← The David Greene Show
Loading summary
Transcript29 lines
- [00:01]
David Green
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no BS and no sales pitches. I'm David Green and I've been doing this for over 10 years. I've seen the ups, the downs, and everything in between. This is the show where we pull back the curtain and show it to you too. So if you want to build wealth through real estate or you just love learning about it, you found your home. Welcome everybody. Happy Monday. Everybody's favorite day of the week. And why is that not only do you get to go back to work and sit in that commute, you also get to be joined by the lovely, sexy sounds of Christian Bosselder and I here on Mortgage Monday. So glad you're joining us today, Christian, how are you doing?
- [00:44]
Christian Bosselder
I'm doing good. Another Monday, another round of mortgage advice and guidance for our listeners.
- [00:48]
David Green
Yep. And we got a great show. Jam packed with tons of good information, guys. So sit down, buckle up and get yourself ready because it's coming at you like water out of a fire hose. Our first topic today, conforming loan limits are going up. Christian, let's talk about it. What are conforming loan limits and why do they go up?
- [01:04]
Christian Bosselder
Yeah, this is always something that we in the industry kind of look forward to at the end of every year, I guess I should say the end of every year in the last 10 years dealing with inflation. So just like everything goes up, conforming loan limits is the maximum threshold in terms of loan amount that you can go to before your loan becomes what's known as jumbo. So anything that when you guys hear Fannie Mae, Freddie Mac, fha, right. All of these like government sponsored loan products, they have a maximum threshold you can go to. For instance, you can't get a $6 million Fannie Mae loan. Right. When Beyonce and Jay Z are buying their, their $20 million, you know, Beverly Hills mansion, they're not using a Fannie Mae loan. I mean, Maybe they're putting 39 million down and getting $1 million loan, but probably not, right? So these are loan products for the vast majority of America that usually fall within the thresholds. And it's based on zip code and county, okay? So every single county in America. And obviously we can't show all of them on the show. So I'm just going to hone in on California just for an example. That's where I live, it's where David lives, at least for now. And I'm going to show you how they have changed from the year 2024 going into 2025. And like I said, this usually happens at the end of every year. Okay, so in 2020, this data actually was back in 2023. They used to be 726,000. Okay? That was the maximum for a one unit to be in what's known as the conforming loan limit in most counties in California. And this extends to many, many counties outside of California too. But we're known as one of the high cost states. So if you're in Kansas, Louisiana, Kentucky, your limits are even lower than this, probably in the 4 to $600,000 range. It's also important to know that there is also something called a high balance conforming loan limit. And just like I said, the conforming is 766. The high balance in California was right around 1.1 million. Now what's the difference between those two? Fannie Mae breaks their loan products mainly into two categories. There's just your standard conforming. In our situation in these California counties, that would be everything below a $766,000 loan amount. Remember, we're talking about loan amounts, not purchase prices. So if you're putting 20, 25% down, this is still like a million dollar purchase, Right? To get to that 766 loan amount, however, Fannie allows you to stretch it a little bit further. Only in cities and counties that are designated to be high cost. This is LA County, San Francisco, San Diego, you know, Dallas, Denver, Miami, you know, the major metro, Chicago, New York. Right, the major metropolitans in America that are deemed to be these high balance counties. And all that means is that Fannie Mae has understood, hey, these areas go even above and beyond the high value states. So for instance, California is a high value state, but San Francisco goes even another threshold further. So they have unlocked what's known as the high balance limits. They give you a little bit more wiggle room in certain counties before you become jumbo. And just to show you how they've changed. So summarizing all this, I want to get into exactly what they changed to. Okay, so in 2024 for a one unit property, in most of the non high balance areas, Your maximum was 766,000 for a one unit property. Okay, One thing to keep in mind too is that as you pick up more units, you know, you typically hear one to four unit properties, those loan amounts go higher for two, three and four unit properties. Okay, so it's actually 981 for a two unit and so on and so forth. Where they're going to, though that 766 is going up to 802. So that's almost a $50,000 increase. And that's due to inflation, cost of living. There's a whole algorithm that they use, but they're increasing to a new threshold. Which, the reason why we bring this up is that if you are a borrower who's teetering on a high balance product or a jumbo product, and in 2024 you got pre approved for a jumbo, I would highly recommend reaching back out to your loan officer because it may be possible for the same terms, the same purchase price, the same down payment. You'll now find yourself back in the conventional loan limit instead of having to default to a jumbo loan. So it's just expanding the buying credentials of some borrowers if you find yourself on that teetering edge.
- [05:37]
David Green
So if somebody was above the county conforming loan limit, they couldn't go conventional. They had to go jumbo. They were. Now in a situation where the rate's going to be higher and the cost is going to be higher with these loan limits going up, go back to your mortgage broker and say, hey, is there any chance that I fit within conventional loan limits? Or sometimes if you put another 10 grand down, it could get your loan balance down to where you get that better conventional rate, correct?
- [05:58]
Christian Bosselder
That's right, 100%. That's why it's important to work with a lender that offers both. Right. Work with somebody who has jumbo and conventional, where they can pivot you and advise you correctly in between. It's also good to note not only can the cost and the fees be different between these two loan products, but your down payment can vary significantly. Right. When you hear about the 3, 5, 10% down loan options, those are typically in the conventional realm. So if you're going up to jumbo, those could balloon to 10, 15, 20% down. Whereas like David said, if you were just a difference of, you know, a small amount, it may be good to put 5% down plus 10,000 to stay out of that jumbo category and make sure that you're getting yourself the best deal.
- [06:38]
David Green
Now, let's say someone is in the jumbo territory, they can't get around it. That's just the way it's going to be. We at the one brokerage have a Fusion product that can actually save people boatloads and buttloads both of money. Can you explain briefly what the difference would be if they use our fusion product versus say, we're going to use a $900,000 loan? Balance our product versus a typical jumbo loan. How cheaper it would be to go with us.
- [07:02]
Christian Bosselder
Yeah, absolutely. And that's where this product comes into play, is exactly the people that we're talking about. If you want more information about this, our previous episode on David's YouTube channel, here, go check that out. It talks about it in a lot more detail, but basically what we do is that instead of getting you one large jumbo loan, we actually split your mortgage into two different loans. So we get you like a 60 or a 70% first, and then we package that with like a 10 to 20% second where you still can come with that 10 to 20% down. But. But it's broken up into two loan products that are both under the jumbo threshold. And if there is a benefit that you could realize being under the jumbo, that would be a really good move for you, maybe saving down payment, maybe saving cost, interest rate, fees, points, et cetera. And I know we went through an example on the previous episode, David, where the difference in FEES was either 24,000 or about a 1.5% drop in interest rate. So it's significant enough to care for. Sure.
- [07:57]
David Green
All right, now, on that topic, you also closed a loan. We have a client success story that we'd like to share with everybody. So let's hear about this deal that you worked out for someone or you saved them some money that you're really happy about.
- [08:09]
Christian Bosselder
Yeah, this was a fun one because it kind of goes against some stuff that I've said in the past, as well as just what kind of routine advice is. This was actually a jumbo client. So they were far into the jumbo category. There was no way to keep them out of it. I believe it was a $2.2 million purchase. And they went to their bank, it was Wells Fargo, and they said, I just want a standard jumbo loan. They knew they were going to be in jumbo territory. They knew there was no way they could get down to. They were in one of these counties where it was a $760,000 limit. So they're not going to put, you know, one in $1.6 million down. Right. So they knew they're going to be in jumbo. That's fine. We understood it. And conventional knowledge says jumbos are not as competitive through brokers, which in general is true. Typically, if you have a banking relationship with a Wells Fargo, a Chase, they're typically going to beat what a broker can offer you because they want your banking business. When you're a jumbo client, they view you as a, a little piggy bank. Right. You probably have more in your checking account, your savings, you're more likely to do investment products with them, CDs, stuff like that. Right. So he went, got a quote. However, Wells Fargo wanted 25% down. For whatever reason, if it was his FICO bracket or the property type, they wanted a larger down payment. Well, he came to us and said, hey Christian, I know the rate is going to be different, but I really want to put 10% down. Like that's what makes my numbers work. That's what I'm comfortable with parting from my bank account. And I don't really care if there's an increase in the interest rate. I want the money in my bank. And our rate was higher. I just want to be clear there. But we were able to obtain him a 10% down jumbo loan with no PMI. That compared pretty well. I mean it was a higher rate, but it compared. When you consider the savings that he realized, that's 15% of a two plus million dollar purchase. That's a lot of money. You guys can do that math, right? Going from 25 down to 10. And he was able to keep a substantial sum in his bank account while also getting a fixed standard 30 year mortgage. And he didn't have to pick up PMI to offset it. So while he did pay the higher interest, it was still much better considering the situation he was pursuing.
- [10:22]
David Green
So this was somebody who had to do a jumbo loan, couldn't do a conventional mortgage. You were able to get them a lower down payment and you were able to avoid the PMI that offset a slightly higher interest that somebody might have missed if they would have just been looking for the cheapest rate they could get, not knowing they should be looking at PMI down payment and closing costs as well.
- [10:39]
Christian Bosselder
Yeah, I mean this guy found us because he was specifically pursuing a lower down payment, which banks typically don't offer. Banks will usually have at least a minimum of 20% down on jumbos. And this bank had 25. We got him 10. Right now some people may be asking, did we use our Fusion product? We did not. And that's mainly because his loan amount was still too high. Right. Even if we did a 50% down loan, his purchase price I think was 2, 2 or 2, 3 million. He's still like a 1.1, $1.2 million first. Right. So the Fusion product didn't make sense for him, but we still got him a significant lesser down payment as well as removed pmi, which was beneficial to him at the end of the day.
- [11:21]
David Green
And that's why you want to use a mortgage broker, because they can look at all these different pieces and they can tinker them that your typical banker that just works for a bank and does a Wells Fargo loan or does a Chase bank loan, they don't have those. All right, let's talk about interest rates. Today. Mortgage rates are a bit unsteady. Rates on roughly half of purchase terms have increased and the other half have decreased, which I think is a trend that we will continue to see. As new loan products hit the market and there's more options, you'll start to see sort of a polarity of some different programs getting more expensive, but then other ones getting cheaper. Thankfully, according to Zillow, the popular 30 year fixed mortgage rate is down by 2 basis points to 6.59%. And the 15 year fixed rate has also declined by 4 basis points to 5.91. The 5.1arm rate has dropped by 9 basis points to 7.15. Christian, let me ask you, people don't often understand there's a 30 year rate, there's a 25 year rate, there's a 20, there's a 15 and probably everything in between. When you're helping somebody decide what interest rate they should get and if it should be a 30 year, a 20 year, etc, what are some of the things that you take into consideration with how you advise somebody?
- [12:30]
Christian Bosselder
Yeah, 100. Number one, do they qualify? Right. When you have a 15 year mortgage, as you guys saw in that screenshot David shared, the rates are lower. So a lot of people are incentivized and they're enticed by those lower 15 year mortgage rates. What they don't realize though is that you're paying off your loan in half the time. So your payment, it's not exactly twice as much, but it's a substantial amount more than what it would be on a 30 year mortgage. Obviously you're paying it off sooner. You have to make a larger monthly payment. Right. What a lot of people don't consider is they may go get a pre approval for a 30, I'm sorry, a 30 year mortgage. You may not qualify for a 15 year mortgage. So to David, answer your question. I may not recommend it to everybody because they, it's possible they can't get it right, especially with rates being where they are. It takes some pretty substantial income to Qualify for a 15 year mortgage rate right now. Right. There's, there's high earners that do and There are still people that seek it out. I can tell you, as compared to Covid time and before. 15 year rates are significantly more rare nowadays than they were previously. Because when rates were at 2%. Yeah, it's a little bit easier to qualify. Right. When they're at 7, it's, it's tough. You're really starting to crank that monthly payment with the rate that high and a half of the payoff period.
- [13:42]
David Green
Great point. I have an entire chapter on this in my upcoming book, better Than cash flow, the 10 ways you make money in real estate, how to understand loan pay down, principal reduction and how to maximize it to benefit you. It's available for preorder, so head over to Amazon, look up Better than Cash Flow and get your preorder. All right, next article. When could mortgage rates hit 5% again? The experts weigh in. The Fed Reserve is suggesting possible rate cuts next year. Buyers want clear guidance for their decisions and that has led many would be home buyers to wonder whether mortgage rates will drop to 5% sometime soon. The answer to that question isn't so cut and dry though. While some financial experts predict that type of rate decline could happen soon, others see a longer path ahead. And while lower rates would help buyers save money, leading industry professionals say other factors such as home prices and available inventory also affect affordability. Industry professionals like Christian I are going to say that supply and demand affect it much more than actual interest rates. Everybody likes to talk about interest rates, but it's not the rate that is going to determine how expensive your house is. It's a cumulative amount of factors, with the biggest one being how much money you're borrowing. And when rates go down, prices tend to go up, which means you have to borrow more to buy the same house. Christian, what are your thoughts on if we will see 5% interest rates in 2025?
- [15:02]
Christian Bosselder
Oh, the question, huh. I think it's funny when people try to make these predictions because I'll be the first to admit if you look back, we recorded an episode of Mortgage Monday when we were back on bp. I want to say January of this year when we were this was not our opinions, but we were referencing the Fed's announcement that they were forecasting between four and six rate cuts in the year 2024. You remember that episode, David? Yeah. So at that point in time, many experts, pundits, advisors were saying, I expect to be at 4 1/2% right by the end of 2024 and look where we are. We're 2% higher than that. Do I think it's possible we can get to 5% again. Yes. I think a healthy economy, healthy being where, you know, what America is, you know, has the potential of being. I think a healthy economy will always hover between 4 and 6% on long term debt. I think that's a healthy number. That's where the investors still get enough return to justify it and the borrowers don't have to pay out the, out the wazoo to get it right. Which is funny because we're at roughly six and a half right now, like you were showing on that, on that, on the website there. We're not that far off from what I would determine to be a somewhat healthy economy. Right. Just from a terms of borrower perspective. I know there's a whole lot more with inflation going on behind the scenes. I think 5% lies right in the middle there. It's tough to put the nail on when it might happen. If I was a betting man though, I'd say probably early 2026 is when I would expect it. I think that would give, you know, we obviously have a new president who just got, you know, we have a president elect Trump right now, seeing what he does his first year. You know, last week we were talking about him. You know, you fire Jerome Powell, you know, so we don't know how that will come into play. But, you know, depending on what the fiscal policy looks like going into 2025, I could definitely change my stance. But if I had to put my money on it, I might say end 2025. Early 2026 is when we'd see potentially sub 5 interest rates again.
- [17:11]
David Green
So if you're right, that would mean buying real estate in 2025 and refinancing in 2026 would be the way to go. Don't wait for rates to drop to buy. You probably waited too long. You want to buy while prices are low and refinance when rates are low. That is my advice to you as opposed to the conventional wisdom you may hear that says buy when rates are low. All right, moving on. Trump has a problem. This is an opinion piece from the Washington Post, which is always so nice to Donald Trump. The one thing that should worry Trump, the housing crisis. President Donald Trump has about everything going for him lately except this. Mortgage rates are rising again to nearly 7% and he got elected promising the opposite. We will drive down the rates so you will be able to pay 2% again and we will be able to finance or refinance your homes drastically, Trump said in September. Trump gets away with saying a lot of things and never doing them. That's an objective statement. But on housing, voters seem to want action. Not only was it a top issue with voters all over the country, but in the toughest markets, where home prices have often doubled in recent years and inventory remains low, voters swung to Trump and NBC analysis found. Christian, my question to you, Can Trump actually control interest rates? Can he drive them down to 2%?
- [18:26]
Christian Bosselder
He can impact them through fiscal policy and obviously through appointments. Trump, people forget this. Trump actually appointed Jerome Powell in 2017. So everything Powell has done is kind of by workaround, working of Trump. Right. So I won't say directly, but absolutely. Fiscal policy impacts. If he drives down inflation, if he gets unemployment in a good place. Absolutely, it's possible. I would say it takes a lot more than saying rates need to go to 2%. It's the fiscal policy that drives it. Right. But absolutely. The president has the ability to impact it for sure.
- [19:06]
David Green
But he can't just say, voila, abracadabra. I want properties to be at 2% interest rates. He has to kind of pull on the levers and push the buttons and do what he can do to get.
- [19:17]
Christian Bosselder
That's right. Unless Fannie. Fannie Mae turns into Donald May. And anytime soon where Trump starts lending his own money, Trump could lend money at 2%, but I don't think he's got quite enough to finance against the mortgage industry in America. Right. So unless it becomes incredibly government subsidized, which, you know, circa 2008, quantitative easing, you know, some of our listeners have been with us for a while. Know what we're referencing there? That's what could artificially create those rates. But you pay for that in the long term. Right. We're still paying for Covid right now within, you know, these increased rates that we've had as a result of keeping rates artificially low for that long. Which is why I think in our economy, that's why I said the healthy range is 4 to 6. I don't think we should ever get to 2% again because you have to pay for that substantially after the fact it happens. And I thought there was a funny little comment in that article there, David, where it said now is arguably the worst time to own real estate in the last 40 years. I would love if the Washington Post went and found an investor that agreed with that.
- [20:21]
David Green
Yeah.
- [20:22]
Christian Bosselder
All of you guys out there who own property, are you upset you own real estate? I'm not. I'm not mad. I own real estate. Right. I always think it's funny when they Throw comments like that in. Because that sounds like somebody who doesn't own a house right now.
- [20:35]
David Green
That's a great point.
- [20:36]
Christian Bosselder
Yeah.
- [20:37]
David Green
Somebody who's paid to write opinion pieces for a website and has probably been paid for the last 30 years of their life and complains about their slum lord for not doing enough while they live in rent controlled areas and the rent hasn't gone up on them in 15 years. It's probably true there. That's right. The last topic for today's episode of Mortgage Monday is another story from you, Christian, about a client who did a successful BRRRR deal using different one brokerage loans. So walk me through how this played out.
- [21:05]
Christian Bosselder
Yeah, so this is a fun one. So just to reiterate to you guys, obviously a lot of you know the BRRRR strategy. You may know the guy who wrote the book on it. Obviously that was David. But the BRRRR strategy is obviously you buy a property, you renovate it, you fix it up, you rent it out, and you refinance once it has an increased value. Right. That's summarizing in five seconds. So what we did is we implemented both loan parts of that process, the buy and the refinance. For the buy, we used a bridge money loan. What that is, it's a short term, high interest rate loan for an experienced renovator. So this was a contractor. He knows what he's doing. He has his team. He reached out to us, he had a lot of experience and we got him a loan for 90% of the cost of his project. I want to say he was buying for 300,000 and putting 50 grand into it. So just for you guys, clarification here. That's a $350,000 project. That's purchase price plus renovation. We got him 90% of that. So he put 35,000 down. Compare that to what he would have to do otherwise. He would have to do 20% down on the purchase. That's 320% of that is 60 plus the 50k renovation, that would be 60 and 50 is 110. So instead of 110 into the project, he put 35 in. So that's the first win. He kept a lot of money in his bank account. Okay. He got the project done very quick. This is like a lipstick renovation, Right? He got it done in two months. Now a lot of people, when they hear hard money loans, renovation loans, bridge loans, they respond to the interest rate. You know, they kind of scoff at it. Oh my God. His interest rate was an 11%. Well, think about it this way. Let's say it was 12% every month. If you have a 12% interest only loan, you can think about it as you're paying 1%, right? Adding up to your entire annual payment of 12%. He kept this mortgage for one payment, only one payment. We closed, I want to say it was in August. He didn't have a September payment. His first payment was October and we refinanced him in November. So he made, we'll call it two payments. He made two mortgage payments which was basically borrowing that money at 2% interest. Because he only paid a 12% interest rate for two months, we refinanced him immediately out to a DSCR loan based on the cash flow that the tenant now paid in the property. And he got in and out of a renovation loan with 35k out of pocket and paid 2% interest on a hard money loan before he reached his exit strategy loan of his DSCR refinance. It's just obviously we talk about this a lot. The birth strategy is heavily studied, heavily scrutinized. A lot of people talk about it and bring it up. It's just so cool to actually see it happen where you save the bar. We're not only incredible out of pocket costs, but also if they get the job done so quickly, they limit so much interest they pay and then you still get them on that long term, 30 year product. @ the end of the day it's like it's so beautiful when you see it actually happen in reality. I mean, that's why there's a book written about it, right?
- [24:08]
David Green
There are people still burning. Is it harder than it was when the book was written? Yes. Is real estate overall harder than it was? Yes. Is it harder to not burr? Yes. Is the entire thing harder? Of course. Because everybody knows about it now. It was kind of the big secret. When I used to explain the Brrrr product to people, it was like their minds were blown. They could not wait a minute. You could own the property and have 25% equity and had no money out of pocket. Well, now it's old hat. Everybody's talked about this for a long time and there are more people competing now to be in real estate than there's ever been before. The same time that my subjective opinion is there are less viable solid options to put your money in than real estate. It's just pretty much the only thing that's going to beat inflation. So everybody's rushing to it, which is why we finance it, which is why we make this content for everyone who is obsessed with it, who loves it, who's passionate about it, who wants to learn about it to join us in our community. You guys make sure you keep an eye out for realtalkrealestate.com it's going to be coming soon. Make sure you're listening to the other episodes of the David Green show available on this channel. Make sure you're following Christian at the one Broker on Instagram. He's got underscores underneath. Make sure you're not following a fraud and follow me at David Green 24 might turn that into Real Talk Real Estate at some point. Not quite sure yet, but keep an eye out for that and keep an eye out for future episodes of Mortgage Monday. Christian, if people want to get a hold of you and they don't just want to follow you, but they want to reach out directly, where can they go?
- [25:33]
Christian Bosselder
Yeah, best way is a direct email to me guys. Christian the1brokerage.com we'll paste it below in the video description as well. That's the best way to get me directly anytime you need me.
- [25:42]
David Green
There you go folks. Thank you very much for listening. Let us know in the comments what you thought of today's show, what you think is going on in the industry and what questions you might have because we read them and we will make future shows based on the information that you give. If you like podcasts and you prefer listening on Spotify or Apple podcasts, make sure you check out the David Green show over there. That's all we've got for today. Thank you very much. We appreciate all of you and if you've done a loan with us at the one Brokerage, know you are family to us. We love you. Thanks everybody. We will see you next week on Mortgage Monday. Thanks for listening to Real Talk Real Estate. If you would like to be featured on the podcast, I'd love to have you visit davidgreen24.com Ask and submit your question there. Also, please do me a huge favor and share the show with someone that you love that you think would benefit from this message and make sure you're subscribed to get notified for future episodes. If you want to reach out directly, you can also DM me on Instagram or social media and check out david green24.com.