Top 10 Things TO DO During a Loan Transaction

Caeli Ridge recorded this episode on 6/27/2023

Caeli details Ridge Lending Group's list of the Top 10 Things TO DO during a loan transaction. Some of this list may resonate easily with you, while with others you may have never thought of their importance. Tune in to hear Caeli's insight and expertise on the list.

A spirited Q & A from our members during the live event following the list !

Check out the list on our website here !
https://ridgelendinggroup.com/top-10-things-to-do-during-a-loan-transaction/

Check out the video with the screen share and the documentation in the Community.

You can join these live each week by following this link to join the call:
https://community.ridgelendinggroup.com/events/live-with-caeli-each-tuesday-beginning-at-430-pm-et/list

As always, give Ridge Lending Group a call if you have any questions at
855-747-4343 or email us at info@RidgeLendingGroup.com

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Karlie Libby: Hello, everyone! Welcome to calling all real estate investors. We are here every Tuesday at 1 30 Pm. Pacific time. for 30 Pm. Eastern time for a live event with Caeli Ridge from Ridge lending group

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Karlie Libby: during today's call. Please utilize our chat feature. If you have any questions throughout the call. you can just pop those in there at any time, and then we will get to them once we are able to.

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Karlie Libby: And let's see just a reminder. We do love your participation. So please chime in throughout. as participation is very important during these calls.

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Karlie Libby: And today Caeli will be going through the list of the top 10 things to do during a loan transaction which is the reverse of last week's If any of you caught that, or we're here. Last week we went over what? Not to do during a loan transaction. So this will be really helpful information that Caeli will break down and elaborate more on.

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Karlie Libby: And at the end of this call an email will be going out to everyone with that list. So you can have it handy for your next loan transaction. Or if you didn't catch everything today, also have that available on our website Ridge lending group.com.

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CAELI RIDGE: all right. Thank you all so much, and hand it on over to Caeli. Hey, Carly, thank you, my dear. Hi, everybody thanks for joining me today.

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CAELI RIDGE: okay, like, she said. We're gonna go over the top 10 things that we want you to remember that we want you to do. I'll get into those in just a second. I had a couple of questions for you guys. I had Carly, make a couple of polls

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CAELI RIDGE: for me for us just to kind of get an idea if you're watching this post, the live and as a pre recorded or an already recorded after the fact. if you want to email to info at Ridge learning group.com and answer these questions for me, it might be helpful for me on an ongoing basis. First one. Carly, if you could pull up the

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CAELI RIDGE: the bigger pockets. One I want to know everybody that's here with us today who knows about bigger pockets. Who knows what bigger pockets is? And are you actively utilizing its content?

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CAELI RIDGE: So any of those, let's see. Heard of it

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CAELI RIDGE: merely. Yeah, any one of those is fine guys. If if you guys can just answer that for me, just curious to know how many of you follow that and and are are aware of the tools that their pockets provides real estate investors.

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CAELI RIDGE: We have 7. Okay for those of you that have never heard of it, I will just let you know. Bigger pockets is a very useful resource and tool all about real estate, investing every fast. You can imagine the reason that I'm asking is, I've been asked to be participate in a panel, a lending panel that we're going to be recording on this week. so I was just curious of those of us that are here today. How many of you

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CAELI RIDGE: know about it? And and look at it and watch it. So

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CAELI RIDGE: thank you for that. Carly, will you put up the second poll? Here's the next one, you guys for you before we get started on on today's topic. I am curious, because.

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CAELI RIDGE: you know. we sometimes we have bigger participation. more attendees. Sometimes we have more collaboration during these things. But I'm curious from your perspective.

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CAELI RIDGE: Do you like the live

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CAELI RIDGE: kind of feel of it, or is it? Is it something that you would prefer to not have to be, you know, stricken with 1, 30. Pacific. 4, 30. Wherever you are in the in the country of the world. Would you rather just kind of take it on your own time. So if you can tell us who really likes the live version of this versus, you know, I'll just do some pre recorded stuff, and you guys will have access to it at your discretion when you want how you want etc.

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CAELI RIDGE: okay, it looks like we got some live. Okay, if you guys like it live. I love it. I don't mind doing it at all. I just want to make sure that it is valuable to you, and and if this is what you want, then we'll keep doing it, even if just a few of us, I mean, it's it's good for me to stay on topic, too, with what might be going on. in the industry that

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CAELI RIDGE: you know might be relevant in real time that that I can share. Okay, thank you, Miss Carly. That was great. Thank you. Guys. Okay, if you can put on the screen, Carly, the the top 10 things. I'm just gonna roll through those as always. Please let me know if you have questions. Carly is going to be monitoring, and she will bring them to my attention.

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CAELI RIDGE: And I think we're doing that poll thing partly wrong where we they don't. I don't think they can see the results. I think we have to share them.

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CAELI RIDGE: Oh, yes. Okay, sorry about that. Do you guys see this? Now?

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CAELI RIDGE: Okay, green means go. These are the things that we want you guys to to remember and know. I think I said this last week some of this might be obvious, but I'll go into a little bit more detail other things maybe you didn't think of. So I think it's useful.

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CAELI RIDGE: okay, so number one, do share your investment goals with your loan team. Obviously, I think most of you on on with with us today know that Ridge is not transactional.

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CAELI RIDGE: it's not like you're going to show up at at B of A or chase or something, and say, Hey, I need a loan for an investment property. where they're just gonna say, okay, give me these documents and and we'll close it.

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CAELI RIDGE: They don't really care what your investment goals are. And even if they did, they probably wouldn't know what to do with them. So big part of what we do. I think, and a value add for you is really understanding what it is. You guys are trying to accomplish right today and next week, and and for the long term, so that we can help prepare you

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CAELI RIDGE: as things change not only in your qualifications, and what I'm always harping about understanding how those change. And how do you optimize Dti and things? but also

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CAELI RIDGE: as products and availability of new loans or the removal of existing loans, or how that that moving target can change. And it does change Over the 25 years I've been doing this, I can tell you that the lending platform that we're we're occupying now is very, very different than it was in 2,010 or 2,007, very, very different. So

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CAELI RIDGE: it's important that we understand what it is you're trying to get out of this today and and all the way into retirement and beyond, so that we can appropriately guide you and and make sure that you've got real time, information, and that education necessary to keeping qualifications met, etc., etc. It's a slippery slope, and if we don't understand that piece, we can't give you the the tools necessary to to make it as simple.

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CAELI RIDGE: as simple as that can be. as possible.

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CAELI RIDGE: okay.

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CAELI RIDGE: this one is a good one. It's one of my favorite ones. Number 2. Do remember that interest rates are fluid. What do I mean by that?

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CAELI RIDGE: it's a it's a common mistake or misnomer, and no matter how much we try to articulate in writing via the disclosures or initial emails, etc. When you guys come to us and it's it's pretty common. Everybody wants to know. Hey, what's the rate?

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CAELI RIDGE: Okay, I'm not going to harp on. Why, I don't think that that should be the question. But if that is something that you're interested in, and you get an initial quote, whether it be in an actual fee sheet or a loan estimate, or just in an email, people will assume that just that delivery of information that somehow an interest rate was locked.

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CAELI RIDGE: That is not the case. So you want to make sure that you're doing your part in your your due diligence throughout the transaction. There's a couple of other bullet points in here that I'm going to make that point again. But rates can change, and until you have been notified.

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CAELI RIDGE: hey, Jim, hey, Lisa, your rate is locked. It is not locked. You will get not only notification from your your loan officer. Don't! Dedicated loan specialist. You're gonna get disclosures that very specifically specify your interest rate is locked at this interest rate for this long, and whatever the costs associated with that

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CAELI RIDGE: and rates change every day. You guys, they change sometimes multiple times in a day. so the second piece to this is that if if you got a quote 30 days ago or 3 h ago and that's that. That's what your expectation is based off of one. Remember, it's not locked until we've said that it's locked.

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CAELI RIDGE: and 2, you need to get some updated feedback. If it's been a week or or whatever. You probably want to get back with me and or your dedicated loan specialists to say, Hey, What are rates today? Have they changed from where I was last week, or whatever it may have been, chances are good that they have, even if only slightly. Maybe it's material. I don't know

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CAELI RIDGE: but it can make a huge impact to what your expected Roi was was going to be. So

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CAELI RIDGE: please continue to have that conversation and make sure that you've got real time quotes on rates the other piece of this real quickly. Now that I'm talking about it.

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CAELI RIDGE: you know, it's not uncommon that an investor wants to do a comparison. And I actually, I think it's a good idea. I recommend. looking at what is out there on the open market versus what? Maybe we're quoting

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CAELI RIDGE: perfectly fine like, I said. Even encourage our clients to do that.

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CAELI RIDGE: but very, very important that we're comparing apples to apples. So not only the day in which the rate was quoted. So if you're using a quote from a competitor that was given yesterday, or we could go a month ago. And what we're giving today that is not apples to apples. And it's not a fair comparison. The other thing, too, as we're talking about this, not just about rates. The characteristics of the quote from let's say us or competitor have to be identical.

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CAELI RIDGE: If the quote that you're getting from ABC. Mortgage Company is for a 75% loan to value, and ours is for an 80% loan to value completely different things, and they are not valid comparisons. So in addition to rates being fluid, and you want to make sure that you're getting real time updates is as that's important and necessary. That would be the other thing. If you're comparing, make sure that it's identical in terms of the transaction characteristics.

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CAELI RIDGE: So the credit score assumption the loan to value the loan size, the property type. All of that stuff has to be the same in order for it to be an appropriate comparison.

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CAELI RIDGE: do. Okay, I like this one a lot to do. Please respect your loan team's time and and what I mean by that. And I don't want it to be off putting, because I know all of you respect our time, and what it is that we do for our clients. But a lot of times. there can be circumstances where

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CAELI RIDGE: there's a lot of people involved in a loan transaction. It's not just us or you, but it's us and you and an agent, and a turnkey, and an insurance agent and an escrow officer. Right? There's a lot of different hands in in this transaction.

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CAELI RIDGE: And very often we, as the lender kind of are the ones

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CAELI RIDGE: not left holding the bag. But everybody is kind of when there is leverage being used on a transaction. Everybody's kind of looking at the lender for answers throughout the the the loan process perfectly fine. But keep in mind that

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CAELI RIDGE: there's lots going on in the background, and there's lots and lots of transactions that we're working on to get close in the appropriate, expeditious timeframe timeframe that we have been designated to do so. So if we are getting emails and calls from you and the agent and the escrow company constantly, daily, even sometimes for updates. All that's going to do is slow us down

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CAELI RIDGE: right? It's gonna keep us from hitting the benchmarks and the turn times that are expected of us. So one of the things that I like to set an expectation on and recommend is

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CAELI RIDGE: and it starts kind of grassroots organically. If we're telling you guys, hey.

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CAELI RIDGE: who do you want to be that point of contact that is going to get the update weekly, or as as it is important to or things change and important to update you on, is it you? And then you're going to disperse the information to all the other third parties. Do we want it to be your agent or the Sellers agent. There really should be one person on the outside of lending that is responsible to get those updates and then

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CAELI RIDGE: disperse it to the rest of of the the third parties. because it does really become pretty cumbersome when we are having to stop and answer emails

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CAELI RIDGE: from 3 or 4 different people about the same transaction. It is not effective at all, and in fact, it can make for some cranky processors and underwriters in the big picture. So

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CAELI RIDGE: that was what I meant by please respect your long teams, time and communication on who and when and how we want to disperse real time updates would be would be useful. So having that conversation up front setting those expectations.

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CAELI RIDGE: number 4 be upfront about information that could affect your loan. So I want you guys to think of us as your attorney, right

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CAELI RIDGE: client. attorney privilege.

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CAELI RIDGE: We need to know everything, absolutely everything that may be coming up. That may not be coming up so, because we understand how to navigate the battleship in a creek. Some of you have heard me use that that silly term, but it creates a picture in your mind right if you think about a battleship, and you have to navigate and turn that battleship around to go the other direction. that's how the loan process can be sometimes. And if

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CAELI RIDGE: there are things that might be pending in your world that you may not think are super relevant when, if it comes up after the fact, and we find out via the the the

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CAELI RIDGE: processes that we are are obligated to. It could really create a lot of damage for you and us and all the other players in the transaction. So things like,

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CAELI RIDGE: maybe you're you're changing jobs right? And in your mind you're making the same, maybe even a little bit more money than you were before.

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CAELI RIDGE: So why would it matter? It absolutely matters, because there's something called a verification of employment, and almost always there is a last minute via we verbal voe that's done prior to closing the transaction. So if the processor calls up your Hr. Department, or your old employer that we had when you applied for the loan, and says, just checking employment on. Mrs. Smith, they said, well, she doesn't work here anymore.

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CAELI RIDGE: That's an obvious problem, right? So that might have not have been obvious to you when in the process of getting the loan closed. Very, very important to us. So things like that. What would be another good example of things that we've seen or that might come up.

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CAELI RIDGE: you transferred, let's say

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CAELI RIDGE: the bank account that you use to show initially to get pre-qualified. That shows your down payment, or your reserves, or whatever is in your B of a account. Okay. But let's say that you decided that you've got this other opportunity. In the meantime, let's maybe it was a new construction loan, and you you found there was another account that you could transfer 50,000 in and get some modest return. In the meantime right earn a little bit. In the meantime.

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CAELI RIDGE: that is fantastic, but we were not made aware, so at closing. This is the account statement that we're using to show your source and season funds.

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CAELI RIDGE: But those money's moved. now we have to stop what we're doing. Maybe even redraw docs, because we have to show the paper trail, etc. for the other account. Right? We need to have all that information. So

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CAELI RIDGE: what might might not be obvious to you. is an important part of loan process that you just need to be prepared for. So when you think about things like income or deaths or assets or credits. Right? Those kind of that, that trifecta, the 3 most heavily weighted criteria to qualify even those. There's lots of other things going on. Those are the top 3. If you think about it, from those perspectives.

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CAELI RIDGE: income liabilities, credit and assets anything that might be changing within the loan transaction from start to beginning or from beginning to end.

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CAELI RIDGE: let us know. Let us know what those might be, and then we can prepare appropriately, so that there's no delays or any unnecessary brain damage.

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Karlie Libby: Before we move on to the next one. Shelie, we do actually have a question from Martha here. Thank you, Martha, for your question? She asked. What is the preferred method of communication that will allow for quick, quicker responses for all parties do we prefer phone calls? You prefer email communication. What's best for bridge? that is an excellent, excellent question, Martha. Thank you. And I think the answer is, what's going to be if you're going to be the person

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CAELI RIDGE: I think it depends on on the person that wants the information. It's really so let's just say it's you getting the information. We want to know what your preferences, and we always try to ask that upfront. So, as the client and that might be different. For what title? And as for want, more often than not, most people want email. Okay, that's fine. But if you like, text, or, if you like, calling right, you want that one on one that's what we're going to try and do, and how we're going to communicate with you so be sure to to mention that to your your loan specialist.

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CAELI RIDGE: but I I think the answer is going to depend on who is getting the information. And how do they want that information delivered? So communication is is always key guys. yeah. So if you like, text or email, just let us know or call I like a phone call, and and more times than than not I find that a quick phone call can save days.

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CAELI RIDGE: constantly beating the drums with my team on that, if you sent an email, and it doesn't matter to who whether it was you, or title or escrow or insurance, or whoever it is, and you haven't gotten a call back in 24 h. Pick up the phone. I'll bet you that you'll you'll have what you need within a few minutes of of doing. So I'm a big fan of the phone.

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CAELI RIDGE: okay, so do ask questions. Number 5. I I'm on number 5. Right? Yeah, do do ask questions. There is no dumb question, you guys, this is a a new language, especially for newer investors, and not even just for newer investors, even for really seasoned investors, because things can change so rapidly in the loan side. it's always important to be informing yourself and educating yourself.

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CAELI RIDGE: so please don't. Don't feel

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CAELI RIDGE: hesitant, or that you're bugging us, that there's no dumb question you need to be asking questions. always asking questions. And that's what we're here for is to help guide and answer those questions for you. So please don't be afraid to ask questions.

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CAELI RIDGE: okay, number 6, you guys know, I love this one. This is one of my favorites, and I think it's it's probably up there, maybe in the top

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CAELI RIDGE: top 3 of of value ads that ridge lending provides for its clients. We want to see the draft version of your taxes before you file it. If

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CAELI RIDGE: qualifying in that calendar year is important to you. If it's not. then that's okay, then we don't need to see the draft. But if qualifying that year is important to you, and if qualifying, using

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CAELI RIDGE: full income and not some debt service coverage ratio product which we have as well.

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CAELI RIDGE: then I want to see those draft tax returns. What am I going to do with that information? We want to have an advanced look at it so that one of a few things. One. We're going to see if there are any UN unintended omissions. And this happens all the time. So let's say that you give me your draft tax return, and you've got 6 properties on there, and 2 of them don't have insurance listed as an expense. But you paid insurance on your rental property. Right?

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CAELI RIDGE: So, and by draft tax returns, I'm focusing sorry, guys, I'm focusing on the schedule E of the draft tax return. If you're self employed. That would be important as well, even if you don't have rental properties, because self-employed is interpreted a little bit different than say, a straight W. 2. So that would also apply. But for for this conversation I'm kind of talking about that draft tax return when we're focused on the schedule E, where the rental properties will live.

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CAELI RIDGE: because, while we all know that tax benefits the deductions that we get to claim, and then in turn pay less in taxes are a huge part of real estate investing.

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CAELI RIDGE: it's, I think, obvious. Maybe not. The more aggressive you are in those deductions, the more it can impact your qualifying over here in the debt to income ratio space. So we want that draft for a few reasons. Let me go back to my original, thought one. If there's any unintended omission

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CAELI RIDGE: insurance was the example I started to use. So you've got 6 properties and 2 of them, because I can look at those schedules like nobody's business right? I've been looking at these dang things for for 20 plus years, so I can scan through there real quick, and I see that there is a blank in the insurance column for 2 of the 6 properties.

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CAELI RIDGE: I'm gonna write that down as one of my primary questions. Why was that not listed? Because I know you paid insurance. It's almost impossible to assume that you didn't pay insurance, and the omission of that, if it were filed before we got to see the draft would ultimately hurt you.

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CAELI RIDGE: I'm going to explain why it doesn't necessarily have to make sense. I think it's more of a visual thing. But

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CAELI RIDGE: the insurance and the interest and the taxes some of those hard costs associated with your piti are add backs and their add backs into the total expenses. Because we're gonna take it back out in the monthly piti that we hit you for in the scheduling calculation again. Like I said, you don't have to remember that, and it probably didn't make sense anyway. But that's okay.

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CAELI RIDGE: My point is is getting a look at that draft in advance really gives us the opportunity to coach you to give you the the information that that maybe wasn't intended. Oh, you missed this, or or Hey, you mark, this is 12 months in service, right? So we're gonna divide whatever income you claimed by 12 months. But maybe it was only in service for 2 months, and if there were $10,000 listed as income, and I divide that by 12 months, because you listed as it was in service for 3 to 65 days.

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CAELI RIDGE: 10,000, divided by 12 is a much smaller number than if in reality it was in service for 2 months, and it's a short term rental or something. Right. If I divide $10,000 by 2 months, I have $5,000 a month of income.

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CAELI RIDGE: Right? So those are some of the things that we're going to be looking for on that draft tax return, and and a lot more. really, to to get a handle on

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CAELI RIDGE: the the need for draft tax return. We should be doing that one on one annually where we share screen. Just like this. We pull up the draft, and I'll go through the return with you while you watch me take the information that we need from it, put it onto a a pre formulated worksheet rental income worksheet. So you can see the pluses and minus for yourself.

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CAELI RIDGE: I can't tell you how many times I have gotten a file tax return that had they known or been given just a little bit of pre coaching or advice, or feedback

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CAELI RIDGE: it would have been the difference between qualifying and not qualifying. So it's a pretty big deal. Number 6. try to remember that one if you can, and it is applicable. If you want to qualify that year, and if you're trying to go for the golden ticket, the conventional loan, or some other kind of full income documentation loan, if you know you're going debt service ratio, and we've talked about in the past, and there's just no question that's that's the right you're going then I guess we don't need to see the draft, but I I may caution you by saying,

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CAELI RIDGE: don't make that assumption. I wouldn't. I would want to see what the draft might allow us to do. You could be surprised because there's lots of add backs.

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CAELI RIDGE: depreciation, etc. Okay, I'll move on

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CAELI RIDGE: any questions you want me to stop for Carly.

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Karlie Libby: No questions. Yeah. But please everyone utilize that chat. Get in there. Get your question. So number 7. do sign your disclosures right away whenever you get them, especially the initial disclosures, the initial disclosures, if they're held. Or maybe you're just not aware of how the importance of them. It really stops the file from progressing through. For example, there's a disclosure within that package of of

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CAELI RIDGE: initial loan disclosures that you're going to sign. It's called an intent to proceed, and without that being E signed, we are not able to order an appraisal, for example.

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CAELI RIDGE: so very, very important that you you move quickly on those disclosures that go out because they are time-sensitive, some of them can expire, and we have to redraw them. There could be several factors there. So when you get them, try to get to those right away. If you have any technical difficulties, let us know it's usually an easy fix. it could be the browser that you're using a lot of times. Chrome is the best one. Just Fyi when you're you're getting in there to sign your loan disclosures, whatever it may be.

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CAELI RIDGE: But yeah, that's a that's a big one.

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CAELI RIDGE: okay, number 8.

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CAELI RIDGE: Okay, so this was, I think it was Martha that asked that question earlier. So do save your dedicated loan specialist direct phone number. We'll call or text anytime. So if you guys save that to your phone. You've got instant access quickfire stuff. text. I I find the text is a pretty easy way to communicate with most of our clients. I mean, how many of you leave anywhere without your phone?

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CAELI RIDGE: Leave the house, leave your car, leave work, I mean, how often are you walking around in the world without your phone, either in your hand, in your pocket, in your purse.

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CAELI RIDGE: ever. And if you find yourself in a place where your phone is not with you. What happens? Panic sets in right. So I know that everybody has their phone all the time. And it's an easy way yeah, me, too. Me, too, Michael. so text is a a very common, easy way, convenient way for us to communicate. If it's good for you.

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CAELI RIDGE: tick us in your phone and and you can get us well.

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CAELI RIDGE: not 24, 7, but but dang, they're close. okay.

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CAELI RIDGE: Number 9. Do alert us of large purchases or new debt, so we can confirm. Dti. So this is an obvious one. to me. But it happens so often. I wanted to throw this on there.

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CAELI RIDGE: Maybe, you know, we're we're almost to the end of the the closing. We're gonna we're closing in 3 days time, right? Loan documents have been drawn. The appointment has been set. You're gonna meet with the notary. Everything's ready to rock

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CAELI RIDGE: But we're gonna do our last minute. It's called the drive report. It's a a a national database that will allow us to see if there's been any inquiries for for credit, meaning your credit was pulled for blah blah blah! If we see any of that, we're going to question it. And if it resulted in new debt that

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CAELI RIDGE: in turn resulted in a new payment. What happens to a debt to income ratio? If it's in your personal name.

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CAELI RIDGE: it's gonna change right? If and even if it if it didn't, let's say that your car and I I feel like I covered this last weekend. I don't. So this is kind of a do and a don't all in one I think last week it said, do not

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CAELI RIDGE: engage in any large purchases or new debt that will alter your debt to income ratio. So number 9, the flip to that is, do tell us, please. if that's gonna happen, let's say you you're on a lease for your car.

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CAELI RIDGE: and it may not have occurred to you that you've got to turn it in. And you're gonna get a new lease that's gonna come up on our radar. So just you know, communication communication communication. Let us know if anything is pending or anything's happened, or we think it's gonna happen. Your co-signing for one of your kids, or a family member or friend, or something. anything like that will be important to give us a heads up on so that we can prepare for it, and make sure that that you weren't left at the signing table with a oops. We can't fund now, because Dti doesn't support.

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CAELI RIDGE: you know, debt and income. Okay.

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Karlie Libby: you have one question. cohen chile, I from Joseph Burnett. Thanks, Joseph. he says, speaking of Dscr, are there pre is there? Prepayment, penalty? And how much would that be?

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CAELI RIDGE: Oh, good one, Joseph. yes, on almost all. Non. Qm. Commercial and debt service coverage ratio loans. You should expect a prepayment penalty. Now, before I give you the actual formula, let me just preface by saying you'd have the option to buy out the prepay. It's going to be extremely expensive.

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CAELI RIDGE: Okay, so just be prepared for that. I can't give you an example. I'd need to have a scenario. Maybe we could do it together. Maybe we'll do that in one of our next, our next live events. but you can expect a prepayment penalty very traditionally a 3 year pre pay on a more institutional loan. if this was a commercial loan.

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CAELI RIDGE: and remember, commercial can be used for residential properties. Okay, and just real quickly subset. When we talk about commercial, there's going to be kind of 2 buckets. There's recourse and non recourse. Recourse means you've got skin in the game because you signed a personal guarantee and non recourse means that you have no skin in the game. You've signed no personal guarantee

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CAELI RIDGE: prepayment penalties between those 2. Get harsher as you've got less skin in the game. Okay, and I'll I'll cover prepayment penalties kind of approximately on commercial. Next, let me talk about just a traditional, you know. 30 year fixed debt service, coverage, ratio, more institutional, not commercial.

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CAELI RIDGE: 3 year prepay is pretty standard. You can have 1, 2, 3, 4, or 5. The longer the prepayment penalty the better. Your rate is going to be okay, because that's gonna obligate you a little bit more to keep that loan, and the investor is going to get more interest right? so longer prepay the better because they think that you're going to keep that loan longer. They're going to get more interest. If you decide to sell, they're still going to get at least a portion of whatever that interest would have been had you not

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CAELI RIDGE: refinanced or sold the property. The prepay is very typically. And if you guys have pen and paper, this may be useful to write down. Very typically like I said, 3 years. And how we're going to calculate, that is, we are going to take 80%.

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CAELI RIDGE: And it's not always. This is not a hundred percent. Always the way the prepay is going to be structured. But I'd say 95% of the time. This is how you can expect on a a 30 year fixed individual residential loan.

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CAELI RIDGE: 80 of the outstanding principal balance

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CAELI RIDGE: times 6 months of interest. So let me give you guys a a scenario, let's say, just for easy math. We're going to say the outstanding balance is 100 grand. Okay? so 80 of a hundred. We have $80,000, and let's say your interest rate was 6%.

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CAELI RIDGE: So $80,000 times 6 is 4,800,

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CAELI RIDGE: divided by 2 is going to give you the 6 months of interest, because right now that's the full 12 months. So 4,800, divided by 2 would be $2,400 would be the penalty to get out of that loan. So whether you sell the property or you're refinancing the property. That would be the prepayment penalty. This is a unique question. I'm glad it was, asked Joseph. Because let's talk this through for a minute.

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CAELI RIDGE: For those of you. We all probably agree that rates are

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CAELI RIDGE: gonna come back down right. How many times have you guys heard me say, when rates go up? Do they stay up. No.

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CAELI RIDGE: when they go up they come down. When they go down. Do they stay down? No, they go up so they're going to their fluid. They're ever changing. They're going to move. So we've been in a high rate environment for a while. and I think that everybody is predicting that they're going to come back down. I have been saying since last year, I think fall of this year is when we'll start to see a little bit of a reprieve reprieve. I gave myself a buffer and said, Fall, maybe end of year, maybe first of 2,024. So I I I you know I'm going to be in that window somewhere.

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CAELI RIDGE: But my point is is that if you got into or you know, you're gonna be in one of those non Qm. Loans, whether it's commercial or just the 30 or fixed individual loan and there was a pre payment penalty attached to it, and rates come down. They don't go down as fast as they go up. It's gonna take longer for them to really come back down.

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CAELI RIDGE: but you can do the math pretty easily. That says, Okay, this is a long term. Buy and hold for me. I'm going to have this property for at least another 5 years. Okay, I got and locked a rate of 8

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CAELI RIDGE: interest rates are right now at 5. So what you want to do with that information is, first of all you want to figure out what the payment difference would be between your current 8 and a refinance at 5 closing costs associated that 5. But if you have equity, it's not going to be realized. It'll be just part of the transaction, you know, having to come from pocket. And then there could be some deductions that you can write off there as well. Right? The points are tax deductible for an investment property, but you're figuring out the payment difference between those 2. Whatever it is, let's just say it's 500 bucks a month. I'm just throwing a number out there.

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CAELI RIDGE: Take that figure out what your prepayment penalty would be

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CAELI RIDGE: 80. It's in your loan documents. So make sure that that's the formula. It's not always the formula. A lot of times. It's the formula. figure out what your prepayment penalty is, and if it's $3,000,

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CAELI RIDGE: 500 savings, $3,000,

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CAELI RIDGE: what's the break? Even

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CAELI RIDGE: 6 months. right? So in 6 months time that savings

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CAELI RIDGE: will have paid for that prepayment penalty. So how many people would say that it's a good idea that that scenario that I just gave you. How many people would pay the prepayment penalty? Go ahead to get that savings.

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CAELI RIDGE: If you're not raising your hand, you you you need to rethink your math, because that makes sense. So

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CAELI RIDGE: how how often am I beating the drums about doing the math? Do the math? So the prepayment penalty. That's the general formula. a lot of times. If you got a loan in the last 1218 months and it had a prepayment penalty on it.

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CAELI RIDGE: You may be refinancing in the next 12 or 18 months.

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CAELI RIDGE: and it might make sense, or it might not. Maybe you're going to have to wait until the prepayment penalty goes away.

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CAELI RIDGE: We won't know until we do the math. So that is on a residential type product. Let's move to the commercial commercial loans come with pretty harsh prepayment penalties?

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CAELI RIDGE: they don't mess around on those commercial loans. And it's usually one of 2 things. What time do we have. We're over. Okay. Well, I'm still talking. If you guys are still here listening, I'm going to keep talking

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CAELI RIDGE: pretty harsh on a on a commercial long prepayment penalties. They it's called mortgage maintenance or a waterfall. A lot of times a a commercial loan is going to have a balloon feature. It's going to be an arm. Okay, let's just take the balloon feature

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CAELI RIDGE: as the the term of the loan, and let's say it's a 10 year balloon. That means that at the end of 10 years, whatever the balance is is due. You're you're stroking a check, or you are forced to refinance that mortgage different than an arm where the rate can just adjust right?

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CAELI RIDGE: But in my example it's going to be a balloon. It's a 10 year balloon and the prepayment penalty. You're going to choose upfront between mortgage maintenance or the waterfall a waterfall is going to give. Well, let me start with a mortgage maintenance. Mortgage maintenance is harsher, and it's going to give you a better rate.

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CAELI RIDGE: Okay, The waterfall is not as harsh, not as good a rate.

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CAELI RIDGE: so mortgage maintenance is they're going to calculate. Let's say you've got ten-year balloon.

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CAELI RIDGE: and you need to get out of this loan in your 3 or 4 or 5, or whatever it is, they're going to take the calculation of the balance, and they're going to, and the interest rate that you locked in, and they're going to calculate all the way through from the time that you're trying to pay off to that 10 year balloon anniversary date, how much interest they'd be losing. And that's what you're going to pay to get out of that long.

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CAELI RIDGE: It's gonna be a lot. Okay. commercial doesn't mess around. They want their money. They're gonna get their money one way or another. The second one would be the waterfall, not as harsh but still it's it's tougher than on the residential side waterfall is going to be. Let's keep using my tenure balloon. example. So in month, excuse me, year one, you're going to be paying

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CAELI RIDGE: It's a a 10 point

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CAELI RIDGE: (198) 765-4320ne. Okay, let's just say that that's what it is. So in the first year of the 10 year balloon, you're going to be paying 10% on the outstanding principle balance to get out of that that loan in year 2. It's 9% in year 3. It's 8, 7, 6, 5, 4, 3, 2, one, right? It's a waterfall.

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CAELI RIDGE: So that's the prepayment penalty. That was probably Tmi. You were just asking. I think, Joseph, for something a little bit more abbreviated. But there you have it.

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CAELI RIDGE: enjoy

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CAELI RIDGE: number. Are we on number 10. Any questions, Carly, should I pause? We are on Number 10. No, you are good to go.

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CAELI RIDGE: so number 10 do make sure you have enough liquid funds for the transaction and closing costs. Obviously this is going to be important. if you. I think I touched on this earlier, if you gave us a bank statement that showed your your cash to close, and your reserves, etc.,

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CAELI RIDGE: and Then we go to close, and the funds are coming from another account. That's not okay. We're gonna have to source and season those etc. So I I think this might be a a better way to just say.

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CAELI RIDGE: try not to move a lot of money around throughout the transaction, at least within the accounts that you've supplied us to say, this is where my reserves and cash to clothes are coming from, and just keep it simple if you have to. You have to. It's fine. Just be prepared that we're going to come back to you and say, I need a paper trail.

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CAELI RIDGE: Where did this money go? Where did this money come from? etc.? And and just make sure you know what the the number is. Now, we're never going to be able to tell you what your exact cash to close is on the front end. That doesn't happen until almost the very end.

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CAELI RIDGE: we try to inflate the number a little bit to to give us that cushion. Right? You're 20 or 25 down we come up with a very conservative on the closing cost side. So right, we'll get you kind of a number. Just make sure you have that money, and then you've got your reserve requirement. Those don't have to be in a liquid form. Oftentimes the reserve requirement for our investors is going to come from one of your retirement accounts.

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CAELI RIDGE: K. Full life insurance policy, self-directed, Ira, etc. That's where you're going to get those. And you've already given us the assets applicable to satisfy that. Assuming that the terms of withdraw say that it's applicable to use for reserves. That's another conversation.

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CAELI RIDGE: okay, there's that any comments, questions, guys about any of this stuff?

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CAELI RIDGE: Nothing, Carly.

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Karlie Libby: nothing rolling in. Yeah. But please hop in there. If you have a question about any of these top 10 or anything Shaley mentioned today.

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CAELI RIDGE: I will say I've got for who It was?

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CAELI RIDGE: Eustace, I think I think I saw him ping in, so I think he's here with us, I will say. Is he here with us? He had a question but and then it. Then it popped out. I think he he may have gotten rid of it. Use this, but if that is something you want to ask oh, and we do have one here a couple of more actually, that came in so

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CAELI RIDGE: alright, just real quick, while you, before you read those Carly for you, you just He had a great suggestion. He wanted to know more about self, directed Ira, for investing, and I am working diligently to get an expert on as kind of a a guest speaker.

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CAELI RIDGE: I've known her for many, many years, and that is her wheelhouse, so I am working on it for you As soon as I have that confirmed, I'll let you guys know we'll announce it for you. Okay, I'm ready for questions, Carly perfect. So Donnie's web. We have one here from her, she said. Are there points with your Qm. Dscr loans?

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CAELI RIDGE: Thank you, Denise, for the question. Yes, I I don't think I think you guys right now, especially there's not gonna be an investment product, probably not even a primary residence product out there where you're not paying points. There's something called premium pricing where, under normal circumstances.

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CAELI RIDGE: you might be able to choose paying points or not paying points. And if you don't pay points, what happens to your rate.

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CAELI RIDGE: right? You have the option to pay a higher rate and no points, and sometimes that makes sense, depending on how long you plan on keeping the property right. If you're only going to have the property for 6 months, or 12 months, or 2 years, or whatever a small ish window of time that you're going to own that property more often than not. It doesn't make sense to pay those points. It makes sense to take a higher interest rate. That's probably more to your advantage. Assuming that you're factoring in the tax benefit of that a lot of times, people don't do that, and let's not forget. The higher the interest, the more interest claim that you can have on the scheduling, etc.

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CAELI RIDGE: But my point is is that premium pricing right now where you can choose or elect to take a higher interest rate and not painting points is not relevant on secondary markets, and the reason for that is

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CAELI RIDGE: secondary market knows that you're going to be paying these loans off almost certainly in the next 12 to 18 months, because, as we just talked about, rates are high right now, right? We expect that they're going to be coming down. So everything that was locked and closed and funded over the last 18 months are those higher rates. So everybody is going to be looking to get those into lower interest rates

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CAELI RIDGE: and the servicing rights take a period of time to recapture a premium that they paid.

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CAELI RIDGE: So

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CAELI RIDGE: that's I. That's a maybe we should add that to a topic because it's a little bit convoluted. The point is that you? You shouldn't expect to have any products out there where you're paying 0 points. There's always going to be points associated. Our compensation is most of you know, we charge 2% origination on all non-owner-occupied transactions. So hopefully that answers your question, Denise. Let me know if you have anything more specific, shoot me an email.

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Karlie Libby: whatever's good, what we got next. Carly. All right. Jc, she actually got a few questions for us, so I'll just start with the first one here. She asked. How do you juggle getting a new credit card to improve your credit profile versus active property investing. You know, the timing issues between the 2.

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CAELI RIDGE: okay. So so your credit score is maybe just kind of stalled. And you're hoping to build credit and increase the score. Right? Jc, is that the question? Probably.

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CAELI RIDGE: I would say that ideally, this is ideal. If you're going to be building that a couple of. And this is for scoring. Okay? The first thing I would tell you is that there's other mechanics that you can go into What is it called? I think it's experience. One of them has this thing where you can add

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CAELI RIDGE: like your bank account to it. That shows all of your on time utility payments like your electric bill, your gas, your cell phone where it can pull that data from your account and show that you've got those on time payments. If you don't have real depth of credit yet that can really boost to score, so that might be something to check into

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CAELI RIDGE: Otherwise a credit card, you know I would say 12 months, maybe 6 months in advance. If it's for credit stuff, I would want to have a one on one conversation with you to to really understand where you're at now.

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CAELI RIDGE: so I can give you a more tailored feedback. But 6 to 12 months. Probably, if you're gonna open up a new credit card to see any real impact or benefit to the score keeping that utilization, if you can, to 30% or less. That's ideal. That's optimal. So utilization, $10,000 limit, 3,000 or less

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CAELI RIDGE: in the in the balance set section is going to be ideal, 50% less is still very good. If you have utilization at over 50 of a credit card, it's really going to start Jack and your score. It's going to really reduce your your credit score. So

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CAELI RIDGE: there you have it. jc, email, me? And we can talk more specifically about your circumstances, and I think I can be more valuable for you there.

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Karlie Libby: alrighty. And then the next question from her is, Can you please talk about shopping for a mortgage.

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CAELI RIDGE: as it relates to credit score. I think you mean an inquiry. If I had to guess that's what I'm going to interpret from your question. Jc, so I think what you're saying is that I want to shop for a mortgage. I want to see what options I have what rates that this lender has versus this lender terms, etc. which I encourage.

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CAELI RIDGE: as that relates to your credit score. There is a lot of bad information out there that says if every time you have your your credit pulled that it's gonna drop your score 50 points, 10 points, 20 points, whatever it may be. I've heard everything in between. That isn't the way credit scoring works, inquiries

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CAELI RIDGE: as it impacts the score is really more about an individual going out there and having their credit pulled for a variety of different reasons. So let's say that you went out and bought a new car, and then you went and bought a new flat screen TV, and you opened up a department store card. All of these different inquiries are going to be from from wildly different perspectives, the algorithms within the equifax and the trans union and the experience

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CAELI RIDGE: mit Ctl and the zeros and the ones they're seeing that that individual is about to potentially become over extended. And that's when lots and lots of inquiries can really damage

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CAELI RIDGE: a credit score. If you're shopping for the purpose exclusively of mortgage, related finance. You have a certain window of time that you're allowed to have your credit pulled as many times as necessary for your consumer right checking without it adversely affecting the score. And even if there's some issues with with the increase, because maybe you had some other inquiries for things that you had to do before.

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CAELI RIDGE: In addition to mortgage that's coming up, you can always elect to do a soft poll. We can do a soft credit, poll which will not impact the credit score. And we can always start there when we're we're doing the vials of blood and DNA samples thing on the front end.

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Karlie Libby: All right, perfect And then the next one. Here we have. Do assets make any difference to rate and qualification.

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CAELI RIDGE: yeah. sure. Well, not to rate. Sorry assets have no bearing on the interest rate whatsoever, unless you were doing an asset depletion product. Which means, let's say, you have half a million dollars in a self, directed Ira.

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CAELI RIDGE: We can take a monthly amount of that and utilize it for income. But that's a whole. Another thing. I I won't get into that. But I think, as it applies to your question, no assets are not going to have any impact on the interest rate itself in general terms on qualification. Yeah, of course, you're going to have to supply enough assets sourced and seasoned.

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CAELI RIDGE: and I, I can define that another call guys. Source what source and season means in order to your down payment, whatever that may be, and or the reserve requirement, so assets will be required for qualification. Yes.

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Karlie Libby: all righty, and then we have one more here. Let's see.

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Karlie Libby: if he I'm so sorry if I'm pronouncing your name incorrectly. he wants to know about the impact of changing jobs on qualifications. And it sounds like you have a specific scenario that you want to ask Miss Ridge about. So we're gonna go ahead and unmute. If that's all right to answer your question.

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Karlie Libby: let's see here, let's go for it.

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Karlie Libby: All righty.

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Ife Ajayi: Okay, thank you so much. Can you hear me?

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CAELI RIDGE: Yes, Hi, we can hear you, Carly. You can get rid of the the share screen.

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CAELI RIDGE: Oh, yes, of course. Thank you.

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Ife Ajayi: Hi, Hi, so my question, is this, just want to understand the impact of changing jobs. And I just want to specifically talk about my own scenario and see how that can actually affect qualification. So I started working for a company in 2,019,

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Ife Ajayi: and then I stayed till 2021 2022

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Ife Ajayi: and I've changed. I moved to another company in 2,022, but in 2,023 I went back to the former company. So in that dynamics it shows, of course, I change jobs right, but out of that, how can that affect me? Qualify for a mortgage loan. If I want to apply, as let's say now.

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CAELI RIDGE: it just that by itself shouldn't have any real negative impact question for you. Is it the same line of work? So the first and then the switch, and then obviously back to the first, is the same line of work was the one in between basically the same thing that you're doing. Now

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CAELI RIDGE: then, 0 impact whatsoever any job change guys as long as it's the same line of work that you were in. Prior is not going to have any, that that activity by itself will not have any negative impact whatsoever. Now, the rate of pay in which you had before versus what you're having. Now, if it's less, for example, or let's say that you have a great opportunity where the base is less. But you've got this upside of bonus or commission in this new job. Same line of work.

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CAELI RIDGE: But if you've never received bonus or commission prior. I I can't give you any of that income until you've had a 24 month history of it. So let me just say that again, in your case, if there's no no impact, you are good to go as long as the income and the debt to income ratio calculation is still where it needs to be. So the changing of jobs.

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CAELI RIDGE: no problem whatsoever. What could be an issue for somebody is If they were changing jobs again. Same line of work, all of that's relative. Fine But if you had $70,000 as a base pay prior, you took a new job, same line of work making 50 base. But you're going to be getting another 40,000 a year of commissions or bonus, or whatever it is.

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CAELI RIDGE: That's great for you, but for underwriting purposes, that extra bonus or commission on our end, because it's brand new to you. You never received it before. You will not be able to use that as income for 2 years. We have to have 2 years of that type of income before we're able to average it out and give it to you for qualifying purposes. That might be okay, because maybe your debt to income ratio on the 50,000 base is more than enough

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CAELI RIDGE: to satisfy a 50% Dt. Or less. So

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CAELI RIDGE: the math is always important, and make sure that you guys are doing it. Hope I answered your question, sir.

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CAELI RIDGE: Okay, we are so over time. This was great. You guys, thank you for the questions. This is what I I kind of hope for when we get together, and I hope that it's it's beneficial to you. keep coming back. I don't know what we're talking about next week. I think, Carl? No, no, no!

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CAELI RIDGE: Next week is Fourth of July. Happy, happy Independence Day! Everybody. So Will you do another? Maybe just do a quick poll does. If anybody has any content that you want me to talk on, I can pre record something 5 min, anything. It doesn't matter, and I'll throw it out on the community. So that if you guys are just sitting around doing nothing on the fourth.

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CAELI RIDGE: yeah, right? Or that week, or whatever we'll have something for you, and then we will post or blast something between now and next week that lets you know what we're gonna have

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CAELI RIDGE: topic wise on the what is it? Currently the eleventh? Yes, yes, okay. We'll keep you guys posted.

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CAELI RIDGE: thank you for being here and sharing your afternoon with me. Appreciate you guys so much we're on stand by bridge learning group.com info, rachel group.com 8, 5, 5, 74. Ridge is a way to contact us via phone. You know how to get us

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CAELI RIDGE: peace. My people see, you guys.

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