more meaningful than a 5-star review with 25 reviews. If you’ve been in business for more than 5 years, you should have over 50 substantive reviews. If you came from an agent referral, expect that they’ll do their research before speaking to you
  • Be consistent, ethical and honest. Know what you stand for, be humble and open to learn. Millennials are looking for someone to trust and guide them through the most expensive purchase of their life — that means having good answers to common questions, taking time to explain something new, and also telling them your own story.

Millennials are changing the way businesses operate, but at the end of the day they want the same thing: great service, honest advice, and to make a home for themselves and their family. If you take the time to understand what makes them tick, you are already leaps ahead of the competition in winning them over.

Can I borrow from a friend to buy a house?

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A smart homebuyer recently used our Ask a Lender feature to ask an interesting question.

I’m buying a home with a friends cash (borrowed on a note) to remove the financing piece from our offer. How can I work with a lender in advance to secure refinancing after close? I’ll need to refinance the home to pay off my friend’s note. Can I do it without doing a cash-out refi? Another question would be, what is the best way to avoid doing 2 appraisals? One during the initial purchase, and one for the refi?

This got us thinking. If you are buying in a competitive market (e.g. Denver, SF, NYC) you have probably lost out on a home purchase to an all-cash offer. Sellers love cash offers because they don’t have to worry about the appraisal and a buyer qualifying for a mortgage. Cash buyers have a leg up and they can move fast.

If you are like most of us, you think, “who has $300,000 sitting around for a home?” Apparently, a lot of people do. According to CoreLogic, over 30% of all transactions are all cash. Three out of ten transactions is not insignificant, but does everyone really have the cash?

It turns out, there is a strategy for making a cash offer, even if you don’t have the cash. But, you do need to know someone with some spare change. Here’s how it would work for a $300,000 house, assuming you have enough cash on hand for the 20% down payment ($60,000).

  1. Reach an agreement with a friend to borrow $240,000. It’s important to formalize this in a legal document or a formal “note.”
  2. Purchase desired house for $300,000 (your $60,000 + borrowed $240,000). No mortgage involved!
  3. Find a mortgage lender and re-finance the property and pull out $400,000 of equity
  4. Pay off the loan from the friend
  5. Begin payments on your mortgage

There are lots to consider if you are going down this road. The amazing lenders Maxwell works with came through with fantastic responses. We’ve included them below (view on Maxwell). Do you have any questions you’d like answered by a loan officer? Feel free to ask a lender using Maxwell.

Lender 1

Hello, you can get pre-qualified for the cash-out refinance and yes, it would have to be a cash-out if you want to be able to pay your friend back. A cash purchase does not require an appraisal so you would only need one appraisal for the refinance. Hope that helps!

Lender 2

The note needs to be recorded by the title company at the time of closing and placed against the house. Then when the refinance comes into play you are just paying off the recorded note and therefore it would not be a cash out refinance. There is no way to get around the appraisal issue for the refinance, unless perhaps the file is opened without any income information and an appraisal ordered that way by the lender. Then the refinance completed within 90 days of the appraisal would probably work.

Lender 3

These are good questions. I would consider having a note filed for the funds being used to pay cash for the house as this could allow the refinance to be a rate and term refinance if done right, instead of a cashout refinance. It is possible to go ahead and have your credit, income, and assets approved up front so that after you buy the house you can move as quickly as possible on the refinance part of it. It is possible to go ahead and have an appraisal ordered through the lender, depending on what loan type you go with, that is good for 120 days. This could then be used to make sure you are getting a market value now for closing and be able to then be used for the refinance. Another option is your friend could pay cash for the home and you could then purchase it from your friend for cash. This may be an easier way to do it depending on what you are trying to accomplish. I would be happy to go over this with you in more detail.