Podcast Interview—Good People, Cool Things
Episode 136: How to Get a Better Mortgage as an Artist with Alejandro Szita
Alejandro Szita discusses the ins and out of mortgages for artists, musicians and other creative entrepreneurs with show host Joey Held. Because of the unique nature of their industries, they may not be paid as regularly as someone who has a 9-to-5. For example, an artist might get three lump sumps throughout the year instead of a steady paycheck. As a result, many artists and creatives struggle to get approved for a mortgage.
Alejandro understands the mindset of banks that deal with these types of individuals. He works with artists and entrepreneurs to help them get the mortgage they need. He also discusses how artists can use the equity they have built in their home to finance their artistic projects.
Podcast Transcription:
Joey Held: A few years back, I bought my very first house and the entire process was all kinds of new to me. I mean, prior to that I had only done rental properties. So you kind of just talk with the property manager, they'd spout some garbage and then you, you get your apartment, you can move in a house. There's a lot more, you obviously got to go inspect and stuff and, and walk through and have all kinds of people look at it. But then there's all sorts of things like your mortgage points, some of the like property mortgage insurance and random things like that, that all largely end up with you spending more money than you initially thought you would. There's a closing cost. You want to try and get to a certain percentage so you're not paying your mortgage for 65,000 years. All of that good stuff.
It's a lot. It's very overwhelming. Particularly for artists and other creatives. It can be tough because of the way you get money. You might just have some sort of seasonal product or something where it's maybe four or five months of the year is when you're getting a lot of your money coming in. You know, if you're a musician, you're getting paid through ASCAP or BMI or whatever, once per quarter. If you're selling art, writing, have your own business where there's peak times of years. It's gonna be tough to get loans sometimes. And sometimes getting a mortgage is more difficult than it needs to be. My guest today saw that opportunity and founded his business around it. He's the president of Prosperity Lending. Alejandro Szita, the mortgage expert for the self-employed. He works with artists and other creative professionals advising them on the different types of mortgage deals available, how they can improve their chances of getting a loan, of getting a mortgage, which helps them achieve their professional and personal goals. He also talks about some of the myths around credit score, why banks seem to misunderstand different parts of it, how you can get great mortgage offers and so much more. We're chanting through all of that good stuff. I'm Joey Held. This is Good People, Cool Things. And here's a conversation with Alejandro Szita.
To kick it off, can you tell us your name and your elevator pitch, but also the type of elevator that we're riding on?
Alejandro Szita: Yes. My name is Alejandro Szita. I am a mortgage broker. I'm also a real estate broker. I'm licensed inCalifornia and in Florida. And I do loans for the self-employed and the artists, the people that are usually the hardest to qualify for a loan, for a mortgage loan. We're in a very unusual elevator because even though there are other brokers and banks that say that they specialize on the self-employed, they really do not. What they have, they have a program that allows the self-employed to qualify in an unusual way. But having the program doesn't mean that you would if you are self-employed qualified, because you have to put a lot of work and you have to put a special type of work. You know, you have to look at the person's whole, his job, his income, his lifestyle, and then you have to sort of translate that in terms that a lender would understand and approve. And I see that even though that is possible and there are the tools to do that, very few people do it.
Joey Held: Was this something that you like this particular focus, was that something that you always wanted to do or did you kind of stumble into it and then realize, hey, this is an underserved market?
Alejandro Szita: You know, a little bit of both. Since I was seven or six, I started to do it. You know, I started to lend money to my friends, but I never thought this would be a career. I had no thought whatsoever of this becoming anything. Then later in life, you know, I used to be in marketing, I used to do infomercials and I used to write the scripts of the infomercials. I even sold in the home shopping network. And then one of my infomercial clients back in the year 2000 early on, invited me to a financial seminar. And I've always been inclined to do that. So just because I wanted to know, not because I wanted to do this for a living, I decided to go. And to make a long story short, I ended up in real estate. I ended up in the lending side of real estate, which I did at the time, not really thinking that this was a long term career.
I thought it was interesting. And it was only after I pretty much did every single job in real estate that you can imagine. I was a loan officer, I was a listing agent, I was a buyer representation agent. I did commercial, I did loans, I did commercial loans. Even I did syndications. When you ask people for money for a real estate project. After I did all of that, I went, you know what, lending is what I like the best. Lending is what I really can give value to my customers. And that's when I, even though I did it before, even though I've been in lending for many years, that's when I decided, you know what? I'm going to do this. Because like you said, this is an underserved market. And I am one of those people. I'm one of those people that is hard to qualify because I am self-employed. So I would do that and I enjoy doing it and have a lot of fun doing it.
Joey Held: I freelance on the side, so I certainly understand the pains of self-employment taxes but have not, you know, because I do have a full-time job as well, when I was qualifying for a mortgage, that was what they were looking at. It wasn't like the self-employed side of things. And you had mentioned how it's more difficult for people who are self-employed, who are artists to get qualified. So what are some of those challenges and how have you found ways to overcome them?
Alejandro Szita: The main challenge is that our clients speak a different language than the lender. The lender is looking for the borrower that will make them the most money. And the system that they have envisioned, which is the credit reporting system, which is the way of documenting your income. That system is designed to, weed out anyone that they're not sure is going to make them the most money. Which is weird because people think that all the credit reports show that I'm a good person, that I'm moral, that I pay my debts, that I'm responsible. And nothing could be further from the truth. Credit report, what it shows, what the score shows, it shows your ability to manage debt but not according to what you believe is a good debt management. Because many people, especially self-employed, people think, well, I paid, how come my credit score is not higher?
Because the credit score is not to measure that you pay, although you always hear pay your bills on time and then you have a high credit score. That's not a good advice. Or at least it's an incomplete advice because it's not paying, it's paying in a certain way within certain ratios within certain percentages and with a certain amount of time. And why it's like that, because a bunch of people with money got together and decided that that's the way they thought you should behave when managing debt. Isn't that interesting? So the first thing, the first disconnect is the disconnect about the credit score between self-employed and successful people. They use credit as a tool. They work on cash flow, you know, the cash flow goes up, the cash flow goes down. They pay debts not because they're thinking about paying the debt. They pay debts in a strategic manner.
I'll give you an example. If you get an inflow, let's say you get $10,000 in a particular way. If you are a self-employed guy, you're gonna go, okay, what can I do with this $10,000 to get the maximum profit? Maybe I could buy this extra inventory. Maybe I could buy this software. Maybe I could hire another person. And yes, I have to pay the debt, the debt is coming due on Friday, but I'll pay it on Monday. I'll pay it on Tuesday. Because then I can buy the software, then I can make this extra money and then I can pay the debt. Yes, I may be late, I may be a day ot two late, but I'll pay the hundred bucks or fifty bucks or whatever it is, late fee and I'll pay and I'm fine. That's the mentality of the entrepreneur. That's the mentality of the self-employed.
But to the bond holder, which is the guy behind the score, that is the worst that you can do. Because that shows that you quote-unquote irresponsible. Because you didn't pay the debt on time. What this guy wants you to think, you get the $10,000 and he wants you to think, well, I have $8,000 worth of debt, I'm going to pay it all now. Then with another $2,000 that I have left, I'm going to save them in case something happens. An entrepreneur never would think like that because if he did, he would not be an entrepreneur. So there is a disconnect right there and there. Then income side, the, the bond holder, the person behind giving you the loan wants you to see steady income every month. He wants to see that for two years you've paid the money and so on. But an entrepreneur doesn't think that way.
An entrepreneur thinks in terms of waves of cash, waves of cash flow. So they get a big inflow of cash flow. They use it to invest, they use it to do something about it. And when the cash flow dries out, let's say for a month or two, the entrepreneur just tighten up, tightens up. Maybe he doesn't go to dinner every night, maybe, you know, he's thinking about buying a new car. Maybe he doesn't. He writes the wave out. But that to the lender, to the bond holder, wow, this guy's irresponsible. This guy is not paying his bills. This guy is not making money. And he is, except that most entrepreneurs, they don't make the same amount of money every year. They make the bulk of their money in a few months. You know, if you are in real estate, you probably make all of your money in two or three months and then the rest of the year you have to manage it.
So they can't compute these things, they can't think this way. You know, they think that you're doing something weird. They are not. They cannot envision it. So, so that's why I see that they speak the different language. Now, if you work for a company, if you're a salaried employee, you always gave the same amount of money or you get a slight increase over the years, they can think with that. It's easy for them to see how much you make. It's easy for them to see what you're paying. It's easy for them to figure out how much is your residual income. They call this residual income, meaning the amount of money that is left at the end of the month that you can do anything with it. And it's a more simple approach. And since upwards of 90% of borrowers feed that profile, they long ago, back in the eighties, beginning of the nineties, decided to concentrate on only those borrowers.
And then they didn't care about the other 10% or whatever the percentage is because it's too much work. You know, now lenders are making a killing because most of the lending decisions are automated. In fact, if you are a W2 employee, a computer is going to decide whether to lend you a money or not. Then the computer generates a printout and when it goes to the underwriter, the underwriter just collects the documents that the computer printout says that you need to have. The bank needs to have. So the underwriter looks at the computer, looks at the document, checks, the document with what the computer said, and then your loan is done. But when you get, when you come to a world of the artist or the entrepreneur, or when you go to a program that we use to lend to, to that clientele about a specific type of borrower, there is no computer. This is all done by a human being. A human being has to look at all this. And there are a bunch of rules that the underwriter has to follow. And our job is to translate your life and your income and your expenses into a way that they comply with those rules. So you can get the loan.
Joey Held: What's one of those ways you translate for them?
Alejandro Szita: Well, the first thing we do when we get a person coming over is we look at their credit and we work on their credit. Even though we are not credit specialists, we don't claim to be one and we don't charge anyone anything for that. We make sure that the credit is within the range that we need. Because I have these conversations all the time and speak to people and they say, yes, but I have $500,000 in the bank. Yes, but my house is paid off. Simply, no lender will ignore the credit score. I mean, no lender would I'll give you an example that to me was flabbergasting. Millionaire client, $12 million in the bank, a 40 paid mortgages. Not one, not two, not three, not four. 40 paid mortgages. Talk about a track record, right?
Joey Held: Yeah. That's impressive.
Alejandro Szita: Asking to borrow a little bit of money, for a house that he could write a check. Because the money is already sitting in his bank account and much more than that just to buy a regular home. You could not believe. And his credit score, even though it was okay, it was not stellar or anything. Then at the same time I had a young girl applying for a loan. She only had a couple of credit cards that she barely used, and her score was over a hundred points higher. So that, those two tells you right away that the score does not reflect success, does not reflect responsibility. I'm not talking bad about the young customer, by the way. I'm just saying that the credit score does not reflect what you think it does. So the first thing we do is we work on the person's credit because we know they're inflexible.
If they say the minimum is 680 and you have 679, even if you, if you bring a cart full of gold, that's it. They're not even going to take into account. But if you have 680, even if you have one credit card, then you're gold. I'm taking 680 as an example, but it doesn't have to be 680. Just an example, to give you a numerical example. So the first thing we do, we work on the credit and this is more of an education step because we need to teach them how these people think. So then they can make a few adjustments to the habits and lifestyle in order to comply with that thinking. So in order that the credit score can reflect the true potential. So that's the first thing we do. Then when we come to the income, this is a conversation that I have all the time, but look, I make so much money, my business makes so much money.
How come, you know, I cannot use the income? When it comes to income, lenders have specific rules. You can show them that you make a million dollars, but if that million dollars do not follow their rules, it's as good as zero. I will tell you another example. We're doing a mortgage now for a very successful financial advisor. He's been a financial advisor for 24 years. He has a bank account that I wish I could have myself and he has savings at about 10 times that amount. He's been working for the same company for 24 years. He was working as an employee and then in March of this year, he decided to be a 10 99 employee for the same company doing the same job and even making more money. Can you believe that he does not qualify for absolutely anything?
Joey Held: No, I can't.
Alejandro Szita: And I will tell you why. And the reason why it's even more perplexing. I mean it's perplexing to you and me, but to the banker is not perplexing at all. To the banker, you say this to a banker, they'll go, of course. But to me it's perplexing. Why? Because when you're unemployed, you can't qualify. If you now become a 10 99 or self-employed, they want you to be self-employed for two years. So he's only been self-employed since March. So all of the programs for the self-employed, he doesn't qualify for because he doesn't have two years and all of the programs available to employees are out of his purview right now because he's not an employee. So we found him a program that only very few people can do because you, because the lender or the bank has to receive a designation by the US Treasury Department in order to do this loan.
This is called a community loan program. The community loan program is something that was conceived for the unbanked. The unbanked is people that theoretically or according to the definition, don't have a bank account, cannot have a bank account because maybe because of their immigration status, but they do have a good credit score. They do have a sizeable down payment. So the Treasury Department, a financial institution that would cater to those people and that complies with a bunch of requirements, they will give you this designation, which is very, very, very hard to, to take. I only knew of one bank in New York that had it, but they lost it. And there is now another bank in Newport Beach, Southern California that has it, I'm lucky to have found it. They will do the loan to this particular customer, even though he's not unbanked very far from here.
He's not an immigrant, he's not a foreign national. He's not a person that is sort of not savvy financially because they want you to do a financial literacy course too. So I'm going to have to tell this customer who is a 24 year veteran of finances, hey, you know, you have to pay 25 bucks and you need to do this online literacy course that isn't going be a hard. He says, what are you joking? I said no, it's the only way we can do this loan. You have to pay the 75 bucks and you have to do this financial literacy course because this is the only loan. And he doesn't understand it. I've been trying to explain it to him. He doesn't understand it. Because it doesn't make any sense. You see, when you go to a bank to ask for a loan, you think that people want you to have money. You think that if you have money, if you have a successful track record, that should be enough, right?
Joey Held: I would think so.
Alejandro Szita: That is only true. That is so only true of the very big loans when, when you go commercial, when you are buying an apartment building that has five or more units, when you are buying a $10 million thing, or when you are buying a $22 million or more building, yes, then your net worth has to be at least equal to what you're buying. So if you show up and you say, I wan to buy this $20 million building, and then you go to a bank and say, hey, I'm going to put $5 million down or $10 million down. give a loan for $10 million, they're going to go, okay, show me your net worth. If you have $10 million, we'll give you the 10 million. That only applies on the big transactions, on the, what I call the full commercial transactions. Five units or more. When you descend, not descend but when you go into the residential, even the investment residential, or even in what they call the small commercial balance, small commercial balance is just a fancy word for commercial loans.
Between $500,000 and $5 million, the rules change a little bit. And then your net worth, yes, it's, it's okay, but they look more at your income. You're leveraging your income for a payment. So to make a long story short, the language that we speak as an individual, even a successful individual, and the language that the banker speaks, they're completely different. And I see ourselves as sort of the enzyme, you know, that the agent that's puts both together so the transaction can occur. So our job is to educate the borrower into what we need from him and why. And then I have to educate the lender. By the way, this conversation happened with lenders too. They go, we cannot do this loan because, you know, you don't comply with this rule, with that rule, with that rule. I have to go like, look, it does, because if you think about his income, and if you take this and this into consideration, it does, and they go, oh yeah, you're right.
If you look at from it that way, it does. And I have to go one by one translating it to them and I have to go one by one translating, translating it to the borrower. And that's how we make it happen. But it's a lot of work. I enjoy it. I'm not complaining. It's a lot of work. I enjoy it. And it's very challenging because every loan is different. For every loan I have to really, it's really challenges my intellect to the limit to see how I'm going to put these two together in a manner that both are happy. The lender is happy and the borrower is happy, and we can do it at a cost that makes sense.
Joey Held: Just going to mortgages in general, you know, you'll always hear people like, oh, I had to take out a second mortgage to fund my business or, you know, to do something else. And in, in my experience, a mortgage has really only just been something I pay every month. But how, how can people use their mortgage to build up their savings or to, to kind of increase the, the money that they have?
Alejandro Szita: That's a very good question, Joe. I, and thank you for asking me that question, because the mortgage, in my opinion, is one of the most misunderstood financial instruments. Most people view the mortgage as a bill that you just pay and it's necessary. However, for most people, my experience and what I've seen is the mortgage is the number one savings tool. Because what happens is this, when you make that mortgage payment between a third to half and then later on, it's more than that, that money that you're paying comes back to you. What do I mean by comes back to you, comes back in savings to you. You are reducing your debt, but when you reduce your debt, the extra between the value of the house and the, and the balance of your debt is yours. It's yours to keep. So it is forcing you to save.
And I had these discussions many, many times. People go, oh, well, but if you wanted to save, there are much better ways. You know, a mortgage pay you 0% of return. You could put it on the market, you could do this, you could do cryptos, blah, blah, blah, blah. And it's true. If you did it, if you did it, most people will never do it. Not because you don't know about it. It's because another and this is another precept that another philosopher said a long time ago. He said, in order to save, you have to make the savings a necessary expense. If I come to you at the end of the month and I say, hey Joe, remember we need to put 500 bucks into this life insurance plan or into this savings plan or bond plan. You may say, well, yeah, I know, you know, but can we skip this month?
You know, I have a lot of payments, you know, my daughter, my car, this emergency came up, you know, let's do it next month. With the mortgage, you can't. The bill comes, you decide not to pay it, then immediately consequences start to accrue. So you have to, so it's forced savings. So at least if you do nothing else, but pay it, it's the savings vehicle for America. It's the savings vehicle, not just for America. All over the world. I've seen this in England, I've seen this in Chile, I've seen this in Mexico. It's the number one savings vehicle that for most people, automatically without thinking, creates a nest egg and creates substantial savings. And this, I'm not talking about appreciation, by the way. I'm assuming your house never changes in value. You buy a house for a hundred, 30 years later, it's still a hundred.
Guess what? Now you have a hundred that you didn't have before. And for most people, they will never be able to save it. Now, when you factor in a little bit of appreciation, and I say a little bit because it depends on the year, it depends on the, on the economy, it could be a lot, it could be a little, but whatever it is, is gonna be something. So in addition to your savings, now you have a certain degree of appreciation. There could be a lot or could be a little, but it's there, there is no other vehicle that gives you this. So this is just making the payment, doing nothing else, but making the payment. But now let's say that you are a little adventurous now and you go, you know what? I understand this and now I'm going to throw a little bit of extra money into my mortgage.
Because what happens is this, most of the advertising that you see on the internet, on the TV focuses on the rate and focusing on the rate is a huge mistake. What you have to focus is on the volume of interest. The volume is the quantity that you will end up paying at the end of the loan. I'll give you an example. If you get a 30 year loan at 4%, doesn't seem much, right? Especially today, 4% will be a good rate. Rates are five, five point and a half. So if I said to you, Joseph, I give you 4%, you will be jumping, jumping up. However, the mortgage of 4% roughly you would pay double by the end of 30 years, meaning you're borrowing a hundred, you're gonna end up paying 200. So that means that in addition to the hundred that you are borrowing, you are now paying another hundred.
So the volume of interest is a hundred percent. You buy a house for $500,000, 30 years later, you end up paying a million. That's a hundred percent rate of return. And you say, hold on a second, didn't you say I'm borrowing at 4%? Yeah, you're borrowing at 4% per year, compounded year after year after year. That 4% over 30 years is going to transform or is going to convert into you paying double of what you are borrowing. And now you see why lending is so profitable. So if you know that you, even though you're paying 4% and even, even though the 4% is not under your control because you sign the piece of paper and, and that's it. I mean, you're lucky if they're not gonna change it. What you can do is have control of the extra hundred. If you make extra payments, you don't have to be regular on this, by the way, because you read on blog and the internet says make 50 extra payments a month, make a hundred dollars extra a month. This works. That advice works well if you're a W2 employee. But if you're an entrepreneur, one month, you can throw a thousand, another month you can throw 5,000 and you may only do this once or twice a year, and that's all you need. Now, instead of paying a hundred percent interest, instead of paying an extra thousand in this example that I'm making, you pay an extra 50. Now you reduce your interest by 50% even though your rate of interest continues to be the same. I'll give you another example. Now we're doing a mortgage for a gentleman that is buying a multimillion dollar home. It's almost like a $3 million home. When you buy those type of homes, usually the rate is high, high means in the sevenths, you know, all those rates that you see announced on tv, you know, 5%, 4% are very specific rates.
What the conforming loans and conforming loans are loans that have some kind of government sponsorship. And this is what you see every day. So you see that, you think that this is the norm, but this is not the norm. Those loans that you see on TV and on the internet are very specialized to W2 employees that are buying homes or under a million or things like that. If you are an entrepreneur and you go to really high value homes, the rules are completely different. The rates are completely different. So this gentleman buy a multimillion dollar home, his rate is on the seventh, which is very good, by the way, for that, he doesn't care because his cash flow is so strong that within five years he's going to pay it off. So even though the rate is high, his volume of interest is going to be very small because it's not going to wait 30 years to pay it. You see what I mean?
Alejandro Szita: Does it make sense?
Joey Held: Yeah, I like that. And I tried to do that as well with, with our mortgages to, to cut down on that by paying extra. And yeah, I, I like the idea of doing it and it makes sense from an, from an entrepreneur side of like doing it when that waves, when those waves of cash come in to, to take advantage of that and, and cut down on the overall volume. I like it.
Alejandro Szita: Yeah. Yeah. And the other thing is that don't get lost. I mean, not just to you, but, but to your listeners, don't get lost on the theory because there is a book written by a financial advisor that says don't do that. If you're going to do that, don't pay down the mortgage, open a life insurance policy and do it on a life insurance policy. And then it's the same answer that I'm going to, that I gave you before. Yes, you can do that. Yes. If you open the right type of life insurance policy, that has to be a mutual, a company, you know, and it has to pay dividends. I mean, there is a lot of ifs behind this. It's not just going to run into a, a life insurance company and open an account. It has to be a very specific type of insurance.
It has to have specific moving parts that are adjusted. Yes. If you do all that, if you get a professional to help you do on that and you do it, which is 90% of people won't be able to lose that bit. Yes, that advice is correct, but for you and I, and for 90% of everyone out there, it's not a practical advice because it requires a lot of knowledge, a lot of guidance, and a lot of these concepts. To be honest, are really above you, above my head and above most people's head. So it is always this dichotomy between the theoretical that if you do it, yes, it's better. And the practical. And I always, because I've been doing this for so long and I've been, I've seen, you know, what happens when you go on the theoretical route and what happens when you go into the practical route and without fail, the people that opt for the practical, even though it could be quote-unquote less efficient in the end is the one, is the winning strategy.
Joey Held: All right. Alejandro, you're almost off the hook here, but we always like to wrap up with a top three, and I would love to hear your top three financial books for entrepreneurs.
Alejandro Szita: One of my favorite books is 5,000 Years of Debt by David Graeber. I think I'm, I'm pronouncing his last name incorrectly. But if you go to Amazon and type 5,000 years of debt, it's a red book. This person went all the way through the historical record and found out what people have used for money over the last 5,000 years and what the average regular of interest. I thought that that was, that book was fascinating. Another book that comes to mind because I'm a History buff, it's a book that was written about the attempts of Spain to invade England. TheArmada. It's also available in Amazon. It tells you how three times England tried, I mean, Spain tried to invade England with this humongous collection of ships and what happens. And then you'll see that is the best example of mismanagement of money that you can possibly see. Spain was the wealthiest country for hundreds of years. They have unlimited money and you have to read the book to understand what unlimited money meant. They managed to spend it all and when into bankruptcy anyhow, having unlimited money. So that's, that's really a lesson into how to do it wrong. But by the same token, when you read that, you see one not to do. Third one, it's about the richest man that ever lived. Mr. Fugger. Even compared to today's standards. He was and still is the richest man that ever lived. And that's in the 1600. There is no one yet that, that if you compare it, you know, if you, if you convert the, the money at that time to the money today, there's nothing that compares to him yet. So it's a very interesting story of how he did it.
Joey Held: I like it. Well, Alejandro, thank you so much for taking the time to chat. If people want to learn more about you and see what you're doing and, and maybe work together with you, where can they find you?
Alejandro Szita: Send me an email at info@prosperity lending, prosperity like something prosperous. Prosperitylending.us. Info@ prosperitylending.us. Or you can go to our own website, which is the same, the same name, www.prosperity lending.us.
Joey Held: Love it. Well, Alejandro, thank you again. This was so much fun.
Alejandro Szita: Thank you, Joseph. It's a pleasure to meet you and thank you for giving me a voice to your audience.
Joey Held: Likewise. And we gotta end with a corny joke as we always do. What do you call a coffee robbery? A mugging.
