“It is important to look at what you are already doing to see if you can increase your loan size without decreasing your margins”
I remember sitting in a seminar in 1994 and listening to a top producing loan agent talk about how hard he was working and how many transactions he was doing. He felt that he couldn’t do anymore. He then made the observation that if he wanted a raise, he needed to increase his loan amounts. Ever since that seminar, I have made an intentional effort to increase my average loan amount each year. I have actually raised my average loan amount by 80 percent since 1994.
Decide What’s Right
First of all, you must decide if working on larger transaction amounts is right for you. In most cases, a 20 percent increase in your average loan size equals a 20 percent increase to your bottom line income. I believe this is true whether your average loan amount is $80,000 in Indiana or $300,000 in Connecticut—regardless of whether your clients are mostly purchase or refinance transactions. However, there are certain circumstances when originating higher loan amounts is not profitable.
It is important to look at what are you already doing to see if can you increase your loan size without decreasing your margins. Do you mostly originate FHA or government loans that limit your loan amounts? Do you have the confidence to charge similar margins? Do you have the technical ability to work with move-up or higher-end clients? In this case we will consider higher-end customers to be professionals, business owners, and executives. Do you have the confidence it takes to approach and communicate regularly with these higher end customers?
Now that you decided it is a good idea to increase your loan amount, let’s look at several strategies to increase your loan amounts.
Expand Knowledge and Confidence
Knowledge is power. To work with this market, it is essential to know your business. Take time each week to learn what loan programs are available for higher-end clients. Don’t be afraid to meet with your lender or investor representatives to get better acquainted with these loan programs. You need to be well schooled on easy (EZ) or no documentation programs, first and second combination loans, immediate adjustable rate mortgage (ARMs), high loan to value jumbo loans, negative amortization, and conventional ARMs.
You will need to be perceived as a financial mortgage consultant. Remember with these and all clients it is imperative to not only obtain a loan for them, but it is also important to consult with them on what loan programs are available. We need to help these clients by giving them all the information so they can to make informed decisions. Consult on why a 5/1 ARM might be a better choice then a 30-year fixed, or why they do not qualify for a conventional 30-year fixed, but they qualify for an EZ doc ARM. You also need to let these clients know that you are a financial consultant who specializes in mortgage consulting. Your job is to manage their mortgage, isn’t that what an investment advisor does? It is important to look at your client’s complete financial picture. Take into account all debt and the borrower’s goals when making suggestions and recommendations.
Perhaps the most important part of an intentional increase in loan amounts is not to discount your services because your transaction is larger. You must believe your services are valuable and your consulting is making a difference to the client and the transaction as a whole. This is a mindset. If you believe in your service, your margins will remain the same or will potentially increase.
Target Your Market
Know your own numbers and market, look at your past two years, and determine your averages. Research your local market and look at what is available. Are there neighborhoods or cities that have values higher then your average? Ask yourself who are living in and buying these homes (doctors, lawyers, executives, business owners, and other professionals). How do these people find someone to consult on their mortgage? Is it the Realtor, CPA, financial advisor, friend, or through an ad?
Now that you know your own numbers, you need to decide the market you want to go after—either demographic or geographic. Demographic would be deciding on the type of client you want. Some demographic segments include professionals, executives, doctors and business owners. Geographic would be picking a neighborhood, city, or maybe a vacation home area.
Target your involvement to industry specific associations that can lead you to the upper-end transactions. Target specific segments within that industry (i.e. builders that make custom or upper-end homes). Remember you get the business you go after. Start meeting with business advisors that can refer you upper-end clients, or meet with Realtors who work the geographic area that you have targeted.
One way of getting meetings with business advisors is to look at the advisors of your existing clients. Call your friends or past clients who are an upper-end client and ask them to help you with your business. They can help make introductions to their advisors and Realtors.
When you meet with these potential referral sources, it is important to have something to say. You need to show that person that you are a financial mortgage consultant and not “just a loan officer.” Talk about how your objective is to make the referral source look good. Inquire about how they operate their business. How do you know how you can fit in until you know how they do their business? Maybe find out what is a good client for them. To become referable at this level, you must gain their trust. You will do that by demonstrating knowledge, confidence, and ethics. The referral source needs to know that you know your business, and that you will be professional throughout the transaction and always do what is in the best interest of the client. Remember it is not what is important to you, but what is important to them. Always try to bring value to them and refer clients back. It is amazing how much business you will receive when you become an advocate for your advocates.
Market Your Skills
I have found it to be difficult to attract these types of buyers by conventional advertising and consumer direct methods. However, if this is part of your marketing plan, here are some suggestions. Make sure you position yourself as a higher-end specialist. Develop the image you want and always remember the audience you are trying to attract. I used to show elephant legs on many of my marketing pieces that said I was the jumbo king.
If you want to be known for working with higher end clients, include what type of clients you specialize in and are looking for in your marketing. Over time, people will begin to recognize you as an expert in those types of clients.
Target certain professional groups and make a mailer or advertising specifically for them. Offer them a special offer or discount, and let them know you specialize with that type of clientele. In a refinance market, target your mailers and market to specific loan dollar amounts. Offer them no cost refinances if their loan is over a certain amount. When advertising, remember who you are trying to reach. You may consider an upscale city magazines as advertising vehicles. Also, look at real estate publications that are specialized for the geographic area you are trying to gain your market share in.
Upgrade Your Peer Group
Upgrade your peer group including people you are currently working and surrounding yourself with. Network with associates who are tops in their fields. Get involved in a mastermind group that Napoleon Hill made famous within his book Think & Grow Rich. The group I am involved with is made up of top quality people in other professional service businesses. The group meets once a month, and we discuss each other’s businesses in detail. We act as each others personal board of directors. The key to the group is the quality of people who are involved. Find a mentor who already has systems in place to work with the upper-end transactions.
Move up your own social environment when possible. If joining a gym, tennis, or country club make sure it is the nicest in the neighborhood. Go out socially with other successful people. Join the local rotary club. Get season tickets to your local professional sports team and take your clients and referral sources.
Invest in Yourself
To take your business to a higher level, you cannot be penny wise and dollar foolish. It helps to be on the cutting edge. You need to have good communication tools, such as a cell phone, to immediately get back to your referral sources. Use e-mail and the Internet because clients want to communicate many ways. You need to have your own professional e-mail address. The Internet and the information available must be at your fingertips at both home and office. If you are using a 56k modem, you should consider upgrading to a DSL line.
It is essential to have a recent Pentium II computer to run these sophisticated programs. Having good loan presentation software that can show clients loan program differences that they can understand will help you be perceived as a financial consultant. Maintain a well-designed database to market and track all your clients and referral sources. Invest in yourself regularly and go to at least two seminars a year—maybe one industry specific and one that is generally motivational. The best place to improve your business is by networking and listening to others in our industry who have the systems already in place.
The bottom line is invest in yourself and your business. That doesn’t mean throw away money. Instead, make good choices. If it is something to help your business in the long run then try and make the investment.
There is no overnight answer. However, if you take a long-term approach over the next 12 to 24 months, you can shift your business to attract longer transaction amounts. It is proven that you eventually get the business you go after over the long-term. It is important not to forget about your existing client and referral base while you target this strategy.