August 3, 2023 • 20 mins
Hi This is Brad Weisman - Click Here to Send Me a Text Message
Did you KNOW that the term Mortgage means "DEATH PLEDGE"? YIKES!!!
Mike Bower of CMG Home Loans is back with Brad Weisman to discuss RATE LOCKS, PMI (private mortgage insurance), and Appraisal Gap Coverage. Things you need to know when you are purchasing a home!
Ever question the real implications behind the term 'mortgage'? Get ready to have your mind blown as Mike Bower, our mortgage whizz, takes us through a thrilling exploration of the current tumultuous market and the perks of rate locks. We delve into the fascinating world of "Rate Flex", a program granting borrowers the privilege to relock if rates drop before closing – talk about a safety net!
Mike sheds light on why Appraisal Gap Coverage is a staple in this competitive market. He shares tips to keep your cash safely tucked away in the bank, even amidst the whirlwind of appraisal gap coverage. Talk to your lender, ask the right questions. Tune in for an episode packed with wisdom and essential pointers for your mortgage journey!
#bradweisman #MikeBower #appraisalgapcoverage #PMI #RateFlex #realestateagent #mortgage #homeloan
We know self tanners. We love self tanners. To us, self-tanner for men are a necessary part of life. You see a pale dude on the street and he looks like a fish out of water. It's a real problem, bro. But this exact passion for self-tanner is why Bro Glo is so rad.
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Welcome to The Brad Weisman Show, where we dive into the world of real estate, real life, and everything in between with your host, Brad Weisman! 🎙️ Join us for candid conversations, laughter, and a fresh take on the real world. Get ready to explore the ups and downs of life with a side of humor. From property to personality, we've got it all covered. Tune in, laugh along, and let's get real! 🏡🌟 #TheBradWeismanShow #RealEstateRealLife
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello, this is Brad Wiseman.
You're listening to Real Estateand you we're back in the
studio with another fantasticshow.
Of course, we have a repeatguest.
He comes in here once every sooften and he gives us all kinds
of information about that veryinteresting topic of mortgages.
It's a very interesting topic,right, Mike Bowen.
Speaker 2 (00:22):
Oh yeah, Absolutely.
Speaker 1 (00:23):
Mortgage, mortgages it's just really fun to talk
about.
Oh, you know what it means,right?
What does it mean Death pledge?
Death pledge Is that whatactually mortgage means?
It does.
I've been doing this for 31years now and I never knew that
it means death pledge.
Speaker 2 (00:41):
I think the marketing is better with mortgage.
I've been trying to, you knowmaybe not put that out there,
but I figured why not Hugo.
Speaker 1 (00:48):
Did you know that?
No, that's.
I've learned something veryinteresting.
That changes a lot, doesn't itit does.
Speaker 2 (00:56):
It's hard to sell Death pledge.
Speaker 1 (00:58):
Obviously.
Years ago somebody said well,you know you're going to have to
do this death pledge for me togive you the money.
And then they said wow, can wecall it something a little bit
better than that?
Is there something we can comeup with like mortgage?
Yeah, something like that.
Speaker 2 (01:10):
Yeah, that's crazy.
I think it's how it went down.
Speaker 1 (01:12):
I did not know that.
That's amazing, very, veryinteresting, and thanks for
coming back.
Also, thanks for being one ofour ongoing sponsors too.
Mike just happens to be one ofour sponsors.
He's been sponsoring us for awhile now, and we appreciate
that You're welcome.
It really is nice of you to dothat.
So let's jump right in A coupleof the topics that we talked
about before we got here.
Because we had a lot of time totalk because somebody was late,
(01:33):
I'm not going to mention anynames.
Would you want to mention anynames?
No, I wouldn't.
It starts with an H and endswith an O and it sounds like
Mewgo Just busting your butt,buddy, yeah.
So let's get right into ratelocks we talked about.
Yeah, it's a big thing todayfor, like, new construction and
because of the volatility of ourmarket right now our rates
(01:56):
people get a little nervous.
They want to make sure thatthey can lock in on something.
So what do we?
Speaker 2 (02:00):
got going on with rate locks.
Well, a couple of thingsactually.
We definitely have a.
Rates are up and down, they'reall over the place.
Yeah, they came down a littlebit when we had a good inflation
number, and then they went upagain.
So, right now there's probablya range, let's just say,
somewhere between six and a halfand seven and a half.
It depends on credit scores andstuff like that, but not
(02:23):
knowing where they're going toend up and being so volatile,
you know we're.
We have a program actually it'scalled the instead of a rate
lock, which we are locking youin, but we're calling it the
like a rate flex program, andwhat that means is we're going
to lock you into today's rate,but if they get better, we're
going to, before closing, we'regoing to be able to let you
(02:47):
relock.
Speaker 1 (02:48):
Go down, so let's give it.
For instance, I come to you,I'm ready to buy a house, I lock
in at seven and a quarterpercent and all of a sudden, 30
days before settlement, it dropsdown to 6.75, six and a half.
You're going to let me go downto that at no cost to me,
correct?
Speaker 2 (03:07):
That's amazing, one time redo.
Speaker 1 (03:09):
One time redo, yeah.
Now, if it goes down to sixafter that, that's it.
You're not doing that again,correct, right, okay, so it's a
one time float or one time down.
Correct, got it.
That's actually pretty cool.
Now, in your opinion, right nowyou're going to be able to lock
it down If the rate is it's.
If somebody comes to you sayseven and a quarter percent, do
you think it is?
I guess you should still lockit, right.
Yes, because I can go to sevenand a half and go to 7.75.
(03:31):
I mean, we're hoping not, butit's a good thing to do.
Speaker 2 (03:36):
Yeah, okay, maybe rates will come down and great,
we'll let you relock.
Speaker 1 (03:41):
So there's really no risk at that point.
Why not, right?
Okay, that's good.
Speaker 2 (03:45):
Okay, that's good to know, yeah, and there truly is
no cost to the relock.
Speaker 1 (03:49):
Yeah, and that's what you're always looking at in
anything in life cost versusrisk, risk versus cost.
What is it so?
Basically, it's a no-brainer.
Speaker 2 (03:56):
Correct.
So I mean, if something didhappen and rates went up, at
least you're protected.
Speaker 1 (04:00):
Right, so lock the damn rate.
Yeah, I would.
That's gonna be our thing today.
Yeah, ldr, lock the damn rate.
Speaker 2 (04:05):
Yeah, I'm sure you'll refinance in a year or two
anyway.
But we'll you know we're hopingfor that.
Speaker 1 (04:09):
Yes, Are they still saying?
You know this, we hear this allthe time and every time I go to
any kind of dinner with friendsor any kind of gatherings with
family, when do you think therates are gonna come down?
I mean, you probably hear it 10times more than I do.
Yeah, yeah, we do.
So what are they saying?
What are the rates gonna comedown?
Speaker 2 (04:27):
Well, if you look at the MBA NAR, you know they're
all still predicting that onemight see rates in the fives by
maybe even the end of the year.
That would be fantastic, butcertainly into 2024.
Yeah, that's great.
Now where do they go from there?
Speaker 1 (04:44):
I mean, we have an idea.
Speaker 3 (04:46):
And.
Speaker 1 (04:46):
I take what those predictions are very lightly,
because I've seen Do youremember when you were on the
podcast and they said I'll neverforget that?
I think we said something likeit's gonna be it might go to 4%
by the end of the year which waslast year.
Speaker 2 (04:59):
They were predicting the high three.
Speaker 1 (05:01):
Yes, yeah, high threes, maybe four, and then all
of a sudden up to five and ahalf 6%.
Speaker 2 (05:06):
We went right through five.
Speaker 1 (05:08):
We just sailed right through.
We didn't even see fives.
Speaker 2 (05:11):
Yeah, yeah, yeah, yeah, yeah, it went right.
So it's somebody's prediction.
Yeah, exactly, nobody reallyknows, but yeah.
Speaker 1 (05:18):
They're about as good as the eight ball.
Yeah right, Pretty much as goodas the eight ball.
The eight ball might be moreaccurate.
Speaker 2 (05:22):
You think so, we'll ask it something then.
Speaker 1 (05:25):
Well, yeah, I'd kind of like to get its opinion every
once in a while.
We hope the rates don't go toeight, though that would be, bad
.
That would be really bad, yeah,okay.
Let's keep away from that.
By the way, this is my sons,and I got yelled at for stealing
it from him, so we'll get itback to him at some point.
I want to get a red one just soyou know, get a red one, all
right.
So moving on, we have the otherthing we talked about before
Hugo got here was PMI privatemortgage insurance right,
(05:47):
correct, and people get that soconfused they think it ensures
them.
It does not ensure them, itdoes not Insures the lender, the
bank.
Speaker 2 (05:55):
It ensures it gives the bank an insurance that if
something went bad and whatbanks look at okay, we're going
to give this person this money.
Only thing they're concernedwith is are they going to pay us
back?
Speaker 1 (06:12):
Which is what I would be concerned with.
Are we going to own this home?
Yeah, banks don't want to ownthe home.
They do not.
Speaker 2 (06:16):
They do not.
Speaker 1 (06:16):
They do not like homes.
Speaker 2 (06:17):
No, they don't.
So you know putting 5% down.
If someone didn't pay, you knowyou have to get the house back.
There's a lot of costsassociated with foreclosing and
then reselling the house.
You know you'd be underwater,right?
So the insurance, the PMIinsurance, kind of covers them
for the loss.
Speaker 1 (06:38):
So if I'm putting 5% down and lose my job, you know,
jess says you're jerking leavesand I'm stuck with the house or
whatever they pay for theinsurance company.
A private mortgage insurancepays for that 15% in between,
right, so it's just like an oldinsurance policy.
Yeah, yeah, okay, so that'seasy.
So that is determined on themortgage amount and a percentage
(06:59):
, right, it is Okay.
So, like, if they're coveringme for 15%, you're gonna pay a
certain amount.
If they're covering me for 10%of that, they're gonna cover me
at a certain amount, right,correct?
Speaker 2 (07:08):
But the rate factor is very much like how we
determine someone's interestrate, right?
Oh, okay, so there's a chartand you know there's a line item
that goes down, says all right,if you're putting 5% down, and
then it has different creditscores.
Speaker 1 (07:25):
So it is credit-based too, oh, absolutely yeah,
because I remember years agowhen, if you, there would be
times when the private mortgageinsurance company would turn you
down.
So, like, the mortgage companywould say, yep, you're approved,
but we need to shop for anotherPMI company because nobody
wants you right now.
Speaker 2 (07:43):
Yeah, yeah, interesting.
So they're interesting.
So even if we sometimes, youknow, even if we're saying, okay
, we figured this out, you knowyou're approved that we do have
to get PMI approval yeah, youknow it's very rare that we
wouldn't if we approve it, butyou know we do have to get that
as well.
It's like there because youneed it.
They're underwriting the loanas well.
Speaker 1 (08:02):
So if I say I'm putting 20% down, I don't need
to worry about it.
Speaker 2 (08:04):
No, pmi is needed at that point.
Speaker 1 (08:06):
Right, and that PMI?
What we talk about it's amonthly payment.
There's a monthly figure that'sgoing to be part of your part
of your mortgage payment,Correct?
Speaker 2 (08:14):
Right, yeah, now, at any point.
Yeah, so basically, you knowyour PMI factor, that they
figure will go up as your creditscore is low, right, okay?
So if somebody has you knowcredit score in the sixes, yeah,
you know their PMI is going tobe a higher number and their
interest rate, their interestrate, is going to be a higher
number.
So FHA doesn't really do itthat way.
(08:36):
Oh, so that's a bonus for FHA.
Speaker 1 (08:38):
Yeah, is that you get to you, don't?
They don't?
They don't rate it that way.
Speaker 2 (08:42):
No, your, your payment usually, or your rate
isn't usually increased bycredit score, unless it's like
really low.
But also your PMI factor is thesame for everyone Amazing.
Speaker 1 (08:52):
Yeah, so it just kind of levels out.
Speaker 2 (08:54):
Yeah, so you know a lot of times, but it doesn't
disappear.
Speaker 1 (08:57):
No right, doesn't go away.
That was something that changedlike five years ago, whatever
it was, and I, so it doesn'tdisappear.
Whereas conventional, if I'm,if I'm paying PMI once I get to
20%, now you got to get anappraisal to prove that.
If, if, if they don't agree,Right, well, once it.
Speaker 2 (09:14):
once it reaches, it's actually once it reaches 22%
once you have it once it reaches22%, it will automatically go
away.
Gotcha, all right, okay, butnow that can happen because you
paid it down, right and then?
So if we're basing everythingon the original purchase price
and you get your loan balancedown to 78% of the original
(09:34):
purchase price, the PMI willautomatically go away.
Now you could do that.
Three days after you close.
You could put a big chunk ofmoney down and get rid of the
PMI immediately, right?
Or over time.
Let's say you know you're twoyears into this and you still
have PMI, but the value of yourhouse is increased Right Now.
You could go back to them andsay, hey, I think I have at
(09:58):
least 20% equity and you couldget the.
Usually at that point they'llprobably ask you to approve it
by getting an appraisal Right,get an appraisal.
Speaker 1 (10:04):
But over the last five years that's very possible.
Oh yeah, yeah, I mean we'vebeen gaining some serious equity
.
So getting to that 20% is goingto be faster over the past five
years than it was in the pastfive years before that.
Maybe If things keep going.
Speaker 3 (10:18):
And just get an appraisal Right.
Speaker 1 (10:19):
You just need an appraisal and obviously talk to
your lender to find out whatthey want you to do and how the
process works to remove PMI.
Yep, but that's interesting.
Speaker 2 (10:29):
Like sometimes we're right now, with the way this
market is, people are, when theycall to get pre-approved,
they're saying, well, how do Ibuy this next house without
first selling my house?
One of the things that we cando is say, okay, you want to buy
this next house.
You do qualify Mathematically,you qualify to buy the next
house without selling, but theyneed the money from the sale of
(10:52):
their home.
So what we can do is and wehave done is say can you come up
with 5%?
at least put the minimum downby the next house we'll make it
non-contingent.
And then, when their housesells, you take that money and
you pay down your loan, you getrid of the PMI, and then we can
do what's called a recast.
Speaker 1 (11:12):
Is that a new settlement?
Though that's not a newsettlement, it's not no.
Speaker 2 (11:16):
So if you put down at least $10,000, we can basically
recalculate your payment basedon the new balance.
Speaker 1 (11:24):
So we've done that sometimes for people that yeah
because somebody might have abig chunk of change that they
want to put down and it's intheir house.
The cash is not liquid, Correct, but that's really cool.
Speaker 2 (11:34):
But we can do that instead of going to a home
equity bridge loan, and Exactlyall that other stuff.
Speaker 1 (11:39):
Amazing, that's very cool.
Very cool, hugo.
Any questions there about thatand that stuff?
Speaker 3 (11:43):
So who decides?
Does the buyer shop for the PMIor does the broker?
Who decides who?
Speaker 2 (11:50):
would it go with?
That's a great question.
So there's I don't know theexact number of PMI companies,
but let's say there's four orfive of them, and what we do is
we actually have a tool builtinto our system that we get a
PMI quote and we ask for a bestexecution on all of this loan,
(12:12):
for and it literally comes up,all five of them will come up at
the same time and we pickwhoever's the lowest.
Speaker 1 (12:19):
Almost like an insurance quote for a car.
Speaker 3 (12:21):
They do the same thing for cars, so let me ask
you this does the broker passthe credit rate, the credit
score of the buyer to the PMIcompany, or do they have to do a
hard pull again?
Speaker 2 (12:36):
Yeah, they're looking at all of our information.
Speaker 3 (12:39):
Oh, okay, my writing.
Speaker 2 (12:40):
So we're basically sharing everything about the
file.
Yeah, they see it, they seeeverything.
That's a good question?
Speaker 1 (12:47):
yeah, because it would be another pool on your
credit which could then loweryour credit.
So they're using everything youhave already to determine what
the rate will be for the PMI andeverything else.
That's interesting.
Very good question there, hugo.
He might have his own show atsome point.
You know, hugo and you orsomething, I don't know what.
It would be something like that.
(13:07):
So next let's talk about this.
It's a big thing.
That's going on a lot theappraisal gap coverages, and I
don't know if this is going tokeep going on.
You know, we talked about let'sjust look, let's go backwards a
little bit.
We talked about before we goton here how I feel the quantity
of buyers is changing.
It seems like there's not asmany, there's not as many offers
(13:28):
, not as many showings, and thequality is changing, and I'm not
saying that they're turninginto terrible buyers.
It's going back to a little bitback towards the old days when
we thought, when we knew that aconventional 5% down buyer with
good credit scores was a goodbuyer, you know, and it doesn't
have to do the gap coverage.
(13:49):
But people are still doing that.
So let's go back to the gapcoverage.
So the appraisal gap coverage.
Just to explain what that is.
If I say I'm gonna offer 220 onthe house and the house
appraises for 200,000, the buyeris agreeing to pay for either a
that 20,000 our gap, or if theyagreed on the agreement of sale
that they would pay 10,000 or5000 gap, whatever it is right.
(14:10):
So you said that If you'reputting 20% down, that is not as
big of a challenge, as youdon't have to bring all this
cash.
Explain that situation.
Speaker 2 (14:21):
Yeah.
So just to make sure everyonethat's listening understands why
we would even offer anappraisal gap, is because you
know, a lot of these offers arestill multiple offers and we're
competing and we're trying toget our offer accepted, right.
So we're saying, look, we'regonna pay you a little bit more
than what your list price is.
Yeah, and just to take the yourworry of it, does what if it
(14:46):
doesn't appraise?
You're gonna come back to meand tell me that you can't do
this anymore.
We're gonna offer that willpray, will do an appraisal gap,
right.
And so a lot of peopleautomatically assume, if let's
say we we agreed to 20,000dollar appraisal gap, that it's
automatically I need 20,000dollars more, and sometimes that
is the case.
So like if you're putting theminimum down on the loan to be
(15:08):
5% or something like that, yeahso you know, yeah, you do you do
probably have to come up withclose to the $20,000 difference,
right, but if you were puttinga lot of money down let's say
20% or more, let's just use a20% example so when we did this,
you were putting 20% down fromthat sale price and the loan
(15:29):
amount was like, let's say, is250 was the price.
You were going to borrow 200,right, and now it only appraised
for 240.
Yeah, right, so you could stillkeep everything the same,
borrow 200 and and we're goingto base the the value at 240, so
(15:50):
you might have a small PMI yeah, right or?
or you could write a check forthe difference.
That's totally fine.
We can adjust the loan amountdown.
But you do have options and Idon't think everyone realizes
that.
Just it doesn't have tonecessarily be.
I'm going to write a check.
We could just restructure theloan a little bit and maybe your
PMI adds 30 bucks a month for alittle bit, yeah we can get
(16:12):
right.
Speaker 1 (16:14):
And you know, but it's better than pulling yeah
that we were talking about this.
Like I don't want to pull$20,000 on my savings.
If you tell me I can spend 100bucks a month more and keep 10
or 15 or $20,000 a bank, that'sa no brainer Because it's going
to go away at some point, youknow.
Speaker 2 (16:29):
So to me that's that's good information and a
lot of, a lot of times peopleare putting a lot of money down.
Yeah, you know, like, so thenit really is 3040% and now it
really doesn't impact us at all.
Now you know you can, you canoffer the appraisal gap coverage
and it may not even do anythingto change anything.
Speaker 1 (16:47):
Correct, because you're putting that much money
down.
Right, because the risk is notthere for the bank.
Right?
Speaker 2 (16:51):
it's really what it comes down to, but I think that
people will automatically thinkoh well, I may have to write
another check, yep, yep, notnecessarily.
Speaker 1 (16:59):
That's cool.
So talk to your lender, talk toyou if they're working with you
.
Obviously, talk to you, likeyou know, work through, and
that's something I always say.
You know, ask the questions.
You know when things start,when things are not going the
way you want to in a transaction.
Yeah, start communicating.
You know, communicate, let's,let's figure it out.
Is there another way that youcan work the numbers to make it
an advantage?
Is there a way that can be thatdoesn't hurt as much money out
(17:21):
of your pocket?
Things like that.
But that's, that's awesome,good information.
So I think what?
Is there anything else that youwant to talk about?
Cause we're we're just about atthe end here, believe it or not
, is your birthday coming up?
Well, actually, it's actually.
Yes, it is coming up in August.
Yes, so it'll be up in Augustand it's, uh, I'll be 53 years
old.
Can?
Speaker 3 (17:40):
you believe that, Hugo?
Speaker 1 (17:41):
stop laughing.
Speaker 3 (17:42):
He just keeps laughing when I say that 50 is
the perfect amalgamation betweenyouth and experience.
Speaker 1 (17:48):
That's right, thank you.
I paid him 50 bucks to say thatJust so you know.
But yes, and my wife has abirthday in August and we also
have an anniversary in August,wow, so there's a lot that goes
on.
Yes, absolutely, we'll have todo that.
So let's ask a question whydon't we ask a question of the
eight ball before we end theshow?
Cause I think it's somethingthat we should do, cause this,
this business, is so you know.
So nobody knows what the hell'sgoing on.
(18:10):
So what do you want to ask it?
Speaker 2 (18:12):
What do you think our rates going to come down by the
?
Speaker 1 (18:16):
end of the year, by the end of the year.
Okay, what?
Let's go a number.
What?
What are the rates going tocome down to it by the end of
the year?
Oh, will it be that specific?
No, no, but are they going tocome down to 5% by the end of
the year?
Let's ask it.
That, Is that work?
Speaker 3 (18:27):
Sure.
Speaker 1 (18:27):
Cause I want it to be really specific.
Um, ask again later.
So we're not going to do that,we're just going to next show.
We'll have to come back and askit again.
You know, this eight ball Ithink is is faulty because you
know it said the same damn thingin the last show we did.
So maybe they all say the samething that was anti-climactic,
that was really really boring.
Yeah, Very boring answers yeah,sorry about that.
(18:47):
All right, there you go.
Don't go by the eight ball.
Go by what Mike Bauer says,cause he knows what he's talking
about.
He's some CMG home loans and hewill help you out.
He's an advertiser with us, sojust get in touch with him.
What's your number?
Again?
Speaker 2 (19:00):
610-533-3151.
Speaker 1 (19:04):
There you go, awesome .
All right, get in touch withMike.
That's about it.
We'll see you next Thursday at7pm.
Tune in, please.
All right, bye.
Hello, this is Brad Wiseman.
You're listening to Real Estateand you we're back in the
studio with another fantasticshow.
Of course, we have a repeatguest.
He comes in here once every sooften and he gives us all kinds
of information about that veryinteresting topic of mortgages.
It's a very interesting topic,right, Mike Bowen.
Speaker 2 (00:22):
Oh yeah, Absolutely.
Speaker 1 (00:23):
Mortgage, mortgages it's just really fun to talk
about.
Oh, you know what it means,right?
What does it mean Death pledge?
Death pledge Is that whatactually mortgage means?
It does.
I've been doing this for 31years now and I never knew that
it means death pledge.
Speaker 2 (00:41):
I think the marketing is better with mortgage.
I've been trying to, you knowmaybe not put that out there,
but I figured why not Hugo.
Speaker 1 (00:48):
Did you know that?
No, that's.
I've learned something veryinteresting.
That changes a lot, doesn't itit does.
Speaker 2 (00:56):
It's hard to sell Death pledge.
Speaker 1 (00:58):
Obviously.
Years ago somebody said well,you know you're going to have to
do this death pledge for me togive you the money.
And then they said wow, can wecall it something a little bit
better than that?
Is there something we can comeup with like mortgage?
Yeah, something like that.
Speaker 2 (01:10):
Yeah, that's crazy.
I think it's how it went down.
Speaker 1 (01:12):
I did not know that.
That's amazing, very, veryinteresting, and thanks for
coming back.
Also, thanks for being one ofour ongoing sponsors too.
Mike just happens to be one ofour sponsors.
He's been sponsoring us for awhile now, and we appreciate
that You're welcome.
It really is nice of you to dothat.
So let's jump right in A coupleof the topics that we talked
about before we got here.
Because we had a lot of time totalk because somebody was late,
(01:33):
I'm not going to mention anynames.
Would you want to mention anynames?
No, I wouldn't.
It starts with an H and endswith an O and it sounds like
Mewgo Just busting your butt,buddy, yeah.
So let's get right into ratelocks we talked about.
Yeah, it's a big thing todayfor, like, new construction and
because of the volatility of ourmarket right now our rates
(01:56):
people get a little nervous.
They want to make sure thatthey can lock in on something.
So what do we?
Speaker 2 (02:00):
got going on with rate locks.
Well, a couple of thingsactually.
We definitely have a.
Rates are up and down, they'reall over the place.
Yeah, they came down a littlebit when we had a good inflation
number, and then they went upagain.
So, right now there's probablya range, let's just say,
somewhere between six and a halfand seven and a half.
It depends on credit scores andstuff like that, but not
(02:23):
knowing where they're going toend up and being so volatile,
you know we're.
We have a program actually it'scalled the instead of a rate
lock, which we are locking youin, but we're calling it the
like a rate flex program, andwhat that means is we're going
to lock you into today's rate,but if they get better, we're
going to, before closing, we'regoing to be able to let you
(02:47):
relock.
Speaker 1 (02:48):
Go down, so let's give it.
For instance, I come to you,I'm ready to buy a house, I lock
in at seven and a quarterpercent and all of a sudden, 30
days before settlement, it dropsdown to 6.75, six and a half.
You're going to let me go downto that at no cost to me,
correct?
Speaker 2 (03:07):
That's amazing, one time redo.
Speaker 1 (03:09):
One time redo, yeah.
Now, if it goes down to sixafter that, that's it.
You're not doing that again,correct, right, okay, so it's a
one time float or one time down.
Correct, got it.
That's actually pretty cool.
Now, in your opinion, right nowyou're going to be able to lock
it down If the rate is it's.
If somebody comes to you sayseven and a quarter percent, do
you think it is?
I guess you should still lockit, right.
Yes, because I can go to sevenand a half and go to 7.75.
(03:31):
I mean, we're hoping not, butit's a good thing to do.
Speaker 2 (03:36):
Yeah, okay, maybe rates will come down and great,
we'll let you relock.
Speaker 1 (03:41):
So there's really no risk at that point.
Why not, right?
Okay, that's good.
Speaker 2 (03:45):
Okay, that's good to know, yeah, and there truly is
no cost to the relock.
Speaker 1 (03:49):
Yeah, and that's what you're always looking at in
anything in life cost versusrisk, risk versus cost.
What is it so?
Basically, it's a no-brainer.
Speaker 2 (03:56):
Correct.
So I mean, if something didhappen and rates went up, at
least you're protected.
Speaker 1 (04:00):
Right, so lock the damn rate.
Yeah, I would.
That's gonna be our thing today.
Yeah, ldr, lock the damn rate.
Speaker 2 (04:05):
Yeah, I'm sure you'll refinance in a year or two
anyway.
But we'll you know we're hopingfor that.
Speaker 1 (04:09):
Yes, Are they still saying?
You know this, we hear this allthe time and every time I go to
any kind of dinner with friendsor any kind of gatherings with
family, when do you think therates are gonna come down?
I mean, you probably hear it 10times more than I do.
Yeah, yeah, we do.
So what are they saying?
What are the rates gonna comedown?
Speaker 2 (04:27):
Well, if you look at the MBA NAR, you know they're
all still predicting that onemight see rates in the fives by
maybe even the end of the year.
That would be fantastic, butcertainly into 2024.
Yeah, that's great.
Now where do they go from there?
Speaker 1 (04:44):
I mean, we have an idea.
Speaker 3 (04:46):
And.
Speaker 1 (04:46):
I take what those predictions are very lightly,
because I've seen Do youremember when you were on the
podcast and they said I'll neverforget that?
I think we said something likeit's gonna be it might go to 4%
by the end of the year which waslast year.
Speaker 2 (04:59):
They were predicting the high three.
Speaker 1 (05:01):
Yes, yeah, high threes, maybe four, and then all
of a sudden up to five and ahalf 6%.
Speaker 2 (05:06):
We went right through five.
Speaker 1 (05:08):
We just sailed right through.
We didn't even see fives.
Speaker 2 (05:11):
Yeah, yeah, yeah, yeah, yeah, it went right.
So it's somebody's prediction.
Yeah, exactly, nobody reallyknows, but yeah.
Speaker 1 (05:18):
They're about as good as the eight ball.
Yeah right, Pretty much as goodas the eight ball.
The eight ball might be moreaccurate.
Speaker 2 (05:22):
You think so, we'll ask it something then.
Speaker 1 (05:25):
Well, yeah, I'd kind of like to get its opinion every
once in a while.
We hope the rates don't go toeight, though that would be, bad
.
That would be really bad, yeah,okay.
Let's keep away from that.
By the way, this is my sons,and I got yelled at for stealing
it from him, so we'll get itback to him at some point.
I want to get a red one just soyou know, get a red one, all
right.
So moving on, we have the otherthing we talked about before
Hugo got here was PMI privatemortgage insurance right,
(05:47):
correct, and people get that soconfused they think it ensures
them.
It does not ensure them, itdoes not Insures the lender, the
bank.
Speaker 2 (05:55):
It ensures it gives the bank an insurance that if
something went bad and whatbanks look at okay, we're going
to give this person this money.
Only thing they're concernedwith is are they going to pay us
back?
Speaker 1 (06:12):
Which is what I would be concerned with.
Are we going to own this home?
Yeah, banks don't want to ownthe home.
They do not.
Speaker 2 (06:16):
They do not.
Speaker 1 (06:16):
They do not like homes.
Speaker 2 (06:17):
No, they don't.
So you know putting 5% down.
If someone didn't pay, you knowyou have to get the house back.
There's a lot of costsassociated with foreclosing and
then reselling the house.
You know you'd be underwater,right?
So the insurance, the PMIinsurance, kind of covers them
for the loss.
Speaker 1 (06:38):
So if I'm putting 5% down and lose my job, you know,
jess says you're jerking leavesand I'm stuck with the house or
whatever they pay for theinsurance company.
A private mortgage insurancepays for that 15% in between,
right, so it's just like an oldinsurance policy.
Yeah, yeah, okay, so that'seasy.
So that is determined on themortgage amount and a percentage
(06:59):
, right, it is Okay.
So, like, if they're coveringme for 15%, you're gonna pay a
certain amount.
If they're covering me for 10%of that, they're gonna cover me
at a certain amount, right,correct?
Speaker 2 (07:08):
But the rate factor is very much like how we
determine someone's interestrate, right?
Oh, okay, so there's a chartand you know there's a line item
that goes down, says all right,if you're putting 5% down, and
then it has different creditscores.
Speaker 1 (07:25):
So it is credit-based too, oh, absolutely yeah,
because I remember years agowhen, if you, there would be
times when the private mortgageinsurance company would turn you
down.
So, like, the mortgage companywould say, yep, you're approved,
but we need to shop for anotherPMI company because nobody
wants you right now.
Speaker 2 (07:43):
Yeah, yeah, interesting.
So they're interesting.
So even if we sometimes, youknow, even if we're saying, okay
, we figured this out, you knowyou're approved that we do have
to get PMI approval yeah, youknow it's very rare that we
wouldn't if we approve it, butyou know we do have to get that
as well.
It's like there because youneed it.
They're underwriting the loanas well.
Speaker 1 (08:02):
So if I say I'm putting 20% down, I don't need
to worry about it.
Speaker 2 (08:04):
No, pmi is needed at that point.
Speaker 1 (08:06):
Right, and that PMI?
What we talk about it's amonthly payment.
There's a monthly figure that'sgoing to be part of your part
of your mortgage payment,Correct?
Speaker 2 (08:14):
Right, yeah, now, at any point.
Yeah, so basically, you knowyour PMI factor, that they
figure will go up as your creditscore is low, right, okay?
So if somebody has you knowcredit score in the sixes, yeah,
you know their PMI is going tobe a higher number and their
interest rate, their interestrate, is going to be a higher
number.
So FHA doesn't really do itthat way.
(08:36):
Oh, so that's a bonus for FHA.
Speaker 1 (08:38):
Yeah, is that you get to you, don't?
They don't?
They don't rate it that way.
Speaker 2 (08:42):
No, your, your payment usually, or your rate
isn't usually increased bycredit score, unless it's like
really low.
But also your PMI factor is thesame for everyone Amazing.
Speaker 1 (08:52):
Yeah, so it just kind of levels out.
Speaker 2 (08:54):
Yeah, so you know a lot of times, but it doesn't
disappear.
Speaker 1 (08:57):
No right, doesn't go away.
That was something that changedlike five years ago, whatever
it was, and I, so it doesn'tdisappear.
Whereas conventional, if I'm,if I'm paying PMI once I get to
20%, now you got to get anappraisal to prove that.
If, if, if they don't agree,Right, well, once it.
Speaker 2 (09:14):
once it reaches, it's actually once it reaches 22%
once you have it once it reaches22%, it will automatically go
away.
Gotcha, all right, okay, butnow that can happen because you
paid it down, right and then?
So if we're basing everythingon the original purchase price
and you get your loan balancedown to 78% of the original
(09:34):
purchase price, the PMI willautomatically go away.
Now you could do that.
Three days after you close.
You could put a big chunk ofmoney down and get rid of the
PMI immediately, right?
Or over time.
Let's say you know you're twoyears into this and you still
have PMI, but the value of yourhouse is increased Right Now.
You could go back to them andsay, hey, I think I have at
(09:58):
least 20% equity and you couldget the.
Usually at that point they'llprobably ask you to approve it
by getting an appraisal Right,get an appraisal.
Speaker 1 (10:04):
But over the last five years that's very possible.
Oh yeah, yeah, I mean we'vebeen gaining some serious equity
.
So getting to that 20% is goingto be faster over the past five
years than it was in the pastfive years before that.
Maybe If things keep going.
Speaker 3 (10:18):
And just get an appraisal Right.
Speaker 1 (10:19):
You just need an appraisal and obviously talk to
your lender to find out whatthey want you to do and how the
process works to remove PMI.
Yep, but that's interesting.
Speaker 2 (10:29):
Like sometimes we're right now, with the way this
market is, people are, when theycall to get pre-approved,
they're saying, well, how do Ibuy this next house without
first selling my house?
One of the things that we cando is say, okay, you want to buy
this next house.
You do qualify Mathematically,you qualify to buy the next
house without selling, but theyneed the money from the sale of
(10:52):
their home.
So what we can do is and wehave done is say can you come up
with 5%?
at least put the minimum downby the next house we'll make it
non-contingent.
And then, when their housesells, you take that money and
you pay down your loan, you getrid of the PMI, and then we can
do what's called a recast.
Speaker 1 (11:12):
Is that a new settlement?
Though that's not a newsettlement, it's not no.
Speaker 2 (11:16):
So if you put down at least $10,000, we can basically
recalculate your payment basedon the new balance.
Speaker 1 (11:24):
So we've done that sometimes for people that yeah
because somebody might have abig chunk of change that they
want to put down and it's intheir house.
The cash is not liquid, Correct, but that's really cool.
Speaker 2 (11:34):
But we can do that instead of going to a home
equity bridge loan, and Exactlyall that other stuff.
Speaker 1 (11:39):
Amazing, that's very cool.
Very cool, hugo.
Any questions there about thatand that stuff?
Speaker 3 (11:43):
So who decides?
Does the buyer shop for the PMIor does the broker?
Who decides who?
Speaker 2 (11:50):
would it go with?
That's a great question.
So there's I don't know theexact number of PMI companies,
but let's say there's four orfive of them, and what we do is
we actually have a tool builtinto our system that we get a
PMI quote and we ask for a bestexecution on all of this loan,
(12:12):
for and it literally comes up,all five of them will come up at
the same time and we pickwhoever's the lowest.
Speaker 1 (12:19):
Almost like an insurance quote for a car.
Speaker 3 (12:21):
They do the same thing for cars, so let me ask
you this does the broker passthe credit rate, the credit
score of the buyer to the PMIcompany, or do they have to do a
hard pull again?
Speaker 2 (12:36):
Yeah, they're looking at all of our information.
Speaker 3 (12:39):
Oh, okay, my writing.
Speaker 2 (12:40):
So we're basically sharing everything about the
file.
Yeah, they see it, they seeeverything.
That's a good question?
Speaker 1 (12:47):
yeah, because it would be another pool on your
credit which could then loweryour credit.
So they're using everything youhave already to determine what
the rate will be for the PMI andeverything else.
That's interesting.
Very good question there, hugo.
He might have his own show atsome point.
You know, hugo and you orsomething, I don't know what.
It would be something like that.
(13:07):
So next let's talk about this.
It's a big thing.
That's going on a lot theappraisal gap coverages, and I
don't know if this is going tokeep going on.
You know, we talked about let'sjust look, let's go backwards a
little bit.
We talked about before we goton here how I feel the quantity
of buyers is changing.
It seems like there's not asmany, there's not as many offers
(13:28):
, not as many showings, and thequality is changing, and I'm not
saying that they're turninginto terrible buyers.
It's going back to a little bitback towards the old days when
we thought, when we knew that aconventional 5% down buyer with
good credit scores was a goodbuyer, you know, and it doesn't
have to do the gap coverage.
(13:49):
But people are still doing that.
So let's go back to the gapcoverage.
So the appraisal gap coverage.
Just to explain what that is.
If I say I'm gonna offer 220 onthe house and the house
appraises for 200,000, the buyeris agreeing to pay for either a
that 20,000 our gap, or if theyagreed on the agreement of sale
that they would pay 10,000 or5000 gap, whatever it is right.
(14:10):
So you said that If you'reputting 20% down, that is not as
big of a challenge, as youdon't have to bring all this
cash.
Explain that situation.
Speaker 2 (14:21):
Yeah.
So just to make sure everyonethat's listening understands why
we would even offer anappraisal gap, is because you
know, a lot of these offers arestill multiple offers and we're
competing and we're trying toget our offer accepted, right.
So we're saying, look, we'regonna pay you a little bit more
than what your list price is.
Yeah, and just to take the yourworry of it, does what if it
(14:46):
doesn't appraise?
You're gonna come back to meand tell me that you can't do
this anymore.
We're gonna offer that willpray, will do an appraisal gap,
right.
And so a lot of peopleautomatically assume, if let's
say we we agreed to 20,000dollar appraisal gap, that it's
automatically I need 20,000dollars more, and sometimes that
is the case.
So like if you're putting theminimum down on the loan to be
(15:08):
5% or something like that, yeahso you know, yeah, you do you do
probably have to come up withclose to the $20,000 difference,
right, but if you were puttinga lot of money down let's say
20% or more, let's just use a20% example so when we did this,
you were putting 20% down fromthat sale price and the loan
(15:29):
amount was like, let's say, is250 was the price.
You were going to borrow 200,right, and now it only appraised
for 240.
Yeah, right, so you could stillkeep everything the same,
borrow 200 and and we're goingto base the the value at 240, so
(15:50):
you might have a small PMI yeah, right or?
or you could write a check forthe difference.
That's totally fine.
We can adjust the loan amountdown.
But you do have options and Idon't think everyone realizes
that.
Just it doesn't have tonecessarily be.
I'm going to write a check.
We could just restructure theloan a little bit and maybe your
PMI adds 30 bucks a month for alittle bit, yeah we can get
(16:12):
right.
Speaker 1 (16:14):
And you know, but it's better than pulling yeah
that we were talking about this.
Like I don't want to pull$20,000 on my savings.
If you tell me I can spend 100bucks a month more and keep 10
or 15 or $20,000 a bank, that'sa no brainer Because it's going
to go away at some point, youknow.
Speaker 2 (16:29):
So to me that's that's good information and a
lot of, a lot of times peopleare putting a lot of money down.
Yeah, you know, like, so thenit really is 3040% and now it
really doesn't impact us at all.
Now you know you can, you canoffer the appraisal gap coverage
and it may not even do anythingto change anything.
Speaker 1 (16:47):
Correct, because you're putting that much money
down.
Right, because the risk is notthere for the bank.
Right?
Speaker 2 (16:51):
it's really what it comes down to, but I think that
people will automatically thinkoh well, I may have to write
another check, yep, yep, notnecessarily.
Speaker 1 (16:59):
That's cool.
So talk to your lender, talk toyou if they're working with you
.
Obviously, talk to you, likeyou know, work through, and
that's something I always say.
You know, ask the questions.
You know when things start,when things are not going the
way you want to in a transaction.
Yeah, start communicating.
You know, communicate, let's,let's figure it out.
Is there another way that youcan work the numbers to make it
an advantage?
Is there a way that can be thatdoesn't hurt as much money out
(17:21):
of your pocket?
Things like that.
But that's, that's awesome,good information.
So I think what?
Is there anything else that youwant to talk about?
Cause we're we're just about atthe end here, believe it or not
, is your birthday coming up?
Well, actually, it's actually.
Yes, it is coming up in August.
Yes, so it'll be up in Augustand it's, uh, I'll be 53 years
old.
Can?
Speaker 3 (17:40):
you believe that, Hugo?
Speaker 1 (17:41):
stop laughing.
Speaker 3 (17:42):
He just keeps laughing when I say that 50 is
the perfect amalgamation betweenyouth and experience.
Speaker 1 (17:48):
That's right, thank you.
I paid him 50 bucks to say thatJust so you know.
But yes, and my wife has abirthday in August and we also
have an anniversary in August,wow, so there's a lot that goes
on.
Yes, absolutely, we'll have todo that.
So let's ask a question whydon't we ask a question of the
eight ball before we end theshow?
Cause I think it's somethingthat we should do, cause this,
this business, is so you know.
So nobody knows what the hell'sgoing on.
(18:10):
So what do you want to ask it?
Speaker 2 (18:12):
What do you think our rates going to come down by the
?
Speaker 1 (18:16):
end of the year, by the end of the year.
Okay, what?
Let's go a number.
What?
What are the rates going tocome down to it by the end of
the year?
Oh, will it be that specific?
No, no, but are they going tocome down to 5% by the end of
the year?
Let's ask it.
That, Is that work?
Speaker 3 (18:27):
Sure.
Speaker 1 (18:27):
Cause I want it to be really specific.
Um, ask again later.
So we're not going to do that,we're just going to next show.
We'll have to come back and askit again.
You know, this eight ball Ithink is is faulty because you
know it said the same damn thingin the last show we did.
So maybe they all say the samething that was anti-climactic,
that was really really boring.
Yeah, Very boring answers yeah,sorry about that.
(18:47):
All right, there you go.
Don't go by the eight ball.
Go by what Mike Bauer says,cause he knows what he's talking
about.
He's some CMG home loans and hewill help you out.
He's an advertiser with us, sojust get in touch with him.
What's your number?
Again?
Speaker 2 (19:00):
610-533-3151.
Speaker 1 (19:04):
There you go, awesome .
All right, get in touch withMike.
That's about it.
We'll see you next Thursday at7pm.
Tune in, please.
All right, bye.
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