Tony J. Robinson (4:32)

Jeff, thank you so much for that, that world class explanation. I just want to clarify something because again, we have a, we have a lot of rookies in the audience and when you say the Fed lowering rates, they're not actually lowering mortgage rates, right? Like so can you maybe just explain when you say Fed lowering the rate, what, what rate are you talking about and how does that actually translate or impact mortgage rates?

Jeff Wellin (4:55)

Absolutely, yeah. So when the Fed lowers rates, what you're alluding to here, Tony, it doesn't actually drive mortgage rates. So when we hear, you know, directly, it has an indirect impact. So when we hear later this month or in September that the Fed is lowering the Fed funds rate, you know, quarter or a half a point, that doesn't directly mean that mortgage rates on 30 year fix have dropped by that same corresponding amount on that day. It takes time for that actually, you know, impact mortgage rates. And a lot of times we see rates come down in anticipation of the Fed's move because what ends up happening is, is that it's that old adage of, you know, trade on the rumor, excuse me, buy on the rumor, trade on the actual event where we hear that rates are going to be, you know, the Fed's going to start lowering rates and As a result 30 year fixed rates tend to come down a bit. What we saw, if you look at history here, when the Fed started lowering rates last year and reverse monetary policy In September of 24, the expectation was, is that meant mortgage rates were going to come down as soon as they started lowering the fed funds rate. What we saw leading up to it was over the summer of 24, rates came down pretty substantially. I mean, we saw 30 year fixed rates down in the low sixes again on primary residences. And then when the Fed did reverse monetary policy and they lowered the fed funds rate a half a point, we saw mortgage rates take off and they kept going up the tail end of last year. A lot of that had to do with the fact that there were strong economic reports that came out after that announcement. We had strong jobs numbers, strong GDP numbers and inflation was still running a little bit hotter than what we'd all like. And as a result, that was keeping mortgage rates higher while the Fed was lowering the fed funds rate.

Ashley Kerr (6:45)

Jeff, what do you think, like, especially during 2024, what was the biggest wake up call that lenders, even investors saw coming out of last year's market conditions?

Jeff Wellin (6:56)

It's a great question. I mean, there was two of them. You know, first off, I would say that, you know, the economic Forecasts, most of them have been wrong. And the, unfortunately, rates have been staying higher for a lot longer than we'd all like. I mean, my feeling with this is, is this is it's time for the Fed to start cutting rates. I mean, the reality is, is that with everything that's going on right now, my personal feeling is, is that, you know, Jay Powell and the Fed need to start lowering rates ASAP or he needs to resign. I mean, it seems like he's more focused on his legacy at this point and less concerned about the impact that this is having on the housing market and the everyday Americans. And with that aspect of it, and the fact that we all, as an industry and investors as well, had to really come to terms with the fact that we may not see lower rates that are going to make a lot of these deals make sense for quite some time. We may not see rates down near 5% for a while, and we may still not, it may take a few years. So these are things that we have to prepare and adjust and put together plans and strategies based off of to plan for best and worst case. So there was that aspect. And then from a lending standpoint, when rates did dip in August, July and August, everybody should have been refinancing during that time. And I got caught up in this because I thought, you know, I was in the camp of, you know, full transparency. The rates are on their way down. This is just getting started. We're going to see lower rates so hold off on refinancing. And then all of a sudden, that guidance went out the window. Rates started taking off. And the people that were able to take advantage of those lower rates and refinance during that period over the summer are sitting. You know, you look at the last year and change, they're saving quite a bit of money where the people that sat on the sidelines and unfortunately listened to my advice at the time, you know, are still waiting for rates to come back down. So, you know, it just goes to show that nobody has a crystal ball. Nobody knows for certain. And we all. And it's the same thing with, you know, economists. Anybody that's out there, you know, trying to make any type of predictions, we're all looking at it from the perspective of trying to put out the most accurate information based off of the current information and what's going to be in everybody's best interest. So, and it really just comes down to, you know, as investors and as, you know, the advice I give clients is they really need to figure out where their comfort level is and what their tolerance is for risk and make decisions based off of that and, you know, try to keep the emotional aspect out of it as much as possible, which I know is very challenging. And all humans.

Ashley Kerr (9:35)

So I think one thing Jeff too, to kind of point out is if interest rates do go down, that could lead to prices increasing. So like you said, you have to figure out what risk you are comfortable with because if interest rates drop, that could drive the market again, where prices increase. So now you're paying more for the property even though you have a lower interest rate. What would you prefer to pay less for the property and have a little bit higher interest rate that once that property is paid off, you don't even have an interest rate anymore. Or if interest rates decrease, then you have the opportunity to go and refinance. So I think like going into a deal for a rookie investor is to make sure the deal makes sense as the interest rate now. But also if there is the opportunity to refinance, that should just be like the extra, the bonus, you know, that should just, just be. You shouldn't purchase a deal and say, oh well, interest rates are going to go down. So I'll just wait and then I'll make money on the deal. Just want to like put that disclaimer out there as to we, as Jeff had said, we do not know. And he, you know, we have all made the wrong assumptions before in the past of what interest rates will do. So just make sure. A word of caution. Make sure you're not buying the deal waiting for rates to drop, that the deal makes sense today when you're actually.

Jeff Wellin (10:58)

Purchasing the property and, you know, finding that balance. I mean, it may not be, you know, making the same return that you would like in the given moment, but you don't want to go into a property losing money and hoping that rates are going to drop a point or a point and a half and bank on that because I think that was one of the biggest takeaways. Because if you look at when inflation really started taking off a few years ago, I mean, there were predictions that rates were going to be back down in the fours and fives and 24% and then it got pushed out again. So it's just we don't know for sure and all of this guidance could go out the window. I mean, there are unknown variables right now or things that are out there that could impact rates like tariffs. And we did have an inflation reading that came out last week a little hotter than expected. We have a jobs number coming out tomorrow and we'll see what happens with that. But it's, you know, there. I think the biggest takeaway for your audience that's planning for the next year or two is you want to take a little bit of a cautious approach in the sense when you're running your numbers. Make sure the deal makes sense at these elevated rates like you mentioned. Ask, find out if there's any other options. We're doing a lot of interest only loans right now to help bridge that gap. They're 30 year fixed loans with a 10 year interest only period. That's really helping make the math. Math on some of these deals that aren't mathing on a P and I basis, there's that option and then there's seller credits that we build in to buy the rate down. I'm becoming less and less of an advocate of that only because, you know, again, I'm in the camp that I think rates are coming down and if you're doing a multi point buy down right now and then you refinance in the year, you're leaving money on the table. So I just, I think that, you know, buying the rates on maybe a point or two can make sense if it makes the deal work. But I, you know, one of the strategies we were using a few years ago was, you know, building in up to a 6% credit and then buying the rate down and taking that approach to was very effective. But now that we're hopefully getting closer to a light at the end of the tunnel here, I just, I think it's got to try to balance it out. You know, if the numbers make sense and you plan on holding that loan for a longer period of time, then just don't plan on refinancing for three to five years. But if you're trying to buy the rate down and then still, you know, you got to refinance in 12 or 24 months, I mean, you're going to be losing money in most cases.

Ashley Kerr (13:13)

I think that's such a great point too. For people who already know they're going to sell a property in a couple years is like don't pay that, pay that down. Because the interest rate over three years, you know, that's not going to make a huge difference and you're going to pay more in the rate buy down than you actually would holding the property at the higher interest rate for three years. And I'd say the same for like doing a live and flip like you're going to live in the property for two years, do like a five year or a seven year ARM where you know you're going to sell the property anyways and you can get the discounted rates without having to buy the rate pay down. So that's why talking a lender is so valuable. And once again Jeff, thank you so much for coming on today. Free knowledge for everyone about lending.

Jeff Wellin (14:01)

Thanks for having me back. Yeah, and on that note too, I, you know, have those conversations all the time about the arms. You know there's two schools of thought on this and this is why that interest only 30 year fixed is usually a good trade off because you know you don't have to worry about it adjusting at any point. It is a true 30 year fix. But for the first 10 years you have the option of making an interest only payment where it allows you to manage your cash flow, where on a 30 year fixed principal and interest you have to make that P and I payment or you're late, you can't make a partial payment. With the 10 year interest only 30 year fixed you have the option of making an interest only payment. So that way if you have a tenant that moves out or your Airbnb is not performing one month, it allows you to manage your cash flow and make a lower payment. Or for some of our clients that are looking to max cash flow, it's just making the interest only payment every month.

Ashley Kerr (14:51)

Yeah. If you're watching this on YouTube, I want you to put into the comments. Have you ever heard of this loan product before? And I had never heard of it before. So I think like just talking to a lender you can realize that the the best opportunity or advantage you're going to have with interacting with a lender is telling them what you want to do, not what you want from them. They're going to be able to tell you best what loan products are out there, what you should actually look into for your property. But we have to take a quick break and coming up, Jeff shares exactly what type of loan options you should be leveraging in 2025. And you won't want to miss these insider tips. We'll cover that right after a word from today's show sponsors.

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Tony J. Robinson (18:23)

And Jeff, with all of these changes on the horizon, let's talk a little bit more about the specific. So you mentioned before the break, you know, the, the ten year interest only loan, which I had never heard of before. You talk a lot about DSCR loan options or 15% down options. Why should investors pay close attention to these products in 2025 and beyond?

Jeff Wellin (18:41)

Because they're constantly changing. So it's, you know, the way I like to explain this is, is that, you know, looking at conventional financing versus non conventional financing with conventional loans, Fannie Mae, Freddie Mac and then the government options, FHA and VA loans, the guidelines change relatively infrequently and the government forecasts the change when they're coming down the pike so we can prepare and adjust to those on the non conventional side. The guidelines change depending on which way the wind's blowing. And so when we hear a big market sell offs or something happening overseas, war breaking up, that impacts the investors on the secondary market and their risk tolerance. And so we'll see programs that are available that then they pull back the guidelines overnight and then they slowly ease back in depending on where that tolerance is. And so that's why when you're planning and looking forward and you're using non conventional financing, you just want to make sure that you're staying current with whoever you're working with and making sure if there's been any changes and ask a lot of questions. I mean the best advice I can give any investor, rookie or seasoned, is just ask a ton of questions. I mean, there's truly no stupid questions when you're trying to figure this out because it just, it is a, I mean we're not, it's not rocket science, it's not that complicated by any means. But there are a lot of different loan products out there and available options and no lender, including myself, offers all of them. So we all have our specialties, niches that we lend in. And so some lenders may only do DSCR financing, others may specialize in conventional or have a mix, but they may not do commercial or ground up construction. So you just want to make sure that you're asking questions and knowing what type of lender you're talking to.

Tony J. Robinson (20:31)

DSER is just one option. But I guess you talked about the interest only loan, which is a great product, I guess. Which other maybe non conventional products. Are you seeing more investors leverage right now to make these deals make sense?

Jeff Wellin (20:43)

Yeah, that's a great question. So we're so a couple dscr, obviously, I mean It's a great product. Simple underwrite. As long as the property is cash flowing, meaning that the rent is covering the mortgage payment, they're relatively easy to qualify for. You know, you can close directly in an llc. It keeps it off your credit report. So there's a lot of flexibility there. It isn't necessarily the best product for early investors all of the time because a lot of times investors that are working and have documentable income may want to take a look and see what options they have on the conventional side as well. Recently we've seen rates on the conventional side go up quite a bit. But the non conventional options, the rates have stayed relatively low in comparison because there's been so much competition on the secondary market. So it's just something to track as investors are looking at different programs. And then regarding other programs like the asset qualifier, there's a business bank statement loan as well. Both of those have become great options for investors. That business bank statement, for instance, is for business owners that write everything off and pay very little in taxes, so we don't have to take a look at their tax returns. What we're doing is looking at the cash flow analysis of their business, looking at 12 to 24 months business bank statements. It's a great workaround and it allows you to actually qualify for primary residence financing and second home loans. Where DSCR loans, for instance, are only for investment properties, you can't buy a primary or a second home with it. So that's one of the big advantages of that business bank statement loan for business owners that can't qualify for traditional financing. And then the asset qualifier or asset depletion loan, that option is great for people that just don't have documentable income but have money in the bank or retirement funds. Even crypto starting to become more accessible or acceptable to use for assets now. So we're starting to get more guidance on that. So really with that asset qualifier option, we're not looking at your personal ability to repay the loan through pay stubs, W2s bank statements. What we're looking at is your total assets, so liquid assets between checking, savings, investment accounts, retirement. And then we don't touch that money, we just look at it and do a calculation to convert it into an income figure. So it gives a lot of flexibility there in the sense where we're using those primarily for our clients that want to buy primaries and second homes using that type of financing. Because the DSCR loans have been. The rates have been better recently for investment properties than both of those options that I mentioned, and I think, you.

Tony J. Robinson (23:30)

Know, the point of everything you said, Jeff, like, isn't for the rookies who are listening to memorize, you know, all these different loan types in the ins and the outs. I think the goal is just to understand that there are so many different options out there. And I've used this analogy many times before, but it's worth repeating that the lending industry reminds me of the ice cream industry, where every lender sells a product, the mortgage, right? Just like every ice cream shop sells ice cream. But in the same way, I can't go into Baskin Robbins and get Dairy Queen or Dairy Queen flavors, I can't go into to Jeff's office and ask for the same, exact same type of loan mix that Chase offers and vice versa. So I think the more lenders that you speak with, the better idea you get of what loan product actually makes the most sense for what it is I'm trying to accomplish. And I guess on that note, Jeff, what's. What's the biggest mistake that you've seen rookie investors make when choosing a loan, and how can rookies avoid that?

Jeff Wellin (24:29)

It's a great question. So when you're actually choosing a loan, just making sure that, you know, the lender that you're talking to offers more than one type of loan, that would be a good starting point. And then really doing your research on who you're talking to. I mean, I always recommend get a couple of opinions and really talk to your network. If you have a network of investors or they're obviously bigger pockets. You guys have a great community of lenders. So there's the business finder in there, the lender finder, where you can find great los. But you really want to make sure you're doing your due diligence, understanding your options. And I think the biggest takeaway, where I see the most problems occur is we as an industry have done a very good job of training clients to think that just because it's the lowest rate, it's the best loan option for you. So everybody wants to know, rate, rate, rate, you know, what's your rate, what's your rate? And there's so many variables that go into that rate option. And really the question is, is what, what is the cost of that rate? So you just want to make sure you know any investor. And again, whether rookie or all the way up to season investor, you want to make sure you get everything in writing and understand exactly what the cost of that rate is. Because a lot of lenders, it says they'll put you know, they'll put best advertise, like anything in marketing, they put the best possible rate out there. But then you realize it has two or three points and the cost of the loan is significantly higher than maybe if you took an eighth or a quarter point higher and paid a lot less in upfront costs with the goal of refinancing that loan once rates come down.

Tony J. Robinson (26:06)

And Jeff, you hit on what my next question was. But if I'm a rookie investor, how do I actually compare two different loan estimates? Like I, like you said, I think the rate that you're paying is what most rookies pay attention to. But what are the other line items on that, on that loan estimate that we should be paying attention to to compare?

Jeff Wellin (26:26)

Great question. And we could do a whole show on this, you know, we what to simplify it, you're going to want to make sure you get an itemized fee worksheet. So what a lot of lenders will do is just send over a rate and a closing cost number in an email. That is not a loan estimate. You want an actual written loan estimate that breaks everything out. And then what you're going to want to look for where most investors, and not just investors, just us as home buyers in general fail to really look at what the details are that we look at the bottom line number, like what is the number that's going to be due at closing. Got to go through it line by line and really look to see what points are available are being offered. Like at that rate, how many points are you paying what the lender cost is? Every lender has a different fee. So some lenders are going to charge, you know, processing, underwriting, additional points. You just want to make sure that you're looking at that cost because those are going to be the lender fees. And then you want to see, you know, the title fees. Usually initially when you're getting a loan estimate from any lender, we're just going to estimate what the title costs are based off of what we see as an average in the area. There's a system that we use so we don't have control over those. And then you also want to take a look and see are your taxes and your insurance being included? Because you may look at two different estimates from two different lenders and one bottom line number may look a lot larger than the other one. But the overall cost of a loan is the exact same. When you look at a side by side comparison, one lender may be impounding your taxes and your insurance where the Other one is making the assumption that you want to pay them on your own, which is going to minimize that bottom line number. So that's one thing to pay attention to. Another thing is the daily interest. A lot of lenders will just take that down to like a day on the itemization. And, you know, the reality is depending on when you're funding during the month, you're going to skip a payment. But that payment is. Do you know that interest is getting included on that closing statement? And so these are the things to just keep an eye on as you're going through those estimates and don't just hone in on the, you know, points and the bottom line number are as the only two variables that you should be paying attention to.

Ashley Kerr (28:28)

Jeff, I think of like the. You can go to one of the government websites and find like an estimate disclosure and it actually has like little tabs you can click on that tells you like what each line item is. And I'll try and find it and put it into. It's like consumer.gov or something. I'll put it in the show notes for you guys. But it usually it's like the first box, I feel like where it's the fees that are negotiable or like that you really need to compare a lot of the other costs like the attorney fees, the title fees, the what your property taxes are going to be, what's your insurance like. Some of those fees can vary because they're using different service providers. Some of them they even tell you that you can shop around for them if you want and find the best. But overall those are going to be pretty comparable. But you should look if all of a sudden one bank has like a way larger charge and then you're going to have your closing costs that includes a year's premium of insurance, prepaid upfront funding, your escrow account with the years of property taxes. And that will be a large chunk of money. But that main box is what I always pay attention to. I don't even know if it's box number one or what, but that's where like I just did a. I just did a refinance and I had a commitment fee of $750. And that is what the. The only extra fee or closing costs that was not part of what I would pay anywhere else. And I had gone to an original bank and started the whole loan process and theirs was like a $9,000 fee. But they definitely worded it differently where it wasn't commitment fee or anything. And so it's just like learning to understand what elements to really pay attention to and that are negotiable. And you made a great point, Jeff. You really have to go line item by line item and compare them side by side to really know which is the better loan product. Because that one with the nine thousand dollar fee that had a little bit better interest rate. And if I wouldn't have looked closely that like, that it would have taken me like to hold the property for like six years to actually make it the benefit way out of getting that little bit of lower interest rate by paying that fee up front.

Jeff Wellin (30:47)

To add to that too, ask for different rate options because a lot of lenders are just going to give you one rate option and that's not the case. I mean you can take a higher rate with a lower cost and vice versa. I mean there's an inverse relationship between, you know, interest rates and closing costs. So I mean, you can take a little bit higher of a rate to lower the overall cost of the loan. Or if you know you're thinking about keeping it long term and don't want to refinance, you may want to pay the rate down or buy the rate down a little bit to get a lower rate. So you just want to make sure you're asking those questions and not just assuming that the option that they're giving you is the only one.

Tony J. Robinson (31:22)

Next, Jeff is going to explain how to structure your financing to win big even in this high interest rate environment. So stick around for his top strategies after a quick break.

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Tony J. Robinson (35:33)

All right, Jeff, we're back. So let's wrap with the strategic side of lending. Right? Investors need more than just a loan. They need a pivot plan. And you already talked about some tips to help investors maximize their cash flow using the right loan products. You know, the interest only loan, maybe the seller credit buy downs, whatever it may be. But how can rookie investors position themselves right now to take advantage of the potential rate drops or market shifts down the line? Like, what should we be doing today to maybe take advantage of that?

Jeff Wellin (35:59)

It's a great question. So, you know, again, me being in the camp that I think lower rates are coming, I would recommend not paying too many points at the moment and at least till we see what occurs here over the next three to six months. I mean, if it looks like, you know, rates are going to stay higher for longer and inflation starts taking off again, then we're going to start implementing that buy down strategy that I mentioned earlier again. But for now, I would say again, try to keep that the cost upfront cost as low as possible whenever possible. And then regarding different options, so there is the interest only that we already discussed. There's also a what's called a 1:1 and a 2:1 buy down that we've doing a lot of over the last couple of years where basically for the first year you can buy the rate down by 1% or 2%. And so it just basically gives you a lower rate for either the first two years or for the first year. And it's a step up program. So for instance, the two one, we're buying the rate down two points for the first year and then the second year it goes up one percentage point. And then the third year it goes up to the Note rate so buys us a little bit of time while rates are still at these elevated levels. We've been doing more and more of the one one now with the way the market's been shifting, you know, the way it looks like things should theoretically be going here soon. So that's another alternative. And then, you know, looking at some of the other things, you know, that you and I have talked about, Tony, I mean I, I'm a big advocate right now. If you've got a low rate on your first mortgage, look at home equity lines if you need to tap into equity versus trying to refinance your loans. And then I would say depending on what the, you know, each client or investors timelines looking like for each property, if we, some of our clients that have a shorter timeline, you know, again it, we can look at even very low cost and no cost loans as rates start coming down. Where you know, when we're doing the refinance strategy, for instance, this was, you know, biggie and the timeline I like to use is 2016 through 2019 where you know, when rates came up during that time period, they came up to the mid fives and we thought, you know, rates were obviously high back then. And then when rates started coming down in 2020, what we were doing was refinancing our clients loans on very low cost or no cost loans. Every time rates came down to the point where they were saving about a, you know, 100, 150 bucks a month and we could actually build in the closing costs into the interest rate. So that way they're taking advantage of the lower rates that are available and the lower payments without having to tack on, you know, $3,000 worth of closing costs every time we refinance the loan.

Ashley Kerr (38:36)

Before we wrap up here. Jeff, I guess the last question I have is kind of a mindset. One, what personal advice would you give a rookie investor that's maybe feeling overwhelmed by just the complexity of financing?

Jeff Wellin (38:50)

Ask a lot of questions and get out, you know, push yourself out of your comfort zone. I mean it's the, you've got to take the first step. It is not as complicated as it seems. Once you get involved and you start asking questions, becoming your own best advocate and putting a plan together, it becomes much easier. It's just when you're like anything in life, when you're on the outside looking in, it looks like the barrier to entry is a mile high and it's just insurmountable. But as you get more, you know, you ask more questions, you start putting together a plan and really having that conversation with your team or who you're going to be working with, you'll see it's not nearly as complicated as most think that it is. And you know, once you take that first step it makes the next steps so much easier. So it's just again getting out of your comfort zone and you know, taking that first leap is my, my best advice and starting the conversation as early as possible. I mean unfortunately far too many, you know, home buyers and investors wait until they found a property to start having the conversation. The earlier you can have that conversation to get pre approved and figure out what your options are, the better, the better off the experience is going to be for you and the higher likelihood that you're going to, you know, get into a property much sooner than you know, trying to figure it out. Well, you know, before that property gets taken off the market or somebody, you know, obviously gets into contract on it.

Ashley Kerr (40:11)

Tony, in the Rookie Resource Hub do we have any type of resource that's like a checklist or like in questions to ask when doing a loan? Like I, I don't think that we do and maybe that's something we could work with Jeff to put together to upload into the resource hub where it's a checklist of like here's everything you should look at or questions you should ask when you're looking at a loan product and just like, you know, what's the, what are the fees you need to look at? What when is the balance due? Is it a balloon payment, you know, what's your term, what does the numbers look like in five years if you're doing a construction loan or rehab loan, what's the draw schedule like different things like that. So I think that might be useful for rookies. So if you guys want us to put together something like that, comment below on in YouTube comments so we can work on putting that together for you guys. Jeff, thank you so much for joining us today. You are a wealth of knowledge in the lending industry. We really appreciate you taking the time to share with us and the rookie investors more about what lending options are out there. Where can people find more information about you?

Jeff Wellin (41:18)

You the quickest way is our website team website it's bp for blueprint investor team.com and then I'm on Instagram it's Jeff the mortgage expert and then our phone number is 888343, 1043 more times 888-343-1043.

Ashley Kerr (41:41)

Well, thanks again. We really appreciate it. I'm Ashley.

Jeff Wellin (41:45)

Thank you.

Ashley Kerr (41:46)

He's Tony. And we'll see you guys on the next episode of Real Estate. Ricky.