March 17th, Monday Market Update and Mindset Call with Nikki, Cari and Angie

Mortgage expert Nikki explains the critical importance of using proper language in purchase agreement addendums and how seemingly innocent terminology can create significant issues for mortgage approval. Proper communication between real estate agents and lenders before drafting addendums can prevent costly mistakes and ensure smoother transactions.

• Market update: Fed meeting expected this week with no anticipated rate cuts but updated economic projections
• Interest rates seeing slight increase due to market uncertainty but trending back down to mid-to-high 6% range
• Reducing purchase price often better than large seller credits that buyers might not fully utilize
• Keep addendum language clean and simple to avoid triggering additional verification requirements
• New trend requiring formal acknowledgment when buyers change lenders mid-transaction
• Partnering with knowledgeable professionals crucial as guidelines constantly change

Reach out to Nikki or Angie with any questions about purchase agreement language or mortgage guidelines.

Chapters

• 1:13 Welcome and Market Update
• 2:50 Fed Meeting Expectations
• 5:11 Purchase Agreement Addendums Explained
• 7:12 Seller Credits vs. Price Reductions
• 10:07 Clean Addendum Language Importance
• 12:45 Handling Change in Financing Terms
• 15:13 Working with Business Partners

Transcript

Speaker 1: 0:38

All right, good morning, everyone, welcome. Or afternoon, or, if you're watching the recording, hello. Welcome to the Monday Market Update in Mindset Call with Nikki, myself and Keri. Today is March 17th, so, nikki, let us know all we need to know for the week.

Speaker 2: 0:55

Absolutely Well. Happy St Patrick's Day everyone, and happy birthday Lexi. Okay, so we've got an interesting week coming up. So the Fed meeting is happening this week. They'll conclude their meeting on Wednesday and we should hear from Jerome Powell soon after that. We do not expect an interest rate cut. However, we do expect some information on the summary of economic projections, or SEP. This is where the Fed relates notes that it has about what it feels like the economy is going to do here, going forward, what they feel unemployment is going to do, and then how many rate cuts are they planning for the year. So we'll get information for that on Wednesday.

Speaker 2: 1:34

From an interest rate standpoint, we saw a little bit of increase over last week just due to some market uncertainty with things happening in the stock market. However, today already we're seeing some correction to that increase. So we should be back down into the mid to high sixes here pretty quickly and being able to even go into the touch into the low sixes later this week, considering the notes that are going to be expected from the Fed meeting. So things are looking good. They're seeing, you know, it's a little bit more volatility in the market from a day-to-day basis. However, we are seeing things you know tend to pressure be put on those interest rates to keep them lower than what they have been in the last three months. So that's all good news.

Speaker 2: 2:15

So today, an interesting topic. I've been dealing with this quite a bit over the last couple months actually and I kind of thought about it and I didn't really think too much about it, but it popped into my mind this morning about addendums to the purchase agreement. So I will say there's a couple things. Number one if we as a lender are asking you for an addendum to a purchase agreement, it is always for a very specific reason. Or asking you for an addendum to a purchase agreement, it is always for a very specific reason. We are asking that language be corrected to make it more mortgage friendly most of the time, or to clarify some information on the purchase agreement that might not have been clarified before. A good example of this is when you go through an inspection period on a purchase agreement for a client and you have some work orders, you have some repairs, you have credits going back to the buyer as a result of these repairs, or changes in purchase price as a result of these repairs or results of the inspection or for any other reason. The language that you use on the addendum is very important from a mortgage standpoint.

Speaker 2: 3:17

If we have terms like seller credit that is gonna be going to be considered to be a seller paid closing cost, then at that point, if we are using the term seller credit, we are restricted to using that credit for closing costs and setup of escrow account and discount points, which means that we are restricted to that 3% rule, 6% rule or 9% rule as far as how much the seller can contribute to the closing costs for the buyer. Keep in mind, if you are issuing a larger seller credit, that even if it falls within that 3%, 6% or 9% range, we could possibly not be able to charge that much in closing costs in general to take care of that, and so you have a risk of your buyer leaving money on the table. A good example of this let's say the closing costs on a $300,000 mortgage are gonna be about $7,000. And there's a $9,000 credit that gets issued. Number one, we are above our limit and number two, we have to leave that $2,000 on the table or try to buy that interest rate down in order to make sure that the buyer uses all those credits. Now there comes a point where we as a lender can only allow the borrower to buy down an interest rate so far and we have limits on our end on high cost mortgage. What those points are how much we can charge and how much we can actually charge the client in fees overall. So we got to make sure that we're working together on that term seller credit and most of the time it might be more beneficial for all parties involved, including the seller, to reduce purchase price instead.

Speaker 2: 4:55

I had a client who got an inspection where the roof, air conditioning, hvac and the stucco needed to be repaired and it was to the tune of $80,000. And I got an addendum saying there was going to be an $80,000 credit and I was like there's no way I can use an $80,000 credit. So please keep that in mind when you're doing addendums. Also, if you are changing language, changing lenders for a purchase agreement, we are going to require an addendum stating that you are aware of the lender change.

Speaker 2: 5:29

This is something that has came up in the last couple weeks, honestly, to the last month, that lenders are starting to require knowledge that we are the new lender when we do come in on these rescue operations or when the client does change lenders. So keep that in mind Always. Just be communicating to us before you even write an addendum. If there's any discussion, please contact me or your lender and talk about the language that needs to go in that addendum. Especially if there's going to be repairs to the property or things of that nature, we will have to check to make sure that those repairs are completed to the borrower's satisfaction and that they're completed at all via a final inspection on the appraisal on our end. So just some things to keep in mind as you're writing these addendums, because it does get a little bit confusing and I don't like having to go back and make you guys do rework again, and we'd rather it's just better if we have the discussion up front. So just something to keep in mind as you're working through purchase agreements.

Speaker 1: 6:28

Yeah, and it's a really great reminder because I never was trained that way in the beginning, to go back to my lender Again, have this conversation, have this relationship, even if you're the listing. You know, not necessarily if you're the listing agent, but I, as a listing agent, would call Nikki and be like this is what came in, how could this go? So I mean, it can go all around, but especially if you're the buyer's agent, it's so yeah, and it's so important. And what I've seen happen too, and what happened recently, is also what language you put on there, like if you have the repairs or what was the one.

Speaker 1: 7:04

I can't think of it right now, but it's like they don't want to see all that called out, like all the things that are going to happening or if you're leaving stuff in the home for the buyer, it's just can be an underwriting nightmare. So the cleaner you can keep it, the better. I learned that the hard way in the beginning because, again, I wasn't really. I learned on the go, as I was, you know, making making the mistakes and quickly correcting them, and that was one of the things they're like don't ever send me something like that again. I'm like sorry. They're like no, we just can't have that, or it's just gonna blow up everything and I don't think that's talked about enough.

Speaker 2: 7:41

Right, and it's not in an effort to hide anything. It's in an effort to make the transaction as clean as possible. So a really good example of this is if you are going to have an inspection situation where it's resulting in a price reduction or a seller credit. A simple language would be the seller agrees to pay $2,000 towards buyer closing costs, inspection contingency is released and be done with it.

Speaker 2: 8:07

Or if there are repairs that need to be made in some cases. In some states you are allowed to put those that information on a separate addendum or you're allowed to keep it out of the purchase agreement all over the place. You don't completely and you can do it via email. In the state of Arizona, unfortunately, that's not the case and some states also have some regulations. You have to be very specific in your addendum language in Arizona. Have to be very specific in your addendum language in Arizona. So just keep in mind, understand your state regulations and understand what is required to go on that purchase agreement as a result of inspection and as a result of repairs and work orders and things of that nature, because anything that you put on that addendum that comes across our desk we're going to have to verify has been completed before closing.

Speaker 2: 8:49

And that may be okay with you. It may not be a big deal, but if things are going to be completed after closing, then we have, you know. Then we got to get into escrows, we've got to get into, you know, those types of that type of language and sometimes, from a purely mortgage standpoint, we want to keep this just as clean as possible and make sure that the buyer knows what under has a good understanding of what they're getting from you know, the seller in terms of work orders and things of that nature, but just making sure that that mortgage transaction is clean.

Speaker 1: 9:19

Yeah, words matter.

Speaker 2: 9:20

Absolutely.

Speaker 1: 9:22

And when you had mentioned that so and I've seen this happen before Can you talk a little bit about, let's say, I write a purchase agreement agreement and I put 10%, 90 and then that changes to five. Or my buyer decides that instead of conventional they're going to go FHA, like mid to end of the deal, like something comes up and they have to quick switch it around. Do I need to amend that or what does that look like for the holistic contract?

Speaker 2: 9:51

Yep. So the signal if we go from a conventional to an FHA, for example, the signal that alerts the listing agent, the buyer's agent and the seller is that we are going to an FHA mortgage, is that FHA amendatory clause that needs to get signed. I as a lender am having that conversation with the buyer's agent first saying, hey, here's what you know. Obviously the buyer first after we have our discussions. But you know, here's what changed, here's why we're going FHA. I can talk, you know. And then I reach out to the listing agent and say, hey, fyi, here's what happened, here's why we're going here's, you know we don't need to worry about the appraisal for this manner or we don't need to worry about the change in financing for this and really talk about the solution that comes with that. And then that's when we get that amendatory clause. So that does not necessarily require an addendum to the purchase agreement to say, yes, we're aware that they're changing over to FHA financing Changes in down payment also is a very good point. We don't need to necessarily do an addendum making the seller aware that the buyer is putting down 5%. It's really at the point where they can qualify a 10% down or qualify at what we put on the purchase agreement, as long as they have the ability to qualify for that. Any changes that they decide to make throughout the process are not required to be changed on the purchase agreement. So that's a really important aspect as well.

Speaker 2: 11:10

Will that change in the future? Who knows? I very highly doubt it, but it could be something that's trending, kind of like this whole. You know, if we're changing lenders, you have to let us know. You know type of situation where it has to be documented that you know about it has came up, that you know the whole down payment stuff could come up. But regardless of that, you know it's in. You know it's just really being transparent to as a lender and making sure that you make the parties away when there are important changes and things that affect it, because you know these things. So the effort is not to put doubt into the seller's mind. The effort is just to be transparent in what we're doing. So any major changes, yes, we will make people aware, but changes in down payment amounts I can't imagine sending an email every time we change a loan amount due to one circumstance or another. You guys would be like what are you doing? Why can't you get your loan amount right.

Speaker 1: 12:10

Sometimes, the less you know, the better. Better, as long as it's moving forward.

Speaker 2: 12:12

I only want to be called if I need you know exactly. No one knows perfect, absolutely no.

Speaker 1: 12:18

I just thought that came up and I know that I had dealt with that in the past and, um, yeah, and that's why I just I love how you show up, nikki, and I really appreciate having strong, strong business partners, because I have, especially early on, or even when I thought I had it all figured out, agents on the other side are so convicted in their statements and how they show up and what needs to be done, and I'm just like it almost makes me question myself because they are so certain that it's this way, even though I'm like, but you know, so able to lean on Nikki or able to have these people where I can just check myself because I mean, come hell or high water, this agent is like no, it has to be this way. And I, how do you talk someone off that ledge? So it's just really important to understand that, because I've been in those situations before and you want to put your kid gloves on and play nice in the sandbox and yet you know, help educate other agents too. So that's a lot of this. It's not only educating our buyers and sellers and other people, it's educating other agents, because I wasn't trained perfectly at the beginning and I learned a lot along the way and even when I was on my team, my team lead had been in it for like 18, 20 years and three times in one year she looked at me and she's like what are you doing?

Speaker 1: 13:42

Like, where do you find this stuff? I don't know, I've never heard of it. What are you doing, like, how are you finding this stuff? I don't know, I've never heard of it. Like, how do you find this stuff? Because I've come with the most random situations and things that people that have done hundreds of transactions have no idea. Yeah.

Speaker 2: 13:57

Yeah, and I think it's like keeping up with the changes too. I mean, things are constantly changing. You know, when we think about you know the overall from just a purely mortgage standpoint when we take a loan, but the overall from just a purely mortgage standpoint, when we take a loan any loan in general and we send it over to a servicer or we sell it off in the secondary market, between the time that we originate that loan to the time that it gets sold off, we're talking usually 30 to 45 days and you guys would be surprised at how often it comes back to us and says, oh, this has changed, this little bit has changed, you need to correct things here, et cetera. Because things are constantly changing from an investor perspective and things are constantly changing from you know how languages and how different guidelines are being interpreted and new guidelines that are added in and clarifying information and, believe it or not, you know there's a lot of times where we're calling Fannie Mae or Freddie Mac directly and saying, ok, how do we need to handle this situation? And getting guidance directly from them so that we don't have what we call buybacks on the secondary market.

Speaker 2: 14:56

So, keeping up with the market changes and keeping up with industry. Language changes is huge because things aren't done the same way they were 20 years ago and they certainly aren't done the same way they were six months ago. So it's just keeping that in mind and understanding that use your resources, use the people that you know have surrounded you, use your trusted TikTok people and your trusted Instagram reels people and you know a lot of those really good, smart influencers that are in the business every day and do the work and have the success and understand they can get into the nitty gritty and really understand that language and understand what's trending and what's happening within the market.

Speaker 1: 15:35

I'll say it again and I'll say it every time who you partner with matters. They're a direct reflection and extension of your business. Find good business partners. If you don't have them, find Nikki, or I can help you with this. I can help you with with good business partners across the way, but lender wise Nikki's it. So thank you so much. Appreciate you absolutely. All right, everyone. Till next time. I'll reach out to Nikki if you have any questions, or myself, and we are here and happy to help and make it a good one. Bye, everyone.