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- [00:00]
A
Welcome everyone. Welcome to Real Talk Real Estate. This is Mortgage Monday, the best mortgage show in the world. Now we have been carefully reading all of your comments and we've seen that there has been a high amount of demand to have Mortgage Monday actually posted on the podcast channels. So if you're listening to this on Spotify and on Apple, this might be the first time that you've heard a Mortgage Monday show. Now we didn't take away anything. I'm not removing content that you're used to getting, I'm just adding more content. So if you don't care about financing, saving money, money on real estate, or understanding how the mortgage industry works, skip this one and go watch one of my other videos. But if you do want to improve your knowledge, improve your wealth, and improve your ability to get better deals, this is the show where Christian Bachelder, my partner in the ONE brokerage, and I break down mortgage news. Where interest rates are what goes on in the mortgage industry and how you can capitalize on that to finance your real estate and save money. So welcome. If this is your first time listening and if you're a longtime listener, you already know that this is the ish. And so thank you for listening to the best kept secret in the real estate business. Christian, also known as Big Brain, also known as Blue Beautiful Eyes, also known as the Lone Ranger. Welcome to the show.
- [01:13]
B
Man, what a, what a, what a glow up I'm receiving here. I appreciate that.
- [01:16]
A
Oh, it's a glow up when someone doesn't know you, but if somebody has known you for a while, they are not surprised. Christian's brilliance is exceeded only by the cuteness of the mortgage mutt, which occasionally makes a cameo on the show. So if you're listening to this on Apple podcast, my sincere apologies. You won't be able to see it, but if you're listening on Spotify, on YouTube occasionally you will see the Mortgage Month if you listen all the way to the end of the show. Today we're going to be sharing a little bit of an update on where rates are and then talking about five ways that you can get a better interest rate on your deals. Now to you and I, this is pretty simple because we worked in this industry all the time and we make it our own personal journey to figure out ways to save clients money. That's why we have this company. But if you're not used to hearing, this might be a mind blowing experience as you learn that there are things you could be asking your loan officer about that you probably didn't know. So anything you want to say before we jump into this thing, Christian?
- [02:10]
B
No, I think best introduction from the best guy to give it. I think we're ready to rock.
- [02:13]
A
All right, let's start this sucker off. First topic of discussion, per fox business.com mortgage demand is up as mortgage rates fell on Monday. It seems like they're always up and down right now. Like it's, it's not like they're usually like kind of ticking up or ticking down right now. There's just this flux going up and down. It's funny how I just did that, like I'm at a club or something and the rates are bouncing along with me like I'm your mortgage dj, get those effing hands up. Christian, tell me what's going on in the industry. Why are rates going up and down so much and where are they at now?
- [02:44]
B
Yeah, just like you just shared. It's, we're in a very volatile time right now with both the economy as obviously interest rates are a function of the economy. But it's just, there's, there's a whole lot of uncertainty, right. Job reports get posted and then they get revised two months later. I don't know how much our listeners follow that. But, you know, it's interesting when you hear, you know, x hundred thousand dollars or x hundred thousand jobs were created in America and then two months later they revise it. Right. It's like, oh, sorry, it wasn't actually that many. We edited the numbers. Right. And everything is a, is a response to obviously the Fed's direction that it's taking with the federal funds rate with unemployment and new jobs created with obviously inflation is still a significant impact impacting factor on, on what we're doing from a fiscal policy standpoint as well. As Trump just announced in his, you know, he kind of finally put some, some meat on the bone of his tariff policy. Right. We've had this kind of precursor that he's been, he's been, you know, forecasting tariffs since he's been running this, this time around. But I know he came out, I think it was just yesterday, right. We're recording this on the 27th, maybe it was Monday. And you know, he was saying what I think it's 25% on Canada and Mexico. You know, there's going to be a larger one, I believe, on China. So he's, he's starting to kind of put some meat on the bone there. And it's going to be very interesting to see how the markets react to that. I know Lowe's and Home Depot already said that if there's a large surplus on fees they have to pay to China, they're going to up their product costs. So it's going to be a very delicate balance to see how that impacts that fiscal policy moving forward, as well as inflation and the economy as a whole.
- [04:25]
A
Yeah. So it sounds like you're saying that there are pressures from both sides, pressures pushing them down and pressure is pushing them up. And when you get that pressure coming in, it's kind of like a tug of war where it can move in one direction, move in another. Maybe like an arm wrestling match where it doesn't always just stay directly in the middle. It kind of goes back and forth until someone gets tired and gives in and that's when somebody else wins. So we will see whether the pressures that are pushing rates down prevail or whether pressure is pushing them up prevail. But I think from my subjective opinion, it's unlikely that they're just going to stay exactly where they are for the next couple years. I think Trump has come in and said, I want them lower. The Fed under Jerome Powell has said, we don't care, we're going to put them where we want. I think that there's probably some forces out there that would like them to be higher. So someone's going to win is what we're getting at here. The Mortgage Bankers association reported Wednesday that mortgage apps jumped 6.3% from the week before, which was driven by an increase in purchase demand, which was up 52% from the same time last year. That's very high. The surge in purchase applications comes as mortgage rates fell for the first time in two months and the decline in rates was only slight. And the affordability crisis continues to drag heavily on the housing market. Now when they say affordability crisis, they're talking about the fact that prices are still high and rates are also high, which most people thought couldn't happen. I think the majority of people said if rates go up, prices have to come down. You and I have been saying for a while that is not necessarily true. We would actually be surprised if that happened. That's right. And looking back, it turned out that we were right. We have not seen prices come down. They just haven't risen as quickly as what they were. Another thing I thought was interesting about the article is it mentions purchase applications. Now, a lot of people don't realize that the government actually tracks how many people are applying for a more mortgage. Now, I imagine, Christian, correct me if I'm wrong, this can only be the case with conventional mortgages. I don't think that they can track non conventional. They only do that for Fannie Freddie. Or is there a law that requires apps to be reported?
- [06:19]
B
Yeah, this is actually a very, a very interesting topic that, to be frank with you, I don't have the exact answer. I believe they do it through credit reports, which would be conventional and non conventional because you need your credit report for both. And when you get a specifically mortgage specified credit poll, that's what I believe. They're tied to these. But there's been such an upswing in soft credit checks which don't hit as a, as a hard inquiry that may be skewing that data. I know as a mortgage broker and lender ourselves, we have to file what's called a mortgage call report, which tracks all the people that we have an application, all the people that we closed, but it's a lagging indicator. We file the mortgage call report for the previous quarter. So how they're getting applications this week I'm not sure and I would be very interested. Maybe one of our readers can do a deep dive and they can Post in the YouTube comments what they find there. But I believe the only way they could really tie it is due to credit pools. That would be my best guess.
- [07:22]
A
Yeah, that's credit pools and then the applications on conventional mortgages they track. Now what's interesting about this is I've frequently thought about this concept of when you read these like national news publications, they'll tell you demands up or demands down. It's pretty simple to track the supply that's out there. It was much more simple when more product was being sold through the mls because when you have a centralized place where everything goes, it's easy to track how much is available. Like the number of listings that are in the MLS tells you the inventory available for sale. As we've had more and more houses that start to get sold off market, which everyone loves when they get an off market deal, but nobody thinks about when everyone else is getting off market deals. Those are properties that do not go to the MLS where everyone else can buy them. So you don't actually know how much is being sold or what's available for sale. I don't love that. I know that's going to probably upset the people that find off market opportunities and they spend a lot of money to do it.
- [08:21]
B
All the wholesalers. That's nails on chalkboard right now, right?
- [08:23]
A
That's exactly right. I don't love it because when your Aunt wants to buy a home or someone that doesn't obsess over real estate like you or I do, they don't even know that they're losing at this game. They're looking at zillow or realtor.com and they just have no clue that there's stuff that's selling that they could be buying that isn't out there. But the point of this is to say we can track inventory of supply much easier than demand. You don't actually know how many buyers are floating around in any given market. It's very, very, very hard to tell. I have traditionally tried to figure this out by looking at the days on market of existing inventory. So if you say, hey David, I want to sell my Southern California property, I would see, well, let's look at what other houses are for sale in the MLS and then let's see how many are pending for sale. If they're pending, meaning they're in escrow and there's a lot more of those than there are active, I can deduce that there are a lot of buyers out there looking for homes. If there's not a lot of pending homes for sale, I can deduce that there are not a lot of buyers that are looking to buy. That's why the houses that are that are listed for sale aren't going into contract. But that's still not a hard number. Like buyers don't register is what we're getting at. The closest thing to a registry for buyers is this purchase application tracking is like, well, how many people said I want to get pre approved for a mortgage? But as you and I know, a lot of people come to get pre approved, get distracted, change their mind, find out something that they didn't, like have a kid, watch football. Like something happens that takes them out of the game. So just because you applied for a mortgage doesn't mean you're committed to buying a home versus a person that goes through all the work of putting their house on the mls. They're pretty committed to selling it. You don't have a whole bunch of sellers that just change their mind and left their house on the MLS for three years. What do you notice about when somebody comes to get pre approved? Who are the people that move forward and they're like, I'm going to make this happen. And who are the people that stall out, get distracted, and then come back a year later? Oh man, I should have bought. Prices are up even more. What do I need to do?
- [10:20]
B
You know, it's funny, it reminds Me of a. I think it was my first time ever appearing on the old podcast that shall not be named Right but on BP for those listening who may not understand that reference. And I remember I said something that was a little controversial and I said, I think if you don't own real estate in the next five to 10 years, I'm not sure you ever will. And I remember, I think Rob was on that interview, Rob Abasolo. And he kind of, you know, recoiled there like, oh my God, what do you mean? And to answer your question, David, the people buying real estate already own real estate right now, right? There's fewer and fewer first time homebuyers than I've ever seen in any market that I've been involved in the industry. The vast majority of people that I'm seeing actually move forward. We still get applications for first time homebuyers, but fewer and fewer of them are qualifying every year. The people who own real estate are, you know, leveraging their existing portfolio to buy more. They're, you know, levying those funds. They're, they're, you know, they're, they're kind of snowballing on their success they've already had in real estate, you know, and they're, and they're using that to continue. So I mean, I don't think it's impossible. Not by no means am I saying, you know, it's right now a first time home buyer just can't succeed. There are a lot of programs, but I've also noticed a trend with new applications, David, that they're just taking longer, right? People who submit an application, they take 90, 120 days sometimes to put a property in contract. Which, you know, I remember during COVID obviously, and even before that, I mean, I'd get an application from people already in escrow like every day, you know, like, hey, I haven't even talked to a lender yet, but I have a property locked up, can you lend on it? I have a 10 day close and I'm like, man, what are we doing? Like, help me out here, you know, I haven't even seen your tax returns yet. And now it's like, you know, people send me a tax returns and sometimes don't talk to me again for six months, you know, and like, hey, Christian, I finally found a property after searching every day, you know, am I still approved for a mortgage? I know we haven't talked in the last six months. Where are rates at? Right? So definitely a trend more in that direction this last, you know, call it one or Two years for sure.
- [12:22]
A
All right, Now, Freddie Mac's chief economist, and Freddie Mac is one of the conventional lenders, along with Fannie Mae, they are wildly influential in the terms and their requirements that go into getting a loan. Said that rates have been relatively flat over the last few weeks as the market waits for more clarity on specific economic policies. And he is referring to Sam Cater. The fact that the people that price the loans are basically the people that buy the loans. And Freddie Mack is one of the people that. How would you describe, do they kind of like broker the sale to other people? Because they kind of buy them and then sell them on the secondary market.
- [12:56]
B
They set the guidelines. Yeah. So, I mean, Freddie Mac is basically the rule maker, right? Freddie Mac and Fannie Mae, they're, they're, you know, 1A and 1B, so to speak. But anybody ever in America who has gotten a conventional loan, right. We use that term kind of loosely. But if you've gotten a conventional loan in America, you got a loan where the rule set was determined by either Fannie Mae or Freddie Mac. And that rule set means how much of your debt to income had to be used, what was the down payment required, you know, how much reserves you had to had, what your credit score had to be. They are, they are determining that those are, quote, unquote, insurable by Fannie Mae or Freddie Mac, which basically makes them easier to trade on the secondary market. Right. An investor is much more likely to come in and purchase something that has been underwritten to a specific set of standards. And those standards are created by Fannie Mae and Freddie Mac.
- [13:51]
A
And so that's why they have their finger on the pulse of what's going on with these rates. And by specific economic policies, they're referring to what is the President going to do and what is the Fed going to do in response to that? Because the who buy the loans are the ones that determine the interest rates. And they don't know what they want to pay for loans until they have an idea of what their other options are going to be. They're like, well, is everyone going to start buying houses all the time and we're going to need more cash to fund all these loans or is it going to stay the way it's been really slow and so we want to charge a higher rate per loan because our volume's down. He also said that potential home buyers are waiting on the sidelines, causing demand to be lackluster. And despite the low sales activity, inventory has only modestly improved and remains dramatically under supplied so even though we don't have a lot of transactions happening, we have even less supply for the transactions that we are seeing, which is why we're kind of stuck in a stalemate. I feel like right now in the market where prices aren't dropping but volume overall is down. So if you're sitting there trying to figure out when you want to jump in, something that I think you should consider, if you wait for a clear sign that now is the time to jump in, there's a very good chance that you're going to be jumping in when everyone else is and you're going to be in a bidding war really quick. It typically works out that the people that bought property when everybody else was not buying were the ones that that ended up doing better. When they look back a couple years ago, the people that bought property when everybody was buying were often the ones that felt like they paid too much. They were rushed into something. Now, Christian, you made a really good observation when you said a lot of people that are coming to you are people that are already in escrow. So some people listen to shows like this and they want to know what rates are. They subscribe to my newsletter and we put out our one brokerage mortgage rates every single week. So if you guys want to subscribe to that head@david green24.com join you can fill out a form and get the free newsletter. It's got what's going on in the world of real estate and it includes weekly rate updates every week. And when these people see rates hit where they want them to be, they start shopping for homes. Other people are the I look for deals. When I find a deal, I rush and I dump this onto someone's plate and I say fix it for me. Those are the people that come to Christian and say I need a 10 day close and drive him crazy. But we're here for him. So for those people, we are going to talk about five different things that you can do to get yourself a better rate that are independent of watching where rates overall are going. So you've got the macro perspective, which is where our rates in general, then you've got the micro perspective, which is what can I do in my specific situation to maximize my rate? So Christian, you ready for this?
- [16:18]
B
All right.
- [16:19]
A
These come courtesy of the big brain of Christian Bashelder himself. Number one, a credit risk score. We know that your credit score does determine in part what your rate's going to be. I think most people probably make that more important than it really is. They worry about It a lot. So I'm gonna let you explain how that works and then if you would be so kind as to tell us what a credit rescore is and how it can help.
- [16:41]
B
Yeah. A credit rescore is fine tuning your credit. It's not meant for these massive jumps, right. If you come to me with a 580 FICO score and you say, Christian, rescore me to 800, that's not gonna happen, right. You need probably full credit revamping, right. You need to spend a year or two paying down your debts and getting your getting your house in order, right. But if you come to me and just so you guys understand, credit is based on brackets, right? So if somebody were to come to me at a 698fico score, they're only two points away from 700. 700 is a pretty good pricing bracket to swing into versus being in the 680 to 700 bracket. So if you were able to jump two points to get into the next level up bracket, that may save you 2,3000 bucks on your closing, right. It's not going to like make up your down payment or something, but it'll save you some, some decent money depending on what your purchase price is of the property, Right. That's where credit rescoring comes in. And what a rescore entails is. It's like I said, it's fine tuning. So what one would potentially look like, let's say you have three credit cards and you know one of them has a $10,000 balance. Let's just throw it out there, right? I have a little software, right? A system that I plug your credit profile into and it may say, hey, David, you need to pay down your American Express card. Instead of having a $10,000 balance, it needs to have a $7,000 balance. So for a $3,000 charge that you need to expense that money, right? Get it from 10,000 to 7,000, you may save $3,000 on your mortgage. Now that may just sound like a break even, but you're paying down debt, right, to save a flat fee on your loan. So that's still a really good trade. And sometimes you don't what you pay down, you may get three or four times the return on your mortgage savings. So a lot of times if somebody comes to me and they're very close to that next pricing bracket, a simple credit rescore could be a huge impact on what type of loan product and interest rate you're receiving.
- [18:45]
A
Yeah. So it's not that X credit score equals X rate. It's that they're chunked into brackets. So, like, what are the traditional brackets? On conventional lending, the brackets are every 20 points.
- [18:58]
B
So up until a minimum threshold, usually around 580. So anything 0 to 580 is one bracket. Then you get the 20s, 580 to 6, 600 to 620, 20 to 40, 40 to 80, so on and so forth. Once you get to the top threshold, usually around 740, some lenders have a top bracket at 760, but let's just say 740 for ease of the video. This is a huge misconception. That means everybody above 740 gets priced the same. So if you come to me with a 799Fico, I'm not going to rescore you to get you above 100, 800. You're just looking for bragging rights. At that point, you're going to get the same pricing. Even if you got all the way to 830, then you would be at 750, let's say. Right. That's just viewed as like the elite pricing tier. Right. But everywhere in the middle of that 580 on the low end and 740 on the high end, they're broken up by buckets of 20 points.
- [19:50]
A
So somebody applies. You see their credit score. If they're on the verge, you look into doing a rescore. That could put them up another bracket and that could save them maybe an eighth of a point on the rate or make it cheaper to buy the rate down, which we're going to talk about exactly Right. Later. Okay. And what goes into an actual credit rescore?
- [20:07]
B
Typically just balancing the paying down balances on credit cards. That's the most common one. Sometimes you can get like a late payment removed or if you have, like, we see it all the time where people have old collection accounts they don't know about, like one from AT&T or Verizon. Like you never returned your cable box and they stuck like a $40 collection on you. Something stupid. Right. That just happens to everybody every now and then. A lot of times you can call that collection company and say, hey, Instead of the 40 bucks I owe you, I'll pay you 60 to erase it and pretend it never existed. And a lot of times they'll work with you. That could be a minor rescore. Right. It just depends on, obviously, what's present on the credit report. But definitely the most common is just paying down credit card debt.
- [20:47]
A
So I got to ask if you're going to some lender that you got put in Touch with because somebody sold your information as a lead through some website you went to or somebody met you at a real estate meetup and they're a smooth talking brother that talked you into letting him do your loan. Are they trying that hard to help you get a better rate or are they just saying, hey, this is what your rate is. That's the way it goes. I don't know many lenders that give a crap about you getting the best rate you can get because that saves you money. It doesn't make them money. Christian and loan officers at the one brokerage are trained by me and given standards that come from me where we are to treat other clients the way we would want to be treated. So basically what they're told is if you would do this on David's loan, do it for someone else. And if you're not doing it for someone else, but you would do it on David's own, that's a problem. And so when I apply for loans, Christian does my financing. He's going to take that exact same standard and apply it to all the other people, which is why we have this company. We don't just want people to come to us for our tons of products that we have or the knowledge we can give them. We want them to know that they can trust us, that you're not going to get ripped off, which can happen from other lenders. So the credit rescore is one way that we save our clients money. It doesn't make us any additional money. Now, number two is looking for the ideal down payment. Now this is crazy that this is even in the set of five here because for so long, more down payment equaled better interest rate. And Christian, according to you, that is not always the case anymore. What's up with that?
- [22:18]
B
Yeah, this is, this is a very controversial topic and we're going to address it because it's, it's interesting and it's worth knowing out there right now today, due to a bit of pressure that the Biden administration put on Fannie Mae and Freddie Mac, pricing is better. I want to make sure I say this right because it doesn't sound right when I say it. Pricing is better for lower down payments. What I mean by that is if you're buying a primary residence, obviously for those of you buying investment properties, those require 20% anyways. But for primary residences, if you compared putting 5% down versus putting 20% down in the past, the 20% down always gave you better, a better rate. That makes sense, right? You're putting more of your own skin into the game. The lender is lending less of a percentage of the house value that's in the best interest of the lender. Therefore you should get rewarded for that, right? That the lender said, thank you for that extra down payment. Here's a little savings on your interest rate in the effort of making loans more affordable for first time homebuyers or maybe people who didn't have the funds or whatever, less fortunate people, however you want to phrase it, it is cheaper on your interest rate to put 5% down instead of 20 right now. Now, if you're listening to this episode four years from now, who knows, maybe we go back to normal, what has historically been normal. But this is interesting where somebody who comes to us, you know, with, with the intention and the ability to put 20% down, we may advise them, hey, you should look at the 5 and 10% down options because you may be getting a better deal, right? Obviously those of you familiar know that you'd pick up some pmi, right? Some mortgage insurance in there. And even still, it may be in that borrower's best interest to keep that money in their pocket. Take the pmi, because the decrease on the interest rate may be larger than the pmi. It's crazy. That should not be real.
- [24:21]
A
It shouldn't be, but it is. Which is why you're listening to this podcast and why you should be contacting Christian or one of our guys to go over this. Now here's an option to consider. If you have the PMI versus the interest rate and let's say that the PMI is slightly more expensive than the interest rate reduction there. There's a couple reasons you might still want to take that option. One, PMI will go away most of the time when you pay the loan down and you'll still get the lower rate. Number two, if you're putting 5% down instead of 20% down or something like that, and you're still getting the better rate, you now have 15%, which on a $500,000 house, 15% of that would be what, $65,000? I'm doing that math right, to go invest in something else. What if you took that 65,000 and you bought stocks or you put it in the bank in a cd or you did something that generated some form of income that now offset the price of that pmi, so now you have the investment that makes income and the house. Instead of putting all the money into the house and only having that and getting a higher interest rate that doesn't have PMI attached to it. You have to look at all of these things together to most efficiently use your money. And that's why we're bringing this up as number two. Number three, you can shop for the rates that are on sale. Now. That doesn't make sense to people if they're not a mortgage loan originator, if they're not a mortgage professional. So, Christian, I'm gonna have you break.
- [25:42]
B
Yeah, I actually have a great example for this, so I'm going to share my screen here. Okay, so this is an actual example of how a rate could be, quote, unquote, like David says, on sale. And once again, just like our down payment conversation, this goes against common sense. But if your loan officer is not looking for this, you could potentially be missing a good deal. Okay, guys, so we're going to go into an actual example that is very similar to what we just discussed on the down payment, where it goes against common sense a little bit. But this is real. This is an actual example of pricing today for a specific borrower's credentials. A certain credit score, a certain down payment, a certain purchase price. We'll ignore those factors and just look at what this rate sheet says. I'm gonna. I know this. There's a lot of information on the screen, but I'm gonna draw your attention to only two columns. Okay? So if you guys have never seen a rate stack, just follow along with me. Me. We're going to look at column one, which here is the interest rate, okay? And we're going to look at this column where my mouth, where my mouse is here, that says discount slash, rebate dollars. And it has these red and green numbers that correspond to certain dollar figures. That's all we're going to look at. Okay? Now if you called a lender today and you said, what are your rates? And they just gave you a specific rate, you would miss this entire benefit. You'd miss this conversation where you could potentially save a lot of money. If you called us, I would show you the entire rate sheet. Now look at what happens here. At 7%, there's basically no charge. Anything in the red is a charge to you as the borrower. That's when you call buying points on.
- [27:19]
A
Your loan or buying the rate down.
- [27:20]
B
Right, or buying the rate down, basically.
- [27:22]
A
Where you pay extra money at closing to get a lower rate than par.
- [27:25]
B
That's absolutely correct. And anything in the green is where it actually goes negative. That means it goes into a lender's credit, which means the lender is giving you money. Obviously, as you guys see to take a higher interest rate rate, okay, as you go down on this list, the rate goes, as you can see, seven to seven, one, two, five, seven and a quarter and so on. So most lenders would say the. My rate today is 7% for this example, because you can see there's no cost and there's barely any credits. That's basically the par rate. If there's any golfers listening, par just basically means zero, right? Not positive, not negative. Okay? So we would say 7% is your par rate today. However, look at this example. If you were to buy down your rate to a 6.75, so you're going a quarter below the par rate, right, from 7 to 6.75, it would cost you how much? 3,000 bucks. 3,336. You can see here on the screen. But look at the one right below that. If you were to buy even further down to a 6.625, it cost 2600 bucks. So it's cheaper to buy to a 6.6 than it is to a 6.7. Well, that's interesting. Why is that? And everybody's going to ask me, why is that the case? What? There's a whole bunch of factors that go into this. This lender is basically trying to sell more 6.6% debt, probably because of where they purchased the insurance of the notes. And there's, there's a bunch of justification that goes into it without diving too hard. We have a rate on sale, just like David said. And if your loan officer is not actually analyzing your rate sheet, this could be missed. Where it may not make sense to buy to 6.75 for three grand. But what if you get. What if you could get to 6.6 for 2600 bucks? That may make sense. And obviously this depends on your scenario and what your cash flow perspective is or whatever. But obviously nobody in their right mind would buy to a 6.75.
- [29:17]
A
That.
- [29:17]
B
There's no world where that would be the right decision.
- [29:19]
A
If you are going to buy it, their loan officer doesn't tell them it's an option.
- [29:22]
B
That's exactly right. That's exactly right.
- [29:24]
A
And the problem as I see it is most people are shopping the different loan officers to find what they believe is the best rate. So here is an example of why that's a bad idea. If you went to Acme Mortgage and you talked to Brad and said, what's your rate? Brad knows the minute you ask that question, you're shopping him around, he can legit say, My rate is 5.375. And he's not lying to you when the PAR rate is 7 because you didn't say, what's your par rate. You said, what's your rate? Now, he's not telling you that that comes for $21,300 that you spend in addition to your other closing costs. So you go, Wow, 5.375. That's way better than the one brokerage that told me 7%. I'll go with Brad. And then you find out from Acme Mortgage at the closing table how much you're actually having to spend. And by then it's too late. You're in that deal. Your contingencies are wage. You have to close. Now. Maybe Brad's kind of smart. He doesn't tell you 5.35 because that sounds unbelievable. So he tells you 6.125, and it's only going to be $8,600. Still, you're getting. You're not even really being lied to. You're just being deceived. Yeah, right. And that's why we talk about this. We get shopped all the time, and then the people come back to us when it's almost too late and say, hey, can I go with you after all? And it stings because it's like, I thought we were dating and you were seeing somebody else. Because that person comes along and says, girl, I'll make all your dreams come true. I'll be the perfect man. And you find out that it was the Tindler swindler. This happens a lot. What we're going to do is we're going to say, not well, how much can you spend to buy down the rate? We're going to say, can you spend an extra. What is it? To get to that interest rate that we just talked, 26, 24. Can you spend an extra 2,600 bucks? Yeah. Why? Because I can actually get you down to a six and a half instead of a 7% for a little bit of money. And by the way, here's what I want you to tell your realtor. Tell your realtor that you want a closing cost credit of $2,600, right? Or if you're using one of our agents, then Christian is going to talk with that agent and say, here's the plan. I want to get this person to 5.875. That means they need a $13,000 credit. I want you to ask for a $7,000 credit. They'll come up with the other $6,000 of their own. So for six grand out of pocket, they're buying their rate down from something in the sevens or something in the high fives. Now, you're thinking smart, you're thinking intelligently, and you're doing a loan the right way. And I'll just be frank with you, most loan officers are not going to take the time to do this because A, you're not committed to them and they know it. But you can't expect love and commitment from someone that is just an option for you that you always see that stuff flying around on Instagram. Don't make someone a priority that only sees you as an option. It's the same thing happens in business. B, the loan officers may not be intelligent enough to understand this. They just know to quote you a par rate and that's what they say. Or they quote you their cheapest rate and that's what they say. Or C, they just don't care about saving you money as much as they care about saving themselves time. And they'll tell you whatever it is to say. And Christian, you worked in this industry for a long time. Would you say it's half or more of the other loan officers out there that kind of have that predatory approach?
- [32:26]
B
Oh, yeah, 100%. I mean, we get people all the time who have loan officers who tell them an email, you know, in this example, say we're at 7% and somebody says they're at six and a half. I say, that's awesome. I can get you six and a half, too. And the borrower says, well, why didn't you tell me that? I'm like, we haven't discussed rates yet. Right? Let's. I'll actually show you the rate sheet. Like, no bs. I'll strip everything away. Right. That other loan officer is not telling you what it's going to cost. I don't want to tell you six and a half because as you guys can see here, it costs almost $4,400. If I already know the borrowers tied on funds, I know they don't got $4,400 and that other loan officer is wasting their time. And an important note here is that these rate breakdowns, you may be talking to a lender that's cheaper at 7% than I am. Right? So we're giving an $80 credit. Let's say the other lender is giving $1,000 credit. Oh, I'm getting more credit from Acme lender whoever. Well, if we actually went down to that 6.625, the other lender may be charging five grand. I'm charging $2,600. So just because the lender is cheaper at one point doesn't mean they're cheaper across the board. This is where there's a lot of, you know, wiggle room and flexibility and a lot of dynamic nature in the lending industry. Because look at all the rates that you can choose from. Every single one of those will be different with every single lender you talk to. Which is why, and this is not a shameless plug, this is just the reality. A broker can do this with hundreds of lenders in real time. I can target a specific rate. Like if David came to me and said, christian, this deal only works if I'm at 6 and a half percent interest rate. I can go target 6 and a half percent in my search engine and tell me which lender is doing that for the cheapest. This. If it's this lender, the cheapest option out there in the industry you're going to get is 43, 43, 92 in closing cost to get a six and a half. And at least you know that. And you don't have to be bait and switch by somebody else. I'm telling you straight up, up front right now. Obviously, rates change every day. Loan loan officers are only able to quote what's going on right now. That's why you need to have the rate lock discussion and, you know, talk throughout the process. But having the ability to work with a loan officer that knows how to understand rate stacks, as you guys can see here, could save you a substantial amount of money on your interest rate, not only at closing, but also throughout the life of your loan.
- [34:50]
A
And that's another good thing to know is you don't have to go to different humans to say, what's your rate? What's your rate? You can go to Christian and say, which lender has the cheapest rate? And then we do that work for you. He'll go look for all the banks and he'll find the one that has the best rate at the best price. Until you. This is what I think that you should go with. And this is why, versus you running around making a bunch of phone calls, which is what I used to have to do when I first started investing. I was calling all these banks and saying, what's your rate? Now we do that work for you. And as a last point before we move on to number four note on this sheet, the lender fees that we have structured are the same no matter what loan we do, so we don't make more. If we sell you a higher rate or a cheaper rate. It is exactly the same no matter what. And it's structured that way so that you don't have to worry about the advice we're giving you. Also benefiting us, it is a hundred to benefit you in a fiduciary fashion, that we are trying to protect you and save you money so that you come back to us in the future. We are not going to make more for the rate. That would be determined by like maybe the loan balance. All right, next up is number four, which is to buy down the rate. And Christian has the screen up already for us, so we can just keep it here. A lot of people don't understand, but this rate sheet makes it very easy to understand that you can get a better interest rate by, by spending more money upfront, which is worse in the beginning but better off in the end. And Christian will walk you through a break even point where this would make sense. Usually if you're going to own the property more than 18 months or so, in most cases it makes sense to do that. Can you explain how people should approach buying down the rate?
- [36:20]
B
Yeah, 100%. We might as well use those two interest rates that we've been discussing, right? 7% and 6.625 here as that's that natural dip with that rate on sale like we spoke about. So if you guys want to understand this, this, let's just look at these numbers. Right? So we have 7% and we're going to compare that to this 6.625 up here. Okay. So I'm going to highlight the ones that we're talking about. We're talking about this column or this row, I'm sorry, and this row. And we're going to be comparing these two. Okay. Now the main thing I want to draw attention to is the difference in the monthly payment, which can be seen on these columns here, as well as the cost associated with buying to those rates. So you can see my little blue marks on both these. That's the only numbers we're looking at. So if I wanted to calculate, like David said, the break even, what is the difference in these two costs? Well, one is crediting 81's costing 26, 24. So let's do 2624 plus 80. So it's a difference of about $2,700. Okay. In the cost between these rates. That's what you have to expense upfront for this rate. Buy down down $2,700 at closing. Well, look at the monthly payments. I picked These intentionally as well, because it's dropping your monthly payment, as you guys can see, exactly $100. Hopefully you guys are all seeing that from 2661 down to 2561. So if we wanted to save a hundred dollars every month to recoup $2,700, that's very easy math. You just take 2,700 divided by 100, that's 27 months. Months. 27 months divided by 12 is what, two and a quarter years?
- [37:57]
A
Yep.
- [37:58]
B
So if you intend to keep this loan for more than two years and three months, it makes sense to buy down your interest rate. Right. That means you're going to save a hundred dollars a month every Monday, every month after that, that will be pure profit. You're going to recover 100% of your funds invested in two and a quarter years. Now, depending on your stance, if it's a fix and flip, obviously I wouldn't recommend doing that. Right. If it's something that's a long term hold that you love the property, that it cash flows well, it's your forever home, whatever. Sure, it may make sense, but just what we just did there, you can do that with any rate on this rate sheet and you can come to a conclusion by yourself. Does it make sense to buy it to a 6%? Is my break even better? How about a 5 and a half percent? Is my break even better? Obviously, at those rates, the buy down is much more, but the monthly savings is also more.
- [38:51]
A
Right.
- [38:52]
B
A good loan officer will be able to help walk you through that and make his advice on a specific rate that you should target on the rate sheet.
- [38:58]
A
All right, there you go. So buying down the rate is another way that you can get a better interest rate independent of where rates happen to be fluctuating. And if we haven't already made this clear, when we talk about rates going up and down, we are talking about what we in the industry refer to as the par rate. But rates do not go up and down. Rate sheets go up and down. And then within the rate sheet, you also have certain rates that can be cheaper than others. This is why, folks, you need a professional helping you to make these decisions. You should not be trying to do it yourself. And we're spelling all this out for you that you will never be able to use on your own. But this does help you understand why you should be using us. Or if you already have a loan officer you're committed to, they need to be going over this with you or you need to find yourself a new man. All right? Last up is what we call our Fusion product. Now, this is a unique thing that the one brokerage has. I don't know of any other lenders that are offering it. I suppose they could be, but I've never heard anyone talk about it yet. Yet. I'm sure that they'll copy us once they see this, but that's okay because we will do it better. Christian, explain what the Fusion product is and how that can get people significantly lower rates.
- [39:58]
B
Absolutely. If you guys are watching this on YouTube, go back to the video prior to this. That's in our Mortgage Mondays playlist. And we discuss this in much more detail if you want a full breakdown of it. But basically, a Fusion product is breaking up a high balance loan that is worse priced because of how large it is into two smaller loans. And you're doing two simultaneous closings, but your interest rate on each of them are much more competitive. Okay, so for example, if you were getting a million dollar loan at 7% rate, if you could get a, instead of a million dollar loan, you get a $600,000 first loan at a five and a half percent rate and a, you know, whatever the difference is, $400,000 loan at that 7%, your average interest rate is much better. So all this is doing is taking those loans that are naturally much less competitively priced, which is jumbo loans, second home loans, high balance loans, typically the loans that are larger in nature and you're just making them into two smaller ones. We've kind of come up with this product, we call it the one brokerage blended loan. You know, it's not great for like $100,000 purchase. Just there's no point in doing it. Your savings isn't enough. But if you're buying a cabin in the Smokies, that's 1.2, $1.3 million it can save you. We did the example on the previous episode. Whatever it was, David, I think it was either, I think it was like $800 on the monthly payment or it was like 24,000 at closing. Right. You could choose either saving on the rate or the cost. So it's significant numbers. It's enough to care. Right? The lower your loan amount goes, the less benefit you receive from it though. But anybody looking in that 1 million to 2 million dollar range, you should absolutely ask us about our Fusion product. There's potentially a lot of money you could save there on your interest rate.
- [41:46]
A
All right, so there you go, folks, working hard to figure out how to save you more money and being very creative Christian went to school at Cal Berkeley to be a chemical engineer and he is now engineering loan products to save people money.
- [42:00]
B
That's right. As well as I can with very different level of education but it all applies right?
- [42:06]
A
All right. We went overtime today. This is a much longer episode than we typically do, but that's because we had such good stuff to share. You it's not bad for a podcast, but if you're listening to this on YouTube, this is why it was not a 20 minute video like we typically do. We wanted to break down the specifics of what you should be talking to your loan officers about or show you why you should just be coming to us. Christian, if people want to reach out to you to finance their property, where can they go?
- [42:27]
B
Yeah, as always, you can find out more about our company@the1brokerage.com I'm personally on Instagram is the best social media to catch me on at the one Broker and my direct email if you guys just want to go straight to me is Christian the1brokerage.com we'll put all that in the video description down below.
- [42:42]
A
You can find me online on social media at davidgreen24. Send me a DM. You can also find more about me at davidgreen24.com and make sure you leave us a comment below about what you thought about today's episode and what you'd like us to talk about. We read those and I put them on the David Green show podcast when I read the comments and the quick hitters. We also make episodes based off of what you guys would like. Thank you everybody for listening. We realize you could be getting your information anywhere and we are very happy that you're listening to us here. We will stay committed to doing everything in our power to serve you and help you build wealth through real estate with honesty and integrity. We will see you next week on Mortgage Monday.