All right. Welcome to the Blue Button Broadcast. My name is David Wickert. I am the president and managing owner at Acunet Mortgage, where our company NMLS ID is two five five three six eight equal housing lender. My individual NMLS ID is three two eight eight four seven. Joined today by Tim Holdman, senior loan consultant, and his individual NMLS ID is one five nine three one four six eight. please send us your questions to Loanexpert at Acunet.com. That is Loanexpert at A-C-C-U-N-E-T.com. Tim, here's what I got on the docket today and what I'd like to touch on. I had a client this week write a cash offer because they're pregnant and their parents are going to help them fund the acquisition of the new house and then they're going to sell their current home. Beautiful. So the parents of the bridge loan, basically. Kind of. Well, and that was just it like on the call with my client, you know, they use the word bridge loan, which, you know, as is always the case, it's like, It's just a substitute. It's this catch-all phrase for like, oh my goodness, help me get to the new house because I'm in my old house and the baby's on the way. We talked about this like two or three weeks ago. A bridge loan is more of just a way of describing a scenario than it is a specific product, right? I like that. Because there's a couple different ways to do a bridge loan per se. So in this case, they are doing a zero percent bridge loan called gift from parents. Well, and so here's the thing. So here were my notes. So baby on the way, guess what? They need more space and they want to get out in the suburbs. And it's a tale. It's a story tale as old as time. So they had written on one house before, but they spiked that deal based on a bad inspection. I don't know. I don't know how bad the inspection actually was. Sure. But now, yeah, you know what if they're two months more pregnant now so the timing is like wow we really need to find a place yeah by the way this is a classic like house very oh four very like woody and just needs like paint because every room is like some color of like khaki or sure yeah a lot of beige yeah Thank you. Yes. Beige. So much beige. My wife was an art teacher. Yes. So, but they, you know, and as is always the case, they are looking for this, you know, life chapter. They wanted to get into that new next house because guess what? Mrs. Barber probably doesn't want to bring the baby home to this small starter home in this room that doesn't, you know make you think of movies yeah right when you know baby baby rooms whatever color they might decide to paint it's like they they want the story of their lives right and they want to start that next chapter in their new house because like when you bring home the baby and i can think back to that and i know you can too it's like that's a snapshot that's a core memory right it's like that's a snapshot that you remember forever and they're probably just like yeah, we could bring the baby back to our current, it's going to be old house, but we want to start our new memories on day one in our new home. Right. And it's, you know, nothing makes you get a goal accomplished like a deadline. Right. I mean, it's true for everybody. I know. It's like, Hey, we got a real deadline called a due date that that baby's coming. So we want to get into our new house on or ideally before the deadline so so the other couple just interesting elements in all of this so mrs. borrower this is just what we do we look at all of the details and it's like what what do I use what do we not use or and maybe what we can't use mrs. borrower is in education had started at a new place and was getting paid in like, I don't know if it was like per semester or like contract work and mortgage underwriting wants boring. And that's not boring and stable. Well, and so the note that I wrote was you can be exotic when it comes to income. But if you want to be exotic, you need to have a history of being exotic and a future. Also, you know, the one that I always think of that's the most interesting is like if you sold a business. Yeah. And you were getting paid. from whomever you sold the business to, that's kind of exotic. And so what underwriting says is, hey, show me twelve months of consistent receipt of this, you know, it's probably a note, and then show me three years of that note continuing. Right, that's going to keep on going. For whatever reason, like continuity of income, three years is the magic number for a lot of scenarios. Yes. For some reason, if underwriting's like, yeah, you're going to get it for at least the next three years. We feel okay or comfortable using it as a source of income to qualify for the mortgage. Qualifying income is the big buzzword in underwriting terms. So for Mrs. Borrower, it just kind of was like, Could we have gotten there? Maybe. But I mean, but maybe and I emphasize maybe like fifty fifty. Yeah. If we got to a yes, it's like just like the torture or, you know, the follow up like I need your baptismal certificate and it would be a lot. So the easier path was, hey, you know, Mr. Borrower, we're just going to use your income because there's no victory in torture. There's no if I don't need, as I like to say, mortgage lending is like basketball. You only need to win by one. And if you want to win by eleven, that's fine. But you don't get like more win. It's either win or lose. Yep. It's pass fail. Yeah. So we set Mrs. Borrower's income aside, which, as we always say, it's real. In real life, you're getting it. I have a married couple, very similar scenario where, to your point about exotic income, both of their incomes are not boring. They're a little exotic. The husband is a self-employed consultant. He runs his own business consulting business. But he's been doing it for thirteen years. Oh, and long track record. Really stable. Yeah. Really stable, strong net reported income, which is very important when you're a business owner. Yes. So, yeah, it was a little bit of, you know, more documentation than a pay stub and a W-II. But we got all that. And he's like, oh, you know, I'd like my wife on the mortgage, too. I said, no problem. Does she work? Yes. She's a partner at a law firm. I'm like, awesome. So whenever you hear those words, my next question is like, oh, do you have any ownership interest in this law firm? Which if you're a partner, you probably do. She said, yes, I'm a forty nine percent owner of this law firm. I said, awesome. Congratulations. So she has a base salary and, you know, disbursement income. Yes. Right from the profits of the firm and stable income. We could use it all day. But I said, you know what? the husband's income is more than enough to qualify for this mortgage. They have very minimal debts. So I said, why torture ourselves with getting the wife's income documented? Because it's not just as simple as pay stubs W two is when you're over a requires a lot more documentation from you, including business tax returns, which is sometimes a weird conversation to have with the other partners in the law firm of like, hey, I need these business tax returns, right? Yeah. So I said, hey. Especially if there's no victory. Like, it's all ego. Yeah, exactly. And I explained that to him. I said, listen, you're going to qualify for this mortgage just with your husband's business income. We can keep you, ma'am, on the mortgage. But I'm going to leave your employer blank. on the application on purpose, because I believe in real life that you're getting a lot of good income from this job. That's awesome. But there's no upside to showing more income on the application than what's needed to qualify for the mortgage. And I wouldn't say there's downside, but it's just more work. And they're busy people. They're literally both business owners. They got young kids. They got a lot going on. I was like, I don't want to have to bug you for more than is what is absolutely necessary. to qualify for the mortgage. And they totally agreed. And they said, makes all the sense in the world. Thank you for that recommendation. Let's go ahead and not submit any documentation for the law firm partnership. Just be silent. Just quiet. Yeah. And there's nothing wrong about that, by the way, from a legal or compliance standpoint in the mortgage world. That is completely allowed and super legit. And it's something that a smart loan consultant should think of doing because you know, this is where a loan consultant goes from nuts and bolts to more of the art of loan consulting, in my opinion. Right. Which is like, all right, I know I can get this loan approved. How do I make this as easy and comfortable for my customers as possible? Because there's real value to that aside from the dollars and cents of the mortgage. It's like work with a loan consultant that has your ease in mind or your, you know, has the smoothness of your transaction in mind. Don't work with a loan consultant who is cookie cutter and only does one thing one way for everybody and says, Oh, you work. Okay. I need two years, you know, W-twos, two years tax returns, two years business tax returns, most recent pay stub, maybe a year to date profit and loss statement for the business. Like all this stuff. Oh, the, Oh, the business didn't pass the liquidity test. Oh my goodness. Now we need XYZ, right? Yeah. All that, could and should be avoided in some cases, right? So don't pick a loan consultant that does loan consulting by numbers, right? My six-year-old daughter can do that by connecting the two. Number two equals purple. Please fill it in. Yes, yeah. Well, and so that was, you know, that was even for my client, that was kind of just the start. What you'll be keen to learn, Tim, is that Mr. Borrower, had bought their current home when he was a single guy and has no mortgage. Wow. Good for him. Which I, exactly. That's exactly what I thought. I was like, wow. Yeah. Yes. So the timing of course, or whatever is everybody's preferences. Hey, I would like to move into my new home before I have sold, not even sold before I have moved out of my old house. if at all possible. As we have shared many times though, even if you have no mortgage on your soon to be old home, mortgage underwriting requires that we count the monthly equivalent of your property taxes and homeowner's insurance. And if you have any neighborhood dues or If you're in a condo, whatever those condo dues are, as part of the math of, you know, in addition to this guy does not have a car loan, but let's just pretend that he did. Right. You got a car loan. You got the car loan. You got the old house. And now the new payment on the new mortgage on the new house. I think. Do you experience this with clients sometimes? It's like, I think they were originally aiming in like the four hundred range. But by the time that I got the message that they had the accepted offer, the budget was more like five hundred. Yeah. Not with everybody. But I think, you know, in the environment we're in, it's like. People realize that they're going to have to make some type of concession. Right. So it's either it's only going to go two ways, really. Either you're going to. dogmatically stick to the price range that you want because maybe it aligns with a monthly payment goal most likely and then you can see it on certain things about the house square footage yard size location yeah go down the list right you can have this ugly house at a great price right or ugly right it's the the house right off of i-ninety-four where you hear the The soft hum. Yeah, where you get the semi-trucks airbraking at two in the morning, plowing through deer. So you can concede that way, or you can concede the other way, which is, oh, I really don't want to compromise on X, Y, Z about the house, whether it's location or whatever, right? Yeah, our producer, Sue, just typed in, Their previous home in Milwaukee was right on Seventy-Sixth Street, right across from State Fairgrounds. You want to talk about background noise. Although I do miss when they owned that house because then I had guaranteed parking whenever I wanted to go to State Fairgrounds. Is that right down from Liquid Johnny's? Oh, half a block down the road. Shout out to Liquid Johnny's. Fantastic Milwaukee watering hole. But otherwise, it's like people are going to concede on maybe going up a little bit above their preferred price range. to get the amount of house they want. Right. And I think both me and you work with customers that based on their own priorities, they'll go either direction, but certainly, you know, cause it's like, I try to give people the healthy perspective of it's like home values generally are only going to go up. Houses are only going to get more expensive in Milwaukee. Yeah. Or anywhere in the Southeastern Wisconsin area for that matter. And mortgage rates knock on wood, throw some salt over my shoulder, those will go down. So it's probably why, I mean, I remember even Brian telling me this when Grace and I got our first home back in like, which was like stretch a little bit. Yes. Right. That's okay. Because get into a house that you're comfortable staying at for a longer period of time, even if the immediate monthly payment, is a little bit higher than where you would like it to be. Because then you can either refinance the mortgage, which you and I have done several times in our homes. Your income generally, as you grow in your career and get older, will also hopefully just go nowhere but up over time. So yeah, to your point. It's super bad. Your income is going up and the percentage of that monthly payment of your income goes the other way. Right. Exactly. So, yeah, for sure. I think never that we're going to push anyone to bite off more than they can chew. But if you want to, if you want to, we'll tell you if you can or not. And a lot of people can qualify for more mortgage than maybe they think. Not everybody. Not everybody. Well, and so for my client, like I think they were you don't want to just spend money wildly like you want to get something. you know, when you're spending perhaps more than you had in mind. Yeah. I, I bet, you know, they're pregnant with kid number one. What do you want to bet that kid number two might be, you know, on the calendar kid number three, you know, if they're thinking about that. So, so they were reaching for a little bit more. So the, the way that the math worked out, could they buy the new house and, While still owning the old house. Yes. With just the husband's income, right? With just your husband's income. Yeah. It would have required quite the gift amount from grandma and grandpa. Because I couldn't quite lend them, I think, all that they would need on the new house. Because they have all this equity that's kind of stuck in the old house. It's stuck until the moment that the buyer of whomever purchases their home writes a check. But it's stuck. And in this case too, David, because income is the key factor. It's finite. Yeah, you don't, right. It's, we know exactly what the income is that we can use. You don't really want to advise these particular folks to go out and actually do a regular bridge loan, even though they have all the equity in the world, because even if it's an interest only payment, that is now a loan on their previous property, similar to if he had a mortgage, right? And we have to count some sort of monthly payment on that bridge loan, even though a lot of bridge loans maybe don't have a real life monthly payment for the first couple of months. They just accumulate interest. We have to log that as a monthly payment, which would then even further limit how much mortgage money they can borrow on the new home. Right. You're stealing from Peter to pay Paul on that one. Yeah. So what's the other best way that they can? Well, so for them in particular, the kind of, you know, the blessing that they have is that grandma and grandpa, can just write a check for the new house. Then, you know, this is always begin with the end in mind. Right. Grandma and grandpa can cut the check for the new house. Well, for the down payment for the new house. No, no, no. For the whole house. The whole thing. The whole thing. Then when our client sells the old house, they've got a pile of, let's just, so let's, the new house is five hundred thousand bucks. Mm hmm. when they sell the old house they will clear two hundred thousand dollars from that right right they don't want grandma and grandpa they want to reimburse them yeah and so at that time let's say it's you know sixty days from now the old house is sold they would like to take the two hundred thousand dollars from that sale then we give them a mortgage for three hundred thousand dollars right to pay off or pay back grandma and grandpa and they put that half million in a suitcase and they slide it across the table to grandma and grandpa and say you know thanks so much we look forward we look forward to you coming over to babysit uh so i i haven't brought this up yet with my client because we have to circle back but Tim, you want to try to read my mind on, so you're going to have no mortgage on the new house and then you want to rip the money out of your new house. How's that going to work? Yeah. Well, it's, it, a lot of it depends on, so are you going to advise grandma and grandpa to actually open up a lien? Yeah. So that's really the smart way to do it is it's, we jokingly call it the bank of grandma and grandpa. Yes. So, You would have them record a lien on the property. At the county. Hire an attorney, have them brought up. It's a demand note, you know, eleven payments. It's there. It is real, but it's ultimately a placeholder. Yeah. Yeah. It's not it's not by design. It's not meant to be this long term thing. But then it gives the your clients the flexibility so that when they go and sell their home, they take, let's just say, two hundred K. Of their own money from their home sale proceeds. You get them a mortgage for three hundred K. Yes. Those things combine and then are able to fully pay off the lien. And my grandpa get their five hundred K loan repaid to them. Yes. That's the way to do it. Well, and better yet. they will get probably a half percent or more better interest rate. Yeah. If we pay off an existing lien. Right. Versus the bank of grandpa. Yeah. Rather than if you go from zero to on the new house to a three hundred thousand dollar loan and you just rip that money back, that is generally classified as a cash out refinance. And that does not get as good a pricing as replacing the a loan with a new loan, generally called a rate and term refinance. Yeah. Again, you could do it either way, but why not try to get the best term? Do you want the best rate or any rate? Because I know how to get you the best one. Right. So it's worth the little bit of extra legwork that grandma and grandpa would need to do. And we have an attorney that we can connect them with who could Google this up in five minutes, right? It's not. Well, and it sounds, you know, when we bring this up, sometimes I think people get hesitant that somehow it feels, I can use the word exotic again. It's unique, but it's like, well, you can just, you know, I could call up Brian right now and be like, do you want to put a third lien on my house? you can't you just go to the county and record it and then you owe the money and it's collateralized by your house like it's not to us it's perfectly vanilla i just always recognize it it definitely uh seems what's the more exotic ice cream flavor cappuccino sure do the lemon yeah it's not it's not ice cream it's gelato and that's weird yeah but really it's like A mortgage is just the same as any other loan. When you think about it, the only difference is it is collateralized or secured by real estate, by property. Yes. And that is what makes it a safer and much lower rate loan than a credit card is collateralized by nothing. Well, which, and not that anybody in this family is like, Oh, if grandma and grandpa write a check, And there's no mortgage on the new house. And then Junior, our client, sells the old house. Imagine if they have a falling out or some kind of like fight. If you don't record something. Yeah, there's no obligation. Yeah, you're just going on like guilt at that point. So like, even as grandma and grandpa, it's like, we're going to record this. Yeah. And then and then what we do as a mortgage company is we call one eight hundred grandpa and be like, hey, we're going to replace the loan that you have on this house with a new Acunet mortgage. How much do you how much are you owed? And they'll say five hundred and one thousand dollars. We'll say, great. Where do you want us to wire that money? Yeah. Yeah. It's that simple. Not to mention that by doing it this way, because the other way they could do it is say, hey, we're giving. grandson and granddaughter of five hundred thousand dollar gift to buy this house for them. Yes. And it, you know, and this actually isn't that big of a concern, but if they have concerns about reporting that five hundred thousand dollars on their tax returns, because that amount, they definitely would need to report and accounts towards what's called the lifetime gift tax exemption amount. Yes. You know, then that's a real thing that they would need to talk to their tax advisor on. Now, me and you know that the lifetime gift tax exemption amount is like fourteen million dollars. Exactly. It's fourteen million bucks. But here's the thing. So and I should say I am not a tax advisor. Neither am I. Please consult with one. Yes. But I know a really smart one. And his last name is the same as mine. And accurate tax services. Shout out, Paul. So nobody necessarily wants to get into a sticky wicket with the IRS. No. But like, if you just provide, if grandma and grandpa provide the half million dollars, in my, or in the advice that I have received, you don't net out gift funds in a year. It aggregates. So here's my ridiculous example, Tim. If you and I just wired a hundred thousand dollars back to each other for twenty business days in a row, It does not zero out. In my example, you and I would chew through a million dollars of our lifetime exemption by just sending the money back and forth to each other. Right, because each one of those is logged as a separate... Right, it just stacks on top of each other. Again, not tax advice. Please consult with a smart tax guy, but my guy is smarter than your guy. So this is... And it's just not worth, I think, the heartburn of arguing with the IRS someday in the future. So my client, what I would advise them to do, and we'll see if they do it, is record a debt. Yes. Because that's a debt. It is a loan, not a gift. And then if your debt is paid off, then you shouldn't have to squawk or report anything regarding. Other than, other than you refinance. Cause that is something that, you know, when you fill out your turbo tax, they ask you. Yeah. I mean, yeah, but that's for my client, but I'm saying for grandma and grandpa. Oh yeah. Yeah. Nothing. Right. Cause our grandma, grandpa, do they even want to be on title or is a recording mortgage? Yeah. It's like, so the, your clients, the grandson and granddaughter, are those still the ones buying the new house from day one? Yes. They're going to be on title. They're going to own it, owner occupied. But the loan or lien that will fund the entire purchase up front will be money from grandma and grandpa. And then when it's recorded, then whenever they are comfortable and have sold a previous home and the dust has settled, you can help them take their pool of money. And then you can provide a pool of money called an act and a mortgage, combine that together and completely make grandma and grandpa whole again. and get them their money back. It's literally a win-win. This is all about timing, right? If my client, if they had sold the old home, had those proceeds, gave them the small mortgage that they wanted for the difference, this would be about as straightforward as it gets. Yeah. But in real life, by them doing that, then they have to move twice. They have to either live with family for an interim period. They have to find a short-term rental, which would be a pain in the butt. Or they're really on the clock, like, holy cow, we sold our home and we have a rent back. So my god, we have to find any house. And they probably have to make an offer with a home sale contingency, assuming they haven't closed on a previous home sale yet. And then that makes them less competitive and less likely to even win their offer once they find their dream home. Because that's the other thing, too. It's like, we can give you a pre-approval with a home sale contingency. But if they're shopping in a competitive market in a competitive price range, which it sounds like they are, they're not going to win. And then they've got to deal with that heartbreak of missing out maybe several times on homes that they wanted to be their next home. And getting more and more pregnant. And the blood in the oven keeps growing. Yeah, so it's like, why put yourself through all that? Again, there's a million choices, but it's like, why choose that option over your idea, which is... so much better in every way well and again it just circles back to as we began bridge loan it's like well it's the bridge you know it's get me from where i am to where i want to be and what is true is we have done this a gazillion times it feels new and and and you know clumsy maybe almost for a client not for us though but not for us and so that's just this is the as I almost joke, I need banks to stay in business so that they can show that they don't know how to do parts. Yeah. And like, again, this is not a situation that every client of ours can take advantage of the, your clients have this amazing resource called grandma and grandpa that can funnel out a very large amount of money, you know, and not everyone can do that. Right. So it's, it's about doing that financial diagnosis where you want to find out as much information as is relevant, but at the same time, you don't want to find out everything because maybe you don't need to. Right. So that's a, you know, it can be an awkward conversation if you're talking to a loan consultant who doesn't know what they're doing or doesn't have a lot of experience, but you can tell when you're on the phone with someone who knows what they're doing, And has been doing it a long time. Yeah. And then the other secret sauce is a lone consultant who actually cares and wants and wants to do a good job and do right by their customers. Right. If you got someone like that, they're your odds of successfully accomplishing your goal go way up. Yeah. Cool. All right, well, that's today's story. Thanks for hanging out on the Blue Button Broadcast. We'll be back next week with more stories from the front lines of helping people do this cool thing called Buy a House. Thanks for hanging out, Tim. Goodbye, everybody. Take it easy.