The following program. The ENT , mortgage and Realty Show is paid for in full by ENT mortgage, LLC and equal housing lender consumer access.org number 2 5 5 3 6 8. The advice and opinions expressed during the Academic Mortgage and Realty Show are solely that at the hosts and guests of ENT mortgage, LLC, and not WTMJ or Good Karma Brands.
Speaker 2:Welcome to the Accu Net Mortgage and Realty Show, getting you inside information on buying, selling, and financing your home with expert advice from Accu Net Mortgage and Realty. And now here's Brian and David Wickers.
Speaker 1:Welcome to the Accu Mortgage and Realty Show. Uh , first edition of December here. I'm Brian Wicker, licensed real Estate broker with Academic Realty Advisors and the majority owner of Academic Mortgage, along with my son David, who is our Chief Client Experience Officer at Academic Mortgage, and also one of our top senior loan consultants. If you've got a question or a comment, you can call or text us on today's , uh, on the Old National Bank Talk and text line , uh, which is 8 5 5 6 1 6 1 6 20 Old National Bank. Get old. You can also grab a podcast of today's show and any of our pass shows wherever you get your podcast normally. Well, David , uh, some headlines , uh, in, in , uh, housing market land here this last week, kind of fresh late in the week, pending home sales. Uh, this is measuring October, coming from the National Association of Realtors are the lowest they've ever been in recorded , uh, national Association of Realtor history. They, they've been tracking pending home sales since 2001. So in the last 22 years, lowest pending home sales. Do you wanna briefly explain what that means and why it is or isn't surprising
Speaker 3:Pending home sales is homes , you know, under contract that have not yet closed. And it's a, it's a leading indicator, right? You gotta be pending before you're closed. And so just maybe the easy way to think about it is who went under contract in October, who's probably gonna be sitting at the closing table in November, right ? And so you can, you can be like, boy, November's gonna be thin if October was, you know, light on everyone agreeing to purchase
Speaker 1:And what was it about October that likely contributed to this? Mm-Hmm , <affirmative> thinness in November closing
Speaker 3:It . It's that rates were going up and up and up and up all throughout October, which is, isn't that the most natural reaction there could possibly be? Yeah ,
Speaker 1:That's right. People capitulate, they go, forget it. Uh , I'm out. Push back a little bit. Well, now, luckily, as we reported last week, rates are down. Yeah . I just recorded an ad , uh, featuring , uh, 6.99% on a third of your fixed rate. Now you would have to, oh, no, no , it's , that's not the right, it was a 6.75 rate , uh, with about one in three quarters points paid up front so that the A PR was 6.95. So it's getable. Oh yeah . And we're gonna talk later in this show about, well, okay, if , if you go that route and you, and you take the 6, 9 9 rate with some points, you know, what does that say about your personal future outlook on, on mortgage rates? So we're gonna cover that later in the show. Um, and then our first time , uh, home buyer , uh, money also got cheaper this last week. It's down to 6.375. Yeah . Certain income restrictions apply , uh, for that based on your household size and the county in which you're in. Um, the a PR on , that's probably about 6.6 because you pay private mortgage insurance, which gets added into the interest rate when you calculate the A PR . But those are good developments. And so , uh, I wanna turn the page now and talk about Zillow just also came out with their top predictions for the 2024 housing market. And I know you're gonna agree with the first one, David, 'cause I think it came off of your lips as well. In a recent show, their number one prediction is that more homes will <inaudible> on the market as homeowners accept that mortgage rates aren't gonna be falling big time anytime soon. And so you agree with that, right?
Speaker 3:Absolutely. Well, because , um, I , I'm , I'm gonna torture whatever the phrase is, but if it's a , a game of chicken between you and rates or you and the marketplace, you, you as the seller or whomever is probably gonna capitulate before you know, the market comes back to you. And that's exactly what sellers are gonna do, right? Because, because rates have never been the reason. And so perhaps there's been a delay at best in people deciding to move on with their lives. But if you live in, you know, Milwaukee and you wanna move to Naples, at some point you're gonna be like, you know what? I care about more sunshine more than I care, care about rates .
Speaker 1:Well, I I just talked to a fellow boomer last night at an event and he was describing how yep , my son who has been living in a condo in downtown Chicago, but now has a child, they're gonna be moving out to the burbs.
Speaker 3:This is a real story. You're not just making this up, are you? No, I'm not making that up . This is a real person.
Speaker 1:That's why we're still in business is because, you know, people have babies even though race are high . Yeah. People have real life reasons to, to, you know, make a move. Another prediction is that home prices will level off, which will give hopeful buyers a chance to catch up. Meaning that as their income continue to increase Mm-Hmm , <affirmative> and mortgage rates come down, that affordability gap is gonna be less painful. In fact, as Zillow's nationwide prediction for home values for next year is that they'll go down just a teensy weeny bit 0.2%
Speaker 3:On mal malpractice. You're reporting a nationwide number. I , okay, okay.
Speaker 1:Alright . I'm gonna look up the, the , the local number. 'cause they do actually publish it by county. I think , uh, we'll find that on, on one of our breaks here. So let's just say that they're, they're gonna be about the same, or at least they're not gonna go up at the torrid pace , um, that we've seen the last several years. Mm-Hmm. <affirmative> . Now check this out. They said in their , uh, little article that the typical home buyer in October would've spent more than 40% of their gross earnings on their mortgage payment and all time high. Wow. Uh , since Zillow's been tracking the data, when we come back, I want you to think about, 'cause I actually did the data. I've got ACU nuts numbers, okay . For , you know, is that our median ? Is that the typical for us? Or, or you know, where , where do we stand in that? Alright , we'll come back to the , uh, Zillow home predictions for next year when right after this message, you are listening to the Academic Mortgage and Realty Show on AM six 20 WTMJ
Speaker 2:Home buying advice from the guys who know it best. This is the ACU Net Mortgage and Realty Show with Brian Wicker on WTMJ.
Speaker 1:Welcome back and thanks for tuning in to this week's show. Uh, alright . So while we're , we're talking about, hey, where are home prices going? And that's gonna help things get more affordable. I was able to pull up here on our break , uh, Zillow's forward-looking forecast for home values in Wisconsin. And this is kind of for the middle two thirds of the market. So not the bottom 35% or bottom quarter, not the top 10%. This is the meat of the market. And so they're saying , uh, that a year from now, when it comes to , um, October of 2024, on average, they think home values will be down in Milwaukee 1.2%. So if you're talking about the , um, you know, medium price home of around $300,000, they're saying, well, you know what, next year it's gonna be worth two ninety seven. Hmm . So let's call it flat. Yeah . Madison, they've got negative 1.4 , uh, green Bay zero Appleton minus 0.1. Uh , so just in general, all the Wisconsin markets are, you know, pretty flat. Yeah, pretty flat. Uh, so, you know, that's gonna be good for affordability and , uh, as people's income grow and as mortgage rates hopefully continue to come down, that's gonna be applause for home buyers. Alright. Another prediction. Oh, I was asking you what percentage of accu it's home buyers in 2023 so far through the end of November, do you think had a, were spending 40% or more of their gross monthly income on principal interest, taxes and insurance? It's called the housing debt ratio. Yeah.
Speaker 3:Uh , half.
Speaker 1:Wow. Uh, only 9%, David, only 9% of our home buyers , uh, are spending 40% or more of their gross income on principal interest, taxes and insurance. Oh, I was , whoa . Oh ,
Speaker 3:Okay. Okay. I'm sorry. The , uh, as , as just the housing parlance is the front end ratio, the just the mortgage payment? I
Speaker 1:Just The mortgage payment.
Speaker 3:I'm sorry. I thought you were talking about and the , all the monthly payments that you have. No , which is sometimes called the backend ratio. Okay. So
Speaker 1:Just , yeah ,
Speaker 3:I've actually , well , which is good.
Speaker 1:I didn't, yeah. So, so that, that's good news for our buyers. Oh, yeah . Um, now another 14% spent between 33% and 40%. So let's add that together. That's almost a quarter , uh, of people. But that 33 to 40% is kind of, oh , you know, you're not spending, you're spending a big chunk, you know, a third to four tenths, but then check this out, 71% of our buyers so far in 2023 are spending 30% or less of their income , uh, gross income on their house payment, which is considered affordable. That is the definition of what's an affordable mortgage payment. This is the federal government. Habitat for Humanity use is the same , uh, measurement. So if you're spending 30% or less of your gross income on your house payment, that's considered affordable. You over there with the pressure .
Speaker 3:Let me , I'm gonna , I'm gonna pile on in a good way. Because the mortgage carpenters at acuate, we are always , so mortgage lending in 2024 and beyond is pass fail . There is no a B, CD level. And so because we always want to get our clients the best rate and the lowest cost, and what you're describing is only the income that we list on the application. 'cause many times, and I Well , that's true.
Speaker 1:True . Yeah.
Speaker 3:You got a point there because, so for example, yeah, I have a $75,000 salary and a $20,000 bonus. Well, hey, if I don't need that bonus income and we're just silent, that's gonna get you probably a better rate using a special income specific program. Right . So when you're , the numbers you're describing, it's, you know, ACU clients are even stronger.
Speaker 1:They might even, they might be artificially high, you're saying because of our selective use of income in some situations
Speaker 3:Streamlined.
Speaker 1:So , you know, and it's, so is it because, is it because our clientele, the people that get mortgages from us? Or is it because it's the Midwest and , uh, you know, home prices aren't as expensive here as they are on the coast? I don't know exactly why Our customers debt income ratios, you know, people aren't spending as much on their home as what Zillow is seeing, you know, nationwide. They're saying, Hey, half of the people spend 40% of their income on just their housing payment. Any ,
Speaker 3:Any time California or New Jersey gets included in the calculations, it's gonna throw off the, the dollar amount.
Speaker 1:Couple of other quick , uh, predictions here from Zillow. The new starter home is gonna increasingly be a single family rental. In , in other words, they're saying, you know what, Hey, you're renting an apartment, you know, you just got married or whatever, and now you want to get into a single family home so you don't have to hear the noisy neighbors and all that stuff. Well, you might not buy a home in 2024. You might rent a single family home. Eh , and where might some of those rentals come from? They're saying, well, some people are going to, when they move up, right? When they move from that condo , uh, downtown out to the burb, so they have room for their dog and their kids, maybe they're gonna hold on to that first home that they have 'cause the rate's so low and maybe they're gonna turn that into a rental. So who knows how big of a trend that's gonna be, but it's something. Um, and then there are other prediction. Can
Speaker 3:I just , can I just on that math quick is, you know, yeah, we're gonna hang onto the rental or, you know, our previous place. I always like to point out to people, it's like, or you could sell it and walk away with many, many thousands of dollars from your proceeds or, you know, maybe clear one, 200, $300 a month. Most when they get down to it, most people are like, I'll take the cash, please.
Speaker 1:Yeah, yeah. It's expensive. Uh, the last thing and then we're gonna come back. You've got some story , some real life stories of , uh, deals you've pulled out of the jaws of defeat into the victory lane here that we're gonna get to next. But the last thing is they're saying, because there's still gonna be such a relative dearth of listings in 2024, maybe home buyers are gonna be much more willing to buy the fixer uppers. You know, and it's like , ah , I don't want to , I don't wanna have to remodel the kitchen. Maybe they're gonna buy the ugly ducklings in 2024. So who knows what's gonna really happen when we come back? David, let's get to your stories about , uh, people with bad basements. You're listening to the Academic Mortgage and Realty Show on AM six 20 WTMJ,
Speaker 3:Getting
Speaker 2:You into the home of your dreams. Here's more of the Accu Net Mortgage and Realty Show with Brian Wicker on wtmj.
Speaker 3:Welcome back to the Anette Mortgage and Realty Show. I'm David Wicker. That's Brian Wicker over there. Uh, dad, you uh, you, you, you teed me up. 'cause I've, I've had, what did you say? I have, I have saved , uh, some people from the jaws of defeat,
Speaker 1:Jaws of defeat, right? Yeah. You never wanna pull somebody out of the jaws of victory. You wanna pull 'em out of the jaws of defeat into the winner circle. That's what we
Speaker 3:Want . Yeah. And , and so, you know, I remember listening to you do the radio show, you know, 10 plus years ago, and guess what a problem is? Basements. Hmm . It foundations. And it was , it's true then it's true today. It'll be true in the future. And so I have , I have two clients, actually at least two, I feel like I have been the chief basement officer, you know, okay . Throughout the month of October and November.
Speaker 1:Not a bad thing to be.
Speaker 3:Well, so, so one, I'm gonna, I'm gonna describe the, and they fixed it story. Okay . So my clients, they went, they wrote the offer. This seller had lived in the home for, I'm not kidding, 68 years. And they , uh, but , and so they , they closed last week. And with the, with the buyers, I said, you will have to live into this house until 2091 in order to be there for 68 years. <laugh> that
Speaker 1:Mind a little bit. How old are these buyers? Are they young enough to possibly
Speaker 3:Make it ? Uh , they , they are clients of Crosby funeral homes . So it's actually the son who is selling , uh, the parents' home. But they had owned it for 68 years. Oh ,
Speaker 1:Okay . Okay. Okay.
Speaker 3:So, so they disclosed the seller said in the listing, we have a bad basement, but hey, we are ready to fix it. Oh. And what was particularly thoughtful about this is we all knew that going in and, but we did all the other homework. We, we documented the buyer's income, their down payment, we got the appraisal done, everything. So that the last piece of the puzzle was, we are ready, let's fix the basement now. Okay. And so they , uh, had the quote lined up, they had the company ready and after, you know, we shared that we're ready to rock and roll on the mortgage, they got the basement done. I think they were doing some bracing and Yeah , maybe
Speaker 1:Some . That's how to do that.
Speaker 3:Oh , okay. With
Speaker 1:The property, you know. Yeah. It's , it's kind of amazing when you see how strong those things are, it's like, wow, that's better than new.
Speaker 3:And so they got that done, man. It felt cool because what we did, the appraiser obviously, you know, saw the listing and was also aware that hey, the basement was gonna get fixed. Mm-Hmm . <affirmative> . So they, that is called subject to an appraisal world like Mm-Hmm . <affirmative> , Hey, this is the value of the home so long as you actually complete the basement repairs. Yep .
Speaker 1:So , and we need that done before closing. You can't do that after closing 'cause there's no weather related reason to hold back that money. Alright . So, so
Speaker 3:Much cost . Well, so let me get to that. But the timing is what was fancy. The basement was gonna get done on a Saturday. We knew that the previous Thursday. So we pre-scheduled the appraiser to return to the property that Monday. Mm-Hmm . <affirmative> after the work gets done on Saturday so that we're not losing time 'cause it's still pretty tight closing. We and appraiser, you know, walked back out there that Monday, you know, declared Yes, you did fix the basement and we closed that three days later.
Speaker 1:Fantastic.
Speaker 3:The reason why , um, I think a lot of basements are expensive or fixing them is expensive. They can be because , 'cause the seller then on the closing disclosure, I saw the seller was paying the basement company out of the proceeds from the sale of the home.
Speaker 1:Okay . Yeah.
Speaker 3:And that was the juicy number of $28,000. Ouch . To fix the basement. Okay.
Speaker 1:But hey , I'm just going get inside the mind of the son who is the seller here. It's like, Hey, I'm happy to do this. I just don't wanna front the money.
Speaker 3:Exactly .
Speaker 1:And so I'm gonna wait until I have a buyer in hand. I'm gonna do the right thing. I'm gonna disclose. And thank goodness folks that they did disclose that. I mean, you , you're supposed to Right, right. If you know you have a bad basement, and then if your real estate agent knows you have a bad basement, they, even if you didn't want to tell, they're supposed to tell. Right. Alright . But go on. You got more meat on this phone .
Speaker 3:Well, what I was gonna say was , um, that 28,000 bucks, it's like no wonder, you know, some sellers don't want to address the basement before closing. Or no wonder some buyers maybe walk past a concern about a basement. 'cause you know, just stroking a check for $28,000. You'd imagine if my clients who were probably, I think they were putting down maybe like 5% or 10% down, if this came up a year later or two years later and suddenly they had this bill , uh, to fix the basement,
Speaker 1:That would be devastating. Uh ,
Speaker 3:Out , yeah, out of sight is out of mind, but not out , but is no less concern,
Speaker 1:Particularly when
Speaker 3:You in this basement. Well
Speaker 1:Think about all the transactions that got done in 2022, especially where the people were waving inspections left and right. Um, you know, that's scary on a hundred year old homes or 75-year-old homes. Exactly . 'cause guess what? They , you usually have some kind of a basement problem.
Speaker 3:So, so now , uh, so that's my first basement story. I have the second basement story of Mm , I have a solution. I have a crafty Brian esque solution for this other basement story. I'll tell that after , uh, this news break . Now it's time to turn it over to the 24 hour news desk.
Speaker 2:Don't break the fact to get into a house. Back to the ACU Net Mortgage and Realty Show with Brian Wicker on WTMJ.
Speaker 1:Welcome back and thanks again for tuning in to today's show. I'm Brian Wicker, the elder. And that's , uh, my son David over there. The younger Tyler , more handsome wicker. And , uh, David , we're talking about problem solving . I think it was last week. You , I don't remember if you told me on the air or off the air, but you were listening to some coach who said, Hey, loan officers, loan consultants, you're not really in the mortgage lending business. You're in the problem solving business. So get used to it. And it's like, yeah, boy does that ever ring true? So you've got another story here where , uh, a basement problem was not disclosed upfront . I'm getting the feeling and it kind of came up somehow during the transaction. How , tell us about it.
Speaker 3:Well, and so the ultimate backstop in all of this, so I described the, hey, they were gonna fix the basement from the get go . This other story is, it's so this buyer was not concerned about the basement. Okay. The appraiser was not concerned about the basement, but as is in all appraisal reports, took pictures of every part of the house and ultimately the, the third party, the underwriter and acuate . Okay . We raised our hands and we said, okay, we care about the, you know, quality and status of this basement.
Speaker 1:So some , the pictures , what did , what did the pictures reveal? What the black substance on the walls is this a moldy ,
Speaker 3:So maybe , maybe some black substance, maybe some step cracks in the basement walls. And so the prompt from underwriting was, can you please tell me what's going on with this basement? Nobody has provi , you know, it didn't come up on inspector . It's
Speaker 1:Appraiser's job. The appraiser's job is just to document the condition of the property. He's not supposed to diagnose that would come from an inspector.
Speaker 3:Exactly. And so in working with the agent, we , uh, prompted an inspector to go out and, and give us a report and dis , despite a
Speaker 1:Basement specific Inspector
Speaker 3:David basement , general specific , uh, this was a generalist, I'm sorry.
Speaker 1:Okay . Regarding a general inspector. Not a specific, it wasn't Gaddi who's a famous , uh, basement inspector here in Milwaukee. Okay. So it's a general inspector, same guy that did the inspection for the buyer? Or was there
Speaker 3:No inspection? There was no inspection Ah-huh ? In the contract , uh, for, you know, a contingency.
Speaker 1:Okay.
Speaker 3:The inspector, you know what , what was interesting about his words were this may be a concern in the future, you know, if this, you know , if there's water, if there's a big rain, they just weren't comfortable declaring, you know, the basement a hundred percent healthy. Is it okay today? Probably. But they're just not willing to, you know, put their reputation, I guess. Well
Speaker 1:Plus they're not a specialist. I guess my question would be why didn't we have a basement specialist go out there? Any , not our call or
Speaker 3:Lack of , uh, availability on their calendars more than anything. Okay.
Speaker 1:Alright . So among basement on , so, so what
Speaker 3:Happened ? So, so my, my Friday Brian esque solution was the contract price for this house, I'm gonna just use rough numbers, was two 50 . Okay. The appraisal came in at 300.
Speaker 1:Oh my god. A
Speaker 3:Lot of rules . Do you wanna try to , do you wanna try to guess? You, you, I mean, I'm putting you on the spot here a little bit, but my, my idea that I proposed on Friday, they're , they're mulling it over this weekend. Yeah. The, my proposal was your contract's two 50, the house is worth at least 300. Why don't we raise the purchase price on the contract to Yeah. Two 80 and then let's fix the basement. Yeah, let's,
Speaker 1:Because now you'll have money,
Speaker 3:Because now you can use the liquidity event as the cool kids might call it. Mm-Hmm, <affirmative>.
Speaker 1:Yeah. The sale of the house.
Speaker 3:The sale of the house that the seller can pay for it. Because what I, you know, what I, the note that I made as I was thinking about the story was sellers are always thinking after they get the contract price, they, everybody starts doing their math. Like, I'm gonna walk away with X dollars. And they anchor to, I'm gonna walk away with X.
Speaker 1:Yeah. What's my net ?
Speaker 3:Right? And, and so, you know, things like fixing the basement starts to chip away maybe at what the seller, you know, thought like, oh, well I'm gonna be able to pay for Christmas presents 'cause I'm gonna, you know, walk away with this much money from the sale of the property by increasing, obviously this house in my description, if you're selling it for two 50, but it appraises for 300, you have
Speaker 1:You
Speaker 3:Under sold , you're getting a discount. Giving a discount as a seller.
Speaker 1:Well, you , you have, you may , maybe you had an inkling that there was a basement problem or other condition problems. I don't know. But , but here's you kind , go
Speaker 3:Ahead. Well, so , so they're , so they're mulling that over, but here was my then pitch to the buyer, you then basically get to finance the repair of the basement. Yeah . That instead of stroking a $30,000 check two years from now to fix your basement instead roughly if you're gonna borrow 30,000 ,
Speaker 1:Do you know what the price is on for the fix?
Speaker 3:Or you just using , using it ? Well , I'm just , if the , if my other example was 28, let's just pretend that this one's 30.
Speaker 1:Oh , okay.
Speaker 3:I , I'm saying instead of stroking a $30,000 check, the payment difference is only about 200 more dollars per month. If you're gonna then buy the house for more, borrow a little more so that the seller can pay for it, you get a payment instead of out of pocket . Alright . So they're Chief basement officer. That's me. More stories like that.
Speaker 1:Tell us how, how that turns out next week. So , um, when we come back, David, let's talk about what you'd mentioned ear earlier. Uh , maybe you didn't mention on the show, maybe it was before we started the show, talking about giving people choices in light of interest rates that are coming down. And , uh, we'll talk about that when we come back. You're listening to the Academic Mortgage and Realty Show on Wisconsin's radio station. AM six 20 WTMJ.
Speaker 2:Important home buying questions and answers you can count on. This is the Accu Net Mortgage and Realty Show with Brian Wicker on WTMJ. Thanks
Speaker 1:Again for tuning into today's show. Uh, since we started Accu back in 1999, gonna be coming in closing in on the 25th anniversary here, this coming summer of 24, we have always , uh, liked the idea of giving our clients choices. And so we developed a super cool spreadsheet way back then and we've refined it ever since. So that we're always giving people three choices , uh, low rate with higher closing costs. The middle column typically has maybe a middle of the road, maybe with no points or very little upfront costs . And then the third column has really low cost , maybe even no cost . So David, tell us about a , a customer you're working with. What, what choices did you give that customer and what does that all mean?
Speaker 3:Okay, so my, what I really enjoy about finding the best option for a client, I , I wrote down is your mortgage lender asking follow-up questions, which is true both to make sure that we can actually get the loan done for you, but then also get the best rate and cost combination. And so for this client, as I, you know, zeroed in on what can I prepare for you, it was, you know, are you a first time home buyer? How many people are in your household? You know, hey, you told me your income was this, does that break down at all between, you know, base salary and uh , any very , you know, commission bonus, any of that jazz. Because
Speaker 1:Sometimes I'm who might choose to use less income to qualify you for a special program. Is that why you're asking?
Speaker 3:Exactly. So, so at the end of this, so this client shared their income was $107,000, which I didn't you qualify for nothing special. You are regular. Yes.
Speaker 1:Oh, because they're a two person household.
Speaker 3:You , uh, single person.
Speaker 1:Okay. Single person. Okay.
Speaker 3:So, you know, it's like, congratulations, you make too much money. Like at some point it's, you know, good problems, right? That's
Speaker 1:Right. You're, you're like in the normal, you're , you know , congrat or above average. Congratulations for being above average.
Speaker 3:You are above average. So, but we still offer choices. And , and of course what I prepared for them was actually as I think as you looked at it, it's a pretty wide range. It was like, you want that low rate? I got 6.5% on a 30 year fixed. They were putting 5% down. So with the PMI, the A PR was 6.9.
Speaker 1:How much in interest paid in advance? Otherwise call points
Speaker 3:In my opinion, too much. If you would like to get all the way down to 6.5%, $7,500 in points.
Speaker 1:And this is an a loan amount of ,
Speaker 3:On a loan amount of 2 85.
Speaker 1:Okay, that's a lot of points.
Speaker 3:Well, but is like, how would you like your filet Mr. Wicker?
Speaker 1:You like puck , like it crispy? Yeah. Hockey puck. 'cause that's how I like it. And, and remember folks that the annual percentage rate takes into account both the cost of the monthly mortgage insurance. So that's gonna distort this particular example. And, and then it also takes those points and spreads them out over the very thinly over the entire 30 years. So this is not probably the best way to make this decision. But what's door number two, David?
Speaker 3:Okay, so door , door number two, kind of right down the middle. Well, here I'm gonna say it . So if proposal one was 6.5, the total other proposal three was 7.5
Speaker 1:Ever want that?
Speaker 3:But that's because it was only, that only had $650 in total closing costs. And that's the give and take, right ?
Speaker 1:The diff the difference between the first one, the total closing costs or loan costs, we call 'em total loan costs. Were what versus what we got a delta here
Speaker 3:Or a difference of it was it $8,200 difference in the closing costs ? And
Speaker 1:That's, so the question is, should you spend Mr first time home buyer $8,200 more to get the super trophy rate of six point a half percent go on. And then you give him a middle,
Speaker 3:In the middle option, you know, it was 6.99%, right? Not too hot, not too cold. That total loan cost $3,300 paying a little bit in points. 'cause you know, boy , 6.99 to get the trophy rate
Speaker 1:Is
Speaker 3:Six nine . That feels so much better.
Speaker 1:And what's the payment difference, sir, between the uh, trophy rate of 6.5 and the seven and a half with the super low closing costs ? What's our payment difference?
Speaker 3:The payment difference is a whopping $191 per month.
Speaker 1:So what kind of math did you do to help this first time home buyer figure out where they were going? Well ,
Speaker 3:It's a, it's, it's a break even analysis, right? It's like if you're gonna dig yourself this $8,200 hole,
Speaker 1:It's an right to get that low risk if you're gonna invest,
Speaker 3:Okay, invest,
Speaker 1:If you're gonna pay upfront to get this lower payment at
Speaker 3:Some point you'd like to make your money back. The Yeah . So the answer to that was 42 months or about three and a half years.
Speaker 1:Okay. So it's, so for the first three and a half year , I'm gonna say it back to you this way. So for the first three and a half years of the loan, the 6.5 is actually the loser because Yeah , because you're, you paid so much money Yeah. You, you are waiting to make back that money. Alright , why don't we come back, we'll finish up this story and probably can dig up one more. You're listening to the Academic Mortgage and Realty show on Wisconsin's radio station AM six 20 WTMJ.
Speaker 2:Find a place to call home without the headache. This is the
Speaker 3:Acuate
Speaker 2:Mortgage and Realty Show with Brian Wicker on WTMJ.
Speaker 1:Welcome back. And we're talking about giving people choices, which what I I is what I think I I enjoy that as a customer, right? Whatev , whatever the , whether it's mortgages or financial plans or cars, it's like, oh , you know, gimme some choices to pick from. Yeah. And you're describing helping a first time home buyer putting 5% down whether they should, you know, fork over a lot of money and get the low rate. What is the imp what is, if the person picks that solution where they're gonna pay $8,200 to get the six point a half percent rate and the lower a PR , the lower annual percentage rate, do you wanna say the a PR ? Just so we
Speaker 3:6.9%
Speaker 1:A PR , what would that say if a buyer chooses that option? What does it say about their outlook?
Speaker 3:You , you are hoping that rates stay the same or go higher. You believe,
Speaker 1:Well , you're believing, you're believing that rates are gonna go higher. You're not hoping necessarily, but you're placing who
Speaker 3:Doesn't wanna feel right if you Well that's true because remember, I remember we had clients , uh, when rates were really low that got like 1.99% on a 15 year fixed. Yeah. And we're just paying through the nose to get it. Well they ended up being very right.
Speaker 1:Yeah. 'cause they weren't gonna go any lower from there. Right. So, alright , so in , in , in general, if you are of the belief that interest rates are gonna come down, in this example, you said my break even point is 42 months. So if I as a consumer go, you know, from everything I'm reading, hearing from what David's telling me, I think rates are gonna , will come down all by themselves. You know , maybe from that seven and a half down to six and a half . And , and , and if I believe that's gonna happen in the next 42 months, then the better choice is the high rate with the only $600 in costs , right? Yeah.
Speaker 3:Which is an ugly choice. And I, you know, I was , I I I shared that as much with clients. Can I just say though, my, my , my , my second sentence is, and if I'm wrong, and rates don't come down between now and the next 42 months at least you still got to keep $8,200 in your pocket for the next three and a half years.
Speaker 1:Yeah. Maybe you find something else useful to do with that. Yeah. Well, you know, as you saw , I, from everything I'm reading and from what we've witnessed in the last, you know, month, thank goodness that November wasn't like October and mortgage rates have started to de descend largely because we continue to get some friendly inflation readings. Remember folks, that's why interest rates got high, right? Was because inflation's up and inflation's the enemy of interest rates. Well, so now in fact, we just got another inflation reading last week. Uh , the fed's preferred one, they were like, yep . Still kind of getting under control. Mm-Hmm. <affirmative> , uh, now this coming week we're gonna have the jobs report. And as usual, if the jobs report is good and a lot of people got new jobs, that's gonna make prices go up. 'cause people have more money to spend. And so that would be bad for rates .
Speaker 3:What expectation?
Speaker 1:Yeah . What's the expectation?
Speaker 3:Yeah. So in October we added $150,000, 150,000 jobs. The forecast for next, well this coming Friday is we're gonna add 170,000.
Speaker 1:Oh . So a little better than last year. So it's all about expectations. So yeah . You know , the , right now interest rates believe that the economy's gonna add 170,000 jobs, which is still a lot of jobs. Just by the way. Oh , that's , um,
Speaker 3:GDP came in for the third quarter at 5.2%. That is an enormous number
Speaker 1:Gross domestic product, which is the sum of all goods and services produced by our great economy. Yeah. Yeah. That is, that is a lot of growth. And so I , I read something online now , I , I didn't read the article, but talking about, you know, maybe the Fed is gonna do one more rate increase, things are going so good, you know, in terms of the economy slowing down or I don't know what, did you
Speaker 3:Read that? Uh , well, I'm , I'm just tell to be the nerd in this conversation, the two year tre is telling a different story, which if it is a two , anybody would like to nerd out on what that means, just gimme a call and we'll talk it through. But okay. Headlines are one thing, which markets are another. I
Speaker 1:Had a , a call from another client where it's like, well, what , what about an arm? Well, you know what, arms aren't any good right now because short-term interest rates are higher than long-term interest rates. Yeah . So that's why arms are kind of non-existent in the conversation.
Speaker 3:Uh , can I just , at this can on , on my client who I was describing these options to , uh, worked in corporate tax planning. And so it was like one of those, like, we're gonna shred the spreadsheet together. It's like, we're gonna analyze all of this. And I enjoyed that. 'cause, you know, I like Excel spreadsheets as much as anybody else. And yet to your earlier point, we're talking about what does he perceive the , either the market or, you know, rates will do in the next 1, 2, 3 years. Which,
Speaker 1:Because he's, you know, right .
Speaker 3:All right . Smart, smart guy and yet isn't . So what is he ,
Speaker 1:What is he gonna choose?
Speaker 3:Uh, as lots of my clients do? Middle of the road.
Speaker 1:Okay.
Speaker 3:Not too hot, not too cold.
Speaker 1:Nine . That's why the nine just , it sounds, you know what, I got a six handle that makes me feel good. Exactly. And , and , and I , and , but I didn't go hog wild. Right? All right . I like that choice. All right . That's all the time we've got for today's show, folks. We'll be back here. Same bat time , same bat channel next week. You've been listening to the Academic Mortgage and Realty Show. On the biggest stick in the state AM six 20 WTMJ. The proceeding was a paid program. Advice and opinions expressed during the Accu Net Mortgage and Realty Show are solely that of the host or guests of academic mortgage and academic Realty advisors, and not WTMJ Radio or Good Karma Brands. Milwaukee, LLC.