Navigating HOA Insurance Requirements and Student Loan Changes

This is a MUST LISTEN to call!! Packed with information you need as an agent!!

Mortgage rates remain in the high 6% to low 7% range as the Federal Reserve continues to prioritize fighting inflation over addressing rising unemployment levels. Student loan repayment options and HOA insurance requirements are undergoing dramatic changes that will significantly impact homebuyers.

• Interest rates spiked after Japan announced negative GDP, affecting international bond markets and pushing the 10-year treasury above the critical 4.5% threshold
• Pending legislation would eliminate most current student loan repayment plans, replacing them with just two options based on discretionary income percentages
• New HOA insurance rules require master policy deductibles to be no more than 5% of the coverage amount, with homeowners needing personal policies to cover these deductibles
• Many HOA boards and management companies are unaware of the new requirements, causing financing issues and delayed closings
• Instead of price reductions, sellers should consider interest rate buydowns to attract more qualified buyers while maintaining property values
• NOC lending allows homeowners to make non-contingent offers by advancing equity and guaranteeing the purchase of their current home
• Listing agents should proactively obtain and upload HOA documents to MLS and have master insurance policies reviewed by lenders

Chapters

• 1:10 Interest Rate Updates
• 5:38 Student Loan Changes
• 18:55 HOA Insurance Requirements
• 30:59 Buy Before You Sell with NOC
• 50:29 Impacts on Borrowers and Buyers
• 55:29 Closing Thoughts and Next Steps

Transcript

Speaker 1: 0:35

All right, welcome Nikki. Thank you so much for joining us at our meeting. I know we have a lot we want to cover today, so we'll let you begin. I know we wanted to do a little bit more on the student loans, on interest rate update. Okay.

Speaker 2: 0:52

And update on the HOAs and insurance.

Speaker 3: 0:56

Yeah, we know that that's a hot topic as well. Yes, absolutely so. Let's start out with interest rates, because that's always the you know, the fun one to get out of the way, first and foremost. So about a week and a half ago we were on a really good track, seeing interest rates down in the lower sixes. I was logging. When it's 6.375, six and a half, everyone was happy.

Speaker 3: 1:19

Japan announced that they have a negative GDP this past week. What that means is that the amount of income that they're bringing into the country is less than by a huge amount that people are spending in the actual country on their product. So when that creates a negative GDP, that actually hurts the international bonds, international situation from a stock and bond market, which in turn hurts the 10-year treasury, which in turn increases mortgage interest rates. So when they went negative on their GDP, it created a huge issue in the mortgage interest rate because of the trickle-down effect and we saw rates go up to 6.875, 7, 7.25. I even saw some as high as 7.5 on a couple of the days Settled back down afterwards. Now we are still in that 6.875 range, so higher than what we were a week and a half ago.

Speaker 3: 2:16

The big thing right now is that the Fed is refusing to drop their interest rate. The reason that they're doing that is because they feel like inflation is not going to drop in the next month, next quarter. The reason that they feel that way is because they haven't seen the effects of all the tariffs and they're basically scared to see what's going to happen from a tariff situation. They're basically scared to see what's going to happen from a tariff situation, they feel like, even though they feel like the number of new jobs added in and the is going to be less than expected and unemployment is going to rise, which is also a factor as to why they would drop their interest rate. They feel like the inflation piece is more important than the unemployment piece. We have higher unemployment, we have less jobs out there.

Speaker 3: 3:04

Normally, the Fed will make an adjustment on their interest rate to help stimulate other parts of the economy. If we have lower inflation, the Fed will then also drop their interest rate in order to meet that lower inflation mark. But since both are, they feel like the inflation number is actually going to go back up. They are saying we're not going to lower our interest rate. As a reminder, the Fed interest rate is not the mortgage interest rate. However, it does influence the 10-year treasury bond, which is what the mortgage interest rate is set at. The 10-year treasury is at above 4.5 right now, which is that 4.5 mark is a very important mark within the 10-year treasury bond. The reason for that is when we go above 4.5, we have the potential to go up, up, up, up up in interest rates. If we go below 4.5, we have the potential to go down, down, down, down down in interest rates.

Speaker 3: 3:52

It's kind of what we call our Fibonacci level, or the level where we go up or down based on where that bond is Right now. As of yesterday, it was sitting at 4.59. This morning, I believe, it's at 4.61. So we're going to see a little bit of an increase in interest rates here, at least temporarily, until the Fed meets again in June and hopefully we'll get some more data from the tariffs and more data from the unemployment and things like that the statistics and the GDP and all those numbers that are going to be coming in that will hopefully influence the Fed to make a different decision than what they've already put on record. There are two voting Fed members right now that are on the fence and saying maybe it is time for us to start lowering those interest rates. So two out of the 12 ain't bad, so we're going to get there eventually. So that's kind of what's going on with mortgage interest rates. If your clients ask, the answer is high sixes, low sevens for now and it's probably going to stay that way, with some volatility coming into the next couple weeks. So that's what's going on with interest rates. It's no different than what we had last year. We're at the exact same spot that we were 12 months ago, ironically. So, with that being said, let's move on to kind of just some topics I want to talk about. Oh, student loans. This is huge right now for a number of reasons. Fannie and Freddie, if you do a traditional conventional loan, fannie and Freddie have policies that work with income-based repayments, save repayments, standard repayments and all the repayment options right now that are available with federal student loans. They work with those options so that if people are realistically paying on their student loans, we use those payments for qualifying. They also have opportunities that if you are on an income-based repayment plan and your payment is zero, freddie will allow you to use that payment. Fannie will not. Fha is completely different. Fha says we will use actual payment on the credit report as long as it meets the half percent mark. So half percent of the balance, or if the payment is zero, we need to use a half a percent if we're qualified. So FHA is a little bit more restrictive. Those are the rules right now. So what has changed?

Speaker 3: 6:08

Well, back in January and into February, anyone that was on the forbearance plan that was done through the Biden administration. Their plan came out of forbearance, which means that they were responsible for setting up a new payment plan, income-based save plan, standard repayment, extended repayment, et cetera, et cetera by February 1st. If they did not do that and their student loan was still in forbearance it then went into what's called a default status. Was still in forbearance, it then went into what's called a default status. What a default status means is that any payments that they didn't make while in forbearance showed up as lates on their credit, started reporting late to the credit bureaus. So therefore you have people that were on forbearance for 18 months, that did not do something with their student loans and show a ton of late payments, ie dropping their credit score. And there were a ton of people that were in the middle of mortgage loans, in the middle of purchasing homes that therefore could not purchase them because of the situation that happened. So that took an effect on a lot of people's credit, a lot of people's ability to enter into a payment agreement because of that default status. So the Department of Education, working with the federal student loan servicers, is now working through those forbearance people who did not make a decision on how to repay their student loans, trying to do some corrective action, some disputes to the credit bureau agencies and try to get things corrected to show an accurate forbearance status and maybe one 30-day late when they finally do get back to a new payment plan. So there has been some results of that incident that happened as far as helping borrowers to get back a more favorable status from a student loan standpoint.

Speaker 3: 7:52

With that being said, everybody hears in the media the big beautiful bill. Well, what's not being talked about in that big beautiful bill is the changes to student loans. These are super important stages. Now, mind you, this bill has not passed. So, just so you know, these are things that are in the bill that could happen but have not passed yet. So, first and foremost, from a student loan standpoint, you will no longer have a save plan. You will no longer have a like a graduated extended repayment plan.

Speaker 3: 8:26

There will be only two options for student loan plans, and this is for existing student loans and for any new student loans that are taken out after January 1st 2025. The first one is called the standard plan. The standard plan uses your discretionary income and requires you to pay 1 to 10% of your discretionary income as your monthly payment. So, for example, for someone who's making $60,000 a year, $50,000 to $60,000 a year, 5% of their discretionary income is going to go towards their student loan payments. For someone making $100,000 a year, 10% of their discretionary income is going to go towards their student loan payments. So basically, the US government is saying we want our money back Now.

Speaker 3: 9:13

If you make under the standard plan, if you make payments standard payments for 20 years on that plan, any remaining balance is then forgiven. The other plan would be what's called an income-driven repayment plan. The income-driven repayment plan is really focused on people who earn lower incomes and helping relieve their payments. So it includes things like you don't have to pay as much if you have a child, so for every child that you have, you get a $50 deduction on your payment. It focuses on people who are making less than $50,000 a year and talks about how much they have to pay this.

Speaker 3: 9:51

If you make payments on the income-driven repayment plan, you have to make payments for 30 years before any remaining debt is forgiven. Coupled with this is going to be any new student loans taken out for a borrower after January 1st 2026. You are going to be limited to $50,000 a year from the Fed federal government in availability of student loans and a parent plus loan of $50,000 as well. Per year you have to exhaust your $50,000 as a borrower before your parents can pay the additional $50,000 or sign a loan for the additional $50,000. So this is very important because there was no limit before and now they're limiting, saying, hey, you can't go into a job where they're making, where basically the pay on the job doesn't equate to being able to pay the student loans off that the college is going to be responsible for paying back a portion of those student loans.

Speaker 3: 11:14

So it's designed in holding the college accountable and saying, hey, we have to take some responsibility in lending to this person who may get a degree in, let's call it, english and have the potential and an English degree has the potential to make them $30,000 a year. We need to be, you know, have some sort of say and be responsible in how much we're willing to lend them for this education Okay, lend them for this education, okay. So what it's going to do is it's going to change a lot of not only how students go to college, but on the mortgage side, it's going to change a lot on how we determine what payments to use for qualifying an individual, because if you think about discretionary income percentages. What does that even mean? Like what do they consider discretionary income? You know what do they take Do they look at your credit report and deduct your rent amount and then take the remainder and, you know, work out the percentage. Who knows at this point, but it's going to change the landscape for people who want to purchase homes, who are currently in student loan repayment or who are going to be taking out student loans in the future. So a lot of changes are going to be happening.

Speaker 3: 12:23

Most likely, fannie and Freddie are going to follow the changes that are being made under the bill if it does get passed and the idea that it's whatever your payment is, based on what the federal student loan department says.

Speaker 3: 12:38

That's what they'll use for qualifying, because there will no longer be zero payments on student loans.

Speaker 3: 12:44

Now there is an option you can still go into forbearance, but you can only be in forbearance for nine out of 24 months, so it means nine months on a 24-month period. So there are options to go into forbearance, but those are based on extenuating circumstances medical issues, unemployment, things of that nature that would prevent you from making student loan payments. So there is an effort to say, okay, if you do have a life event that happens. We're not going to completely destroy your credit. You do have an option to go into forbearance, but, mind you, it's only nine months every 24 months. So a lot of this stuff that's happening, that's in this bill, is complicated and we're going to have to do a wait and see approach from a mortgage standpoint, but there will no longer be zero payments required on student loans, no matter what, if this bill does pass, and therefore I assume that Fannie and Freddie and FHA are going to follow suit and say whatever is showing on the credit report is what we're using for qualifying, because that's what they're responsible to pay.

Speaker 1: 13:47

So a lot of stuff happening with student loans. Questions yeah. So what is the pulse in the mortgage world on this? Is this, in your opinion, good, like thumbs up, neutral thumbs down, if you had to give a gut?

Speaker 3: 13:56

feel. If I have to give a gut feeling, and I have to say my personal opinion is I'm giving it a mild thumbs up. The reason for that is because when we qualify borrowers right now, if we have to use 1% of the loan amount or half a percent of the loan amount, those are large payments that we have to qualify the borrower with even though they aren't required to make those payments. So that's one of the positive sides is that we'll know what they're actually paying each month. Obviously, the downside is right now, if we have clients who are an income driven repayment and they aren't responsible for making payments because their income is lower, then we have an easier time getting them qualified to purchase a home.

Speaker 3: 14:34

Now, should somebody be purchasing a home if they're not paying on their student loan debt? You know that's neither. That's not up for me to decide, so it really just depends on talking to the client budgeting strategy, making sure they're aware things of that nature. Hey, if you have to start paying on your student loans, are you still gonna be able to afford this house? You know those types of questions that you wanna ask your client as you're kind of going through the strategy, any other questions. It's a lot and I only gave a quick summary on that. Changes with the big beautiful bill as far as student loans go, so that's just a summary. There's a lot more that goes into it as far as what they use to determine this information, but it's you know, in summary, it's going to make it quite a different landscape from a mortgage standpoint as far as qualifying goes. So my job just got more fun.

Speaker 1: 15:30

Always on your toes. Yeah, exactly, exactly Good.

Speaker 2: 15:36

I'm sure. And when did you say it? Say, you said the bill hasn't passed yet.

Speaker 3: 15:41

So the big beautiful bill just passed through the Budget Committee for the Congress. It goes to vote in Congress, I believe this week into next week. They believe that they have enough support to pass it first time around. But there are some Republican voters that are going on record already saying that they do not support the bill. Republican voters that are going on record already saying that they do not support the bill. And so it may or may not. It's going to take a little bit for it to pass through the House and I'm sure there'll be some changes and then if it goes again to the Senate, then we have to wait for the Senate to pass it, so the Republicans have the majority in the House and the Senate. This bill was designed by only House Republicans in a budget committee, so no Democrats were on the committee to help design this bill. So you can imagine from a political standpoint, as it goes to Congress it's going to be probably an automatic no from a lot of Democrats without even reading it, because they didn't have input.

Speaker 2: 16:38

But you said there's a couple republicans that are already on record.

Speaker 3: 16:43

They're more middle-of-the-line republicans, um, that, have you know, are more on the independent side but go under the republican you know party. So there are some goods and bads to the to the bill. Um, there are some very helpful things, um, I think there's some helpful things for student loans and the idea that you don't, you're not going to let somebody go into $300,000, $400,000 in debt to go to college to get a job that's $40,000 a year, things like that, and it's holding the college accountable for the majors that they're offering and the education that they're offering and the job placement that they can help with.

Speaker 2: 17:24

Yeah.

Speaker 1: 17:26

I think there's some good things to come of it in the future.

Speaker 3: 17:32

I know they wanted to pass by Memorial Day, but that again is yeah, that's. I mean, they are, they are. It is sitting with the house right now, but I really I don't know when their first vote is. I highly doubt it'll pass the first time, but what do I know?

Speaker 2: 17:44

Yep, you just don't think it stays Okay. Well, this is really good info, because I was kind of in the dark on this.

Speaker 3: 17:47

So yeah, yeah, and I would just encourage, if you do have people who are first-time homebuyers or people that you know have student loan debt, make sure they're in communication with their servicer out of any changes that are happening so that they can make those decisions on making sure that they have some sort of payment plan set up so that they are protected in case these changes do come through. And you know they're made aware. But there's millions of student loan holders that don't have updated addresses, updated contact information, updated emails, so they were not getting the notifications for the February 1st changes.

Speaker 2: 18:23

yeah, I think something may have happened with my daughter. With that I remember.

Speaker 3: 18:28

I believe it, especially for young, you know, 20 something year olds who have moved around. I mean, the last thing that they think about is updating their information with their student loans, you know but all of a sudden her payment skyrocketed.

Speaker 2: 18:43

She was on like a you know, income driven payment plan and all of a sudden it just exploded.

Speaker 3: 18:51

Yeah, cause she got put on what's called the safe plan. So anyone who is on an income driven repayment plan as of January 31st got automatically flipped over to what's called a save plan, and the save plan basically is based on last recorded income and a certain percentage of the balance. So that's probably why it got increased so quickly.

Speaker 4: 19:16

Wow.

Speaker 3: 19:16

Okay so she could go back to the servicer and work out another payment plan. Okay, so I'm sure that they, uh yeah, overwhelmed with phone calls and all of this. So you have the one servicer that's reporting them continuously late even though they don't hold the debt, and then you have the new servicer that can't get them set up in the system to make payments. So I have one client that's struggling with that right now. That's been going on for not three, four months. So kind of crazy, yeah, yeah, super fun. So kind of crazy, yeah, yeah, super fun.

Speaker 1: 20:09

Thank you for all that information. Yeah, yeah.

Speaker 2: 20:12

So our last meeting we kind of in-house here talked a little bit about I think Angie brought up what was going on with insurance and HOAs and whatnot, and so maybe we can talk about that. I mean does? Yeah, I quite didn't understand the situation before.

Speaker 5: 20:30

So if you could like, break it more down for me, because I'm not computing.

Speaker 1: 20:35

So the question's going through the HOA and what's happening with insurance. I know with like the one that we just went through with the master insurance and everything that's changed that no one really knows about, and now especially the HOA doesn't know. So in our case, the one that I worked through that ended up canceling, it's the HOA and then it's the management company and then behind the management company is the master insurance policy holding company. So there's actually three entities and most associations board members are members in the community that are volunteering. So it's not like a position that you have to be hired for, know our past tests or whatever. So it's a lot of and what I saw and this is why we want you to talk to us a little bit the left hand definitely doesn't know what the I saw and this is why we want you to talk to us a little bit the left hand definitely doesn't know what the excuse me right hand's doing walking, running, crawling. I mean no one understands what they don't understand.

Speaker 1: 21:33

And I know, nikki, I love the comment you made at one point. You said you could literally make a career right now going out and being a consultant for these HOAs, because no one understand what's going on. Therefore, we're not educated on it. And it just all happened in this first quarter and there was no turnabouts. All of a sudden, turnabout showed up everywhere. You just drove up and you had to figure out how to do a turnabout. So it's kind of like this, a roundabout type of a thing, so same thing here. So we'd love to have a little bit of education on where we're at as it sits today.

Speaker 3: 22:07

Okay, so big changes implemented from HOAs and the insurance requirements, as you mentioned, angie. I'll preface this by saying us in the lending world, we've been known about this for six months before it changed in January, and it is impossible for us to get the word out in a meaningful way to every single HOA and every single association management company. Here's what I will say. Most HOAs do have an association management company. That association management company is responsible for helping the board members with budgeting, insurance reserves, maintenance items, assessments, things of that nature that help the association run. It is also their responsibility to fill out lender questionnaires as it pertains to individual homeowners purchasing homes or refinancing homes within the community. These lender questionnaires ask questions about ownership, in other words, percentage of ownership by primary residence holders, second home residence holders and investment home residence holders. What percentages are owned by those types of qualifying borrowers? It asks questions about the maximum number of properties that one individual owns or one entity owns within a community. It asks what the reserve amount is. It asks about different budget questions and it asks about HOA coverage and special assessments. These are all important things that changed from a requirement standpoint as of January 1st to make sure that associations have healthy budgets, proper insurance coverage, any deferred maintenance taken care of and to make sure that if there was a special assessment, that the homeowners have the ability to pay for it, outside of anything that's already in the reserve account for the HOA First and foremost insurance. It used to be that if you had at least a million dollars in liability coverage and two million dollars in building coverage that you could qualify and pass on the lender questionnaire or the lender requirements.

Speaker 3: 24:27

On the lender questionnaire or the lender requirements, the important change that happened was the deductible amount. It used to be that you could have a higher deductible for your master policy insurance because that deductible amount is paid for by the members of the home owners. So, for example, if you had a $25,000 deductible and there was, you know, 250 homes, everybody has to pay $1,000. That homeowner in their personal insurance policy has coverage to cover their portion of the master insurance policy's deductible. Does that make sense? So, $25,000 deductible, each home is assessed $1,000. That homeowner says to their insurance company hey, I'm assessed $1,000 deductible. Each home is assessed $1,000. That homeowner says to their insurance company hey, I'm assessed $1,000 for deductible on the master insurance. The homeowner's insurance policy says no problem we got you. Here's your $1,000, goes to the master insurance, your cover.

Speaker 3: 25:18

Okay, what was happening is that you'd have $100,000 deductibles, $25,000 assessed per owner insurance coverage on the per owner's end of $5,000 deductibles $25,000 assessed per owner insurance coverage on the per owner's end of $5,000. So all of a sudden they have to come up with $20,000. So that's the reason that that deductible amount or percentage changed. It is now no more than 5% of the coverage amount. So in other words, you cannot have a deductible that's $100,000 for the homeowners. It's going to be more like the $25,000 as described. It can be no more than 5% of the replacement cost coverage for the building for the master insurance policy. On the flip side, the HO6 policy or the homeowner's personal policy is required to have coverage for the deductible for the master insurance. They don't really say how much, but they are required to have that coverage so that that policy will kick in, pay for the master insurance deductible to fix whatever needs to be fixed. So this is a huge change. Most insurance policies are at somewhere around 10%. Most master insurance policies are somewhere around 10%.

Speaker 4: 26:39

I just wanted to know on the HO6, then is that something that they can put into the HO6 that it would pay the deductible up to a certain percentage, correct?

Speaker 3: 26:54

Yeah, it's either a certain percent. Most of the time it's a dollar amount, most of the time we see up to $5,000, but they can elect to have more. Okay, so if you you know your insurance, their insurance agent should be able to talk to them about the options, should be able to look at the master insurance policy and should be able to say, hey, fyi, this master insurance policy, you're going to be responsible for six thousand dollars, we'll cover you for at least that much, you know. Whatever that amount is, that's what should be happening in theory.

Speaker 4: 27:23

So I have yep, I have um one client who have been trying to deal with their association the big one that they have and they're like oh, you know what? Our insurance hasn't been updated here since 2018. But they don't have any idea what the deductible or anything is Correct.

Speaker 3: 27:44

So what's happening is is, as these policies come to renewal, the association management company is supposed to renew the insurance in compliance with fannie mae and freddie mac guidelines when it comes to coverages. Now, whether they do remains to be the question. So a lot of times so when you are renewing master policy insurance, it comes up every year to renew. Most of the time, homeowners, board members, association management companies they don't look at it, they're just like renew it, move on. Well, what's happening now is the increase in cost of insurance in general is causing a lot of these HOA management companies and HOA board members to say whoa, whoa, whoa, whoa, wait a second. This is a major increase to our insurance cost. What's going on here? The other thing is so they'll have to correct it at that point.

Speaker 3: 28:39

The other thing is is let's say you have a homeowner that wants to purchase a home and close end of May, that new insurance policy doesn't kick in until August. Let's say so. In other words, they know they need a correction. The new insurance policy will have the correct deductibles that fall within compliance of Fannie Mae and Freddie Mac, but that won't go into effect until August because that's when their renewal is. Fannie Mae and Freddie Mac say if that renewal is within 60 days of your closing date and it is in effect by the time that the client makes their first payment, then it is acceptable. If you are closing May 31st, your payment is July 1st.

Speaker 3: 29:24

If that new thing doesn't go into effect until August, nope, got to delay closing. Does that make sense? So yeah, so what I've seen board members say okay, can we look at renewing early? Well, if they look at renewing early, it's costing them double insurance, basically for however many months that they're renewing early at. So in other words, if the policy goes from August to August and they need it renewed in June, they've already paid the August to August. So they're basically double paying for June and July. So a lot of associations are saying no, we're not going to do that, that's not a fiscally responsible thing for us to do.

Speaker 1: 30:02

So in the case, nikki, of what you know, I went through with this and back when this happened, I had a seller who we had the buyer. It was two, three weeks past closing. They had moved out and ended up canceling because of this reason very quickly, because it took two to three weeks for us to get to the right person within again, the association, the management, then the insurance master policy, and then the association said they could approve it, but then the master insurance policy person's like not a chance. But yeah, we can, and there's just so, again, no one knew what they didn't know. So so we can, we can protect our clients. What questions do we ask? And how do we get to this quicker than three weeks when you have your seller sleeping on a blow-up mattress, two pots and pans moved out?

Speaker 3: 30:58

Yeah, okay. So question In Minnesota and I'm somewhat familiar with this, but I know that when you sign up for a scrim you have up to 10 days to get the condo docs correct Condo or townhome docs. Okay, then how long is your, is your review time? Does it still? It is still within those 10 days, so they have to give them to you and you have a new time. Is there a point, is there a like? Do they have to give them to you within a certain number of days or is it just everything's has to happen within 10 days?

Speaker 2: 31:26

once they give them to you, day one starts day one starts once they are handed over.

Speaker 3: 31:30

Okay, cool, that's what I thought up to 30 days to redo.

Speaker 3: 31:34

Okay, so in that 10 day mark, I would actually suggest that you, as a listing agent, put those documents up on the mls, upload them to the MLS. You, as a listing agent, get a hold of that master insurance policies. Talk to a lender, say, hey, I have this master insurance policy, I need you to review this and this lender questionnaire. I need you to review this for listing purposes. No problem, I'll review it. Not a problem, no big deal.

Speaker 3: 32:05

Don't ever, ever, ever, ever, ever, trust what another listing agent is putting online as far as approved financing for any condo or any townhome. Love you agents. You guys can do all the research in the world, but 90% of the time that information is inaccurate. So that's just how it is, even though they think they know, oh, how'd you buy this house? Why bought a conventional doesn't mean it's approved. It doesn't mean anything because things could change. And therefore it's on you as the listing agent number one do your research and make sure it can do it.

Speaker 3: 32:39

But not all the agents are doing it and they don't know who to talk to and they don't know who to contact to get those documents into the right hands to get reviewed for FHA and conventional financing. Okay, as a buyer's agent, if those documents are not on the listing, talk to the listing agent, see if you can get the documents before they even make the offer. Because and then again, hi have me take a look at them and say yes or no, because it'll take me 20 minutes to review something and say, hey, the insurance isn't going to be good, you're going to be screwed up here, or the reserves aren't enough, or there's too many investment property owners, or there's too many owned by one person. Whatever those problems are that continuously come up with associations, those are going to really help your client determine what they're going to offer and how they're going to offer on any property.

Speaker 4: 33:39

So with the client that I'm working with right now, he had gotten a notice before our first listing consultation that his insurance company was canceling him but switching him over to another company that offered an HO6. So do you think?

Speaker 3: 33:54

that means that. So that's personal insurance. So there's two types of insurance.

Speaker 3: 33:58

There's the master insurance association. And then there's his personal insurance. Maybe his personal insurance company just said we're not doing HO6s anymore, but this other company is that's probably what happened. Maybe his personal insurance company just said we're not doing age of sixes anymore, but this other company is that's probably what happened. A lot of insurance companies like State Farm and things like that are pulling out of age of six policies because of the liability it holds with the master insurance and they're seeing that the master insurance policies aren't exactly where they need to be. So they're saying we're not going to cover this mess. That's inevitably going to happen over here.

Speaker 3: 34:34

Now, with that being said, a little trick. If there are reserves that are a little bit short of Fannie Mae and Freddie Mac's requirements, you can obtain six months of meeting minutes from the board to determine whether there's assessments, indication of deferred maintenance, assessments that are going to be coming up, that are not assessed yet or not, or that could cause problems in the future. If in those six months of meeting minutes they don't mention anything, it's just business as usual then you don't have as much of a reserve requirement restriction. So we use that a lot because a lot of these places do not have reserve requirements met. So there are options in that realm to say, okay, they don't quite meet the reserve requirement, but we know that over the last six months there's been no mention of a deferred maintenance item such as roofing, decking, asphalt, parking lots, painting, landscaping, pool maintenance, et cetera, et cetera, et cetera go down the line, and there's been no mention of special assessments from a tax standpoint or from assessing the homeowners for any of these expenses. Therefore, we know that nothing's going to come up within the next three to four months and we can likely say that.

Speaker 3: 35:49

So there's a lot that happens with HOAs. Like I said as a listing agent, send me the insurance, send me the insurance. If the only thing you do is send the insurance over to me and say, hey, can you take a look at this? That's one way to prevent a lot of problems. If there's reserve requirement issues, investor issues, things of that nature, those things can be either resolved or we can use what's called a non-QM product or a non-warrantable condo product to finance it. But if the insurance is screwed, you don't finance it, plain and simple.

Speaker 5: 36:24

That's what I'm not understanding, because you said Freddie and Fannie set the guidelines, so that means it's just conventional or it's conventional. Fha, DVA, all of them.

Speaker 3: 36:34

The insurance requirements for any lending are the same FHA, va. Fannie Freddie, if it's harder for buyers.

Speaker 5: 36:41

They would have to do a loan. That's a little bit different.

Speaker 3: 36:45

If the insurance is screwed up, they're not getting a loan, any loan. Well, they could go to a local bank and a local bank and be like, yeah, we'll take a chance on the roof not falling off in the next 12 years, no problem. But I highly doubt it. So if the insurance is screwed up, they're not getting a loan.

Speaker 5: 37:02

So it's just something these associations are going to have to work through to get proper insurance Correct To be able to sell their home right now.

Speaker 3: 37:10

Correct. That's just a time issue then it is a time issue. When does the insurance renewal come up? Is the board willing to renew earlier, make changes earlier than the renewal time, and will the insurance company insure them for the proper amount, or do they have to change insurance companies?

Speaker 3: 37:31

okay thank you so much yes so, just as a reminder, this all happened. All of these changes happen because, as a result of the condo collapse in miami, okay, florida has extremely restrictive policies within their hoAs right now that basically say that by January 1st 2025, the reserve requirements for every association in the state of Florida had to be fulfilled. They had to have enough reserves and all of their insurance had to be changed over by January 1st 2025. That was a Florida-specific law that happened.

Speaker 3: 38:07

So when Florida sorry, my cat loves to bug me while I'm on Zoom. So in Florida, if you are in an HOA in Florida, you're going to have proper insurance and proper reserves by now. The problem that happened in Florida is if you had an association that didn't meet the reserve requirements, of course that gap was assessed to the homeowners and we saw HOA dues go from $300,000 to $3,000 to make up for the reserve requirement within that timeframe. So that's been a huge issue in Florida. Now A lot of people trying to sell their condos with HOA dues of $1,000, $1,500, $2,000, which is more than the actual payment, thousand, which is more than the actual payment. Therefore the values of the homes are decreasing because people just can't afford to buy them at the purchase price with those HOA dues.

Speaker 3: 38:53

Now, in theory, could they have made the reserve requirement and lowered the HOA dues back down? Yes, but will they Probably not, you know. So it's a huge problem in Florida, or it was a huge problem in Florida. It's a huge problem now with the HOA dues, but in, like Minnesota and Arizona, most of the time the reserves are okay. It's the insurance that they have to be working through this year most of the year, this year, and if the board members don't know, it's up to the association management company. If the association management company doesn't know, or they don't know, it's up to the association management company. If the association management company doesn't know, or they don't care, or they're just collecting their fees and they don't really pay attention, it could go unnoticed for the entire year.

Speaker 3: 39:39

Which I've seen happen as well.

Speaker 1: 39:43

Oh, my seller two days before no, can you guys hear me?

Speaker 3: 39:56

yep, we can, I'll put you back. Okay, you were frozen for a little bit, but yeah, I mean that's like the hoas are are going to continue to be an issue for everyone this year and like I said, if you're a listing agent, get those documents on the mls for review. If you are a buyer's agent, get a hold of the master insurance at the very least and send it to your lender. And if you're a listing agent, get a hold of the master insurance, at the very least, and send it to your lender and if you're a listing agent, get a hold of the documents and send it to your lender anyway.

Speaker 3: 40:21

So the other thing that we can do and this applies to not only just condos and townhomes with HOAs, but this applies to any single family residence the new kind of idea behind listing homes right now and kind of, you know, instead of talking to your client about a price drop, you know things of that nature what we can do is we can say OK for this specific listing we will offer you know, the seller is willing to offer a 5.99% interest rate buy down to any buyer that comes in. The reason that this is important in the condos is basically what happens is if you say, let's just say you have a home that's you listed for $500,000 and it's just not getting a lot of activity, your first gut instinct is going to be what? Lower the price, right? Well, instead of lowering the price, it might be more attractive to say okay, we're going to attach a mortgage loan offering to this property that's going to offer a 5.99% interest rate if you purchase this property and the seller is going to pay that buy down. So on a $500,000 property, let's say, the buy down is 3%. So the seller is paying 3%, $15,000, to get a buyer in there, basically to get a loan at 5.99%. Why that's advantageous is number one, you're not having to lower the purchase price. But number two, it actually helps get more buyers qualified at lower interest rates.

Speaker 3: 41:51

So what you're doing is basically saying, well, sell your home for more and if we do a price drop you're gonna lose out that money anyway. So we might as well take that money and use it to your advantage. So in other words, instead of saying let's go from 500 to 485, that 15,000 is gone and has literally no use to it, but at 500,000, with a seller buy down to let's call it, 5.99, 5.875, whatever that amount is, all of a sudden that 15,000 that they were going to lose anyway is now put to good use in attracting more buyers. This can be extremely helpful in condo situations, because then you have a lender that's already reviewed the condo, already has approval for it and can basically plug and play any buyer in there. So it helps with condos getting the HOAs reviewed, getting those approved in advance so that buyers coming in can actually close on loans. And, number two, helping on any listing single family listing if you're looking at a price drop, use it to your advantage. Take that price drop money and use it to offer to buy down a rate to the buyer.

Speaker 3: 42:58

Builders do it all the time. Builders offer 4.99%, 5.5%, whatever they offer, and they just work that amount into the sales price. The buyer's just paying more for the house. It's the same way with this Buyer's just paying more for the house. It's the same way with this. Buyers are just paying more for the house. So it's a good strategy. I've seen it started. I've started using it, especially in Arizona. That's all we have is condos down here, basically HOAs. I shouldn't say all we have, but there's a ton of HOAs down here and it's been pretty effective in saying, okay, the HOA has already been reviewed, let's get a buyer in here and plug and play.

Speaker 4: 43:40

Okay, yep, okay, that was good Okay.

Speaker 3: 43:44

Very good. Yes, what other general questions do you guys have? I know it's a lot of information.

Speaker 2: 43:51

Do we want to? Can you hear me, nikki? Do you want to just kind of touch a little bit? Let these guys know I just kind of mentioned we've got a mutual client that we have them ready to go with the NOC program to help.

Speaker 3: 44:12

Yeah, I can talk about it a little bit. So NOC lending is basically a cash buyer for the client's home. When a client is going in and they have to offer contingent upon the sale of their house, obviously that can be a detriment to competing with other offers on homes that can go non-contingent Knock. But basically knock lending does is it writes a purchase agreement for that client's home and advances their down payment on the new home via earnest money. So in other words, if your home that you have to sell is $500,000 and you need $100,000 to put as down payment on the new home, noc will write a purchase agreement for $500,000 and give you earnest money of $100,000 so that you can close on that home. The reason that this works is that Fannie Mae and Freddie Mac say that as long as you have an accepted purchase agreement with no financing contingencies, closing any time after your next purchase with a close date, any time after your next purchase with a close date, any time after your next purchase date, as long as there's no financing contingencies, you are considered a non-contingent buyer.

Speaker 3: 45:27

Knock Lending writes a purchase agreement for cash, gives you $100,000 or whatever it is that you need for your down payment on your next house you $100,000 or whatever it is that you need for your down payment on your next house and then closes, writes a close date six months after your purchase date on your next home. So you have. So the listing agent has up to six months to sell it to anybody and if they don't Knock, lending will come in and purchase that house at the agreed upon sales price. Why this is interesting is it does come with fees around 2.25% of the purchase of the list price but if you are in a situation where you need to offer non-contingent, you do not have to pay that 2.25% upfront to knock. You can have it in place so that in case your home doesn't sell by the time you close on the other one, you know that there is a purchase agreement there. Now not only do they collect the 2.25% as their fee, but they also collect that six months of mortgage payments right away as well. So in other words, that mortgage is paid, you are truly a non-contingent borrower.

Speaker 3: 46:39

With your home already sold at the agreed upon price, you already have your down payment on your new house, you already have accounted for the six months of PITIA on your home and you can use that money to and put yourself in there as a non-contingent buyer. Super useful tool, especially for people who have a lot of equity in their home. They don't go to a hundred percent of the purchase price but they'll go to like 90% as far as how much money they'll give you up front, so like from an earnest money standpoint. So it's it's super useful. We're using it with one of Chrissy's clients right now. They happen to have gotten a purchase agreement within the meantime that they accepted, so we won't need the NOC lending. But it is something that, as long as you can be approved for a normal mortgage loan, you will get the approval for the NOC lending and it's zero percent, zero dollar payments, et cetera.

Speaker 5: 47:33

Chrissy, do you write that offer as a cash fund? No, okay, no, but's a non-contingent okay with just a normal down payment with that non-contingent it's for it.

Speaker 2: 47:46

So it is non-contingent because we have the knock program approval and so, either way, the house is going to be, we're going to have the down payment and they can purchase non-contingent Whether we get their house sold beforehand or not. Noc is stepping in.

Speaker 1: 48:04

It's like an ace in the pocket.

Speaker 4: 48:09

None of the financing. Is that what you're saying? You don't put on anything on the financing and that part where it says buyer, yeah, I guess you wouldn't be like a cash buyer then.

Speaker 2: 48:19

No, because it's not a full cash. It's still being financed.

Speaker 3: 48:24

Well, no, they'll pay cash, not pay cash for it in six months if it doesn't close.

Speaker 2: 48:28

Yes, yes, yeah, we didn't write the offer as a cash offer because they'd only be coming in with $100,000 down.

Speaker 3: 48:40

Yeah, you didn't write their offer as a cash offer, but the offer that NOC sends is a cash offer.

Speaker 4: 48:46

Yeah, what you were saying about the purchaser.

Speaker 3: 48:50

The purchaser of their home is a cash offer from NOC.

Speaker 4: 48:56

Yeah, but the person that got the cash offer from NOC're purchasing. How does that go into our participation?

Speaker 5: 49:00

yeah, I'm wondering how the listing agent would know this is special by looking at your purchase agreement it's not any different than any other offer. There's nothing but it is because it's not contingent on financing, and so that's attractive, isn't it?

Speaker 2: 49:15

to.

Speaker 3: 49:15

Nikki, can you hear? Not really.

Speaker 5: 49:21

Something about I said well, as a listing agent, how would we know this is a more special offer? How would we know this is not contingent? And so I'm asking how she filled out her PA to let them know that, hey, this is a sure deal.

Speaker 3: 49:39

So okay. So let me explain it from the beginning. So you have the home that you're selling. Noc comes in and says I'm going to write a purchase agreement offering cash for this cash purchase for this home six months from now.

Speaker 1: 49:52

So you have a purchase agreement from NOC that's going to close six months from today.

Speaker 5: 49:56

They're going to buy it cash, so you don a purchase agreement from NOC that's going to close six months from today. They're going to buy it cash.

Speaker 3: 50:01

Oh, they're buying your home, so you don't need to sell your home, correct, correct, you can sell the home anytime within that six months and not have to use NOC.

Speaker 2: 50:09

So you're not even committed to that. So the goal was let's hurry up and get your house listed and we are really going to ultimately try to get your house sold period before the closing date of your purchase. If we can't, we have knock as a backup.

Speaker 5: 50:24

We already have that lined up.

Speaker 2: 50:25

I'm starting to follow. We're trying to save them the fees that are associated with going that route. Either way, the house my clients are buying, they have to close on the closing date because it is a non-contingent offer so for some reason we can't close on their the sale of their house with this other buyer. Okay, we're gonna have to divert knock knock.

Speaker 5: 50:49

Yep, we're gonna have to assume those extra fees okay, yeah, so you're just, you're just writing this amount down, correct.

Speaker 4: 51:00

Just like and then there'll be, but you're not paying any kind of a mortgage amount on the new house.

Speaker 3: 51:06

Yes, you are. You're just using the. Yeah, you are because you're just using the equity of your home in advance is basically what happens. So that earnest money amount that knock puts on the purchase agreement is the amount that they will send you to put as down payment on the new house. It could be all cash, you just don't know. I mean, it could happen to be that you don't need a mortgage on the new purchase, but most of the time you will, because you only have a certain amount of equity. So, for example, you owe $300,000 on your house, you're listing it at $500,000, not comes in and says we're going to pay $500,000, but we're going to give you $100,000 as earnest money. You take that $100,000, you're non-contingent as down payment on the new house and then you mortgage the rest of it.

Speaker 5: 51:47

Trying to make an offer to get a new house for your clients.

Speaker 2: 51:52

And, but oh, I think your question. Can you hear me, nikki? Yeah, I think the question is is there a finance contingency on the offer?

Speaker 3: 52:04

yeah, and on the offer of the home that you're purchasing I still included a finance? Yeah, of course because they don't in this case you don't have. You're only getting 150150,000 in equity, so you're not going to buy a house for $150,000. That's going to be your down payment amount. So you have to finance the rest of what you're purchasing.

Speaker 1: 52:27

It's just non-contingent on the sale.

Speaker 3: 52:28

It's non-contingent on the sale not non-financed.

Speaker 2: 52:34

Yeah, it's still. It's still contingent on financing.

Speaker 3: 52:39

Yeah, it's contingent on financing, not contingent on the sale. Yep, so business as usual, business as usual. Yep. Now this only works for FYI. This only works for conventional buyers. This does not work for FHA buyers because FHA buyers do not have the same guideline from a closing financial contingency standpoint on the lending side.

Speaker 2: 53:00

Okay, got it.

Speaker 4: 53:02

All right, One we're throwing it out there because you have to have enough equity in your house in order for this to work.

Speaker 2: 53:10

Yeah, you do. We talked about another client and they don't have it. Do you know what the threshold is for equity?

Speaker 3: 53:17

90%. So if so, they'll go up to 90% of the home of the listing price. So, between what they owe on the mortgage and 90% of the listing price, that's the amount that they'll give you basically.

Speaker 2: 53:29

Minus the sellers have to have. In their home. The homeowners like how much equity do they have to have?

Speaker 3: 53:38

Well, I would say I would say at least 20%, because they're only going to need 5% on the new home. You know, 5% to close, but I would say at least 20%. Okay, all right, that'd be a good threshold. Okay, that'd probably be the minimum I'd want, okay. So yeah, it's a good program, I mean very easy to use so what other?

Speaker 4: 54:03

questions do you?

Speaker 2: 54:04

guys have anybody else have anything.

Speaker 1: 54:07

We're obviously over our time, but yes, thank you for all the great information. Yeah absolutely.

Speaker 4: 54:14

Can you hear me? Yeah, does the student loan situation affect credit score at all?

Speaker 3: 54:24

The not loan no not does not affect credit. Yeah, doesn't affect credit at all.

Speaker 2: 54:31

Wait, you just said student loan.

Speaker 4: 54:33

Student loan.

Speaker 2: 54:34

Oh.

Speaker 4: 54:34

I thought he said oh, what's?

Speaker 2: 54:37

that.

Speaker 4: 54:38

Which part what?

Speaker 2: 54:40

do you mean yes?

Speaker 4: 54:41

Well, the whole thing with the student loans, does that affect? You know, debt to income and all that?

Speaker 5: 54:47

Yes, when that starts changing. Okay.

Speaker 3: 54:52

Yeah, so a lot of people have already been affected by the change that happened on February 1st. Anyone that didn't declare what they wanted to do with their student loans, they were affected. If this new bill passes, there'll be payment plan unless you say otherwise, so you won't have the same situation that happened where all of a sudden there's late payments reporting and you didn't go make your decision and all these things. You will automatically be transferred over to the standard payment plan If you you know if you're on one of the ones that isn't available anymore.

Speaker 2: 55:34

Hmm, that could be a lot.

Speaker 3: 55:36

Yeah Well, I mean, I'm just wondering, you know, for me it's like I'm just wondering going gosh, how are they going to determine discretionary income? That's insane, like what goes?

Speaker 1: 55:50

into that and what doesn't? What does that even mean? Determined, I know?

Speaker 2: 55:57

Well we're my daughter with three kids. I don't think there is any discretionary well, that's exactly the point, you know.

Speaker 3: 56:04

And then are they is it discretionary income of the borrower, or is it discretionary income of the married couple, or is it discretionary income? You know what I Like? What does that mean? And then also, I mean the VA, for example, has residual income requirements that you have to meet in order to qualify for a mortgage loan. So I wonder if it's going to follow their same guidelines as far as discretionary income. Who knows?

Speaker 2: 56:31

Interesting yeah.

Speaker 3: 56:32

But if you think about, like, let's say, you have what they determined to be $500 a month in discretionary income and you're saying, oh, that's 10% of that, that's a $50 a month payment. So you make a $50 a month payment for what? 20 years? And then the rest of it is forgiven. I mean, 20 years is a long time, but people have been sitting with this student loan debt for 30, 40 years.

Speaker 2: 56:55

I just paid off my student loans, like last month.

Speaker 3: 56:59

I still owe $29,000.

Speaker 5: 57:02

30 years, I know.

Speaker 3: 57:04

I'm 30 years later and I still owe $29,000. And guess how much I started with, how much 31. Yeah, that's how like. If you guys really like, if you really looked into, like, the student loans and how they operate and how predatory they are, it is crazy how much you can end up owing on those student loans If you, if you like, go on different payment plans and stuff like that, because they're basically a lot of them are negative amortization and I can't. You know, it's just crazy that they let it go on this long. It is and it's, you know, it's been a mess for a really, really, really long time.

Speaker 1: 57:49

And this solution isn't going to be a great solution, but it's. It's a solution.

Speaker 3: 57:54

It's headed the right direction, hopefully. Yeah. I mean, at least there's some forgiveness in there and at least it's based on discretionary income and not, hey, we're just going to start screwing you over and have you pay one percent of the balance you know, I mean the amount of and then holding the college is responsible as well as. Like you know, that's probably a good thing as well.

Speaker 1: 58:09

So all right, you guys. Right then that. Then what does that?

Speaker 1: 58:15

look like Like dominoes, yeah, I know We'll have so much to talk about too. So everyone anyone listening to the recording are in this room. Nikki and I meet every Monday, 1130, central Standard Time, for a quick 20 minute, and this is the type of stuff Nikki brings. I don't talk hardly at all. I'm like Nikki what's happening, what's new in the market? Uh, and up to 20 minutes of just this type of stuff. That's so, so important. So if you can't make it to that, zoom live, then definitely watch the recording. I put it LinkedIn, I put it on YouTube, I put it on Facebook, um, and Nikki is on all the channels TikTok, instagram, facebook. Every day she's posting this type of information. That's so, so, very helpful. Show up and educate your clients. She has given us permission to rip off duet, stitch, rinse and repeat. Anything that she puts out online we can use as well. So she is the person to go to with any questions. So we really, really appreciate you. She's been doing this for a very, very long time and, first off, so yeah, 50 years.

Speaker 3: 59:28

I didn't say that that was her. You see how young I look for doing this for 50 years, it's beautiful for 70. No.

Speaker 1: 59:34

I'm kidding. That's kind of what you you feel sometimes. I bet with some of these situations we put you through.

Speaker 3: 59:39

Yeah, no, 26 years so long time Cool.

Speaker 1: 59:45

Well, thank you so much. We appreciate you and yeah, we'll talk soon, all right?

Speaker 4: 59:50

Bye guys, Bye Bye.