← The Paul Morris Podcast
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One quick note before we start this show used to be called Radical Wealth Plan. As the audience and conversations grew, we expanded from pure real estate tactics into the broader game of wealth, health and performance. Renaming it the Paul Morris Podcast makes it easier for new listeners to find the show and know they're getting my full experience as an investor, attorney and entrepreneur. If you've been with us since the Radical Wealth Plan days, nothing you love is going away. We're we're just aligning the name with a bigger mission of helping you build wealth. Stay healthy long enough to enjoy it. The information in this podcast is for educational and entertainment purposes only. Nothing here constitutes financial, legal, tax or investment advice. I am not your financial advisor, cpa, attorney or real estate broker, and no professional relationship is formed by listening. Always consult qualified professionals before making financial or investment decisions. Past performance is not a guarantee of future results and all investments carry risk, including the loss of principal. By listening, you agree that the hosts and producers are not liable for any actions you take or fail to take based on this content. Welcome to the Paul Morris Podcast formerly known as Radical Wealth Plan. The show where we help you build real wealth, better health and a richer life through real estate, smart money decisions and high performance habits. This week in finance and real estate. Strong jobs, slightly friendlier mortgage rates, luxury homes flirting with nine figure price tags and what it all means for you as an investor, even if you're just starting out. Here are four or five of the biggest finance headlines, how they hit real estate and also a plain English breakdown of interest rates as they are right now, including conforming, non conforming and what that means. And here's the quick market snapshot. Let's take a temperature check. The national 30 year fixed mortgage is hovering in the low 6% range. 15 year mortgages are mid fives. The Jumbo, which is a non standard loan is typically a bit more expensive in the mid sixes. Mortgage applications are slightly down for the third week in a row, which tells you that buyers are still picky and price sensitive. What this means in real life Rates aren't cheap, but they're no longer panic level. Think higher than you'd like, but you can make deals work if you buy right. The buyers who show up today are serious. The tire kickers from the 3% rate era are mostly gone for example, as rates have moved from the high sixes, maybe 6.9% down into the low sixes as low as 6%. This means a few hundred dollars per month for households on a mortgage rate and that doesn't move people in or out of the market in a huge way, but it does make some homes more affordable and you're going to see people start to enter the market in places where they were waiting. Let me first talk about conforming versus non conforming loans and put it into very simple terms. Conforming loans which you can think of as sort of a vanilla loan. These are standard sized loans that follow a very specific set of rules and they are backed by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are government backed agencies and they will buy these conforming loans and that's a very important point to know because these loans are guaranteed to be bought by the government and therefore lenders can rest assured that they're not going to get stuck with these loans on their books. So if you're getting a conforming loan, it's going to fit inside a certain size box, and I'm going to talk about what size that box is, and I'm going to give you a little comparison between two areas that I know well, but that are very different. I buy real estate only where I know the market. So I started buying in Pittsburgh, which is where I grew up. I know the market very, very well. Obviously, that's a very different market than where I live right now, which is Los Angeles. So those are the two markets that I generally buy in. And I'm going to compare what is a conforming loan in those two areas, which are two very different economies. The conforming loan, which fits inside this standard box, and that's going to include a certain credit score, a certain amount of money down, and also be a certain size loan in Pittsburgh and areas similar to Pittsburgh. Pittsburgh specifically, you can buy up to 832,000 and change. That's the loan size, but that just sort of round down to $830,000. You can get an $830,000 loan. That's going to qualify you in a conforming loan. So anything less than that, you are still in a conforming loan. And for conforming loans, you could put down as little as 3%. 3% of $830,000 is about $25,000. You can get into an $830,000 house in Pittsburgh. It's a conforming loan, and you can put down as little as 25%. Now, if you're buying a more expensive home and you want to make that into a conforming loan, you can still do that. So, for example, if you were buying a house that's $1 million in Pittsburgh, and you put down 2, $200,000, that's going to put you right back in that box, because your loan is still going to be 800,000 below the $830,000 threshold for the conforming or sort of inside the box vanilla loan. Contrast that with Los Angeles, and the government realizes that Los Angeles is a more expensive housing market. You can buy anything up to $1.25 million. That's a loan of $1.25 million, a conforming range. And that also means you can put as little as 3% down. So you can get into a $1.25 million home in Los Angeles with as little as 37,500, which is 3% of $1,250,000. Again, you could buy something that's slightly more expensive than that and make up the difference with the down payment. As long as that loan amount is 1.25 million or less that's going to put you inside the conforming box. A non conforming or custom loan means simply it doesn't fit inside the conforming box. And it could be for a number of reasons. It could be because the home price is higher than the conforming rules allow. So that's the 830,000 in Pittsburgh or similar places and the 1.25 million in L A county or similar places. So if the loan amount is more than that, that's going to right away put it as a custom or non conforming loan. That's generally going to generally going to cost a bit more. And definitely it means that you're going to have to put more money down. As a general rule of thumb a non conforming loan is going to require 10 to 20% down. That's a huge difference between that and a conforming which requires only 3% down. So for example, as I said before, 10025 home in LA county, you can get into as little as $37,500. And if you go above that, let's say the loan is a million and a half dollars, you're looking at 150,000 to $300,000 of a down payment. That's a very, very significant jump. So you can see why people will try to get into that conforming box. There are some other things that will take you from the conforming loan into the non conforming loan and that is you're really going to need verifiable income and steady income sources. So for example, even high earners out here in la, if people are on a television show and they're getting paid a lot of money, whether they're an actor or they're on set doing something, or a camera person, they could be very high paid. But it's not a steady job. So they're paid a lot of money while the show is going, when the show is in hiatus, they're making $0. So that takes you really out of the conforming and into the non conforming loan because you're not going to generally be able to show that steady income that's required for a conforming loan. Likewise, credit scores for conforming, you're going to need 620 really as the, as the low limit. And that 620 is going to come along with a higher interest rate perhaps and also pmi, which is mortgage insurance, it's insurance that you're going to be able to make your payment. And as you get into the higher credit scores, high 600s low, 7 hundreds. That rate is going to come down and also may not require the mortgage insurance. So that's the difference really between conforming and non conforming. You've got the loan amount plus the rules required to get you into that conforming box. Now you're also going to have a debt to income ratio. And that sounds very complicated, but I'm going to make it very simple. Here's an example. You really need to be at about one third or less of your housing cost as it relates to your total gross income. Total gross income is the total amount that you're making without taxes taken out. I'll make it super simple for you. Let's just say your gross income is $3,000 per month. You really cannot afford more than a $1,000 per month mortgage because that's going to be about one third. Then they also might look at your total expenses. Your total expenses. Let's just use a $3,000 per month gross income. Your total expenses have to be a fair amount less than 50%. So that's your housing. Plus all of your other costs have got to be less than about $1500. Really 45% is where they're looking at, so $1400, let's say, before you start running into that upper limit of what is affordable. So you can really see how affordability is impacted by, by income. So if you're making, let's say $60,000 a year, that's going to be $5,000 a month. That gives you an idea. Your total expenses, including housing, have got to be a little less than $2,500 per month in order for you to get into that conforming loan. And just as a reminder, lenders love conforming loans because they're backed by the government and that's Fannie Mae and Freddie Mac. And that means that if they make this loan and it fits inside of that box, they are going to be able to sell it to the outside market for sure because it's guaranteed, it's backed by the government and therefore is a much safer loan. That's going to mean better interest rates for you. And also you'll be able to get into the house at a much, much lower down payment. So that in a nutshell is the difference between conforming and non conforming loans. So the big financial story of the week is that jobs and employment rates have been revised. The US added solid but not crazy job growth last month with unemployment still low by historical standards. We also saw earlier months revised down, which reminds everyone that the boom has cooled. The economy is still washed, walking, not falling. And here's why investors should care. Stronger job markets equal tenants will keep their jobs, rents will get paid, and fewer for sales. The flip side is when the economy looks strong, the Fed isn't in a hurry to slash rates again. So expect a gradual sort of boring, but definitely not in the free money stage that we were used to a few years ago. And as an investor for the buy and hold investors, you benefit from stability. Fewer vacancies, better collections. Flippers and small developers still need to be disciplined. This is not a market where you can count on the Fed to bail out a bad purchase with a sudden rate reduction that will make something that was okay into a great buy or make a bad buy into a good buy. That's not happening. When the economy is stronger, that is generally worse news for real estate because you're not going to get rate easings as you see bad news on the horizon. If there's a lot of unemployment or you see the economy slowing down, that's when you can expect rates to start to bail out real estate. So it kind of runs in the opposite direction. As a general rule of thumb, bad economic news is pretty good for real estate. And really good economic news is generally bad for real estate because it affects the interest rates and what the Fed is willing to do with interest rates in the opposite direction. So you can see why politicians from both sides of the aisle, they want the economy to do great and they want rates to come down. They're likely not going to get both. So I definitely don't have a crystal ball, but I'm going to tell you where I think the Fed is going and where we can expect rates to go whether they're going to be cut or not. The Fed has already cut a meaningful amount from the peak and it's now in a let's see how the data looks. Bode markets are pricing in small gradual cuts across 2026. Definitely not a to the emergency level where cheap money was so important to keep the economy going. What this means is you can expect your 30 year mortgages to bounce roughly around where they are now. They may take a small reduction, but they're not going to take a major dip. And here's why. Rate stability is actually great for serious investors. You can plan, you can underwrite, and you're not competing with wild speculation. The new edge is not I predict rates, it's I buy the right asset at the right price with the right down payment and the right debt. So that takes the craziness out of the market. And serious investors can look at deals right now as they should, which is a flat rate, and not predict that rates are going to come down in order to make their deal make sense. That's why this market is good for serious investors that are able to underwrite and find really great deals which which are on the horizon. Especially when people bought real estate at a very low rate just three or four years ago, they were buying at 3%. When rates adjust on a five year or a seven year adjustable rate mortgage, you're going to find that they're now facing a 6% interest rate that is double. And right now you're able to buy an asset that was purchased just three or four years ago for a lot less money. You can now make that deal work today when it was impossible to make it work just a little while ago, when people still thought that interest rates were going to come down and save the day. Basically we're looking at a flat rate for 2026. Again, I don't have a crystal ball, but this is what all the financial data that has come out this week and this year is telling us what's going to happen for 2026. So I wouldn't stay on the sidelines because more and more distressed assets are coming to the table. The distressed assets are distressed because people bought them at a much lower interest rate. When that interest rate adjusts, it's going to become a. It's when those interest rates adjust, the mortgages are going to go up to a rate that people cannot afford to pay at the price that they paid before. So you're going to get a big discount on those assets which bring them out of the stratosphere and back down into an affordability level. For the serious investor, now is the time to look for really good deals that make sense. And more and more every day, each week that goes by, I see more of those deals coming out and making more sense. Now is the time for smart, what I'll call sober investment. There are great opportunities and you should be out there looking for them every day.
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