This interview is with Jayson Hardie, CEO, Homestead Financial Mortgage.
Jayson, as CEO of Homestead Financial Mortgage, how do you describe your role today and the borrower segments your team serves best?
My role as CEO of Homestead Financial Mortgage can be described as the crew chief of a race car team. By understanding all the details required in a fast-paced industry, many factors must be considered to establish the direction of the team.
There must be systems to manage what you can control, like sales and fulfillment, and you must be prepared to adapt to what you can’t control, like rates and government regulations.
Our primary focus is in the Midwest. With that geography, we serve primarily middle-class homebuyers. Hardworking people needing help to build a good life and using home ownership as a foundation are our primary customers.
What pivotal experiences took you from hands-on loan origination and underwriting into the CEO seat, and how does that journey shape the guidance you give homebuyers?
The key relationship for any mortgage company is with realtors. Referrals are the foundation of the business. To build those relationships, we had to acquire key approvals from FHA, VA, USDA, Fannie Mae, and Freddie Mac so we could have our own underwriters and truly be of service to realtors.
As a small, undercapitalized mortgage broker in 2014, we had to grow from that position in the market. We had to overhaul our business from back to front.
“Build it and they will come.”
In other words, we had to change our fulfillment strategies—how we close our loans—before we started marketing our services to realtors.
This type of evolution could only work if someone was working “on the business” rather than “in the business.” To accomplish this, I realized my role had to be working on the business.
Working on our business overhaul in 2014, we began acquiring relationships in 2015. It has been a slow but steady-growing part of our business.
From your credit analysis lens, what is the most impactful step a first-time buyer can take 60–90 days before pre-approval to improve eligibility and pricing?
The most impactful step a first-time home buyer can take is finding a good mortgage loan officer to get pre-approved and see how close they are to qualifying.
Because pricing is contingent on credit score, a buyer can often improve their credit score within 90 days to obtain the lowest rate possible.
There are other steps a well-qualified buyer can take. For example, by having a complete set of supporting documents ready, we can close in three weeks, helping a buyer win a home in a competitive situation by closing faster than competing offers.
When you evaluate FHA, VA, or USDA loans, which real-world compensating factors have most reliably tipped a borderline file into an approval without adding undue risk?
When evaluating FHA, VA, or USDA loans, we evaluate compensating factors.
- Time on job. Being employed at the same job for a long time conveys stability, good judgment over time, and that the borrower provides value to their environment.
- 401(k). Having a 401(k) with a material balance shows the ability to save money over time.
You often recommend recasting for move-up buyers—can you share a recent case where a recast beat a bridge loan or a higher bid, and why it worked?
Link to our website and explanation of the recast is below:
Recast Mortgage vs Bridge Loan. Which is Better? – Homestead Financial Mortgage
I advocate for a recast because it is truly the best option for nearly all buyers upgrading. To frame the argument, here are the supporting facts:
- The real estate market is a sellers’ market, meaning there are more sellers than buyers. Should rates drop, it will only slant more in the direction of the seller.
- Sellers are looking for reasons to toss out offers in a multiple offer scenario. Writing a contingent offer (on the sale of your existing home) is one of those reasons.
- Buyers looking to upgrade are most likely sitting on large amounts of equity in their current home. Consequently, they believe that the existing home needs to be sold first in order to have a budget-friendly payment.
- A bridge loan is a second transaction, with a second set of closing costs.
Real Life Example:
John and Haley were struggling with how to finance the purchase of a new home. Their existing home had about $200,000 in equity. The buyers were looking to purchase a new home for $500,000. While John and Haley could afford the new home, the payment wasn’t going to be budget-friendly.
John and Haley had enough from their 401(k) to put 10% down. By using a recast, they took a loan from their 401(k) for 10% ($50,000), buying the new home with a loan amount of $450,000.
After selling the old home and clearing $200,000, they paid off the 401(k) loan, then recast the $450,000 loan amount to $300,000 and got a new payment based on the new loan amount of $300,000. This was under the terms of the existing contract. Most servicers charge $200 for the change to the servicing agreement.
In today’s rate environment, what decision framework do you use to choose between paying points, a temporary buydown via seller credit, or planning to refinance later?
To appropriately decide if a borrower should pay points, use a temporary buydown, a permanent buydown, or plan to refinance later, we need to lay down a few definitions.
Mortgage Insurance (MI): This is a monthly premium paid by the buyer, usually when financing greater than 80% of the homes value. MI will cancel on many conventional transactions, but rarely on FHA transactions.
Seller concessions: These are closing costs paid for by the seller to help lower the cost of acquiring the home. These can be used for closing costs, prepaids, or rate buydowns.
Refinance (“refi” for short): A refinance of a mortgage is a financial transaction that restructures a loan for the purposes of obtaining a lower rate, a shorter term, removing an existing borrower, or taking cash out.
Buydown: On a mortgage, a buydown occurs when a lump sum is paid at closing in exchange for a lower rate. This can be paid by the buyer or the seller.
Rate buydowns happen frequently on purchase transactions. They usually only make sense when a seller pays for them. It is rare that a buyer buying down a rate themselves makes financial sense.
Temporary vs. permanent: In the current market, there is not enough rate spread between a temporary buydown and a permanent buydown for a temporary buydown to make sense. We usually opt for a seller-paid permanent buydown.
When do you set up to refi?
Usually, when a buyer puts less than 20% down on their purchase and has mortgage insurance, we can expect to refinance that customer. There is a window where the home appreciates and rates drop, allowing a customer to refinance, obtain a lower mortgage rate, and eliminate their MI all at once. By refinancing into a new loan where the new loan amount is 80% of the new value, there is no MI. These are often of great benefit to the buyer, but timing becomes very important.
For clients who need equity from their current home to buy the next one, what timeline and milestones do you recommend to avoid contingencies and double moves?
When clients need equity from their current home to buy the next home, we usually have a thorough conversation with the buyers to explore other opportunities.
For example, a 401(k) can be a way for a buyer to come up with a down payment. There is a common misconception that taking a loan against a 401(k) requires liquidation of funds; this is not true. A 401(k) loan is secured by the retirement account. Once the old home is sold, the loan can be repaid if it has not already been repaid through payroll deductions.
Another option is a margin loan against existing stocks, similar to the 401(k) option.
For investors and repeat buyers, how do you decide between a cash-out refinance and a HELOC to fund additional properties?
For investors and repeat buyers, pulling cash out of a residence or using a HELOC isn’t the best strategy. While it can be used occasionally, it can lead to overleveraging.
Don’t give up your day job!
Most successful investors have and keep their day job to accumulate down payment funds and buy rental properties over time.
What due-diligence checklist do you require before recommending a reverse mortgage (HECM), and what signs tell you it’s not the right fit?
We don’t do enough HECMs to be an authority.
Respectfully, we are passing on this topic.
Thanks for sharing your knowledge and expertise. Is there anything else you'd like to add?
Thank you for the opportunity! Here are a few other relevant articles from my company blog that may help when evaluating me.