Episode 20: Experienced Mortgage Banker’s Thoughts on Today’s Market
What action should you take? Can you make a competitive offer? How do I choose? Mortgage Banker, Tim Harrison has seen many market cycles in his 25+ years in the industry and shares his wisdom with us.
Takeaways:
Surprisingly many people are deciding to refinance
Interest rates shouldn't determine if you buy
Buying a second home may be for you
Five ways to make a competitive offer in today's market
Interview your lender
Did you watch our video on our Backyard Kitchen Makeover? Check it out here!
The Question: What do you think of today’s Real Estate Market?
Lori was asked a curious question by one of her property inspectors.
“Isn’t this the most interesting real estate market you’ve ever been a part of?”
And Lori thought about it, and said 2007-2010 was more intense for her personally because she has just entered the real estate market world. And this was also an incredible question for Mortgage Banker, Tim Harrison.
Lori Alvarez has known Tim Harrison for almost 15 years, since the beginning of her Real Estate career. Tim has been in the home lending service for about 28 years.
Tim Harrison is from Cornerstone Home Lending, previously with Broadview Mortgage for 21 years. He is a Mortgage Banker and holds a Finance Degree from Long Beach State.
What is a Mortgage Banker?
Not sure what that is?
A Mortgage Banker, in Tim’s experience, handle loans that are from 1-4 units, owner occupied refinances, purchases, condos, and “all that good stuff.”
Compared to a lot of other lenders out there, he uniquely has a lot of investment properties and “brings a lot to the table when it comes to knowing how to buy, sell, 1031 exchange, and all that good stuff on investment properties and well as mortgages.”
Tim has ventured through a few economic cycles in his experience.
New York and California have the highest volatility price. They also have the highest increase in prices since 1974.
Tim said, “It’s sort of normal that we have these corrections. The economy is always going to go through a slowdown, prices will soften a little bit, and then go back up when people are employed.”
And Tim admits, this 2020 economy surprised him. “I called it absolutely wrong. I had buyers getting pre approved ready to take advantage of better prices when I saw COVID hitting Yeah, I thought that there would be unemployment, we would go into a slower economic cycle.”
“I thought for sure it was going to slow down the market. And instead, again, because of COVID, we have some of the lowest rates in 50 years, people are refinancing putting money back into their pocket for the first time, during a slowdown in high unemployment like that consumers have reduced their credit card debt. Mainly when you're not going out and drinking and buying and partying. What happens to your budget?”
Tim brings up a great observation about the sudden change.
He suggests that perhaps there was pent up demand for millennials. Many have no entered the home ownership market and remain living with their parents, saving money up, and waiting for a hopeful deal.
This strange time has also forced many people to slow down. Many individuals live such a busy life that COVID has caused many to slow down and reflect on life plans. Or perhaps reconsidering their living space as they adapt to educating in the home, entertaining within the home, longing for more outside space, and so on. “Houses got real small, real fast. And so now they're looking for bigger houses with more outside space […]”.
Just to show how crazy demand is, Lori listed a property for rent at 9:00 at night with only one photo. In the morning she already had 40 calls, 80 hits, and a full voicemail box.
Do you see rent increasing or decreasing?
Tim believes rent has gone up to some degree since COVID-19 and renters are certainly impacted. There is not enough supply for the demand. However he said, “I think rents are gonna settle down a little bit only because I think that the people who rent are the ones who again will be more impacted by this slowdown.”
With interest rate values, Tim estimates the average family can afford about $32,000 more in a house than they could have a year ago and may impact the number of people who can qualify for the homes on the market.
Builders, new construction homes, can’t build fast enough to keep up with the demand for housing. Lori shared, “Everyone is just overwhelmed with this amount of inquiries and need for real estate and desire for real estate.”
Should you take advantage of the interest rates?
If rates were to increase, and prices of properties were to go down, would you the pricing still be the same amount of money you spend?
“If you’re going to buy a house and you’re going to stay there for long term it kind of always makes sense at these sort of interest rates.”
Even if you were to pay $30,000 more over the long run, you’ll be paying much less in interest.
The best question to ask is, What does your family need right now?
Tim stated, “I have never recommended buying real estate for the short term.” Of course, if you are a professional flipper, you want to buy something that’s a long term investment.
At the end of the day, it’s a roof over your family’s head and what you can comfortably afford.
Tim listed some great thoughts on when it makes sense to buy:
It’s the right time for your family
You’re prepared
You’ve reduced other debts
You can afford this payment
What about investing in a second home?
What about doing a 10-31 exchange? Well, what is that?
What’s a 10-31 exchange?
Tim explains, “it's where you can sell an investment property owned by another one roll over all the profits into the next one, without paying taxes on what's called the capital gains, the money you made on that property.”
Many people consider investing in a second home or “getaway home”. Surprisingly second home purchases are about 34% of recent market activity.
What qualifies for a second home?
Second home qualifications can be interesting.
It used to be that it had to be:
a resort-type area
reasonable distance away
Reason being, because the interest rates would be similar to the rates you would get on a primary residence.
Keep in mind, most people need to be able to qualify for both payments in order to make that second home purchase.
Some examples of why people would want a second home are:
Sant a getaway location
Have business in New York and business in California
A traveling professor that switches between colleges
To hear about a great investment strategy including ADU’s (Accessory Dwelling Unit) tune in to the episode and skip about half way through. Or visit our previous episode:
How does someone make a competitive offer in this market?
Be we positioned on your financing
Even if you’re going to be going against other cash offers, if you have an approved loan, don’t have a bunch of contingencies, you’ll be in a good place to compete like a cash offer.
Don’t underestimate the power of a local
Reputations are built by a lender over a number of years and there is value in that. They know how to work with their buyers and keep deals together and close on time.
A listing agents job is the sell their client’s home, and close.
Tim emphasized, "they're looking at self preservation. if they take the wrong offer when they have 23 offers and shut it down and it becomes a problem on the loan, they potentially lose that listing and lose money, lose reputation, and that is not good for them. Their job is to protect the sellers and do exactly what's right for the sellers to get them the highest price. And close. Getting the highest price doesn't mean that's the best offer. Getting the best price and actually closing—that's the best offer.”
Get you application done
Get your credit score check done
Get your employment verification done
It’s important to take care of any potential for surprises. Be prepared, give a fair offer, and you can compete and be considered.
Time explains, “you're putting yourself in a stronger position to be one of the 23 that are going to get a response or at least be entertained, and potentially be accepted. It happened to me three times last week, because my buyers were better prepared than the other buyers buying the properties.”
How To Choose Your Lender
Choosing the right lender can be difficult. There are tons to choose from of all different ranges and offers. You first thought may be to shop around, searching for a better deal. Maybe you want to talk to 18 different lenders before making the decision on who to get pre approved with.
Tim doesn’t recommend that.
He advised, “If I'm a lender, and I've been doing this for a long time, I could literally tell them whatever, right? They're not in a position to lock [in a rate]. So shopping around is basically and especially shopping heavily in the beginning before you actually have a property, is a great way to end up with a lender who is not honest.”
With 23 offers on the table, that’s a lot of offers to consider. A way to narrow those down is by determining who can close, not just the highest offer. With Tim’s many years of experience he can quickly determine through a conversation with a lender if they are going to be able to close. That means they discuss cross qualifications, protecting the listing agents and ensuring they aren’t misrepresenting the sellers, overviewing the loan, reviewing the credit history, employment, and more.
So when a Lender determines where an offer stands, they can quickly return to the listing agent and share their thoughts.
Tim says, “ I’m going to go back to the listing agent say, you know what, they're not prepared to really tell you that this one is going to close. They need this, this, this and this. There's 23 other offers that are clamoring to get that property. And they're going to lose the respect of the listing agent. And they're going to go by the wayside if they're not properly prepared.”
And then, when it comes down to a bidding war, they won’t be prepared to compete, and thus, not able to close.
Competing is all about being ready to close with a decent offer.
In Conclusion
What’s one thing Tim Harrison wants you to take away?
“Whether it's for your first home, or whether it's your stepping up to the larger home, make sure you're comfortable in that in that mortgage payment, and that you're well prepared going into that, because nothing is more important than family and financial stability leads to happy families, and happy marriages.”
To hear more personal life stories and details about Tim Harrison’s first home purchase experience that’s blessed him today listen to the full podcast.
Get Started with A Lender
Are you looking to get pre-approved? Curious to know your refinancing options? Exploring an investment loans?
Contact Tim Harrison and let him know you heard about his from the Real Estate with Soul Podcast. He would love to know that you found value in this conversation!
Find out how much equity you’ve gained in your home! Call Tim and get your free equity check up.
Office Number: 909-920-5260
Lori Alvarez has been in the Real Estate Industry for almost 15 years. If you’d like to contact her call her at 909-227-4196. She loves helping families find their home sweet home.
Our podcast is geared towards our current clients. We love to give our buyers and sellers great information. Wondering about something we haven’t covered? Send us a message.
Thanks for reading. What’s going to be your next step to finding your home sweet home?
Real Estate is an ongoing, beautiful story. That’s why we love to share ours and to help you begin yours! Tune in to the next episode where we will continue the conversation.
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