042025- Home Solutions Podcast

Episode Transcript

Speaker 1 (00:02):
Good morning, and welcome to the Home Solutions Show. This
is your host Andy Keel with Epic Realty, and I'm
joined today by Jerry Sunt with Cross Country Mortgage.

Speaker 2 (00:12):
Morning. Andy, how's it going.

Speaker 1 (00:14):
It's going great. How are you doing, Jerry?

Speaker 2 (00:16):
I'm well, thank you.

Speaker 1 (00:18):
So it's been another pretty pretty volatile week this week.
Can you give us an update on what's happening out
there in the mortgage world?

Speaker 2 (00:28):
Sure, well, you know it was. It was volatile in
the stock market. Mortgage rates actually improved this week. Last
week was one of the most volatile weeks I've experienced,
and basically going back to twenty twenty two, in that
rates from the week prior, from the Friday prior, rates
went up a full half of a percent in a

(00:49):
matter of five days. And it's rare to be in
and it happens every few years where we will get
in a situation where oh, rates are at six point
eight seventy five, up thirty minutes later there at seven.
Now they're at seven point one twenty five and you're
like wow, and it just the market moves that quickly.

(01:09):
And this was obviously, you know, when the situation with
tariffs took place, and Wall Street and the world. We're
trying to figure out, well, where does this end up,
how does this affect us? And and what happened is
you saw a lot of the US treasuries we were
being sold off under uncertainty, and that uncertainty people start selling.

(01:35):
They're there, you know, you hear all these rumors that
it's you know, our investors are you know, investment banks
are selling their other assets to cover their losses for
their their stock trades. All these different things are going
on on a global scale, and it made mortgage rates
very volatile. The good news is is things settled down,
you know, basically on Monday, and they've improved this week,

(01:56):
so we we gained back about half of half of
what we lost, which is really welcome news. And in
the mortgage world, we like slow and steady, right, We
just like the boring slow and steady rates are slowly
coming down or slowly going up, so it's easy to monitor.
When you have these volatile swings, it just makes it

(02:16):
I think it's it's hard for for lenders and also
borrowers to stomach because it's just so much going on
on a big, big decision I.

Speaker 1 (02:24):
Purchase, yeah, I think that actually brings up a great
point is let's let's talk a little bit about tariffs
and the potential impact on the real estate market. I
don't know that that's been particularly well discussed out there,
at least not too much from what I've seen. It's
discussed all over the place with regards to interest rates

(02:44):
and stock market, but not so much with real estate.
So what makes your tick?

Speaker 2 (02:49):
It's a great, great question, and I think it boils
down to two categories. Like for new build construction. So
if you're thinking about buying a new build in the
next six months to a year, I think new builds
are going to become more expensive simply because the materials
that are used to build the home will be more expensive.

(03:09):
If we're getting it from Canada. Lumber from Canada is
quite popular, you know, the drywall, so forth. If it's
coming from other sources outside the country, that's just going
to be more expensive, and that those expenses or those
increasing costs, we passed on to the consumer.

Speaker 1 (03:24):
Yeah, And on that note, we have an article here
from Yahoo Finance was just reporting that D. R. Horton
just reported earnings, and the headline is DR Horton says
potential home buyers have been more cautious as sales sinc.
The gist of it not particularly any big surprise. The
number of sales for d R Horton is down a

(03:45):
fair bit. The key takeaway I have is DR Horton
had twenty two four hundred and thirty seven net sales
orders in the quarter and closed on nineteen thousand and
some change, down fifteen percent year over year.

Speaker 2 (03:59):
Yeah. You know, the great thing about new home build
sales is that you know, they're driving consumer business because
they're paying so much money to buy down the rate. Right,
you'll hear in some new build sites that rates, Oh
I got a rate of four percent or five percent,
which is so far below the market. Well, what the

(04:20):
builder is doing is they're taking profit from the sale
of the home and using that money to buy down
the rate for the buyer to make the house affordable.
And this has been a great formula and why you know,
sales of new build construction have been so strong since
mid twenty twenty two and just about every builder's jumped

(04:40):
on board with this because it was a great way
to drive business to you know, a they get to
control the buyer per se, and they make sure that
that buyer is qualified, and we'll close on the home
and they make the payment on that house affordable even
though it's coming at the cost of a higher per price. Right,

(05:01):
you know, money doesn't come from from you know, it
doesn't fall from the sky or fall from a tree.
So you know, you're taking revenue from the sale of
the home to buy down the rate to make it affordable.
That's the way that that model works. And with that,
you know, I think whenever you know, you have a
shock to the system, and the last few weeks with

(05:22):
the announcement of tariffs has definitely been a shock to
the system. And it's been a shock to the system
simply because you know, you've got whether you're all over
the news it said, oh, the stock market's down five
percent ten percent for the year, and you know, all
these stocks are falling, and then you know, consumers are
just hit from news from every angle of everything from

(05:43):
Canadians don't want to travel to the US, Europe doesn't
want to travel to the US. And it's like, wait
a second, whether it's fake news or real news or whatever,
it just people get frozen because there's all this news
that someone that's not positive, and it's like I'm going
to freeze. I'm just not going to buy. And whether

(06:04):
it's a house, whether it's car or whatever, it just
people kind of freeze because they don't want to make
a bad decision in a turbulent time. And that's where
you know, it's how does tariffs affect you know, resales?
And I think how they affect you know, well, let
me close out on new builds. I actually think the

(06:24):
cost of construction is going to go up, so I
think sales on new builds are going to slow in
the next year. That's just my particular forecast. And with resales,
tariffs don't really affect resales except for the fact of
the mortgage rates. And once we get through this turbulent time,
I believe we are going to see lower interest rates

(06:44):
in the coming six months and with that, I actually
think it will drive demand towards resales. Now, again, the
immediate term, the next thirty to sixty days maybe maybe choppy,
but I think over the next six months, I think
mortgage rates are going to come to And I know
there's a lot of talk about, oh, inflation is going
to go up, but it is inflation is going to

(07:06):
go up on different products. But the price of oil
is going to come way down. It already has come
way down, and so I think there'll be elements that
will offset the cost of inflation. So over all inflation
I believe will fall later this year. I know that's
an outlier opinion. And I think mortgage rates will come down.
You know they're not going to drop to five percent,

(07:28):
but could they be closer to six percent by the
end of the year. I believe they will be, and
that will drive demand towards resales.

Speaker 1 (07:35):
Agreed and well, at one point, I just to build
on that inflation when it comes to real estate, what
real estate is just such a wonderful way to hedge
against inflation and what other what other way? What other business?
If you're looking at it from an owner occupied point
of view, you're locking in your rate and your payment

(07:56):
for the next thirty years. Inflation is not taken off
the table. But even from a investor point of view,
what a wonderful business model when you can lock in
your card asset cost. Your mortgage payment is the big one.
When you're a rental business and your costs are locked
in for the next thirty years, but your profits are

(08:18):
not inflation's now your friend.

Speaker 2 (08:21):
So true. And you know the best part about it
is is that rates locked in. But if rates do
fall over time, you can refinance it, right yep.

Speaker 1 (08:29):
And you have the best of both worlds. You have
that nice rate and if they go up, you keep it.
If it goes down, you can refinance it.

Speaker 2 (08:36):
Well. You know, this past week they kept talking about
the death cross. I don't know if you saw that
in the stock market, which just in the name alone,
it sounds very erroneous, right, or it sounds like ominous,
a death cross. And what that is is the fifty
day moving average moves below the two hundred day moving average,
and it precludes a majority of the time that the

(08:57):
stock market has further to fall. And so you know,
if that happens, people are going to take their investments
out of the stock market and go to assets that
are more stable. And whether it be gold or real estate.
I think this is also going to be a driver
for resales to continue to climb.

Speaker 1 (09:17):
Yeah, I agree, the resales are their own market, but
there's definitely a correlation towards the new builds. And I
mean from a buyer's perspective, if you're going out to
buy a house, you very likely would compare a new
build versus a resale and they do correlate. So as

(09:37):
the prices go up, land values tend to go up,
so does the resale values. So and at some point
if they get out of whack, if the resale market
is so much less expensive than the new builds, and
new builds will dry up. If the builders can't make
a profit, they're not going to build.

Speaker 2 (09:56):
That's exactly right, and so it's U It'll be interesting
to see how this all plays out. I think it's already. Uh,
we've already I think seen the worst of it, the
worst of the unknowns. Even the worries with with the
big you know, with China have have a somewhat slow because, uh,

(10:16):
the administration came out this past you know, the last
few days saying, hey, we can't raise terifts anymore because
if we do, it's going to completely shut down all
trading between the two countries, and no one wants that
to happen.

Speaker 1 (10:28):
No, we're trying to level the playing field. We're not
trying to just shut off all trade. That that's.

Speaker 2 (10:34):
Yeah, exactly, So it's uh, I do think we're going
to see you know, lower rates. Again, it's not going
to be a big dramatic rates are going to fall tomorrow,
but they should slowly come down. And I'm hearing the
adjustments from everyone from Fanny May to you know, National
Association Realtors to Mortgage Bankers Association, all those companies are

(10:57):
starting to adjust their numbers and then we're all hovering.
They're pivoting around a six thirty year fixed rate by
the end of the year, which is you know again,
that's about you know, three quarters to a point below
where we are today, which is really welcome news. And
I do think that's going to bring a lot of
activity into the home buying the resale market over the

(11:20):
next six months.

Speaker 1 (11:22):
And Jerry, you mentioned fear, and there's a lot of
fear out there, but you're still seeing you're not seeing
much of a market slow down in your business, are you.

Speaker 2 (11:33):
I'm not. I'm not. It's very slow and steady. It's
it's basically what it's been over the last year, right,
it's kind of a mirror image of twenty twenty four.

Speaker 1 (11:43):
Yeah. And we're seeing consistency too. It's not like somebody
turned off or turned down a spigot it's it's just
people are still buying homes still, people are still buying
investment properties. It's not like when COVID first hit, it's
like the world shut well, the world did shut down,
but before that even happened, it's like somebody literally turned
off this pigot, the money shut off and people just

(12:05):
literally quit buying for a brief spell before it loosened up.
So certainly not seeing that today now.

Speaker 2 (12:13):
And I don't think it'll it'll stop on a dime.
I think we're just going to see a very consistency
of what it was miriamage again of twenty twenty four,
until rates get closer to six. Then I will think
you're going to see activity pick up.

Speaker 1 (12:26):
Yep. And with that, we are coming up on a break,
so we will be right back. Hi, and welcome back
to the Home Solutions Show. This is your host, Andy
Keel with Epic Realty and I can be reached at
five two zero five three nine nine five nine one.

(12:48):
And again, just to reiterate, I'm always happy to talk
to any of the listeners. Feel free to give me
a call if you have just some general real estate questions.
Want to bring up some ideas for a future show,
please let me know. And I'm joined again by Jerry
Sun with Cross Country Mortgage and Jerry, if you would
share your contact information sure.

Speaker 2 (13:10):
Five two zero three seven zero nine five seven six.

Speaker 1 (13:16):
And in the previous segment we were talking about interest rates,
tariffs their effect on it was kind of a scary topic.
But on that same note, but shifting gears slightly, I
wanted to talk about maybe some ideas for some alternatives
for being able to get into perhaps a more affordable home,

(13:36):
like one thought is to buy like a bank foreclosure,
some other thoughts, or to buy something that needs fixing up,
and maybe some alternative ideas. I saw a property last
week that I thought was a really good value. It
was a HUD foreclosure or is a HUD foreclosure?

Speaker 2 (13:54):
And Andy, let me can I stop you there? What
is a HUD foreclosure? That means the borrower had an
FAH loan and then they didn't make their payments, and
so Housing and Urban Development which runs the FAHA program,
you know, they get the house back and that is
why they call it a HUD home. It just meant

(14:14):
that there was an FAHA mortgage at it. The owner
of the property had an if it had an FAHA mortgage.

Speaker 1 (14:22):
Yes, thanks for that clarity. I sometimes forget and assume
that so. Yes, it was so it was a home
that had an FAHA loan on it. Department of Housing
and Urban Development took it back. So anyway, they are
now looking to sell this property. And with the HUD properties,
there's a bidding process that happens online. They put them. Typically,

(14:46):
they will put these in the mls and have them listed,
but then we go and have to put in a
bid the first time the property comes available. They have
restrictions on who can put a bid in on them.
I believe it's government employees, not for profits, and owner
occupants only, which I actually really like that process because

(15:06):
it takes the investors out of the equation. It gives
an owner occupant a little bit of an advantage with that.
The particular property that I saw has an interesting dilemma
to it. It has a pool that is empty, and
the property has been winterized as HUD would do, but

(15:28):
the pool's empty. So that poses a very special problem
for financing, doesn't it, Jerry?

Speaker 2 (15:33):
It does because you cannot is considered a health and
safety hazard to have an empty pool. Ironically, it's also
a health and safety hazard to have a full pool.
So if you have a full pool, you've got to
have some sort of gait or net around it. So
you can't really win with the pool, right, It's a
health and safety hazard if it's empty, if it's full.

(15:54):
It's just one of those things. I've always kind of laughed.

Speaker 1 (15:56):
That, Yeah, there's always an issue with that, And I
will say that Arizona is probably one of the few
states that actually a pool is a true asset to
a hall. Most other states it's not, at least for
property rest resale values and such. In some cases it's
it's not so good, but here in Arizona it's usually
overall a value add. Now it's not typically the value

(16:19):
add for the actual cost of the pool, but there
is value there for sure, for sure.

Speaker 2 (16:25):
But an empty pool, a lot of times it will
be a requirement that you have to either cover the pool,
which can be very expensive, or you'll have to do
some sort of remodel loan to have the pool worked
on and fixed and refilled before closing.

Speaker 1 (16:47):
So if an owner occupant wanted to buy a house
like this type of situation, conventional financing and I think
VA financing would also be off the table on this one, but.

Speaker 2 (17:00):
Would have to be covered. And then you did not
give the pool any value.

Speaker 1 (17:04):
Right, So, but there is a solution with FAHA, right, Joy,
there is.

Speaker 2 (17:10):
So it all depends on when the appraisal was done.
So the great thing when you're buying a HUD home
is before HUD puts it on the market, they do
an FAHA appraisal. That FAHA appraisal may show that the
pool was filled. If it was empty, They're going to
require it to be a two oh three K FAHA
loan so that it is there's money there set aside

(17:32):
to fix that problem after closing.

Speaker 1 (17:36):
That sounds like it would be a pretty viable alternative
for an owner occupant to buy a house like that.

Speaker 2 (17:41):
Then yeah, no, And I think so many consumers forget
that there are many different not many, but a handful
of remodel loan programs available for buyers. And I don't
mean construction loans. I mean someone buys a house or
if they own a home and they want to refinance
and do a big remodel on their home. Fannie May

(18:03):
and Freddie Mack have their own versions called home Style,
And then you've got. FAHA has their own program which
allows someone to take out more money than you know,
let's say it's a three hundred thousand dollars home, you
can take out an additional thirty six thousand dollars to
remodel the house. And as long as you're not doing

(18:24):
structural work, you know, you can't really move walls, but
you can do almost anything you want to do to
that house with that money. And I think people just
forget that that is a viable option out there. To
buy a house is just you know, is to to
do it. Now, there are extra steps if you're going
to do a remodelone whether conventional or FAHA, there are

(18:46):
extra steps you have to take. You have to turn
around and get bits for the house, and those have
to be approved by the enderwriter. In faha's case, you know,
you the the contractor the general contractor doing the work
or the contractors doing work have to meet certain criteria.
So there are a few extra steps you have to take.
But hey, to get all that money financed into your

(19:10):
house so that hey, you've got a brand new remodeled house,
that's pretty great.

Speaker 1 (19:16):
Yeah, So that's certainly one good alternative if someone is
trying to find a property to purchase that is on
a little bit more of a budget. As you said,
there's some hoops to jump through. If it's like everything,
If it's purchased properly and due diligence is done and
a good contractor is hired, it's probably a big advantage.

(19:39):
The problems always come in when due diligence isn't done.
There's surprises after the closing that you weren't expecting repairs.
Ask any flipper, the numbers they come in with on
the original proposal are rarely true. At the end. There's
almost always an expense that was unexpected. And I can
attest to that personally more times than I can count.

(20:02):
There's certainly some great alternatives out there other than just
go out and buy the dream house on the open
market when you know the prices have pushed higher and
maybe that's not quite as affordable as before. So there
is another property that I wanted to talk about a
little bit too, and a slightly different alternative if you
really want to go to the ultimate extreme. And I

(20:24):
actually recently just got a call from a wholesaler that
has a property in Tucson that on the Northwest side.
It's in an area of homes that probably would max
out in about the three hundred and twenty five thousand
dish range, so something that was at the nicer end

(20:47):
of that neighborhood would be three hundred and twenty five thousand.
And this particular property was described adequately as a knocker downer,
So of course I said, well, and that's not normally
what I play with, but I'm intrigued. What kind of
numbers are we talking about? And they said, well, this
one they're looking for ninety thousand, but there's there might

(21:10):
be some additional room to work there. I'm intrigued. I've
never done this before, so I called up one of
the general contractors I worked with and said, let's run
the numbers on this thing and see if it would
be viable.

Speaker 2 (21:22):
And Andy, do you describe a knocker downer for me?
I mean it were there walls, I mean, are they
site built? Was it stick and stucco or mason?

Speaker 1 (21:31):
What was it? It's a stick built home that was sadly,
it's not that old, but it was just so poorly.
I think it was just abandoned for quite some time
and there's nothing left that can be salvageable probably other
than the foundation of this house. Wow. So that's what

(21:52):
I mean by knocker downer because literally you'd probably need
to bring a bulldozer or some kind of heavy equipment
to just take the house right down to the foundation,
because that's the only thing that's left. So it's kind
of a it's it's a different formula, but it's an
easy formula. So now the value of the property is
what is the lot worth minus the cost of knocking

(22:16):
down the house, plus the value of whatever salvagable in
this case, probably just the just the foundation. But there
is one other thing to take into account there, and
that's impact fees with the City of Tucson. And I'm
not up to date on what the cost of the
values that those are. But once you've paid the impact fees,
and that's like the hookup fees for sewer and sewer

(22:37):
and water, in theory, you shouldn't have to pay those again.
So there's some value there. But we started penciling the numbers,
and this didn't take very long to figure out that
if we just built an average thirteen hundred square foot
home there, we would probably be looking at about two
hundred and twenty five thousand dollars to build the property,

(22:59):
and if we're paying nine ninety thousand for the lot
and about twenty thousand bulldoze the house, we're we're at
about three hundred and thirty five thousand, and all of
a sudden, well, gosh, we're already over what the market
can bear and there's no profit left. So that's just
a real quick pass.

Speaker 2 (23:15):
Yes.

Speaker 1 (23:18):
So the funny thing about that too is running the numbers.
It's like, would it work at zero dollar? Is literally
if somebody gave me this property, would I wanted? And
I kind of question the answer on that, Is there
any value there? Because there's literally the cost of knocking
down the house and the risk there. Is there some
value there? Yes? Absolutely, but you better be a pretty

(23:41):
astute builder and keep your cost pretty tight to make
something like that work.

Speaker 2 (23:47):
Interesting. It's funny because it was built at a time
where building costs were lower, and you know, even if
you were to get it for zero dollars, he just
gave it to you for free, and now you're building
up on it, and it is you'd have to be
able to build it for what I mean under three
hundred thousand all in right.

Speaker 1 (24:08):
Yeah, you really deed and probably a bit below that
to even have even a smidgeon of profit. Wow, So
that one's going to be I'll keep an eye on that.
I'm curious what will happen. But that one was a
quick pass. But the theory still holds true. If you
can buy the right property, that would be a knocker
downer if the market will bear the higher price. If

(24:31):
that was in a neighborhood of say four hundred thousand
dollars homes, it would probably work just fine. But unfortunately
it was not so at any rate. We are coming
up on another break. This is your host Andy Keel,
and we will be right back. Good morning, and welcome
back to the Home Solutions Show. This is your host

(24:52):
Andy Keel with Epic Realty, and I can be reached
at five two zero five three nine nine five one one,
and I'm joined again by Jerry sent with Cross Country
Mortgage and Jerry again, if you'd share your number.

Speaker 2 (25:06):
Yeah, five two zero three seven zero ninety five seven six.

Speaker 1 (25:11):
On the break, we are just talking about a mutual
friend and client of ours that is looking at doing
some investing with a self directed IRA, and I'd like
to talk about some of the pitfalls of the benefits
and pitfalls actually of doing that real estate investing with
an IRA, especially from the lending side. If you could

(25:34):
talk a little bit more of the difficulties of that
with as a lender, or.

Speaker 2 (25:40):
The lack of lending in self direct iras is probably
the way to describe it. There's just not many lenders
that do them. I don't know anyone locally that does them.
And when this mutual friend of ours called us, I
had to google the name of the companies. I just
you know, I went to Google and companies that will
lend in self directed ira is and five or six

(26:02):
showed up nationally. And I think that's about it. But
all the you know, programs that we're used to that
are you know, what we call non qualified mortgage or
non QM like DSCR loans, which we talked about quite
a bit, or bank statement loans, foreign national loans, all
of those kind of programs they don't allow for it now.

Speaker 1 (26:24):
And let me clarify for the audience a little bit
of why that is an issue. So, if you are
going to buy a piece of real estate with your
self directed IRA, self directed four oh one K self
directed retirement plan The gist of it is the IRS
says you're allowed to do that, and you can use leverage.

(26:47):
There are certain restrictions. However, the problem comes in is
that you can't as the IRA owner. You cannot personally
guarantee that loan. Therefore, the property pretty much has to
stand on its own. And to my knowledge, I'm not
aware of any lender out there that will do better
than sixty five percent loan to value on one of

(27:09):
these things. I think legally you can go to seventy,
but I'm not aware of any out there that will
do sixty five and most of them don't even want
to go that high. And then even if they will
go to that sixty five percent, usually you're looking at
a much more harsh type of loan program, probably a
good at least percent higher. Rarely do they want to
go thirty years. It's fifteen years as usually the best

(27:31):
they'll do, and oftentimes they want a balloon or a
five or a seven year adjustable in there so they
can get a little scary and a little painful. So
that's that's part of the problem with the self directed
IRA investing on something like that.

Speaker 2 (27:45):
Yeah, no, for sure, they're just there there is very
few that will do it. And I know, but you know,
I do get that call relatively frequently where if someone
wants to do a loan within a self directed IRA
I'd love to have an outlet for it. I just don't.

Speaker 1 (28:01):
Yeah, that can. That can certainly be a little tricky.
There's ways of doing it, but you've got to be
very careful and not to violate other rules like if again,
if you're investing with your self directed ira IRS guidelines
say you can't manage it, You're you're not You're not
allowed to go over there and do work. You can't
swing a hammer, you can't manage it. You really you
you really shouldn't be doing any of this stuff. And

(28:22):
in some cases some of the best things you could
do that that's a great case for out of state
investing because it almost forces you that to not do
any of the work yourself.

Speaker 2 (28:31):
Right, So you can't even go over if there's a
tenant in there and there's a there's a broken toilet,
you can't go over and fix it. It's you've got
to outsource it to a third.

Speaker 1 (28:41):
Party exactly because if you go over there and fix it,
that there's actually a violation. You you could potentially blow
up your entire ira if you're doing something like that.

Speaker 2 (28:51):
Wow, good to know.

Speaker 1 (28:54):
So I know there's people out there that do it,
and it's not like there's police out there looking for it.
But boy, oh boy, oh boy, I sure would not
want to It's just not worth it. Please guys, don't
do that.

Speaker 2 (29:06):
If it's just not worth.

Speaker 1 (29:08):
It, it's so not worth it, so not worth it.
So anyway, we're in the last segment. We were talking
a little bit about some other alternatives to the higher
real estate prices and what are some other ideas that
we can have in this market. We talked about a
hud foreclosure, but that's not the only type of foreclosure
out there that we have. The Fannie May Freddie Mack

(29:29):
and they have some programs that we alluded to as well.
I think the HOMESTEPS program is one of them. I
think that's Freddy's program where home.

Speaker 2 (29:37):
Yeah.

Speaker 1 (29:37):
Yeah, So there's a couple of programs they have out
there that restrict the bidding on these properties to owner
occupants or perhaps government and not for profits too. I'm
not sure if that's quite true with their program, but
they're basically trying to give an advantage to an owner occupant,
which I think is a fabulous thing.

Speaker 2 (29:56):
Well, I think the great part about head homes is
that there's already an appraisal done and it sticks with
the property for six months. So if you're going FAHA,
you already have the appraisal done and you already know
all the ins and outs of the property of what
FAHA or head is going to require on that house.

Speaker 1 (30:16):
Yeah, and they not only do they do the appraisal,
but they usually do. It's technically not a home inspection,
but I've seen the reports that are probably more as good,
if not better than most home inspector reports, where they
literally go through and check out all the different systems.
I mean, I'm actually looking at one from this property
we're referring to, and they checked out the heating and cooling,

(30:38):
They checked out the electrical, the stove, the plumbing, the
water heater, and somebody literally went through and signed off
that all these things are okay in this particular case,
or they would have said they're not okay if they weren't.
And they're usually pretty darned accurate from my experience for sure.

Speaker 2 (30:55):
No, but you know what else, what other options are
out there. If somewhats to buy a house and you
can't get a regular mortgage on it, you know, a
lot of times you can do. That's where private money
becomes very valuable.

Speaker 1 (31:08):
Oh exactly so, and again that's one of the pitfalls
with especially if you're looking for a home for yourself
personally to move into. I think this is kind of
ironic that you know, back in the day ten plus
years ago, all the lenders were more lenient if you

(31:29):
are going to owner occupy the property. But to my knowledge,
the DSCR lenders out there, and that's the debt service
Coverage ratio, and that those are meant to be investor
products if you're planning on living there. I mean the
documents that I've always signed with these, there's actually a
page in there that prohibits me from living there, right,

(31:50):
And the reason for that is DoD Frank Yep, Dad, Frank.
I believe that was went into effect in what twenty
twelve or thereabouts?

Speaker 2 (32:02):
Jerry, Yeah, it was right after the Great Recession. It was.
It definitely rose from the Great Recession.

Speaker 1 (32:09):
Yeah, I think that's kind of interesting that that was
a big piece of that was put into play because
of predatory lending. However, the reality is that it really
I think it really harmed the public more than that helped,
because it really made it's so much more difficult to
get that owner financing.

Speaker 2 (32:30):
Now they and another element about you know, dot frank,
is that there's now it requires with the predatory lending.
It doesn't allow people to do small mortgages. If you
have a mortgage less than fifty thousand, it doesn't meet
the requirements of dot frank because your fees cannot be
over five percent of the you know, of the loan amount,

(32:51):
which is twenty five hundred dollars. Well, when you look
at that twenty five hundred dollars, when you started adding
title fees and lender fees, appraisal, all that together, you're
typically going to be over that twenty five hundred dollars mark.
So I don't know any lenders that will go below
a fifty thousand dollars loan amount. That's what our limit is.

(33:12):
Most lenders are like seventy five to one hundred.

Speaker 1 (33:15):
Yeah, And usually when we see those those properties and
oftentimes they're more rural or things like that, I mean,
the only way to sell them is cash or owner financing.
There's really nothing else in between. I'm certainly not aware
of anybody out there on a commercial level that'll do
under a fifty thousand dollars loan.

Speaker 2 (33:32):
Now fifty thousand dollars loan. But yeah, going back to
Doc drank, how do you get around that? Or you know,
how do you buy a house? And if let's say that,
and we're talking about two different things. We were on vscrs.
But going back to fix up, do you have a
house that need to be fixed up, Maybe it's cheaper
to turn around and put twenty percent down, buy a
house with a private money loan, fix it up, and

(33:54):
then refinance it.

Speaker 1 (33:56):
Yeah, and that's actually a strategy that I've been using
quite a bit lately and it works quite well. Love
going in and finding those properties that just simply would
be very difficult, if not impossible, to get any kind
of long term financing. So we have one lenders that's

(34:17):
given us a line of credit to buy these types
of properties, and we'll typically go in there and buy
them with the line of credit, get them up to
the standard where they will pass conventionally, and refinance them
back out. Like the pool situation, that's an easy solution
for us. We had one recently that wouldn't get financing

(34:38):
because the roof was bad, so we used our line
of credit and we'll be refinancing that one. So there's
some there's some really great alternatives out there if you're
mobile or agile enough to be able to take care
of the interim financing situation. So that there's also some
big opportunities out there as far as I'm concerned with

(34:59):
being able to you just kind of buy it with
casher or or line of credit and then refinancing back
out after the problems fixed.

Speaker 2 (35:07):
Yeah, no, there's there are lots of solutions. And people
get nervous when they hear oh, private money, and they
think something is they get this you know, I don't know,
shady or something like a loan chart. And yeah, the
interest rates are higher. They're probably closer to ten percent,
maybe twelve percent something like that, but they're interest only,
but they're only you only have the loan for a

(35:28):
few months or six months at a time. Then you
refinanced to Fanny May and Freddie mac rates.

Speaker 1 (35:35):
Yeah, and that's the thing. The interest rates don't really
matter that much in the short term. Our line of
credit with our lender is eleven point five. But the
reason I love this particular lender is they don't charge
junk fees, they don't charge points, and there's no prepayment,
so I pay for the money when it's out and
I don't have to pay you know, one to three

(35:57):
points to use the money. It's fantastic. So we we
pay the interest in what we have out and that's
pretty much yet. So that's you know, when you do
the when you do the math, three months at eleven
and a half percent versus three months, that's say six
percent really doesn't matter much.

Speaker 2 (36:14):
It doesn't, and that's you know, you got to look
at the full cost. I think people get hung up
on this issue, and when you really look at the
full cost versus and the benefit you get from it,
it really makes a lot of sense to go that route.
If you cannot do a regular mortgage from day one
because the house is just not you know, in a

(36:35):
condition to be able to do a regular mortgage. This
is a really way because you know, if you're buying
a house that needs this work, you're probably getting an
undervalue and you really can squeeze out a lot of
value by doing the repairs and then refinancing.

Speaker 1 (36:48):
Yep. And with that, we're coming up on a break,
so we will be right back. Hi, and welcome back
to the Home Solutions Show. This is Andy Heal, your host,
and I'm joined again with Jerry Sunt with Cross Country Mortgage.
And we were just talking about some alternatives to some
of the higher real estate prices, buying some fixer uppers,

(37:09):
maybe a bank foreclosure, just trying to think of any
other ideas that might stretch the budget a little bit,
whether you're a homeowner or investor looking for real estate.
Before we were talking a little bit about perhaps buying
a fixer upper, and I wanted to expand on that
with a article that I see here in Yahoo Finance,
and the title of this one is asked the realtor

(37:30):
is buying a fixer upper worth the cost of renovations?
I always get a kick out of these kind of
headlines when I read them, but I rather like this
article and I'm just going to go to one particular
excerpt here where they're talking about a situation. I'm quoting
from the article. I had a buyer looking at a
home for three hundred and twenty thousand and one for

(37:51):
three hundred and ninety five thousand. By the time she
listed all of the things she wanted to get fixed,
we were at three hundred and eighty thousand priced house
had everything done and the extra bedroom. So if your
must haves are just vinyl flooring and paint, you could
be finding a diamond in the roof paying for substantial renovations.

(38:11):
And then they go on to list a bunch in
the long run, could be more costly than buying the
turnkey property. So believe me, my experience is very true
to that. Rarely does buying the fixer up, or is
that a prudent move for someone who's not in the trades,
because part of the problem that we've seen is the

(38:35):
expenses just come in higher than we tend to expect,
and we tend to find more things that are wrong,
and then as you're starting to do things, it's like, well,
let's just add the extra kitchen cabinets, and let's just
add this and that, and often, not always, but often
you would have been just better off buying the house

(38:56):
fixed up. So I don't want to scare anybody away
from that because I love buying fixer uppers. That's in
fact a big chunk of our business model. But it's
really surprising. And that's why it's so important to work
with a good lender, a good real estate agent, good
title company. All of these things are so important because
it's so easy to get into trouble with these and

(39:16):
probably even more important than all that, a good contractor
unless you are the contractor.

Speaker 2 (39:21):
Right a trust forth the contractor because you know, costs
can just go out of control like that.

Speaker 1 (39:27):
Yeah, and that's part of in my opinion, part of
the problem is there's just been so much hype out
there in just even recent history about you know, buying
a fixer upper as being a better deal. You know,
if as a as a real estate agent, if I
was to list a perfect house for say four hundred
thousand and a maybe a dated house that just needs

(39:49):
some cosmetics at say three hundred and fifty thousand, the
three hundred and fifty thousand dollars house will probably be
just as saleable, if not more saleable, than the the
perfectly fixed up house. But when it's all said and done,
is that the better deal? And the answer is probably not,
just because the we don't do the math as well

(40:10):
as we think we do. When we come in there,
and especially if you can't move into the house right away.
And I think of this more of it from an
investor point of view. But if you know, if I
buy a turnkey house and I can move somebody in
right away, versus I have to buy a fixer up
or that might take three months, I've got carrying costs
for three months, I've got utilities for three months, I've

(40:30):
got insurance, I've got and I've got the extra risk
of a vacant house, which is which is a true
risk because vacant houses have problems. People break in, homeless
break in, there's issues with that. So there's a lot
of things to take into account when you're looking at
a fixer up or. And again I'm a big believer

(40:52):
in it, but it just extra caution is required. So
again I want to go back to the loan side
of this again, and we talked about this a little
bit in an earlier segment, But what are some of
the other options out there if you wanted to buy
a property that might not be in the best of condition.

Speaker 2 (41:12):
Jerry, Well, you know, if it's a particular item like
let's say it's a roof, or it is that needs
to be replaced or repaired or eves or something like.
Or let's say you have just an empty pool. We
allow for what's called an escro holdback, which means we're
going to fund the loan, but then the the whether

(41:34):
the seller or the buyer can pay for the repairs
after closing. Now the work, we'll just say it's an
empty pool, and let's say the fix on the pool is,
you know, five thousand dollars simple fix, So we will
close on that on that loan, but the buyer needs

(41:54):
to get us a bid for that work, you know,
and the work has to be done within two weeks
out after closing, and we hold back twenty five percent
above the bid price. So you know, roughly, if it
was a five thousand dollars bid, that's going to be
roughly about twelve fifty two hundred and fifty dollars that
we're going to hold back in contingency to make sure
that the repair will be done or the pool will

(42:16):
be fixed by within that five thousand dollars budget. So
the deal will close, seller will get their money, buyer
is now the owner, and they just have to have
that work completed within two weeks after closing, and then
once that the work is completed, the funds are released
to the contractor, and any money that wasn't overused, you

(42:37):
know that contingency. If none, if the costed and overrun,
then that money goes back to the buyer. And I
find that to be a great way to solve a
simple problem. Now, if you're getting into ten to twenty
thousand dollars worth of repairs, underwriters get a little spooked
about doing that as an astral holdback because it's too
big of a job. Then it's is as better as

(42:59):
a remark thing situation. But if it's ten thousand or
less and it's one it's concentrated on one issue on
the house, then you can do an escrol hold back,
which I find again for doing whether it's a faha
VA or conventional loan, I find them to be very
useful and we do them a lot excellent.

Speaker 1 (43:19):
What other tips and tricks might we have to make
things a little bit affordable. I'll lead the witness a
little bit here. I'm thinking about maybe getting some seller
paid points to help buy down the mortgage rate.

Speaker 2 (43:35):
Sure, well, that's you know, like the been the model
the builders have been using for forever.

Speaker 1 (43:40):
Yeah, it sounds like, you know, take a page out
of the builder playbook, and.

Speaker 2 (43:44):
Yeah, and no, I mean buying the rate down. You know,
rates are good right now, so but you know, sometimes
buyers do want that lower interest rate, and so we
will do whether it's a permanent buydown and buy down
the rate. I did one this morning for a gentleman
who wants to buy a condominium but did not want
his payment to be over a certain amount. It could

(44:06):
not be over sixteen hundred dollars all in. And to
make that happen, we had to buy the rate down
to six and a half percent on a conventional loan,
and the seller was willing to pay the points to
do that, and so that's how we got it to work.
You also can do a Tipperary buydown, where if rates
are let's say six point eight seven five today, you

(44:27):
can do if it was a two year buydown, the
rate will be bought down to four point eight seven
five for the first year, five point eight seven five
for the second year, and then it would be at
six point eight seven five for year three through year thirty.
Now the loan could be refinanced at any time, but
that two year buydown really is valuable to bring that

(44:49):
payment down in the short term, especially if we believe
that rates will fall sometime in the next two years.

Speaker 1 (44:55):
Now I think I could. I've seen that used really
well for someone who might be just starting a new
career and is more upwardly mobile, and they reasonably believe
to expect their salary to be going up over the
next couple of years.

Speaker 2 (45:09):
And any that is so, I mean, you would be
a master lender because that is such a key point,
because I will go, I'll explain to a borrower it
is typical that someone gets a three percent raise in there,
you know, annually, and if you look at what your
annual salary is and the budget that what you want
to have of your monthly salary towards the house. What

(45:32):
does that look like in two years once you've had
a three percent raise and then another three percent raise,
that's exactly where rates will be. You know, if you
did the two year bydown at six point eight seventy five,
in two years, that'll be the same percentage of your
budget that it is today four point eight seventy five.
And once they see that in writing, they're like, oh.

Speaker 1 (45:51):
I get it. Yeah, that's definitely a great tool, and
we all tend to be a little anchored to certain
numbers in our head. I mean, I remember first moving
to Tucson and buying the house that we ended up buying,
and just feeling really uncomfortable with the payment that was
about seven hundred dollars a month higher than the previous payment.

(46:14):
And then you know, you get to do it and
it's like, eh, okay, it's good deal now, and then
the salaries go up and income goes up, and it's
not as bad as we tend to think.

Speaker 2 (46:24):
No, that's right, that two to one buydown. I can't
when when rates were at seven and eight percent, and
then you know, in twenty three and twenty four, Andy,
I got to tell you that was such a valuable
way to get people into homes, you know, to build
people's confidence. Is that, hey, where the freight will be
lower for the next two or three years because there's
a three year buydown, and then at some point in

(46:46):
time when rates do fall, you'll be able to readin.

Speaker 1 (46:48):
Answer, I guess I want to end this with one
last question. Are you utilizing seeing any adjustable rates these days?
And when would that be proper?

Speaker 2 (46:57):
Yes? On the jumbo side. When I say a jembo mortgage,
anything above an eight hundred and six thousand dollars loan,
jembos are very valuable. They're about a half a percent
lower that now three eighths of a percent lower than
a thirty year fix long. On the conventional loan side,
arms are not that much more. That doesn't drop the

(47:21):
rate more than an eighth of a percent as compared
to a thirty year fixed. So on the jumbo side,
arms are fantastic, but on the conventional side they are not.

Speaker 1 (47:33):
Have you been using any FHA adjustables in recent history.
I don't think I've seen it in a long time.

Speaker 2 (47:40):
I haven't don one in a long time either. It's
just FAHA is everyone does an FAHA thirty year fixed.
You know those rates are half a percent below conventional anyway.

Speaker 1 (47:50):
Right right, looking at the VA and FAHA. Where are
we at today in closing, Jerry, FHAVA and conventional.

Speaker 2 (47:59):
For interest rates? Yeah there you know faha ba are
about six and a quarter six point four conventional or
about it with good credit. You know you're at six
point eight six point.

Speaker 1 (48:10):
Nine, Okay, so we're still well in the six is.
Certainly personally would love to see the rates edge down
a little bit closer to six or below. Hopefully that
is coming soon, and that that.

Speaker 2 (48:21):
Is predicted by the fourth quarter of this year. So
I uh, and that's not by me, that's by all
the big names, and so I do think we're we
will see lower rates in the near term.

Speaker 1 (48:31):
Well, I certainly hope so as well. So thank you
so much for spending your Sunday with us. This is
Jerry Sunt and Andy Keel with the Home Solution Show
and hopefully you'll tune in next week. Thanks for joining us.