Behind The Scenes S1E05 - How To Level Up Your Home: Financing Your Move

In this video, we're going to take a deep dive into the mortgage and home financing part of leveling up your home. Aaron Janus, Seattle Realtor, discusses this topic with Senior Loan Advisor Dietrich Miklautsch of Guild Mortgage (NMLS #95395). 

Dietrich Miklautsch is a Senior Loan Advisor at Guild Mortgage. If you are curious about learning more about your mortgage options for leveling up your home, please contact Dietrich at [email protected]

Below is a rough transcript of the video, which consists of a conversation between Seattle Realtor Aaron Janus and Seattle mortgage expert Dietrich Miklautsch.

Video Transcript

Aaron Janus, Seattle Realtor: 

Have the past couple of months got you thinking that you may need a little bit more room? Or an underground bunker to hide from your children when you're supposed to be homeschooling them? Or a hair salon? I guess you need a in-house stylist for that. Anyhow, sorry I was daydreaming there. But what about your house goals?
Do they involve leveling up getting a larger home? Well, if so on this episode of behind the scenes, we're going to be talking to one of our favorite lenders about that process of moving from this home to the next home and what that looks like from a financial and mortgage standpoint. So enjoy.

Dietrich, thanks for joining us today on our Behind The Scenes. I appreciate it.

Dietrich Miklautsch, Senior Loan Advisor: 
Absolutely.

Aaron:
So, Dietrich Miklautsch is with Guild Mortgage and man we've been working together for over 13 years now huh?

Dietrich:
Yeah it has. It's been a long time.

Aaron:
So you've been with Guild for a couple years, but how long have you been in the business?

Dietrich:
18 years.

Aaron:
Wow, okay.

Dietrich:
Yeah, I've helped a little over 1,100 families over that time.

Aaron:
That's fantastic. So, I mean over the course of us working together we've worked with. Lots of different lots of different clients across the whole array but today I wanted to chat with you about those move-up buyers.

Folks that are not first-time buyers, they are already in a home, and they are looking to get into a bigger home or a different one. I thought we would key in on those and special circumstances around those clients.
Dietrich: Yeah, absolutely there's a few different things that we like to do in regards to move up buyers.
I think one of the big keys is to make sure that we do appropriate planning ahead whether they're looking to buy the next year or sooner then definitely it's not never too early to have a conversation on the financing side to prepare just like they would prepare from a listing or selling side. The earlier the financing side is, the more we have options, the more we can plan and help them with what's available in the market and how to put them in be the safest and strongest position when it comes time to move up.

Aaron:
Okay, so Dietrich, when these move-up buyers are thinking about these plans. What would you say they should start thinking about and planning as they look ahead to a move up type of situation?

Dietrich:
Absolutely. Well, there's a few things that we always want to look at and it's a it comes down to cash flow and liquidity and having a plan for each of those pieces.
And in our market as you know, in most areas, it can be very competitive. So we want to have maybe a plan. A and a plan B based on what they might run into so they can be fully prepared whether they need to sell first or maybe look at going into a property.
Not on contingent without selling first may be for multiple reasons one to make their offers stronger but to because they don't want to move first then they want to make sure that they find the house and move into it and then set their house up for sale, you know with moving out and getting it staged and that way they can have that flexibility and control so in the financing piece of it.
I'll review ways that we can achieve that through the loan packages that are available and from a budget. Cherry standpoint how we can prepare for that whether it's utilizing some equity in the home to allow them to purchase the new home or it's just from cash from other avenues if we're trying to do something that's a non-contingent.

Aaron:
Okay great and maybe we can dig a little bit more into that question for you. As you know, we do property management as well and there have been lots of clients that we've helped purchase a new home and then they hang on to their home as a rental so what does that look like?

Dietrich:
I mean, when you have that conversation with them and you're looking at their finances and you're trying to decide whether that's an option or something that they would like to do, how do you approach it, let's say if they decide to keep the home as a rental, instead of selling. So if they, if they want to have a potential, do keep the home as a rental and we're in the initial planning stages and we're still a ways out, you know, well they're still deciding how they want to handle it they can, you know, look at opening up a lot of credit on their current home so that they have access to some of that equity if they do potentially need to tap that for a down payment then they can they can access that without having to use other cash positions stocks or other funds in order to put the down payment on the new home in essential.
Using a current home as a bridge to get into the next home and then we would look at how that loan is structured and make sure it's structured efficiently for from a rental standpoint look at the cash flow and then that in turn helps set the stage for the new home to make sure that big picture fits their overall position and keeping into account how much of a monthly payment that they'll be able to to handle and then what we should have on hand for reserves for both that existing property and the new properties and so it actually from a qualification standpoint when moving out and retaining as a rental there's ways to factor in payments to offset those mortgages, so there's definitely some ways to do it in a. Plan phase approach and in a safe approach if bridging is done.

Aaron:
So to that point what you know how far out particularly if somebody's looking to go the rental route how far out would they want to start that? Because I'm guessing if you are going to get a line of credit off the off the rental you probably want to do start that process early on like how much lead time would you?

Dietrich:
Yeah, I'd say, you know sooner the better but at least three months prior to looking at doing anything so you know anywhere from three months to a year as far as planning goes to make sure. There's an example time to look at the big picture and evaluate what is best for their specific situation.

Aaron:
Okay, so Dietrich, let's say the client is not able to or has no interest in renting their home. So, they're gonna sell their home buy the new home. Obviously, there's contingent versus non-contingent. If they have to be contingent and there's no way around that then so be it there's not really much from your standpoint that we can do on the financing side. But if they can go non-contingent, what sort of, talk to us about some creative strategies for being able to go non-contingent.

Dietrich:
Yeah, absolutely Aaron so there's usually two reasons that prevent somebody from going non-contingent. Usually, it's a cash flow problem or as they don't have the ability to qualify for both property payments for a liquidity issues where they don't have the funds or it's just not you know place where they want to access it for tax purposes or so forth.
So those are two of the most common things that I see. So options for both of those. One if they've done their planning they have that home equity line of credit open on their home as a rainy day fund, then they can access that for a down payment so that would allow them to use that equity if for a down payment on the new house without having to sell to access that equity and then also and so they don't have to access that from another account. Or if they don't have it funds in another spot as well So that would that would handle the down payment piece of it. And then once they sell they could re-amortize their loan and drop their payment if they have additional equity that they would clear from their sale in order to reduce their monthly payment obligation.
That's a lot of question I get said, hey, yeah Dietrich, we could qualify but I'm uncomfortable with what that payment is because we still have a lot of equity remaining in the house that we want to put ports new house. So say that's no problem. We'll qualify you on the new payment and then once you sell we'll take that additional equity and we can apply it directly to that loan and re-amortize the loan without needing to refinance. If the market does allow a refinance to make sense and we can do that but it's not required. So that's definitely a great option that I've seen a lot of people do that over the years.
The second part of that is qualification. So if somebody has the money but they can't qualify using both mortgage payments the new house and the existing house. Then there are some special products that do allow the mortgage from their departing residence taken out of the ratio. So there are some creative ways to do that may be a premium in terms of that loan product and pricing but it if it allows and get the house and allows the flexibility it's it ends up not costing that much more than a normal loan and then again they get that loan.
They can definitely restructure that loan or the later date as well. So those are a couple of ways that we've seen clients successfully do non-contingent and they haven't worked out the very well.

Aaron:
Let me ask you about this, so we get questions about this. Bridge loans. These aren't really a thing anymore, are they? Some people are offering them, but to talk to us a little bit about them.

Dietrich:
A bridge loan is, as you know, it's essentially a loan to tap the equity in your current home. And there is there may be a few that are out there, but they're harder to qualify for you still have to qualify for the bridge loan payment with the current house payment and the new house payment so it's even harder to qualify them what I mentioned with the line of credit that. I talked about before that's the easiest way to do it and most cost-effective. That's another piece of bridge loans - there will be thousands of dollars in cost and higher rates and the line of credit is usually no fee or little fee to get set up and. A reasonable interest expense and it's only when you take out the money. So there's bridge loans well, you know some that turn might be well-known it, there's different ways to bridge so to speak the gap and the in the scenario it doesn't always have to be a coral court bridge loan. It could be a bridge strategy, so to speak.

Aaron:
Got it.Okay, perfect. So Dietrich, we want these move up buyers to be is prepared as they can. We hear terms floated out there, pre-approval pre-qualification, underwritten. Can you just walk us through maybe what that actually means and how these mobile buyers can put their best foot forward and be the most competitive?

Dietrich:
Yeah, absolutely Aaron so there's three pieces that we probably see from a financing standpoint and some have different layers of. Validation and strength when it comes to someone accepting their offer. So the pre-qualification is just a snapshot of a verbal snapshot of their based loan application information over the phone and you know, something like that the letter issues that without any documentation that they verify that really holds no way as you know from an offer standpoint because until that documentation is verified a pre-qualification, somebody could say or whatever they wanted on the phone as far as what their financials are but when they get the information and what they can document it could be totally different. So we see that as being a dangerous situation to be in and definitely one to avoid the minimum that the bits out there is the pre-approval stage. So that would be an application either verbal or online with the lender and then a documentation list with a major income and asset credit documents that the lender or institution needs in order to validate verify the application information and what can be calculated and use to qualify for a loan. So at a minimum that would be definitely recommended as far as what's needed to make an offer. And that's probably as you see, you know, nine out of ten offers may have pre-approval one out of ten offers has the full underwritten approval letter and that's the highest and best way to go when your financing versus cash. So the underwritten approval letter is everything that's done with the pre-approval except the lender takes that loan package and application and actually submits it to processing in the underwriting team. They will then do their full checklist just of like they had a property under contract and will underwrite and improve their loan based on those documents and their credit profile. So when you have that underwritten approval and they can fill those conditions on that approval the loan is ready to go and basically have to attach the property called fiber property and then finalize things. So that as you know, what you see is by far the strongest way and it gives the most leverage in our markets, you know with a listing you know I've seen, as you know, when you go the listing agents, you have an underwritten approval right you're gonna beat out a pre-approval if the offers are even right?

Aaron:
It also helps with with with closing time too right because once you've got a client that is completely underwritten, what are you saving there?

Dietrich:
Yeah, I mean yeah, you know you can and we're you know in a normal transaction, you know with it just a great approval status, you can still close and 25-30 days. When you have an underwritten buyer, it can be done in 15 to 25 days. So it's it really can compress the timeline and you know, you're up against cash offer. It can close in 15 to 20 days then you'll be right in there with them. If, Pride is there so they're really helps put a put that financing package the top of the list and can help you remove some barriers to if you're comfortable with it or if you're up against somebody that is removing those contingencies.

Aaron:
Outstanding. Great stuff, Dietrich. So as we wrap things up, I mean, maybe when we talk about some pitfalls, like what things do you see out there when people aren't going through this the proper process here.

Dietrich:
Yeah, I mean, you know, Aaron you know, unfortunately, seen by, A few ugly situations when people don't plan but some of the biggest things is that you know, it ends up they don't get the house they want. You know if something comes up and it happens near literally happens to me almost every week. Every week. Somebody comes and calls me and needs to get pre-approved quickly a house came on the market in a neighborhood that they didn't expect to happen and we have to scramble. I get them prepared and they can make the offer but they're behind the eight ball because of the factors and the planning that we haven't hit been able to do. And so it might limit their options and their odds of getting that house go way down. So that's the biggest piece that I see is that there's just it's amazing how many situations that we come across that can be prevented or just help people get the house that they really want because they were prepared to act on it and be in a strong position. They might you know and save a lot of stress in their process, you know can make it an enjoyable experience and if one that they can spend time on getting you know, deciding what they want to do to the house and not worry about the how they're going to get the house so that's a big piece of it is what I see so one of the major involves if we're planning is not done in advance.

Aaron:
So I think what I heard you say is proper preparation to make getting a mortgage an enjoyable process?

Dietrich:
Yeah.

Aaron:
You heard it here first, folks.

Dietrich:
It can be an enjoyable process.

Aaron:
Well I know the clients that I refer to you would probably call it an enjoyable process. So, thank you.
All right well as we wrap up any anything else that people should be aware of or be thinking about is they think about moving up?

Dietrich:
Yeah I mean I would just say again to summarize as far as you know, planning a few months to a year in advance getting working with the loan officer not just an institution but actual loan officer that they know and trust that in can be with them every step of the way and one that can buy them on all the options that are out there and available for their specific situation some companies can do things better than others some will have limitations some have more flexibility, so it's just important to have that big picture and work with somebody that is able to be more of an advisor and then I think just sets up for that move up to be to be smooth and successful and you know, when that right house comes along.
Aaron:
Outstanding. Well, Dietrich thank you so much.I really appreciate your time and sharing your wealth of knowledge with us here it's been great.

Thank you so much for joining us for this episode of Behind The Scenes, we hope that you enjoyed it got some value out of it as always we'd love to hear your feedback.
So drop us a line and please subscribe to our YouTube channel and follow us on all the social medias we'd love to be connected with you so thank you so much we'll see you next time. Take care.

House Goals Realized. JanusGroup at RE/MAX Integrity.
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