Rising mortgage rates have scared many potential home buyers, but as we will learn today, it still might be a great time to buy a house. Paula and Jon are rejoined by one of their very first guests, Marc Edelstein of Ross Mortgage.
Yes, interest rates have come up, but home prices have come down. Marc walks us through the math of why your final numbers today might not be far off from where they were in the past. In many ways, we are returning to a bit of a "normal" market.
We also talk about owning vs. renting. Every individual's situation is different of course, and sometimes your circumstances may dictate that you need to be a renter. Marc tells us why he considers paying rent to be a "100% interest rate" and why it's advantageous to buy, as a way to accumulate wealth.
What happens if mortgage rates drop? Even a 1% lowering of interest rates can be worth refinancing your home, and Marc explains why.
Producer Jon also jumps in with his key takeaway, as he and his wife are be looking for a bigger home soon.
If you'd like to reach Marc, you can do so via his website, https://www.thatmortgagebanker.com/
Or give him a call at (248) 379-6749. Marc is powered by Ross mortgage NMLS number 533706.
For bigger picture financial help, you can email Paula Christine: paula@paulachristine.com, or visit her website: https://paulachristine.com/
Paula: Welcome to Beyond the Paycheck. I'm Paula Christine. Stop living paycheck to paycheck and start living the life you dream about by taking control of your money. I can provide you with the knowledge and the tools if you make the commitment to put them into practice. So a couple of days ago, I was talking to a friend of mine who was considering buying a house, and they were concerned about the increase in the interest rates from when they were just what about a year ago.
And was wondering, should he buy now or should he wait. And so I said, let's call my friend Marc. So here we are today to drag with Mark Edelstein from Ross Mortgage about should we wait for the interest rates to go back down or should we purchase that house today. So welcome Marc. How are you?
Marc: Good. Happy New Year. It's not, I don't think, it's too late to say that.
Paula: No, I think you have till the end of the month. We're good. Happy New Year. Okay, so talk about that question. Should we wait for interest rates to go back down, or do we buy the house now?
Marc: I personally believe that you buy the house now. I always look at things from a financing perspective.
Not so much of a quality of life. That's not my thing, right? I'm a numbers guy, right? So the need for housing and to move, it's gonna be different for everybody, right? But I'm only a numbers guy. So that being said, the last 2, 3, 4 years, interest rates were incredibly low and home prices were on the rise. Double digit appreciation every year.
You probably heard stories, but the summer of 2021, the summer of 2020. During the pandemic, after everything started to slowly open up houses were going over asking price, multiple offers, people making offers, sight unseen.
Paula: I sold a house at that time cuz I was getting that divorce and we had a bunch of offers and they were all over asking price.
Marc: So think about it like this. Back then you were gonna have to overpay to get the house that you wanted presumably, right? So your mortgage financing is always gonna be based off of the lesser of the purchase price or appraised value. So if you're over bidding for the house you're probably paying more than the appraised value.
You gotta make up the shortfall between your purchase price and the appraised value in cash. You can't finance. So if you were planning on putting down 20% before, now maybe you can only put down 5% because you need that cash to cover the difference between the appraised value and what you agreed to buy it for.
So fast forward. Interest rates go up. House prices start to slow down. Their acceleration in appreciation almost to a crawl, a percent, half percent month over month the past year. So now you're that home buyer. You don't have to overbid for that house. You can still put your 20% down, but even if you are putting your 20% down now at a higher interest rate, probably a wash in the end if you had to overpay, not put 20% down, take PMI because you didn't put 20% down.
I would have to run the numbers, but I'd be shocked if there wasn't much of a difference between what your financing would've looked like year or year and a half, two years ago versus what it looks like today with 30 year rates in the sixes. With the craze of buying a home two years ago and having to overpay for a house and not being able to finance that and having to put less money down.
So you have the cash to make up, you know the difference between what it's appraised for versus what you bought it for, that financing scenario versus less competition for homes today. Not having to overbid as much, if at all, and taking a higher interest rate, but still being able to put that 20% down cuz you're not using it to overpay for a house.
I'm telling you that I believe that those two different payment scenarios are probably pretty similar in the end.
Paula: Two of my friends have been trying to sell their homes for the last six months, and it really has come down to a crawl. Even in the selling process. One has had to drop their price several times, and the other one was just grateful that he had someone come in and purchase.
And so the whole housing market I think has changed in the last probably three or four months.
Marc: Yeah. From a financing standpoint, like the purchase agreements that I see. Some of them are at asking price. Some of 'em are below. Some of them have concessions where the seller's gonna agree to pay some of the buyer's closing costs.
Some of them are even contingent on the sale of the buyer's current residence. So it's changed back to more of a normal type of market. I know it sounds like a buyer'ss market, the way I just described it, but it's still really not. Inventory is very low. We don't see that craziness and maybe they come back in a year or two from now.
Paula: No. I need the craziness to not come back because I need to purchase my lake home next year. So I need it to even, maybe prices come down a little bit more. But let's talk about the interest rate. I know when I've, I'm gonna age myself right now, you're gonna find out how old I am, but in the late eighties, I bought my first home and I think interest rates then were somewhere around 13.
But then over time I just kept refinancing selling and buying different homes, but also refinancing. And I know when my last mortgage, I think my rate was at 3%. So interest rates change over time and it's not really that big of a deal to go back, purchase today. I don't even know what rates are today, but purchase today. And then, if they change it two years from now, you go back and refinance.
Marc: We've spoiled home buyers and homeowners with incredibly low interest rates. The three years previous to this past year, right now, 30-year fixed interest rates are probably in the, and without knowing for sure, each interest rate scenario is different.
For every person, depending on all kinds of different factors. But I would think like the, if you look at the Freddie Mac survey of interest rates, I'm probably in the low sixes, six and a quarter probably, which really isn't that bad. But we're 3% higher than it was a year ago.
Paula: I know. But in my experience, I've had that rate before and I was excited of that rate before.
So I get it. We have been spoiled, but times are changing.
Marc: Yeah. Times are changing. I think rates will come down. It's too hard to say, where they're gonna end. But they made such a rapid run up in a relatively short period of time that nobody really anticipated. I can see overall with the condition of the economy that interest rates come down.
Paula: I would agree though, if I hear what you're saying, if you need to buy a home or if you found that dream home, don't worry about what the interest rates are, just go in and purchase that home. And then you can make decisions down the road.
Marc: You can always refinance. There's always a cost of refinancing, so you have to be aware that there's a cost to refinancing. But usually the savings offsets the cost of refinancing.
Paula: Yeah, usually in the long term it does. The cost of refinancing isn't outrageous.
Marc: No, but like everything, it's going up in price. I remember back when I got in this business 25 years ago now. No, I'm sorry, 20 years ago. Your average closing cost,s lender, title appraisal, maybe $1,200 to $1,500, all that combined.
Now it's close to four.
Paula: Oh, wow. That has gone up. Inflation. Isn't that where we were having no inflation during that time period?
Marc: The cost of originating a mortgage just kept on going up exponentially and exponentially, especially after the housing crisis in 2008 and 2009 and the Dodd Frank Act.
That really put a lot of regulations on mortgage lenders, which rightfully so at the time, that made the cost of originating a loan so much more on a per loan basis because of the giant compliance layer that got added to the origination of a mortgage.
Paula: All costs go up. Nothing ever seems to really go down in price.
Marc: Yeah, absolutely. I don't know my opinion, owning real estate, whether it's your primary residence or a secondary or investment properties, that one of the best ways to accumulate wealth in this country. And the sooner you can do it, the more wealth you can.
Paula: I wish I would've done that when I was younger.
I know when I met people when I were in my thirties that were buying a lot of properties for rental purposes and they're retired because they have all that income coming in from their rental properties. So real estate is a great investment. It's just, getting started is really difficult sometimes.
Marc: Yeah. Getting us started sometimes is difficult. With anything, there's a risk involved. You gotta put up a capital to purchase the home, the condo, whatever it is. That's scary for people that are capital limited.
Paula: Because the market's changed a little bit. Are loans going through faster or are they still?
Marc: Yeah. As an industry, I think volume is down 40, 50%. As a company, for us, we're probably down something very similar, maybe a little bit less than that, but yeah, our process and origination turn times are quick these days for sure. People are chomping at the bid to get new loan applications.
Underwriters and loan closers. Processors for sure. It's job security.
Paula: I'm gonna go back to that refinance for our question. So let's say I did buy a house today and interest rates are at six something. Let's assume they go down to 4% a year from now. Does that make sense to refinance that fast?
Marc: Absolutely. To drop an interest rate, two full percent. Yeah, that's huge. That's 33%, right? You're dropping it from six to four.
Paula: So what if it went from six to five?
Marc: Still, I think the indicator that you should consider it is one, if you can save a full percentage in your interest rate, if you're gonna stay in the same term, go from 30 year to 30 year, especially if you're not taking any cash.
B, the closing costs to refinancing can be recovered through the monthly savings of refinancing within the first 12 to 18 months of the new loan.
Jon: I think my big takeaway, if I could jump in here for a second, Paula. My wife and I are looking to get into a bigger house and upgrade and yeah, we got a little bit scared when we saw the interest rates go up, but based on everything Marc is saying, we shouldn't let that be the sole factor in determining when we make the move to a new house.
I think we can be on the lookout for the new house. And if we find a house that's just right for us, higher interest rates are not a reason to wait. It's just one piece of the puzzle, and there are so many other things to consider. Would you say I have that right, Marc?
Marc: Agreed. A hundred percent. Yeah.
Paula: Yeah, because you're likely to get it a little bit less expensive than it would've been last year, or even, who knows what's gonna happen going forward,
Jon: In other words, I'm not gonna let where, we're not gonna let. my wife's in charge. We're not gonna let the market.
Paula: Good man. You're a good man.
Jon: We're not gonna let the market dictate whether or not we buy a house if we find the right one for us.
Paula: Correct. Yeah. I don't think people realize that. Just in talking to my friend and even, just in general conversation with others, they're afraid because, interest rates have been, that they aren't out shopping for a home.
Marc: So choosing to pay rent, I don't know if you knew this, but rent is a hundred percent interest rate.
Paula: Hey, I'd pay rent right now!
Marc: I know, but I'm just saying, renting versus buying, if you have the means to purchase versus renting. The interest rate shouldn't even be a factor.
Jon: And if I'm following you there, Marc, the hundred percent interest rate comment, what you mean by that is you're not putting that toward principle, you're not investing it. Forgive the analogy, but you're essentially letting it on fire.
Paula: Hey, I'm here. I'm still here. I can hear you!
Jon: Earmuffs, Paula, earmuffs!
Paula: There are some reasons to rent. I didn't know where I wanted to go. I, had to think something out in my life before I decided to purchase a home. So there's a lot of good reason, and some people just don't want the maintenance and taking care of a home. So I'm defending myself for renting. I feel like I'm..
Jon: As we say, every episode on this podcast, every individual situation is different and there are no hard and fast rules for everybody.
Paula: You put out a disclaimer there.
Jon: Isn't that my job as the producer?
Marc: But that's a hundred percent correct. Yeah, everybody's situation is different, right? Like I just talked to a couple today, this morning before we started our conversation. They have a 18 month old daughter. They live in an apartment. They want to expand their family, but they can't do it there.
So they're looking to buy, they're in their thirties. It's a perfect opportunity for them.
Paula: Marc, I learned a lot. I, I know I'm not gonna look for my lake house till next year, but I might consider starting to look maybe this summer. But I really appreciate all the information that you shared with us, and I think you've helped Jon and his wife out.
I think they're gonna start looking for a home now.
Marc: Fantastic.
Paula: If anybody wants to get ahold of you, mark, how should they reach out?
Marc: The best way to get ahold of me is by telephone (248) 379-6749. Either text or voicemail or I'll pick it up if I can, or you can find me online at thatmortgagebanker.com and there's my website with all my contact info and everything.
Paula: Okay, we'll put all that in the show notes so that everybody has access to that. If you'd like to reach out to me, you can find me at paulachristine.com or you can email me at paula@paulachristine.com. Thanks again, Marc, and Jon for jumping in today. It was great fun.
Marc: Absolutely. Anytime.