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THE HOMEBUYER PLAYBOOKBYGREG GALE

Greg Gale, VP/Branch Manager, NMLS 193428 | BRANCH NMLS 1053629 | Nova Financial & Investment Corporation, DBA NOVA® Home Loans, NMLS #3087 | AZ BK 0902429 | 7975 N Hayden Rd C200, Scottsdale, AZ 85258 | Phone: 480.500.3001 | Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act #4131230. Also licensed by the CA-DFPI under the CFL #6036566. Loans made or arranged pursuant to a California Financing Law License. https://www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/3087 | Equal Housing Opportunity

DEDICATIONThis book is dedicated to my wife and 2 children. Their love, sup-port and encouragement allow me the ability to continue helping people accumulate wealth through Real Estate and Lending. To my parents for working so hard to give my sister and I more op-portunities than they had as children. Showing me the meaning of un-conditional love and always supporting me no matter how many times I mess up.To Master Ray Fisher who gave me a choice to quit or keep training. Fortunately, I chose to keep going and the countless lessons I’ve learned through the 30+ martial arts training has shown up in my business and personal life countless times. Thank you sir.To JB Metzger, my boss, mentor and friend who gave me the op-portunity to get into this business. From personal trainer to mortgage professional. At the time I had no idea the ripple effect you would have on my life and now so many others. Love you JBTo Rick Ruby, who has changed my life. He has tenaciously pound-ed into me the basics of this business with the mission of helping others to accumulate wealth. Thanks RickTo Rich Girolami, my best friend and best man, who shows me that no matter how far away or how long between connecting, we’re always there for each other. Love you brothaLastly, I’d like to thank the Coaches from the Core Training, my stu-dents, my work family, team, friends, referral partners and clients. All of them have contributed to my life and the content of this book. My love you all.

TABLE OF CONTENTSFORWARD - - - - - - - - - - - - - - - - - IC.I.A. – CREDIT – INCOME - ASSETS - - - - - - 1ASSETS & BUDGETING - - - - - - - - - - - 14CREDIT - - - - - - - - - - - - - - - - - 41LOAN PROGRAMS - - - - - - - - - - - - - 69THE DO’S & DON’TS - - - - - - - - - - - - 118MISTAKES & EXTRAS OF A GREAT LENDER - - - 143REAL LIFE EXAMPLE: T & G’S GAME FILM - - - 165

IFORWARDThe single most undervalued skillset in America today is Financial Literacy. Greg Gale’s book is a timely “GPS roadmap” to not only financial lit-eracy, but to finding our way through the often arcane rules and habits of the real estate finance process. Its about Budgeting, about credit, the different types of loan programs, the key Do’s and Don’t’s, but most of all, its about the Financial Literacy that is altogether missing from our education system. Discover some newfound peace of mind by making this book your best friend during the loan process! Most of us go into home buying and home re-financing either blind or semi-blind. Greg’s team was first class in handling the process with me – and in the end, having someone help you anticipate the correct choices is crucial. Haven’t you been in a car on the way to a new des-tination with someone who tells you too late that “You should have tak-en that turn we just passed!” ? This book will help you anticipate those turns BEFORE its too late, and like any good GPS, deliver you to your home address in one piece, on time. As the most accurate kicker in NFL History when I played, I prize accuracy, consistency, and professional-ism. This book is a game-winning field goal! Get it now! Nick LoweryHarvard MPA, Datmouth BAKansas City Chiefs Hall of FameNFL Man of the Year for both the KC Chiefs and NY Jets Nick Lowery Foundation (www.nicklowery.org)

1CHAPTER 1C.I.A. – CREDIT – INCOME - ASSETSW  What was it that brought you to this book, the one you’re beginning to read right now?And how did this book - which should have been about pumping iron and building massive biceps - end up becoming a book about home ownership?Let’s start with the most important of those questions. The one about you and your path to reading this book. Assuming no one put a gun to your head and forced you, then you’re reading by choice. Chances are, you’ve chosen to read this book because you’re inter-ested in its premise. Reading the book’s cover or perhaps its write-up on Amazon.com, you’ve seen that the subject is home ownership. More spe-cifically, the book promises to provide you with a proven strategy - or a “playbook”, as per the title - for successfully achieving home ownership.Why, though, are you even interested in home ownership? After all, it’s not exactly something which any of us suddenly decides to think about. Especially not when there are endless demands at work, family responsibilities, and yes - to be totally honest here - even great shows to watch (so-called “must see TV”). What’s your reason (or reasons) then, for wanting to buy a home? Is it because you view owning a home as the standard for having “made it”? That’s certainly the case for some people and it’s a perfectly legitimate reason too.

2Or, perhaps you view a home as an asset, which can be leveraged in the future for retirement and other financial goals. Then again, you might be driven to home ownership out of anger. Anger could be a major motivator for you, if you’ve had to endure slea-zy landlords, loud neighbors, and other annoying aspects of renting an apartment. In this third case, you may view owning a home as the key to eliminating the annoyances and frankly, regaining your sanity. Anger and the reasons before it are only three potential explanations for why a person like yourself may want to buy a home. Apart from these three, there are a myriad of other possible explanations. Too many in fact, for us to adequately address.Fortunately, though, your exact reason(s) are largely irrelevant. What matters is that you’re here now. Reading this book about home ownership.Yet this book, as you might recall from earlier, should have been about pumping iron and building massive biceps. So how did it change so dramatically, to become focused on home ownership?To answer that, it’s helpful to know about me. “Me”, as in the person writing for you. Greg Gale. I’m the author of this book. I’m also a husband, proud father to two children, a martial artist, a golfer and a coach. The important thing for you to know about me, at least with this book, is that I’m a mortgage banker/broker. As of this writing, I’ve been in the business for well over a decade. During that time, I’ve helped over 3,000 people get loans. In dollar terms, that works out to over half a bil-lion (*with a “B”) dollars in funded loans, since October of 2008.Prior to mortgages, I was a personal trainer and martial arts instruc-tor. That’s where the part about pumping iron and biceps comes in. For if this book were written before my mortgage career, it would undoubt-edly have been fitness focused. I’d have taken my insights on getting “shredded” (*slang for being really, really fit) and put them into a book.Yet that’s not what happened. Instead, my book ended up being about owning a home.

3How did it change so much? Or, more appropriately, how did I change so much? From being a personal trainer - a so-called “meat head”- the last person you’d ever turn to for reputable advice on buying a home. To helping those 2,500+ people get the financing they needed for achieving the dream of owning a home. What happened?The short answer is that I let go. As in, I let go of all the beliefs which had kept me locked in the identity of a personal trainer. One of those beliefs was simply not thinking big enough and then taking action towards that bigger think. To be clear, I was working 14 hour days and felt capped in regards to how many people I had the ability to train. The vision I was missing was running more of a business and knowing that I could open my own gym and have people work for me, otherwise known as leveraged income. These are all things I didn’t know in my 20’s and many of the successful businesspeople I was training were guiding me into sales due to my peo-ple and relationship skills. So as a trainer I was trading my time for money, there’s a fixed num-ber of hours available. Where in sales or in leveraged income, there is no ceiling, it’s not fixed.You may be a master of time management, employing various pro-ductivity hacks, getting up early, and having ZERO social life. Yet even-tually, you will run out of hours. You’ll hit a figurative “ceiling” where it’s difficult, if not impossible, to put in anymore “billable hours” beyond those you’re currently working. When that happens, your income also hits a “ceiling”. You may want to earn more, but the “time for money” paradigm prevents it.Your only option to earn more would be to stop trading time for money. And to do that you’d need to rid yourself of a limiting belief. Can you see now why limiting beliefs are so problematic? Or, in my specific case, how they held me in place, preventing meaningful person-al growth?If you’re up for some soul-searching, it might be worth thinking about the limiting beliefs in your own life. Take some time and reflect on what ways of thinking could be holding you back.

4While you’re doing that, let’s get back to where we were - before we went on this whole tangent about limiting beliefs.Think back and you’ll recall we were discussing how exactly I went from being a personal trainer to becoming a trusted advisor for thou-sands of home buyers.The key in that transformation was letting go of my limiting beliefs. When I let go of my limiting beliefs, I could see a new road. The new figurative road diverged sharply from the one I was on as a personal trainer. My personal trainer road (“Bodybuilding Blvd”) seemed to end in a metaphorical cul-de-sac. Yet the new road (“Lender Lane”), led toward a career in the mortgage industry. To travel down that new road, I would need a teacher. Someone skilled in the mortgage industry, who knew every stretch of this “road” like the proverbial back of their hand. While there were plenty of prospective teachers, one stood out to me. His name was “JB” and he was the most successful mortgage broker I knew.There was, however, just one problem, “I had no vision, no Big Think for the mortgage business either”. JB however, had a vision, a big vision. He shared that with me on day 1 and as his vision got bigger he shared that as well. I was totally bought into his vision and both he and I took massive actions towards it.As his student, I worked alongside JB - pulling 14-hour days for 3 years. Working such long hours for 3 straight years may sound like drudg-ery. Yet I never viewed my time with JB in those terms. Where others might see “drudgery”, I saw an opportunity to learn from a true master - someone I regarded as the “King of Mortgages”.And what did I learn?Anything you could ever want to know about mortgages.10,000 hours of mortgage-related facts, figures, strategies, and in-sights. All taken directly from one of the industry’s most experienced players, as he and I worked together each day.

5Looking back, it would be an understatement to describe my time with JB as “important”. “Lifechanging” is a far more appropriate description. If you’ve ever met someone who’s had a “ripple” effect on your life - profoundly influencing it for the better - you may know what I’m refer-ring to. Often you can become an entirely new person - unrecognizable to others or your “old” self. That certainly happened for me. JB’s influence caused me to begin thinking, speaking, and acting like a successful mortgage broker. Not that there was anything fake about it, though. My new identi-ty as a successful mortgage broker was solidified by real world results. The results came as JB and I worked together and succeeded in tripling his existing mortgage business. Together, we took the business from $28 million in closed volume to $96 million.With growth like that, JB and I were in the top of our company. We were also ranked in the top 1% for all mortgage teams nationally.In fairness to JB, the success we achieved came first and foremost from his expertise. What I “brought to the table” - at least initially - was a thirst for knowledge and a willingness to outwork anyone. Reading that last part, about JB’s expertise, you wonder why I’m writing this book. After all, if JB was younger than me and taught me everything I know about mortgages, shouldn’t he be the author?Personally, I’d be inclined to agree. The bitter truth, however, is that JB is no longer with us. His time on Earth was cut tragically short.The untimely end came just three years after we’d met. Three years that seemed to pass in the blink of an eye, as we ascended together to the heights of the mortgage industry.I mentioned “ripples” a moment ago, and JB’s passing was no excep-tion. It too produced “ripples” in my life. Perhaps you can relate here as well, especially if you’ve ever lost a loved one or a close friend. The loss seems to come out of nowhere, doesn’t it? One minute life is flowing smoothly. The next, it’s as though someone has hit the “pause” button and your life is suddenly “frozen” in place. The world around you may still be moving forward, but you simply cannot. You’re held in

6place by the death and its consequences - whether emotional, psycho-logical, or even financial.Eventually, you’ll begin to inch forward. The death’s hold on you, its figurative “ball and chain”, will loosen a bit - allowing you to wriggle out. As this happens, you’ll start to “get over it”, as those unaffected by the death would say. From there, things may return to a semi-normal state. I say “semi-” because few if any of us see our lives return to full normalcy following the death of someone we care deeply about. We may be able to laugh again at jokes. We may develop strong new relationships and come to care for different people. Nonetheless, there’s nearly always a lingering sense somewhere deep down of the loss. The feeling persists within us, even as we move on…Wow! That got depressing really quick. Not exactly uplifting mate-rial for you to read. More importantly, it’s NOT moving you any closer to your goal of owning a home. That is your goal in reading this book, right? To get the facts on what it’ll take for you to own a home? If so, then let’s cut to the chase. You now know the basics of my “or-igin story”. How I went from being a personal trainer to being in the mortgage industry. For the sake of time, I’ve left out memorable moments from that story. Moments for example, like when JB and I had our first interview together. Or when he and I found ourselves unexpectedly confronted by sunlight, in the parking lot outside our office on a Friday afternoon. In the latter instance, I remember it being the first time we’d ended work in time to catch the daylight.Moments like those are ones I’ll never forget. But what about you? You may nod along and appreciate that I’m “opening up” with a story or two. Still, you’re not here to read a storybook or revel in my nostalgia. We can probably count on one finger of one hand, the number of read-ers who’d actually want to do that.Get the picture? Then it’s time to move on.

7As we do proceed, let me mention just one more thing - quickly! - about my road into the mortgage industry. Stick with me for another few paragraphs, because this particular part of my story is crucial.It’s about the aftermath of JB’s death. If you’re wondering what came next, here’s the quick version. The summary or “cliffs notes”, if you will…As I struggled to rebuild in the aftermath of JB’s death, life threw another curveball. This curveball was the 2008 Financial Crisis. Like countless others, in and around the financial world, I too never saw the crisis coming. It hit me between the eyes, with comparable speed and force as JB’s death.Calamitous as the ‘08 crisis was, however, it may have been exactly what I needed. For the crisis knocked me out of my depression over los-ing JB. His death was still deeply painful to think about. But it could no longer dominate my attention. The financial crisis demanded immedi-ate attention and action on my part.In response to the crisis (the financial one), I decided to take matters into my own hands and start my own mortgage team. This meant going out on my own. Taking a major risk, to start from scratch in the heart of the recession.As you can probably guess, the risk paid off. The team I founded during the recession in 2008, the Gale Team, has become one of the top mortgage teams in the country. Moreover, I’ve been recognized for a de-cade by The Scotsman Guide as one of the top 1% of mortgage origina-tors nationwide.There have been other awards and accolades over the years too. What you’d probably care more about, however, are the people who my team and I have worked with. Hearing about them will give you a better idea of what we (my team and I) do. It’ll also give you a clearer sense of how a mortgage team can help you - regardless of which team you might ultimately choose.In the interest of clarity, I’m going to shut up for a page or two. Replacing me in this next part will be a few of the Gale Team’s many past clients. These are REAL people who we’ve helped to become home owners.

8The first of those people would be Isha. Since Isha’s story happens to be a bit complicated, here’s a quick summary for you. In Isha’s case, she came to us hoping to purchase a home. She felt it was within reach, yet couldn’t see a clear path to ownership. Initially, we helped Isha to achieve the dream of home ownership in 2009, purchasing a house for $65,000. She then sold the house in 2013 for $96,000 and purchased another one for $256,000. Fast forward by four years and Isha turned to us for help refinancing the $256K home. Refinancing allowed her to reduce payments on that home and purchase yet another for $479,000. The $479K house became Isha’s primary residence. As for the $256K one, which we’d helped her refinance; Isha turned that earlier house into a rental property. Today Isha’s rental property goes for around $2,100 per month and she pays just $1,500 per month on its mortgage. That works out to an easy $600 in cashflow. Not bad for someone who, only a decade ago, saw owning a home of ANY kind, as being a major challenge.Alright, you know the basics of Isha’s story. Now hear how it was, from her perspective. Take it away Isha… Greg was very responsive & always willing to help when we had ques-tions, even on weekends! This was the smoothest loan with Greg & his team to date, & it was a pleasure working with you [Greg] again!After Isha, here are some of the experiences of other people we’ve worked with over the years…ClieThey [Greg Gale and the Gale Team] went the distance reviewing, assessing and advising me to provide the best options for financing. They were always willing to discuss different / separate approaches. And little to no wait times for their responses. I always felt welcomed when I called, emailed my questions and they responded in short turnaround.

9 ZuelThe Gale Team did a great job making the mortgage process easy and straightforward. They met every timeline we set and were even able to make last minute adjustments without delay. I would recommend them to anyone, and will use them again for my needs. Thanks GlynisI highly recommend The Gale Team. They made applying and re-ceiving my home loan a breeze. I received a email at the end of each week to keep me updated on what has been completed and what was the next step. Also, all phone calls and questions were answered immediately. So happy I went with The Gale Team at Nova Home Loans! I’m back! What did you think? Was it helpful to hear directly from actual people we’ve worked with in the past? Hopefully it was. Let me also point out that you can read more feedback from our clients online. Just visit this link -https://thegaleteam.com/reviews/Don’t go online just yet, though. We’re heading into what may be the most significant section of this chapter. All of the “background stuff” is done. You know who I am and how this book made such a major leap (from fitness to home ownership). Having concluded that, we can turn our attention fully to home ownership and how exactly you achieve it.The best way to begin this next discussion - the central one for the book - is with an overview of what we’ll be covering.In the pages which follow, you’re going to get the complete playbook to home ownership. This playbook is the exact recipe for you to own a home. No matter where you are on the path to ownership, you can rest assured that the concepts in the book are applicable to your situation.How can I be so certain? Especially since you and I have never met?Simple. Remember the track record I mentioned to you, earlier in this chapter? Flip back a few pages and you’ll see where I described

10helping over 2,500 people to get loans. (*That total by the way, is since 2008 - when I started my own Mortgage Team. It does not therefore in-clude all of the additional people who I helped, while working with JB.)Having helped so many people, I’m confident that while you’re un-doubtedly unique - a “snowflake”, as the motivational speakers like to say - it’s highly likely that I’ve assisted someone in a similar situation to you. Similar, at least where mortgages are concerned.Spend decades in this industry, as I have, and you’ll realize that there aren’t that many differences among clients. Barring the rarest of rare outliers, most clients tend to be in comparable positions. The clients themselves don’t look the same, of course. But their circumstances and the ways I’m able to help them do. And for our purposes here, in this playbook, that’s what matters.Speaking of the playbook, you’ll be pleased to know that it’s not complex. “Playbook” may be a somewhat complex word - a “whopping” two syllables. Yet there’s nothing “whopping” about the material itself. Nothing that’s going to leave you as bewildered as I was, following JB’s passing or the financial crisis.The material you’ll be reading in the coming chapters will be cen-tred around three things. These three are the fundamentals for all loan applications. If you want to think in terms of sports plays, as per our “playbook” title, the three fundamentals are what’s needed to run a suc-cessful play.The “Big 3” in any loan application are credit, income, and assets.Let’s tackle the first of those - credit. For our purposes here, we’ll consider credit initially in the context of credit scores. What’s a credit score? It’s essentially a number which reflects the chances you’ll actually repay those you’ve borrowed money from. This number is calculated in-dependently by the three major credit bureaus (Experian, TransUnion, and Equifax), along with credit score providers like FICO (creators of the FICO score).When it comes to the number in a credit score, higher is always bet-ter. This is because the higher your credit score, the better the terms you’ll receive when borrowing money (a.k.a. getting a loan).

11“Terms” in this case, with loans, refers to the rates, fees, and loan pro-grams you’ll have access to when borrowing (i.e. taking a loan). Higher credit scores therefore lead to “better” terms, in the sense of better rates, lower fees, and more supportive loan programs.Loans, for their part, matter because they’re what most of us use when purchasing a home. Assuming you don’t have suitcases of cash on hand, you’ll probably be taking out a loan too. Your credit score will thus be an important factor dictating the terms of your loan.While credit scores are important, having “poor credit” is NOT the end of the world. (*Poor credit, according to the credit bureau Experian, is indicated by a FICO score under 580 (out of 850)1.)If your score happens to be sub-580, take comfort in the knowledge that it can be raised. That’s why I say “poor credit” isn’t the end of the world. Your low score isn’t the “end”, just as a low score during a football game isn’t the “end” either. The football comparison works here because credit is a game. When you know the rules of it, you can play the credit game - just as you would a football game - and get your score up.We’ll be covering the rules of the credit “game”, as it relates to home buying, later in this book. Alongside that, we’ll also be digging deep into income and assets.Income and assets, remember them? They were the other two funda-mentals in a loan application.“Income” means how much money you’re earning versus how much you have in debts. In home buying, your income will help to determine how much you can pay in monthly mortgage payments (i.e. payments on the loan for purchasing a home). In theory, the more you can pay per month on the mortgage, the more expensive a home you can purchase. Notice how we say “in theo-ry”. That’s a tip-off to the fact that in reality, there may be a disconnect between what you can pay each month for a loan, versus what you truly want to pay. 1 McGurran, Brianna. “How to ‘Fix’ a Bad Credit Score. Experian. 29 July 2019. https://www.experian.com/blogs/ask-experian/credit-education/improving-credit/how-to-x-a-bad-credit-score/

12You may, for example, qualify to purchase a home where the mort-gage payments are $1,500 per month. But if your goal was $1,300 per month in mortgage payments, you’d need to pick a different home.This example illustrates how income shapes your home buying cri-teria. It also conveys the importance of talking to a mortgage broker be-fore you go out looking at homes. On the latter point, about talking to a mortgage broker; make sure you do that prior to home shopping. You don’t want to get excited, for instance, about a $400,000 home, and then realize later that the month-ly mortgage for it is higher than what you’d want to pay. Imagine how disappointing that would be. You’d probably feel crushed, especially if you’d begin to mentally move into the house - hav-ing dreams and daydreams about living there. All that disappointment. And it could easily have been avoided just by consulting a mortgage broker before you went in search of your dream home.OK, that’s income. What about the third fundamental in a loan application? You mean assets? “Assets” are the funds you have available to use toward the purchase of your home. Your assets can be in a bank account, or they may be drawn from another source like a 401K. Since you’re taking out a loan, your assets don’t have to cover the en-tire cost of the home. Instead, whatever assets you have must be enough for the down payment. After the down-payment is covered, your assets can figuratively “step back”. Your income can then “step in” to cover the monthly mortgage payments.See how income and assets fit together in home buying? And let’s not forget about credit either. We saw earlier that it too has a vital role to play whenever you’re pursuing a loan for the greater goal of purchasing a home.Credit. Income. Assets. The three key elements of our playbook to home ownership.

13And subjects of deeper discussion in the remainder of this book. Before we get to that discussion, let’s conclude this chapter by set-ting expectations. When it comes to expectations, what can you realistically expect from reading this book? Or, to be more specific, by the time you finish my book - what can you expect to know or be able to do?The answer is that you’ll be clear on what it takes to buy a home. That’s what I can guarantee you, if you stick around till the end and give this book an honest read. Will you do it?I suppose it depends on the kind of person you are.If you’re a “serial starter”, the kind of person who starts things but then never finishes them; then you probably won’t. You won’t finish this book because you tend not to finish most other things.Somehow, though, I doubt you’re a “serial starter”. It’s unlikely you’d have made it this far in the book if you were. You’d have stopped a few pages ago because honestly, I’m not that talented a writer. Not talented enough to hold flakey, non-serious readers spellbound for page after page. Stephen King, J.K Rowling, and other bestselling authors can do it. But me? I’m a mortgage guy, not some literary genius. So, if you’re still here, reading what I’ve written; then it’s evident you didn’t come for the writing itself.You came instead for the content - the material being covered. It’s why you’re here. You want this “playbook” I keep talking about. The one which will enable you to become a homeowner.You want the playbook. And you know what you don’t want?I’m not a mind reader by any stretch. Yet I’m certain you don’t want endless “circling”. Meaning endless sentences about what you’re going to learn. An introduction which is way too long and becomes tedious.Let’s keep this intro chapter from becoming like that, by ending it here and now.Join me in the next chapter as we begin the specifics of our playbook. Beginning with a deep dive into what may be the most neglected step in preparing to buy a home…

14CHAPTER 2ASSETS & BUDGETINGT     .Ever heard that one? It’s been so widely cited as to have become a cliche.And for good reason too. Just think about your own life. Hasn’t there been a time when you’ve told the truth - to others or even yourself - and it’s helped to resolve difficulties?Can’t think of a personal example? Then picture a disgraced public figure. Anyone from politics, entertainment, or sports. No matter who you choose, we can probably both agree that their lives might never have taken such a negative turn if they’d only been more truthful. Ok, you say, but why are we talking about truth? What’s any of this got to do with home ownership?The connection is that as you proceed down the road to home own-ership, you’ll need to master the concept of budgeting. Budgeting is so essential in fact that we’ll be devoting this entire chapter to discussing it. Yet for all its merits, budgeting seems like an exception to the idea that the truth will set you free. It’s as though the more truthful you are when setting and following a budget, the less freedom you’ll seemingly have. How free are you, for example, when a budget prevents you from eating out at the finest restaurants in town? Or when a budget keeps you from buying the latest fashions? In these two cases, and countless others, budgets seem to repress rather than liberate.But is this really true?No, thankfully it’s not. Budgets are not inherently “totalitarian”. Moreover, creating and following a budget can actually be an empower-ing and liberating experience.

15If that latter claim - especially the “liberating” part - seems too good to be true, stick with me. Over the course of this chapter, you’ll learn ex-actly how budgets empower, liberate, and ultimately supercharge your drive toward home ownership. To launch our discussion, let’s get clear on what we’re talking about when we say “budget”. A budget, for our purposes here, can be defined as an estimation of your expenses over a specified future period of time. This estimation serves as a plan for how you’ll spend a certain amount of money in order to control your overall money supply and grow it.With this definition, it’s important to call attention to two import-ant things.First, our definition says nothing about financial sacrifice. Nothing as well about “pinching pennies” or having to downgrade your quality of life. I raise this point because the word “budget” is often associated with precisely those things. You may hear “budget”, for example, and think of having to sacrifice your current diet for a low-cost diet of ramen noodles and canned spam. “Budget” might also cause you to imagine trading the excitement of an exotic vacation for the “excitement” (note the quotes) of a Stay-cation (like a vacation, only spent at home). If staycations, ramen, and spam are what you associate with “bud-get”; then you’re in for a pleasant surprise. You’ll be pleased to learn that none of those three things are a foregone conclusion when budgeting. Neither is having to cut costs, period. Our definition of a “budget” sim-ply notes that you’ll spend a certain amount of money in order to con-trol your money and grow it. Whether that entails extreme cost-cutting (i.e. ramen, spam, etc.) is up to you. Just realize that it doesn’t have to. Apart from this first point, regarding our definition of “budget”; it’s worth mentioning that we’re future-focused. What I mean is that “budget”, as we’ll be discussing it in this chapter, is about having a set amount of time and money that you’re putting aside for the future. This

16is the opposite of how people often perceive “budget” - viewing it as a look back on what was spent and what one’s habits were. Let’s also get clear on what’s meant by the phrase “set amount of time”. We need to clear that phrase up because it could lead you to mis-takenly think of time management. For the record, we’re NOT talking about time management. Instead, “set amount of time” means the amount of time in which your budget will operate.And that would be?My recommendation is that you do it monthly. Budgeting by the month works because it takes into account the fact that most bills are also monthly (i.e. electricity, water, mortgage, credit card, etc.).Not a fan of monthly budgeting? Feel free to go smaller, budgeting on a daily basis. Don’t go bigger, though. Trying to budget over a bigger time period than just monthly (say quarterly, semi-annually, or annually) is bound to trip you up. It reduces or eliminates outright your ability to pivot financially.You can see the danger of budgeting in bigger chunks than one month, with the following analogy. Picture an ocean liner and a small racing boat (a so-called “cigarette boat”). The ocean liner is hands-down the more majestic-looking craft. It strides across the waves, while the cigarette boat erratically darts about like a fly trapped behind a glass window. Still, what happens when the ocean liner runs into trouble? You need only think of another ocean liner, one that actor Leonardo DiCaprio sailed aboard in a certain movie. The Titanic. When that fabled vessel came upon an iceberg, it was game over. The Titanic’s size prevented it from pivoting, both to avoid hitting the iceberg and then to escape further damage following impact.How about the cigarette boat? Unlike the Titanic and other ocean liners; the cigarette boat’s size does not become a liability, restricting its responsiveness. The tiny craft can immediately pivot to safety at the first sign of trouble.

17The takeaway from this analogy, with the two boats, is that a small time-frame (monthly, weekly) is preferable to a large time-frame (quar-terly, semi-annually, annually) when budgeting. This is because like the cigarette boat, a small time-frame for budgeting allows you to immedi-ately respond at the first signs of a catastrophic event (i.e. a financial “iceberg”). You won’t be “dead in the water” and doomed to take a hit, as might be the case with both a large time-frame and an ocean liner. Can you avoid the financial “icebergs”? Great, but danger still looms on the horizon. The danger now is that you’ll take your hands off the wheel, figu-ratively-speaking, and stop steering your financial life. If this happens, you’ll find yourself drifting along financially. Drifting is the approach most people take with their finances. The average person in the U.S. tends to just drift through life, living pay-check-to-paycheck or worse, using their credit cards to get by. Each of these approaches seems to work in the short-term, yet both are ulti-mately losing propositions. Living paycheck to paycheck is a losing proposition because it chains you to your job. If anything - and I mean, ANYTHING - happens to your job, you’ll suddenly be hard-pressed for money. Imagine going to work each day with that kind of pressure on your shoulders. It would be like having an economic gun pressed to your head. Eventually, as the pressure grew, you might just want to blow your brains out. As for the other scenario - credit cards and using them to get by financially; you can probably see the problem there. The issue is that credit cards have limits. Whether it’s $500, $5,000, or $500,000; there’s inevitably a limit to what you can spend on a given credit card. There are also limits to the number of credit cards you can get. You can’t therefore continually burn through cards and get new ones. Eventually you’ll be out of cards and credit to spend. When this hap-pens, you’ll be out of cash and you’ll have the added “bonus” of poor credit.

18Do you want to end up in that position?The question’s rhetorical. For unless you’re a financial masochist, I’d imagine you don’t want to wind up in the “credit card hell” just de-scribed. You’re probably not eager to live paycheck-to-paycheck either.To avoid both scenarios, you must be intentional about your fi-nances. That means having a plan - or, as per our definition - a budget. With a budget you’ll know where you’re going financially, and you can course-correct to stay on track and out of financial ruts.The benefits of budgeting don’t stop there either. With a budget, you can also soar to incredible heights in regard to your personal savings. Imagine getting to the point, where you could save 10% of your in-come. Impossible? No, not at all. It’s well within reach. The following example shows how you might do it.Suppose you made $50,000 per year. Ten percent of $50,000 would be $5,000 saved. Breaking down the $5,000 on a monthly basis (i.e. dividing it by 12 months), works out to just $416 per month. Keep in mind as well, that your total monthly earnings are approximately $4,166 ($50,000 divided by 12 months). The question then, is whether you could set aside $416 each month and live on the remainder ($3,750). If you’re like most people, you’re up to the challenge. In fact, it probably won’t be a challenge. After all, most people who earn $50K are already taking $416 or more out of their monthly earnings. They’re just doing it for the wrong reason - to pay their car loans and credit card bills, versus saving proactively. Imagine then, how it would be for you if saving, versus simply pay-ing bills. Your little $416 per month would grow at a conservative 7% return. Over ten years, you’d have $50,000 saved up. Actually, it would be more like $100,000 saved up. Reason being that we need to take into account the Rule of 72. The Rule of 72 is a financial principle which states that your money at 7% will double every ten years. That means after saving $5,000 per year for a decade, you’d have savings of $100,000. Not a bad ROI (return on investment). Plus, if you could hang in there for another decade, the $100,000 would double again, becoming $200,000.

19Can you see now why budgets are important? The right budget would enable you, as per our example above, to save $200,000. It would also keep you safely away from “icebergs” and drifting, those two dan-gers we talked about earlier.Let’s not forget about home ownership either. As the core subject of this book, home ownership serves as another reason to budget. This be-comes most apparent by looking at the three components which make up the mortgage you’ll use to buy a home. The health of each of those three components (credit, income, and assets) is directly dependent on whether you consistently budget.Take the first of those components, your credit. With budgeting, you can anticipate bills in advance and pay them on time. Paying bills on time shows lenders and financial institutions that you’re trustworthy, causing your credit to improve. Improved credit, in turn, gives you more options on loans to use in purchasing a home. It also reduces the interest rate you’ll pay each month on your home loan. Next up is income, the second component in a mortgage. Budgets improve your income by allowing you to keep more of it. This is import-ant because your income is what you keep, not what you make. Consider for example, making $4,000 per month. It’s a healthy chunk of change. Except that you also have bills totaling $3,000 each month. These bills must be handled first, leaving you with just $1,000 each month to spend elsewhere. That $1,000 is all you have left for gro-ceries, meals at restaurants, and even a vacation. Moreover, the $1,000 must also cover any emergencies. If you have an emergency where your child is hospitalized, you may have to choose between groceries and paying hospital bills.Groceries or your child’s hospital bills? With budgeting, you’ll be free from these kinds of gut-wrenching decisions. The freedom comes from following a budget and thus keeping more of your income. On a budget, you’d earn the same $4,000 each month, yet after paying bills, buying groceries, going out to eat, and maybe even handling a hospital visit or two for your child; you’d still have $1,000 left to keep and put in savings.

20As your savings increase, you’ll have more money available to use in acquiring assets. Assets are worth acquiring because they’re the third component of a mortgage. In a mortgage context, the extent of your assets will further deter-mine your available options. Depending on what assets you’ve acquired, you’ll find yourself with more (or less) possibilities for purchasing a home, loan programs, and structuring the negotiations for your next home (if you’re already a homeowner). Want more options? You probably do. But budgeting, the key to hav-ing more options, isn’t always easy. I’ll be the first to admit that. I’ve been there, at the grocery store for instance, and struggled to avoid buying certain foods that would put me over my grocery budget. If you’ve ever faced a similar struggle, you know what I’m getting at. It can be downright painful to avoid certain purchases and stay on budget.In times like those, when the temptation to overspend arises; I’ve found it’s helpful to put aside the word “options”. Stop thinking about budgeting as giving you options. That’s too mild a description. “Options” aren’t compelling enough to make you put down the tub of ice cream when it will clearly put you over your grocery budget. In place of the word “options”, substitute the word “freedom”.With “Freedom”, you can see budgeting for what it really is - a long-term play. This perspective allows you to then ask yourself two critical questions -1) Do you want short-term gratification and a lifetime of living paycheck to paycheck? 2) Would you rather trade some gratification now, for financial freedom in the long-term?Like most of the questions I’ve given you, these latter two proba-bly aren’t difficult to answer. Nearly all of us want long-term financial freedom. We want the financial freedom, for example, to take our kids on vacations to Disney World, Hawaii, and other fun destinations. In be-tween the trips, we also want the financial freedom to buy our kids new clothes for school and high-quality school supplies.

21Beyond the kids, think about your own well-being too. Being finan-cially free means you’re covered in your retirement, unlike 76% of our population who retire with $0.00. With financial freedom, you’re not among the 73% of Americans living paycheck-to-paycheck either. Unlike the 73%, you’ve got savings which provide a financial “cushion”. You may have a home as well - one that builds equity and creates generational wealth. Sold on the idea of financial freedom? Then keep that idea at the forefront of your mind, whenever you think about budgeting. As you do, you’ll be instilled with a sense of purpose and find it easier to budget. The ease comes from knowing that creating and adhering to a bud-get is not just an empty sacrifice. The sacrifice you make counts for something more. It gets you one step closer to achieving “financial free-dom”, regardless of what you define that to mean. Having a purpose behind budgeting sounds great, but do you really need one? Or can you just “wink” at the idea of purpose, and then get down to business, budgeting without it?My advice here is to avoid trying to budget without first knowing your “why” (a.k.a. your purpose). It’s a major mistake, one that will only end in frustration. Using yet another analogy, budgeting without a “why” would be like putting yourself through pain at the gym in order to...…put yourself through pain at the gym? I rest my case. Continuing from that first budgeting mistake (not having a “why”), let’s talk now about five more.3) DenialDenial is a budgeting mistake where you deny that budgeting is nec-essary. In some instances, this denial may be supported by the seeming-ly altruistic claim that“money won’t make you happy”. Since money can’t buy happiness, the implication is that money and money-related activities (like budget-ing, for example) are therefore not matters of immediate importance.

22In response to those in denial, let me point out that yes, it’s true - money will not make you happy. All the same, have you considered the opposite? Suppose you didn’t have money. Would that make you happy? My guess is that it wouldn’t. The reason is that you’d have less op-tions for what you could do. Logically, less options means less choices. Having choices is typically associated with freedom. Freedom, in turn, is typically seen as desirable - with a person feeling happier, the freer they are. So, putting all that together, not having money tends to limit your choices (or eliminates them altogether), reducing your freedom, and making you unhappy in the end.Now, for all the philosophers reading this, what I’ve just said is not meant as the final word on happiness, money, and the meaning of life. Remember, I’m just a personal trainer who fell into the mortgage busi-ness. Whether that was good luck, cosmic karma, or some other philo-sophical principle at work is beyond me. That’s for you guys and gals - the philosophers reading this chapter - to figure out. In the meantime, let’s get back to budgeting mistakes. My point in that whole diatribe on money and happiness was to dispel the rationale against budgeting. I wanted to show you that yes, money does matter. And since it matters, budgeting also matters - as the means of keeping your money in order.Think too, of just how hard you work in order to get your paycheck. If you’re like most working professionals, you’re probably working your tail off. Each week likely feels like a grind to you, and Friday at 5 PM can’t come soon enough. If, on the other hand, you’re the type who spends their “workday” on Facebook or watching superhero movie trailers; you may be tempted to disregard what I’m saying. Even in those cases, though, I’d be willing to bet that you still feel as though the paycheck you’re receiving isn’t just being given away. You’re still putting in some effort to get paid, even if that “effort” is just clicking away from Facebook when your boss walks by.

23Whether you’re working hard or hardly working, the bottom line is that your paycheck is precious. Recognize that and adopt budgeting to ensure your paycheck is put to its highest and best use. 4) The Math ExcuseAnother of the mistakes I see people make with budgeting is fixating on the math side of it. This leads to what we can call “the math excuse”.With the “math excuse”, opponents of budgeting excuse themselves from having to budget because they’re “not good at math”.Whenever I hear this line, I want to pull my hair out in frustration. Trouble is, if you’ve seen photos of my head, you know that’s no longer possible. So all I can do now is fume inwardly.The math excuse makes me angry because budgeting is not rocket science. Much of the math is rooted in simple addition and subtraction. Can you add up a set of expenses to see how much you spent in a given month? Can you subtract certain expenses to bring your total spending in line with a desired target? Then voila, you’ve got the math skills nec-essary to succeed at budgeting.Besides, even if basic math intimidates you; there’s still hope. Check out Microsoft Excel and you’ll find that it can do budgeting calculations for you. Alternatively, if you’re anti-Microsoft or just prefer smart-phone apps, there are plenty of budgeting apps for the same purpose. 5) Fear of DeprivationRemember when we spoke earlier of Spam, Ramen Noodles, and the god-awful staycation? Our point was that those three things were often mistakenly associated with budgets. Yet as we said then and must reit-erate now - our definition of budgeting doesn’t include such things. Nor does it include deprivation period. As a result, it’s silly to be afraid of budgeting on the grounds that it will mean depriving yourself. If anything, what you should really be afraid of is NOT budgeting. Be afraid, be very afraid of NOT budgeting. That’s because when you don’t follow a budget you deprive yourself of future money. If that happens

24on too great an extent, you may find yourself uncomfortably close to the nightmare of spam, ramen, and stay-cations. 6) The “I Have Arrived” MentalityAt what point are you in such good shape financially, that you no longer need to budget? I don’t know. But I can tell you this - you’d better have a net worth of well over $30 million. Why $30M? It’s the cash net worth of one of my mentors. This guy has clearly “arrived” financially. Yet he still budgets and saves his money. My mentor could probably stop budgeting and saving. Stopping, though, would mean breaking what are now firmly rooted habits. Habits which are as natural for my mentor today, as brushing teeth is for you. If my mentor is still budgeting and saving with his $30M in the bank; what does that say about the importance of these behaviors? I believe it shows that you’re never “too successful” to budget and save. Those be-haviors remain important for anyone, even those who’s bank balances indicate they’ve “arrived”. 7) No DisciplineThe last of the major mistakes I see people make, with respect to budgeting, is not having the discipline to do it consistently.Why do people lack discipline in this area? Perhaps it’s because they don’t understand what “discipline” means. Discipline may cause you to think of military drill sergeants, straight out of the film Full Metal Jacket, screaming at terrified recruits. That’s not the kind of “discipline” we’re talking about. Our discipline is self-discipline, coming from within rather than being imposed on you by someone else. Furthermore, “discipline” as we’re discussing it here is simpler too. It’s merely the act of building a habit that you stick with no matter what. If you can build the habit of budgeting, for example, and then stick to it; then you’ve got discipline.

25“Habits”, there’s that word again. Remember how we said my men-tor budgets now out of habit? Since it’s a habit, my mentor doesn’t have to use any willpower to force himself toward budgeting. Budgeting feels natural to him, just as it will for you when you build and maintain that habit too. The impact of habits also extends beyond budgeting to being in shape physically. If you’re “in shape”, with well-defined muscles and “six pack” abs; you’re probably in the habit of working out on a consis-tent schedule and eating a balanced, nutritious diet. You maintain these habits despite having “arrived” at the body you want. Could you eat junk and miss workouts? Sure, and depending on ge-netics and your metabolism, you might even be able to get away with it. Here’s the thing, though, you probably wouldn’t want to. Exercise and eating right would feel normal to you, whereas deviating from these habits would feel wrong.Getting back to budgets, I hope you’ll be in a place by the end of this book where budgeting feels “normal”. To help you reach that point, let’s keep going. Our next area of discussion around budgets will be the “how” of it. In these next few pages, you’re going to see exactly how to set a budget. Before that, however, let’s address a proverbial “elephant in the room”. The “elephant” would be my knowledge of budgeting. By this point, you know my origin story - how I learned the mortgage business from JB. But what about budgeting? How did I learn about it, and be-come practically a “budget evangelist”?For those who care to know - I learned to budget and became evan-gelical about it, by not budgeting. That may sound paradoxical, but it’s really not.Examine my past and you’ll see how it happened. The defining mo-ment came when I’d recently graduated from college. At that time, I was severely in debt - with financial aid and credit in excess of $130,000. I was also, interestingly enough, not on any kind of budget.

26In lieu of budgeting, my approach was shuffling. I would shuffle the balances around between the 17 credit cards I’d accumulated. My goal in doing the “CC Shuffle” (sounds like a dance, doesn’t it?) was to stay current on my credit cards and not end up with late payments. Shuffling worked and I was able to protect my credit score. Yet it was no way to live. Financially, it put me in an even worse position than liv-ing paycheck-to-paycheck. In addition, my emotions were a continuous mess of fear, shame, and depression. I felt trapped too, and longed for a way out.Unfortunately, I found it. My escape came from having accumulat-ed equity in my home. With the equity, I was able to refinance the debt and wipe the slate clean.Looking back, I call this “unfortunate” because I hadn’t learned my lesson. No sooner had I cleaned the slate, than I was back to my old ways, running up more debt. It never occurred to me that I needed to change my financial habits. Unless those habits changed, I’d be bringing the same flawed thinking to any new situation. This is precisely what hap-pened, as new debts began accumulating, soon after I’d refinanced my previous $130,000 debt.My financial fate might have been sealed were it not for an inter-vention. Sometime around 2010, I was introduced to a budgeting form while being coached by The CORE Training, Inc. The CORE is a nation-al coaching company for Lenders and Realtors with a focus on helping them run a business while accumulating wealth. You can make all the money you want, yet if you’re not savings it and growing it, then you’re not taking full advantage of the time and energy you took to make the money in the first place. The important thing is that I got the budgeting form, learned how to use it and have been turning it into my coach every month since 2010. And with that form, I’ve been able to create lasting change in my financial life, ever since.Let’s talk now about the budgeting form. It’s transformed my fi-nances and I believe it can do the same for yours too. For that reason, I’ll be giving you The CORE Training monthly budgeting form with this book. Armed with the form, you’ll be able to see - as promised - exactly how to set a budget.

27The first thing you should know about budgeting, as we dig into the specifics of it, is that I do my budget monthly. On the first day of the month, I’ll set the budget for the following month. In doing so, I’ll write down all deposits from the previous month and all expenses. This allows me to keep track of every bill and know when something is out of whack. If, for example, my water bill is significantly higher than in a previous month; I’ll notice it. The unusual water bill is more than just an example. It happened to me and budgeting allowed me to immediately spot the issue. Turns out I had a leak. Hardly the end of the world. But imagine not having a budget. Then, the larger water bill would’ve come out of my account automatically (most of my bills are on auto-pay) and never raised any red flags. Apart from water bills, having a budget also allows you to spot “par-asitic bills”. These are the little subscriptions for services you never use. $9.99 per month here. $14.99 per month there. Little seemingly inconse-quential charges that like tapeworms or leeches, slowly suck the life out of you. They’ll figuratively bleed you dry, unless you’re tracking expens-es with a budget.Going even deeper now, tracking expenses means following the form I’ve alluded to. That would be the budget form. Let’s begin on it… Your first step will be to download the form at this website - http://www.homebuyerplaybook.com/resourcesOnce you have the form, it’s time to tackle expenses. Enter your ex-act expenses by name, along with the names of any creditors you owe payments to. Make sure that the information for your expenses and creditors replaces the samples in the form. Those samples are intend-ed as a guide, showing potential expenses you may or may not have. Remove them to avoid cluttering the form and confusing yourself. After entering expenses, head online and locate records showing the last 12 months of your checking account(s), savings account(s), and credit card(s). Depending on who you bank with, this information will

28likely be online and printable. If for some reason it isn’t, a quick trip to your bank may allow you to obtain the necessary records. Your goal in locating these records is to itemize and accurately re-view all your previous expenses. As you undertake this process, it’s like you’re stepping on a scale. Any doubts will vanish, and you’ll immedi-ately be able to see how much “weight” you’re carrying. Since we’re talking finances, “weight” would be the bills you’re pay-ing each month. You might be considered “overweight” if you had bills for goods and services you don’t use. Like belly fat, bills for unused items just hang around, weighing you down. You could also be “overweight” if you’re saddled with excessively high bills. Here, the problem isn’t that you’re not using a given item or service. Rather, the issue is that you’re “consuming” too much. It would be like eating too much corn. Corn makes an ideal example because, as you may know, it’s a vegetable. Assuming you have real corn (versus GMO garbage “corn’), there’s nothing intrinsically wrong with eating it. Yet if you were to go crazy, eating too much corn, you could end up gaining weight and developing belly fat. That’s comparable to having excessively high bills. What you’re paying for isn’t the problem. The issue is how much you’re paying, relative to normal levels. Everyone’s different, no doubt. But I’m personally of the mind that paying $500 each month for a phone bill would be excessive. I’d also label as “excessive” monthly expenses of $600 for haircuts and other grooming. Spend what you will, on whatever you want. Just try to keep an open mind on your expenses, realizing that some of them may have grown to unreasonable, even excessive levels. An accurate review of all your financial records will help you spot ex-cessive spending. As you conduct such a review, using the form that you downloaded; let me remind you that you’re taking a look back. That’s different from a budget, which will be a future plan for a set period of time. Picking up again with the form, let’s look at the first column. This is where you can put in the name of the creditors (if any) who you owe money to, along with the current balance owed. As an example, you

29might enter “Toyota $9,087” (for a car you’re paying off) or “MasterCard $3,923” (for a credit card balance you’re paying down).Having balances in the first column allows you to keep a monthly running tally of how much you owe everyone. Admittedly, this can be a little scary in the beginning. I, for example, wasn’t particularly relaxed when seeing my debt - at one point over $134,000 - in that first column. It chilled me to the bone, just as debt of any level may do for you. Ultimately, though, having the monthly running tally gives you a starting point. Once you have this point established, it can serve as a baseline to measure your progress against.Now for Column 2. In this column, you’re going to come up with your so-called survival number. This number will be the minimum amount of money that you, personally, need to survive each month. By “survival”, I mean paying the bare minimum on everything (gas, cell phone bills, groceries, etc.). Since each of us has different needs, the survival number you settle on will undoubtedly differ from mine, and that of other people as well. It’s a relative number, unique to you and your current situation. Having a survival number established puts you in a position where you have excess money. The excess money is what’s left after you’ve paid the minimum amount for your monthly expenses. With the leftover cash, you can then use it to get ahead financially. To get ahead, you might put the excess money toward paying down debts. You could also create an emergency fund (equal to three times your survival number) or just put the surplus into your savings to grow. Any of these options would be available to you, as a direct result of knowing your survival number. Back in our form - the one we’re filling out - it’s time to focus on Column 3. Column 3 is where you’ll put in the actual budgeted amount. This means entering the amount you’re actually paying. With this column (Column 3), it may be a different number than Column 2. That would happen, for example, if you’ve paid more on your credit card or if your electric bill were actually lower/higher. In most in-stances, though, you can expect the totals in Column 3 and Column 2 to be the same.

30After Column 3, head over to Column 4. If you over-paid your mortgage, car payments, credit card bill, or installment loans; enter that amount into Column 4. Overpaying? Yes, you read that correctly. It means going beyond paying your debts to actually overpay them. That may sound weird to you, but don’t be deterred. Overpaying is actually beneficial because psychologically, it’s reinforcing the habit of paying down debt to ulti-mately save money. Speaking of saving, if you have any leftover money from what’s earned versus what was spent in column 3, you can now put it into sav-ings or an investment of some sort - also going toward Column 4. Now for Column 5, which is income from the previous month. Completing this column simply means entering in your paycheck and any refunds that hit your checking account or credit card. At this point, the form we’ve just discussed probably sounds ab-stract to you. You know in general what should go into each of the five columns. But you’d probably appreciate seeing a fully-realized example. To that end, here’s an example of our form, with its five columns fully complete… In the example image above, you can see that the survival number is $4,100. The spending (shown in Column 3), by contrast, is $4,600. And the amount from earnings and refunds, to enter in Column 5, is $7,500. This results in $2,900 left over for savings. On a side note, the total of Columns 3 and 5 will always match. If it doesn’t, you’re missing some money. You’d then need to retrace your steps and determine where the money went.

31 Whew! That was a lot of material, wasn’t it? A lot of numbers, rules, and overall “moving pieces” to keep track of. If you’re head’s spinning, so to speak, from all the material; that’s OK. To use a very cliched metaphor, what we’ve just covered is like learn-ing to drive for the first time. In the beginning, it seems overwhelming to focus on steering, while checking the mirrors, applying the brakes and gas pedal, and monitoring the car’s dashboard. In time, though, you’re able to do all those things, along with eating, adjusting the radio, and carrying on conversations with your passengers. That’s exactly how it’ll be with budgeting. Give it time and continue to run through the form. You’ll soon find budgeting becoming as straight-forward as driving. On second thought, unlike driving, budgeting doesn’t just get easier. It becomes downright addictive. You get addicted from seeing the debt go down and the sav-ings go up. I know that from experience, having completed 145 monthly budgets (as of this writing) and climbing. With so many budgets completed, I’d probably get “withdrawal pains” if I stopped budgeting. It just feels so good to save and accumu-late wealth. Hopefully, you’ll embrace budgeting and soon develop a similarly positive “addiction” to the resulting savings and accumulation of wealth.Nonetheless, what we’ve just discussed will not work unless you do. That means you’ll need to actively focus on budgeting. I know it seems obvious, but the truth is that life often gets in the way of changes we’d like to make. As a personal trainer, I used to see this all the time. An overweight person would come in, with every intention of getting on a workout plan and becoming physically fit. They’d do a workout or two. Then daily life would seemingly get in the way. Demands at work, traffic delays, family commitments, and other issues would arise - all of which interfered with the person’s ability to work out. In time, these issues would seemingly “strangle” to death any intentions the person had of working out and getting fit.

32This example from personal training applies directly to budgeting. For life can also get in the way of your efforts to budget. You may find, for instance, that various things in your daily life seem to “conspire” and keep you from being able to concentrate on budgeting.There is, however, a simple solution you can readily adopt. The solu-tion is to block time for budgeting. When you block time, you commit to budgeting on a specific day and time. Think of it as making an appoint-ment with yourself to budget. The appointment can also be attended by your significant other and your children (depending on their ages and interest level). I rec-ommend including a partner/spouse because money is supposedly the leading cause of divorce. You can therefore keep money from wrecking your relationship by making budgeting a team effort. Bring your part-ner/spouse in. Let them join you in having a shared sense of financial purpose. When should you block out time for budgeting? Aim for the first Saturday of the month. That’s when I do my budget. On the first Saturday, I’ll get up a little earlier, usually about an hour or so. My bud-get will be ready to fill out, so I can get started immediately. I’ll also know ahead of time which statements to look at and I’ll have a system in place for tracking down any other information needed to complete my budgeting form. For systems to track down information, you might use your online banking system. Several of my clients do this. With their online bank-ing systems, my clients have access to software which monitors their ex-penses and enables them to enter the totals into their excel form. Another option is to rely on a system from Mint (Mint.com). It’s a free online software that you can link your financial accounts to. Once the accounts are linked to it, Mint will sort and categorize various infor-mation among the accounts. Information that will be highly useful to you when you sit down for a block of budgeting.As you’re budgeting, I want you to ALWAYS remember the follow-ing phrase…“A look forward not a look back”.

33That phrase underlies everything we’ve talked about on budgeting. If you remember nothing else from this chapter, please remember that one on budgeting. It’s a look forward and NOT a look back. The idea there is that if you simply write down what you’ve spent the previous month and don’t plan out the next month, you’re only looking backward. Hindsight as the saying goes, is 20-20. It’s useful sure, but it does nothing to move you forward. In lieu of any forward motion, you’ll likely find yourself trapped in the same debt cycle. If you’re in doubt on how terrible this cycle can be, just think back to my story. Remember how much of a “hole” I dug myself into? I was in deep, with over $134,000 in debt. The only thing that saved me was the equity in my home and being able to wipe the slate clean. Imagine, though, that I didn’t have that debt. What if I’d instead been able to invest that $134,000. Then the money would have turned into a quarter of a million dollars in the bank. Crazy, right? Yeah, and you know what’s crazier? The amount of money you can probably accumulate. Knowing what you do now about budgeting, you’re already financially smarter than I was when in debt. Armed with that knowledge, plus the other principles in this book, and some good old fashioned hard work; you’re in a much better position than me (at least back in my debtor days) to accumulate wealth. At this point, we’re nearly at the end of our discussion on budgeting. Before we ride off into the proverbial sunset, let’s cover some budgeting “hacks”. These are seven tips and tricks around budgeting which I wish I knew sooner. 7 BUDGETING HACKS8) The 4-Stage PlanEarlier in this chapter, we spoke about financial freedom and its role as a higher purpose to keep you on track with budgeting. While the dis-cussion was probably useful, I realize now that we could have been clear-er on what it looks like to achieve financial freedom.

34Driven by that realization, I’ve come up with a four-stage plan. In this plan, each stage is a checkpoint that will clearly show where you’re at on the road to complete financial freedom. Your checkpoints (i.e. the four stages) are the following:Stage #1 = No Sleepless NightsThis first stage is about getting out of debt and onto solid ground financially. More specifically, it means having a year’s worth of your monthly expenses (based on your survival number) fully paid. Reach this point and you’ll no longer have - literally or figuratively - any sleep-less nights. Stage #2 = No Sleepless LifeIn the second stage, you’re building on your progress from Stage #1. Going further now, your goal is to turn one year (from Stage #1) into the rest of your life. So you’ll now have all of your expenses fully paid for the rest of your life, with the assumption that you’ll live to be a hundred years old. Stage #3 = No Sleepless Wife (and other family members)Want your wife, kids, and/or other family members to sleep more soundly? Stage #3 is where you make it happen. With this third stage, you’re extending a lifetime of financial freedom to those in your family. This means you’ll endeavor to have all of your family members’ expens-es covered for the full extent of their lives. Achieve this goal and neither you nor they (your family members) will ever be required to work a day in their lives.Stage #4 = No Sleepless StrifeLast but not least comes Stage #4. By the time you get here, your purpose has expanded to include the members of your community. It’s no longer just about your economic well-being or the economic well-be-ing of your family members. Instead, you’re taking aim at the economic strife present in your community. And you’re working as a philanthro-pist to improve the situation.

359) Make Cheating Difficult If you’ve read any pop-psychology books recently, you may be fa-miliar with the idea of “willpower depletion”. It’s the idea that each of us only has a finite amount of willpower each day. Once our willpower is used up (“depleted”), we may find it difficult or even impossible to maintain discipline.Personally, I’m not 100% on-board with this idea. I can see it being misused as a convenient, science-based excuse by those who prefer not to step up and practice discipline. At the same time, I’ll concede that willpower itself sometimes isn’t enough. This is why I recommended having a strong sense of purpose, to make you less dependent on pure willpower. It’s also why I’m recommending this second hack here.Your second budgeting hack is to make cheating difficult. Meaning you stack the deck against cheating, in advance, further reducing your dependency on pure willpower. As an example of how you might do it, let’s say you’re trying to curb impulse purchases. How might you “rig” the situation, so as to avoid impulsively buying things? You might make it a personal rule that for any purchases over $100, you must wait 24 hours first. With the 24-hour (or 48-hour, 72-hour, etc.) wait, you’re giving your-self a cooling off period. A chance to step out of the heat of the moment and think rationally about the impending purchase. With a little time away, you may come to the conclusion that the purchase is unnecessary. If not and it is necessary, you can now move forward confident in the knowledge that you’re buying rationally as opposed to impulsively and emotionally.The “cooling off” period is just one instance of how you can make cheating, in a financial sense, difficult for yourself. Get creative on this and you’ll undoubtedly come up with your own unique solutions. Depending on what those are, feel free to email me and share them – greg@runtheplays.com

3610) Find An Accountability PartnerContinuing the idea from the last point (#2), on reducing the need for willpower alone; here’s another budgeting hack. This hack is to find an accountability partner. With an accountability partner, you can es-sentially “outsource” willpower to someone else. That someone will be your accountability partner. As a partner, they’ll keep you accountable for creating and then sticking to a budget.What’s in it for them, though? In other words, why should your ac-countability partner go out of their way to help you with budgeting?That’s certainly a valid concern. In response, I’d encourage you to take your time in finding an accountability partner. “Take your time” doesn’t mean procrastinate and never get an accountability partner. But it does mean that you avoid rushing in and thrusting the role of accountability partner on the first person who comes to mind. Rather, you should carefully consider who might be your accountability partner and how to properly incentivize them.Of the people who could be accountability partners, your spouse (if you have one) would be an immediate choice. Your spouse probably holds you accountable on most things already, so it’s simply a matter of adding budgeting to the list. If you don’t have a spouse who can hold you accountable, your ac-countability partner might be a close friend or a family member. It could also be someone who works in the financial space. If you went down that track, hiring an independent expert from the financial space, I could potentially be your accountability partner. I mention that because I’ve consulted with countless individuals, helping them to stay accountable when it comes to budgets. While I’m happy to help you, please don’t automatically make me your accountability partner. I’ve mentioned it simply as food for thought, so you have another option on the table when thinking about who can hold you accountable. Review all of the options and then make the decision. This will ensure you’ve got the right accountability part-ner - someone who’s aligned with you personally and has the long-term motivation to stick around.

37 11) Go “Old School”Spreadsheets, apps, and other tech tools can all be of great help to you when you’re looking to budget. Nevertheless, there’s still something to be said for the “old school” methods of budgeting. Those would be the methods of budgeting that existed back when “#” was the pound sign on a telephone and birds were the only one’s tweeting.If you’re going “old school”, check out the envelope method. It’s about as “old school” as you can get. The idea is simply to carry cash in an envelope. The cash you carry is your allowance for spending in a given month. It could be $200, $2,000, or perhaps as high as $200,000 (**in that case, this might become “the suitcase method”, as you’d need a suitcase to hold that much cash). No matter what the amount, it’s all you can spend during each month. Once the money in the envelope (or suitcase?) is gone, you’re done for the month. You may want to spend more, yet physically there’s no more cash to spend. You’ve thus placed a simple, yet effective limita-tion on yourself - one that’s bound to make you more cautious as you’re spending money each month. 12) Reward YourselfAnother way to “hack” budgeting is to sprinkle in rewards. Rewards give you something to look forward to, as you’re following a budget and becoming more financially disciplined overall.What’s your reward? It could be anything really. You might, for ex-ample, reward yourself with a fine meal out, once you’ve paid off the debt on your smallest credit card. Psychologically, that’s going to make it way more fun for you to steadily pay down the card. You’ll be eager-ly anticipating the occasion with each payment on the debt. And then once the card’s paid off - look out! You’ll roll into that restaurant with enough enthusiasm and energy to power Manhattan for a month.I’m exaggerating, of course. But you get the point. Having rewards gives you a so-called light at the end of the tunnel. It’s a purpose, yes, but one that’s more self-indulgent.

38Don’t let that word “self-indulgent” throw you off either. It’s per-fectly acceptable to be driven by the thought of indulging yourself with a meal at a restaurant. I wouldn’t recommend making this your only motivation, since having a higher purpose will ultimately be far more satisfying long-term. Yet self-indulgence still has its place, in the context of rewarding yourself for good budgeting behavior.On the split between self-indulgence and higher purpose, you might take a lesson from one of my clients. This particular client had a prob-lem with eating out. He was a consummate professional - or rather a “consume it professional” - eating his way through restaurant after restaurant. My client may have left each restaurant with a full belly, yet his wal-let was starving. Eating out five days each week left my client’s wallet practically emaciated. In this instance, my client clearly had a purpose. His purpose was to attain financial independence and progress through the four stages covered earlier. This higher purpose couldn’t be achieved, however, by continuing to eat out so frequently. The solution for my client was reducing his restaurant time to one meal out per month. Given how drastic a change this was, after twenty meals out each month (5 meals out per week X 4 weeks in a month); my client needed a reward. He needed a guilt-free indulgence to sus-tain him, at those times when the higher purpose alone couldn’t. The indulgence was that he could spend up to $200 on his one meal out each month.Two hundred dollars is a lot of money where restaurants are con-cerned. My client, however, could afford it based on how much more money he’d saved in cutting down his monthly restaurant time.Another point here is that my client was saving money versus re-cycling it. To put that another way, he wasn’t taking ALL of the mon-ey saved and spending it on a different thing. This matters because it would be easy to hear his story and then get a warped view of “rewards”. A reward, for example, is NOT paying off a $1,000 car loan and then rewarding yourself with a $1,000 iPad. It would instead be paying off

39the $1,000 car loan and rewarding yourself with something such as a $30 concert ticket. Catch the difference? Rewards aren’t “tit-for-tat” thinking. They’re intended to be satisfying, yet require far less money than the amount you’ve paid off or saved. 13) Keep An Emergency FundAs I write this, it’s the summer of 2020. We’re well into a tumultuous year that seems like something only screenwriters in Hollywood could come up. We’ve seen a global pandemic with the Covid-19 virus. There’s also been economic instability, as the virus has brought the world’s econ-omy to a halt. And, here in the U.S., we’ve seen unprecedented levels of political unrest and rioting too.I strongly hope that by the time you read this, all of that chaos has been resolved. Even if it has, however, further crises are practically inev-itable. Therefore, as the sixth of our budgeting hacks, I recommend you keep an emergency fund. Shift happens, as the saying goes, and this is the fund for when the world shifts in an unpleasant way.Your emergency fund should be equal to at least three months’ worth of your survival number. Ideally, you can have the fund be equal to at least six months’ worth. This way you’ll be able, as the poet Rudyard Kipling once said, to “keep your head, when others are losing theirs”. 14) Pick Some BrainsWho do you know that’s really good with money? Whoever that per-son happens to be, make it a point to hang out with them and ask ques-tions. “Pick their brain”, as the expression goes, by respectfully asking for their take on whatever you’d like to know, financially.You can also “pick the brains” of those outside your immediate cir-cle. For those elsewhere, see if they’ve written books or blogs. The right book or blog article could show you how a financial “wizard” thinks and provide powerful insights for your own life.

40In addition, if the financial “wizard” you’re learning from is still alive and/or accessible; I’d strongly recommend contacting them. Email can be useful here because we live at a time in which almost anyone of importance is just a well-conceived email away. Don’t be afraid then to reach out for more advice from those in finance, who’s brains you’d like to figuratively pick. Home ownership, remember that? We’ve covered so much material in this chapter, that you could easily have forgotten about it. Still, home ownership is what all of this discussion is aimed at. We’re covering the fundamental elements, like budgeting, so you’ll be on track to fulfilling the so-called “American Dream” of becoming a homeowner.The next of the fundamentals for us to discuss in home ownership is credit. As someone who once had 17 different credit cards; I can assure you that credit is important. Handle your credit the wrong way - like me, with 17 cards - and you can find your dream of home ownership slipping away. The dream can go from believable, to seeming more like an unre-alistic “pipe dream”. To keep that from happening, you need to master credit. And that’s exactly what I’ll be helping you to do in the following chapter. Say goodbye now to budgeting. We’ve covered it in enough detail to make you “dangerous”. It’s time to do the same for credit, providing you with the essentials in this second vital component of home ownership…

41CHAPTER 3CREDITT N E P      . If you’re a football fan, you’re probably well aware of that. If, on the other hand, football’s not your thing - don’t worry. There’s undoubtedly a team to dislike in whatever sport you follow. In baseball, it’s the Yankees. Basketballs got the Lakers. And with enough research, we could probably find out which team everyone dislikes in the wildly obscure sport of underwater hockey.Haters everywhere, no matter the sport. But why?One reason - of many, no doubt - is bound to be the success achieved by each team. That’s not to dismiss the haters as simply being jealous. It’s only to point out the obvious fact that when others achieve success, it can be tempting to hate them.The temptation to hate often comes from the sense that those who won, achieved their success through unfair means. Take the Patriots, for example. They’ve been accused of unfairly spying on other football teams. Another of the teams we “love to hate”, the Yankees, have also been called out for acting unfairly. In the Yankees case, haters feel it’s unfair that the Yankees can vastly outspend other baseball teams in order to retain the best players.Unfair? Maybe. But that’s not a very empowering position, is it? A far more empowering one would be to learn the rules yourself and then use them to innovate the game. Taking that latter position is exactly what I’d recommend outside of sports too. In other arenas (no pun intended), it’s equally empowering to have a knowledge of the rules and a willingness to ethically exploit them.

42One of those other arenas would be credit, the subject of this chap-ter. Look at the “credit game” and you may be overcome by the sense that it’s unfair. It can seem horrifically unfair, for instance, that a single stupid number (a.k.a. your credit score) can keep you from buying your dream home. Or what about credit reports? Think how unfair it is that some people can have a better credit report than you, despite the fact that they’re oblivious to how the credit game works. Unfair? Again, that’s not the thing to focus on. Instead, we want to focus on the rules and how to use them to our own advantage.Let’s get into that now, kicking off our discussion on credit. First things first - what exactly is “credit”?Credit as we’ll define it here, is a numerical value which reflects your ability to repay businesses, banks, and others who’ve loaned you money.Beyond this initial definition, it’s vital that we also define credit as being highly relative. By “relative”, we mean two things. One is that credit varies from person to person. This makes sense when you consider how different we all are, with respect to our backgrounds. You, for example, may have student loans from attending a universi-ty, while a friend of yours may not. Your friend, however, may have sub-stantial credit card debts, a bankruptcy in their past, or be unemployed. Hopefully your poor friend isn’t saddled with all three of those prob-lems at once (credit card debt, prior bankruptcy, and unemployment). Still, regardless of what problems they have, your friend’s situation is different from your own, causing their credit to also differ. The other meaning of credit being “relative” is that it differs based on how it’s evaluated and who’s doing the evaluation. You’d see this, hypothetically-speaking, if me and a car dealer both pulled your credit. The credit score which I provided you with would inevitably be different from that of the car dealer. Depending on how different the scores were, you might conclude that one of us (me or the dealer) was being dishon-est. While dishonesty is certainly a possibility (on the dealer’s part, not mine!); relativity would be a far more likely explanation. In other words,

43since the dealer and I are different people in different fields, we would each have looked at your credit differently and come to different scores as a result. Different.Different.Different.That’s the keyword for you to keep in mind when it comes to credit. Your credit is going to be different, based on who you are, who’s looking at your credit, and in what context they’re looking at it. In light of the differences just discussed, it’s important to be strategic about where you’re getting your credit score from. Make sure whoever you’re going to, for a credit score, will provide you with a score that can actually be used in achieving your objective. You don’t want to rely on the credit score you get from a car dealer when attempting to get a mort-gage. The score from the dealer won’t help you get better terms on the mortgage. Moreover, relying on the dealer’s score as an indicator of your credit may set you up for major disappointment. Think of how disap-pointing it would be if the mortgage banker calculates the credit score, they’ll actually be using and it’s much lower than you’d anticipated. Avoid the disappointment by aligning your goal with the person giv-ing you a credit score. If you’re looking for a car, rely on the credit score from a car dealership. If you’re after a home and that’s your goal, get a mortgage broker to pull your credit.Admittedly, this may all seem obvious to you. As obvious for exam-ple, as NOT hiring a tennis coach for help improving your basketball moves. Or going into a shoe store and expecting to leave with a chicken salad. Obvious as it may be, many of us still get tripped up. At least when it comes to credit. The reason for this, as I see it, comes back to credit being relative. Since it’s relative, credit is hard for most of us to figuratively grasp. It’s like a slippery fish which routinely slides away, right when we try to get a hold of it. In our efforts to grab that darn fish, we may lose sight of the obvious. We may fail to realize, in this analogy, that there’s a fish net sit-ting only a few feet away from us. With the net, catching the fish would

44be a simple matter. But like the “obvious” in discussions of credit, the net can also get overlooked.My goal in this chapter is to help you avoid missing the “obvious” when it comes to credit. Our discussion so far has been aimed at just that. Let’s continue on it now by answering a question that’s bound to have crossed your mind…“If credit is relative and can vary so greatly, how do we get clear, reli-able answers on it?”How, you ask? By using another “obvious” thing - FICO scores.FICO scores are “obvious” because they’re the best-known and most commonly used type of credit score. Lenders have repeatedly made use of FICO scores - using these scores to assess a consumer’s creditwor-thiness for everything from car loans to new mortgages to refinanced mortgages.As for the FICO score itself, it’s on a range from 300 to 850. The high-er your score along this range, the less “at risk” you are for defaulting on loans. Confused yet? Probably not, on what the FICO score is. But I’ll bet you’re confused right now on how FICO scores fit with everything we said earlier about credit scores being relative. It probably seems like a contradiction to say credit scores are relative, and then only a page or two later, to describe what appears to be a uniform “one-size-fits-all” credit score. Seriously, which is it? Is credit relative and something to approach case-by-case, depending on your goals? Or should we follow the FICO score and quit this indecisive “it depends” business?Do both.That’s my advice. Do both. Use the FICO score as a general barom-eter for how you’re doing with credit. Then when you’re pursuing a par-ticular goal, go industry-specific with your credit score and who’s giving it to you. Returning to discussion of the FICO score, the next thing to know is that there are currently three credit reporting agencies or credit bureaus,

45that report your score. These three national credit bureaus are Equifax, Experian, and TransUnion. Collectively, the three bureaus compete to capture, update and store credit histories on most U.S. consumers. To understand what the bu-reaus are doing with your credit, it’s helpful to imagine a scale. By “scale”, we’re talking about an old-fashioned one. Not a digital scale, or more likely - a scale app that you can download. No, this is a scale in the original sense. One with two plates, on opposite sides and held up by a chain. Like the kind of scale you’d see at a farmer’s market. The kind of scale you might also see referenced in court - as with a blind justice weighing cases equally and without bias. With the scale, the important part is for its plates to be balanced. That means if you put a ten-pound object on one side, you must also add ten pounds on the opposite side. If you don’t add the second set of ten pounds, the scale will be lopsided. One side of the scale will be down (the one with the weight) and the other side (which lacks the weight) will be elevated. How does this relate to credit?The connection is that with credit, you have one side which is “bad” and one side which is “good”. If you have a low balance on a credit card, that will add to your “good” side. If, on the other hand, you have a high balance in relation to your credit card balance, that would add to the “bad” side. This interplay between the “good” and the “bad” is called credit utilization and it’s one of the factors that goes into determining your score. Getting more specific, credit utilization is defined as the ratio of your outstanding credit card balances to your credit card limits. This ratio is what we were alluding to in our scales analogy. The scales were meant to represent the two parts in the ratio and the need for them to be balanced out. On a practical level, credit utilization matters because it indicates the amount of available credit you’re using. As an illustration of credit utilization, suppose your balance on a credit card was $300 and your credit limit was $1,000. Your credit utilization for the credit card would be 30% (from ($300 / $1000) X 100% ).

46 Important as credit utilization is, it’s not the only thing that goes into determining your credit score. Examine FICO scores and you’ll find that they’re calculated using a variety of other pieces of credit data from your credit report. The data is grouped into five categories. Each catego-ry, in turn, accounts for a specific percentage of your overall FICO score.The five categories and their respective percentages are as follows: payment history (35%), amounts owed (credit utilization) (30%), length of credit history (15%), new credit (10%) and credit mix (10%).Since the 5 categories and their percentages may seem a bit abstract to you, I’ve included a diagram below. The diagram takes all we’ve said about the categories in your FICO score and simplifies it in a single col-orful image. Following the FICO score diagram above, let’s now walk through the other categories of credit data.The next category for us to cover is length of credit history. As we get into this particular category, it’s worth taking a moment to discuss a related idea. The idea I’m referring to is that you should cancel any credit cards you’re not using.Logically, it seems to make sense that you’d cancel a credit card if you weren’t using it. After all, what good is having the card if it just sits around? Wouldn’t it be better to cancel the card, especially since many credit cards have annual fees?

47Having had 17 credit cards myself, I can appreciate your point on canceling unused cards. It does seem a bit silly to hang on to credit cards you’re not using. Here’s the thing, though. Canceling a credit card also cancels out the history on that particular card. So if you’ve had a card for say ten years and responsibly paid it off each month; canceling the card wipes out that ten-year history. You therefore lose a powerful indicator of your trustworthiness and ability to repay debt. All because you acted in what seemed to be a responsible way, by canceling the unused card.Instead of canceling your unused credit card(s); I recommend cut-ting them up. Take scissors and slice up each card. This way you’ll be physically unable to use each credit card, while still maintaining the his-tory on it.Want to take your slicing and dicing to the next level? Then don’t just cut up your currently unused card(s). Call the credit card company and report the card(s) you’ve just destroyed as being “lost”. You’ll then receive replacement card(s) in the mail.Now grab your scissors again. It’s time to slice and dice the replace-ment credit card(s), just as you did before. This time, however, you’ll have more than just a credit card (or cards) you can’t physically use. You’ll also have made it impossible for anyone else to use your card(s). The benefit here is that you’ll no longer be charged for subscriptions to things you don’t use or need. You’ll no longer be charged because quite simply, you can’t be charged. Your old card(s) which were tied to the subscriptions don’t work. And you’ve destroyed the replacement cards, so those cannot be added in either.Slicing and dicing your credit cards can be a great way to rein your-self in on credit. Nonetheless, don’t get the wrong idea. Credit cards are not inherently “evil”, and you can still have them. My suggestion is to have a grand total of…one credit card. Just one. Keep it around for per-sonal use. Or if you run a business, you can go really “crazy” and start “living large” with…two credit cards!Two credit cards should be your upper limit, though. Otherwise, I believe you’ll begin to set yourself up for failure. You may plan, for in-stance, to get just one more card. But then “one more card” can become two, three, four, and eventually…fifteen more cards. Imagine having

48seventeen different credit cards? You already know how that worked out for me. How it turned me into a nervous wreck. And how weak I felt, despite being physically able to bench press over two hundred pounds at the gym. Learn from my mistake and stick with one or maybe, maybe, two credit cards tops. What about credit history? Weren’t we supposed to talk about it?Relax, I haven’t forgotten. We just talked about canceling credit cards because it ties into credit history. The link, if you’ll recall, was that canceling a credit card also wipes out your credit history for that specific card. This was why we’d talked about cutting up cards, positioning it as a viable alternative to canceling them altogether.One last thing to say on canceling credit cards is that there is an ex-ception. To me, the exception is after you’ve purchased a house. At that point, you could cancel any credit cards which have an annual fee - pro-vided the fee is not giving you any immediate returns. Returns would mean, for instance, paying $100 annually on a credit card and getting well over the $100 in credits toward things like airline miles, hotel re-wards, or even cash. And, on top of that, the card has low interest and you’re paying it in full every month. A card like what I’ve just described would be worth keeping, despite the annual fee. For those cards which did not provide such benefits, however, you’d be well to cancel them. You could justify the cancella-tion now because you’d already have purchased a home. With the home purchase, you’d have some leeway on credit card histories. It wouldn’t be as big a setback for you to lose a given card’s history, as when you were building up your credit in pursuit of a mortgage. Besides, who’s to say you couldn’t find a suitable credit card that had rewards but no fees? Such a credit card may appear elusive. But unlike other elusive creatures (Bigfoot, UFO’s, etc.), it actually exists. OK, tangent’s over. Back to credit history. Recall our analogy with the scale. It’s relevant here because the longer you have a credit card, the more positive weight is added to the good side of your scale. With each passing month, you can see the scale

49shifting. Every month adds more and more weight, directly helping to offset the bad side of your scale. As the offsetting occurs, your credit score increases.Can you see now why I’m vehemently against canceling your cred-it cards, or at least waiting until after you’ve bought a house, a car, or anything else that relies on your credit score? I don’t want you to lose the gains you’ve made, as the scale has shifted positively with good off-setting bad. Good things take time, and your credit history is case in point. So let time take its course. Let the months turn into years, and years turn into decades. I’m not suggesting, by the way, that you need to spend decades wait-ing to purchase a home. You can purchase a home in far, far less time - believe me. My point is only that your credit history takes time to devel-op. Knowing this, give your credit history the time it needs to blossom.While you’re at it, don’t fall for that old myth about a low credit balance somehow being negative. I used to hear it, and it’s just not true. Creditors do not lower your credit score if they see you have a long credit history yet keep a relatively low balance. If anything, they want to see that you’ve had a credit card for, let’s say, five years and keep a low bal-ance on the card, compared to the credit limit. A performance like that looks amazing in the eyes of a credit bureau and should be your goal. Anything else on credit history? Nope, we’re good. Onward then, to the next component which goes into determining your FICO score. The next component, from our earlier diagram, is payment history.Payment history refers to the time in which you make your pay-ments for any credit cards. For the card(s) you have, do you make your payment(s) on time? Or are you frequently paying late?These would be simple questions to answer, were it not for the fact that “late” has a few different meanings. There’s “late” with the creditor, where you may be a few days behind on a payment. In this instance, the creditor lobs a fee at you - almost as a slap on the wrist for being late.

50There’s also thirty days late, where your creditor is now obligated to report you to the credit bureaus. As you might expect, this second case of being “late” is far worse. The reason is that being reported to the credit bureaus places a huge weight on the bad side of your scale. The credit bureaus can see your lateness and they’ll include it in your credit history. With the inclusion, your credit score will now be burdened by the figurative weight of the lateness. In the scenario we’ve just described, where you’re reported to the credit bureaus for being more than thirty days late on a credit pay-ment; it would be an understatement to describe things as being “bad”. Naturally, no one has died or sustained life-altering trauma. But where your credit is concerned, things are definitely looking bleak. All is not lost however. Like a football team, behind in the fourth quarter; you can still mount a Hail Mary. For the non-football fans, a Hail Mary is a play where members of a losing football team throw a long pass toward the end zone as the clock is running out. The pass is thrown in the hopes that someone on the losing team can reach the end zone and catch the pass, thereby scoring a final, potentially score-alter-ing touchdown. Do Hail Mary’s always work? No, of course not. Yet they can work, and that’s what makes such plays appealing in the face of apparent defeat. Your own Hail Mary, with credit reports, is to call the creditor and beg them to remove the lateness. Beg? Yeah, I know it’s not the most desirable thing to do. Still, if you can just swallow your pride for a moment and try it, you’ll probably be amazed at the results. I say that after having coached countless clients to call their creditors. Time and again, my clients have made the call, got-ten the lateness removed, and seen their credit scores improve thirty to fifty points. All from a single phone call. Or in some cases a few phone calls, as it may be necessary to call a creditor repeatedly until you get a sympathetic person on the line. Whether you’re calling creditors or just thinking about credit in general, it’s important to also be aware of a new change. This change

51involves credit reporting for mortgages. It’s not score-related, but can still affect your ability to qualify for a mortgage. What’s changed is that the credit bureaus are now tracking which day you make your payment on. As a result, a mortgage company that pulls your credit history can now see both your history in regard to pay-ing on time and which day of the month you’ve been paying on. Now why would anyone care when during a given month you make your payments? Isn’t it enough just to know you’ve made your pay-ments? Not exactly, and you can see why in the following example. Take two people who are paying their debts down each month. One of these fine folks consistently pays their credit card or car payment around the fifth day of every month. The other person has the same exact bills yet isn’t as consistent on payment dates. Instead, they (Person #2) sometimes pay on the first of the month, sometimes on the eigh-teenth, sometimes on the twelfth, and so on. Now in fairness, Person #2 is never thirty days late on their pay-ments. The issue, though, is that their payments are sporadic. This may become an issue when assessed by the software that banks use to qualify people for mortgages. Should Person #2 lose sleeping worrying that they’re less likely to get approved for a home? Probably not. All the same, they should recognize that Person #1 - the one who makes their payments around the same time each month - has a slightly better chance of being approved. How much more of a chance?Hold that thought for now. It’s a bit of a tangent to our main dis-cussion on credit, and I don’t want you to get distracted. Rest assured, we’ll absolutely be coming back to this and answering your question in depth, in an upcoming chapter. After credit history, the next component that makes up your credit score is new credit. New credit usually entails opening a new credit card. When you do that, you may see your credit score drop by a couple of points for the

52first one to two months. Following this period, you’ll then begin build-ing the history and payment record behind the new card.While we’re on the topic of credit cards, it’s helpful to be aware of those cards which are secured. Secured credit cards, are credit cards which you “secure” with a de-posit. The deposit is what differentiates these cards from regular, unse-cured cards - where no upfront deposit is necessary. The value of a secured credit card can be seen in the following illus-tration. Let’s say you open a secure card by depositing $500 into a bank account. The bank would then give you a credit card which is secured by your $500. Having that card adds to the “good” side of your credit scale imme-diately. Your credit score stands to increase and may go up by as much as fifty to sixty points. I’ve seen this first-hand with clients who opt for a secured credit card. They get the increase because the card is tied to actual money in the bank. Since my clients have put actual money be-hind their card, versus borrowing money for it (as with a typical credit card); they look far more credible in the eyes of the credit bureaus. The bureaus will then raise their credit scores accordingly.Now, if you do decide to get a secured credit card; make sure you use a bank that reports to all three credit bureaus. This is tremendously important because sometimes a bank which issues your secured card may only report to one of the three credit bureaus. When that happens, only one of your scores will benefit from the secured card. Experian, for example, might then be the only one who knew about the secured card. The other two credit bureaus - Transunion and Equifax - would be oblivious to it. Without knowledge of your secured card, the latter two bureaus wouldn’t give you the improved credit score you rightly de-served. To preempt this problem, do yourself a favor and get a secured card from a bank which reports to all bureaus. Following secured credit cards, the next topic I’d like to give you the lowdown on is credit mix. It’s yet another of the factors which make up your credit score. Since this discussion is getting pretty dry, here’s a quick aside to lighten the mood. As you might expect, this chapter wasn’t written in

53one sitting. Instead, I’ve typed it out over multiple sessions. In a few of those sessions, fatigue’s crept in and the word “score” has become “sore”. Spellcheck in its blissful ignorance hasn’t cited this as an error. So, re-reading a few pages, I’ve found mentions of “credit sores”.Call me weird, but I find that hilariously appropriate. What’s hu-morous is that like a cold sore, your credit score also won’t go away. Both the sore and the score stick around, and they can be points of pain and embarrassment too. In addition, during times of financial stress - when, for example, you really really really want a home - your credit score pops up; just as a cold sore would, in times of physical stress.Maybe this analogy’s a stretch. But if not, it’s ironic that a mere typo could lead to an unusually fitting comparison. Anyway, let’s get back on topic and talk about credit mix. Credit mix comes into play both for your overall FICO score, and more specifically when you’re getting a mortgage for a home. Since this book is about providing you with the “playbook” for home ownership, our discussion on credit mix will be in the latter context - with mortgages. The ideal credit mix when you’re getting a mortgage is two revolving and one installment loans. Here, the term “revolving” is defined as a type of loan that does not have a fixed number of payments. “Revolving” can be applied broadly to credit, or loans specifically. It’s different than “installment” credit (i.e. a car loan or financial aid) where you have a fixed set of months to pay down the debt.As you might expect, banks will want you to have the ideal credit mix just described. It’ll make them more likely to grant you a mortgage. Along with that mix, banks also want to see a minimum of two years history and at least two tradelines (creditors) that have extended credit which you’re paying back. An example of this would be having a car loan for two years and a credit card for two years. If you had each of those, banks would say you had two open and active tradelines with a two-year history.Although some banks mandate you have two years of history and at least two tradelines; it’s by no means a universal requirement. We’ll be talking later about exceptions, during our discussion about retail banks, mortgage brokers, and private mortgage bankers. For the time being,

54just know that it’s typically retail banks who have the two-year and two tradeline requirement. The others do not. To give you a sense of how flexible banks can be, on history and tradelines; here’s the story of Alison. She was a young college student that graduated nursing school. Alison had no credit, no credit card, no car loan, or anything else with “credit” in it. Maybe she got “extra credit” on an assignment while in college, but that’s besides the point. In the eyes of the credit bureaus and banks, Alison had nothing. Everything changed when I advised Alison to open a secured card for $300. When she got the card, I had her charge around $5 to it, so as to report some activity. About twenty days later, we pulled her credit, and she was a 720. Then, about thirty days later she was a homeowner…Yeah, it really was that fast. And just for the record, Alison’s not an exception. It’s possible for anyone - you included - to achieve similar results. The key is knowing the rules of the credit game. Knowing the rules of the game entails having a clear sense of what the target score or goal is, when you’re planning to buy a house. Most banks you approach will want to see a score in the mid to high 600’s. That’s not to suggest they wouldn’t want to see your score at 800+. It’s just that realistically, we typically see a wide variety of options in the mid to high 600’s. Having a credit score in the 600’s isn’t a hard and fast rule either. Today, in late 2020, there are programs with little down payment which will lend money to those with a 550 credit score. On top of that, certain grant programs that your state, county or local city may offer typically have their own minimum as well. In Arizona (where I’m based), for ex-ample, there are assistance programs offered with a 640 credit score.None of these scores has any relevance, however, without a knowl-edge of where you are personally. This means once more, figuratively stepping on the scale. Step on the scale, and make sure it’s the right scale too.The scale you use could be “wrong” because many of the common places where you’d get credit scores (credit card statements, online, though apps) don’t utilize the exact platform for getting your mortgage credit rating. The best advice is therefore to have a local mortgage loan

55officer pull your credit and see where you stand. From there, you can get a prescription which is specific to your personal situation and will be most effective at increasing your score.What if you have a 700 score and already qualify for a loan? Have you “arrived” and no longer need to work on getting your score higher? Well, if you recall the last chapter, you can probably guess how I feel about the “I have arrived” mentality. It’s a mistake to have this view, whether in budgeting (as we covered in the previous chapter) or now, with a 700 credit score and already qualifying for a loan. To be blunt about it, the only thing you’ve “arrived” at is this sen-tence in the book. I’m generalizing, of course. But it’s because I want you to realize that yes - there’s definitely room for improvement.With credit, improvement would mean your credit score goes up. As it increases, typically in increments of twenty; you have the possibil-ity of getting a better interest rate. You’d have the chance too, for more of that down-payment grant money we talked about, cheaper mortgage insurance (which we’ll be covering later, in the mortgage chapter), and access to more programs. Suffice to say, your situation can only improve by increasing your score.As you think about your credit score and how to raise it, please re-alize that you don’t have to do it alone. This is NOT like grade school, where getting help from other people was frowned on. No, quite the con-trary. If anything, it’s perfectly acceptable and even considered wise, to assemble a team of people for help getting your credit score up.Having written this book, I’m naturally here to help you. And there are plenty of other people out there too, who’d also be willing to join your team and lend you a hand. The issue then, is NOT whether anyone would want to be on your team. It’s whether your team has the right people on it. Having the right people (i.e. “players”) on your team is of vital concern because it can directly impact your options with a mortgage. Imagine, for example, having a traditional loan officer on your team.

56You call them and are informed that you have a credit score of 700. With this credit score, you qualify for a mortgage and can go off home shopping. Now imagine you have a different loan officer on your team. This second loan officer has a much deeper knowledge of the mortgage in-dustry. Drawing on their vast knowledge, the second loan officer gives you the same great news as before. Yet in the second case, the loan offi-cer adds in that they also want to create a plan for you, so as to get your credit score up and get better terms on a mortgage. Catch the difference? One loan officer gives you the info you’re after and nothing more. The other delivers the goods and then goes the extra mile to provide you with even more value. At the end of the day, which of those loan officers do you want on your team? Heck, I don’t even need to ask, do I? You’ll pick the second loan officer - the one who goes the extra mile - any day. Therein lies the value and the importance, as well, of being choosy about who you bring on your team, when working to raise your credit score. While we’re on this topic of raising credit scores, there’s something I need to get off my chest. It has to do with credit repair companies. You know, those companies which you can pay to fix your credit. Personally, I’m not a fan of credit repair companies. I believe hiring them is just too risky. Yes, they may be able to get your score up. But it often comes at a considerable cost. You may find later that a credit repair company’s efforts have negatively impacted your chance to get a mortgage. Or it could be that the company has left a mess that a mort-gage loan officer will ultimately need to clean up.Getting even more specific, on the damage credit repair companies can do; here’s an example. Say a credit repair company disputes informa-tion on your credit report. They see in this instance a thirty-day late on your credit card and send a letter disputing the information. Reporting the dispute to the credit bureaus removes the creditor from the scoring algorithm. The credit card remains, as does the late payment. Yet these

57things are now masked from the algorithm that can bring your score down. So your credit score looks like it went up.Don’t thank the credit repair company though. For they haven’t actually fixed your credit. It may look that way, but only temporarily. When a bank eventually pulls your credit and sees the dispute report-ing; you may then need to unwind the process. “Unwinding” can entail calling the credit card company yourself, to remove the dispute that you paid to have placed on your credit history. Crazy right? It’s almost as bonkers as having a toothache and paying someone to punch you in the face. Sure, the pain from the toothache may go away. But now you may have to see a doctor if the punch broke your nose. Oh, and the toothache - which is what you paid to supposedly get fixed - that’s still unresolved.Keep your wits about you and avoid credit repair companies. While you’re at it, steer clear of debt consolidation companies too. Debt con-solidators are companies you can hire to contact your creditors and ne-gotiate a lower payment. With the lower payment, your debts are thus consolidated. In theory, debt consolidation sounds like a “win” for you. The reality, however, is that it’s highly detrimental. It pushes your credit score in the negative direction and shows up on your credit report like a bankruptcy. Bankruptcy???Yep, debt consolidation really is viewed in the same way as a bank-ruptcy on your credit report. With this “black mark” on your credit, you’ll be limited in your ability to get a home loan. Depending on the loan program, there may be a delay of up to four years before you can finally buy a home. And all because you were trying to be responsible. Responsibility, though, isn’t just about taking ownership - as you’d attempt to do, with debt consolidation. No, responsibility also means educating yourself so you can make informed decisions in the first place. Informed decisions like, for example, whether or not to use a debt consolidation company. Such decisions include as well, whether or not to pay collections. I mention collections now because like debt consolidation, they’re yet another instance where being “responsible” can actually backfire.

58When it comes to collections, the “responsible” thing is supposedly to pay them off. Consider, though, the fact that paying off a collection is frequently not required in order to obtain a loan. That means unless you’ve specifically been told to pay a collection, by your loan officer; you should refrain from doing so. You can see why this matters through the example of a former client of mine. My client, Mary, had a $35 collection from Macy’s department store. I found it while reviewing her credit, and she was as surprised as me. Turns out this little collection had slipped by Mary.Seeing the collection, I advised Mary not to pay it. My rationale was that she already qualified for a loan, and her credit score would actually drop by paying the collection. Mary, though, was eager to pay. I then explained to her that when you pay a collection, the credit bureaus are going off the last reported date, for judging how much weight that col-lection has. In Mary’s case, the Macy’s collection was five years old and so it wasn’t impacting her credit score that much. Yet if she were to pay it, the collection company (collecting on behalf of Macy’s) would update the credit bureaus. The bureaus would then show the last reported date for the collection as this current month. In other words, Mary would have a brand new collection on her credit report.Think Mary listened to me? Wouldn’t be much of a story if she did. As you might expect, Mary quietly paid the collection. Adding insult to injury, she did it without telling me. I didn’t learn what had happened until we were about three-quarters of the way through the loan process. By that point, Mary was in full-on move mode. She’d packed up her house, arranged the utilities, and scheduled the movers. I imagine she’d probably told friends and relatives about her upcoming move too. All in all, it was an exciting time for Mary, as she prepared to close and be in her new home.Mary’s excitement soon turned to despair, when we pulled her cred-it. She was heartbroken to find that her credit score had dropped for-ty-five points. With the drop, Mary no longer qualified for the loan. Her plans to move were therefore placed on hold.

59“Mary, Mary, Mary - You had to do it, didn’t you? You just had to pay that darn collection off.…” I didn’t say any of that to her, of course. But it’s what I was thinking. Inside, I couldn’t help but feel angry. Angry at Mary, for not listening to me. And angry at myself for not doing a better job of educating Mary on the harm that could come from paying the collection.With this section in the book, on collections; I hope you’ll get the message. You know Mary’s mistake and can therefore avoid it. Or, if you do end up paying a collection, you’ll at least be able to do it the right way. This was another of Mary’s mistakes. By quietly paying off the col-lection, she didn’t get my advice on the right way to do it. And make no mistake - there’s indeed a right way to pay a collection. Do it right and you can actually get the collection removed from your credit report. Removed, yes, removed. Like the collection never existed.What’s the secret? A removal letter. With a removal letter, you can remove a collection and increase your credit score. In fact, depending on your situation, your credit score might even go up a whopping fifty-eight points. That’s precisely how much one of my clients - a client who actually listens to me (sorry Mary!) - saw his score go up. Simply by using the removal letter strategy. This strategy, though, is only to be used if you’ve been told that you must pay a collection in order to qualify or get your score up to a certain level to benefit your rate, loan program or down payment. In other cas-es, removal letters probably won’t make sense for you. Curious on exactly how a removal letter works? You’re in luck, as I have a special treat for you. It’s a video explaining removal letters in all their credit-raising glory. You can find the video at www.homebuyer-playbook.com/resources. Welcome back! I’m assuming you went and watched the video on removal letters. If not, make sure to go watch it later, after you’re done reading for the day.

60In this next section of the chapter, I want to address an unresolved question. Somehow we haven’t answered this question or even acknowl-edged it, despite being sixteen-plus pages into the chapter. The question, unresolved up to now, is the following - how do I know all of this stuff I’m telling you about credit? My reply is that I’ve learned the in’s-and-outs of credit in two dis-tinct ways. First, I’ve learned through years of helping clients, like the ones you’ve been hearing about so far. Then, second, and just as insightful, have been my own personal forays - and often follies - involving credit. Among those personal ex-periences, the most significant and informative was probably my early days with credit cards.You may recall those early days, from the discussion in Chapter Two. I’d told you about how I was in a pile of debt. A BIG pile that is. Despite being hopelessly in debt, my credit score was in the high 600’s, pushing 700. I had “good credit”, in other words. The explanation for this paradox is that I was never, ever, ever late in paying credit card bills. My punctuality with payment came from hearing my parents re-peatedly tell me to pay credit card bills on time. From a young age, I can remember them giving me this advice over and over. “Don’t be late!”It’s what my parents told me. And like a good son, I listened to them. So I was never late in paying credit card bills. Trouble is, I was paying these bills with other cards. Doing that “credit card shuffle” we spoke of earlier. Robbing Peter to pay Paul, as the saying goes.Looking back on the experience now, it’s funny to think how I blundered into good credit. Without meaning to, I ended up having many of the key things covered. Credit cards with years of history? Check. Revolving and installment credit mix? Check. High credit utili-zation, yet never maxed out? Check.See what I mean? All the bases were covered, despite my lack of un-derstanding - at the time - on credit. The punchline in this joke is that I was able to maintain a decent credit score and eventually purchase my first home. That purchase, in turn, was what ultimately got me out of debt.

61Having stumbled through credit cards and learned how they work, the hard way; I’d like to offer you some advice on them. This advice can be applied regardless of whether you’re getting started with credit cards or attempting to “restart” and rebuild your credit. My advice is to open a secure card for $300. You’ll get instant credit and only be able to borrow up to $300. That $300 limit acts as a bumper, almost like the bumpers in bowling. If you’ve ever been to a bowling alley, you may have seen beginner players using bumpers. The idea behind a bumper is that it keeps the bowling ball from going in the gutters. Whenever the ball ventures to-ward the gutters, it hits the bumper and is pushed back on course to-ward the pins. Having a secure card with a $300 borrowing limit works in precisely the same way. Like the bumpers, the card’s limit pushes you back on track toward good credit, whenever you start to veer away toward debt. The secure card is therefore a safe way for you to learn to be responsible with your credit. If you do end up getting a secure card, follow the advice from earlier and make sure the card is reported to all three of the major credit bu-reaus. Reporting your card to all three credit bureaus ensures they’ll all take it into account when calculating your credit score. This will then “trickle down” to banks, since banks are looking up to the credit bureaus for guidance on your credit situation. In the banks’ case, they’ll look at your credit scores from each bureau and use whichever score is in the middle. Suppose, for example, that your credit scores were the following - 643 from Transunion, 660 from Experian, and 692 from Equifax. Banks would use the Experian score of 660 because it’s in the middle. Getting back to secure cards, the point - yet again - is that if you get one, it should be reported to all three of the bureaus. Sorry to be so horrifically repetitive about this one point. I just want to make sure you raise the right credit score. And let’s face it, we don’t know which of the three credit scores from the bureaus is going to be the right one. Any of their scores could end up being the middle one that banks ultimately

62choose. That’s why it’s critical to hedge your bets on all three bureaus, with a secure credit card that all of them can see.Alright, enough on secure cards. I mean it this time. Let’s talk in-stead about a different topic - rate. Rate ties into our discussion because it goes hand-in-hand with credit scores. You can see how, with the following example. Imagine two different people are going to purchase a home. Both of them want to invest three percent for their down payment and both qualify for the same program.The only difference between these two people is their credit. One of them has a 640 credit score and the other is at 700. Given these scores, the first person (with the 640 score) would re-ceive a rate of 3.625% with an APR of 4%. I say that as a loan officer who uses software that indicates which bank - of all the banks in the U.S. - has the best rate on mortgages at any given time. My software might also tell me that buyer #2 (the person with the 700 credit score in our example) would receive a 3.125% with an APR of 3.5%. (*Don’t worry, by the way, about APR. We’ll be covering it later on).Our example here isn’t much help if it’s just in percentages. So, let’s see what it translates to, in terms of dollars. Assuming a $300,000 home loan, there would be a difference of roughly $83 per month for the amounts paid by the two people in the example. $83 per month becomes a difference of about $1,000 per year. And if either person were to stay in the home for ten years, it would amount to a $10,000 difference between what they’d each respectively be paying. The takeaway from this example is that the higher your credit score, the lower the rate you can get on a home loan. A lower rate can then amount to some serious savings on the amount you’re paying each month on the home. This is therefore the essence of the credit game - get your score as high as possible, to win with the lowest rate possible, and pay the lowest amount possible during the months of your loan.In order to “win” the credit game, you must know exactly where you stand today and then have a plan for exactly how to get your score up.

63I’ve been giving you that plan, piece by piece in this chapter. If you’ve found any of the material to be confusing, feel free to go back and re-read it. You can also reach out to me directly by email for further clarifi-cation – greg@runtheplays.com Assuming the material so far is clear to you, then let’s proceed ever onward. What follows are five tips and tricks involving credit. Like the tips and tricks in the last chapter (Chapter 2), the ones here are also in-tended to be practical and immediately actionable. 1 - Lean on softwareEarlier in this chapter you learned that the credit bureaus use an al-gorithm which calculates your credit score based on five categories. The five categories, which we’ve subsequently covered, are: payment history, amounts owed (credit utilization), length of credit history, new credit and credit mix.Knowing about the five categories is a good first step. If you tru-ly want to master the credit game, though, you’ll have to go even fur-ther. Going further means mastering the algorithm used by the credit bureaus. When you can do that, you’ll be able to determine the exact play(s) you need to run in order to get your score up.And just how do you master the algorithm? You don’t. Instead, you can lean on a piece of software which tackles the algorithm for you. This software is “the bomb” (if you’re a Millennial), “rad” (if you’re a Gen X’er), or just “useful and well-made” (if you’d prefer to skip all the silly slang).The software itself is nicknamed “The What if Simulator.” Basically “What if you had a thousand dollars, what credit tradelines would be the best things to pay down and in what order, for example. Another would be how much to pay your credit card down to, and what impact paying “X’ amount will have on your credit score. Not all lenders have this type of software, so it’d be good to ask. I’ve used this for over 15 years now. Another #gamechanger when it comes to playing the Credit Game.

64Getting these kinds of questions answered has been invaluable to me, over the course of my own credit “journey”. For this reason, the soft-ware has become a part of my daily routine - both personally, in mon-itoring my own financial progress, and professionally in working with clients.2 - Opt out of junk mailDon’t laugh! Please? I know it sounds laughably obvious to opt out of junk mail. But you’d be surprised at how many people don’t. They never opt-out and thus continue to get pounded with junk mail, espe-cially from creditors. What makes this even more unfortunate is that opting out of junk mail - again, primarily from creditors - isn’t particularly difficult ei-ther. All you need is to visit www.optoutprescreen.com. On this website, you’ll be able to fully opt-out of receiving offers and other junk in the mail from creditors, for the next five years. Only five years? Yes, but never fear - you can also mail in a form to be permanently opted out.If you’re curious why you’d even receive junk mail from creditors, here’s your answer. You have the Fair Credit Reporting Act (FCRA) to thank. It gives consumer credit reporting companies the right to include your name on lists used by creditors or insurers to make firm offers of credit or insurance that are not initiated by you (“firm offers” for short). This is a wordy way of saying the FCRA makes it OK for sleazeball cred-itors to send you junk in the mail. Still, don’t hate the FCRA just yet. For this act also provides you with the right to “Opt-Out”. By opting out, Consumer Credit Reporting Companies are prohibited from providing your credit file information for firm offers. This in turn keeps you from receiving the junk mail from creditors. Without creditor-related junk mail, you’ll be free of the temptation to get more credit and potentially into more debt. The temptation won’t exist because you won’t be receiving offers about all the cards you qualify for. It’s like canceling your subscription to Netflix or another premium

65entertainment service. The temptation vanishes because the stimulus (Netflix or junk mail from creditors) is also gone.3 - Get the truth around your creditThe third of our tips/tricks around credit is to get the truth about your credit. This means getting a copy of your credit report which only contains your credit data. There’s no credit score in it, and thus you get “the truth, the whole truth, and nothing but the truth” in regard to your credit. How’s this done? Head online to AnnualCreditReport.com, and you’ll find a website where the credit report can be obtained. Once there, you’ll be able to review the data in your credit report to ensure it’s accurate. Checking your credit report for accuracy probably sounds like a “nice to do”. Something you’ll get around to. Much like getting in shape (if you’re obese), reading to your kids (if you’re never home with them), or even just cleaning your house (if your house’s a mess). Seeing those heavy comparisons (especially the one about obesity); you probably realize that I consider checking your credit report as more than just a “nice to do”. I take it seriously because I’ve seen client after client find that their credit reports contained inaccurate information. Inaccuracies have in-cluded, for example, a collection misreporting or having someone else’s credit card showing on their own credit. It’s usually small, even silly stuff. But there’s nothing funny about it, when such mistakes harm your credit score and prevent you from purchasing a home.The way to catch errors on your credit report is to use AnnualCreditReport.com. True to its name, the site is free to use. It has ZERO effect on your credit score too. The only real “catch” with using AnnualCreditReport.com is that you can only get this free copy of your credit report once per year. Then again, it’s unlikely that you’d need to see it more than once a year. Also, when you pursue a mortgage, you’ll be having the mortgage company pull the data on their own platform. So it’s not as though AnnualCreditReport.com is the final destination. Rather, the site makes a good “rest stop” on

66your journey toward home ownership. Like a rest stop on a road trip, you can figuratively pull in, look “under the hood” at your credit, and take stock of where you’re at. The last thing you should know about AnnualCreditReport.com is that it’s endorsed by all three credit bureaus. So, this isn’t some amateur, home-made site that popped up a few months ago. Nope, AnnualCreditReport.com is the real deal. Check it out and I think you’ll be pleased with what you find.4 - Avoid “credit mooching”“Credit mooching” is when you try to improve your credit by getting added to the account of someone else who has good credit. It’s a term I’m coining here to describe this common, yet flawed strategy. For better or worse, you can’t “mooch” off other people’s credit to improve your own. Not over the long-term anyway. Mooching will in-crease your score in the short-term. Yet it fails in the long-run because your credit report will show your connection to the other person’s credit as an “authorized user”. If the term “authorized user” sounds fishy to you, imagine how it sounds to the banks. They can see from a mile away that you’re essen-tially hijacking someone else’s stellar credit performance. The banks won’t call you out for your “b.s.”, however. No, they’ll play it cool and ask for proof that you’ve personally been making payments for the last twelve months. If (or when) you can’t provide such proof, your efforts at credit mooching will be revealed. Do yourself a favor and avoid this embarrassment by not being a credit mooch. 5 - Find balance on balancesWhat I’m suggesting here is that you take a more balanced view of credit card balances. Balance is necessary because of two major miscon-ceptions. The first is that banks look down on credit cards with open balances. Not true! Neither is the other one, that you need to maintain a low balance all the time.

67Clearing up these misconceptions saves you from potentially mak-ing unnecessary payments prior to pursuing a mortgage. It would suck, quite frankly, to spend nine months paying down the balance on a credit card and then find out later that you didn’t have to. Yes, the balance did need to be paid. But it was not an immediate re-quirement for you to obtain a mortgage. So, you essentially took a nine-month detour from getting a mortgage, and spent unnecessary money in the process. A better course of action would be to consult a mortgage broker be-fore you go off on your own and start paying down credit cards. Talk to a broker and get their specific prescription on how much to pay down, when to pay it down, and how much of a balance to have. Plus, when you do go to the broker - go in with a balanced view of credit card balances, one that’s free from the misconceptions we just spoke of.Ultimately, this is about saving time and money. By saving time, you can get a mortgage and move into a home sooner. And by saving money, you’ll have more cash available and thus more options when it comes to purchasing your home. Another quick point on balances - a parting shot if you will - is the idea of “balances less than 30%”. If you’ve heard this phrase, it means that your credit card balance should be at 30%. My own opinion, however, is that 30% should be treated as a guideline versus a firm law. Everyone’s different after all, and you might be able to stay in control with a bal-ance at 40%. Therefore, I suggest aiming for 30%, but adapting based on differences in your particular situation. Speaking of differences, you and I may differ in the ways that we digest information. I happen to be the type who needs things written out. My brain’s wired to take in information that way. You, on the other hand, may be more of an audio or video learner. In recognition of this difference, I’ve created an online webinar on the topic of credit. It presents what we’ve covered in this chapter in an audio-video format, to ensure you understand it - no matter what your learning style happens to be. For the webinar, visit www.homebuyer-playbook.com/resources.

68 Watch the webinar and then come join me in the next chapter. In that chapter - the fourth - we’ll be pulling back the curtain on loan programs. As we do, you’ll get an inside look at loan terminology like “FHA” and “VA”. What exactly do those terms entail, and why should you care?…Let’s end on that highly “suspenseful” cliffhanger. See you in Chapter 4!

69CHAPTER 4LOAN PROGRAMSA     Strange isn’t it, how that question hasn’t come up yet in our discussion, despite this being a “playbook” and steeped in sports imagery?Whether you’re a sports fan or not, you’re probably aware of America’s major sports leagues.These leagues are the National Football League (NFL), the National Basketball Association (NBA), Major League Baseball (MLB), and the National Hockey League (NHL).Wait, you say, what about the MLS (Major League Soccer)? Isn’t that another of America’s major sports leagues? I’d like to think it is. Not only do I respect those who play in the MLS, but I’ve also enjoyed pick-up soccer matches myself. So, soccer is A-OK in my book. All the same, assuming you’re NOT a soccer fan, can you name a single MLS team? And the one in your home city doesn’t count either…Yeah, I didn’t think so. My point is that compared to the popularity of the NFL, the NBA, MLB, and the NHL - soccer’s league, the MLS, just isn’t there yet.This isn’t an attack on soccer, though. Instead, I mention the leagues to illustrate the main options which exist for those who want to play (or watch) sports at the professional level in America. In other words, if you want to turn pro (or just turn on the TV to watch pros) - then you’ll be focused on one of the “Big Four” leagues.Where am I going with all this? Into this chapter’s core discussion on loan programs. The connection is that when it comes to loan programs, you’ll find a situation much like that of American sports leagues. You’ve got a few major loan programs which dominate the conversation, and then a handful of substantially smaller ones.

70As loan programs go, the majors are FHA, conventional, and VA. To kick this chapter off, I thought we’d unpack each of them. This way you’ll better understand the majors and move toward an understanding of which might serve you best.The first major loan program is known as “FHA”. FHA stands for Federal Housing Administration, after the institution which offers the loan.Examine the FHA and you’ll see it’s part of the U.S. Department of Housing and Urban Development (HUD for short). With their loan program, the FHA insures the money that a bank will lend you. Re-read that so you catch the nuance. The nuance is that the FHA it-self is not directly lending money out to you. We call it an FHA loan, yet the FHA’s role is simply to guarantee the loan. Their guarantee is that if something happens and you’re unable to keep your home, the FHA will intervene to protect the bank from taking a serious hit. Thinking about this brings to mind a phrase you might have heard during the 2008 financial crisis. It’s the phrase “too big to fail”. That phrase was used when justifying the U.S. government’s bailouts of trou-bled companies in the financial sector. I bring it up here because FHA loans seem similar, albeit in the opposite direction. It’s almost like FHA loans are considered “too small to fail”, and get bailed out in like manner.Along with the guaranteed protection, FHA loans are also distin-guished by lower down payment requirements. There’s often better interest rates too, due to the loan being insured. And as icing on the proverbial cake, this first loan program offers the ability to borrow more money as it relates to your income, compared with other loans.The next of our loan programs is the conventional loan. Whenever you hear the term “conventional loan”, what’s being de-scribed is a type of mortgage loan which is neither insured nor guaran-teed by the U.S. government. In this way, conventional loans stand in sharp contrast to those offered through the FHA. With a conventional loan, the FHA won’t be involved. This second major loan program is the domain of private lenders (i.e. banks, credit unions, and mortgage companies).

71Even with the FHA’s absence, we can’t define conventional loans sole-ly on the basis of lacking government involvement. The reason is that some conventional mortgages can in fact be guaranteed by two govern-ment-sponsored companies. Those companies are the Federal National Mortgage Association (FNMA - better known as “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (FHLMC - “Freddie Mac”).When you have a conventional loan that’s eligible to be guaranteed by Fannie or Freddie; it’s known as a “conforming loan”. Conforming loans are characterized by a loan limit which is given by the Federal Housing Finance Agency (FHFA). As of this writing (2020), the limit for conforming loans in most ar-eas of the U.S. is $510,400. Come next year, however, and the FHFA may very well change that limit. Should you watch the FHFA, tracking potential changes to the con-forming loan limit? Nope. Let your loan officer do it. They can be the one to keep hitting “refresh” on the FHFA’s home page, to be there when changes (if any) get announced. Then when you go through the loan process, the loan officer will be able to educate you on the latest developments. They’ll also be able to inform you if you stand to be borrowing near or even above the FHFA’s limit for your loan.Should you exceed the FHFA limit, borrowing above it; please real-ize that it isn’t the end of the world. You haven’t broken any laws or hurt anyone. Life will go on. There is one change, though. The change is that your loan is now classified as a “non-conforming” or “Jumbo” loan. As a jumbo loan, your loan can no longer be guaranteed or backed by the government entities of “Fannie Mae” (FNMA) and “Freddie Mac” (FHLMC). Neither of those entities will stand behind the loan because it’s become too big for them. Granted, “Fannie” and “Freddie” are billion-dollar enterprises, so your jumbo loan of a few hundred thousand dollars is peanuts to them. But imagine if these same enterprises had to support jumbo loans from tens of thousands of people. It would cause “Fannie” and “Freddie” to

72figuratively pull a muscle. Almost as though the two entities were in a weight room, squatting with weights which were far too big. Government entities can’t lift weights, of course. They also can’t - and won’t - lift the weight of a jumbo loan. Therefore, with a jumbo loan, you and the loan provider are on your own, without government supervision.If that’s a scary prospect, you may want to stay within the FHFA limit. Or if you’re a veteran, there may be an even better loan program for you.The better program in this instance would be VA loans. A VA loan is one specifically designed to provide financing for military veterans. The loan itself is given by banks, mortgage companies, and others in the private lending arena. The “VA” part in a VA loan stands for the U.S. Veterans Affairs Department (“VA”). With a VA loan, this government department guar-antees a portion of the loan you’re receiving. The guarantee allows a lender to then offer you more favorable terms on their VA loan.For “favorable terms”, picture them in a similar sense to the FHA loan. Like the FHA loan, lenders with a VA loan will typically offer you lower interest rates. The lenders can do so because their loan is also in-sured by a government body - in this case the VA.Even with their apparent similarities, VA loans are not identical twins to FHA loans. The government guarantee provides some common ground, sure. Yet VA loans still differ dramatically. The military veterans’ component is an immediate differentiator of the VA loan. So is the whopping amount which a veteran can borrow. With this loan program, veterans may borrow up to 100% of the value of the home or purchase price, up to the conforming loan limit set forth by the FHFA (mentioned above). In dollar terms, that works out to a limit (as of today in 2020) of $510,400. Following this figure, if a home were for sale at $510,400 or less, a vet-eran would not have to put any money down to purchase it. The home purchase would be covered 100% by VA financing.Incredible, right? Yes, and well deserved too. After all, these veterans have put their lives on the line to defend our country. Helping them

73purchase a home - even a $510,400 home - is the least we can do to ex-press our thanks.Tragically, many veterans themselves never live long enough to take out a VA loan. When this happens and a veteran passes away in active duty; a VA loan can be taken out by their spouse.If you’re reading this, you’re clearly still here. And if you’ve served our country - or are currently doing so - a VA loan might be the ideal loan program for you.Then again, it might not be. Especially since you, like many people, may not be in the military or have a military spouse. That’s probably why branches of the service like the Marines refer to themselves as “the few, the proud”. It really is a select few, a minority of all Americans. As a result, most of us aren’t eligible for VA loans. Besides, crazy as it sounds, you may still want to look at other loan programs - even if you’re a veteran. Looking around would give you a complete picture of what’s avail-able. From there you could confirm which loan’s actually best for you. In military lingo, you’d have done a “PID” (positive identification) of your target - the loan. With the PID complete, you could then pull the trigger and take out the loan, confident that you weren’t shooting in the wrong direction. Before you take your best shot at a loan, we’ll examine how each of the three major loan programs compares to one another. As we do, I’ll be drawing your attention to each loan program’s unique advantages and disadvantages. This comparison will go into greater detail than before, since you now have a basic understanding of FHA, conventional, and VA loans. OK, loan programs - Round Two! (Boxing bell rings)Returning to FHA loans, an immediate advantage is that lower cred-it scores are accepted, and your credit score itself won’t impact your rate as much. Another advantage is that higher debt ratios are allowed, en-suring more purchasing power. Leniency in underwriting stands as an additional perk of FHA loans. The idea here is that banks can often be more lenient in under-writing certain items on an FHA loan. You’d see this, for example, with

74a parent who recently returned to the workforce after taking time off to raise a child. If this parent pursued an FHA loan, the bank issuing the loan might be more sympathetic to the parent’s situation - leading to leniency in their underwriting and better terms on the loan. The bank could afford to be lenient because the loan - being an FHA loan - was insured by the U.S. government. Now for the bad news - FHA loans have plenty of disadvantages. Among the disadvantages is the fact that spousal debt must be includ-ed, if you’re married. You’re also required to have mortgage insurance, since the FHA is insuring the loan. Your mortgage insurance consists of an upfront payment and an ongoing, monthly amount. This insurance on the FHA loan is usually permanent. The only way you might be able to have it removed would be to refinance. For a closer look at mortgage insurance, check out the table below. It shows the annual mortgage insurance premium (MIP), split out among mortgage terms of more than 15 years, versus those which are less than or equal to 15 years. The chart’s pretty detailed, but don’t worry if you feel confused star-ing at it. Your loan officer can clear up any confusion and answer what-ever questions you may have.

75 Turned off by FHA loans? I’m not done yet. There are still two more major disadvantages for you to be aware of.One of those disadvantages is loan limits. For each county in America, the FHA has a limit on the size of the FHA loans available to borrowers there. Said limit is based off a per-centage of the median home value in that area. Maricopa County, for example, where I live, has a limit of $331,760.The other major disadvantage to FHA loans is that you need FHA approval to purchase a condominium. You can’t simply go out and pur-chase the condo with the FHA loan. The condo project must first have the FHA’s blessing. Then you’re permitted to purchase it.We’re assuming as well that the FHA does indeed give their approv-al. If they don’t, you may have to look elsewhere for a condo. Or you could go through a time-intensive process to try and get approval. This process carries the added risk of someone else - a buyer with convention-al financing or cash - coming in and scooping up the condo before you.

76If I’ve scared you away from FHA loans, by covering their disad-vantages; you may be feeling more inclined toward conventional loans. Don’t get your hopes up just yet. Conventional loans come with their own set of unique advantages and disadvantages too. On the disadvantages side, your credit carries more weight. It im-pacts the rates on your mortgage, since there’s no mortgage insurance when putting 20% or more down - as you’d do for a conventional loan. This apparent disadvantage is balanced out - to use our favorite met-aphor, the scale - by some significant advantages. We alluded to one of those advantages a moment ago, the ability to avoid mortgage insurance entirely or else reduce the amount you’re required to pay. In the latter case, where you do have to pay mortgage insurance, you’ll be delighted to know that the insurance is not a set number (as with FHA loans). Rather than being fixed, conventional mortgage insurance is based on your credit score, loan terms, and the down payment amount. Conventional loans further demonstrate their advantages by not re-quiring you to include spousal debt. Provided your spouse isn’t on the loan, then their debt won’t factor into it.Lastly, drawing our comparison of the loan types to a close - here’s how VA loans stack up, in terms of their advantages and disadvantages. In a sense, VA loans are “brothers in arms” with FHA loans. You can see this in the advantages of VA loans, which mirror those of the FHA. Zooming in on the advantages, you’ll find that VA loans have higher debt ratio requirements, more lenient underwriting guidelines, and low-er rates due to the VA insuring the loan. Again, this is largely along the lines of what we saw before with FHA loans.A notable departure for VA loans - as advantages go - is the way con-forming loan limits are handled. When you have a VA loan, there’s 100% financing up to the conforming loan limit. After that, if you exceed the limit, you’ll pay a smaller down payment. Oh, and you still won’t have any mortgage insurance either.What about disadvantages? Once more, we see several similarities between VA and FHA loans. Both loan programs have that pesky re-quirement about condo projects. For VA loans, the condo project must be approved by…you guessed it, the VA.

77Then there’s the spousal debt disadvantage - where VA and FHA loans alike require you to include a spouse’s debt when married. This requirement persists, even if your spouse won’t be on the loan.In spite of their apparent disadvantages, my personal opinion is that VA loans are superior to the other two loan types. At the risk of being repetitive, let me quickly point out once again that you may not be a veteran. And if you are a veteran, you might still hold off on VA loans because you don’t want to utilize your Veteran eli-gibility to purchase a home just yet.Read between the lines on that last part - about veteran eligibility - and you’ll sense a bigger principle regarding mortgages. The principle is that the ideal mortgage for you will be the one that aligns with your goals. If, as we’ve said, you’re a veteran and don’t want to utilize your Veteran eligibility; then the ideal mortgage would not be a VA loan. It might be an FHA loan or a conventional loan, depending on how these latter loan programs matched up with your home buying goals.But what exactly are your “home buying goals”?As I see it, from working with my clients; home buying goals typi-cally consist of your monthly payment goal (how much you’ll pay on the mortgage), and the amount of time you plan to live in the home you’re purchasing. In the second instance, with timing, most of us won’t have a detailed plan for how many days, hours, and minutes we want to spend in a new home. What we will have is a general sense of whether the home we’re buying is, for example, going to be where we spend the rest of our lives, or perhaps just a place to reside while raising kids. Getting back to loans, the point was that the loan program you pick has to work for you personally. This would explain your decision to pick an FHA loan, for instance, despite all the downsides we covered earlier.Indeed, you might find the FHA loan was undeniably your best option. You’d see this, hypothetically-speaking, if you had a low credit score and the money for a large down payment. Such a scenario is interesting because common sense might lead you toward a conventional loan. A conventional loan could seem appealing

78since you have the cash to put down a large down-payment and thereby avoid mortgage insurance. But hang on a moment. Don’t you remember what we said about credit? Credit is a major factor in working out the terms on a conven-tional loan. Since your credit is low in this example, you might be better off with the FHA loan. Utilizing FHA, the insurance would make the rate far better. In fact, even with the mortgage insurance monthly payment added in, the blended rate would still be better than conventional.Uh-oh! I lost you didn’t I? With that last term, “blended rate”.Not to worry. “Blended rate” isn’t a difficult concept. It’s sim-ply a combination of the interest rate on your loan and the mortgage insurance. To give you a quick illustration of blended rates, suppose your rate is 3% and your mortgage insurance is .85%. Add the two together and you’ll have a blended rate of 3.85%. For this example, if the conventional rate were 4.5%; the FHA loan with its 3.85% blended rate would yield a lower payment to the borrower. Clearer now on blended rates? Then let’s do another example. This one will provide you with some real-world context on the scenario of taking an FHA loan despite having the money on-hand for a large down-payment. For our real-world example, meet Dawn. She was a client of mine, who did the “unthinkable” - an FHA loan, rather than a conventional loan, despite having the cash to support it.Insane? Not in the least. You see Dawn had a foreclosure in her past. This put her in the “penalty box”, figuratively-speaking, for convention-al loans. With a conventional loan, Dawn and others with foreclosures have to sit out for 7 years following the foreclosure. In sports terms, this equates to being in the penalty box. During their time out, conventional financing isn’t an option. FHA loans, on the other hand, become an option a mere three years after the foreclosure.

79This explains why FHA loans were unequivocally Dawn’s best op-tion. With my guidance, she was able to put 20% down on an FHA loan, thereby completing the purchase of her home. She’s also hopefully thinking a few years down the line. Dawn should plan for the future because she’ll soon be out of the “penalty box” with conventional loans. When that happens, Dawn will have an opportunity to refinance the FHA into a conventional loan, wiping out the mortgage insurance in the process. Now, rounding out our discussion of the three main loan programs - I’d like to share a vital tip with you. I’d call this a “pro tip”, but that phrase always strikes me as weird. After all, if someone’s truly a pro, isn’t every tip they give, a “pro tip”? And if it isn’t, why not? Sort of like when people say, “To tell you the truth…” But I digress. As for that “pro tip”, it’s that you should make sure the lender you choose offers a wide variety of loan programs. This is crucial because not every bank offers the same financing options. You may, as an exam-ple, find that the bank you’ve approached doesn’t offer FHA financing. Seriously? Yeah, it seems weird to me too. I mean the FHA and its type of loan aren’t exactly closely guarded secrets. Quite the contrary, as we’ve seen. Nonetheless, some banks never got the memo on FHA financing. So they just flat-out don’t offer it.This wouldn’t be as big a deal if the lack of FHA financing were clear. Yet as with many things in life (including whether you have food fragments in your teeth after lunch), no one’s racing to point it out to you. Instead, you’ve got to probe for it.And probe you must. For as the cliche goes, if you don’t do it - who will?No one.I say that from experience, having seen the results first-hand with clients. In more cases than I can count, clients have come to me at their wits ends. These clients have felt financing is out of reach, after being denied a conventional loan by multiple banks.

80Conventional loans seem to be out, but FHA loans? Those are a different story. Time and again, as I’ve reviewed each client’s situation (*multiple clients over multiple years); they’ve all qualified for FHA loans. What’s more, as we’ve run the numbers - FHA loans have been far and away the ideal course.You might be wondering then, why these clients haven’t arrived at this realization themselves. The explanation is that the banks they’ve visited don’t offer FHA loans. FHA loans are therefore never even part of the conversation in the first place.My clients (or rather pre-clients at that point) therefore come away from their initial experiences at the banks with a false sense of disap-pointment. A sense of disappointment which could easily have been prevented by knowing about loan programs and then asking whether they were part of a given bank’s offerings. I trust you won’t make the same mistake. Not when you know about the programs and the importance of asking. Armed with such knowl-edge, you can carry it into your own interactions with banks. Additionally, as a further bit of advice - let me recommend that whatever lender you ultimately work with, for your mortgage, has access to three or more options. Those options will likely include at least two of our “Big Three” (FHA, conventional, VA) and potentially some of the alternatives, which we’ll be covering soon.If you meet with a lender who does NOT show you at least three op-tions for your mortgage, make sure to ask. Ask them whether they have anything beyond what’s being shown to you. Any of us can have “one of those days”, where we’re tired and out of it. So a well-meaning lender might just be asleep at the proverbial wheel, and neglect to show you all the options as a result.Then again, maybe that’s too generous an assessment. Perhaps this lender isn’t suffering from caffeine-deficit-disorder (CDD) or otherwise having a rough day. Maybe they’re on top of their game, and just don’t have three or more loan programs on the menu.In either scenario, you’ll never know if you don’t ask.Asking puts you in the driver’s seat on your journey toward a mort-gage. If you’ve ever watched NASCAR, Formula One racing, or seen

81them face off in the comedy Talladega Nights; you know how cool it is to be in the driver’s seat.To keep you firmly in the driver’s seat, I’d like to offer guidance on what to do when a bank is presenting their loan programs to you. This advice goes deeper than simply asking what’s offered. We’re taking it as a given that you’ll ask.Along with asking, you’ll want to analyze the lender who’s giving you the presentation. Your goal is to determine where the lender falls on the “O-C Spectrum”.For the record, this spectrum is purely my own invention. It’s not something grand, proposed by genius social scientists at a storied insti-tution like Harvard.Even without some academic pedigree behind it, I think you’ll still find my little spectrum useful.The “O” in it stands for order-taker, while the “C” stands for consul-tant. Both are roles that a lender could adopt in serving you. In the order-taker case, the lender would present you with loan op-tions and then take orders from you, as you decided which option was best. Conversely, if the lender were a consultant - taking orders would be the last thing on their mind. The consultant-oriented lender would ask questions and exercise true leadership in helping you find the right mortgage. Your interaction with them would be a true dialogue, versus a monologue (with the order-taker). Graphically, you can imagine these two types of lenders at opposite ends of a line. The line being our “spectrum”. All the way to the left is “O”, the order-taker. And to the far right (not politically speaking, of course) is “C”, the consultant.Naturally, not every lender is at these extremes. There’s a ton of space between the extremes, and plenty of lenders to fill it in. You may, for example, have a lender who’s three-quarters of the way to “C” or “O”. There are, to be sure, other points along the spectrum too.Hopefully the “O-C Spectrum” makes sense. I’d like to think it’s more than just psycho-babble that popped into my head while writing this chapter.

82Provided my spectrum is clear to you, then we ought to address how you actually find a lender’s place on it. What can you do?You can listen.Listen to the kinds of questions the lender’s asking you. Now if the lender - typically a bank’s loan officer - doesn’t ask you ANY questions; the game’s over before it even began. But we’re going to assume the lender’s not a rookie (or just socially awkward) and knows to ask you questions. Then it becomes a matter of whether they’re asking you the right questions during the presentation.The “right” questions would include any - and hopefully all - of the following: How long are you going to be in your home? [As sidenote here, the average time most people stay in a house is 10 years, even with 30 year mortgages]Do you have an investment strategy - one which is driving your pur-chase of a home today, or even in the back of your mind for later? What are your monthly bills like, outside of what’s readily apparent on your credit report?What’s your payment goal for a mortgage?How much money will you have left over, after your down-payment and closing costs? Will there be enough cash left for you to furnish the house and/or handle other aspects of becoming a homeowner (i.e. hire movers, set up cable, remodel parts of the house, etc.)?How do you see your family growing over the next 3/5/7 years? Alright, how’s the lender you’re meeting with stack up? Did they ask you any of those questions (above)?If they did - congratulations, you’re with a consultant. Someone who’s mostly, or even entirely to the right on our spectrum - a “C”.If you didn’t get questions like these - you’re probably dealing with an “O”. As in an order taker. Someone who treats loan programs with the same “care and attention” as the person behind the register at McDonalds.

83That McDonald’s attendant isn’t going to ask what kinds of food you enjoy, and then make insightful recommendations on the best “Mc-things” for you, personally. Nope, they’re just going to take your order.The only question you’ll get is the cliched, “you want fries with that?”. But even there, don’t get your hopes up because they ask that question to everyone.Faced with an order taker, you may want to reach out to someone else. Someone who, in our food analogy, would be more like a waiter at a restaurant. Whether the restaurant is a casual chain (TGI Friday’s, Applebee’s, Red Lobster, etc.) or a true fine dining experience; you’re bound to get waiters who actually “give a FORK” about you and the quality of your dining experience.Waiters of this second variety aren’t just taking your order. Rather, these waiters are going to probe a bit more, offering recommendations on wines, specials, and probably giving insights on what items from the menu are particularly tasty (Hint - it’s often the most expensive dishes on the menu). Questions like those in our bullet points (above) can very well be the answers for you, when it comes to gauging lenders during their presentations. To complement the question-based approach, here’s another which can also illuminate whether you’re with a consultant versus an Undertaker - sorry, meant “order taker”. Guess I slipped because both an order taker and an undertaker are doing work that seems dead and devoid of any deep meaning…Anyway, another approach to finding whether you’re with a consul-tant is to assess how well they know a few insider tips/tricks.By this point in the book, you know I geek out over tips/tricks and can’t wait to share them with others (you included!). Ideally, the loan officers you meet with at any bank will share my enthusiasm over tips/tricks.

84Regardless, let’s go over 2 loan program tips/tricks. This way you’ll have them in your back pocket, both as personal knowledge and to use in seeing whether loan officers are consultants or order/under-takers. Tip/trick #1 comes if you’re looking at the government-backed loans like FHA and VA. All of these loans will require the lender to count your spouse’s debt, even if your spouse is not on the loan.This requirement stands firm as a barbell in 49 of our 50 states. In Arizona, though, premarital installment debt does not have to be count-ed against the borrower. You can see the significance of the Arizona exception in the follow-ing example…Let’s say I apply for an FHA loan and put it solely in my own name. Since I’m married, the loan provider would need to pull my wife’s credit and include any debt from her that’s not already on my credit. As they examine her credit, let’s say they spot a car loan. This loan was taken out before we were married. It might also be that my wife has a student loan or even a mortgage - either of which was done before we tied the knot. None of these outstanding debts would count towards my own new loan. A caveat here is that if my wife had, for example, a visa card with a $100 minimum payment, and it wasn’t on my credit report; that would be included in my debts.The takeaway from this example is twofold. First, I want you to be aware of the Arizona exception in case you happen to live here. And sec-ond, having knowledge of the exception, you can then test a prospective lender’s knowledge of it too.What you’ll often find is that loan officers miss these kind of hacks and sneak plays. This is why it’s a nice way to size up the loan officer you’re meeting with. See if they’re “in the know” on this first tip/trick.How about Tip/trick #2? This other one centers around using the lowest middle credit score of all borrowers. To give you a sense of what I’m talking about, here’s a case in point. Picture my middle credit score as being a 750 and my wife’s middle cred-it score as a 650. When we went for a loan, the bank would set the rate for

85the loan based off the 650 - as it’s the lowest of the middle credit scores. The bank (or other provider of the loan) would also consider whether I can qualify without my wife being on the loan. If I can, they’ll go off my middle credit score - the 750 - which would decrease my rate and thus my payment.Any loan provider you talk to should understand the hypothetical case above. They should be equally knowledgeable on the “hack” behind it (lowest middle credit score), as well as the first hack we covered (the Arizona exception). The right loan officer will further recognize that not every loan falls into the “Big 3”. It won’t come as a shock to them that sometimes FHA, conventional, and VA loans just don’t cut it. In those rare instances, it may be time to consider alternative loan programs. Such alternatives ac-count for a minority of all loans. Yet they’re still worth knowing about.Rather than take a chance on you hearing about the alternatives from a loan officer, let’s cover them ourselves. What follows are the al-ternatives, a handful of loan programs that exist apart from our “Big 3”.In contrast to the “Big 3”, these alternative loan programs can be de-scribed as the “Little 3”. The “little” part emphasizes the minority of cases in which you’d rely on any of them. The “3”, in turn, conveys the number of alternative loan programs in this grouping. Collectively, our “Little 3” consist of Jumbo, USDA, and non-QM loans. The first of those (Jumbo loans) are loans above the conforming loan limit. This should sound familiar, maybe even repetitive, since we covered jumbo loans earlier. If you’re unclear on them, flip back a few pages and re-read our previous discussion. Oh, and in case you’re wondering - I do see the paradox of describing jumbo loans as one of the “Little 3”. It’s as much an oxymoron (a two-word paradox) as seeing “jumbo shrimp” on the menu at a restaurant.Anyway, on jumbo loans, your loan would be considered as such, if it were for $800,000. This would happen because $800K is over the $510,400 loan limit, placing it firmly into jumbo territory. Following jumbo loans, let’s talk about USDA loans - number two among our “Little 3”.

86The USDA part refers to the U.S. Department of Agriculture.Yes, it’s that USDA. As in the one which regulates the meat you’d pick up at the grocery store. The USDA also regulates eggs and dairy products - for all my vegetarian readers out there. When it comes to loans, the USDA insures loans for properties which are in rural areas. “Rural” as defined by the USDA tends to denote out-lying areas. Wide open spaces, the type which might be perfect for farming or other agriculture-related activities.The USDA’s goal then, with their loan program, is to provide people with an incentive to move to more rural areas. Getting people to settle in the rural areas may be an effort to gradually increase the number of farmers. More farmers strengthens America’s agricultural sector, which the USDA would be in favour of. I can’t prove any of that directly, but it seems like a logical connec-tion. Why else would the USDA generously offer 100% financing, much like the VA loan? Could it be an effort to promote farming, particular-ly at a time when America’s farming sector has shrunk dramatically? I think so.Generous as they might appear, USDA loans do have a notable catch, however. The catch is that there’s a small monthly fee, like you’d have with mortgage insurance. If the monthly fee isn’t to your liking, or you don’t want a “home on the range”; you may be more inclined toward a Non-QM loan. This is the third loan type, among our “Little 3”. A Non-QM loan refers to a non-qualified mortgage. Such a mort-gage is broadly defined as one which doesn’t comply with the Consumer Financial Protection Bureau’s existing rules on Qualified Mortgages (QM’s).The Bureau’s rules apply to the “Big 3”. All of them fall into the QM category. Non-QM loans, though, break rank by allowing you to bor-row based on just your bank statements or on how much an investment property cashflows each month. Loans in either of those two situations would be considered non-qualifying.While non-QM loans are rare, they’re definitely not unheard-of. In my own career, I’ve done scores of them, particularly through bank

87statement loans. My borrowers in these instances have a job, typically being self-employed and running their own businesses. They tend to make good money, yet when they file their taxes, they write off a lot in order to show less income to the government for tax purposes.When these clients of mine claim less income by writing things off; it usually means they qualify for less of a loan amount on a qualified mortgage (the “Big 3”, jumbo, etc.) As a result, a non-QM loan - partic-ularly of the bank statement variety - becomes increasingly tempting.Since I’ve mentioned bank statement loans, let me fill you in on how they work. If you were to pursue a bank statement loan, the loan officer would take an average of your deposits into your bank account, and calculate your income that way. This approach is unique and doesn’t fall under the same rules and guidelines as other loan forms. Occasionally that’s seen as a bad thing too. One occasion would be earlier this year (2020), during the initial stag-es of the Covid-19 pandemic. During that period of tremendous uncer-tainty and angst, non-qualified mortgages were temporarily suspended. As of this writing (Fall 2020), the dark clouds of uncertainty are be-ginning to lift. Likewise, the suspension on non-QM loans is slowly be-ing lifted as well. This occasion illustrates then that behavior of those in the non-QM space tends to be flexible and responsive to the moods of the market. We’ve seen it, as mentioned, during Covid-19, along with other market ripples like the 2008 global financial crisis. No matter what happens, it’s evident that the market and players within it, like hedge funds, will adapt and find ways to help people out. Non-QM loans, coupled with USDA and Jumbo loans, all fall under our “Little 3” heading. Each is an alternative to the “Big 3”. At least in theory. Yet how viable are any of these alternatives in reality? Are they the mortgage equivalents of say, DuckDuckGo? DuckDuckGo is an attempt at an independent, alternative search engine. In theory, it’s an option for those who don’t want to use Google.

88But when was the last time you used DuckDuckGo to do a web search? My guess is you’re “Googling” things far more often. Back to loans, I’d argue the “Little 3” aren’t the DuckDuckGo’s of the mortgage world. I see them instead as being viable and worthy of serious consideration. My opinion stems from having worked with plenty of clients, for example, who find that the normal resources of qualified mortgages are just not available to them. These would be clients like the ones I de-scribed with bank statement loans. In such situations, and others too; the “Little 3” deserve to be looked at.Here’s another illustration of this. Let’s say we have a person who needs a home and knows that in the long-run, their home will appreci-ate. At the same time, this person realizes that due to their own circum-stances, the “Big 3” just aren’t going to cut it.In lieu of the “Big 3”, the person in our example might use a bank statement loan to get started. Assuming they’re OK with the payments required by the bank statement loan, this loan program would help them to kick off their play for home ownership. Then later on, it might be time to adjust their approach, running a different play. The new play might be to write off less when it came time to file taxes. By executing this tax play, our hero/heroine could show the IRS more income on their tax return. Showing more income would result in the person qualifying for a refinance, into a qualified mortgage - like an FNMA conventional loan. Getting the new loan would further lower the payment for the guy/gal in this example. And it all started by taking an unconventional route initially, with the bank statement loan. The bank statement loan provided the spark, which could then be kindled into a roaring bonfire. That bonfire in turn, was fueled by the conventional loan - which will keep it burning far into the future.One more point in this example is that our hero/heroine doesn’t have to wait for the refinance. That moment will be a game-changer, no doubt. But they can still enjoy the perks of the new home with their spouse and kids, long before.

89Among those perks of home ownership - no one’s going to stop them from making changes to the home, as would be the case if renting. Equity’s also being built in the home, even during the pre-refi period. All in all, this approach from the example translates into a home run. You might say it’s also a case, of “double-teaming” the competition. Hitting the competition first with the bank statement loan and follow-ing that with the conventional one. From the examples in this chapter, you’re acquiring what I hope is a tangible understanding of loan programs - both alternative and tradi-tional. An understanding rooted, as much as possible in concrete, real world detail. In an effort to further that, I’d like to share with you details on my personal experiences with loan programs. Hearing about my loan experiences may come as a surprise, since I’m seemingly working such long hours that I never see the sun. That’s a reference, by the way, to Chapter one - where you heard about JB and I leaving work on a rare occasion when it was still light out.Even with my long, almost nocturnal working hours - I’ve still been personally involved with loans. That means handling loans for myself, outside the office, during “non-business hours” (*whatever that means, in today’s work-from-home world). When loans are concerned, I’d love to be able to use the VA loan for my own home purchase(s). It would be amazing to use the VA loan, and thereby borrow up to 100% of the value of my home or purchase price, up to the FHFA’s conforming loan limit. Still, that’s not an option for me. It can’t be, when my military expe-riences are limited to playing with plastic green army men and watching Rambo. I haven’t served, so the VA loans off the table. What is an option for me, as loans go, are the FHA and conventional types? That’s if we’re talking “Big 3” loan programs, and I’ve yet to have a personal reason to use the others (our “Little 3”).

90Staying focused on the “Big 3”, my first loan in pursuit of home own-ership was a conventional loan. I put 5% down on the purchase of a con-do, located roughly a mile away from Arizona State University. Loan #2 for me, was a conventional loan plus a second mortgage. In case you’ve wondered what exactly it means to have a “second mortgage”, let’s clear that up now. A second mortgage comes into play when the first mortgage covers a large portion of the loan amount, but not all of it. Back when I did this, the maximum loan amount for FNMA was $417,000. So I financed the $417k through a first mortgage backed by FNMA. Then from there, I took out a second mortgage at the same time, allowing me to borrow more money and thereby have less to put down. Following Loan #2, I then took out a construction loan. With this third loan, my wife and I made a 30% down payment in order to buy a lot of land. It was a “lot of land” both literally and figuratively. So much land in fact that we were able to borrow against the land and execute on plans to build a home there. Building that home was worthwhile in that it achieved two goals simultaneously. One of those goals was to finally get my own custom-built house. Having rented apartments, I relished the chance to live in a home of my own design. It’s a tremendous feeling to have such a home, and I hope you’ll one day experience that feeling for yourself.The other, arguably more pragmatic goal of having the home built was so the builder would have access to funds we had set aside with the bank. These funds were in the form of a construction loan. Once the house was finished being built, our construction loan became a perma-nent loan that we still have today. The construction loan had therefore supported us in achieving something which might otherwise have been out of reach - getting our very own home built. Equally important in this story, is the fact that within the timeline just described, I did refinances on my properties. These refi’s were im-portant because they gave me two highly desirable options.

91On one hand, I might lower the payment (since rates had gone down), which would enable me to take advantage of that timing. Or al-ternatively, I could use the equity in our home to pull cash out to pay off debt. For the latter case, using equity to pay off debt may sound familiar to you - as I mentioned it in previous chapters around my story of bud-geting. Also, to be clear, I’ve pursued both of those two options, albeit on separate occasions. The point of my story isn’t just to provide you with still more con-crete detail. I trust we’ve accomplished that, but there’s also another, equally significant takeaway. The takeaway is that loans can be used as initial leverage to purchase a property, and then later on, as a way to tap into the property’s equity for wealth-building strategies. Lost you, didn’t I? No worries. Here it is again, frame-by-frame, like we’re ESPN commentators reviewing a football play.What we’re looking at here is building wealth through real estate in-vesting. You may not think of yourself as a “real estate investor”, but when you purchase a home - that’s what you’re doing. You’re buying the home, which is a real estate asset. Thus, your home purchase makes you a real estate investor.Now, as you invest in real estate with your home purchase, you’re embarking on a unique wealth building strategy. This strategy differs dramatically from others, both in its approach and the potential gains. To see the differences, let’s compare real estate investing to stocks. “Stocks”, as in investing in the stock market, have long been hailed as a tried-and-true method for creating long-term wealth. So, how does stock investing compare to real estate investing? Let’s look at the numbers. Suppose you invest 3% as the down payment on a $200,000 house. In dollar terms, this amounts to $6,000. But this $6K isn’t what your appre-ciation is based on. The appreciation will actually be based on the home value ($200K). Thus, when the house appreciates 10%, you’ll have made $20,000 on your initial $6,000 investment.

92Now compare this return to stocks. Picture investing that same $6,000 into the stock market. Say you put it in the S&P 500, seen as the gold standard of stocks by investing legends like Warren Buffet. Let’s also say whatever stock(s) you’ve invested in go up by 10%. Hooray, you’ve made $600! $600?Yes, that’s your return from the stock investment(s). It’s based on your investment of $6,000. What’s the matter, is $600 not enough for you? I can’t blame you. A $600 return from stocks wouldn’t seem like much to me either. Not when juxtaposed with the $6,000 return from investing in the house. Is it any wonder then, which is a better wealth-building strategy? Investing in stocks, or investing in real estate?I’ll take real estate any day, as my means of creating wealth. And I suspect you will too.From a practical standpoint, you could certainly do it in a way like what I described - in my story of using loans personally. Two other options for you might be to use the “house hacking” and/or BRRRR strategies.House hacking is a real estate investment strategy where you use fi-nancing to purchase a property with multiple units (i.e. apartments or living areas). Then you live in one of the units and rent out the others. Your renters pay you to live in their units and these payments offset your monthly mortgage on the overall property. In fact, if you’re strate-gic about it, you can actually come out ahead financially from doing a house hack. Meaning the rent money you receive exceeds the amount of your monthly mortgage payment, leaving you with a surplus of cash each month.If you were to do a house hack, you might follow Eddie’s lead. Eddie is a client of mine who’s used house hacking to transcend his job as a server at a restaurant and begin building real wealth. Naturally, there’s nothing inherently wrong with working as a server at a restaurant. Eddie simply wanted more from life, especially when it came to money and housing.

93Employing the house hack strategy, Eddie saved up enough money to make the down payment on a four-plex. A four-plex, also known as a “quad”, is a building that has four separate units/apartments.Eddie’s down payment on the quad was part of an FHA loan that he took out, in order to purchase it. The FHA loan was preferable to other loan types because it offered both a lower down payment requirement and a lower interest rate. There was, however, a major catch to these perks of the FHA loan. The catch was that Eddie had to live in one of the units within the quad. Then again, as a house hacker, that was Eddie’s goal to begin with. So he was happy to live in one unit and qualify for what the FHA loan calls “owner occupied financing”. In terms of numbers, Eddie’s down payment was 3.5% on a four-plex that cost $300,000. This amounted to him putting $10,500 down in order to initially purchase the property. From there, his monthly payment for principal, interest, taxes, insurance, and mortgage insurance - totaled approximately $1,700. This outlay was offset by the rent which Eddie collected (and continues to collect) from his tenants. Rent is typically calculated at 1% of a property’s purchase price. For Eddie’s $300,000 property, the rent would be $3,000 total or $750 per unit (from $3,000 divided by four total units). Since he’s living in one of the units, Eddie collects rent from three of his property’s four units. Rent from the 3 units totals $2,250 ($750 * 3).Subtract Eddie’s monthly mortgage payment from the rent he re-ceives ($2,250 - $1,700) and you’ll find he comes out ahead by $550 each month. Over the course of a year (12 months), he makes approximately $6,600 in rent. Imagine how many shifts Eddie would have had to work in his job as a server, in order to make that same amount of money.Eddie’s gains from house hacking don’t end there either. He’s also able to live rent-free in one unit within the quad, since his mortgage is completely covered by the renters. Moreover, in the span of just one year alone, the four-plex increases by over $24,000 - owing to its location in an area where average appreciation has historically been 8.2%.Nice work, Eddie.

94Indeed, and Eddie’s just getting warmed-up too. Following his suc-cess with the quad, he plans to rent out the fourth unit and do another house hack at a different four-unit property.Eddie’s story shows how house hacking can be an excellent way for you to get started with real estate investing. Another approach you could also employ would be the BRRRR strategy.BRRRR, isn’t that what you say when it’s cold? Yes, but unfortunate-ly that joke has already worn out its welcome. Look around online and you’ll see what I mean. Amid pictures of people shivering and snow fall-ing; it’ll be apparent that I’m not the first to make a BRRRR cold joke. And unfortunately, I probably won’t be the last either. On the BRRRR strategy itself, “BRRRR” is an abbreviation for Buy, Renovate, Rent, Refinance, and Repeat. Each of those letters in the ab-breviation stands for one of the steps in an investment process.You can see the process through the story of Frank, another of my clients. Frank found a property where the purchase price was $200,000. He then ran the numbers on the deal, with the help of his real estate agent. This led Frank to realize that the property’s value after doing some work on it would be around $260,000. Sensing a promising investment opportunity, Frank decided to pur-chase the property. He put $20,000 in as a down payment, and took out a loan for the remaining $180,000.This action put the “B” (Buy) in BRRRR. Next came the first “R” - Renovate.Having already walked the property with a contractor, Frank knew that renovations would cost approximately $10,000. For that amount, he’d be able to renovate the property and get it appraised at a value where refinancing would become possible. Frank proceeded with the renovations and the property was subse-quently appraised at $260,000. He then progressed onward, to the sec-ond “R” - Rent. Recall from our house hack example, that a property’s rents are typi-cally at 1% of the appraisal value. In Frank’s case, his property’s $260,000

95value caused rents to be around that level too. To keep the math easy, let’s say Frank rented the property out at $2,500.From here, it was time for another “R” - Refinance.To refinance, Frank took out a loan for 75% of his property’s ap-praised value ($195,000). He used this amount to pay off the original loan of $180,000. With the original loan paid, Frank was left with $5,000. He also had the ongoing monthly rental income. Together, these sources of cash al-lowed Frank to enter BRRRR’s final stage (Repeat), where he repeated the process at another property. Like Eddie, Frank’s just getting warmed-up as a real estate investor. So, you can bet that he (Frank) will be going through the BRRRR pro-cess plenty more times. The more he follows BRRRR, the more invest-ment properties Frank stands to accumulate over time.Reading Frank’s example, did you pick up on a key moment? It was arguably the most important moment in the entire BRRRR process. The moment of truth came after the renovations, when the home was appraised. The appraisal dictated how much Frank could rent and refinance the property for. Plus, with his cash from those steps (Rent and Refi), Frank was able to repeat the process. Appraisal is therefore a true turning point in BRRRR. It’s why you do the renovations and, with the right appraisal value, it’s also what en-sures the BRRRR strategy is profitable for you. There’s a whole lot more I could tell you about BRRRR’s, but we’re al-ready really far off topic. My intent was to give you a look at the BRRRR strategy and house hacking. It wasn’t to try and one-up the true experts out there who’ve created excellent, in-depth resources on these sub-jects. If you’re looking to go deeper on either strategy (BRRRR or house hacking), I’d encourage you to check out the website Bigger Pockets (BiggerPockets.com). There, you’ll find a forum chocked with plenty of expert advice, and books written specifically on both strategies. Let’s return to this chapter’s core topic, which was loan programs.

96Within loan programs, we come now to something called “down pay-ment assistance”.This term refers to an instance when someone or something else is contributing to your down payment. The contributor is therefore pro-viding you with assistance in making your down payment. Practically-speaking, you might receive down payment assistance from programs that your state, county or city may have.I say “you might” because down payment assistance is not a sure thing. You may or may not qualify for it. It’s important then to make sure any lender you’re meeting with is showing you what down payment assistance options (if any) that you qualify for. And if you don’t qualify for any, you’ll also want to get a clear explanation from the lender as to why not. An explanation that’s more than just a blank stare and some variant of, “Because we don’t offer that here”. For our purposes here, let’s assume you do qualify for down pay-ment assistance. In that case, you might find yourself in a position like my client Anne.Anne came to my team and I, after having a difficult time getting the down payment for a home purchase. We talked to her and found that she qualified for a down payment assistance program. The rate, payment and closing costs for this program were the same as at the bank where Anne had previously been having her difficulties. Yet in our case, she was able to get 3% assistance through what’s called a “silent second mortgage”. This type of mortgage is similar to the second mortgage I mentioned earlier, when describing my personal experiences with loans. Remember how I purchased one of my houses using a second mortgage? A silent second mortgage is comparable to that, only there’s no payment on your part and the loan goes away after three years.Returning to Anne, the silent second mortgage was the answer to her down payment woes. It saved the day by allowing her to close on her house. At that point, Anne had one mortgage payment for the 1st mortgage that closed as an FHA loan. Alongside the first mortgage, Anne also

97had the silent second mortgage, acting as a second loan for the 3% down payment (a total amounting to over $7,000).Seven thousand dollars isn’t a million dollars. But for many of us, myself included, it’s still a considerable chunk of change. Anne felt the same way, and that’s why the silent second mortgage was such a life-saver. It provided $7k that she didn’t have to use from her own money! Plus as we’ve said, that second loan didn’t require any payments and will eventually be wiped out in three year’s time. It’s worth noting here that Anne’s situation could still change, to an extent that no longer supports the silent second mortgage. She might get a job which requires her to leave her current state and relocate else-where. In that event, Anne might decide she wants to sell her home, rather than keep it as a rental property. If she sells the home within the three years of the silent second mortgage, she’ll have to pay off the re-mainder of it. How much would the remainder be? The silent second mortgage is pro-rated, meaning its total amount ($7,000) is divided by three years (36 months). That works out to $195. So every month that passes after the closing, $195 is removed from what would be owed. If Anne were to sell the house after two years and had one year left on that second mortgage, she’d owe roughly $2,340 (from twelve months multiplied by $195).This scenario, again, is predicated on the “what-if” of something happening within the three years.But what if nothing happened, and Anne stayed in her house for more than three years? What if she was there for five years, which meets the five to seven year span for how long Americans tend to reside in their home? Well, in this instance, the silent second mortgage will be long gone. Anne won’t have to pay any portion of it if she sells or refinances.Not a bad deal for Anne. Nor for you if you qualify for down pay-ment assistance.Nonetheless, who would be providing you with this assistance? Aren’t you curious? I know I would be, especially if the assistance can

98make or break my dreams of home ownership and doesn’t require me to repay it. The answer is that down payment assistance can be provided by a state, county or city-funded program. In addition, Banks can offer this type of program as well. Why a bank? Put yourself in their shoes for a moment. Down payment assistance gives people a powerful incentive to use a specific bank for their financ-ing. That’s how it is here in my home state of Arizona. We have a bank here in Arizona which provides a down payment assistance program. With the program, my team and I - as mortgage brokers - write the loan for you. We also transfer the loan to this particular Arizona bank. The bank then proceeds to service the loan. With servicing, the bank is making money on the interest paid monthly on your loan. That’s nothing new, however, since banks traditionally make their money on loan interest. They also make money from any fees charged on the loan. From what’s been covered about down payment assistance pro-grams, especially in Anne’s example, you’d be forgiven for thinking that they were flawless. Fact is, that’s just not true. Like nearly anything else in life, down payment assistance programs have their own downsides.One downside would be that most down payment assistance pro-grams have a slightly higher interest rate than other loan formats. It’s how those who offer the assistance can replenish their coffers, so to speak, and ensure money’s available to give out.Down payment assistance programs may have a fee too. This de-pends on who’s giving you the assistance, as does the previous point about higher interest rates. Ultimately, you’ll need to have your lender compare programs. Don’t feel weird about asking them to do this either. After all, edu-cating you on the various loan programs that are available, along with the options you qualify for, is kind of the lender’s job. So you have every right to ask a lender to lead you through this discussion. And if they

99don’t - or worse, refuse and act indignant - then it’s time to search for another mortgage professional.Let me add that sometimes with down payment assistance, there’s a limit or cap based around how much money you make. Like food stamps, for example, down payment assistance programs may also have an income limit that only allows people of a certain income to quali-fy. Recognizing this, you’ll want to ask your lender about income caps during any discussion of down payment assistance programs.Another thing - or should we say, yet another thing - to ask your lender about is the different credit requirements involved with down payment assistance. This is necessary because it may be advantageous for you, to wait and improve your credit before pursuing down payment assistance. Once you have better credit, you may then qualify for anoth-er program, a lower rate, or more down payment assistance. Deciding to wait, as we’ve described, is a major decision. It means postponing your dreams of home ownership. If you’re going to make a decision of that caliber - it’s vital for you to know exactly where you’re at. This knowledge comes from stepping on our figurative scale again, to see what you qualify for now, plus what other programs you may want to qualify for, which take a slightly higher rate. Let’s say you don’t wait, though. Or you do wait, and the hands of time speed by - as with time-lapse photography - so we’re suddenly hav-ing this conversation when your credit has improved and you’re ready to pursue down payment assistance. At this point, you may be startled to find yourself putting less down. Beyond its literal wording, “putting less down” typically refers to putting less than 20% down in your initial down payment for a home. It may come as a surprise that you can do this because 20% down has traditionally been the only option with mortgages. Yet things have changed dramatically over the past few decades. We’re no longer in a world where you either save 20% or don’t buy a house. A world as well, where you’d be laughed out of the bank for talking about putting 3%, 3.5%, or 5% down.We’ve come a long way, thanks in part to the FHA rolling out their 3.5% program. This program, coupled with the establishment of

100mortgage insurance companies, made it OK for banks to lend without requiring 20% down. The requirement could be relaxed because the banks now had protection. That protection is what we discussed earlier, with loans being insured by the FHA and other parties. All of that progress leads us to where we are today, with a mortgage industry where you’re able to put less down. You can put less down - but should you?I’ll answer with a familiar refrain. One you probably expect, and know by heart at this point.“It depends”. Not a huge surprise, right? Because with most of this stuff, it does depend.What we can say, however, with rock-solid certainty is that there are clear advantages and disadvantages to putting less down.First, the advantages.Chief among them is that you get to keep more money in your pocket when you put less down. That may sound obvious to you. Like it’s com-mon sense. But then common sense is often - far too often - uncommon.To see this advantage in action, here’s a brief illustration. It involves - who else - a client of mine. This particular client’s name was Kevin. Kevin initially pre-qualified to put 20% down. Everything changed, however, when he found a particular house for purchase and wished to do some upgrades on it. The upgrades would require additional cash, so Kevin asked if he could put less down. His idea was to make a smaller down payment and use the savings to cover the upgrades to the home. In Kevin’s case, he and I went back and re-structured his loan. Under the new structure, Kevin was able to put 10% down and save $40,000 to do the upgrades.The restructuring was not without a few negatives, though. It caused Kevin’s loan amount to increase by 10% to $40k. His payments also went up slightly and he had to get mortgage insurance too - as a result of be-ing under the 20% down payment requirement. Nevertheless, these apparent clouds did have the proverbial silver lining. This became apparent when Kevin and I ran the numbers. We

101were delighted to see that his monthly payment was still in his payment goal range. Kevin was also able to do the upgrades he wanted, to make the house match his vision for it. Altogether, it ended up as a win-win for him.Kevin’s example shows us what it looks like when putting less down is advantageous. How about the opposite - an instance where it would be disadvantageous to put less down? A scenario, in other words, where you actually want to put more down? On that side, I can point to a time where putting more down ensures you’ll unequivocally qualify for the home you’re looking to buy.In such a scenario, suppose you’re qualified for a $400,000 loan. That $400K is your upper limit, since your loan officer has been unable to get it any higher. With the limit and a 20% down payment, the most expensive home you can purchase would cost $500,000.America being the free country that it is (or used to be, depending on who you ask); you could still purchase a home that cost more than $500K. No one would throw you in jail, for example, if you purchased a $505,000 home. You’d just need to bring the extra money yourself. Here, that would mean bringing an extra $5,000 of your own money to use. With the extra money, you’d be putting more money in as your down payment.Putting more down can also be advantageous for you, as a means of winning an offer on a home. If you’re bidding against other buyers for a “hot” home, then you may need to flex your financial muscle by putting more down. Money talks, as the saying goes, and it can often drown out the sounds of other home buyers who you’re competing with. As some context on why this actually works - the notion of putting more down to beat competitors for a property - let’s take a step back. Pause for a moment and consider the U.S. housing markets, particular-ly where they stand at the time this book’s being writtenRight now, as I’m pounding out the pages you’re reading - we’re at the tail-end of 2020. It’s a point in which rates are at an all-time low. What that means is that people are able to afford more house or else get

102the same house they were looking for last year with a significantly lower payment. The demand is therefore high for buyers to buy houses. Locally here in Arizona, for example, the demand has put our in-ventory of available homes at a record low amount due to supply and demand. I trust it’s probably similar in your part of the country too. Provided it is, then we can both expect - at least as of Q4 2020 - that when a seller puts their home on the market, at the right price and in decent shape; they’ll receive multiple offers on that property within a day and sometimes within only a few hours.Amid the offer-rich environment, consider what it’s like to be selling your home. As a seller, imagine you receive three offers from people who wish to buy your home. One of the offers is 3.5% down, another is 5% down and the third is 20% down.Seeing these offers, you’ll undoubtedly gravitate toward the third one. The third offer stands out because 20% down entails more money and the buyer offering it may therefore be more qualified. That’s an assumption, on the third buyer being more qualified, and you could be dead wrong. But it’s an easy assumption to make, and if nothing else, it reinforces our point on how a higher down payment commands attention.By the way, if you’re curious what else to do in order to beat the com-petition for a home and get your offer accepted; stay tuned. In a future section of the book, I’ll be dishing out some insider tips on that. If you don’t want to wait, here are two quick tips now - 1) write a letter and 2) have your lender call the listing agent to tell them how well-qualified you are.Back to our discussion of putting more down. A third reason to con-sider doing that would be to have a lower payment. Your ongoing mort-gage payment would be lower because putting more down would make the total loan amount lower. You might also be removing or at least low-ering the mortgage insurance payment too. With the mortgage insurance payment, here’s why it might be re-moved or lowered. Think back to conventional loans, and you may re-call that the mortgage insurance on a conventional loan is based on your credit score and how much you need to insure. Following this concept,

103putting 5% down is therefore a higher mortgage insurance factor or rate than if you put 10% or 15% down. Thankfully, you don’t have to study monthly payments and insur-ance rates in great detail yourself. Your loan officer - a good one, anyway - will do that for you, and explain how it all works in your particular situation. They’ll be able to shape your understanding too, of whether you’re ultimately at an advantage by putting more or less down. To wrap up our discussion on putting more versus less down, check out this analogy. I believe it ties together all we’ve been talking about. For our analogy, we’re once more stepping on the scale. This time around, I want you to project yourself into the future. Your future self has closed on your home and you’ve made the first couple of mortgage payments. With each month, your principal is going down. You see the de-crease month upon month, when you do your budget. In our analogy, it’s as though the loan on the house is losing weight. The equity, on the other hand, fluctuates monthly due to appre-ciation. In this way, you might think of it as being like water weight. Sometimes there’s more of it in your body, causing an uptick on the scale. The way to see your house “lose weight” is by looking at a financial statement for it. When you do this, it’s in keeping with the way you’d read a 401K or financial statement for stocks or mutual funds.Where do you get a financial statement for your house? You can ob-tain one courtesy of a company called HomeBot. Homebot specializes in creating these financial statements for you. You can see their handi-work in the images below.

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105 If you’d like access to Homebot’s images, I’m happy to provide you with them. It’s something I supply to all of my clients once we close. And regardless of whether you’re a client of mine, you can also get them by joining the my community. As a community member you get added to the Homebot system for your current property and/or future properties. You’re then able to track your home’s equity and appreciation monthly. If that sounds interesting or you’d just like to know more - email me at greg@runtheplays.com and put “Homebot” in the subject line. Continuing on, I thought we’d talk about a little number that’s kind of important.This little number is debt ratio, a.k.a. your debt-to-income ratio. It’s determined by taking all your monthly debt payments and dividing them by your gross monthly income.Debt ratios are important because lenders use them to measure your ability to manage the monthly payments in paying down a mortgage. This relates to what we talked about earlier, with the ability to repay. Recalling that earlier concept, it makes sense that the bank or lender wants to know whether you have the ability to pay them back. The debt ratio allows them to see this, and accordingly it’s a standard applied on all loans - even non-qualified mortgages.You can calculate the debt ratio with a bit of simple math. First, add up all your monthly debt payments. Then divide them by your gross monthly income. Voila, you’ve now got your debt ratio (debt-to-income ratio).Within the calculation we just did, there was something called your “gross monthly income”. This term is defined as the amount of money you’ve earned before your taxes and other deductions are taken out.Suppose for instance that you pay the following amounts: $1400 a month for your mortgage, another $200 a month for an auto loan, and $400 a month for the rest of your debts. Your monthly debt pay-ments would then total $2,000 (from $1400 + $200 + $400). If your gross

106monthly income were $6,000, then your debt-to-income ratio would be 33% (since $2,000 is 33% of $6,000).As debt ratios go, the standard is 43%. That’s typically the maximum percentage a bank or lender will allow. A notable exception to this standard comes with an FHA loan, where you can go up to 56%. VA loans are also exceptions to the standard, and can exceed even the 56% of an FHA loan. With VA loans in particular, I can recall cases where we’ve closed loans for veterans with a debt ratio over 60%. Feel free to calculate your debt ratio, but don’t stress too much about it. That’s because it’s ultimately something the mortgage professional you work with can guide you through. I’ve simply mentioned debt ratios here so you can understand what they’re talking about. I also want you to recognize the “why” behind the maximum purchasing power or max-imum loan you can take for a refinance. Another thing I should point out, as context here, is that when we talk about the debt - that’s the mortgage or projected mortgage when you’re getting pre-qualified. It includes principle and interest, which is the payment for the loan. It also includes your taxes, insurance, and pos-sibly mortgage insurance. These 4 components of “debt” are collectively referred to as “PITI”. That’s an abbreviation for Principal, Interest, Taxes and Insurance. PITI might need an additional letter, “H”, if you’re looking in an area that has a homeowner’s association (HOA). If there’s an HOA, we’d need to factor in the amount of HOA fees. Those fees would be lumped in with the others under the “debt” umbrella. As an illustration on HOA fees, you might find a home where the HOA fees were $100 per month. This would cause your purchasing pow-er to decrease slightly.Your debt ratio could also be impacted if you’re in an area with high-er taxes, or if you have high insurance quotes. Each of these can play a role with the ratio and, in turn, help or hinder your ability to qualify for a mortgage.

107Lastly, on debt, if we’re doing a refinance and paying off debt, then we would not count those debts (the ones you’re paying off) in the ratio. Sick of debts? I am. And I think we’ve covered them in more than enough detail. Let’s pivot the discussion toward income and its role in loan programs. Income can be a slippery concept because it’s often not just a straight salary. Instead, there’s typically overtime, bonuses, raises or some other amount which needs to be reviewed and factored into calculations so as to arrive at an accurate figure. Another thing making income “slippery” is that three different peo-ple will each calculate it. Those people are the loan officer, then the pro-cessor of your loan, and finally the underwriter.No offence to the loan officer and the loan processor, but their in-come calculations aren’t all that important. Only the underwriter’s in-come calculations matter in the end. Due to the underwriter’s importance, make sure your lender has “in-house underwriting”. Meaning the underwriter works for their compa-ny and sits in their office. The importance of “in-house underwriting” has become increasing-ly clear to me over the years. In fact, it was a primary reason for my move from being a broker to working at a private banker. I wanted greater con-trol of the loan process, from having an underwriter who worked with me. Such an underwriter would be solution-based, helping more of my clients obtain a loan and become homeowners. Prior to having my own in-house underwriter, my clients and I had been in a tremendously uncertain position. The uncertainty came when-ever I’d send a loan to a bank which had its own underwriters. With no knowledge of the bank’s underwriters, it felt as though I were rolling the dice on my clients’ futures. I could only cross my fingers that the loan I’d submitted for a particular client would be approved.

108The uncertainty came to a end when I was finally able to bring un-derwriting in-house. That’s where I’m at today. We have an underwriter in my office who ensures loan submissions are no longer a crap shoot. If there’s anything I have questions on, I can have my underwriter take a look at it. She (my in-house underwriter) can review a client’s in-come and answer questions, for example, about that client’s tax return. Guidance like this is priceless, both to me and to my clients - more of which are in their homes today, thanks to our in-house underwriter. Before talking about the importance of in-house underwriting, we were on income. Let’s rewind to that moment, as there’s more to cover.With income, the next point to be cognizant of is how it works when you’re self-employed. If you’re a self employed person or own a business, you’ll likely hire a CPA. The CPA can help you avoid paying too many taxes. They’ll do it by lowering the amount of income you claim and thus decreasing your tax exposure. When getting a loan, however, this approach to income (lowering how much of it you claim) may not be a wise one. To know whether or not it is, you’ll need a loan officer who’s extremely knowledgeable with tax returns. Such a loan officer should also, as per our previous point, have an in-house underwriter who can confirm their numbers or possi-bly increase the income calculation. Relating this to sports, I’d say it’s like having someone on the ju-nior varsity team handling your income calculation rather than an NFL player. Imagine, prior picking up this book, that you were introduced to a loan officer. The loan officer seemed nice enough, yet you didn’t know they were on the junior varsity (JV) team, so to speak. Everything starts off smoothly as this loan officer handles pre-qual-ification work and you go out shopping for a home. You see several homes and finally put in an offer on your dream home (i.e. “The One”). Then things go sideways.

109Your loan is denied, as the underwriter comes back and disagrees with how the loan officer calculated the income. In hindsight, it turns out the loan officer overqualified you. Having the loan denied might not be a big deal, except you’ve al-ready invested substantial time, money, and emotions in the run-up to this moment. With so much invested, it’s excruciatingly painful to see your prospects for the loan cut down. In a football sense, it’s like watching the quarterback fumble the ball when they’re only a few yards from scoring a touchdown. Disappointing and infuriating at the same time. Fumbles become far less likely, though, in the NFL. The reason is that NFL players are professionals. Unlike the JV players, it’s an NFL player’s full-time job to play football. The NFL player will therefore have a superior sense of the game than their JV counterparts. And for that reason, you won’t see nearly as many fumbles.Since they’re not as prone to fumbling the ball, picture what it’s like to have an NFL player - or rather the loan officer equivalent of one - handling your income calculation. That loan officer has seen it all, and remains a student of their craft, in order to stay up on current developments. When you meet with this second loan officer - the one who’s compa-rable to an NFL player; they properly calculate your income. You’re also presented with multiple options so you can choose the best one for you and feel confident that you’ve made the right decision. On top of that, this NFL-caliber loan officer knows which questions to ask his underwriter to confirm your pre-qualification for the loan. This leads to the loan officer providing you with an official letter, bear-ing the officer’s license and signature on it.Armed with the letter, you can now confidently go out shopping for houses. And when you do ultimately find “the one” - your dream home - there won’t be any “fumbles”. In place of fumbles, you’ll be on track for a home buying “touchdown”.

110The touchdown will come as your offer on the home and your file are both submitted, the processor reviews everything, and the under-writer then approves you for the loan. In the home buying “touchdown” just described, I referenced cal-culations being done by the loan officer. You can get a sense of those calculations in the following image.

111For this image (above), there are calculations around FHA and con-ventional loans. These calculations have been done for three individu-als, each of whom has a differing credit score. The credit scores for each person are 720, 680, and 640. Alongside the scores, you can also see other figures like interest rates, and the way in which these figures dictate each person’s total savings and PIMI (Principle, Interest, Mortgage Insurance).Since the image shows FHA and conventional loans, it’s only right that we cover another distinction between these two loan types. This distinction would matter to those three people in the image (the three with differing credit scores) if any of them were thinking of purchasing a home for investment purposes.The distinction is that with an FHA loan, you’re only allowed to use it when purchasing your primary residence. Only your primary residence? Sure, but don’t lose heart if you’re looking to have investment properties versus a primary residence. You’re not allowed to purchase an FHA or VA home for investment purposes - as a rental or second income property. What you can do, though, is to refinance, if you’ve left the initial primary residence and turned it into an investment property.Speaking of acquiring properties beyond your primary residence, you should probably be aware of how conventional loans fit in here. Conventional loans, as it turns out, are specifically designed for second homes (popularly called “vacation homes”).

112With a conventional loan, your minimum down payment for a sec-ond/vacation home would be 10%. As this amount down is less than 20%, you’d need mortgage insurance.Also, you should be aware that the term “second home” is used when a property will not be your primary residence. That’s how it would be for me, as an example, if I wanted to buy a home in Flagstaff, AZ. Geographically, Flagstaff is up in Northern Arizona. It’s over a hundred fifty miles from where I live and work, in Scottsdale. My Flagstaff property would be seen by lenders as a “second home”, and I’d probably use a conventional loan to acquire it. In my Flagstaff case, there’s an interesting term I’d undoubtedly be hearing from the lender. It’s a term you’d hear as well, if using a conven-tional loan to acquire a second home. What you and I would each hear about is a “second home rider”.This is an item on the deed for the second home property, which says we won’t rent the second home property out for a period of twelve months. We’d need to sign the “second home rider” and abide by it for the initial twelve months of owning the property. After twelve months, we’d then be allowed to rent the second home out. Renting it out following year one (those twelve months) turns the second home into an investment/rental property in the eyes of the lend-er. This means we wouldn’t be able to refinance it as a second home in the future. From second home riders, let’s transition into the final area of dis-cussion for this chapter.Rates are the final area for us to cover, in painting a picture for you of loan programs. We care about rates for the simple reason that it’s how banks get paid. What I mean is that banks make money off the interest you pay back on a loan. Moreover, depending on the size of the loan, you may find yourself saddled with a higher or lower interest rate. Larger loans, in this instance, could result in you having a lower interest rate, and vice-versa. As an illustration of rates, meet Brian.

113Brian, a recent client of mine, was buying a home where the pur-chase price was $767,000. He’d sold his other home and was using the equity from it to put down money on this purchase.Brian’s original plan had been to max out the conforming loan size of $510,400. By doing that, he’d planned to save his cash for investing elsewhere. His plan was supported by a rate at that time of 2.625%, 2.67% APR for the $510,400 loan amount.In time, though, Brian had a change of heart. He chose to put down more money in order to have a lower payment. By putting more down, his new loan amount was an even $200,000. Normally, you’d think the interest rate would stay the same for Brian. Yet it didn’t and that’s why we’re talking about Brian. His situation pro-vides a valuable glimpse into how the loan amount affects your rate. For Brian, the bank providing his loan stood to make less on the in-terest from the $200,000 loan. Less compared to the $510,400 loan which Brian had previously planned to take out. Accordingly, the bank raised Brian’s rate to 2.875%, APR 2.97%. Despite its increase, this interest rate is still great. Brian was pleased, as am I. But we were also both aware of how the bank had raised its rate as Brian’s loan amount changed. This awareness is the takeaway for you now, in Brian’s example. I want you to understand what happened and take it into account if you have a large sum of money and are strategizing on how much to put down. It’s important, even if you’ll have a loan officer around to advise you on where the rate change would take place. Your loan officer could also advise you on the “rate buydown”. I won’t leave it to them, however, to educate you initially, on what this term means.When you hear “rate buydown”, it’s probably being used in tandem with something called “points”. In plain English, versus jumbled banker jargon, what’s happening is that the banks have rates which are posted daily. These rates can change throughout the day, as they’re tied to the mortgage-backed securities or bond market.

114When stocks do well, people tend to take their money from the bond market and move it to stocks. This is done in order to ride positive waves in the stock market.As money flows out of bonds and into stocks, the bond market goes down and rates go up. The reverse happens when the stock market isn’t doing well. In this latter scenario, people pull their money from stocks and move them to bonds. This strengthens the bond market, leading to lower rates.Amid these changes in rates, you may crave some stability and cer-tainty. The way to achieve it would be through what’s referred to as “locking in an interest rate”. When you lock in the rate, you and a bank are committing to certain terms related to interest rates.Here’s how it could play out in the real world. You might want to borrow $237,500k from the bank to purchase a home with a purchase price of $250,000. The bank’s rate might be 3.375% at the time for a for-ty-five day period,.Forty-five days could be long enough for you to close on your home. Putting it another way, as long as you close on the home within the forty-five days, your rate would be 3.375%. The rate would therefore be “locked in” for the forty-five day period. The stock market could explode upward, making the bond market plummet. But if your rate were locked in, during that period, the rate wouldn’t be impacted at all. Same goes for a scenario where the bond market surges and Wall Street (i.e. the stock market) goes belly-up. You’ll still get the 3.375% rate. It’s a mutually protective position then, for both you and the bank. When it comes to locking in rates, I’m personally a fan of doing so. My rationale is that I’m not a gambler, especially with other people’s money. Locking in rates makes getting a mortgage less of a gamble.If you’re wondering whether to lock in rates, I’d advise you to first have a conversation about it with your loan officer. Don’t try to figure it out all by yourself. Lean on your loan officer’s expertise and get their opinion. Find out from them whether rates have been pretty stable for a while, meaning the bond market hasn’t been shooting up or down. Then if you’re happy with the payment at the current rate, it may be a great

115time to lock in a rate and not think about it anymore. (This assumes too, that you have a contract on a home - and with it, a legally binding contractual obligation to close by a certain date.)That’s just my two-cents, though. It may be worth reassessing in your own scenario, especially if you’ve done your own research and/or you have market knowledge suggesting rates may turn in the next day or so. In such times, locking in a rate might be the last thing you’d want to do. Rather than a lock in, you’d be better off “floating” for a few days.With all this talk about locking in rates and floating, you might think I forgot about the “rate buy down”. We started to talk about it a page or so back, but then it just disappeared. Not to worry, I was setting the stage for you on rates. As that’s now complete, we can get to what’s meant by “rate buy down” and a related concept, which I term the “re-verse rate buy down”.So, the rate buy down - it comes up because the bank starts with what’s called a PAR rate. The PAR rate means there’s no cost or credit. To illustrate this, suppose you have a PAR rate today of 3.375% on a $237,000 loan with a 720 credit score. Your payment would be $1,049.98 for principal and interest. For a cost of $475, you could pay the bank a lower interest rate of 3.25%. This would put the payment at $1,033.62, saving $16.36 per month. In this illustration, the simple math would be to take the $475 and divide it by your savings of $16.36. That division results in twenty-nine, as in twenty-nine months to recoup your costs. Twenty-nine months, in turn, works out to about two and a half years. Thus, if you’re going to be in a home for more than that time, you might seriously consider that buy down. In my own experiences with clients, I’ve had some cases where it takes eleven or even twelve years to recoup the cost. When that happens, it’s typically not a good use of your money to buy down. Still, everyone’s situations are different. Recognizing situational differences, let’s use that same example, only at a lower rate like 2.99%. The buy down now would be $1,282.50 and the savings would be $50.25. This amounts to twenty-five and a half

116months. Provided you had the money, that might be a good deal, espe-cially because it would be $600 a year in savings.That’s buy-downs. Now for the reverse (i.e. a reverse rate buy-down). We’d see this latter type of buy-down come into play if you needed some help with your closing cost. Either that, or you wanted a little extra money in your pocket after you closed, in order to furnish the house or do some cosmetics touch ups. With the normal buy down, you’d pay the bank up-front to get a lower rate for the life of the loan. Going in reverse now, with a reverse rate buy-down, the bank would actually pay you upfront for a higher rate for the loan.Wait, the bank pays you? Since when?Look, I know you’re skeptical. But that’s exactly what happens with a reverse rate buy-down. You can see it for yourself in the following example. Picture yourself with the same figures as in our buy-down example. This time, though, you take a higher interest rate of 3.625%. It provides you with a credit of $2,071 and an increase in your payment of $33.14. If you pursue a reverse buy-down, you’ll be increasing your rate and thus your house payment. One thing to watch for as this happens, is that you still qualify for a mortgage. This can become a concern because your debt ratio will be impacted by the buy-down. More specifically, your debt ratio will go up. Keep your eyes on this, and of course, make sure your loan officer is paying attention to it as well. Anything else? No, not on loan programs at least. Thirty-some-odd pages into this chapter and I think we’ve about covered them. Beyond that, you might be getting a case of “cabin fever”, from reading page after page after page after……page, on loan programs. No need for us to drag this out longer than necessary. You know enough about loan programs to be dangerous. Dangerous, as in a serious player. A contender, like boxers might say, only in pursuit of a loan and not a heavyweight title.

117Where do we go from here?On to the essentials. The essentials are those things you absolutely must do when you’re on the road to home ownership. I’m personally looking forward to telling you about these items, be-cause it stands to be our most actionable chapter yet. In place of the con-ceptual - and yes, even occasionally dry - material in chapters like this last one; our next chapter will be primarily action-oriented and tactical.If you like the sound of that, let’s head on into it now…

118CHAPTER 5 THE DO’S & DON’TSI     .Ever heard that quote?It comes from baseball legend Yogi Berra.Berra had a knack for making statements like that, saying things which managed to be both insightful and ridiculous at the same time.A few of his other insightful/ridiculous quotes include -“You can observe a lot just by watching.” “No one goes there nowadays, it’s too crowded.”And my favorite - “It’s like Deja vu all over again.”Let’s return to that first quote, though.“It ain’t over till it’s over.”Berra wasn’t talking about buying a home, when he uttered those famous lines. He was a baseball player, after all. Yet what he said applies perfectly to those on the path toward home ownership. For when you’re on that path, it ain’t over till it’s over. By “over”, I mean OVER. As in you’ve got the keys to your new house and can legally move in. That’s when it’s finally over.Like Berra’s quotes, what I’m saying is probably obvious to you. Chances are, you’re already well aware of the fact that the home buying process “ain’t over till it’s over”. You know it, as do countless other aspiring home buyers. The chal-lenge, however, is to accept that “it ain’t over till it’s over” and then to wait patiently until it really is over.If you can accept it and wait; you’ll soon find yourself in a new home. And if you can’t?

119In that case, you’ll be jeopardizing your dreams of home ownership. Those dreams might go up in flames, burning to ash before your eyes.That’s a long-winded way of saying you might not be able to buy a new home.My goal in this chapter is to help you stay on the path to home own-ership and avoid the “up in flames” situation just described. To achieve that goal, I’ll be giving you a set of “Do’s” and “Don’ts”. Together, the “Do’s” and “Don’ts” in this chapter will keep you on course, ensuring you don’t inadvertently fumble and lose out on home ownership at the last minute.In a sports context, you can think of this chapter’s “Do’s” and “Don’ts” as a series of defensive plays. These plays are defensive, in the sense that they’ll defend your dreams of buying a house. Ready?Then it’s “down, set, and hike!”…into the first of our defensive plays.This first play is one of the “Do’s”. We’ll review it, along with a num-ber of other “Do’s”, before shifting positions to discuss the “Don’ts”.Do #1 is to keep budgeting.The idea here is that you should keep working on your budget and sticking to it monthly. Be sure to do that, as it’s a game changer - both in getting a mortgage and in life, period. On the mortgage side, budgeting can make the difference in whether you’re able to buy a house now or in 6 long months. As for life overall, keeping a budget for even a few months will put you in a better position financially than the person who doesn’t. You’ll be financially better off as a result of having more money saved, wheth-er in an emergency fund or as savings for something pleasurable like a vacation.At its core, “Do #1” is about consistency. It’s about consistently bud-geting, from here to the end of the season, if you will. And then budget-ing beyond that point, into the post-season and eventually retirement. I suppose then that budgeting is like weight training. You can see the similarities with professional athletes at the top of their game. Such ath-letes engage in weight training year-round. What’s more, many of them are still “pumping iron” during their retirement years. It’s as though

120they have an “iron deficiency”, and can only satisfy it by continuing to lift, squat, and pull heavy iron weights. The theme of consistency crosses over into the second of our “Do’s”. This next one (Do #2) is to stay consistent with your rent or mortgage payments. No matter where you’re currently living, keep paying either of those (rent / mortgage) on time. Consistency in rent/mortgage payments is important because it im-pacts your overall payment history. This payment history carries con-siderable weight in the eyes of those who’ll provide you a loan. Your loan provider wants to see that you’ve consistently made payments at your current and previous residences. Seeing you’ve done so, increases their confidence that you’ll be able to make payments if given a mortgage in the future. Another important point here is to be extra careful if you’re already paying a home mortgage. Most loan programs will allow you to have a late mortgage payment once in a 12-month period, and twice in a 24-month period. Exceed these limits and you’ll find it’s nearly impos-sible to buy a home. OK, maybe not impossible. But it becomes really, really difficult. In addition, you should be aware that some loan programs don’t even allow late mortgage payments period. I’m seeing that latter point, first-hand right now, with a client who my team and I are assisting.So we don’t embarrass him, let’s call this client “Justin”. Justin had a late mortgage payment eleven months ago. As of this writing, we’re asking for an exception, so he’ll be allowed to obtain fi-nancing for his home. Justin’s been pleading with the original lender (who granted him his current mortgage) to remove the late payment. From what I can gather, it sounds like he’s been relentless. Pleading for the lender to “please, please, pretty please” get rid of that blasted late payment. Yet it hasn’t happened.Since Justin’s my client, I’ve helped him put in an exception. This has entailed sending a strong letter of explanation to the provider of the loan which Justin’s applying for.

121Personally, I’m confident the letter will make a difference and allow Justin to be approved for his loan. Still, this is definitely not a foregone conclusion. Our success isn’t guaranteed because Justin’s applying for a jumbo loan. When pursuing that type of loan, it’s a huge red flag to have late payments. In fact, Justin’s particular program, which would provide his jumbo loan, doesn’t allow late payments at all. This is why, to reiterate “Do #2” - you must stay consistent and up-to-date on your rent/mortgage payments.That’s “Do #2”. But what was the part about a “strong letter of expla-nation”? I tossed you the phrase, as though you’re already familiar with it. But you may not be. So, let’s talk a little more about what exactly it means to have a “strong letter of explanation”.What we’re getting at is a letter to the underwriter to “explain” what happened with hopes of them seeing your side. In our example, Justin needed to explain why he had the late payment so the underwriter would make the exception to their seemingly iron-clad “NO MORTGAGE LATE PAYMENT” policy. And why was Justin’s payment late? The explanation is that the late payment came shortly after Justin had started a mortgage and set-up auto pay for it. His auto pay, howev-er, didn’t go through. Justin found out about the problem later, when he happened to be out of the country. At that point, the bank contacted him to let him know. On his return to the U.S., Justin immediately paid the past month and the next month and corrected his auto-pay.The details we’ve just covered, explaining Justin’s late payment, are exactly what he put into a letter of explanation. Justin’s letter was short and to the point. It was also effective. That’s because, as of writing this today, I’m pleased to report that Justin’s letter was accepted. In other words, the underwriter sided with him and made an exception allowing Justin to get jumbo financing, despite the prior late payment.Can a single letter really be so powerful?

12 2Absolutely. The reason - with Justin and anyone else (yourself in-cluded) - is that ultimately, it’s NOT a computer which approves the loan. Maybe by the time you read this, in say, fifty or a hundred years, computers will be the ones approving loan applicants. Maybe, but we’re certainly not there yet. And it’s not going to happen tomorrow or the next day either. Nope, right now, it’s a person who approves your loans, rather than a computer. This is good news because it means you might have a shot. If you can convince the person at the bank (or other loan providing in-stitution) to see your point of view and understand the circumstances surrounding the “event,” then it will be. It’s often a long shot, to be sure. Yet it does happen. Another of my clients proves it. This particular gentleman had a late mortgage pay-ment on his record but was entirely unaware of it. He submitted a letter explaining the circumstances causing him to miss payment. This client of mine also called the lender 18 times requesting the late payment be expunged from his credit history. Eighteen times! I hope it was a toll-free phone number, and not a long-distance call either. Seriously, eighteen calls. And all from having missed one mortgage payment. Let me repeat, the missed payment wasn’t my client’s fault. There were extenuating circumstances at play. But think about how much time and effort was involved. I’d hate for you to have to go through a similar struggle. Learn from this 18-timer and never, ever miss your mortgage payment. While you’re at it, don’t get lax on your credit card payments either. Missing a credit card payment is, admittedly, not as harmful as missing a mortgage payment. Yet it still counts against you. In this case, with a missed credit card payment, your credit score could drop. If the drop’s significant enough, it would result in you becoming disqualified. With disqualification, your loan approval could be overturned, and you could be denied the loan.The way to prevent a disqualification is, of course, to make your pay-ments, and broadly-speaking, to protect your credit score. If it’s helpful,

123you might think of your credit score as analogous to a football team’s star quarterback. The more the team protects their QB, the more likely the QB (“Quarterback” for the non-football fans) is to throw a game-win-ning touchdown pass.Protecting your credit score isn’t just about making payments on time. That’s a good start. But you’ll also need to keep your balances on credit cards down too. This is often easier said than done when buying a home. The challenge can come from little winged demons, who appear right as you’re about to purchase a home. These flying fiends can seem-ingly steal your credit card and use it to buy appliances or furniture for your new home. By the time you realize what’s happened, your credit card balances are as unbelievable as the demons.Or not.In reality, the only “demons” would be our feelings of impatience. Those feelings of impatience come from having to wait just a little while longer before we can start buying things for a new home.Speaking of demons, I don’t want to turn this into a sermon. My aim is only to ensure you’re aware of the harm that can come from wreck-ing your credit - in this case, with a high balance - prior to becoming a homeowner. This isn’t just paranoia either. I’ve had actual clients who let impa-tience get the better of them and went on spending sprees for their up-coming homes. These clients purchased couches, washers, dryers, and a whole lot more. All of it for homes they planned to move into. And all of it paid for with plastic (i.e. credit cards).As you might expect, these clients never ended up moving into their respective homes. Worse yet, many of them also had to return their home furnishings too. Imagine how much “fun” that must have been. A sofa, for example, is already enough of a pain to transport. But now think about the added emotional pain from having to return it, af-ter losing the home of your dreams. Backing out, in this instance, might hurt just as much as if you’d thrown your back out (a type of injury) when carrying the sofa back to the store.

124The bottom line is that the bank will be looking at your credit profile to qualify you for the loan. This profile must stay relatively constant. Where credit’s concerned, that means making your payments and keep-ing a low balance. It also means keeping your income and assets within the given bank’s qualifying range for their loan. Since you may be tired of sports analogies by this point, here’s a quick analogy illustrating the idea in a different vein. Imagine you’re piloting a passenger jet. It could be a Gulfstream G4, or an even bigger aircraft like Boeing’s 787. Regardless of the jet, you’re probably piloting it with the help of a computer system. The computer system shows you where the plane needs to be, in terms of its trajectory, altitude, and vital aircraft stats (fuel levels, speed, cabin pressure, etc.). Your job then, as pilot, is to keep the jet within the ranges specified by its computer system. Do that and the plane will reach its destination. Fail to do so, on the other hand, and you might soon need to make an emergency landing. Turning back to home buying, let’s take a break from all the “doom and gloom”. Here’s a positive example. It illustrates a case where a client of mine was able to make a large purchase, in the run-up to closing on a new home, without damaging their credit.For our example, we’ll be discussing Meghan. Like all of my clients, Meghan had gotten the lecture from me about not making any major purchases with her credit cards prior to the home purchase. This was undoubtedly the reason then, that she was visibly nervous when coming to me.Fortunately, Meghan’s nervousness didn’t prevent her from explain-ing the situation. I learned she had an emergency which required her to buy a new car. The new car wasn’t a “nice-to-have”. Instead, it was an “essential”, which Meghan needed ASAP. Since she was my client, I immediately went into action for Meghan. First, I consulted my credit team and asked whether the new car pur-chase would hurt Meghan’s credit. My team said “No”, provided we kept Meghan’s purchase within a certain range.

125As it’s been a while, I’m a bit hazy on all of the exact figures. The one I do remember, though, is Meghan’s monthly car payment. My team and I determined that she could pay up to $280 per month on car payments. If Meghan stayed in that range on payments, while also keeping a consistent bank balance; she’d be OK - even with buying a new car. In the end, Meghan’s payments worked out to $275 per month, and she also kept that bank balance steady. She was soon driving her new car to her new home, in a true win-win scenario.What made the difference in Meghan’s example? On one level it was her $275 per month car payments and the bank balance. If we go deeper, however, Meghan’s success lies in the fact that she didn’t just blindly make the purchase on her own. Rather, she un-derstood the value of getting a second opinion - in this case, the second opinion of me and those on my team. This isn’t even about me or my mortgage team either. Whoever you end up working with, do yourself a favor and check with them before doing anything which could potentially impair your chances of getting a home loan. Your loan officer is on your team and wants to help you. So do what’s right, and easy too - by letting them guide you. Now I thought we’d talk about something called the “LQI”.What’s the LQI?It stands for Loan Quality Initiative. More importantly, it’s another obstacle which could potentially keep you from getting a loan.To understand why this would happen, we need to rewind a few years. Back to when this LQI business got started. Several years ago, banks added another step into the mortgage pro-cess. This step was to do a soft pull of a loan applicant’s credit report. The soft pull was done sometime around underwriting the loan, closing the loan, and the applicant getting the keys to their new home. If that sounds hazy, it’s probably the point. Banks collectively didn’t want a loan applicant to know exactly when the soft pull is going to come.

126Are the banks being devious with the soft pull, and the initiative behind it (the LQI)? Not at all. If anything, banks are just making sure they don’t get burned financially. The soft pull reduces the risk of a “burn” because it allows a bank to double-check that you’re OK for a mortgage. When double-checking, the bank is looking specifically at your cred-it. Those at the bank want to see if there have been any major changes. Major changes to your credit would include those we’ve previous-ly discussed, along with some other, downright unusual ones too. The “unusual suspects” would include: purchasing a new car (for the wrong reasons - unlike Meghan); adding a new, major monthly debt; and the worst of the bunch - applying for another home to purchase with a dif-ferent lender and not letting your current lender know.If there are any changes like these…Well, you know the deal. I’ve only beaten the point to death over the past few pages. NO MORTGAGE!!!That’s what can happen if the soft pull reveals dramatic, negative changes have taken place around your credit. At the risk of boring you to tears, with still more verbiage on the need to keep your credit consistent - we’ll leave it at that. Up next, let’s talk about income. It connects to the 3rd of our Do’s.“Do #3” is to keep working at your current job, with the same or more working hours (weekly, monthly). This is important because it demonstrates stability on your part, both in terms of the job itself and the income it provides you with.Banks want to see that you have job and income stability, since those two qualities ensure you’ll have the money to steadily pay back a loan. To gauge your job/income stability, a bank may request updated pay stubs from you, during the loan process. The pay stubs will show your income (if any), which job(s) it came from, and how much you worked to earn the income (hours, weeks, months).

127Ideally, the pay stubs you provide a bank will show that you’ve re-mained at the same job, with the same pay, working the same hours. That’s not to say, however, that you should turn down a promotion, a pay raise, or an end-of-the-year bonus. To the contrary, those are all pos-itives which would make it a bit easier to have your loan approved and closed. What you should turn down, though, is anything which would put you in a worse situation income-wise, than when you were pre-qualified and pre-approved for a loan. Quitting your job is an obvious thing to avoid here, and with a little creativity, you can probably dream up other income-destroying actions too. You now know that your income and employment should remain consistent during the home buying process. But what if, despite your best intentions, you “slip up”? In other words, what happens if your working hours and/or your pay decreases? Is it automatically game-over? Not necessarily.It really depends on how big of a “slip” you’ve had. If, for instance, you’ve gone from working ten hours per week to five hours; then you may be OK. I can’t guarantee it. But a five-hour drop isn’t necessarily going to send chills down the spine of a bank, making them instantly throw out your mortgage. On the other hand, if you’ve gone from working forty hours per week to now doing only thirty hours, that’s a much bigger drop. It’s more like-ly as well, to raise eyebrows at the bank. Please realize though, that this is just a guideline. I can’t say with certainty how your personal situation will register with the particular bank you end up working with.The person who can tell you that is…you guessed it, your loan offi-cer. They’ll be able to advise you on whether a work or income-related change is really as dire as it might seem to you.While it’s important for you to consult your loan officer - particular-ly in cases where your personal circumstances have changed; the reverse is also true. What I mean is that your loan officer should be checking

128in with you too. You should hear from them on a regular basis during the home buying process, with updates on how the process is going and alerts to any changes in the industry. On that latter front, with industry changes, your loan officer would alert you, for example, if the minimum credit score was changed.Your interaction with the loan officer should thus be a two-way street. A dialogue versus a monologue, and certainly NOT a mime interaction. Alright, time for another “do”.“Do #4” is to be super prompt with returning any requested documents.What sort of documents might be requested?Pay stubs are an immediate example. They’d be requested in the be-ginning, when you were pre-qualified for a loan. At that point, you’d also be supplying tax returns, bank statements, W2’s, and potentially other supporting documents as well.Once you get to the tail end of the home buying process - the time when our “do’s” and “don’ts” really come into play - the requested docu-ments will tend to be updates and explanations. Your lender may request, for example, a recently updated bank statement. The bank statement would show the lender that your earnest money deposit had indeed cleared your bank account. As for explanations, you may receive a request from the lender to explain, in writing, something which came up in a public records search. Whatever the search turned up, my suggestion is to reply as requested, with an explanation as soon as possible. The same goes for the other document requests mentioned. Any such requests are analogous to a game of tennis. The idea being that you want to keep the ball in the other player (i.e. the lender’s) court as much as possible. In tennis, you don’t get any points from having the ball on your side of the net. So when the lender, like a tennis play-er, “serves” you a request for documents; don’t let the request bounce around on your side. Instead, do what’s needed and then serve that re-quest right back to the lender. You’ll find this approach helps to move

129things forward at a faster clip, while dialing down much of the stress which can accompany buying a home.Another way to reduce that stress is to have a clear understanding of when the loan process actually ends. This ties back into the Yogi Berra quote which we opened the chapter with. Remember what Berra told us about endings?“It ain’t over till it’s over.”In the context of loans, we could say “it ain’t closed till it’s closed.”But when exactly is that? Zoom in on the loan process, and you’ll see the final step. It comes when the title company receives money from the lender via wire trans-fer. At this point, your home purchase is recorded with the recorder’s office of the county where the home is located. Some states allow title and escrow services to handle this step, while others require attorneys to do it. Either way, someone will be receiving the money sent from the lender and recording the home in your name.The essential part to remember in all of it, is that until the home is officially recorded in your name; you must adhere to keeping your financial “house” in order. That means protecting your current credit score, your job and income, and your assets and bank account. If any of those things change for the worse, then you’re putting your qualification on a loan in jeopardy.To put it even more simply - you’re not guaranteed the loan nor the house, until the moment when the loan’s closed, funded, and recorded. Then and only then is it “over”.Don’t go looking for exceptions on this one either. Unlike other mo-ments in this chapter, where there were exceptions and a general sense of “it depends”; none of that exists here. It’s over when the loan’s closed, funded, and recorded - and not a moment before.In conveying this point to you, I’m reminded of a borrower we worked with several years ago. This borrower quit their job but didn’t tell anyone initially. No one knew until we’d sent the money for their home purchase to title.

130At this point, we called the borrower’s employer to do a final veri-fication of their employment. The employer then informed us that the borrower no longer worked there. A final verification of employment? Yes, you read that right. And it makes sense too when you think about it. For, as we’ve said, the banks want to mitigate or lessen their risk. An effective way to do that is to verify that you still have your job and can thus make your payments.Getting back to our story, I remember realizing the borrower had quit their job. As the realization sunk in, I cringed.What a bad move this borrower had made. Not only had they quit their job during the loan process, but then they’d had the gall to keep it a secret.Aware now of what had happened, I called the title company. I told the title company not to record the loan, and instead to send the money back to the bank.Does that make me a “snitch”?Well…I certainly didn’t feel good about it, that’s for sure. Yet as hard as that call was to make, I think it was ultimately the right decision. Consider the lender’s position, and you’ll see what I mean. Suppose you were going to lend money to someone, on the belief that they had a job and would be able to pay you back, using the money they earned from their job. Now imagine it’s the day you’ll be giving them the money and you learn that they’ve quit their job. Aren’t you going to think twice about making the loan? Of course, you are. It’s only right, since the information driving your decision to provide a loan has now changed. In a sports sense, it’s comparable to celebrating the achievements of a baseball player, unaware the player’s been using steroids. Without knowledge of the steroids, you’re prepared to give this hypothetical play-er a multi-million-dollar contract. Yet once the doping comes to light, you have no choice but to rescind the contract. Your change of heart here, as with a loan, is justified by the new in-formation. You can no longer pay millions to a baseball player, once you know their athletic achievements are the result of steroids. Similarly, in

131the bank’s case, they too can no longer pay out money, through a loan, once it’s evident the borrower lacks the means of paying the bank back.Not every change in employment is fatal to your chances of getting a loan, however. This needs to be said, especially in light of Michelle.Michelle was a recent client that worked at a chiropractor’s office. The chiropractor sold his practice while she was buying a house. Michelle thought the new owner was going to keep her on, so we requested a new verification of employment letter from the new owner. As you can probably guess, the new owner didn’t keep Michelle on at the job. Was this the end of the mortgage game for Michelle? Not at all. She went and found a new job making slightly more mon-ey and we are able to complete her loan and save the deal. This was a huge relief because it could’ve ended badly for michelle. Her example illustrates again, that changes in employment - especially those outside of your control - don’t have to mean game over. One thing that is over, however, is our list of “Do’s”. We’re now at the end of it. Before we cross over into the “Don’ts”; here’s a summary of the home buying process. This summary will show you how the do’s fit into the bigger picture of purchasing your home. The process begins when you make the decision to buy a house. Your decision could be to simply have a roof over your head, that’s 100% yours. You don’t want to rent from someone else, and you certainly don’t want to live with your parents. Alternatively, you may see purchas-ing a home as part of a bigger strategic play to create wealth and leave a legacy for decades to come.Once you’ve made your decision around purchasing a home, you take action to get pre-qualified for a home loan. This entails talking to both a mortgage lender and a mortgage advisor. In doing so, you’re looking for those who are more consultants (“C”s) than order-takers (“O”s) - as per our spectrum from the previous chap-ter. Mortgage pros who trend toward “C” on the spectrum will ask you insightful questions, listen intently, and then build a playbook specific to you and your goals.

132From here, you go out shopping for homes with a real estate pro-fessional. As you shop, you’ll undoubtedly come to an astonishing re-alization - all homes have bedrooms and bathrooms. (Who knew?) On a more serious note, you’ll eventually find a home that meets all your personal criteria.At this juncture, your lender and real estate agent will team up to help you make an offer on the home.Provided your offer gets accepted, you’ll legally have the property under contract to buy. Now it’s time for the lender to work with their un-derwriter to get your loan approved and the collateral (the home based on the appraisal). The lender’s ultimately working to get you a final loan so you can sign and close on your new home.While the lender works, you get to do the “Do’s”. All four of the ones we covered, plus the related recommendations mentioned throughout that discussion. Do the “Do’s”, at this stage in the game, and you’ll stay on point to eventually become a homeowner. A useful quote on this comes from Art Williams, former football coach and founder of Primerica insurance.Williams’ quote goes, “All you can do is all you can do. But all you can do is enough.” His words seem appropriate in our discussion now because all you can do is enough. It’s true. As long as you do all you can do, in the mortgage process, you should be fine.Can junk still happen? Even when you do everything right? Sure. But to paraphrase another powerful quote, it’s important that we have the serenity to accept the things we cannot change, the courage to change the things we can, and the wisdom to know the difference.Following that quote (the Serenity Prayer used in Alcoholics Anonymous); we wouldn’t stress for example, over a low appraisal val-ue. That’s a time to be serene, since it’s something out of our control. We should be more concerned with quitting a job, adding another credit card, piling up debt, and buying a car. Unlike the appraisal value, each of those latter four are firmly within our control. And if we’re being wise - or just honest with ourselves - we’ll be able to see that.Another thing to be honest about, is that much of the discussion in this chapter seems repetitive. I know full well that I’m being “Peter

133Repeater” at various points here. Like being a “snitch”, in the earlier sto-ry; it’s not something I’m eager to do. In this case, however, with rep-etition; I’m just paranoid that somehow my message isn’t going to get through to you. Still, “paranoia will destroy ya”, as the saying goes, and perhaps it’s destroying this chapter of the book. To minimize the damage, let’s head on, to the next item on our agenda - the “Don’ts”.“Don’t #1” is to NOT make large purchases.With large purchases, we’re talking dollar values - versus the size or quantity of what you’re purchasing. Feel free, for instance, to buy ten matchbox race cars - as these toys typically cost only a dollar or two. Just don’t buy ten, or even one, of the cars these toys are modeled after. Otherwise, you end up like some of my former clients. These clients bought cars during the waning moments of their journeys toward home ownership. These purchases, in turn, crippled their credit. The former clients of mine were then in a position where they needed to either return the cars or reconsider trying to become a homeowner. Naturally, you don’t want to face a similar scenario. I’d say you don’t want to end up “in the same boat” as them, but some of those past cli-ents might take offense. Reason being that a few of them didn’t buy cars. No, they bought boats, and in one case - a jet ski.What were they thinking?The question is usually rhetorical. Yet I can answer, from having spoken with all of these former clients, following their disastrous pur-chases. Every single one of them answered me with something to the effect of, “I didn’t know” or “I didn’t think it mattered anymore.”Since they weren’t aware, let’s be clear - and quick - about why ex-actly big-ticket purchases at the end of the mortgage process are so bad. The surface-level explanation is that it can derail your home loan. That’s probably evident to you by now. Cutting a layer deeper then, here are 3 further reasons you don’t want to make a large purchase during the closing moments of your home buying campaign. Those reasons are that the big purchase(s) could -

134Bring your credit score downDeplete the amount of assets reported to qualify for a loanIncrease your debt-to-income ratio, to the point where you no longer qualify for a loan Ready for another “Don’t”?The second on our list (Don’t #2) is don’t apply for new credit. Like all the other “Don’ts”; this one is intended for the point when you’re in the run-up to finally becoming a homeowner. I want to be clear on that, so we don’t have to keep repeating it - almost as a disclaimer - for each new “Don’t”. At any rate, with “Don’t #2”, you shouldn’t be applying for a fresh credit card or any other form of new credit. The reason you shouldn’t is because a new credit application will show as an inquiry on your credit report. The inquiry would likely raise concerns when the bank you’re requesting a loan from - like ALL banks - does a soft pull of your credit. We spoke of this earlier, when covering the LQI. Thinking back, you may recall that the bank’s soft pull occurs some-where between underwriting and closing your loan. But like the Detroit Tigers winning baseball’s World Series; no one knows when it’s going to happen. (*That’s a little bit of “inside baseball” for you, since the Tigers are frequently cited as the worst team in Major League baseball.) Unlike the Tigers becoming World Series champs, a soft credit pull is going to happen. We just can’t say when exactly. In the absence of such knowledge, the best course is to hold off on applying for new credit.As a cautionary tale on this, consider a client of mine named Barbara. She had 3 credit inquiries from 3 different stores. That translates to, “she was in trouble”. Big trouble, I’d add.Fortunately, Barbara’s purchases had small enough monthly pay-ments that she still qualified for her mortgage. She still had to jump through some considerable hoops, however, to resolve the situation. Barbara needed to call all 3 credit companies. Her calls were aimed at getting letters stating that she opened up credit and describing what the balances were and minimum payments would be.

135All this phone time was necessary because Barbara’s minimum pay-ments and balances hadn’t been reported yet. Only the credit inquiries had been. So it was that she had to undertake a “telephonic odyssey”, chewing up time and attention, with calls and letter requests.In the end, Barbara’s story has a happy ending. Things worked out for her, and she was able to purchase a new home. Still, imagine if it hadn’t ended so smoothly. I can tell you too, that for every Barbara; there are countless more people whose new credit application(s) scuttle their path to home ownership.When it doesn’t end well, you really can’t fault the lender. If we take their perspective, we’ll recognize the lender wants to make sure they get paid back. So long as they can get paid back, the lender will be comfort-able lending a large sum of money. But if the person who will be receiv-ing the loan starts going out to get more credit; the lender will justifiably get nervous. Without explanation and details like those Barbara provided; the lender may assume the worst. They may assume the new credit is in-tended to pay for the loan. If that’s true, then it could create a “house of cards” - where the lender’s money is supported by other borrowed money (from the new credit). This scenario is horrific to the lender since it means the borrower doesn’t actually have the money (some or all of it) to repay the loan. The lender is thus on track to lose - and potentially never recover - the money they’d be loaning out. And so, like the Chicago Bears (football’s worst team) winning the Superbowl; a loan’s also out of the question.What’s the lesson here? Don’t apply for new credit in the “fourth quarter” of the loan process, or at any time during the process for that matter. “Don’t #3” - Don’t enter into financial agreements like health clubs or gyms.This one may strike you as ironic, given my past life as a personal trainer. Surely I’d be the last person to advise you against joining a gym or health club.

136Normally, you’d be correct. Yet the home buying process is a dif-ferent ball game. So you may just have to make do, with store-bought weights and YouTube exercise videos. Let those be your health club sub-stitute, at least until you’re in a new home.It isn’t just fitness either. You need to avoid all other new financial agreements as well. Such agreements are worth avoiding because they typically involve contracts with a financial obligation. Can you fulfill the obligation? That’s what the group issuing you the contract wants to know. They’ll usually investigate by running your credit. This results in an inquiry, which shows up on your credit report. Depending on how the inquiry’s reported to the credit bureaus, your credit score could be negatively impacted. Moreover, the inquiry can also have a minimum payment tied to it, which could impact your debt-to-income ratio. The simple solution is to stay away from financial agreements. Avoid becoming involved with them and you eliminate any chance that a given agreement can shake up your credit.Another way to safeguard your credit, avoiding a last-minute shake up, is to NOT transfer balances.That tip’s important enough to stand on its own, as “Don’t #4”.“Don’t #4” - Don’t transfer balances.Why shouldn’t you transfer balances? It’s a bad move in the context of the credit game which we’re playing. In that game, your credit score is based on an algorithm which includes your current balance. If you start moving money around, between your credit cards, it can put your credit score at risk. As an analogy for this “Don’t”, picture three football players who’ve broken away from the opposing team’s defenses. One of the players has the ball and can easily score a touchdown, provided he/she just keeps running. Suddenly, though, these three players start passing the foot-ball around. With each pass, they increase the chances of botching what would have been an easy touchdown.“WHAT THE ____ ARE YOU DOING?????”

137That’s the coach on the sidelines, voicing their feelings of shock, dis-belief, and anger. It’s also what your loan officer would say, though per-haps more tactfully, if you were to transfer balances. Passing your balances around between credit cards is just as absurd as the passes made by the football players. The reason being that it cre-ates unnecessary risk and jeopardizes what should otherwise be a slam dunk (to mix our sports metaphors). Like the player who initially had the football, all you have to do is just keep moving forward on your current path. With credit cards, that means keeping your balances around the same or less than when you started your loan.But hang on a minute. Isn’t it a contradiction for me to say, “don’t transfer balances”, given my own track record? I’m the same Greg Gale who, only a few chapters ago, described doing the “CC Shuffle” - shuf-fling balances around between my 17 credit cards. How’s it OK for me to have done that, but now wrong for you to do the same?It’s a fair point, and one I’m happy to explain.First off, let’s be clear that back in those days, I wasn’t being a re-sponsible user of credit. If that wasn’t apparent in the earlier discussion, now it is. So I’m definitely NOT condoning balance transfers, or taking other irresponsible action where credit’s concerned.It’s also worth noting that my clueless younger self didn’t trans-fer balances around when purchasing a home. Even that knucklehead knew you don’t transfer balances during the home buying process. He, or rather I, knew not to make the transfers thanks to a mortgage officer. The mortgage pro who I worked with, advised me against the trans-fers and I listened. He didn’t stop there either. My mortgage officer at the time, kept going and provided me with a litany of other “Do’s” and “Don’ts”. I followed each one and subsequently got the home I’d been pursuing.Fast-forward to today, and things seem to have come full circle. I’m now the one giving “Do’s” and “Don’ts”, most of which are identical to what my mortgage officer provided, back in the day. What’s changed is that you’re now the one receiving guidance on the “Do’s” and “Don’ts”. Unlike my younger knucklehead self, you’re

138probably not blundering around with 17 credit cards. Or, if you are, you’ve at least got the good sense to educate yourself on the home buy-ing process, through this book. It’s safe to say then, that you’re starting from a better position than I was. Recognizing that, all you have to do now is keep going and use our “Do’s” and “Don’ts” for guidance along the way. The next “Don’t” is to NOT pay off collections or charge-offs.How in-depth should we go on this one, “Don’t #5”? It’s hard to say, since you’ve already heard the cautionary tale of Mary. Mary was the one who went against my advice and paid her $45 credit card collection. This caused her credit score to drop 45+ points and cost her over $2,500 from lost appraisal money, inspection money, and earnest deposit.Mary’s story still tears me up, despite having told her not to pay the collections. Somehow, my message didn’t get through to her. So if it’s OK with you, I’d like to hammer the message in, one more time - just to make doubly-sure you don’t repeat Mary’s mistake.Here’s why Mary erred in paying her collection, and why you’d err in doing the same.The issue is that when a collection shows up on your credit report, there’s a reporting date. Having a $45 collection from 5 years ago (as Mary did) wouldn’t affect your credit score that much. But pay off the collection this month, and it shows up on your credit report as a brand new collection. This new collection hurts you since it’s one month old, rather than five years old - as had been the case before.I can understand if you don’t like owing money and want to pay off your debts. Yet unless you’re being guided by an experienced loan offi-cer; it’s mortgage suicide to pay off collections and charge-offs. Even then, with the loan officer’s guidance, you’ll still need to be extremely wary. The loan officer better know what they’re doing, and you MUST, MUST, MUST (*that’s three “must’s” so it’s important) get a removal letter. A removal letter is a written statement from the collec-tion company, in which they agree to remove the collection as though it never existed.

139My question to you is why put yourself in a position where you even need a removal letter? It’s way easier to sit back and not pay collections, as you proceed toward buying a home. You might think of yourself as a “rebel” by not paying the collections. Maybe this is your way of “sticking it to the man” and “raging against the machine”. Silly? Absolutely. I’m all for it, though, if that’s what helps you avoid paying your collections. “Don’t #6” - Don’t close any credit card accountsThis one’s only natural given what we just said about paying collec-tions. If you’re not going to settle collections, it follows that you’d also not close out any of your credit card accounts. Doing either of those is going to have major repercussions on your credit score.Zooming in on credit cards, closing them puts you at risk of losing valuable credit score points. The loss comes from the fact that credit his-tory makes up a significant portion of your credit score. Close a credit card, and you’re thus wiping out part of your credit history. (If you’d like to know more about how this works, flip back to the chapter on credit, where we explained it further.)What about annual fees? If your credit card has annual fees, should you still close it? You may want to, since it would eliminate the fees. But if we’re going to play the credit game and win, you can’t do that. Pay whatever fees you must, and hold off on closing any credit card ac-counts until after you’ve completed your loan. “Don’t #7” - Don’t change banks or transfer moneySports analogies, how many of them can I throw at you? At least one more, as it turns out. The analogy this time will help you to better understand “Don’t #7”. In our analogy, imagine yourself as being on a sports team. And not just any team either. The team you belong to, is on track to potentially win the league championship. There’s no iron-clad guarantee, of course, that you and your teammates will become the champs. But you’ve

140definitely got a fighting chance, provided you guys/gals keep working hard, and maintain that “eye of the tiger” (i.e. a hunger for victory).Now suppose you or another of the players decides to switch teams. The switch is a big deal because it takes place in the middle of the sea-son. Games are still being won and lost, as this selfish player (hopefully not you) decides to abandon their current team for “greener pastures” on another one. Assuming league rules even allow the switch, this player has just dealt your team a considerable blow. The blow comes from the fact that the team now has one less player to rely on. This sudden loss could de-molish your chances of winning the league championship. At the very least, it’s bound to raise doubts - both about your chances to win, and perhaps the likelihood of other players now jumping ship too.This analogy connects to “Don’t #7” because changing banks during the home buying process is just as harmful. Like a decision to join an-other team, your decision to change banks comes at a very, very bad time. If you were going to switch, you should have done so before pursuing a loan. That would have been several months ago, back when you first decided to look into purchasing a home.At that earlier point, you were in the “off-season”. It would have been fine to seek out another bank then, if you felt that bank would better serve your interests. Now, however, you’re in the midst of the “season” - home buying sea-son. At this juncture, switching banks can only jeopardize your chances of getting the home you desire. If nothing else - to parallel the sports analogy - switching banks will raise doubts. The doubts this time will be on the part of the banks and others involved in helping you attain home ownership. The doubts stem from the fact that banks like consistency. It’s what they look for in those they lend money too. That’s why, for example, your employment needs to be consistent. It’s also why, in the case of you switching to a new bank, the switch will be viewed with suspicion. “Why are they switching?”

141You’ll have to answer that question, and you’d better have a darn good reason. Otherwise, doubts may continue to swirl. Those eyeing you with suspicion may just assume the worst. It may be assumed that you’ve switched banks because the old bank was asking for things (doc-umentation, requirements, etc.) you couldn’t provide.Doubts and false assumptions aren’t all you’ll have to worry about. There’s the added nightmare of paperwork, and lots of it. Paperwork is necessary to document the changes you’re making. You can’t just close an account with one bank and open another. Nor can you just move money between checking and savings accounts - even at the same bank. Each of these actions, if taken when doing a mortgage loan, will re-quire documentation. That entails paperwork, or “paper-trailing” as it’s known by those of us in the mortgage business.Personally, I think “headache” is a far better name for it. My advice is thus to keep your money in the same bank where it was, back when you first began pursuit of a mortgage. Stay at the same bank, and leave the money in the same account there. Any changes you do make should only come after consulting your mortgage professional. The mortgage pro would be the one to ask, whether you fancy changing banks or even pulling money from a 401K to put in your main checking account. Ask away, but have a bias for the status quo. Meaning your natural gut instinct is to keep things exactly as they have been, until you hear the jingle.The jingle?Yes, as in the sound made by the keys to your new home, as you pick them up for the first time.There’s no reason you can’t hear the sweet sounds of the jingle for yourself. To echo a familiar refrain, heard throughout this chapter, all you have to do is stay on track. That means adhering to our “Do’s” and “Don’ts”, and when uncertain, asking your mortgage officer.While your mortgage officer will be helpful in guiding you, there’s a chance they may miss some major items. These items are a set of costly mistakes. Mistakes, I’d add, which are in a whole different class than anything we’ve covered over the course of this chapter.

142To ensure you’re aware of the mistakes, I’ve split them out into a separate chapter. That chapter is where we’re headed next. As with this chapter, you can expect a similar emphasis on direct, actionable insights - versus the more conceptual topics in our initial chapters. Oh, and there will be sports analogies too. Not a huge surprise in light of where we’ve been. But a surprise, all the same, when you see one particular analogy and how it still manages to tie back into mortgages.Ready for the analogy, and beyond that, to learn from other people’s mistakes? Then it’s off to Chapter 6…2 2 **Need to see the “Do’s” and “Don’ts” again? I’ve created a chart for you, which orga-nizes them all in one convenient place. To get the chart, visit www.homebuyerplaybook.com/resources

143CHAPTER 6 MISTAKES & EXTRAS OF A GREAT LENDERB  ,     .Sounds like another Yogi Berra quote, doesn’t it? Don’t be fooled, however. It’s actually a line I once saw on a t-shirt. Assuming the t-shirt’s creator had any business savvy, they probably made other versions of the shirt for other sports too.But is baseball (or football, basketball, etc.) really life?Anyone who’d buy those t-shirts clearly thinks so. Yet not everyone is so passionate about sports.In fact - and this probably sounds crazy, if you’re a sports junkie - some people actually find sports boring.For this latter group, we can only wonder about the slogans they’d want on a t-shirt.Perhaps something along the lines of, “Tax accounting is life, the rest is just details.”Not to pick on tax accountants. Their field just happens to have a reputation for being dry and unexciting, the exact opposite of a loud, energetic sports game.Besides, take a look at that line again --“Tax accounting is life, the rest is just details.”When you consider how detail-oriented tax accounting is, this line might be redundant enough for Yogi Berra to appreciate.But let’s get back to those who find sports boring. If you or someone you know suffer from this “debilitating condi-tion”, my heart goes out to you. I can only imagine how painful it is, for example, to sit in the stands for even one inning of a baseball game. Same

144with basketball, where the afflicted person may be driven to “caloric sui-cide” - eating lousy, overpriced stadium food out of sheer boredom.Still, bleak as it may seem, there is hope. This will come as good news for you or anyone else who feels that sports is definitely NOT life. Hope lies in the bloopers. You can turn to them in your darkest hour. That’s the moment, for instance, when your friends are forcing you, seemingly at gunpoint, to watch a football game.At gunpoint? No, it’s an exaggeration (hopefully). But peer pressure can feel just as strong in forcing you to watch a sports game that you have zero interest in.As you sit there watching (or pretending to watch), you can free yourself from the chains of boredom by looking for bloopers. “Bloopers” are those moments when players mess up. Mistakes can range from an outfielder in baseball having the ball go through their legs to an ice hockey player tripping over the laces on their skates. Other bloopers would include players accidentally scoring points for the op-posing team (yes it does happen), and those in any sport who commit clear violations of their sport’s rules (“double dribbling” in basketball, for example).The appeal of bloopers comes from how tremendously entertaining they can be. It’s hard not to be entertained as you watch a seemingly competent athlete goof up on the field. The baseball outfielder, say, who dives the opposite way when trying to catch a grand slam.Entertaining as bloopers might be, they’re not limited to sports. That’s the reason we’re talking about them now. Look in nearly any field - even drab old tax accounting - and you’ll find bloopers. Our field of interest, mortgages, is no exception. Players in the mort-gage game can - and do - commit all manner of bloopers.3 In this chapter, we’ll be covering these bloopers (a.k.a. costly mis-takes) in detail.3 For those keeping score - this is the sports analogy I promised you, at the close of the la chapter. The analogy which had a very long tie-in to mortgages.

145After such a long lead-in, let’s not delay our discussion any further. Otherwise, this chapter might seem as tedious as a sports game without bloopers.For our game, the mortgage game, here now are the bloopers you’ll want to avoid… Mortgage Blooper #1 - Getting your advice from too many peopleThe first of our bloopers is to get advice from too many people. Since we’ve grounded this discussion in sports, an apt analogy for Blooper #1 involves referees. Referees are typically portrayed as working alone. Baseball fans, for instance, probably think of “the umpire” - as though the game is refer-eed by a single person. In truth, however, a baseball game (in the major leagues) will usually have four umpires. Baseball isn’t an outlier either. Football games - again at the profes-sional level (i.e. the NFL) - have seven refs on the field. Basketball cuts the ref count to three. And even soccer isn’t content to let just a single ref judge the games. In soccer’s case, matches at the major league level in the U.S. are judged by one main ref and two assistant refs.Why do all of these sports have more than one referee? It’s probably because of the fast, dynamic nature of gameplay. Even when the games are slow enough to bore the most ardent sports fan, there’s still so much to keep track of. In addition, refs must closely watch the games while simultaneously tuning out the noise from those watching the game. Imagine trying to do that, on any given Sunday, in a packed football stadium with thou-sands of fans. As the fans cheer and cameras everywhere flash, you must focus on the game. Zen monks might find it easy to focus under such conditions. But for sports refs and nearly anyone else, focusing is bound to be a challenge. The solution is to have multiple refs. Using more than one ref helps to ease the mental weight. A single ref doesn’t have to carry the entire game. Instead, a ref is supported by other refs who can catch parts of the game that the first ref may have missed.

146Multiple refs also helps with cases where a second opinion may be needed. A ref who isn’t quite sure on how to call a play can consult their fellow refs. You’ve probably seen this happen, in the Super Bowl and elsewhere, when refs (a.k.a. those guys in the black and white striped shirts) are huddled around talking. Often, these chats between the refs can play a pivotal role in deciding the outcome of a game. How does our analogy with refs connect to mortgages? Like sports, the mortgage game is complex. If you’re in any doubt about that, just re-read the previous chapters. Given the complexity, it’s only natural that “gameplay” in the mort-gage game should be judged by more than one ref. But just how many refs is enough?This is where people often err, committing the first of our bloopers. The blooper here is to have too many refs judging your mortgage game. Those who make this error recognize the value of having more than one ref. Yet they go too far, letting too many refs on the field. In a sports sense, it would be like having twenty refs judging a basketball game. Since basketball games have three refs, upping the count to twenty could prove disastrous. Each ref would probably have their own opin-ions, especially on the game’s more controversial plays. Finding agree-ment might therefore be difficult, perhaps bringing gameplay to a halt.The situation just described is identical to what happens when you, as a player in the mortgage game, bring on too many refs. Since you’re probably wondering how many is “too many”, and “enough”; I’ll answer it now.Three. That’s the “magic number”. It’s my recommendation on your ideal “ref count”, meaning the number of people you should take advice from about mortgages.Your three refs can’t be just anyone, though. After all, the NFL doesn’t let people climb down from the stands and start judging foot-ball games. Nor does the NBA let ESPN commentators start calling bas-ketball games. In these leagues and nearly all others, games can only be judged by those with the correct qualifications.In your case, with mortgages, you’ll also need refs who are properly qualified.

147An initial ground-level qualification for anyone giving you advice on mortgages, is that the person must have been successful in their own mortgage efforts. This is no different, for example, from expecting the person you take fitness advice from, to be in great shape themselves. Whoever you consult for advice - in fitness, mortgages, and most other things - should have the personal results to support their advice. Otherwise - and I’ll put this as nicely as I can - they’re probably full of “hot air”. Meaning the advice giver doesn’t know what they’re talking about. They haven’t practiced what they’re preaching. And in serious games, especially those involving health and wealth, that inconsistency makes all the difference.Take your advice on mortgages from up to three people and make sure all of them are properly qualified to give the advice. That’s my point here. In mortgages, “properly qualified” translates into an advisor being financially “fit” and “healthy” themselves. Since that may not be readily apparent, don’t hesitate to inquire about it. You’re not being nosy by asking. In fact, a true professional may even enjoy showing you their stellar personal performance. To them, it might be an opportunity to brag.How do you begin asking about personal success with mortgages?Here’s a good “icebreaker” question -“How long have you owned a home?”If this question results in an awkward silence, it’s a very bad sign. You may be dealing with someone who either doesn’t own a home or hasn’t fared well in their own dealings with mortgages.In this exchange, you’d probably want to ask more questions, and reach a better understanding. But you’d still be off to a rocky start. And it wouldn’t be a shock if the would-be advisor you were talking with end-ed up being laughably unqualified to give you advice.Let’s assume, though, that the question (“how long have you owned a home”) was met with a satisfying answer.What would the answer sound like?

148As an example, I’ll point to a few mortgage advisers near-and-dear to me. Those advisers being the five people on my team. On the team, four out of its five members own a home. That indicates nearly everyone on my team is doing for themselves, what they advise clients to do. We do have an exception, one member of the team who does not cur-rently own a home. Yet this team member is currently on track to owning their first home. Moreover, it’s worth noting that they (the non-home-owner on my team) are just twenty-three years old and recently moved here (Phoenix) from Florida. So it’s not like this team member should have gotten a home years ago. No, they’re actually ahead of schedule. That’s particularly true today as many twenty-somethings delay home ownership either by moving back in with their parents (following college graduation) or pursuing graduate studies (law school, med school, etc.). Apart from the twenty-three-year-old, everyone else on my team owns a home. They’d therefore be able to provide satisfying answers to the question of “how long have you owned a home?”“I’ve owned a home for __[number]__ of years.”You’d hear that response initially, from four out of the five on my team. Then, as a follow-up, you’d undoubtedly hear the story of how that particular team member came to acquire their home. This response would not, by the way, be limited to members of my team. Instead, it’s what you could expect from nearly any other mortgage team where those on the team practice what they preach. I’m simply framing it around my team since it’s what I know the best. Sometimes, however, you can’t ask an advisor in the mortgage and/or finance space about their background. This is often the case with me-dia personalities. Those would be the “talking-heads” you find on TV and other media platforms. Since the media landscape is constantly changing, any “talking-heads” I might mention here will probably seem dated by the time you read this book. It would be like referring to Bo Jackson or Ken Griffey Jr, as examples of today’s athletes. Star players, no doubt. But largely unknown to readers in later generations.

149The point with mentioning media personalities is that your interac-tion with them will likely be a one-way street. Granted, there are call-in shows and other Q&A venues. Yet even with those, you’d still be limited to asking just a question or two. For this reason, your interaction with fi-nance and mortgage personalities in the media will be largely one-sided. Those in the media will give you advice. You, as the listener, then have the task of determining what to do with the advice.Take it, or leave it?My advice would be to do both. Take the advice from those in the media who you believe are qualified to give it. Then discuss the advice in face-to-face conversations with those who are actually out there, in the trenches. In other words, give serious consideration to the advice of a TV guru who you trust, and then ask a mortgage advisor who you also trust for their take on the guru’s ideas. See where there’s agreement on ideas, and where there’s a clash. Then, make up your own mind once more. Depending on which gurus you listen to, you may find yourself hearing some downright awful advice around mortgages and personal finance. Here are some examples of the bad advice you might receive. These examples come directly from clients of mine who got bad guidance prior to contacting me. Examples of bad advicePay off and close your credit cardDispute information on your credit report that’s accuratePay off or pay down a collection account The lowest interest rate you can get will automatically be the best option, versus a higher interest rateOpen a new bank account so you’ll have a clean historyHow do you avoid bad advice, like what’s in the bullet points above? Avoidance begins with awareness, which is why I’ve provided the ex-amples. Beyond that, a further hedge against bad advice will be the

150qualifications of any would-be advice giver. This goes beyond our earlier point about practicing what you preach and “walking the walk”. A would-be advice giver should also have an actual license, issued to them through the Nationwide Mortgage Licensing System (NMLS). The NMLS is to mortgage advisors, what the Bar Association is to at-torneys and the American Medical Association is to physicians. All are instances of reputable organizations which provide official licenses, en-suring those in their respective fields are truly qualified.In our case, with mortgages, a license from the NMLS indicates that you’re dealing with a professional versus some sort of “armchair” advi-sor. From there, you can - and should - also look up your particular loan officer’s work history. I’m particularly emphatic about this step (looking up work history) because of a past experience. The experience came quite a few years ago, back when I’d been in the mortgage business for just five years. At that point, I’d already helped well over 500 families. In addition, I myself (in those days) owned 3-4 properties. Despite my track record, a client at the time felt the need to debate my advice. Setting aside my ego, I gave them the benefit of the doubt. This entailed doing as Steven Covey advises in The 7 Habits of Highly Effective People - seeking first to understand, then to be understood.As I sought to understand why this client didn’t agree with my ad-vice, I found that it was due to a source conflict. This client had heard differing advice from another loan officer. Out of curiosity, I then did a background check on the other loan officer, using the NMLS website (https://nmlsconsumeraccess.org/). The background check revealed that this other loan officer, with all due respect, had been in the mortgage industry for just three months. Prior to that point, their job had been delivering pizzas. My client had been unaware of the other loan officer’s background. They hadn’t realized it was a difference of three months experience, compared to five years experience. Once this difference was apparent, though, you can probably guess which loan officer’s advice my client sided with.

151The moral from this story is that work history and credentials can make all the difference, in helping you separate good from bad - as mort-gage advice goes.As you look at work history and credentials, here are some guiding principles…Experience matters, and the more of it the better (both in years worked and number of loans done)Options need explanations - A loan officer should explain the op-tions they show you, and be able to provide an answer too, if you only have one option available Mortgages are a team sport - It takes a team to win, whether that’s winning in the sense of the NBA championships or getting the best loan possible. A loan officer must recognize this, and have people working with him/her to assist in working your file. That last principle, about teams, may be off-putting to those who worry about loan officers lacking a personal touch. Such worries are misplaced, however. The bigger thing to worry about is fulfilling your legally-binding contract, to close on a home on a certain date. That con-tractual obligation must be fulfilled. Your loan officer can still treat you warmly and in a personalized way. But they’d better also have a team in place, running the proper plays to fulfill that legal obligation - as set forth in the contract. Would you believe that all of that, everything we just covered, was for a single mortgage blooper? It was indeed, as we were covering Mortgage Blooper #1 - getting your advice from too many people.Here now is our second blooper…Mortgage Blooper #2 - Not watching your credit and your finances The second mortgage blooper is to not watch your credit and financ-es. This is to say, you take your eyes off the ball. Then again, perhaps your eyes were never on the ball to begin with. Regardless, this consti-tutes a major mortgage blooper.

152What exactly should you be watching?Two primary things. The first is your monthly budget. We’ve covered budgeting else-where, so there’s no need to dig deep into it again. You know what to do. But will you continue to do it? Will you keep creating a budget each month, while also monitoring your cash flows (cash in and cash out) and looking for gaps where you might be able to invest the surplus? If you can, you’ll be off to a good start in avoiding this second mortgage blooper.To continue your progress in avoiding blooper #2, you’ll need to mon-itor your credit. Your credit is the other primary thing to keep watching. When it comes to credit, the way to watch it is by doing credit pulls regularly. Using the website annualcreditreport.com, you can do a cred-it pull once per year without having it impact your credit. One credit pull per year may not sound like much. Yet it’s far better than you might think. Reason being that you’re actually getting three credit pulls each year - one for each of the three major credit bureaus. In that sense, then, you’re really getting three credit pulls in a single year. Each credit pull, in turn, offers you a snapshot of where you’re at credit-wise. With these snapshots, one from each credit bureau; you’re thus able to see your credit from multiple angles. Multiple angles mean multiple perspectives. Piece those angles/per-spectives together and you can form the complete picture of your credit. Moreover, you’ll also avoid the risk of any details or major developments slipping by. You won’t be blind, for example, to the fact that someone has purchased a car in your name. That scenario with the car isn’t just hypothetical. It happened in real life, to one of my clients. The client did a credit pull and was startled to see that his son purchased a car, in the client’s own name. As if that weren’t bad enough, the car -as I remember it - wasn’t even a good one. It wasn’t like the client found they had a Ferrari or a Bentley in their name. Instead, it was some cheap brand, a car which did little more than take you from point a to point b.Imagine if my client had never done the credit pull. In that case, he’d remain as the blissfully ignorant owner of a dumpy car. The client

153would also be unaware that the purchase of the car was taking a toll on his credit. Big purchases like a car will impact your credit. Regularly monitor-ing your credit, through annual credit pulls, is therefore your best de-fense. It allows you to catch anomalies, eliminating or at least mitigating any resulting damage. Mortgage Blooper #3 - Not staying educated on the marketsOur next mortgage blooper is not staying educated on the markets.The “markets”, for our purposes here, will be defined as the mort-gage-backed securities market and the real estate market.How do you stay educated on these markets? It’s easier than you might expect. You can stay educated just by talking with your loan officer. Your loan officer has already done the heavy mental lifting. They’ve already learned how the markets work and are undoubtedly keeping a close eye on movements in the markets as well. Leverage their efforts and expertise, by letting your loan officer ed-ucate you on what’s happening in the markets. Let them be the one to explain developments, along with concepts like how mortgages work. A few thirty-to-forty-five-minute consultations with the loan officer can pay tremendous dividends intellectually, granting you a deep, satisfying awareness of the markets.Also, where education is concerned - make sure you are indeed being educated by your loan officer. If the officer you’re working with is reluc-tant or even unable to adequately educate you on the markets; you may wish to look elsewhere. Mortgage Blooper #4 - Not working with a professional real estate agentSince we’re talking about purchasing a home, we can’t forget about real estate agents. Real estate agents are typically an integral part of the home buying process. With their help, you the buyer are able to make an

154offer on the home you desire. Your offer will then be considered by the seller and the seller’s own, separate real estate agent.Considering the importance of real estate agents, you should only work with one who’s a true professional. This goes beyond just being licensed and in good standing with the industry’s governing body (the NAR). Professionalism, in the truest sense, means an agent will have a proven track record of winning offers and successfully closing on behalf of their clients. Such a track record will undoubtedly have numerous cases where the agent was able to negotiate seller concessions or a sale price well below the original, listing price. Those cases further demon-strate that you’re dealing with a professional real estate agent. From real estate agents, let’s turn to discussing another player in the mortgage game. This other player is the lender. Like agents in real es-tate, the lender you work with should also be a professional.Accordingly, we need to define “professional” again - this time in the context of lenders. Where lenders are concerned, how can you distin-guish a true professional from everyone else?Over the years, I’ve come to believe there are six distinctions you can look for. Put another way, these six can be thought of as the little “extra’s” which indicate you’re dealing with a great lender versus a lender who’s qualified but hardly exceptional. Here are the six extra’s of a great lender…Extra #1 - Calling the listing agent to ensure your offer stands outA great lender will call the agent who’s listing the home you’ve made an offer to buy. The point of calling is to ensure your offer stands out from any other offers the agent may have received.On their call, the lender - well, a great lender anyway - will sing your praises to the listing agent. This translates into telling the agent how well qualified you are, as a buyer, along with how you’re going to close on time.What might that exchange sound like? No need to guess. Below is an actual script my team has used, when calling a listing agent on behalf of a homebuyer...

155“Hi [Mr./Ms. Listing Agent]. This is Greg Gale with The Gale Team calling in regards to [Home Address - example = 123 N Cactus Street]. We represent the Smith’s who are submitting an offer. Have you received the offer from Mr. Jones, their real estate agent? I just wanted to let you know that they are well-qualified, with great credit and a low debt ratio. We’ve verified all their documents, pre-un-derwritten their loan, and simply need to review the appraisal and title for the collateral of the transaction. That’s where we’re at on my side. Knowing where things stand, do you have any questions for me?” [Then to conclude the conversation…]“In conclusion, we are a private banker with in-house underwriting and funding. We have 100% control of our files and take the close date seriously. It’s not a suggestion. We understand it’s a legally binding con-tract and we’re excited to work with you towards an on-time, smooth closing.”[End of Script]See what we’re doing in the script? With it, we’re painting a picture of you as well qualified buyer and us (the lender making the call) as a great lender that will provide tons of communication. Assuming the listing agent doesn’t have a heart colder than the arctic tundra; this “charm offensive” mounted by the lender will warm them to you as the final buyer. Extra #2 -- Write a love letterGreat lenders further distinguish themselves with love letters. Now some Realtors and their Brokers are not fans of the Love Letter. You’ll want to consult with your Real Estate professional to see their take on the Love Letter and if their Brokerage allows it. Unlike typical love letters, this love letter isn’t for a person. Rather, it’s written to express feelings of love for the home you want to buy. Despite being written to an inanimate thing (a house), the love letter doesn’t need to be any less emotional than one written to a person. In

156fact, within reason, the more genuine emotion your letter contains; the better.As with the phone call mentioned above (in Extra #1), the best way to understand this concept - the love letter - is to see actual examples. To that end, I’ve provided four examples below, of actual home buyer love letters. For privacy, the names of the people in the letters have been omitted. Apart from that, these letters are the real deal. Have a look, and then feel free to put your own spin on them…Letter 1Hello, As we are writing this letter, we are nervous, excited, and maybe a little scared. We are nervous because we will be opening a new chapter in our family lives and not sure about the unknown. Excited because we get to share this experience with our children, creating a memory they will never forget. Maybe just a little scared about this next step too, and the unknowns that come along with change. We are the [Family name - as in Joneses/Smith’s/etc.]. We have been married for 20 years and are blessed with four children. A little fun fact is the first letter in our first name can spell out our last name. This wasn’t planned out when we started having children but it worked out that way in the end. The main reason we would like to buy your house is so our children can gain new experiences around a new environment. When they were little, they didn’t have the room or space to safely play outside or ride their bikes around the neighborhood. We know that purchasing your home will allow them to do those things that they missed out on.We know it is hard to leave something that you have created so many lasting memories with. All of the laughter, birthday parties, friends that have walked through those doors, and unexpected surprises will un-doubtedly linger on in memory. As hard as it is to leave a place with so many memories, we are excited to start this new chapter in our fami-ly’s lives. We are excited to create new memories with our children and hopefully one day our grandchildren.

157Thank you for your consideration on allowing us to purchase your home. We hope that you have many more years of memories to be made with those that you love.Thank you,The [Smith’s/Joneses/etc. - Family name] Letter 2 Dear [Seller’s name],Thank you for allowing us the opportunity to view your home. Our names are [Buyer Names]. We have 2 boys, ages 7 and 5 months. My husband and I both have our Master’s Degrees in Mental Health Counseling, and we are looking to locate closer to our places of employ-ment and our family. We loved your home and would like to make it our forever home. We are currently homeowners, so we have the knowledge it takes to take great care of your home. The kitchen is amazing, and I am excited to cook and bake in it. The extra space in your master bed-room is perfect to set up a desk for my husband to work from home. The backyard has everything our seven-year-old son asked for. We are excel-lent neighbors, and we would love if you chose us to make this house into our home.Thank you![Buyer Names] Letter 3Dear Homeowner,Thank you for the opportunity to make an offer on your beautiful home.We’d like to introduce ourselves and share a bit of our story with you. My name is [Buyer Name] and I work in the financial field, specializing in debt

158consolidation. My beautiful wife, [Name of Buyer’s Wife], works in the medical field as a radiology tech who specializes with children at Phoenix Children’s Hospital. We are middle school sweethearts and were lucky enough to get married in March of 2019.We are a young couple who are searching for our first house togeth-er, and needless to say, we have absolutely fallen in love with your home. Your home is perfect for us and our future for many reasons. We plan to start our family as soon as possible and the house has plenty of room for our family to grow. We can just imagine our children running and playing in the back-yard, and enjoying the community amenities. In the meantime, the backyard will be well loved by our fur-baby, [Pet’s Name]. He has lived in an apartment until now and he would love to have a yard to play in.The location is exactly what we have been searching for, as it is in the middle of both of our parents. We can only imagine hosting family Holiday dinners in the gorgeous kitchen, with plenty of room for ev-eryone to gather together, or family barbecues in the summers. We can imagine the house decorated for our first Christmas together in our new home. There is no limit to the memories that we could build in such a gorgeous home together raising our young family.We would truly be honored to live in such a beautiful home, and we greatly appreciate your consideration.Thank you so much for taking the time to consider us!Sincerely,[Buyer and Wife] Letter 4Dear Homeowner,Thank you for allowing us the opportunity to view your home. My fiancé and I have been looking forward to purchasing our first home. Our names are [Buyer Names]. We have two little girls, ages six and one. We loved everything about your home and would love to make it our

159forever home. The backyard is amazing and would be great for our girls to grow up with. It’s everything we could ever want. Our daughter goes to school nearby, and this is the area we would love to raise our family in. We hope you and your family consider our offer to own your beautiful home. Thank you!The [Buyer last name] Family Extra #3 - Send a video love letterWith the rise of video as a viable means of communication today (think YouTube, Zoom Meeting, Apple’s FaceTime app, and more); it’s only natural that love letters would shift toward video as well. This can be seen with video love letters.A video love letter, in the home buying sense, takes the written love letter (from “Extra #2”) and turns it into a video. The power of video can be appreciated when you recall the old adage about pictures. That would be the line about how, “a picture is worth a thousand words.”Now consider that a video is composed of countless pictures. Those pictures (i.e. frames) come together seamlessly to form a movie, or “mo-tion picture” as old timers say.With so many pictures, and each one being worth a thousand words; videos have the potential to dwarf letters in their sheer expressive power. I say that tentatively (“have the potential to”) because of the role that quality plays. A haphazard, poor-quality video may be eclipsed by an organized, high-quality letter, and vice-versa. As proof, compare Dr. Martin Luther King’s celebrated Letter from a Birmingham Jail with cat videos on YouTube. Such a comparison is absurd, to the point it might even seem insulting. Dr. King’s written letter is clearly superior to the cat videos. Letters and the written word overall, are therefore not automatically weaker than videos. It depends on the situation.

160Still, let’s assume you opt for a video love letter. Using this format, you’d film yourself and perhaps family members too, standing at the house you wanted to buy. With the house in view, you’d explain to the camera how excited you were to purchase the given home. Your display of genuine excitement, coupled with the image of the home, could help you to win out over oth-er would-be home buyers. At the very least, it would make the seller and their real estate agent, take your offer more seriously.But what if you’re camera shy? Do you have to do a video love letter, no matter what? Of course not. Video love letters are optional. What isn’t optional is for your lender to at least be aware of video love letters. This awareness, coupled with the suggestion to do a video love letter, is indicative of a great lender. Together, those two indicators show that you’re working with a lender who’s up-to-date on the latest strategies, and willing to go the extra mile for you, their client. Extra #4 - Send a picture of you and your family at the desired home, when making your offer on itThis fourth “extra” is exactly what it sounds like. You take a family photo at the home you want to purchase. Then, you include the family photo with your offer to purchase the home.It’s a simple strategy, but does it work? Yes, and I can prove it. Proof comes from a client of mine who sub-mitted a low offer on a home. The client’s offer was $5,000 less than the best offer submitted. Logically, the seller should have rejected my client’s offer in favor of the higher priced offers. Yet logic gave way to emotion, thanks to a family photo my client had submitted. The photo was taken at the seller’s house, at the base of the stairway. In it, my client had “stacked” their family on steps, going up the stairs. What my client didn’t know was that the stairs where the photo had been taken, carried tremendous personal significance for the seller. As it turned out, the seller used to take their family Christmas photos in that same location each year.

161Imagine then, the emotions which the seller must have felt on seeing a new family standing on the stairs. Disbelief, joy, sadness - we can only wonder. Whatever the emotions were, they prompted the seller to accept my client’s offer, even though it was $5,000 less than the top offer.Take this story as a lesson then, on the importance of “extra #4” and of finding a great lender who’ll know to use this strategy. Extra #5 - Your real estate agent calls the agent to let them know an offer is coming Real estate agents? Isn’t this section about lenders, and the six “ex-tras” that make a great lender? Well yes, but it’s not off-topic. With “extra #5”, a great lender will prompt your real estate agent to make this call. And, as an added bonus, the way your agent handles the call can reveal their level of “greatness” (i.e. professionalism) too.OK, but why call in the first place? Calling builds common ground between your real estate agent and the seller’s agent (a.k.a. the listing agent). Placing a call can also allow your agent to learn details and vital stats which are not in the ad/list-ing for the home. Armed with this insider information, you may have a unique advantage over other prospective buyers. The information may allow you, as well, to speed up the deal - handling paperwork and other requirements so as to close faster on the home.As an example of speeding up the deal, consider the discovery made by a real estate agent working on behalf of one of my clients. The agent did as described in “extra #5”, calling the listing agent to inform them of my client’s offer. From this phone call, my client’s agent learned that the listing agent was looking to close in fifteen days. If my client was able to close on the home in fifteen days, it would therefore make a major difference in the seller’s willingness to entertain the offer. Knowledge of this desire by the seller would never have come to light, though, without my client’s agent having called.

162Notice too, how we’re talking about calling? As in picking up the phone and using it to connect for a live conversation with another per-son. You can’t do that with email. Yet many real estate agents and lend-ers seem convinced you can. This explains why such agents and lenders avoid the phone, choosing instead to simply email an offer over. In emailing their offer, the agents/lenders miss all the benefits of a phone call - namely the common ground established and the opportu-nity to obtain insider information. On top of that, emailing rather than calling indicates to you, the home buyer, that such real estate agents and lenders are likely amateurs, unaware of or unwilling to go the extra mile for you. Extra #6 - Making sure you’re pre-approved, rather than just pre-qualified From the previous “extras”, you might get the sense that a great lender has seemingly psychic powers. Those powers enable the lender to rise above the deal, viewing it on a higher, almost transcendental level and anticipating the seller’s wants and needs. If that’s the impression you have, then I’m sorry to disappoint. Truth is, a great lender is just as human as you are. Their supposed “powers” come, in large part, from simply being attentive and responsible. This is particularly evident with “extra #6”.“Extra #6” is about lenders making sure you’re pre-approved, rather than merely pre-qualified. This isn’t a semantics game either. There’s a stark difference between those two terms (pre-qualified and pre-approved). “Pre-qualified” implies lip service on the lender’s part. It means your application for a loan is loosely in progress, yet hasn’t been given proper time and attention by the lender or other high-level people. Without adequate supervision, you’re essentially on your own in working to secure a loan. The lender may have helped you submit an application for the loan. Yet they’re of little help to you now, as a re-sult of subsequently taking a hands-off approach. The situation can be summed up with the following image –

163In the picture (above), the young woman is taking a leap of faith (*not in the religious sense). Her faith is apparent from closed eyes and fingers crossed. Those gestures convey a willingness to trust that “every little thing’s gonna be alright” - to quote Bob Marley. Marley’s words are perfect if we’re talking reggae or chilling out in Jamaica. But they’re hazardous to your health when it comes to mort-gages. Mortgages are one place you can’t lazily coast, expecting every little thing to be alright on its own. That’s how people get derailed en route to a mortgage. It’s also what an amateur lender is essentially say-ing, when you’re “pre-qualified”. The amateur lender is, as we’ve noted, paying you lip service. Moreover, it’s as though they’re figuratively patting you on the head and echoing Marley’s relaxed words. Chill out, take some “Hope-ium”, and let the chips fall where they may. That seems to be what the amateur lender wants you to do.A great lender, on the other hand, knows that hope won’t get you a home loan. For this reason, a great lender will remain hands-on with the loan, throughout the entire process. In place of “pre-qualified”, the great lender will ensure you’re “pre-approved”.

164Pre-approved means you’re ready to go with the loan. The lender has seen to it that nothing will come out later which can derail your efforts. Once you get the contract for the home and an appraisal, it’s all systems go, on the loan. That does it for our “extras”, those six key indicators of a great lend-er. From the “extras”, you can probably see why it’s important to work with a great lender. A great lender will go the extra mile for you and en-sure you’re able to close with a loan, on the home you desire. Working with a great lender is so important in fact, that it could be the basis for a fifth mortgage blooper. The fifth blooper would be to work with a lender of average or sub-par ability. Even with a surprise fifth blooper, we’re still done with the discus-sion on mortgage bloopers. Take some time and re-read this chapter, if needed, to ensure you avoid the mistakes in it. Then, meet me in the next chapter where you’ll hear a compelling story…

165CHAPTER 7REAL LIFE EXAMPLE: T & G’S GAME FILMA  .If you recall the end of the previous chapter, you know that this one (Chapter 7) is going to feature a compelling story.Before we get to the story, let me give you some context around it. Context is important so you can see how the story fits in with all we’ve been discussing. To frame the story, think about our discussion to this point. We’ve covered the critical concepts of mortgages, while going deep on specif-ic plays to run. Hopefully, you’ve found the material to be educational and even thought-provoking. Yet if you’re like most people, I’d imagine you’re probably not 100% clear on the home buying process. You under-stand the individual components of the process. But putting those com-ponents together? That’s likely another story (no pun intended).Speaking of stories, that’s why you’ll be hearing one in this chapter. A story, at least in my opinion, seems like the perfect way to connect the stages of buying a home. With a story, we can fuse those stages together in a way that’s both informative and engaging. In addition, using a story can save us from the mistake made by many other books. Those are the books which fumble the concluding chapter. This happens because the authors of such works don’t know how to wrap things up. The result is often either an abrupt end or a te-dious rehash of the last hundred-odd pages. Clear now on the point of our story? Then let’s get into it… “The Tale of T&G”

166Our story begins with T&G. Those are the initials of a couple that I helped this past year.Since I helped T&G run mortgage “plays”, let’s imagine them (T&G) as players in a football game. As their story unfolds, it’s like we’re re-viewing video footage of a past game. The game to review took place in late 2019. Rewind to the start of the game and you’ll see T&G step on the field. Outside of the sports analogy, “stepping on the field” means that moment when T&G first contacted me. They came to me for help with purchasing a home the following year (2020).We kicked off our collaboration with a look at T&G’s goals. I wanted to get a sense of what they envisioned for a home, and how long they planned to stay in it. Understanding these things would allow us to take the first step in designing T&G’s personalized playbook.When asked about their home buying goals, T&G responded by giv-ing me a clear vision. They spoke of buying a home, living in it for a few years, and then renting the place out. From there, T&G’s vision saw them using the equity built up from home #1 to purchase another primary residence. This next primary res-idence would enable the couple to live closer to town.As they described their vision to me, T&G were clearly excited. Their excitement proved contagious, and I soon found myself eager to help the couple in pursuing their vision.At the same time, though, I knew we needed to temper the excite-ment. It was early, really early in the home buying process. T&G weren’t home buyers yet. They hadn’t been pre-approved, or even pre-qualified.With that in mind, I kept my emotions in check and ushered T&G onward to the next step of the home buyer playbook. The next step was to…Actually, hold that thought.Since you’ve read this book, I’ll bet you know the next step. Think carefully for a moment. Try to recall what you learned about, right at the start. It was early on, back in Chapter 2. We’d introduced the book itself and discussed your reasons for wanting to buy a home. Then, with the start of Chapter 2, we’d turned to a discussion of...

167A discussion of? Come on, you remember don’t you?Don’t flip back to Chapter 2. That’s cheating.Here’s a hint, so the suspense doesn’t kill you. Chapter 2 was on a concept which empowers, liberates, and ultimately supercharges your drive toward home ownership.If you still can’t remember, this is a dead giveaway. What we talked about in Chapter 2 is often mistaken for “pinching pennies”.There, does that ring a bell?If it does, then you’ll recall the step of the home buying process which we covered in Chapter 2 was…[Answer on the following page]

168 BUDGET!!!Budget, yes that’s what it was.So, there’s no confusion, the steps to that point were -Identify your goal(s) and/or vision for buying a homeBudget OK, back to T&G’s story. We’d left off at the moment when I ush-ered T&G to Budget, step #2 of the home buyer playbook. In Step #2, I shared my budgeting sheet with the couple. They clear-ly appreciated this because, as T admitted, she and G had no idea where their money was going each month. Not that this young couple were blowing their cash and living paycheck-to-paycheck. They were able to make ends meet without ever feeling trapped or limited in their pur-chasing power. It’s just that, again, keeping track of where the money went proved a consistent challenge.To solve this challenge, I armed T&G with my budgeting sheet, and gave them an explanation of budgeting. My explanation was similar to what you’ve read in this book, including the earlier analogy of the debt snowball. We also walked through doing a budget for the first couple times. Here, I advised T&G on what to pay off and pay down first. From budgeting (Step 2), we turned our attention to credit. Credit was, in our football game analogy, the next “play” to design.We began on this play by looking at where T&G were, in regard to their credit. Like many young couples who I work with, T&G had the usual items in their credit mix. The mix included a couple of car loans, a few credit cards, and some financial aid (i.e. student loans).Seeing this credit mix, I sensed an opportunity for T&G to raise their credit scores. The scores would go up if the couple were to pay down a few of their credit cards. (This ties in, by the way, to the chapter around debt utilization. Re-read it if you’re unfamiliar with credit mix.)Now, with mortgages being my specialty, I knew better than to overreach and try to be a credit counselor too. T&G deserved a true

169professional to guide them on credit matters. Rather than try to fill this role, I gave them a personal introduction to my credit specialist. As the “specialist” part indicates, this member of my team knows their stuff when it comes to credit. My credit specialist was thus able to provide T&G with custom, high-quality advice on handling their credit cards and improving their credit score overall. With the credit specialist’s help, T&G were further advised on what it would take while budgeting to be in the best position possible for loan programs and interest rates. Conceptually, this relates to a big idea from the Credit chapter. That’s the idea that when you increase your credit score, it can open up more options in relation to loan programs, interest rates and purchasing power. While my credit specialist was working with T&G; I took the mort-gage equivalent of a water break. It felt good to rest, but my time on the sidelines soon came to an end. My credit specialist was done helping T&G and it was my turn again. Returning to the game, I was relieved to find T&G had alignment between the budgeting plays that they were planning to run, and the up-coming credit plays too. It was time, therefore, to pivot the conversation to loan programs and what the plays there might look like. Loan programs made sense at this point because we were only a month away from starting 2020. This was the year, if you’ll recall, in which T&G wanted to be in their home. When it comes to loan programs, do you remember the main types? There were three of them, comprising a “Big Three” of loan programs - FHA, Conventional, and VA.Of those programs in the “Big Three”, T&G ended up going with FHA. Their decision stemmed from the fact that the couple had saved up some money and they liked low down payment options as well. Another reason for FHA loans was that T&G didn’t need the down payment assistance loans which were currently available in their area.

170Not only were those loans not needed, T&G actually found it more ben-eficial to use their own money than the DPA (down payment assistance) money. At this point in our story, if we’re sticking to the football game anal-ogy - it would be about half time.In a football game, halftime is a high-point for fans, as they’re usual-ly treated to a halftime show. Sometimes the show is a performance by a marching band or cheerleaders - as with high school and college games. Or, if we’re talking pro football (i.e. the NFL), the show may include pyrotechnics, laser lights, and A-list entertainers. What about “halftime” in our story? There was a show all right. But it was a “show” in the literal sense. As in “show me”.The “show” came as our story entered its own halftime. I requested that T&G show me their documents. In particular, I was looking to see some current pay stubs and T&G’s final W2 for 2019. The couple gathered up these documents, along with a current bank statement - showing their bank balance and available funds. Together, these documents (the pay stubs, final W2, and bank statement) would indicate that T&G were on solid ground, when it came to pursuing a loan. In other words, the documents would silence any doubts about T&G having the money to use for their down-payment and closing costs on the loan. T&G’s halftime “show” ended up being a big hit. That’s to say, they came through, providing all the necessary documents. The documents proved that the couple was on solid ground financially. With the halftime “show” behind us, we could proceed into the 3rd quarter. For Q3 of the mortgage game, we kicked things off by working on the preapproval letter. This was a job for my team and I. Our work involved structuring T&G’s loan to match their goals. That took some critical thinking, but eventually we were able to complete it.

171Once completed, we (T&G and myself) sat down to go over their loan program, payment, and closing costs. While these items were spelled out in the preapproval letter, I knew it would be wrong to just “dump” the letter on T&G. “Here, now you figure it out”…Yeah, that’s just not my style. Call me old-fashioned, but I prefer to take a hands-on approach and ensure my clients fully understand everything that’s happening during the mortgage game. “Everything” includes the preapproval letter, and I took great pains to confirm that T&G were clear on it. One of the questions I asked T&G, to confirm their understanding, was the following -“What are your biggest concerns right now, as you think about going forward?”You may want to write that question down. Reason being that it’s a great question (and NOT because I came up with it either). What makes this question great is that it acts as a “safety net”. The question is analogous to the protective nets you see behind a field goal. At a football stadium, these nets keep the football from flying past the field goal and into the stands. This, in turn, ensures none of the fans suddenly find themselves face-to-face with an incoming ball.Like the protective nets in football, my so-called “great” question keeps home buyers from getting hurt too. In the home buyer’s case, the question brings up anything which could be a threat. We also get a chance to talk about nearly anything else connected to the loan. Anything from the payment and down payment to the home-buyer’s job stability. Even personal stuff can surface, like the homebuy-er’s relationship to their partner and the stability of that relationship. With T&G, the “great” question revealed that the couple had three main concerns. Those concerns, as stated by T&G in their own words, were:1) “How much we had to put down for a down payment?”2) “How our interest rate would affect our monthly mortgage?”3) “Would we qualify for enough to get everything we wanted in a home?”

172 Despite its merits, I can understand if you’re skeptical of my “biggest concerns” question. It may be a stretch for you to believe that home buy-ers will just “open up” and share their inner concerns. Sharing requires being vulnerable and that’s understandably hard for a lot of people. We - and I include myself - frequently feel the need to avoid showing weakness to others. We have to be supermen and super-women, confident in every respect. The reality, of course, is that uncertainty and even fear are natural parts of life. Whether we acknowledge this truth is a personal choice. Still, my question about “your biggest concerns” frequently gets people to drop the B.S. facade and provide honest insights. For that reason, I consider it to be a powerful question. My faith in the “concerns” question is so strong that I’d recommend you seek out a mortgage pro who asks this question or their own equiva-lent of it. It’ll save you stress early on in the mortgage process and deep-en the relationship you have with your mortgage officer. Alright, let’s continue on with T&G’s story.We’d been discussing the preapproval letter. With the preapproval letter, T&G were firmly on their way to home ownership. This is because the couple were not just pre-qualified, but also preapproved. As you’ve read, earlier in this book; “pre-qualified” and “pre-ap-proved” are not the same thing. “Pre-qualified” means you’ve filled out an application and then got-ten the “OK” to go shopping for homes. Maybe, just maybe, you’ve been asked to supply a few documents too. But even then, “pre-qualification” is still little more than a quick glance at you, before the greenlight is given. It’s not a great play to run because there will likely be a fumble or a penalty.If that doesn’t sound bad, let me put it in even darker terms. Being “pre-qualified”, versus also being “pre-approved”, has cost many

173would-be home buyers time, money, and the dream house they had their heart set on.Get the picture? Pre-qualification alone sets you up to lose, deep in the fourth quar-ter of the mortgage game. Such a loss is devastating and entirely avoid-able. It’s the mortgage equivalent of the 2017 Superbowl. That year, the Atlanta Falcons blew a 28-3 lead over the New England Patriots in the fourth quarter. Since that probably sounds outrageous, go back and review the match. Go over it, as we’re doing with T&G’s game. You’ll see the Falcons’ cringe-worthy loss. And if you’ve got any sense at all, you’ll avoid setting yourself up for a similarly disheartening “fourth quarter loss”. A loss which would come from shopping for a home when only pre-qualified. The better choice with homes, in case you missed it during my long repetitive droning, is to get pre-approved. When you’re “pre-approved”, an expert - an MVP if you will - in pro-cessing or underwriting skills, has taken an honest look at your cred-it, application, and documentation. They’ve reviewed these items and have declared in essence, that you’re “good to go”. Having the expert’s figurative “stamp of approval” is a big deal. With it, you can confidently expect to be approved and get your loan.Also, so there’s no confusion, the expert who “pre-approves” you might be an underwriter or a high-level operations person. Their background can vary, provided they’re truly a professional and give an honest look at the critical items (i.e. your credit, application, and documentation). Getting a professional to help you in this way will ensure any issues with your loan are caught up-front. You’ll be early and proactive in ad-dressing the issues, versus late and reactive. “Late and reactive” is a bad position to be in because it means you’re doing the following: finding a home, writing an earnest money check, paying for a home inspection, and possibly paying for an appraisal. Then, at the end of it all, you’re presented with a problem which derails your pursuit of a new home.

174The opposite is to be early and reactive in catching problems around your loan. In this instance, you don’t start with any of the aforemen-tioned actions (finding a home, earnest money, etc.). You and the profes-sional you’re working with, first go in search of potential problems. You start from the assumption that the proverbial glass may be half-empty, and test to see whether that’s actually true. It’s far more empowering than starting with the assumption of the glass being half-full and having - to mix our metaphors - rose-colored glasses. Those figurative “glasses” would give you a rosy, overly-sunny view of your loan, potentially setting you up to take a fall later. Zooming out, to look again at “pre-qualified” versus “pre-approved”, we can further illustrate the importance of this point by flipping the script. Put yourself in the seller’s position. If you were selling your home, suppose you had a buyer. The buyer seemed serious about purchasing your home. You were beginning to relax, feeling that the hard part of selling your home was finished. But then the buyer fumbled, got a pen-alty, and lost the game of getting their loan approved. Turns out the buyer was only pre-qualified. In this scenario, the buyer is clearly going to feel hurt. You, though, will also be in pain because of the emotion, time, and even money which you’ve invested in the buyer. The reversal here indicates being pre-approved alone, versus also being pre-qualified hurts both parties. The buyer has the pain of seeing their dreams of home ownership crumble at the last minute. And the seller has the pain of seeing their hopes and assumptions about finally being able to sell their home, also come crashing down too. Is it just me, or did all that talk of pre-approved and pre-qualified seem tedious? It might even, dare I say this - have been a bit repetitive? Fortunately, we’re done hammering on that point. Like a long com-mercial break, the pre-qualified versus pre-approved part is over. We

175can return to the main attraction, our football game analogy featuring T&G.Checking in again, we find T&G at the point where they were pre-ap-proved. At this juncture, they were ready to shop for a home.To help them find a home, T&G had selected a real estate profes-sional. The agent they chose had a great reputation and a proven track record of helping others in the community become homeowners.In addition, it’s worth noting how at this time (when T&G were looking for a home), we were in 2020. On the off chance that you some-how missed it, 2020 was a rather interesting year. It was the year Corona went from being the name of a Mexican beer, to being the name of a worldwide illness. 2020 also saw interest rates drop. These two factors caused an increase in demand for houses and a shortage of inventory.I mention those developments from 2020 because they impact the mortgage payments T&G would have on whatever home their real es-tate agent helped them find. The impact is that money could be borrowed at 50-year historic lows. That translates into T&G (and you!) being able to buy more house than last year. For T&G, they’d have roughly the same mortgage payment on a house purchased in 2020, while the house itself would be roughly $50,000 more expensive.What I just said may have been a blur to you, so let’s rewind it. Going in slow motion now, what …w e ’ r e…say in g…is…that - Ok, maybe not that slow. Picking up the pace, let’s try it again…What we’re saying is that if T&G bought their house in 2019 for the same mortgage payment, they would’ve been living in a house that was $50,000 less in price. A lower price would likely translate into a home which was smaller, not as nice, and in a less attractive location. Luckily, that wasn’t the case. T&G were buying when rates were low, causing their purchasing power to increase by about 20%. Increased pur-chasing power gave them access to a nicer, newer, and bigger home in an area they couldn’t have afforded in the year prior. And all for the same payment.

176The technical term here is “affordability”. Another term also comes to mind, a big one for anyone investing in real estate… Appreciation. As terms go, appreciation is very important. So important that we ought to pause for just a second to consider it further.The reason we care so much about appreciation is that it ties into long-term financial goals and even retirement. Take T&G, as case in point. They were only in their 20’s. Yet by purchasing a home for $50,000 more, they got an extra $50,000 which will appreciate over time.Appreciation, as a percentage, tends to be about 5%. A $100,000 house would therefore appreciate 5% and be worth $5,000 more. Same goes for a $150,000 house, which at 5% appreciation will be worth $7,500 more. The figures just given are, admittedly, simple math. My aim in pre-senting them is to show you how money goes further when interest rates are lower and you can afford more. Having a nicer house in a better location is one example of affording more. Another would be to have a bigger valuation of your home - as seen in the $100,000 and $150,000 house examples. What happens, though, when interest rates return to normal? We need to ask that question because interest rates will almost cer-tainly return to normal levels (typically 4%-5%). So, what then?When rates go back to “business as usual”, it’s not the end of the world. You’ll simply qualify for what the mortgage payment looks like based on normal interest rates. “Normal” means there will be few, if any, extra benefits. What you see will be what you get. Don’t stress about interest rates just yet though. We can’t say with certainty where the rates will be when you’re finally in a position to be impacted by them. Besides, we’ve got a story to finish. It’s the story of T&G…At this point in our tale, T&G were out shopping for a new home. Despite working with a qualified real estate agent, the couple just weren’t seeing a home that satisfied all their criteria.

177T&G did see a new build community, though. The community con-sisted of sites where new homes either had been built, or were in the process being built. As they drove past it, day in and day out; the new build community seemed to “call” to T&G. Eventually curiosity got the better of them, and our heroes stopped in to tour properties at the community. A simple tour was all it took. T&G found themselves falling in love with the new build community, the surrounding area, and - most im-portantly - one of the homes in the community. Since we’re talking about new build communities, here’s a quick tip for you. Most new build communities have their own mortgage entity and encourage you to use it. As an incentive for doing so, you’ll often receive money toward your closing costs or for making upgrades in the home.My tip, however, isn’t to use the mortgage entity associated with a new build community. Rather, I want you to be aware that there’s often a catch to using the community’s own mortgage entity. The catch is that in most cases, at least those where I’ve compared the loan estimates from the builder, we (independent mortgage officers like myself) usually have lower rates.What’s a loan estimate? I threw that term out, as if it’s common knowledge to you. Since it may not be, let’s define it. A loan estimate is the form which lays out all costs, both to the buy-er and seller on your loan. It essentially shows the fees and rates being quoted. This is all important information, and the lender is required to provide you with it. T&G were no exception, and they got a loan estimate from the com-munity’s lender too. They also got a loan estimate from my mortgage team. When these estimates were placed side by side, it was apparent that my mortgage team could offer T&G a rate which was half a percent (.5%) lower than the builder. That doesn’t sound like much, till you con-sider that T&G would end up saving $73 per month.

178Is it always like that, with every builder? No, certainly not. This is also not meant as an attack on builders or builder lenders. I’m simply illustrating what can happen. And the way to know for sure whether it is or isn’t happening, is to compare. Make the comparison and you may notice another benefit of non-builder mortgage loan officer. This benefit involves the preapprov-al letter, which a non-builder mortgage loan officer will give you. Once you’ve got the letter, you can use it at each builder you visit. Think about how much time this will save. Whenever you visit a builder and their community, you won’t have to provide your information to the builder and wait for them to run your credit. You can cut to the chase, simply providing the builder with the pre-approval letter which I, or an-other reputable loan originator, have already given you. Another advantage with starting with a non-builder loan officer, is that they can help you with all the builder communities and can still help if you decide to stay with a resale home. That loan officer has no ties to anyone other than you, so they’re looking out for your best inter-ests and alignment with your goals. So, T&G found a new build community and fell in love with it. That’s where we’d left off.Following our football game analogy, this moment is akin to the top of the fourth quarter. It’s the beginning of the end. Ironically, that’s ac-tually a positive thing here. It means you can see a light at the end of the proverbial tunnel. And as we continue in the fourth quarter, the light is only going to grow brighter until…Well, until T&G reach the end of the game and are homeowners at last.But not to get ahead of ourselves. Especially not when the game can go terribly wrong at the last minute. We saw that earlier with the Atlanta Falcons Superbowl loss. T&G might be in for a comparable fate if they’re not careful, entering the fourth quarter.

179Following T&G, their next set of “plays” were the following: identify their home, sign a legally binding contract to purchase it, and write an earnest money deposit on the home.As they completed those “plays”, T&G experienced a rush of strong emotions. Here’s how each of them told me that they felt, emotionally, at the time…First, T…“I [T] was so emotional, it was very surreal that it was going to be our first home where we will have a lot of ‘first memories’ in.”Then G…“I [G] even cried on the phone with our Loan Officer because I was so excited to put in an offer right then and there!” Crying on the phone with a loan officer? Yes, and there’s no shame in it. Not when you’re closer than ever before to owning your own home.Among the signs that you’re almost there, one of the strongest in-volves the earnest money deposit. Earnest money deposits are deposits, ranging from $500 to as much as $50,000. These deposits typically “go hard” and become non-refund-able late in the game. When that occurs, it’s a sign that you’re past the so-called “point of no return” in your pursuit of a new home. You’re “all in” and must therefore play as such. Playing “all in” means you make sure the loan is going to go through and that you’ve consulted with a true mortgage professional - one who knows their job and is setting up your loan so it aligns with your short and long term playbook. Another whistle! We keep jumping around in this discussion, so you might have missed it.The whistle that just sounded comes as we continue in the home buying game, during the all-important fourth and final quarter.

180With this latest whistle, it’s time for the next play - one involving interest rates. T&G, you, or any else pursuing a new home will work to lock in an interest rate on their mortgage.When doing a rate “lock-in”, the first thing to examine is the closing date on the contract. If you’re dealing with a new build, the closing date can be longer than the typical 30-45 days seen with a resale property (i.e. a home that already exists and is simply being resold). An exception would be spec homes - those new build homes which are completed or almost completed. In T&G’s case, their closing date was roughly 90 days out. That time fame was necessary in order for the builders to have adequate time for completing the house. Completing it meant more, for example, than just hammering in the last few nails or sweeping away construction debris. New homes must receive what’s called a “certificate of occupancy”. This certificate is a document given by the city (in the area where the home’s located), which states the home is “up to code, has passed all inspections and can legally be moved into”.While T&G’s closing date was 90 days later, this isn’t always the case. Depending on the lender, your closing date and the “lock in” time for your loan could be 15, 30, 45, 60, or even 75 days. Want still longer terms? You might consider a bank that specializes in builder financing. Some of those banks, like ours, have longer locks because they/we help so many new build clients. Consequently, locks can be 90 days to 6 months. Another thing to recognize on locks, is that when the rate lock peri-od is longer, there’s more risk for the bank. This leads the bank to typi-cally offer a slightly higher rate for a longer lock. Of course, with words like “typically” being used, you can probably guess that this isn’t a hard-and-fast rule. Rather, it’s something which depends on the current Stock and Bond markets, and the forecast for those markets at the time you’re looking to lock. When that time (i.e. time to lock) does arrive, make sure to discuss it with your loan officer. Your “L.O.” (loan officer) can then give you the “LO-down” on how best to proceed.

181Now, assuming closing dates make sense to you, then let’s revisit rate “lock-ins” themselves. It’s been a while since this concept was covered, a few chapters back. A short timeout should do the trick now, in refresh-ing your memory. When we say a rate is “locked-in”, we’re talking about securing a spe-cific interest rate for a certain period of time. The rate can be locked in because it’s tied to a real estate property, not the people purchasing the property.Once an interest rate has been locked in, it will not change. Interest markets can go crazy, with rates shooting up or down. Yet your own rate on the loan will stay constant.Any changes would only come when the loan goes past the “lock ex-piration date”. That date is exactly what it sounds like - the date when the “lock” on your interest rate expires. On that date, you could lock in the new terms, of that day - terms which most often are higher. Alternatively, you can pay a fee to continue at the original interest rate which you’d already locked in earlier. Your decision, on whether to lock in new terms or pay a fee to con-tinue at the earlier ones, is something a mortgage officer will help you on.As additional help before then, here’s the example of T&G. You can see how “lock-ins” played out for them. In T&G’s example, they had a 90-day contract. It was also early 2020, a time when we’ve established that interest rates were lower, due to the market. Ninety days is three whole months. That’s a lot of time. So much time that T&G chose to wait. Their strategy was to wait until 60 days out to check-in and make sure the house was going to be completed on time. When we got to 60 days out, the three of us (T,G, and myself) con-firmed with the builder that they would close within 60 days. Best of all, we got the builder’s confirmation in writing.I then did a market analysis of the stock and bond market with T&G. Together, we concluded that we were as close to the lowest point in the

182market as possible. Might the market have gone still lower? Absolutely. But we weren’t going to be gamblers. Not I, and certainly not T&G. In lieu of gambling, we believed it was best to secure the current low rate for T&G’s home. So we locked in the rate for sixty days.Locking in the rate brought us to yet another important moment in the mortgage game. This was the moment in which we moved T&G’s file into processing. To move their file - we rounded up paystubs, bank statements, and paperwork from title. Those materials collectively formed T&G’s “loan file”.The loan file was handed-off, like the ball in a football game, to an-other key player. That player would be our underwriter. Taking the “ball”, the underwriter’s job was to review T&G’s file and approve the loan. Unlike in a football game, the underwriter can’t com-plete their play in a few minutes. They usually take 24-48 hours to do it, at least in a normal world. For our sake, though, in the football game analogy - just suppose the underwriter was able to act much faster. They moved the ball down the field (a.k.a. doing their work with the review and approval of a loan) in mere minutes. So far, so good. But T&G still weren’t in the clear. In fact, no sooner had the underwriter gotten to work then things came to a standstill. It was like the refs monitoring the game blew the whistle, bringing every-thing to a halt in order to review the last play. This is the time when an underwriter will need to perform the LQI. LQI’s, in case you’ve forgotten, are those last-minute checks required when getting a mortgage. The LQI protects lenders by ensuring that borrowers like T&G haven’t dramatically changed their financial situa-tion for the worse. Such changes would include spending more money, opening new credit, or otherwise hurting one’s credit in any way.The LQI is a natural part of every loan, in every state across the U.S. It’s natural yes, but no less nerve-wracking. Indeed, you’ll probably find yourself - as I did with T&G - nervously awaiting the outcome from the LQI. That’s true even when you’ve done everything right, and your

183financial situation hasn’t changed much (if at all). Even then, you’ll like-ly be on the edge of your seat.Waiting.Waiting.Waiting.And then the ref - ahem, I mean the underwriter - comes in with their verdict.The verdict for T&G is that they were “OK”. Their credit scores came back a little higher with balances a little lower and no inquiries from anyone else. What a relief! If this were a football game, as per our analogy, you’d have heard the fans in the stadium go wild. The next play was for the processing team to get documents pre-pared so a title company could arrange a signing for T&G with a notary. The signing would transfer ownership of the home to T&G. Keep in mind here, that some states require an attorney for this step - rather than a title company. Either way, there are some important doc-uments which need to be signed, and some notarized and recorded, to legally transfer a home into your name. Transferring title on the home brings us into the red zone. For my non-football fans, that’s when the ball is within the 20 yard line. It’s a big deal because a touchdown is so close. In mortgage lingo, you can practi-cally hear the jingle-jangle of keys - as in a handoff of the keys to those who are finally “scoring” home ownership. In the red zone, the documents were “passed” to the notary or an attorney. T&G then signed the documents. Metaphorically, it was like they dived and caught a pass at the 5-yard line. The ball was even closer now to a touchdown. As first-time home buyers, T&G admittedly felt overwhelmed by the documents they were asked to sign. T described the overwhelm as…

184“...like taking on an assignment from my professor. The legal jargon was intimidating and even more so, because we were about to sign our life away, literally!”From past experience helping other couples, I knew T&G would probably feel overwhelmed. Recognizing that, I made sure to figurative-ly “hold their hands” at this crucial time. That meant answering any questions T&G had on what was in the documents and clarifying what-ever other document-related questions they asked. Once the documents were signed, we went to the next down. T&G handed off the “ball” (i.e. their loan file) to the lender’s clos-ing team. The closing team then began the final push to scoring a touchdown. Yet again, though, the ref’s called a halt to the gameplay. Gameplay was stopped, even at the one-yard line, so the refs could review the play.Outside football, in home buying, the review was a last-minute veri-fication of employment. The review was prompted by the 2020 pandem-ic and the rising unemployment which accompanied it. Those events led to precautions being put in place, namely a verification of employ-ment within just 5 days of the closing.Five days away from the closing, and now this. If you thought the LQI was a nerve-wracking moment, imagine how this felt. Five days - or five yards - from a touchdown/new home. And it might all come to an end. But then…“We’re GOOD!!!!”Sorry, I’m thinking of being in a stadium and watching football players. What I mean, is that T&G were good. Both of them still had jobs and passed the employment verification. Just one more play. One more to go, if T&G were going to score a touchdown and become homeowners. Picture it playing out, as in a football stadium.

185See the crowd on their feet. The last play gets thrown - in our case, to the County Recorder’s office. The Recorder takes the final notarized documents. They record the official notarized loan documents.In our stadium, it’s like one of the football players has feverishly jumped up, sun in their eyes, and miraculously caught the ball. Touchdown!!! For T&G, this was the moment when they officially became home-owners. With the “touchdown”, they could chill out and revel in the ful-fillment of a long-held dream - the dream of home ownership. What a game!I know T&G would agree with me, that mortgages are one heck of a game.And you? What’s your sense of the mortgage game? You’ve read about the game through the story of T&G in this chapter. In addition, you’ve read the chapters preceding this one, in which we went deep into all the nuances of mortgages. So now, having read all of that - this entire book, really - how do you feel about the mortgage game? Maybe you feel it’s not worth playing. If so, that’s alright. Mortgages aren’t for everyone. I can’t fault you either, if you’ve arrived at that con-clusion after reading this book and thinking about it for yourself. Then again, you might view the mortgage game as worth playing. If that’s the conclusion you come to, let me make a few things clear.First, this chapter has provided a simplified look at the mortgage game. My goal has been to take the game down to an almost kinder-garten level. I’ve done this because mortgages in reality, are not that complicated. The mortgage “game” only seems complicated from all the misin-formation out there about it. Couple the misinformation with too many opinions and you’ll have a prescription for complication. Which is ex-actly what I’ve worked to avoid, through simplifying it all down, in the chapter you’ve just read.

186Another thing to be clear on is that yes, your situation is different. I say that to you and anyone else who reads this book and finds them-selves saying…“But my situation is different.”Hey, I get it. Your situation is different. You won’t get any argument from me there.What I may argue with you on is if you go one step further. That would be to say… “You don’t understand me.”Here, I’d have to push back. We wouldn’t have a fist fight or any-thing. Nothing that would make the 10 o’clock nightly news. But I’d have to - peacefully - challenge the claim that I don’t understand you or other readers of this book.Having helped over 5,000 people over the years, it’s maybe, sorta, kinda likely that I’ve got a general understanding of what it might be like to go through the mortgage process. Just a hunch, right?That’s a joke, of course. One which conveys my point - that I proba-bly understand you, at least where mortgages are concerned, far better than you’d think. (It’s also a joke which might cool things off and keep us from having that fist fight…)Let’s not debate industry specifics either. Specifics stats, rules, and even loan programs are inevitably going to change. It’s a reflection of the fact that mortgage, as an industry, is constantly in flux. You may find, therefore, that credit requirements are looser or tighter, at the time you’re reading this book - than when I originally wrote it. Changes like this illustrate the need for reaching out to a mortgage professional. The right mortgage professional - whoever you end up choosing - will be up on the latest industry specs and trends. They’ll be able to tweak anything which may have changed since this book was originally written.Of course, even with industry changes - there are still some aspects of the mortgage game that never change. Being cognizant of your cred-it is an example, as is being able to budget. Those are timeless “plays” which you can run, regardless of where the industry and the markets go.

187The last thing for us to be clear on, is that you’re not expected to remember everything you’ve read in this book. This chapter is, in case it wasn’t clear - the last chapter in the book. Considering all that’s been said in it, along with the lengthy discourse in all the earlier chapters; you’re looking at a ton of information. Enough information to overwhelm even those who compete in memory com-petitions. So no, you don’t have to remember all the material in my book. Unlike a spouse’s birthday, this is one case where it’s OK if you’re forgetful.That being said, there are four things I’d love for you to remember. If you only remember four things from this book, it’s the following:1) ProfessionalsMake sure you’re working with a professional at all points in your home buying journey. These professionals would include a real estate agent, a mover, and - of course - the mortgage or loan officer. 2) ResearchYou should do your own research and not just take answers - from me and anyone else - at face value.3) ComfortThere’s no such thing as a stupid question. For this reason, you can feel comfortable asking questions whenever you’d like greater clarity on a part of the home buying game. 4) MeI had to throw this one in, just for kicks. As the author of this book, I’d be thrilled if you remember me - long after you closed my humble little book.If you do remember me, and find yourself in need of more informa-tion on the home buying process - feel free to reach out. You can do that by visiting a companion website for this book, over at www.homebuy-erplaybook.com Plus, if you want to reach me directly, just send an email to greg@runtheplays.com

188“It ain’t over till it’s over”, as we learned from Yogi Berra so many pages ago.But now, Yogi would be mistaken.For it is over. Our discussion in this book. And probably your pa-tience with this awkward attempt at a conclusion. Let’s not push our luck on either of those. Thanks for reading and best wishes to you, as you play the (other) “Great American Game” - be-coming a homeowner.My team and I are here to help you Run the Plays. – Greg

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