In today’s episode, Reuben and Tessa engage in an insightful conversation with mortgage expert Mike Louden from Mortgage Avenue. The episode centers on the nuances of the real estate landscape, encompassing mortgage rates and homeownership. Louden stresses the role of advisor over loan officer, drawing from his extensive experience since 1994 and his dedication to guiding clients through the mortgage process. The conversation explores crafting personalized mortgage deals, considering aspects beyond interest rates such as the impact of high demand on rising home prices. The concept of prioritizing the right home over interest rates is discussed, underlining the significance of informed decisions aligned with personal financial goals. Notably, concerns about online mortgage services are raised, emphasizing the value of expert guidance in making sound decisions. The episode concludes by highlighting the necessity of comprehensive understanding and professional advice in navigating the real estate market for long-term financial security and wealth accumulation through property ownership.
TRANSCRIPTION
The following is a transcription from an audio recording. Although the transcription is largely accurate, in some cases it may be slightly incomplete or contain minor inaccuracies due to inaudible passages or transcription errors.
Reuben Saltzman: Welcome to my house. Welcome to the Structure Talk podcast, a production of Structure Talk Home inspections. My name is Reuben Saltzman. I’m your host alongside building science geek Tessa Murry. We help home inspectors up their game through education, and we help homeowners to be better stewards of their houses. We’ve been keeping it real on this podcast since 2019, and we are also the number one home inspection podcast in the world, according to my mom. Welcome back to another episode. We’re hot off the heels of Tessa announcing her new business, your House coach. So excited for that. Tessa, I’m sure your business has absolutely exploded since last week. Phones are ringing off the hook. No, just kidding.
Tessa Murry: It’s funny, actually, you know what, Reuben? I did. I posted the podcast on my Facebook page and I made the announcement on my Facebook page and it actually, it has been, I’ve been surprised at how, much feedback I’ve gotten from people.
RS: Really?
TM: Yes. So it’s been really good and I am busy, so.
RS: That’s fantastic.
TM: So thank you for that, Reuben. Thank you for allowing me to speak about my new business on the podcast.
RS: Absolutely. And, I just thought of it this morning. We gotta get you added into the list on our webpage, on our website. We’ve got a hidden page for our clients and internal use for our recommended service providers.
TM: Yes.
RS: And we gotta get you added on there, Tess. And I just thought, hey.
TM: Yeah. And a whole new category.
RS: Yeah, exactly.
TM: Yeah.
RS: We just gotta make sure all the rest of my team has listened to that podcast and knows exactly what it is you’re doing. ‘Cause we get requests for the stuff that you are offering specifically. So we gotta get into that.
TM: I appreciate that. Yeah. I actually heard from a home inspector who’s in our, kind of our local area who said, “Hey, I think it’s great what you’re doing, and I’d love to connect with you and potentially give my past clients your name to help them on these questions they have.” So yeah, I think I can be a big support to other home inspectors who have clients that circle back and have questions and wanna know kind of some more guidance on things. And I can definitely help you out with that. So you got to.
RS: And just to be a better podcast host here, I’m launching right in this, assuming everybody listens to every one of our episodes in the right order. [laughter] Tessa, what’s the 32nd version? If you didn’t listen to last week’s episode, what are you doing now?
TM: Yeah. What am I doing? I have my own consulting business and I’m helping homeowners. I’m helping home inspectors. I’m helping real estate agents, anyone that deals… That’s in the housing industry, help them understand their house and find ways that are efficient, effective, and safe to make improvements or to do repairs or to plan maintenance. And helping you coordinate those different projects, prioritize them and find kind of the right order that’s best for you, that gets you close to your house goals and reduces the amount of potential risks or problems that you may not even know that you could have. [laughter]
RS: Excellent.
TM: If you do certain things. So, yeah.
RS: Cool. All right. Thank you Tess. And when people wanna get ahold of you, where do they go?
TM: They can go to my website, www.yourhousecoach.com, and you can contact me through there, my email, my phone number’s on the website.
RS: Perfect. Thank you. Well, let’s get into our guest. We’ve got a special guest on today. We’ve got… And this is an invitation from Tessa. This is Mike Louden with Mortgage Avenue. Welcome to the show Mike. Tessa, would you wanna tell me a little bit about who Mike is and why you had him on the show today?
TM: So Mike, I met Mike at a networking event actually. I was invited to sub in for someone. This is actually Michael Bartus. If you’re listening, shout out to you Michael. You are an amazing amazing real estate agent that we respect and love. And so I was subbing in for him at a networking event and I met Mike Louden there. And Mike, I want you to kind of introduce yourself and tell us what you do, but Mike and Michael Bartus go back 25 years and you are Michael Bartus’s main man when it comes to helping people with mortgages. Is that right?
Mike Louden: Yeah, I would hope so, obviously. But obviously we can’t, they work with multiple different lenders. But yes, I just try to be a resource for Michael and provide him any assistance he needs on trying to sell any of his properties or help his buyers.
TM: Yeah. So, Mike, you spoke briefly at that networking event, and kind of about what you do and how you do it. And you’ve been in this industry for a really long time, and I thought that you had some great insights and wisdom that just needed to be shared, and I thought our listeners could benefit from that. So thank you so much for saying yes and coming on our podcast today. And would you start just by kind of telling everybody, what you do and how you got to the point that you’re at today with your business?
ML: Sure. Well, thanks for the opportunity, Reuben and, Tessa. This is new to me, but I feel that this is great information and hopefully people can value what I’m saying. But we all know that it’s very competitive out there. There’s tons of mortgage companies, tons of… A lot of people doing what I do. I think the thing is with me doing this as long as I have, so I started this industry in 1994 as a loan processor. I worked my way up all the way to a regional manager, was managing over 200 people. And then in 2001 I opened up Mortgage Avenue. It’s a mortgage broker shop and unfortunately had to shut it down in 2008 because of the mortgage crisis.
TM: Mm-hmm.
ML: Now, one thing that I’m really passionate about what I do is we all know what happened to the consumers in ’08 and what happened in the market. I took it to heart because a lot of people lost their homes back then. And it was very challenging for me because I take pride in home ownership. That’s why my tagline is on the corner of Dream Street, because I truly believe the American dream is owning a home. So that’s why it took a heart. And then all my neighbors looked at me very strange. I was the problem in the industry, but it is what it is. So in 2018, I rebranded and opened up Mortgage Avenue again. And what I am is a mortgage broker. So what I’ll do for you is be more of an advisor instead of a loan officer. I’m gonna go out there and shop for the best possible deal. I’m gonna give you your options, A, B, or C, and you could decide which one’s best for you. The beauty of being my own boss is I don’t have the margins to pay to run a business. So ultimately it’s like, and I don’t know if this is gonna be trademark or I’m gonna get in trouble for this, but it’s like gonna Costco or Sam’s club, I’m wholesale, so you don’t pay me for my services. I get paid directly from the lenders and investors I work with.
ML: But obviously we know what kind of market we’re in right now. It’s very difficult to get somebody at 2.5% to go, to 7.5. Unless life crisis happens. This is something we’ve never seen. And remember, people don’t know this, but back in… Before COVID hit, the rates were on their way up. But what happened is that the government stepped in and bought mortgage backed securities because they didn’t want the housing market to crash. Could you imagine if rates went up during COVID? It would have changed everything. So when they… They basically just kept the rates as low as they could, until the COVID thing got whatever. And then when they pulled them back from buying mortgage backed securities, guess what, the interest rates skyrocketed. Inflation is the biggest thing is… The arch enemy of mortgage interest rate is inflation. So people want to know why rates have gone up. Well, inflation and if we give multiple money to a lot of people, eventually something… It has to be paid back, right? So, it’s tough to convince people to move into the higher interest rates. But I always say this is that it’s better than paying somebody else’s mortgage, no matter what the interest rates are.
ML: And I shared this with Tessa is that marry the house and date the interest rate. Really. That’s what you need to focus on is because remember, majority of the listeners probably were at seven or 8% at one point. So, we just got spoiled. There’s no lie. But that we can’t sustain a market with those kinds of rates forever. But I still believe there’s gonna be opportunities to refinance it in the near future, and I don’t know how much I could talk here, but the problem is I’m a sales guy, so I can talk all day long. But I think the thing is, those that decide to stay in their home, just know this too. I have the availabilities to do home equity lines of credits, second mortgages. So even if you have a great rate on your first and you decide that you’re not gonna build or buy, I can help you with all sorts of things. If it’s whatever, I can’t look at myself as a one-man shop that offers very competitive interest rates, reviews. You can see my reviews on Google. I got 108 reviews, all five star. And my goal is to educate and tell you what you need to know, not always what you hear.
TM: So Mike, can I back up for a second and just get a big picture view? If someone has never bought a house before, they don’t know the process for financing and all of this. What is someone’s options for finding a mortgage? One option would be to go to someone like you, a mortgage broker. And then what are the other options out there? And what do you see the trend being or becoming?
ML: Well, a lot of the… Most… First step in the process is obviously getting pre-approved. If it was with a mortgage broker, mortgage lender, mortgage company, whoever you feel comfort with, right? It’s a very competitive industry. And I think a lot of my competitors are gonna tell you what you hear, not what you need to know, right? Because trust me, it’s getting harder and harder each day. We’re all chasing the same customer, right? But it’s getting pre-approved and that’s going through an application process. And one thing that I can offer that… Anyway and I don’t know if my competitors can, but I can do a soft inquiry, which does not affect your credit score in any way, shape or form. And I can get you a pre-approved based off a soft credit pull. So that doesn’t even affect your credit. You don’t pay for that. And then if they’re not quite where they need to be to fit into a certain mortgage, I can walk them through the steps to get there. If it’s a credit score issue, whatever it may be, down payment, I’m gonna give them all their options.
ML: I helped many of people that thought they could never own a home and now they own a home, right? So, it might make sense, it might not, right? So it’s more of just having that conversation, seeing what’s best for them, because I think we all can get approved for maybe more than what we spend, but the first question I always ask somebody, what do you feel comfortable paying per month? Because if you give me a number, I’m gonna tell you what kind of purchase price you’re gonna look at.
TM: Okay. So it’s a little bit more personal, a services of going with someone like you a mortgage broker, at least how you do business is that you understand your client, what they’re comfortable with, and then help them achieve that goal of homeownership. And you understand all these different tricks to increase credit or things that they can do financially to qualify for things.
ML: 100%. And that’s why when I had the opportunity to reopen Mortgage Avenue 2018, I thought it was the best of both worlds. Not only can I provide them with the education, I can provide them with competitive rates and great service. And we all know in any industry, it’s all about referrals. Take care of your client and others will follow.
RS: There was something you brought up too, and I wanted to just touch on this quickly as you’re talking about how much people are willing to spend, what they can afford to spend on a house. And I’ve heard some people talk about how much of that spend should just be on maintenance. I’m wondering if you ever get into that, like saying, “Hey, you should set aside, like maybe 1% of the cost of the house and dedicate that towards maintenance and repairs, replacing your furnace when it goes out, things like that.” Do you ever quote things like that? Or do you have some type of number in mind that you talk about? Or is yours more just focused on what people should be paying for their mortgage, period?
ML: You know, that’s a great question, Reuben. And I think that’s the challenge. There is a lot of people that might get into the house and not be prepared for those things to happen. So this is why I really push people that maybe have the money to put 20% down, but because they don’t want to pay mortgage insurance, which by the 29 years I’ve been in the business, mortgage insurance premiums are at the lowest level they’ve ever been. So if you look at it this way, for every $10,000 you put down on the house, you might be reducing your mortgage payment by $70 to $75 a month. Right? So wouldn’t it make more sense to hold onto that money for the things that you talked about, Reuben? Not only that, because things will happen in the house, there’s no doubt.
ML: So, people come to me with a good amount of down payment, but by the end of the day, they might only be putting 3% or 5% down because that’s what’s allowed. So do I go into detail about that? No, but what I do say is you wanna at least have two months reserves in your bank account when you become a homeowner, right?
TM: Mm-hmm.
ML: I think we would all agree with everything that’s going on, a lot of people have more debt now than they ever have, right? A lot of people don’t have the savings. There are programs out there, I can get people with down payment assistance, whatever it may be. It’s what’s gonna fit them best, and I’ll give them my opinion, but they might decide elsewhere, right? Or do something different. But I think it’s very important to have… Because you’re right, a lot of people are just cash poor, I mean, and when they buy a house. But… And there’s things like I mentioned this to one of my referral partners is really push that home warranty, right? I think a home warranty. So, you know, have it as a possible offer to the seller or the buyer of buying a house or the seller offering it to the buyer. Excuse me, is… And it’s sound because stuff like that will happen, but that’s something also too that I talk about.
RS: Okay. Thank you.
TM: So Mike I heard you kind of discussing earlier when we were talking just about kind of all these potential ways to structure a deal and the pros and cons of that, and I thought, you know that’s something that I don’t know anything about. I’m not in the mortgage industry or a real estate agent, but I mean, just understanding as a potential buyer that, okay, well maybe I should put 3% down instead of 20% down, and I should invest that extra cash and I could make more interest on it. If I did that, then I would saving a certain amount of money on my mortgage payments every month if I put more down. And just helping a client understand the different options and how it could save them money or where they wanna put their money based on their goals. I think it’s just so valuable. And if someone’s not using a mortgage broker like you, do they get that that kind of education or information?
ML: Well, I mean, again, we all know a lot of people got into our industry because they thought it was easy, right? The rates were at 2.5%. I mean, I don’t remember if it was from Kaplan and I always heard this saying, saying a dog with a note in his mouth could sell those rates. And I don’t know if that was related to the mortgage rates, but I mean, really think about it when you’re trying to sell somebody at… I mean, you really don’t have to sell 2.5%, but I just give them opportunities. I can’t say what my competitors do, but I find that… I’m gonna give it my best. If they feel that I didn’t provide the service, then I did my part. But the challenge is, is everybody’s looking to get the best possible deal. But I feel more important than getting the best deal is the education. And where I should go with this money. How should I spend it? I mean, we know right now that the challenge we have is inventory, right? So why are homes still selling for the asking price, is because we like inventory, right?
RS: Yeah.
ML: But I will tell you when we were at 3% or below, homes are selling what? Anywhere from 15 to 20% above asking price. Right now, people are able to get the homes at the asking price. So if you wait out the interest rate and the value of what you bought that home for, it’s not a huge difference. And remember, I look at this loan getting into the house short term because you will be able to refinance it in the near future and get rid of that mortgage insurance because we’re… What average appreciation is what, anywhere from eight to 10% on properties right now.
RS: Interesting.
ML: But I don’t know, Tessa did I did that answer anything you asked?
TM: Yeah, no it does, it’s what to me, it’s a complicated world. There’s so many different options for how to structure a deal kind of, are they gonna pay my closing costs? Am I gonna pay them? Am I gonna pay them over asking price and get a lower percent mortgage or a higher mortgage? And buying it at the listing price and all these different variables. That to me, it just seems like, wouldn’t you want to hire an expert in this area to help guide you through this process so that you’re not potentially kind of shooting yourself in the foot or doing something that could be detrimental in the future? But it seems like there’s a lot of people out there that are finding, I guess, easier or cheaper, or maybe cheaper I should say, ways of finding a mortgage. Like what about these online services? Like, what’s your opinion on like Rocket Mortgage or stuff like that? I mean.
ML: Well, I don’t know. I sure hope if I say something bad, they won’t sue me or something, or they’re listening to our podcast. No. Again, it’s all about, you know, we know we can get a mortgage on our phone, right? We can apply for it, and you know what. But it’s one of your biggest investments. Right? And last thing I wanna be doing is with a call center and in another state that really doesn’t understand our laws, right? Understands our vesting laws when it comes to ownership, it… All the things that are related to owning or buying a property in Minnesota. It just, they… And to be honest with you, I don’t know how much they’re really saving, but it could be maybe an eighth of percent, but an eighth of percent we’re talking about an average mortgage of 300,000 is about 20, maybe $25 a month. So it’s not that they might tell you that they could offer you a better rate, but it’s not always the case. Right? So, but I don’t know, it’s just we’re in a world where everybody just wants to go as cheap as possible, right? On things and… But then they find out it’s in the long run, it wasn’t the best option, so.
TM: Yeah. They watch a YouTube video, and then they try and do it themselves or do it cheaply I guess.
ML: Yeah. Sometimes it’s just better to pay an expert to do it. And the beauty, Tessa and Reuben is you don’t pay for my services. I get paid directly from my investors. So you’re getting a service from me. Ultimately. Yes. Are you paying for it? Yes, you’re paying for it, but it’s not like you’re writing me a check. Right? It’s built into my contracts that I have with the investors I’m signed up with. And to be honest with you, even with getting paid directly from them, I’m still offering, probably an eighth to a quarter percent better than my competitors, you know? So you get the best of both worlds. And that was the beauty about reopening Mortgage Avenue in 2018. Is that all right, this is one I really flourished when I had the ability to not have somebody else tell me what to do on a daily basis.
ML: You have to hit these margins or you have to hit these goals or whatever it may be. I’m all about the consumer. Bottom line the reason I exist is because of my customers. Right? And I don’t have anybody else tell me, this is what you have to charge them, this is what you have to do to meet these numbers. I’m just providing a service to my client and by the time they get to that closing, they are so educated in knowledge of this business. If they wanted to ever get in my business, I guarantee they could be successful…
[laughter]
ML: As loan officers because they know everything. Maybe not everything, but some things, you know.
TM: Training the competition.
ML: But… Yes.
TM: So there are other options out there. I mean, what percentage of business is done by people like you that own their own mortgage brokerage?
ML: I think we’re seeing more and more. I think the percentage of the brokers have gone up. Obviously it’s in a higher interest rate environment right now, it’s more challenging. Right? It seems to me that with our competitors that have a lot of money can buy out the competition.
TM: Okay.
ML: Right? Because they can, ’cause they have deep pockets. There’s a lot of people and there’s… There’s loan officers that do the same thing. And I do, and I’m not saying anything bad about them. They probably offer the same service. It’s more about finding that connection of the consumer that you… They value what I offer. Right? And if they’re wanting to know everything about the industry and know about home ownership, I’m gonna provide that to them. So I… There’s… Again, just like any industry, there’s competitors and they’d probably do the same thing I do and offer the same service. I just, I value… I’m passionate about what I do. I don’t look at it as a transaction. I look at it as a, long-term relationship, make sure I take care of them. And that’s why ’08’s crisis hit me pretty hard is because personally I saw some of the people that I’ve actually did loans for lose their homes because of the ’08 crisis. And my neighbors looked at me different. But bottom line is it… I just really passionate about what I do and not only is that they’re gonna get that, they’re gonna get a very competitive deal. So…
TM: Thanks for explaining that. Yeah. One thing you said earlier that I just wanted to kind of circle back to, ’cause I… It stuck with me when you were teaching at this, networking event was, you said date the rate and marry the mortgage, right?
ML: Yep. Marry the house and date the interest rate.
TM: Marry the house and date the interest rate. Sorry, I messed that one up.
ML: Yes.
TM: Okay. Obviously didn’t stick with me…
ML: Nice job Tessa.
TM: As well as I thought did. [laughter] But I thought that that was really interesting because I feel like in this market we’re in right now, it’s kind of crazy. It’s just people are either they’re waiting for like this bubble to burst or they’re waiting for the interest rates to go back down because they went up so fast and they’re higher than they’ve ever been. Like you said, how long has it been since we’ve had this rate? I mean.
ML: It goes back 23. We haven’t seen interest rates this high for, 23 years.
TM: Yeah. So I think like just there’s this general kind of sense of fear out there for people that are thinking about buying. Like, and also practicality wise, like if I own a house and I’m only paying 2.5%, why would I buy a different house for 7%. So that perspective was something new I hadn’t heard before that I thought was really interesting.
ML: And it’s totally true, right? Because I really truly believe you don’t… ‘Cause the longer you wait, you guys both know that houses are not gonna get any cheaper, right? So if you think about 10… An average of 10% appreciation per year, just think if you paid, let’s say a thousand dollars a month in rent for the next 12 months, that’s $12,000. You gain 10% on the house you bought for 300,000, right? You gained 30,000 in equity, you just lost out on 40 and I don’t know if my math’s right, $42,000, right? Because you just waited.
TM: Yeah.
ML: And the interest rate, yes, it is higher, but the thing is people forget and maybe talk to your accountant, but you get to write off that mortgage interest. So the higher the mortgage rate, the more interest you get to write off. And again, you have to look at it as a positive, right? I mean again, I am trying to find a way to be positive about things because I still believe in home ownership. And, but bottom line is why make somebody else richer when you can own your own real estate? And they say if you really truly wanna be, have wealth in this world is you have to own real estate.
RS: Yeah.
ML: Right? You have to own your own… It’s… That’s where it starts, right? That’s where it truly starts.
RS: Now it makes sense for somebody who’s renting, moving over to a house. But just to drill down on that thing that Tesla was asking too. And this comes from… I mean, I haven’t done the math on this. I might be way off, but I was just in a conversation with someone the other day who’s in the financial world, and they said something like, if you were at a 2 1/2% mortgage and you could afford a $600,000 house now at a 7% mortgage, your monthly payments would be about the same for a $400,000 house. Does that sound like we’re in the right ballpark? At least maybe the numbers aren’t exactly right, but is that?
ML: Yeah, it is Reuben. I mean, that’s 100% right and I think to be real and honest, that is the new reality. That yes, you can’t buy that $600,000 house, but maybe at that time, what, should you have been buying a $600,000 house? Maybe not. I don’t know. But yes, it is gonna be more challenging to qualify and that’s a big number, right?
RS: Yeah.
ML: I mean, I’m not gonna lie, that’s $200,000.
RS: Yeah.
ML: Right? So, yeah, it’s gonna require probably dual incomes. It’s gonna require different… Because the cost of real estate’s not getting any cheaper. But yes, the math, that is a very good number because that’s kind of what I’ve been quoting.
RS: Okay. So the follow up to that then just, wanted to first make sure that we’re somewhat accurate with these numbers. The follow up then is if you’re in a $400,000 house and your dream was to move up to a $600,000 house, and you’ve got a two and a half percent mortgage or something ridiculously low like that, and your next house is gonna be a $600,000 house, but all of a sudden it’s like you can’t afford it. What are you gonna do? I mean, what would you say to someone who’s interested in doing this move up? I mean, I know a lot of people, their mindset is, “Well, I’m just gonna wait it out.” What should they do?
ML: And yeah. And that’s a great, because I’m an empty nester now. I was thinking about selling, but I have that same interest rate. I mean, to go out there and pay more for a house that is less than what I have in my house right now. Here’s what I would say is we will not see an ’08 crisis ’cause people actually have skin in the game now. They actually… Guess what? They have equity over 50% of the people that own homes right now. I mean I can’t remember the stat, but they have tons of equity. So what they can do with that is they can sell it at the highest level they can because we lack inventory and take that money, $200,000 to say if they have an equity and then put it down on a $600,000 house and have a $400,000 mortgage.
ML: I would say that the… Them selling it now is gonna give them probably the highest they probably could get for the house. So I think what… To offset some of that is they could put that $200,000. Another thing too, I talked briefly at the beginning of this, is a lot of people have debt. How about, let’s say if we have a car loan, let’s say if you have credit cards, I mean, let’s just say that adds up to $1000 a month, but do you owe maybe 30,000 on there? Take the equity of the home, pay off all this debt and offset it in the new house. So you get rid of that $1000 then making up for the higher interest rates.
ML: And then maybe when, if and when rates do come down, they can refinance it. There’s ways to… Tools to use, right? A lot of what we see right now in this market, people that if it’s job transfer, unfortunately, if it’s divorce, if it’s job changes, whatever it may be, it’s a life events are happening. Why people are buying right now, outside of first time home buyers. And, but I could guarantee you this, there’s not a lot of people that own real estate and don’t have other debt. You know what I mean? If it’s your car loans, credit cards, whatever it may be, loans we took out to take care or put our kids in college, stuff like that. So there’s things out there that you might be at two and a half, but if you look at your car loan rates and all the credit card rates that skyrocketed, you could take that money and pay that off and ultimately be still paying less than what you’re paying now at two and a half percent.
RS: Sure.
ML: Does that make any sense?
RS: Yeah.
TM: So use that extra money to pay off all your debts and then you can basically kind of have this… You can buy a bigger house.
ML: Yes. Your mortgage payment will increase.
TM: Yeah.
ML: Yeah. Your mortgage payment will increase because of the interest rates, but if you get rid of the…
TM: The debts.
ML: Short term debt that, it will free up the monthly payments to make up for it.
TM: Interesting. It’s shifting your focus on how you view, I guess, what you can afford ’cause if you’re living in a $400,000 house and you wanna move up, but you’re paying thousands of dollars every month on all this debt that you have, credit card debt, car payments, whatever, then should you really be trying to move up to a $600,000 house?
ML: You know what? That’s a good point. What if they have kids, life changes, right? Where they need more rooms or they wanna get into a better school system, whatever it may be. Things do happen and there’s still people out there buying houses. I mean, they said recently that over 50% of the recent purchases were by first time home buyers. So people are still buying, it’s getting the people that are at the lower rates to buy something now. And what I’m trying to offset is give them opportunities to say, “Hey, I don’t know if this makes sense for you, but here’s what I would suggest,” and that’s where I talk about paying off the debt and whatnot. And is it true? Yeah. Should they be buying a $600,000 house when they have all this debt? You know what? I’m not the one to judge that, but maybe it’s they’re forced to because of larger family or job transfer, something like that. So.
TM: Yeah.
RS: Yep.
ML: But.
TM: Well, I think it’s just a… It’s a good perspective to keep in mind that it rates may not go down anytime soon or significantly. They might just kind of plateau or continue to go up, and the price of housing doesn’t seem to be like it’s gonna drop dramatically either. So if you are waiting for things to significantly get rates to decrease or house prices to go down, like you’re saying, that may not happen. And you can always buy now and then, you know, renegotiate the terms of… Or refinance later down the road, get a better rate and…
ML: Yeah, the longer I… You know what, the longer people wait, ’cause I will tell you, I don’t know how many conversations I have with people. “I’m just gonna wait it out. I’m not going to do anything right now.” And again, I can’t a hundred percent say this for a fact, knocking on wood, but we will probably never ever see those interest rates ever, because I don’t know what people realize too, is when the rate fell below 3% on a 30-year fixed, that was the lowest ever recorded interest rates in the lifetime of watching mortgage interest rates. We are talking about something that has never, ever, ever happened, right? And we won’t see that. I will tell people that are listening is the new reality is probably low to mid fives, right?
ML: If you can get somebody from three to five is not so bad, right? So it’s going to… We are going to… The market’s going to get saturated when the rates get down to 5%, right? And guess what? What is going to happen then? The values of the homes are going to skyrocket and we’re all paying above asking price. So don’t let the interest rate stop you unless you can’t qualify, right? Unless you can’t qualify, buy when you feel comfortable in buying and get into a house because ultimately there’s going to be opportunities for you in the future. Because the longer you wait, it’s only going to cost you more.
RS: Yep.
ML: I truly believe that.
TM: That is a really good point. I mean, if the interest rates do drop and everybody just says, okay, well now I’ll buy, then there’s going to be more competition.
ML: Guess what? The competition is going to be ridiculous.
TM: Yeah, and then you…
ML: Not only that is you have multiple offers again, right? How many first time home buyers out there that lost their house? I mean, I’ve heard 40 showings, right? You know, 40… 20 offers on houses. I mean, we’re not seeing that now. And when the inventory does open up, and I think that the people that when they start seeing the rates getting closer to the fives, I think people are going to start selling. And now it’s just going to be a floodgate, whoever gets to it first, right?
TM: So a 7% mortgage…
ML: That’s what I see. And again, I wish I was… If I knew everything, I’d probably be on some island somewhere right now, not talking to you guys, having a margarita or just enjoying life. But you know, you just never know.
TM: Yeah. You bring up some good points and good things for people to think about that if you are considering buying and you’ve held off because of the mortgage rates, you’re kind of shifting. You helped me shift my perspective a little bit. And it’s like, you know, if it’s the right house and the right time or the right house and for the right reasons, like it can actually hurt you to wait potentially. So…
ML: A hundred percent. A hundred percent. And again, I think the only way, like Reuben mentioned, how do I get people at two and a half to go pay this? Yes, it is different, but just remember, I believe it’ll be short term. And if you could utilize the cashflow somewhere else, if it’s paying off the debt or an investing it eventually, I think it’ll offset, right? Even though it might not seem like that, but we all know that our weighted interest rate and all our debt, with the mortgage is not at two and a half percent, right?
TM: Yeah.
ML: It’s much higher than that. So that’s what you have to look at. And that’s where I’m not a financial advisor, but I will advise people based off my experience and coach them. And if they feel it’s right, then it makes sense. If it doesn’t, I’m not going to say, hey, you need to buy, do you have to make sure that it’s the right time? And if it’s not the right time, just know that I’m a resource. Even if you’re not wanting to buy today, if you want to learn more about anything that I offer, it’s more of education and explaining this stuff to them.
RS: All right, Mike, I got one more question for you. Back around maybe 2004, 2005, something like that. I remember adjustable rate mortgages were all the rage. Everybody was getting an ARM and whatever happened to those, are they back? And I mean, the way you’re talking about this, it makes me think that mortgage rates might be about as high as they’re going to get right now. And they’re probably going to be going down. If you were getting a mortgage right now, would you want to be getting a 30 rate fixed mortgage or would you be interested in getting an ARM? What’s your thoughts on those right now?
ML: Well, and it’s a great question, Reuben. The challenge is it’s all about an appetite for the investors. And I don’t know if people know this, but when you look at a long-term interest mortgage interest rate, what the Fed… And this is something I try to push, what the Fed was doing, raising short-term interest rates does not always affect long-term interest rates.
RS: Okay.
ML: You got to remember, this is what the banks are borrowing their money at. So the three of us can invest in mortgage bonds, right? So why the rates are up so high is because inflation is the arch enemy of mortgage interest rates. So investors pull their money out of those bonds and guess what? Everybody’s trying to put their money in these bonds and guess it’s all about supply and demand just like the houses. So we kind of control as investors, people that invest in mortgage backed securities, we’re kind of controlling what the long-term interest rates are. But I will say, going back to your question is that ARMs are not like they used to be, right?
ML: I think it really got bad because a lot of people probably took the ARMs ’cause that was the only way they could afford the mortgage. But there’s not much, I would say a difference, Reuben, on a 30-year fix or even a 15-year fix, the ARMs maybe might be an eighth or a quarter percent difference. So the question is, would you really want to take an ARM for that to save $25 to $50 a month? Probably not, right?
RS: Got you. Okay.
ML: So there’s not that yield. So there’s not that… So there’s not an appetite. And I guess what I’m saying is that there’s really no interest in ARMs. So when I go price out an ARM mortgage compared to a 30-year fix, it doesn’t make any sense. But I will say what a big thing out there, and I don’t know if your listeners know about this, is the buydown options, you know.
ML: There are buydown options on interest rates that I have investors that will offer 2% lower than current market rate the first year, the second year 1%, and then the third year it’ll be at the current market interest rate, well, how do you do that? Basically, what we’re doing is if we’re asking the seller to pay closing costs, we’re gonna ask them to buy down the interest rate. And what the lender does is they take that money that the difference between the interest rates, right? Let’s just say if we’re at seven and a quarter today, five and a quarter the first year, six and a quarter to the second year, and then down to seven third. So what the lender does, it takes the money that you did not apply because you’re not fully applying the full principal, right? Because you’re only paying a five and a quarter, and then they put that in every single month.
ML: So instead of maybe having the seller pay your closing costs to… For everything else, maybe talk about buying on your interest rate. So if it’s about affordability, look at a buydown option, right? So it’s not like it’s an ARM, it’s not an ARM, it’s a fixed rate. This is your mortgage at seven and a quarter, but the first two years, we’re gonna give you the freedom of having that lower payment. And guess what, by the time it might hit seven and a quarter, we might be at five and a quarter. So you can refinance and drop up your rate 2%. So does that make sense? I mean, these are… There’s… So I’ll tell you on the 29 years doing this, there are more programs out there than I’ve ever seen. And if it’s getting first time home buyers into home with down payment assistance, ways to… Trust me, there are ways to get into a house and structure it, but it has to make financial sense to them.
RS: Sure.
TM: Wow.
RS: Cool.
TM: Very insightful. Thank you, Mike.
RS: Yeah. Thank you so much for coming on the show. Really appreciate your time, Mike. And…
TM: Yeah.
RS: If people wanna get ahold of you Mike how can they contact you?
ML: Well, they can go to my website, it’s mortgageave.com mortgage, spelled out AVE.com, or they can, email me at mike@mortgageave.com, or my cell is the best number. And know this to your listeners is I don’t work nine to five. I work whenever you’re available. So I’m available weekends and nights. Reach out to me because we know that people that are work a normal job are not looking at houses during the day, right? Or, and they’re working on weekends and nights. And Michael Bartus can attest to it. I show up at his open houses. I work weekends. I do whatever it takes to get my consumer the best possible deal, but they could always reach me in my cell, which is 612-578-8874.
TM: Thank you so much, Mike, for coming on the show and just sharing some of your insights and your wisdom on this current market and investing and everything. And, I hope that our listeners are just, from this podcast, they walk away and they’re like, “Oh, I didn’t think about that before.” Or, “That’s a new way of thinking about things.” Or just expanding their awareness for understanding that there is someone out there like you who can help answer those questions they don’t even know they need to ask or should be asking. So thanks again.
RS: Yeah. Appreciate it.
ML: Yeah. And can I say one last thing? Yeah. I think the thing is we focus on news. It’s all negative, right? And I’m sure that there’s a lot of people out saying, don’t buy now. This is the high… Buy when you feel ready to buy. And don’t listen to any of that and what you said. Educate yourself on the process and talk to somebody myself to give them the insight because I think we’re… We spend too much time listening to everybody else and we need to worry about what… What we need to do and what’s best for our family. So that’s…
RS: Good.
TM: Thank you.
ML: Thanks again for the opportunity. Appreciate it. It was a pleasure meeting you both again.
RS: Appreciate it.
TM: Thanks Mike.
RS: Thanks for coming on the show. Really appreciate it, Mike.
TM: Yep.
RS: Have a good one.
TM: Good to see you. Take care everybody.
ML: Okay. See ya. Thanks guys.
[music]