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Episode 033: James Allen, Guaranteed Rate
Joel Epstein:
Good afternoon and welcome to another and new edition of The Big Joel Show, coming to you live, well we're really taping, from upper Georgetown in Washington, D.C. Very excited today that you've tuned in. I've got a really cool guest that I think you're going to like. Now I want to make sure you know this, when you all see the shows coming on The Big Joel Show, typically some of them are geared towards real estate agents and some of them are geared towards loan officers. Even though I do get feedback that watching both, no matter what business you're in, are good. This interview is going to be as important for real estate agents as it is for loan officers.
Joel Epstein:
So if you got this far and you're a real estate agent, don't turn this off because we have James Allen on here today with Guaranteed Rate in Connecticut, in the USA, in Hartford, Connecticut. So again, this is going to be... There's going to be a lot of great information here for real estate agents and for loan officers. So James Allen, James, how old are you?
James Allen:
34.
Joel Epstein:
34. James Allen is 34 years old. There's an interesting story here. Maybe I'll just tell it real quick. I don't want to take too much time.
James Allen:
You do you Joel.
Joel Epstein:
I don't want to take too much time. But James tell me, was 2017 your first year really originating loans or was it '16 or what?
James Allen:
I started as an LOA in 2016 but yes, '17 was the first year.
Joel Epstein:
But actually originating loans, right?
James Allen:
Yeah.
Joel Epstein:
So this guy, by the way, just see now-
James Allen:
September, that was the first loan application I took.
Joel Epstein:
Just so you know, the animal that's sitting to my left, 2017 2.5 million, those are epically huge numbers by the way. 2018, 136 units for 29 million. I don't care about the million. 136 units. Do the math. That's more than 10 a month. Average loan officer probably closes two or three loans a month maybe. 2019 year to date through mid November, 170 units. Granted, we know that there are some refinances on there, but I do know a lot about James's business and that is mainly purchase heavy referred by real estate agents. So I'm just going to say that again. He's been doing loans for three years, not even three, two and a half years, 170 units. I don't even care.
Joel Epstein:
So the volume is 40 million, but those of you all that deal with me, know we don't care about volume. Also, his average loan amount is pretty low. It's not really epically high.
James Allen:
225.
Joel Epstein:
225, or more normal in normal markets out of big markets. So James and I were talking and just full disclosure, James is a client of mine as well, so I know his business pretty well. But we were talking about some different things and he said something to me a couple of months ago. He's like, "Joel, you know what I did, when I started." Well let me just backtrack for a minute. So, James Allen was originally introduced to me by a mutual friend of ours, Scott Johnson. Scott, if you're watching this, Sco Jack.
James Allen:
Sco Jo.
Joel Epstein:
Scott is a with Home Bridge now. And Scott and I were both working at Prospect Mortgage at the time and Scott called me up, he says, "Joel, Joel, I got this guy, this James Allen guy. He's not in the mortgage business. He's never done loans, but he's going to be really good at doing loans. If we hire him, will you take him as a one-on-one client?" Because I really didn't take rookies one-on-one. I used to years ago, but I just didn't have enough time. And Scott said, "No, no, no. You don't understand. This guy's going to be great." Was that '12? '13?
James Allen:
'14. July, 2014.
Joel Epstein:
Oh yeah, he remembers it. I think I put an imprint in his forehead. So Scott says, "Can you meet him?" And I was up there doing something. We met in Rhode Island, right?
James Allen:
That's right.
Joel Epstein:
Yeah. So I was up there doing something, but for some reason we met in Providence or did we meet in Rhode Island somewhere?
James Allen:
Somewhere on Rhode Island.
Joel Epstein:
Yeah. Rhode Island's not that big.
James Allen:
Yeah.
Joel Epstein:
We met in Rhode Island and we had a meeting and I did my normal Joel stuff, which is tried to scare people away from being loan officers.
James Allen:
It worked.
Joel Epstein:
And I turned around, I came out of the meeting, I called Scott up. I'm like, "Scott, good call man. I'll take him. This guy's going to be fine. I mean, I already know he's going to do the job. He's going to be superstar." And it didn't work out, the executives of the company were not going to allow him to hire basically rookie, someone who didn't know anything.
James Allen:
They actually offered me the job.
Joel Epstein:
Which is hilarious. They did offer it?
James Allen:
They did offer the job.
Joel Epstein:
Oh, I didn't even know that. You turned it down?
James Allen:
I turned it down.
Joel Epstein:
Okay.
James Allen:
I was too scared. You scared the crap out of me. You literally scared me from being a loan officer for an extra 18 months.
Joel Epstein:
All I did, those of you that know me, I hit him hard with all the Saturday and Sunday is Monday and Tuesday. When anybody calls, you will pick up. I hit him with all this stuff that most people aren't ready for. But anyway, when I got James's name, I don't know how long ago from a John Paul Miato at Guaranteed Rate, James works for Guaranteed Rate in Hartford, Connecticut. I might've already said that. I'm like, "Wait, James Allen, I know that name." And then his big boss, his uber boss, John Paul Miato, I said, "What kind of loans?" And he told me his production. I said, "I knew it, I knew that guy was going to do loans."
Joel Epstein:
So long story short, here we are today. So I'm talking to James a couple months ago and James was like, "You know what Joel, when I started I didn't know anything. So I figured, I want to try to like be an expert at something and I just became an expert in VA. I just picked VA and became an expert in VA." And I'm like, "Really?" And he said, "Yeah." And I'm like, "You should come on the show because I think people would love it." Again, those of you that watch my show, you guys already know this. If you're looking at your memos internally that you get from your company, you know this, everyone January one, no more VA loan limit.
Joel Epstein:
So agents and loan officers that work in markets either A) that you don't think or there's any VA loans there or B) there's no military. Okay, so you don't think of it, or agents that traditionally work in markets where you're selling properties above the VA limit, or you've got burned on a VA loan. We'll talk about this because there was 100% financing and the seller wouldn't take it. Blah, blah, blah, yada, yada, yada. And all the appraisers are horrible and need you to totally fix the house. And whatever, all the myths went away and said, "I'm not taking these contracts. I'm not taking these buyers. I don't care." I want you to listen very closely because you're missing out on incredible business and incredible loyal business and people that are great people.
James Allen:
Great people.
Joel Epstein:
That's a great way to put it. Great people. And January one, it's game on. I don't care if you're selling million dollar condos in Hoboken, New Jersey, game on, there's no max. And if you know what you're doing with VA, you know how to do $920,000 loans anyway, you've already figured that out. And especially with a disabled vet, you're talking about a 92 LTV, super jumbo with no funding fee. So these are very lucrative. These are great loans, especially for the people getting them.
Joel Epstein:
So I said, "James, man, would you come on?" And he said, "Sure." And I said, "Okay, come down. I want to get you in the studio." I just want to drill down, want you give my audience some tips, some hints, some real tactical stuff that they can just take away and either go sell houses, or do loans, or whatever. The only other thing I wanted to say before I let James start doing his thing is, I have Brian [Burjans 00:07:49] on here from Caliber. He's the-
James Allen:
The man.
Joel Epstein:
Did you watch that podcast?
James Allen:
Of course.
Joel Epstein:
He the VA, whatever, honcho, gurus are for, for Caliber. And he said something that literally I've swiped and adapted and say it all over that I thought was so cool. He's like, "Joel, you know the mistake people make with VA?" And I was like, "No. What?" And he said, "The mistake people make with VA is they think, well, there's no base here, there's no VA loans." He said, "I could show you a chart that goes state by state in the whole United States with how many VA eligible buyers there are in each state, whether there's a base there or not." People, that means they have a certificate of eligibility, a COE. They may have never used it before. They could be sitting in their house in Hartford, Connecticut, where there's no bases anywhere. Maybe there are, maybe I'm wrong.
James Allen:
There's a Navy base.
Joel Epstein:
Whatever it is, there's a Navy base. They could be sitting Topeka, Kansas, wherever it is. Now I'm probably saying places that have bases. But they can be sitting in the middle of nowhere where there's no base and go, "Well, VA, there's no VA loans here." Wrong. Of course, there are plenty of people here that are eligible for a VA loan. So I want you to really listen to this because there are people in your CRM, there are people you know, there are people you know that don't even know they could be using a VA loan.
Joel Epstein:
So James, you see how fast the time goes and I want to give these people good stuff. Let's start in one category. You want to start with loan officers first, or you want to start with agents? I know it's going to weave in.
James Allen:
This is your show, Joel, I work for you.
Joel Epstein:
I know, but what do you think? Let's start with real estate agents. What do you think are the top three or four or two, it doesn't matter, things that you just see agents get wrong, or that they just don't know and because they don't know, they're not helping veterans or they're not using the programs.
James Allen:
Yeah. So, whether I'm in front of a room full of veterans or a room full of realtors, or a room full of loan officers for that matter, we're pretty much all talking about the same thing. VA myths, right? VA myth-busting. And I'm affiliated with a group called Mortgage Military Bootcamp. So if there's loan officers who want to get training on VA, recommend you go through their course, it's like 250 bucks, it'd be the best investment that you ever make. To the comment of being an expert, I think I would say I'm a specialist, not an expert.
Joel Epstein:
Okay.
James Allen:
I think anybody who says they're an expert in the VA home loan clearly has never originated one, doesn't live in the 26-7. It's hard to be an expert in something that is so broad, but you can be a specialist, so you can trail down to really know how to serve people well. But there's a bunch of common myths that are prevalent everywhere.
Joel Epstein:
Start with agents. I'm an agent. And I got just got three contracts on my listing and one conventional, one FHA, one VA. Most agents, if you're watching this, take the VA and go like this. "No way. It's 100% financing, the appraisal is going to come in low. I'm going to have to fix the downspout and a rail on the deck, not doing it. We're not even looking at this one. Let's look at these two." How close am I on that one?
James Allen:
You're pretty much [inaudible 00:10:56]. I had a conversation with a list agent three days ago, which by the way, we won the deal. Multiple offers, but our veteran won. Thank you. Same exact thing. She called, no skin in the game. "Why would your borrower want to put 0% down? Who are these people?" All that kind of stuff. There is a way to present an offer that a seller will accept. And so if you know how to do that, it'll make you different than the other agents.
James Allen:
So to agents out there, you don't have to be affiliated with a program where you give some kind of special incentive or rebate. I see a lot of people doing rebates and other stuff where you can get veterans You can do that if you want to, I think it's a good service to vets, but you could serve them best by actually being knowledgeable about representing the type of product that they're looking to do and that they've earned through serving their country.
Joel Epstein:
So, if I'm a listing agent, what's the myth there that I'm scared? Listen, years ago, okay, I'm going to show my age here. I'm 31 by the way. Years ago, when you ordered a VA, you did a VA loan, you ordered a VA appraisal. I mean, it was game on. You could literally be getting a 92 year old appraiser that could drive 46 miles to appraise the property and literally come in $30,000 low on a $140,000 house.
James Allen:
Yeah.
Joel Epstein:
And then by the way, when you went to appeal it, they went into a poof of smoke. You would literally have to drive to VA in Roanoke, Virginia and beg.
James Allen:
So let's take these one at a time.
Joel Epstein:
It's not like that anymore.
James Allen:
It's the opposite.
Joel Epstein:
There you go. It's the opposite. Which is, people that have been selling real estate for a while are like, "Yeah, that guy's full of it." Meaning why is it the opposite? Tell me why I should be looking hard at that contract, if I'm a listing agent, I'm multiple offers.
James Allen:
There's multiple myths. Let's just take them one at a time.
Joel Epstein:
Yep, go ahead. Go.
James Allen:
So let's talk about the appraisal first. You and Brian talked about this and he touched on Tidewater. Do you remember that conversation?
Joel Epstein:
Yes.
James Allen:
So Tidewater is an interesting thing. If you're a real estate agent right now and you're representing a listing, or if you're representing a buyer and you have an appraisal come in low, it is possible that an appraisal will come in low on any property.
Joel Epstein:
Of course.
James Allen:
So if it comes in low on conventional, what's your recourse?
Joel Epstein:
I mean today?
James Allen:
Nothing. I mean, unless you can truly-
Joel Epstein:
Negotiate the difference.
James Allen:
If you can flaw it in actuality, maybe you can get it thrown out. But that's one in a hundred, and I know that because we do lots of transactions. FHA, same thing, no recourse. VA, you get two chances to rebut value. As a list agent. How crazy is that? Now think about this. So here's how the process works. If an appraisal comes in and it's low, the appraiser has to by law, according to the 26-7, actually notify all parties. "Hey, I'm going to come in low. I've not written the appraisal yet, but I'm going to come in low and I'm initiating Tidewater." Click the hang up the phone.
James Allen:
Here's the problem; most agents out there, and this is not an insult against them, they don't know because no loan professional has told them and it's really up to the LOs to share this with their partners, right? No loan professional has told them, when the appraiser calls you and says, "I'm going to come in low." They're not just telling you to think, "Oh shoot, now I have to renegotiate." They're actually informing you that you have 72 hours to give us three actual rebuttal comps.
Joel Epstein:
Okay, so let's hold on a minute. So first of all, you said some things real fast, Tidewater. Explain that.
James Allen:
So Tidewater is just the name of it. It basically means the appraiser's telling you, "Hey, I'm coming in low, I need Tidewater to make the water level come up to where you guys are at on the contract." That's the phrase that it's actually written in.
Joel Epstein:
Okay. So, on a VA transaction, the appraiser goes out, looks at the property, it's a contract for $200,000. The appraiser knows I'm coming in at 191, 192. Let's make it a little closer. I'm coming in at 192, the appraiser has to by law notify the listing agent?
James Allen:
IRS agent, listing agent, and oftentimes a loan officer will hear through that.
Joel Epstein:
Okay. But the buyer's agent and the listing agent, "Hey, I'm coming in low." Do they actually say the value, or they just say I'm coming in low?
James Allen:
They will not tell you the value, and they haven't written an appraisal yet. They actually haven't decided a value. They're just letting you know, "I'm coming in low. I need Tidewater."
Joel Epstein:
Okay. So they're going to call that agent and literally say, "Hey, I'm coming in low." This is old school, by the way, this is the way we used to do it forever ago.
James Allen:
I'm initiating Tidewater.
Joel Epstein:
They'd call us and go, "Hey, I'm coming in low. Get me comps." So that happens. That's happening.
James Allen:
Only on VA appraisals.
Joel Epstein:
Only on VA. Okay. So that's number one. So, that's giving them a chance, if the appraiser is missing something, get it to them.
James Allen:
Yeah, exactly.
Joel Epstein:
Okay. All right. Keep going. So that's number one. Oh my God, 100% financing. They must not have any money. They're probably a weak buyer. They need my seller to pay all this money and they're asking for all these fees and blah, blah, blah. Talk about that for a second.
James Allen:
Well, before we move on from appraisal, let's say Tidewater doesn't work and you don't get your value, you actually can do a reconsideration of value with the SAR, the staff appraisal reviewer, who has the same authority on their collar as the actual appraiser at the lender to overturn that. And I've seen times where you're 10K short and the buyer and the seller will write a letter to the SAR saying, "Hey, we're willing to split the difference if you'll raise the value 5K and the SAR will overturn the appraised value.
James Allen:
So as a list agent by agent, you don't just get Tidewater, you have Tidewater, and if you're amicable on reaching a middle ground, you can actually split the difference on the overage.
Joel Epstein:
I'm going to go with very few loan officers know that.
James Allen:
Almost none.
Joel Epstein:
Very, very few and probably very few agents. Okay, good. That's awesome. Okay. Keep going. All right. What other myths? Why as a listing agent, go through the myths.
James Allen:
Yeah, so 0% down equals a weaker buyer, right? That's the most common one. "I'm putting 0% down. This guy is a loser. He's gotten no skin in the game." Let's talk about the profile of who veteran buyers are. First of all, you touched on this, the military and the government's the number one employer in the United States. Veteran buying power, $181 trillion annually buying power. Will they do that? Of course, we're not going to do that many transactions, but that's how much power there is in that market. By specializing in that, you can tap into it. Connecticut's a relatively small state. We got the Navy base, we've got a couple national guard bases around, whatever. There's 250,000 veterans that are eligible for transactions in our state right now. We're tiny, right? We're not big.
Joel Epstein:
That's not Texas.
James Allen:
Yeah, we're not Texas. We're not Mississippi. We're not Florida. We're a very small, relatively similar to middle America. And the reason for that is simple, vets go out and then what do they do? They come home. So this idea that you have to be near a base is just ridiculous. Throw that out. But the prevalent myth is 0% down equals weaker buyer. If you know the actual statistics on who the VA buyers are, you'll be shocked to find out that they look exactly like conventional buyers, right? So let's talk about that. I have the stats here. I wrote them down because I present this from notes. I don't memorize everything. But the average FICO store, and this is right from the 2018 fiscal report from the VA, by the way, I'm not making this stuff up. You can find it and look it up yourself. Fact check me. Go for it. Average FICO of zero down buyer; 718 last year. You know what the average FICO score for FHA was?
Joel Epstein:
651.
James Allen:
680.
Joel Epstein:
Okay, 680, all right.
James Allen:
Which is up a little bit from prior years.
Joel Epstein:
Yeah, okay.
James Allen:
But still, so we're nearly 40 points better. Household income of veteran household versus its comparable civilian household income. What do you think the difference is in the two?
Joel Epstein:
Somebody with a COE, somebody that has a COE versus what? Is it conventional versus VA?
James Allen:
Just civilian counterpart. Two engineers, one of them was a military vet and the other one wasn't. What's the difference in income household, nationally?
Joel Epstein:
I would say that the veteran one is probably 12 to 13% higher.
James Allen:
$19,000 on average nationally.
Joel Epstein:
So you have to do whatever the math is.
James Allen:
It's 73K versus 55, and change whatever.
Joel Epstein:
So I'm pretty close.
James Allen:
Yeah, you're pretty close. So, there's those. Now, liquid assets at the time of closing. So this is after everything's paid for, compared to its civilian counterpart, how much liquid assets does the veteran have in the bank at the time of closing once that the whole transaction is funded? By comparison.
Joel Epstein:
To conventional and FHA?
James Allen:
Yeah.
Joel Epstein:
I have no idea.
James Allen:
17K.
Joel Epstein:
Wow.
James Allen:
So, what you've got is a conventional buyer. I mean, look, are there weak VA ... There's weak buyers in every category. So it's true. Could you have a 0% down who's a weak buyer?
Joel Epstein:
Basically what you're saying is, the point you're making and proving is that you have a strong buyer that because they can put 0% down is going to.
James Allen:
They've earned the right to do that. But let's take it a step further, and this is the dialogue I have. So actually this past week it was $450,000 purchase in Connecticut with 0% down. People were relocating-
Joel Epstein:
What's max VA there?
James Allen:
It's the County limits, 44,350. [crosstalk 00:19:33]
Joel Epstein:
Okay, so you're fine. Okay.
James Allen:
They have a VA loan where we're going to restore entitlement. They're selling in Chicago and they're moving out, whatever. So this is a pilot and an attorney moving to Connecticut and I've got a list agent telling me that I have unqualified borrowers with zero skin in the game and our dialogue. And I just said, "Hey, could we just take five minutes and I'd just like to share a few things with you." Let's just do basic math. If I'm buying a $450,000 house and I put 50K down on it, okay, right? And I buy a VA loan and I put zero down. I've got a 350 loan versus a $400,000 loan. In column A on the conventional side, I'm going to save about 200 bucks a month in monthly payment, principal and interest. It's true, but I'm going to pay mortgage insurance at 131. So my net savings is about 66 bucks a month. Okay? So I'm saving $66 to go with conventional. Maybe I'd want to do that, perhaps. Over a 10 year period, 800 bucks a year, over 10 years it's $8000, and $8000 to the better to go conventional.
James Allen:
If I leave my 50K in my brokerage account at an average rate of return of 7%, my 50K turns into 50K over 10 years. This is not a conversation about whether somebody is qualified or not. It's basic math on net wealth. The only dialogue that really matters for ... A mortgage is a financial instrument that should increase your net wealth. The decision that you make should be based on which one creates the highest net worth over the term expected. Conventional buyers have a lower net worth than VA, if all things are considered equally. To the tune, in this case, even if you reinvested your 66 bucks a month at the same rate of return, you'd be 30 grand to the better over a 10 year period, just because you did zero down.
James Allen:
Now the point I make with all of the real estate agents I talk with is really simple. I told this person I had permission to do it, the client said. I said, "Hey, I got a pilot who's 10 years in and I have an attorney who works for the United States. These people were very well qualified. They have enough in liquid assets, if they wanted to buy this house with a lot of money down, they certainly could. But we've made a decision that financially it was better for them to leave their money invested with their advisor." If you take this offer, and here's the money line, right? And I actually learned this from John Hodgkin's, my partner. This is true, and if you're a good loan officer and you do your job, you can say it this way. "Correct me if I'm wrong, this house will appraise, right?" "Oh absolutely, it's going to appraise great." If that appraisal comes in clear and the title report comes in clear, it's loan closed. And that's the money line.
James Allen:
I mean as a loan officer, you want to get out there and let people know that you've really done your due diligence. But my point is you're presenting a veteran. Yes, it's zero down. They're not weaker. They're in many cases as strong or stronger. We got a pilot and an attorney.
Joel Epstein:
So just to bring it all in for agents watching this, loan officers, by the way, you just got a ton ... Sorry Oscar. I just banged that. Loan officers, you just got a ton of information on actually how to talk to an agent, but agents, I think the point was just proven right there that there's tough borrowers everywhere.
James Allen:
Totally.
Joel Epstein:
It doesn't matter whether it's VA, or FHA, or conventional. And to automatically throw the tough borrower sticker on someone because they're using VA financing, or because they're using 100% financing is a really, really bad play. I'm looking at the clock, James, I want to go. Is there another agent myth you want to hit, or you want to go right to-
James Allen:
Big time.
Joel Epstein:
Okay, so let's hit that and then I want to go over to the loan officer stuff. Meaning putting loans together.
James Allen:
Same dialogue with the agent last week, right?
Joel Epstein:
Okay.
James Allen:
She says, "Well, in your offer, we've got to pay for the pest inspection." And I'll bet you 95% of people watching this statement will think that this is not true. And they'll think this guy doesn't know what he's talking about. If you asked anybody, and I've done this in rooms with a hundred realtors, 200 realtors, and I've done it in rooms of loan officers, who has to pay for the pest inspection on VA financing? 99.9% of people will tell you that the seller has to pay for it. And there's a big misunderstanding. The reason for that is simple. That fee is listed in the 26-7 on a list of fees called unallowable fees. So you would think that the fees on that list would be unallowable.
Joel Epstein:
Sorry, unallowable for the veteran to pay in the transaction. I just want to clarify that.
James Allen:
Cool. So there's a circular that came out in 2014, loan officers you can look this up, circulars are updates to the 26-7, so it's changes to underwriting guidelines. It's circular 26-14-10, for reference to anyone who wants to look it up. And its whole purpose-
Joel Epstein:
He's a little nerdy on that. But yeah, go ahead. Keep going.
James Allen:
It's purpose is to bring clarity to this dialogue about unallowable fees. So it used to be that lenders would charge a flat 1% origination fee. So if you bought a $400,000 house, charge you four grand-
Joel Epstein:
Let me tell you, in the olden days we had a fee called document preparation and the veteran could not pay that fee.
James Allen:
It's unallowable.
Joel Epstein:
That fee either had to be waived or the seller always had to pay it. So that was a stopper for listing agents not taking the contract because they had to pay the $350 doc prep fee.
James Allen:
And they hate that, right?
Joel Epstein:
Yeah.
James Allen:
Now it's just pest that's primarily prevalent, but let's break this down. It used to be if they charged a flat 1% then you couldn't charge anything on an allowable. In other words, your costs of doing business should be covered with this 1% charge. So all this other stuff should be covered, right? That was the theory. The problem is as time went on, loan origination-
Joel Epstein:
Nobody paid the 1%.
James Allen:
Nobody charges 1%.
Joel Epstein:
Which meant anything below the 1% is allowable.
James Allen:
Anything on the unallowable list is allowable, so long as the aggregate total of costs on the loan don't exceed 1%.
Joel Epstein:
Okay. So I'm going to break that down. This guy over here talks very fast. So I got there very quickly though, where you went.
James Allen:
Because you're a loan guy.
Joel Epstein:
So, the theory of where this comes from is the VA saying, "Yo, you're already paying a 1% origination fee. You shouldn't, and we don't want you to pay anything else. You're a veteran. You shouldn't be. Anything else is egregious or high or whatever. Therefore, if there are ancillary fees charged by the lender, that's cool. You may not pay them, the seller has to pay them or in many cases the lender has to waive them."
James Allen:
We don't care who pays it, as long as it's not you.
Joel Epstein:
Or the lender has to waive it.
James Allen:
Or the realtor.
Joel Epstein:
Or the two. Is it 1% of the loan amount? Is that how you do the numbers? Okay, so what James Allen from the great state of Connecticut at Guaranteed Rate is saying is that if you have a $400,000 loan amount and there is no origination fee, which let's face it, most people-
James Allen:
I don't charge one for vets, by the way.
Joel Epstein:
No, no, no. Either way, most people don't. I mean it's just not there anymore. The math doesn't even work to pay the fee. You have a $4000 slush fund that is allowable for fees for the veteran to pay themselves. Correct?
James Allen:
Correct.
Joel Epstein:
Which means as an agent, you don't need to be scared that your seller's going to be stuck with a bunch of ancillary fees because in this case, or the case with the veteran, where there is no origination fee being charged, the veteran, the buyer can pay all those fees. Is that correct?
James Allen:
Exactly correct.
Joel Epstein:
Which ... there's probably some head shaking right now.
James Allen:
You can't do that.
Joel Epstein:
Yeah, exactly. And I'll let you, because I'm looking at the clock, because we're 26 minutes and I want to be careful. But I'm going to let you just digest that and I'm going to tell you how to get ahold of James and if you have a question, or if your company's not allowing it or different things, James will be glad ... People can contact you, right?
James Allen:
Sure.
Joel Epstein:
All right, so let's go, let's hop. So we keep the brain-
James Allen:
You just crossed it out of the Contra. Here's the tip actually, let's do this. The realtors will appreciate this. Here's how to get around it, if your lender's underwriter is a dummy and just can't figure out how to make this work. And actually, this is what you should do really. If you're working with a veteran buyer, go ahead and align yourself with a veteran inspector and tell the guy to just include it in his normal fee and itemize it as zero on the invoice. Pest zero, right? Then when you submit your offer, cross out in the contract, and Connecticut and greater Hartford says that the seller has to buy it in the actual contract. Literally-
Joel Epstein:
Many, many contract, many VA addendums have that in it.
James Allen:
Literally cross it out, have the veteran initial next to it, and then it doesn't matter who pays for it because it's zero itemized on the invoice, so you've got around it anyway. I'm not advocating that veterans pay for this. No, I'm just trying to help you understand how to present an offer.
Joel Epstein:
No, no, but this is a fee that has to be paid by someone. It's a fee for service that needs to happen and yeah, no, we're not advocating a veteran pays for it. It's not like some rip off junk fee. It's a real fee, but the reality of it is, is if you're a listing agent, you're negotiating a contract, the moral of the story is the veteran can pay it.
James Allen:
Exactly.
Joel Epstein:
Your seller doesn't have to pay it. Okay. That's pretty awesome. Okay, so let's go to loan officers. What are the big things that you just see loan officers just not understanding, just not getting?
James Allen:
Of the recovery deals I get for veterans, which is a dozen a year, in every case they could have fixed their problem if they understood the VA concession role.
Joel Epstein:
Meaning the seller concession?
James Allen:
Yes.
Joel Epstein:
Okay. What about qualifying? What about when you talk about certificate of eligibility with someone that's used part of it? I mean, many loan officers are completely clueless about that. Correct? I mean, does that that fall under sort of myth-busting? For loan officers that are watching this, they're saying, "You know what? This is dumb." Listen, loan officers, whether you're experienced or not experienced, I can tell you right now and I'll give you the easy one right now. If you've ever done a loan for a police officer or a fireman and you did a good job, then you experienced what I call the veteran effect. And what that means is, is that is very clubby and everything is based on trust, and you do a loan for one police officer, and I'll never forget, I did my first one and I did 37 more in about two year period. All from the same barracks and everyone just marched right in with all their documents. There was no questions. "Hey, you took care of my boy over here. I know you're going to take care of me." And that's a VA thing.
Joel Epstein:
So, there's loan officers that are watching this going, "Yeah man. I want to do that, but I don't even know how. What do I do? What do I say? How do I ..." Because when you talk to a veteran, even someone that's active, I mean, a veteran you need to even know what the term DD 214 is, right? They still call it that right? Yeah. But, do you even know how to read a pay stop? Do you even know how to read, for an active duty person, do you even know how to read it? Do you know what BAQ is? Do you know what BAS is? BHA? I mean, I'm assuming they still have all this stuff.
James Allen:
They do.
Joel Epstein:
Do you even know what that is? Where do you, as a loan officer, if you want to do veteran loans, if you want to do financing for vets, and you want to help your agent partners crack into that, let's, with the time we have left, I think that's super valuable. What would you say there? How would you coach? Start with the loan officer, and then teaching them how to coach the agents.
James Allen:
Very simple. So here's how I ... Because most people I talked to have talked to one of the big box shops that you guys know who I'm referring to, a big veteran branded headset guy in Wisconsin that they're talking to, or wherever. So they've talked to these people and then they're on the phone with me and they're like, "Oh, I've already talked to this X, Y, Z lender." If you're having a different dialogue with them than the other lender had, you're automatically different. Here's the dialogue, very simple; you can win with all your vets by explaining how they can obtain their COE and actually knowing it. Actually know how to do it. And it's actually-
Joel Epstein:
So, by the way, COE is certificate of eligibility. So I want you to go ahead and explain what that is. So tell everyone what is a certificate of eligibility, literally what is it?
James Allen:
A certificate of eligibility is quite possibly the most important document in a VA home loan, because it's the source document from the VA that actually verifies for the lender that this person has entitlement with which they can guarantee a VA home loan.
Joel Epstein:
Okay, so your certificate of eligibility, and this is every branch of the military and the U.S. public health service. What else? Anybody else have that besides that? Is there anyone else sneaky out there that has it?
James Allen:
No.
Joel Epstein:
Every branch of the military and U.S. public health service.
James Allen:
Never done a loan for any of those guys.
Joel Epstein:
Guess what? No, but I'm a D.C. guy and I've done lots of loans here and I've done tons of them, because they're here. But there are also branches of it all over the country, and I just want to make sure you knew watching this that those people have certificates of eligibility, they can use VA home loan financing. So, what they do is they have this literally piece of paper, and it says, "You're eligible to borrow." Why don't you explain literally what that is? What is it? Because you just said, when you're talking to them, teaching them how to get it will close the gap at 100 miles an hour, but let's talk about what it is.
James Allen:
Yeah. So the document lists how much entitlement you have. Entitlement is the phrase used by the VA that basically verifies how much loan limit you've got available to you.
Joel Epstein:
So take Connecticut, take the loan limit, and work right there. What's the max VA where you are?
James Allen:
Well, until January 1st, 484,350 is the max for which you could put zero down. There is no max VA loan limit.
Joel Epstein:
Right.
James Allen:
I mean, if the lender allowed it, in theory you could go up to $5 million on a VA loan. Most lenders have an overlay at 1.2, 1.3 million.
Joel Epstein:
No place to put them, that's exactly right.
James Allen:
Right.
Joel Epstein:
So, you said something interesting, which I never really thought about before. So, getting your certificate of eligibility, how does a veteran normally get it? So, pretend they're not active duty, they're discharged. What happens? Do they just get a piece of mail? Does it just show up in the mail?
James Allen:
Yeah. This is a great question. So, one of the things I do in Connecticut are these things called yellow ribbon ceremonies with the National Guard. Yellow ribbon ceremonies are once a month we're down there, we're teaching these guys, and I teach this VA myth busting class to this room of veterans. It's maybe the best thing I do all month. I love these people, salt of the earth, and they don't know. Literally, nobody's teaching these people how to obtain ... They know they can get a loan, but they don't really understand anything else.
Joel Epstein:
Because you need your piece of paper for the lender to get the loan.
James Allen:
Right.
Joel Epstein:
So that's why.
James Allen:
Yeah. These guys are coming back from active duty and they're going through this ceremony, and it's all about ... The whole ceremony, in fact any lender who can get into a yellow ribbon around the country, go do that. It'll be the most fruitful thing you ever do, because that whole ceremony is about teaching vets about the benefits available to them, and no one knows how to obtain their VA home loan.
Joel Epstein:
Okay, so go back. So tell me, you get discharged, and you've been in the army for 10 years and you're honorably discharged, and you go about your business. Do you just get a piece of mail one day and it's there?
James Allen:
No.
Joel Epstein:
Okay. So, you don't really know to look for it until you-
James Allen:
Are asked for it.
Joel Epstein:
Want to buy a house and someone says, "Oh, you're a VA? Oh, you can do that." And then they're like, "We need your certificate of eligibility." And the guy goes, "What?" Is that typically what happens?
James Allen:
Exactly. Totally. So, if a lender's pre approving a borrower without a COE, it's predatory lending, in my opinion. It's borderline predatory. But here's what happens; you get discharged, the military gives you a document called a DD 214.
Joel Epstein:
Which is what I referenced a little bit ago, yeah.
James Allen:
DD 214 is just a history of service, says what you did, what you didn't do. It used to be that you had to get the DD 214, mail it off to the VA, pray to the rain gods that it would come back in a reasonable amount of time, and there's a process for that. It's way easier now, and so as lenders-
Joel Epstein:
So you need your DD 214 to get your certificate of eligibility, unless you're active duty.
James Allen:
Not anymore.
Joel Epstein:
All right, so let's go. So, I just got discharged last month, now I work at IBM, whatever, and I go to buy a house and my uncle said, "Oh man, you were in the army for 10 years, you should use VA, check it out." And how to I get my certificate of eligibility?
James Allen:
Simple. Then this is what I tell every veteran borrower, and this is what sets me apart to win their deal, because no one else did this. "Hey, I'm going to explain to you how to get your COE. It's really simple. Just visit the ebenefits.va.gov website. You can literally navigate to your home loan certificate of eligibility in the menu, and you can click to download it. And by the way, that's the source document." Now, in some cases-
Joel Epstein:
How long has that been available?
James Allen:
I don't know, couple of years.
Joel Epstein:
Okay, all right. So it's fairly new, okay.
James Allen:
In some cases it won't populate, and so there's further instruction. I say, "Hey, if it doesn't show up immediately, you'll see a button to apply for it, which you can click. Now, that process takes about two weeks to come through, but if you call the RLC in Ohio ..." which, Connecticut, the regional loan center that covers us is in Ohio, the RLC. I say, "If you call the RLC and you ask them, they'll expedite that for you in 48 hours." So a veteran can get their COE in instant timeframe.
Joel Epstein:
So, loan officers and real estate agents, this is a big differentiator, and it's proving that you know what you're talking about.
James Allen:
Totally.
Joel Epstein:
And with veterans, just like police officers and firemen, they want to be very comfortable that you know what you're talking about. So you're coming right out of the gate with the most important document they need, that granted, can be a big pain to get. I don't want to age myself, but I've sat down here Bethesda Naval before, I've sat at the VA in D.C. Juanita Gillingham, if you're watching this and you're still around, the person that used to run VA, I've sat down there with a clipboard and once of those old massive phones racking up dollar a minute phone calls waiting to get one of those things, because it took months to get it.
Joel Epstein:
Now you're telling me, you're sending them right, tell me where they're going. What's it called again?
James Allen:
Ebenefits.va.gov.
Joel Epstein:
Ebenefits.va.gov, and they can literally navigate their way to their COE and be off to the races in most cases on the spot.
James Allen:
Instant. Some guys get it while I'm on the phone with them, before I'm done pre qualifying initial call, they're like, "Hey, I just got it, thanks so much. Where do I send this?"
Joel Epstein:
Okay now, now they have it, tell me about, talk to loan officers, go more granular. What if they did use it? What if they did by a house when they were stationed in Virginia Beach, and bought a house and kept the house?
James Allen:
Yeah, it's another VA myth. Perfect.
Joel Epstein:
With the old VA loan on it, with the initial VA loan, was never refinanced, not that that matters, it was never refinanced. We can talk about that in a second. It was never refinanced, and there's a $100,000 loan on a property that they paid 130 for and borrowed 130, but now there's a $100,000 loan in Virginia Beach, and now they're buying a house in Hartford, Connecticut.
James Allen:
They got PCS orders to come to Hartford, and they're whatever.
Joel Epstein:
Whatever, yeah.
James Allen:
Yeah, so this is another common myth that comes up in the real estate market. It's a veteran can only have one VA loan, or one VA loan at a time, or one VA loan in a life. None of those are true. You can have multiple VA loans. In fact, you can refinance VA investment properties through the Earl program as of this year, which is great. The very first veteran deal that I did, quite literally, he's one of my best clients now, I've done five loans for this guy now. He's got a couple of conventional investment properties, whatever. He owned a property and his family grew, and he moved across town. This myth comes from this idea that you can only have one FHA loan, which that's not true either, by the way. You can have two FHA loans under certain circumstance. The VA doesn't really care, so long as you meet the occupancy requirement within reasonability.
James Allen:
So in your example, guy lives in Virginia Beach, he's got a $131,000 original loan, now it's 100 grand, he's moving to Connecticut. The bottom line, just to simplify this without exhausting everybody, in Connecticut the conforming limit's 484, he's got $131,000 of entitlement tied up. It doesn't follow loan limit, follows original loan size. So we'll call it 130, so he's got roughly $354,000 worth of purchase power in Connecticut at 0% down. But wait, he can buy a $500,000 property, he just has to put 12 cents on the dollar for every dollar above 384, 350 on that second purchase.
James Allen:
So you can have multiple VA loans. It has to make sense. You can't buy a VA house, and then but the house next door that's the same size. The spirit of the entitlement is that you're not using the program to build up an investment portfolio. I had a guy who closed a second VA home loan in the same town across town. The house was relatively similar size, had one extra bedroom, his family did grow, so that was true. But the letter he wrote to the VA was, "Look, I grew up and went to this elementary school. I want my kids to go to this school. The yard is bigger. Blah, blah, blah, this is better for my family." And the VA allowed it. So he got a second zero down, he's got two $200,000 houses in the same town, and he's above board on it, it's legit.
Joel Epstein:
All right, so what else? Give me a couple, because we're already literally out of time. Give me the thing that's massive, that you just see people getting wrong all the time.
James Allen:
Yeah, so there's two things. The concession rule that we blew past for loan officers is a game changer, and here's why. Ask a loan officer, Joel tell me, you might know the answer to this, what's the maximum allowable concession on a VA loan?
Joel Epstein:
I don't know.
James Allen:
90% of loan officers say 4%.
Joel Epstein:
Oh, oh, oh, the old school. Yeah, it was four. I mean, it was. No, no, but no, no, it's not four. It's four and then plus customary.
James Allen:
Okay, so you kind of get it, but most people don't.
Joel Epstein:
Yeah.
James Allen:
I alluded to this before as a loan officer, if you get a chance to get a VA turn down, you can totally turn it around and here's how; I had a guy, perfect example, he got turned down because there was a tax lien that came up at the 11th hour, so the whole thing fell apart. It was 1200 bucks. $1200 tax lien and he didn't have the money for it.
Joel Epstein:
Seller could have paid it within the four.
James Allen:
Well, he could have. So, there is no such thing as a 4% max. It's 100% of closing costs, plus up to 4% for prepaid items, and here's the kicker that'll crush everybody; debts. Consumer debt. So, you can literally pay off the guy's car loan, tax lien.
Joel Epstein:
I did know that, yeah.
James Allen:
Yeah, and anyone who's done a bunch of VA loans would come across that at some point, but the point is; you get a VA turn down somewhere, you can relook at it and say, "Okay, it didn't work. Was it DTI?" There's no DTI limit in VA financing, you can go up to an 85 and still get the loan closed if residuals go.
Joel Epstein:
Well, if you have residual, but we do not even have time to go there, but yeah.
James Allen:
You could pay off this guy's debt in order to qualify him for what was otherwise an unqualifiable. So, that's one. And then the bigger-
Joel Epstein:
Just real quick, because you went over that really fast, and James talks really fast.
James Allen:
I apologize to everybody.
Joel Epstein:
No, this is great. It's a podcast, they can stop and start and watch it as long as they want. But he's really getting into expert land, as far as structuring and being able to save something. There are a lot of houses where listen, the seller really wants to sell the house, and the buyer really wants to buy the house, and the buyer might have a stopper, an issue, a lien, a tax lien or whatever, and what James said very, I just want to be clear about it, is what the rule says is; all closing costs plus 4%. So it's not 4% total. It's all closing costs plus 4%. What's the other one, because we're right at it. We're up at the time right now.
James Allen:
Let me give you the four steps that I would tell a realtor on how to present an offer at a high level. That cool?
Joel Epstein:
Okay, so these are the steps for a buyer's agent to present a veteran, a VA financing offer, to the seller's agent or to the listing agent. Okay, you on the mic?
James Allen:
Yeah.
Joel Epstein:
Okay, all right. We can do that, that's fine.
James Allen:
Is that cool?
Joel Epstein:
Yeah, we could do, there's lots of stuff.
James Allen:
We could talk about underwriting, anything you want.
Joel Epstein:
No, no, we're hitting a wall right now. All right, so that's good. And this is great for loan officers because they can teach their agent partners then.
James Allen:
This is what they should do.
Joel Epstein:
Okay, go.
James Allen:
Yeah. Number one; have your veteran write a letter that talks about what their service to their country has meant and what home ownership means. It means something different for a veteran than other home buyers.
Joel Epstein:
So add the letter, the letter goes along with the offer.
James Allen:
Correct.
Joel Epstein:
Okay. From the buyer, or from the potential buyer, and it's literally to the seller.
James Allen:
That's right.
Joel Epstein:
Okay.
James Allen:
"Hey, I've been traveling with the military in Afghanistan for eight years. Putting down roots for my family is the most important thing I'm going to do for the next 25. Your home is the one I want to do it in. Will you accept my offer?"
Joel Epstein:
That's pretty awesome. Keep going, that's number one.
James Allen:
Number two; your loan officer absolutely must call the list agent on every single VA offer and explain that they have not only done their job of income assets and all that, but they have a certificate of eligibility and have verified.
Joel Epstein:
Okay, so number one; letter to the seller from the borrower, potential borrower. Number two; lender, loan officer literally tells the listing agent, "We have their certificate of eligibility."
James Allen:
Meaning verified entitlement.
Joel Epstein:
They can get a loan. They can get a VA loan. What's number three, because I'm watching the clock.
James Allen:
Number three, what I would say is cross out the pest inspection in the report, align yourself with an inspector who will itemize it as zero, whether he's doing it for free or including it in his other fee, doesn't matter.
Joel Epstein:
Okay, so remove the objection of we got to pay extra crap. Number four.
James Allen:
You'll notice on our offer we crossed out pest, our camp's going to take care of that. Don't worry about it.
Joel Epstein:
Number four.
James Allen:
Number four, last but not least; put a large deposit down, they're going to get it back. "Hey, you think we have no skin in the game? No, we've got 10 grand in the game."
Joel Epstein:
Okay, so that's another good one. So, take your earnest money game up, even a little higher than it normally would be to show, to overcome the objection of the 100% financing. So, those are all really good ones, but I'm just going to tell you that the first one was the best one, because people are ... You heard me, you were in the booth when I was doing the last podcast about how emotional people get over their houses. There are lots of sellers that if you put them all in a room, I bet eight out of ten are all about knowing who's going to buy their house, and who's going to be living in it. It's like, "Who's going to be driving my car? Who's the next person that's going to take this house?" And you know what? All things equal, I'm taking the veteran all day. If someone writes me a letter like that, I'm taking the deal. It's the same deal as ... Please. All day. Wow, this person's really going to love my house.
Joel Epstein:
All right, we're at the wall. I didn't even get the hook from the booth.
James Allen:
Sorry guys.
Joel Epstein:
That's all right. He talks fast, I tried to slow him down. Yeah, we could do this for eight hours. I'll probably have James back on. Thank you so much for watching another edition of the big JOEL show. Again, you can consume this podcast anywhere you want. It's on every major platform, audio and video, hopefully you'll watch the video. We love it when you leave comments. This is one where we should get a lot of comments. James, would it be okay if people reached out to you?
James Allen:
Sure.
Joel Epstein:
How would you like them to find you?
James Allen:
Do I give my phone number? Well, you tell me. What's the right ... This is a national ...
Joel Epstein:
No, I'd start with email. Just give email, what's the best email for you?
James Allen:
Yeah. James.allen, A-L-L-E-N, @rate.com.
Joel Epstein:
James.allen@rate.com. And you are on social media, that I know.
James Allen:
Correct.
Joel Epstein:
And you're on Instagram and Facebook, correct?
James Allen:
Yeah, and LinkedIn.
Joel Epstein:
Okay. And LinkedIn. Yeah, of course, you can find him there if you have questions, because by the way, he's got a notepad here, there's a lot of stuff on it. But the challenge is we run out of time and I don't want you all to stop watching because it's too long. But again, thank you so much. This one is chock full, hopefully you'll watch this one a couple of times. Look forward to seeing you again real soon, love all the comments. Signing off, bye-bye.