Understanding Mortgage Options and Down Payment Strategies with Tony Cardinali

In this episode of Real Estate Connections, Mary Foerster explores one of the most common questions in home buying: how does financing actually work?

Mary speaks with mortgage professional Tony Cardinali about the fundamentals of home loans, down payment options, and what first-time buyers should understand before beginning a purchase. The conversation examines how different loan programs operate, what down payment assistance programs involve, and why communication throughout the transaction process matters.

Topics discussed include:

• What buyers can expect during an initial lender conversation
 • An overview of conventional loan programs such as HomeReady and Home Possible
 • How down payment assistance programs function
 • The role of gift funds and equity transfers in family transactions
 • Document preparation and underwriting considerations
 • Financing considerations for accessory dwelling units (ADUs)
 • Factors to consider when selecting a lender

This episode offers an educational overview of mortgage structures and real-world considerations that influence financing decisions.

Tony Cardinali is a mortgage professional based in New England. Additional information about Tony can be found in the show notes.

Connect with Tony:
https://www.linkedin.com/in/tony-cardinali-9137693/

This episode is intended for informational purposes only and does not constitute financial or investment advice.

Transcript

0:00

Welcome to Real Estate Connections and this is one of the earliest episodes and as an early episode we've got to talk about money. Anytime you are thinking about buying some property or long-term, short-term, it seems like the common issue is where is the money? And so in thinking about who to share this information with you, immediately the name Tony Cardinali came up and why did it? Because the people in my community always say Tony and Tony and I talked about what is the best way to start talking about money and he has a little kind of name that he uses when he starts talking about raising money to buy property. Welcome to Real Estate Connections podcast where relationships open doors. I'm Mary Forrester and housing is a universal need. We are often thinking about our existing housing, our future housing, that possibly of family members. This is where you're going to hear the issues and the people who are working the issues every day. Please hit subscribe and like if you find this podcast helpful to you. Thank you. Welcome Tony. Thank you. Thank you very much. Well I really enjoyed being here and thank you for inviting me and happy to be sharing a little bit of knowledge and information to help people today. Great. Very, very good. My pleasure. Well I know you've been in the mortgage, well mortgages. So mortgages, money you need to buy a house right through a lender. And I know you've been in this business a long time. Not that you're that very old but you have been through a number of ups and downs in this whole market. So I know each market feels unique and like there's never been anything like that before but I'm sure there has been. And so I know you have perspective. And so Tony, the challenges today are not only raising money but the other issue is availability, has been availability. And also real estate is so local that as you're kind of sharing with our listeners to think about maybe what might be specifically New England, Massachusetts, Eastern New England, but what you might see also elsewhere. So let's talk about where people get money to buy houses these days. How do they afford them? Yeah, no it's a grid. And you know when I speak about and I call this the shaking the money tree. It's just a funny old term that I've heard passed in our industry. But yeah, very early on in my career, I wrote a small article called 21 ways to make your down payment. And this was just an exposure to people, both real estate agents and clients, how they can come up with the money to buy a home. Now obviously, I'm in the mortgage business so financing is always a part of it. When I'm speaking with somebody, we're talking about getting a mortgage. But there's always down payment concerns. There's money. Where are we going to get the money for the down payment? There's going to be some closing costs. There's going to be some taxes and insurance due at closing. And so people are always wondering where do I come up with that money? And we really put together this list just to help people just jog their memory. Think of different ways to raise money, solve a problem. Perhaps an agent runs into a family that is looking to buy a home and they don't think they could. And this was meant to empower them to feel like they've got an option. So I cover these 21 ways or 20 ways, whatever they are today, very frequently when I'm talking with buyers. And I'd be happy to share some of those with you today. I mean, there are several major categories. There's the first time home buyer. And then there are people who are into their second, third or tenth version of it. And they have very different circumstances typically. So why don't we talk about maybe first time home buyers? What should they expect from talking to a lender? Yeah, in Massachusetts, so in New England, in all of the United States, there's a first time home buyer program, two of them, most notably sponsored by Fannie Mae and Freddie Mac. There's a Home Ready and Home Possible. They're called. You can look those up on the internet. They allow for 3% down payment. So you have to have pretty good credit scores typically to get into a conventional conforming loan like this. It's not a government loan. It's not an FHA or backed mortgage or it's not a VA loan. It's not a USDA loan. This is a traditional Fannie Mae and Freddie Mac mortgage. So many, many lenders, in fact, I'd shudder to say most lenders will do a Fannie Mae or Freddie Mac mortgage for somebody. It's probably 70% of the market that's written today is conventional conforming financing. But with that, they still often need a down payment. And that's where we come up with these different ways to raise the money for down payment. So we're talking 3% of a purchase price. It's not a lot typically unless your purchase prices are quite large in an area like Massachusetts. But it can be large. And that's the challenge that people run into. Sometimes they don't even have that. It's been hard enough just keeping the dollars and cents coming in to pay other bills in your family. And you can't always make that. So down payment assistance is available here in Massachusetts. We have the Mass Housing Mortgage Program. It's one of the best in the country. In fact, I talked to my other branches all across the country and they say Mass Housing is one of the best what we call bond programs in the United States. That means it's one of the best first time homebuyer programs here in the United States. They will provide you 3 to 5% down payment assistance. And sometimes that means even more than your down payment requirements. So if you have the 3% down payment requirement, you can get sometimes up to 5% in down payment assistance for Mass Housing. Now these are mortgages. They're second mortgages. They are not grants as they were called in the recent past where there was some federal money or state money available. These are really just second mortgages. They're usually 15-year mortgages at a very low interest rate of 2%. They do have to be repaid and you can't refinance them or can't resubordinate them and keep them forever. You have to refinance them if you want to get your self into a lower mortgage later. So that hopefully sums up down payment assistance. That's one of the places we get down payment assistance. And how do you qualify? Is there an income threshold? Yeah, it sometimes can be challenging, especially here in Massachusetts where property prices are so expensive. It's sometimes challenging for people that if they can afford the house, sometimes they can't qualify for the program because they might make too much money. So that there's a tug there between making too much money to not qualify for the program, Mass Housing program, to get down payment assistance. And then the other side of that is the inability to afford the house if you do qualify for the down payment assistance. So you really do have to be strategic about where you're shopping for homes. You have to work with lenders that understand the program very well and can make sure that you're qualified. And you need a little bit of a margin of error. You can't just barely make it. Yeah, because we've had people in the middle of transactions all of a sudden work a little over time and Mass Housing says, "Oh, now your income is much higher than the qualifying income for the area and you don't qualify anymore." So we've had to run around and solve some problems in those cases. So you do want a little bit of a margin of error. Again, working with a lender that's doing their due diligence and educating correctly so that you're not in trouble during your transaction. You could have a pretty expensive house that you still need to put down 3% to 5%. But you also have to have the income to support that, but not too much income to support that. Right. Yeah, just for the Mass Housing program. So family and Freddie Mac have a little more leniency. You can often make more money and get into the Home Ready Home Possible program, put 3% down. If somebody doesn't fit into Mass Housing, if somebody doesn't have the 3% to put down, if they have decent credit as well, we can also use the National Housing Partnership funds, which is a down payment assistance program nationally. Sometimes we go through Chinoa, which is a Chinoa foundation. They do provide 3% or 5% down payment assistance. You have to understand the interest rates on these mortgages that we do for these down payment assistance programs at these higher purchase prices when you don't qualify for Mass Housing are often higher. So sometimes it's not a payment that you really want to bite into as a first time home buyer. And so you may realign your goals and save up a little more gift funds. And we can talk about other places to raise money for that down payment that you need, but you can buy with 3% down on very expensive homes. So boy, it sounds like your lender needs to know what's available. Unbelievable. Tell me about gifts. I know that that is there are pluses and minuses of gifts, right? There's a it's a it's a great, great place to get funds for down payment, especially when you're getting a gift from a family member, relative and lenders really want the donor of that gift to be a family member or they want that donor to be there needs to be a logical reason that donors giving you money. It's just some dude, you know, and they said they're going to give you some gift money. It's going to be hard to convince a lender that there's a legitimate gift and that doesn't require repayment. So but gifts are allowed. There is no limit to the amount of gift of a family member can give you. It is often just 3% or 5% just because families don't have lots of money to throw around. And you really want to talk to an accountant. I'm not going to get into the tax laws here, but I do want to say I learned very recently from a CPA that, you know, there is a lot of misinformation about gift taxing out there. So talk to a good accountant. If you don't know one, I can refer you to one to get the real information about family gifts. What happens when you give a gift? What's the taxation requirements? What's the reporting requirements? Because it's fascinating and it's different than what I knew and changing probably changing. And by the way, it's not bad. That's the best part. It's actually very good. And I was pleasantly surprised when I got the information. So it's of these, these programs that you're describing that are particular to mass Massachusetts. What percentage of your business is are they, you know, are people that might use the programs? They are probably a very large percentage of many mortgage companies around here because it's a great program and Mass Housing is a fantastic program. New Hampshire housing is also good. Maine housing is good. There's Rhode Island. I mean, every state is going to have their own bond program. Just Mass Housing is phenomenal. Maybe 10% to 20% of our business is first time home buyers and Mass Housing type programs. But again, it depends on the area that people are shopping in. A lot of people don't qualify, you know, they don't have the credit scores. You have to have decent credit. You have, you know, pretty good credit. You have to be able to qualify for conventional financing typically. That's usually what people will use when they use the Mass Housing program. Otherwise, there are other options. We'll use FHA financing for 3.5% down where we can get this, you know, down payment assistance from the National Housing Fund. Lots of other ways to do zero down payment down with, you know, if you go with a VA loan, if you're a veteran, you get zero down. There's no down payment requirement, no monthly PMI. You can go with a USDA mortgage, although we don't use that much around here because you need to be typically in rural areas. But USDA is a great program. Very much more sensitive with debt ratios. It's hard to qualify for USDA loan, especially in New England because our prices are so high. Yeah. So it's fascinating. What about seller bias? I mean, in a tight market, I think that even though these are wonderful programs, you know, we see there's a lot of frustration out there. Yeah. Very true. Are you seeing any change? Any softening? No, softening. You know, I have to say it certainly softened October, November, December, started softening more. Right now, I wouldn't say it's soft. You're going to see it heat up again this spring as interest rates continue to fall. More buyers are going to come back into the market that were frustrated last year. They saw prices falling in the fall and they think it's going to continue on. And what we'll see is more buyers enter the market likely this spring and just more competition is just going to bring, you know, less more bidding wars for properties and the prices will continue to climb. Tony, I read that the average first time home buyer is 40 years old. Is that true? Oh, it's sad. It used to be 31, I think it was. Oh, it is. I mean, it really shows how we're keeping first time home buyers out. Yeah, it's sad. And it's affordability. I mean, we really are short inventory. I was told in 2015, builders started scaling back their building and new construction and they just haven't caught up since then. And that's a problem, obviously, here in New England. They are trying to ramp up. But again, the economics have to make sense. You know, cost of construction, materials, all of that is causing problems. I became an agent in 2009 down in Northern Virginia. And boy, it was the dark days, real dark days. One thing that that did happen then was underwriting became so difficult. And, you know, getting the final approval on a loan was so, so difficult. Are you still seeing a lot of kind of underwriting headaches? Let's have that document one more time or three more times. And again, more frustration on the borrower's side. Do you still see that? No different than I've seen for 23 years. Honestly, I think communication is one of the biggest challenges in the mortgage industry is the ability to communicate with empathy and perspective what a lender really needs and to do it in a way that somebody understands because everybody speaks differently. They learn differently about finance and checking savings, savings and their bank statements and pay stubs. And so a lender's ability to communicate why and how and what we need, where to get the documents really makes a big difference in what is delivered to us. And people think it's okay to just take a picture with your phone and shoot it in, even if it's blurry. And in the end, you know, in the beginning, that may be okay because we might be able to read it, but in the end, it may not make it all the way to the investor. The ultimate family, Fannie Mae and Freddie Mac and underwriters might push back on it. So again, it's communication, I think, that causes most of the problems between lenders and buyers and the frustrations out there. How do you deal with that? You get a new client, somebody calls you up and says, you know, I want to buy my first home. How do you kind of work toward eliminating those boundaries, those barriers? You know, you really have to treat the person the way, you know, not treat them, but help them the way they need to be helped. That's what I was trying to say. It's really you have to understand your client, understand what's important to them and how they communicate. And, you know, you'll start getting clues when they start, you know, taking half a snapshot of a half a pay stub with stuff missing. And you'll start getting clues that, you know, this one's going to need a little bit more help and guidance. And I'm a lifelong learner. So whenever something goes a little bit crooked in a transaction and someone gets frustrated, I learn from it and I change our processes, I improve our ways. And we've got team members that's all they do is communicate with buyers to help them gather documents. And the more people you have, I think the not the more people, the better people you have on your team, the better the communication with your clients will be. And, you know, the easier you're going to make that process for them. New buyers. Yeah. Are they able to use, you know, rental payments as part of their credit history? I mean, is it? Yeah, yeah, we can do that. It's a little known and little done, quite frankly. A lot of people do have credit today. But home buyers that don't have credit yet or haven't established credit can actually, you know, have credit built for them during their transaction. And if they've got rent payments, cell phone bills, gas cards, credit cards, things like that that they pay regularly, we can establish a credit history with that. There are programs out there that allow us to do that and close on the mortgage with them, their first time home buyer programs. And, you know, they'll be a home buyer and establishing credit at the same time, basically. Well, so we do help. What else do we earn? You're shaking the money? Pretty money tree. There's some cool stuff I want to share with you, actually. I love sharing things that is little known and that people get to use to their advantage. One of the little known things out there, I get these calls and I get so excited when someone calls me with a scenario and I say, "Oh, I got the answer for that." One of them is a gift of equity. Again, the gift of equity is one of the magical ways a family member can gift equity in a home when they're selling a home to another family member. Parents are often selling to their kids their lifelong home and they're downsizing. The parents can actually gift equity during the transaction at the closing to help their child, if that is, or niece, nephew, whatever it might be, a grandchild purchase the home from them. And when they gift equity, it's an instant passing of equity from the seller to the buyer. And therefore, the buyer doesn't need a down payment in that case because the down payment has been established with that gift of equity. Are we talking about the family home? Are we talking about any home? Any home that's going to be a primary residence for the buyer. Yeah, so it's fantastic. It is not well known. It's out there. It's available. It's just a part of the guidelines, if you will. It's a donor source, if you will, and it's a type of gift, but it is a really helpful way. And we've done these. I've got a special spreadsheet because I love spreadsheets that helps me figure out that a home buyer can actually purchase a home with zero dollars. The family member can gift equity, a sufficient amount of equity, cash credit at closing to pay closing costs, taxes, insurance, and everything, where the buyer comes in with absolutely nothing. So a first time home buyer with no money, buying a family home from a blood relative can receive all of the money for closing, down payment, and everything through this gift of equity program. Let's see if I can figure out how this works. Let's say we have half a million dollars equity in this property, and our daughter wants to buy a condo in, I don't know, Boston. Please, no, please, please. Anyway, and she needs $500,000 to get that. So I don't know that she'll be able to find one in Boston, but that would be the total value, the total cost of the property. Well, the property that is being sold is the home where the equity is being gifted from. So parents own 123 Main Street in Chelmsford want to sell that to their daughter because they want to downsize into a new home, and they can gift some amount of the equity. It could be three grand of the equity, it could be 30%, 20% of the equity. And oftentimes it's 20% because then the daughter buying the home from the parents has no PMI, no down payment requirement, can come in with no cash to close. I mean, all the closing cost tax insurance, everything is set up and paid for with it. It's fantastic. So gift of equity is a great one. Again, talk to your CPA about cost basis. Talk to them about gift taxing, gift reporting, that sort of stuff. You'll be surprised and happy to hear how it works. And it's also important to talk to a CPA when you're passing real estate to another family member, just for that family member's future taxation and capital gains, that sort of thing. I gotta do a little more. A little more. Yeah, I've gotta see that just a little bit more because that sounds wonderful. It's wonderful. It's great. And I'd be happy to talk with anybody about it to help them understand it better. There's also little used, often overlooked, things like bridal registries. You could be getting married and you're getting a whole bunch of funds dropped into a bridal registry, a gift fund, and that can be used as down payment money. Your parents can borrow the money and gift it to you from their equity line of credit. That's allowed. Charitable organizations often employers can gift money to an employee through an employee gift program that we help them establish. I am amazed. Proceeds from the sale of personal items. Automobiles can be sold with a bill of sale and you can use those funds for down payment. All this kind of stuff. We need to hone in on some of that very specifically because wow, that's terrific. I've not heard of these before. Yeah. Yeah, terrific. Yeah, lots of ways. You learn about these over the years because you run into people that are just struggling and you want to help them. You go through this brainstorming checklist of things that they can... And I'll share the 21 ways to make your down payment. I think it might be 20 now. Eliminated. I shrunk it down to 20. But I'll share that with you. It's a checklist you can have. Share with your listeners and they can use it readily to just kind of shake the money tree when the time comes to figure out where they can buy. We've used rent credits before. People can do a lease to purchase. That's down payment source. Less often used. There's some guidelines there that you really need to know about. It's not willy-nilly. There are some specific guidelines to follow when you're doing lease to own type down payment assistance. Use this once before. Trade equity. Sweat equity. That's a little dangerous. I typically tell people to stay away from sweat equity and fixing up a home before you own it. Yes. And then getting that as down payment. You can see the warning signs there. Yeah. Be careful with that. But yeah, those are some of the cool ways that people can raise money to buy a home. Obviously, there's a lot more I can share with you. But do you have any questions? I have a million questions. Just a million questions. So this state in 19 states total have passed something called accessory dwelling units. Yeah. And I want to talk a little bit about that as a way of trying to alleviate some of the housing shortage here, right? And also as a way to build wealth. Also as a way as probably transition for older homeowners to move out of the demands of a big house and move into a small house or excessive accessory dwelling units. So Massachusetts is one of the initial 11 states. New Hampshire just added, but a number of other states across the nation are moving into this accessory dwelling unit. And I don't know how they're being funded, but have you encountered them much at all in your own experience? Yeah, not a lot. I mean, certainly, we've done a number of mortgages for homes with ADUs. So that's a very common thing. So there's no shortage in clients that have closed even in the last couple of years that purchased a home that had an ADU already built. What Massachusetts did, I think, has made it a little bit easier to build the ADU on the property. And that's a really life-saving thing for a lot of people that are maybe aging. They want to age in place. And this is a solution for them to kind of partially hitch their wagon to their kids' future by selling the family home to their kids. And the kids can build an ADU using financing for their parents to live in on property. And the parents can age in place, which is a goal of many of them because they're still active, right? And this allows them to do that and build the accessory dwelling unit right on the property. And then the family home can be occupied by family, children, or can be occupied by somebody renting it. And so you are bringing income. Either way, you're renting the ADU out to a third party or you're renting the major home. And I understand even duplexes, if there's sufficient space, duplexes can actually put in an ADU. It's fascinating, but I think in this state, what we're seeing is the town slowly kind of trying to adjust to the intent of the law vis-a-vis what they really want for themselves. And so we're seeing a little bit of resistance here and there. But what I hear you talking about is the old kind of mother-in-law apartment or... Yeah. So when I became a realtor, the county that we lived in did everything it could to prevent density. Okay. So no mother-in-law apartments, unless you're proving that that person is related to you. No stoves in the basement, no excessive asphalting of the driveway or the yard. And now we're in a different time and you get to see it too. What does your crystal ball say about how are we going to get more housing? I think really it's going to probably happen at the town level, the state level, if you will, even just empowering builders to build more and loosening up requirements to convert property into housing, especially condo developments. Because we do have a shortage of housing, certainly a shortage of land in a lot of these areas to build housing. So a lot of it's converting the older inventory into newer places. And that does require the towns and historical things to allow for it. We have a dog here at the door. A dog at the door. That's Woody and he wanted to have his two cents in here as well. I agree. He agrees with me. He is. He's very smart. He's a very smart dog. I love it. So the other group of people or the people who have property already can sell their property and use the equity to be maybe a cash-only buyer and thereby keeping out those many, many people who want to buy a home who just can't get in there in terms of the deal. That's right. So what are the options? Is there anything really clever? How do you manage the timing of, "Okay, I want to sell the house and I want to move into something smaller or a community or whatever." What is the process there? That's a great question. It's a pretty big question because there are, we've put together seven ways to be non-contingent on the sale of your departure residence. And we did that for a reason because so many people today are struggling making an offer on a home when they are contingent on the sale of a departure home. So the problem speaks to the inability to get a seller to really accept that they need to wait for another thing to happen. That's part of the challenge right now. Really getting a seller to let you be contingent on the sale of a departure. So that's a whole other session we can have together. Well, I know we only have a few minutes left. So here are the questions for you, Tony. Tony, for you, to me, you have the magic combination of being in service to people and also having knowledge and experience. So to our listeners who don't know Tony's yet, what advice do you give people as they're looking for a lender? What are the good signs to look for that they know what they're doing and they will serve you? It's a good question because I can tell you we do things very differently than a lot of lenders out there. But I think the best source for finding out a trusted professional is a real estate agent. Real estate agents, to me, are really... I saw an analogy today. They're the formula on drivers in this whole process. They are the ones that are really captaining the ship through the storm of buying a home. And it's important to align yourself with a solid, a good real estate agent, a buyer's agent, a selling agent. If you're selling a home, align yourself with a good one and ask for their professional recommendations to people because they've been in the business a long time probably if you're working with ones or they've done a number of transactions and they'll know who to talk to and who treats clients very well and is knowledgeable. I agree with you so much. I really do. As realtors, we aren't allowed to steer much, but I would give you maybe a couple of names of lenders that will get you to closing. That's the way we look at it. We'll get you to closing. And communicate well, right? Because we started out talking about communication and I think that's one of the biggest complaints is people don't communicate well. They take things for granted. They assume a lot. And I think communication is the most important thing we can provide today. Every time we talk to a CPA or something like that, I have no idea what a third of the terms mean. And I have to rely on my spousal unit to say, "What did that mean?" And what is the significance of that? And so that's really, really true. And a lot of my clients in Northern Virginia are from overseas. Smart as a whip, doctors, et cetera. And there's a lot of education that was required, a whole lot of education. So I think that's really terrific. I have so enjoyed talking with you today and I know we'll have you back. Wonderful. Well, thank you for having me, Mary. We really appreciate it. Thank you, Tony. Thank you very much. Thank you so much for joining us today. And I hope you found this conversation useful to you and your real estate goals. You'll find the contact information for our guests and any links they recommend you have in the show notes. And should we be able to help you identify some strong real estate professionals in your area? Drop us a note at info at realestakeconnectionspodcast.com. Thanks again and bye for now.