Loans Are Like Oranges

 

Hey there. Betsy Heller here. Hey, today I’ve got some props and I just want to walk you through a brief analogy on loans. I think this is the most common question. I’m not a lender. I’m a real estate broker. But this is to better help you understand why we try and help you get pre-approved with the loan ahead of time and what paperwork you need to gather.
So loans are like oranges. And oranges get divided into crates and um, they’re inspected by FDA inspectors, who, so grade A, grade B, and grade C. Grade A oranges are round and orange and smooth. And grade B oranges maybe have a little bit of green, uh, but they’re still round and they’re fairly smooth. And then you get to grade C oranges and they’re kind of a little bit lumpier.
And they all still taste the same. As are sold in the grocery store. Bs are usually kept for juicing by like Sunkist or Florida Natural. And Cs are the ones that are sent, sold to institutions, like schools or the military.
So you’re saying, “What’s this have to do with my loan?” Well loans are bundled in A, B and C. As are the ones that you hear advertised on TV and radio. And those bundles are in $50 million bundles and they’re sold on the stock market, Fannie Mae or Freddie Mac or Ginnie Mae. And all the pieces of paperwork that your lender asks you to gather it’s so that they can make sure that your loan is an A loan.
B loans are usually for self-employed, like me I own my own brokerage, or somebody who’s getting a construction loan. And in general there, they were usually smaller banks that did them. So maybe your local community bank. And then C loans are the ones that are the hard money loans. You ever hear people talk about hard money, but what they’re really saying is a much higher interest rate plus points, meaning fees up front.
 So um, when you’re looking at what you want to do, you’re looking to try and get an A loan because that’s going to be your best rates. So when people ask, well, um, when I shop around for rates you’re really still talking about probably a Fannie Mae loan. It’s just going to vary by maybe an eighth a point, maybe a quarter point. But what you’re really going to be buying is maybe the speed and the packaging so that you could close faster. There’s not really a, a ton of difference in that. The difference is really between A or B or C to B.
So now the last piece is, uh, people, um, will say, “Well, uh, why did I not hear about this before?” And you did a little bit back in the, um, 2007-8-9. You probably heard about people talking about subprime. What they were really talking about is A minus loans, so loans that didn’t quite have all the paperwork for an A loan but they still, uh, they still got the A rate. And so instead of getting a B loan, uh, those, those community banks did all A minus loans, and that’s part of what got us into the troubles we were in from 2009 to 2013.
So this is your brief update on why you should get pre-approved so you have a grade A loan and you’re set to go if you’re getting the best loan rate and it’s going to fit into this crate.
Nice talking to you.