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Mortgage Mysteries Solved – An Interview with John Kay
By Matt Clawson and Fawzi Haimor
Mortgages may be mysterious, but one of the East Bay’s most prominent mortgage brokers admits, they are never sexy.
We recently shined a little light on the mysteries, with the help of John Kay of Cornerstone Lending. John proved more than capable of illuminating the industry’s purpose and processes, but could he make the whole business sound just a little bit sexy?
Not a chance.
John did, however, provide answers. If you are considering buying or selling a home, and want to understand the mortgage lending process better, you have come to the right place.
To potential home buyers entering the market in the next three to six months, John says the first thing to do is get pre-approved.
“There is a difference between getting pre-qualified and pre-approved,” he says. “A pre-qualification is tiptoeing in the water. You want to know what you can qualify for, and get, kind of, a range. But a pre-approval is more serious.”
John asks his clients about their timeframe, which then determines whether he pre-qualifies them, providing them a price range to consider, or he gets them pre-approved. Serious home buyers should definitely start the pre-approval process, as a pre-approval letter is typically required by any seller considering an offer. This letter is the evidence sellers need, proving a buyer’s capability to perform and close on the purchase of the home.
There is another step John often takes, in cases where he is not certain of a home buyer’s loan qualification status.
“Then I will submit the loan to an underwriter,” he says. “The underwriter is someone who is going to stamp the loan pre-approval. Then we can use that when submitting your offer. We can say [to the seller], not only are they pre-approved, but they have a pre-approval by an underwriter.”
The whole process takes into account buyers’ employment history, income, credit score, assets and liabilities, and determines how much the bank is willing to loan, the down payment required, and the interest rate charged on the loan.
As a realtor, we are happy to work with any reputable mortgage broker, but there is an advantage to working with a local mortgage broker who has earned a sterling reputation. That reputation leads local listing agents to put more trust in the worthiness of one buyer’s offer over another. This is natural, because when a listing agent knows a specific mortgage broker from past experience, and has seen them deliver on what they promise, they have more faith in their pre-approval letter. Even in cases where there is only one potential buyer, a buyer’s negotiating position is strengthened when the trust in their ability to actually close is high.
“If I put my stamp of approval on a pre-approval letter you know it’s gold,” John says. “If it’s your listing, you don’t want to receive a pre-approval letter from someone in Southern California, or even another state. You want to know that loan officer.”
John is right about that. Realtors on the listing side of a transaction work in their client’s best interest, and know from experience not all pre-approval letters can be trusted equally. In John’s case, he lives in this community, and has to look local realtors in the eye every day. Those relationships are the foundation of his reputation, and are required of good local mortgage brokers who wish to succeed.
While there is nothing wrong with working with a mortgage agent tied to a large bank (like Wells Fargo or Bank of America), the key, John says, is finding an agent who is reputable and has the client’s best interest at heart.
“Every loan officer runs their business differently,” John says. “Some are transactional. Some are relational. A transactional loan officer is one who just wants to get paid, and doesn’t really care about the experience. Working with my team is all about the experience, because I run my business 100% by referral.”
A good mortgage broker leads their client through every step of the process, exhibiting diligence, care, and open communication with all parties (listing agent, selling agent, title officers, and especially the buyer). The steps include the pre-approval, mortgage loan application, loan processing, underwriting, interest rate lock, pre-closing, required three day review period, and final closing.
“There’s a lot of moving parts in buying a home and financing a home,” John explains. “So I own the mortgage space. That’s my role. That’s my responsibility. To make sure they understand everything about the process.”
John says realtors get to show homebuyers homes, which are tangible and can be pretty and desirable. But mortgage agents do not share that luxury.
“Mine is a liability,” he says. “It’s a loan, so I always say, it’s not sexy.”
John says good mortgage brokers measure their success based on how they take care of families.
“It’s how we take them on that path to home ownership, and that’s kind of how we’re different.”
It is well known that the residential real estate market is cyclical, and mortgage rates play a role in those cycles. John explains mortgage rates are directly tied to inflation.
“The Federal Reserve has their finger on the pulse of inflation . . . so we’re keeping a close watch on the Consumer Price Index (CPI – a key measure of consumer prices for goods and services). May 10 is going to be the day we’re going to see the release of the CPI, and we’re going to see interest rates drop. It could be ¼ percent, it could be ½ percent, on that one day.”
John is seeing a lot of pent up demand in the market, and as the home real estate market enters selling season, coinciding with a drop in interest rates (and therefore mortgage rates), he expects waiting buyers to pounce.
“It’s going to drive up the price,” he says. “I don’t think it’s going to be as crazy as last year, but you’re going to see multiple buyers bidding for limited homes, so I’m telling all my buyers, this is the time. Right now, between now and May.”
He sees rates coming down below 5%, shortening the period when the market is perceived as a ‘buyer’s market’.
“The saying, marry the house, date the rate . . . that’s what I’m telling my buyers,” he explains.
A good mortgage broker like John is adept at explaining the many options home buyers can consider when applying for a home loan. These include conventional home loans (the most common loans, typically requiring sound credit scores and stable income), FHA loans (government backed, often requiring easier qualification and lower down payments, but with other more stringent requirements), VA loans (available to veterans), and even adjustable rate mortgages.
Good mortgage brokers play a critical role in the home selling process, and at M&M Real Estate, we consider John a reliable expert who constantly shows care for our clients. He can walk buyers patiently through every step in the process, and has the experience necessary to avoid pitfalls that can hinder the closing of a deal. He makes the whole mortgage process seamless, and less mysterious.
Less mysterious, and never sexy.
