RE: Real Estate Podcast

Ben Harang (00:00)
A

hundred percent disabled veteran pays no parish property taxes in the state of Louisiana.

Clint C. Galliano, REALTOR® (00:05)
Okay, so there you go. That's an advertisement for Come and Live in Louisiana.

Ben Harang (00:28)
Hello everybody. Welcome to another episode of the RE Real Estate Podcast. I'm Ben Harang I'm with my cohost Clint Galliano. How you doing today, Clint?

Clint C. Galliano, REALTOR® (00:41)
doing wonderful Ben, how you doing?

Ben Harang (00:43)
I'm doing terrific today. It's always, always a good Wednesday afternoon.

Clint C. Galliano, REALTOR® (00:47)
Yes indeed.

Ben Harang (00:49)
So what are we talking about today?

Clint C. Galliano, REALTOR® (00:51)
Alright, so you've decided to buy a house. Maybe you've been looking on Zillow and you're dreaming of backyards, but do you have your money ready to go? And more importantly, can you prove it? So today we're going to be talking about breakdowns for your very first step, or technically your second step in the buying process. And that's getting your financing straight. We'll cover proof of funds,

what that means for cash buyers. We'll dive into the what and why of a mortgage pre-approval and we'll briefly touch on different loan types, conventional FHA, VA, USDA and who they're for. So why don't you take it away for the cash buyer.

Ben Harang (01:37)
All right, Clinton, it's a show me the money. So you want to make a house, an offer on a house at $400,000 and you tell me you have $400,000 plus in liquid cash. And I believe you, the seller may or may not believe you. So we need to have some verification of funds or proof of funds as it's called that you have access to

however much money you need to make the deal work. those can be anywhere from a bank statement with the account numbers blocked out of used ATM receipts that showed a balance in an account. We don't need a life history, but we're asking a seller to take their $400,000 house off the market, betting that you can close on

So if you can close on it with liquid funds or cash, we need to show that to the seller. Because the last thing we want is to if somebody say, yeah, I can afford the house. And then it's time to move on. And they say, well, wait, I don't have the money. I got to go to the bank and make the loan up. Then I'm going to pay cash. Well, that's not a cash deal. That's a that's a financed deal. So we need to.

Clint C. Galliano, REALTOR® (02:48)
And we've

both run across people that have said they had the cash and didn't really and maybe even provided fraudulent documents and stuff.

Ben Harang (02:58)
Well, they have stuff going around online. not going to name the mega bank, but if you get a proof of funds from them, it's probably suspect. You need to do a little due diligence to make sure it's right. Because with Adobe Acrobat and Photoshop and everything else, a lot of people can make a lot of things look real, not to mention AI, Clint.

So we need it to give the seller the comfort level that you can perform. It can be a bank statement. It can be a letter from a financial institution. It can be a copy of an investment portfolio, ATM receipts. It can be anything that shows you have the liquid asset in the bank or in a financial institution that you have ready access to so you can close the loan.

Even with the cash, it sometimes takes 10 days to move money around digitally. So just keep that in mind if you do have cash. So those are really the easiest deals. They're few and far between, but they can also be problematic if you're not ready. So the first thing you want before we make an offer on the house, you want your documentation in line.

Because a cash deal to a seller is a better deal than the same price with a financed offer. So if you're pay cash, we make it look as sweet as we can. And we have all the documentation to send with the offer.

Clint C. Galliano, REALTOR® (04:26)
All right, move on to the finance buyer. So for probably 80 % or more of us who don't have $400,000 of liquid cash sitting in a checking account, we need a loan. And that brings us to the pre-approval. So the what is we'll talk about pre-qualification versus pre-approval.

Ben Harang (04:52)
Mm-hmm.

Clint C. Galliano, REALTOR® (04:53)
I'm not going to say that we've beat this horse to death because I know we haven't. Prequalification is where you verbally told the loan officer what your income is, what your bank account balances are, and what your bills are, but they didn't check it out. They said, based on that, you're prequalified for this amount. The preapproval is where they actually verify the information. You submit documents.

Ben Harang (05:15)
Mm-hmm.

Clint C. Galliano, REALTOR® (05:21)
you know, W-2s, pay stubs, bank statements, and the lender runs your credit. That's a conditional commitment to lend. It doesn't mean that they're gonna definitely give you a loan, but it says that you're a good candidate for them to make a loan to. The why is that there's three major benefits to getting that pre-approval. One is budget accuracy. So you know what range of properties to start your search in.

Ben Harang (05:37)
Mm-hmm.

Clint C. Galliano, REALTOR® (05:52)
Now, you may be pre-approved for more than what you plan to spend, but it's still better that you're in better shape than if you're looking at $600,000 properties, but you're only pre-approved for $400,000 properties. And getting back to what Ben said on the cash purchase deals, it gives the seller confidence that you've already took steps or taken steps to... ⁓

Ben Harang (06:03)
Mm-hmm.

Clint C. Galliano, REALTOR® (06:18)
start your loan process in that you've gotten that pre-approval and that you're not just somebody with no means or no financial means that wants to tie up their house. And again, the sellers are in the same position. They don't want to take their house off the market for someone who's not going to be able to follow through with the purchase. And then the next step of, go ahead Ben.

Ben Harang (06:31)
Mm-hmm.

Right. And, and it,

well, I just going to say we have a local bank that, ⁓ that doesn't issue pre-qualification or pre-approval letters. They issue loan approval letters. so if you get a, if you get a head start with them, it's a conundrum. it takes longer to get it, but it's gold. If you have a loan approval letter from a local bank.

It says they're going to make you the loan subject to the address, the appraisal and the clear title. That's almost as good as cash. So, but it might take two weeks to get that. So.

Clint C. Galliano, REALTOR® (07:17)
Yeah, definitely.

Yeah,

it's a little bit of prep, you know, and it depends on what you're comfortable with. But it makes things a lot smoother once you do get a house under contract if you've got that on the front end. Because that means you don't have to wait for your loan to be approved. It's already approved and you're just waiting on that appraisal.

Ben Harang (07:26)
Mm-hmm.

Right.

Yes.

Mm-hmm.

Right. And we present that to the listing agent as, as much, much significantly better than a pre-qualification or pre-approval.

Clint C. Galliano, REALTOR® (07:48)
And the big thing about having your pre-approval on hand is that there's an essence of speed to the transaction and that you've already got your pre-approval in hand so you're not sitting there after deciding that this is your home, this is the one you want to buy, and then you have to go through two or three days of getting that pre-approval and some

Lenders work faster than others. Some can get you a pre-approval within a day or less. Others may take two or three days, depending on who you're dealing with. But if you're still having to wait, and in waiting, that seller may go into contract with another buyer. And then you're kind of sitting behind the eight ball and wishing you would have taken care of your business ahead of time.

Ben Harang (08:17)
Mm-hmm.

Mm-hmm.

Clint C. Galliano, REALTOR® (08:41)
so that you would be the one under contract on that house.

Ben Harang (08:45)
A lot of times a buyer needs to lose a house or two or three because they weren't quite ready to really understand they need to be ready to make a move when they find the house.

I've seen that time and time again. We tell them what needs to be done, tell them, and yeah, I'm going do it, I'm going to do it, I'm going do it. They don't do it. We find the house and before we can do anything, the house is gone. Because the buyer didn't do what they were supposed to do on the front end. If all of this is done on the front end, before you go see the house, you're going to be in much better shape and be able to respond quicker to the houses that are on the market.

Clint C. Galliano, REALTOR® (09:00)
It happens.

It just makes everything run smoother. ⁓ So the how is you contact your local lenders. And we prefer local lenders and listing agents also prefer local lenders over your big box internet lenders. We're not going to mention any names, but most of them, their business is advertising on TV and on the internet to try and get you to take out loans with them.

Ben Harang (09:22)
Mm-hmm.

Clint C. Galliano, REALTOR® (09:46)
But when you do, get ready to provide two years of tax returns, couple of months of pay stubs, couple of months of bank statements. And it's gonna vary depending on the type of loan and that type of thing. But have all that stuff together. And like I said, it's a fairly painless process. the turnaround time is usually pretty quick. Like I said, less than a day.

they can usually get you a pre-approval together. they're, again, it goes back to how long it takes you to get the stuff back to them, that's gonna influence how fast you get an answer.

Ben Harang (10:24)
And it depends what time of the day and what day of the week you ask. If you ask at eight o'clock on a Friday night, you're not going to get an immediate response. If you ask at five o'clock on a Sunday afternoon, you probably not going to get a response. And that's why we, we try to get people to do it doing business hours before we start.

Clint C. Galliano, REALTOR® (10:27)
Well, this is true too.

Well, and something else to add to that, that's another big difference that's between your big box national lenders and your local mortgage lenders, is that the majority of your local mortgage lenders, you can contact them on their cell phone over the weekend and they'll jump on it unless they're otherwise indisposed I'd say 80 % of the time, if not more, they'll take care of it within a couple of hours.

Ben Harang (11:09)
Right.

Clint C. Galliano, REALTOR® (11:10)
Whereas

the big box lenders, you're not hearing anything from them until Monday afternoon.

Ben Harang (11:15)
And here's the horror story for a big box lender. It's not because all these people are friends. These are people, local people that had successfully helped clients buy houses. We get to know them, we become friends, but that's not why we have a list of our preferred people that we give to you. We don't know anybody in those big box lenders. And if something goes sideways,

They quit answering the phone. They quit emailing. They quit communicating and we don't even know who we talking to or where they are. And we had had one of them ghost us. Uh, we finally got in touch with them and it was like, what's the deal? Well, the underwriter doesn't like something. This doctor couple had doctor and doctor, so we can't make the loan. I said, well, why you didn't tell us that. So we actually moved it to this local institution that does pre-approvals. We got the appraisal.

moved and we got an $800,000 deal done in two weeks with that local institution. So, um, if you think I'm a recommend a big box lender over that local institution, I'm not because I know who those people are. I can go to their office. I can sit down. We can talk about it. They can't ghost me. Um, so they, they tell us the truth. If we have a problem, we can deal with it. we, you, buyers are much better off dealing with a local lender versus, uh,

the big box people and I've closed plenty with big box lenders. But the problematic ones and they always, the good ones and the easy ones seem to be, have more problems than the ones you expect to have problems. But just deal with somebody local so you can sit down across the desk from them and talk to them. It's really the biggest issue.

Clint C. Galliano, REALTOR® (12:58)
All right, and with that, let's move on to Loan types,

Ben Harang (13:02)
All right. Once we get pre-approved and part of the pre-approval process should be a discussion about the loan types. Again, that's why we do this early rather than eight o'clock on a Friday night. The first one to talk about is a conventional loan. And this is for people that typically have some cash saved for a down payment. Although the minimum down payment can be 3%.

It's more typical to be 20 % to avoid the PMI, a private mortgage insurance on the loan. It's for people with higher credit scores. It's more flexible. It's an easier loan from an appraisal standpoint, from an underwriting standpoint. It actually has an interest rate that's a little bit higher than a government-backed loan. But without the PMI, it's ⁓

The payment principle and interest should be about equal. So that's the first one. The second one is an FHA loan, Federal Housing Administration, and that's a three and a half percent down loan product. It has higher debt to income ratios for more people to qualify. One of the catches is you have mortgage insurance premium, MIP for

the life of the loan. I've been doing this so long. was doing it when an FHA loan was two and a half percent down and you didn't have the MIP for the life of the loan. It was until 11 years or you got below 80 % loan of value. But those have gone away.

Clint C. Galliano, REALTOR® (14:30)
So on

the FHA, if the buyer is putting down more than 10%, once they get to 20 % equity, they can get that MIP drop.

Ben Harang (14:41)
True. Okay. Good, good point. So this is the FHA loan is to help people first time home buyers that haven't had time to save, to save money for a big down payment, uh, to help them get their foot in the door and buy their first house. Um, it's not limited to first time home buyers, but that's a, a loan product that a lot of first time home buyers use. Um, the next one is a USDA loan.

It's a rural loan, rural development loan, if I can say the word rural. It's a 0 % down, zero money down, 100 % loan product. There are income limits. You can price yourself out of that loan by making not too much money, but making more money than the loan product allows. ⁓

Clint C. Galliano, REALTOR® (15:33)
It's also

based on family income. So if you've got people living with you making money, that gets included in the income limit.

Ben Harang (15:41)
Right,

right. Good point. Good point. And then the last one is a VA loan. And this is for, yeah, yeah, this is for active military veterans and eligible surviving spouses to buy the loan. It's probably the most competitive loan. you qualify for a VA loan, there's no reason to get another one.

Clint C. Galliano, REALTOR® (15:48)
favorite.

Ben Harang (16:10)
It'll be cheaper. It'll be, easier. And everybody has the mindset that they're to put a veteran in the house. So it seems like there's a lot more people trying to solve the problems and people trying to throw roadblocks into it, which is what happens sometimes. There's no PMI. so you, you pan strictly principal and interest and, escrow, but no, no.

PMI monthly, which is a big deal. And those are the four loan products. It's not overly complicated, but have the conversation with your lender on which one you qualify for. And if you're a veteran and you do qualify for the VA loan, you need your DD 214, you need some paperwork from your time in the military.

which you may or may not have ready access to. it's a process to get it teed up and ready. But if you can do the VA loan, there's a misconception from the seller standpoint about being more difficult to close than other loans. But in my experience, that has not been the case.

Clint C. Galliano, REALTOR® (17:01)
either a deep

Yeah, so if you have your DD14, that'll be a big help. Either that or your certificate of eligibility. And if you don't have either one, your lender should be able to help you get ahold of either one. ⁓ And again, if you're curious, locally there's also ⁓ benefits for veterans, disabled veterans specifically, with tax benefits on

Ben Harang (17:34)
Mm-hmm.

Clint C. Galliano, REALTOR® (17:49)
property taxes. ⁓ get either additional additional homestead exemption on top of the standard homestead exemption based on the level of disability rating and I think up to ⁓ I'm not sure if it's a suspension of the home ⁓ of your property taxes or at least a freezing of the property taxes.

Ben Harang (18:14)
A

hundred percent disabled veteran pays no parish property taxes in the state of Louisiana.

Clint C. Galliano, REALTOR® (18:20)
Okay, so there you go. That's an advertisement for Come and Live in Louisiana.

Ben Harang (18:28)
And that has nothing to do with the loan product, but there's a... ⁓

Clint C. Galliano, REALTOR® (18:31)
No, but it's a benefit

of being a veteran buying a home

Ben Harang (18:36)
And it, um, depending on the level of disability will dictate the percentage of property taxes that are waived. Um, and it's, it's been a year or two or three since they went to a hundred percent, waving a hundred percent for a hundred percent disability. So it's, you know, Homestead exemption amounts to about $800 a year over a 30 year loan. can add up to $24,000.

but if you can be exempt from any of it based on your disability, you, you need to take advantage of that. And then the escrow's go down and you can afford a lot more house.

Clint C. Galliano, REALTOR® (19:17)
Yeah, and speaking of how much house you can afford, a VA loan can be made for up to slightly over $800,000. So it's not limited by the house price. if you got...

Ben Harang (19:32)
Yeah. And our median home is in

a ⁓ $240,000 range.

Clint C. Galliano, REALTOR® (19:38)
So if you're a veteran and you got questions or you're interested in buying a home or buying and selling, either one, reach ⁓ out.

Ben Harang (19:49)
Absolutely. All right. Give us a little recap,

Clint C. Galliano, REALTOR® (19:54)
All right.

Yeah. So to recap, cash buyers, have your proof of funds letter ready because sellers and listing agents want to know. People buying with loans get pre-approved. Have your pre-approval letter ready and not just pre-qualified. Again, sellers and listing agents want to know. And talk to a lender to see if you

if you're a veteran or active duty or if you fit in a specialized bucket for USDA. So here's a little secret. It's ⁓ called a rural development loan and it's administered by the US Department of Agriculture. But pretty much all of our market, I don't think that there's anywhere in our market that isn't approved for this type of loan. So.

everybody qualifies for this loan as far as where it's at. ⁓ I think New Orleans and Baton Rouge don't qualify or at least majority of the portions of it, but everywhere else in our market does. ⁓ Again, you do have your income limitations. So talk to your lender to see which is the best loan product for you. And I've got a recommendation for you, homework. We started adding homework.

Ben Harang (20:53)
Mm-hmm.

Clint C. Galliano, REALTOR® (21:18)
for you at the end of the episode about a month ago? Yeah, we don't grade it. It's just, you you do it, you do it. It can only benefit you. All right, so if you haven't started a conversation with a lender yet, this is your homework. Give them a holler. If you don't have a lender to talk to, contact us. We've got lenders we can recommend, lenders that are local.

Ben Harang (21:18)
Don't be scared, we don't grade it.

you

Clint C. Galliano, REALTOR® (21:45)
and that if you want to, they'll sit down and have a conversation with you, let you know what you qualify for, what's best for your situation. ⁓ And alluding back to what we talked about earlier with big box lenders, the worst thing you can do is start a pre-approval with the online big box store because it's somebody who you will never see face to face. And all they're worried about is

getting you closed in alone, whether it's the best thing for you or not.

Ben Harang (22:17)
There's also some options depending on what census tract a house might be in. There might be some funds available to offset closing costs and down payment depending on the census tract that the property is located in. So there's some things that you just need to do a deep dive with a lender and that's why we suggest local.

to make sure you put in the right box where you fit the best and the most economical loan you can have.

Clint C. Galliano, REALTOR® (22:48)
Alright, that's another one in the can, Remember to... I think so.

Ben Harang (22:52)
All right. That's a wrap. ⁓ I think that one went well. If you, if, if you get any value

out of it, you can like subscribe, share, and tell your mama and them about it. you know, check it out YouTube, Spotify, any way you get you, your podcast. we should, we should be easy to find and you could go to re real estate podcast.com and there's links to the video version on YouTube and

links to audio versions. So we're about as easy to find as we can make it.

Clint C. Galliano, REALTOR® (23:23)
Tell your mom and them, like, comment, and share RERealEstatePodcast.com.

Ben Harang (23:30)
All right, have a good one Clint.

Clint C. Galliano, REALTOR® (23:32)
Alright, you too, man. Bye bye.

Ben Harang (23:34)
See ya.