A common consideration for people living in colder climates is purchasing a second home in a warmer region to escape the winter months. However, in March 2022, the Federal Reserve began increasing interest rates to combat inflation. This move caused many potential buyers to hit pause on their plans for a second home. Recently, on September 18, 2024, the Fed announced its first rate cut, lowering the Federal Funds rate to 4.75%-5%, marking a half-percent decrease. Mortgage rates, which had soared as high as 8%, are now starting to come down. As a result, more people are reconsidering downsizing or purchasing that second home.

At the same time, there has been a rise in aggressive sales tactics from mortgage lenders. To help navigate these waters, I invited my friend Frank Ellerbroek, a seasoned mortgage broker, to join today’s podcast. He’ll share his insights on the current market trends and offer advice on what to watch out for if you’re thinking of financing a second home or downsizing to a more manageable property.

On a personal note, Frank and I have been friends for nearly 20 years, and my firm has referred many clients to him over the years. I trust him because he consistently delivers great service, and I  worked with Frank when I purchased my home. That said, whether you’re considering working with Frank or someone else, I always recommend talking to more than one professional to ensure you get the best terms for your unique situation.

Articles, Links & Resources:

OptOutPreScreen.com 
Frank Ellerbroek Mortgage Broker

Transcript:

437 Rethinking Mortgages- How to Avoid Costly Traps When Buying a Second Home or Downsizing

[00:00:00] Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now, here is your host, Jason Parker.

America, I am so glad to have you tuning in to episode number 437.

The title is Rethinking Mortgages. How to avoid costly traps when buying a second home or downsizing. But before we get started, I like to start the day by renewing our mind. And I’ve got a verse here for us from Romans chapter eight, verse 28. And we know that in all things, God works for the good of those who love him, who have been called according to his purpose.

And then something fun for the grandkids. What’s the best way to fix a broken pumpkin? With a patch. A pumpkin patch.[00:01:00]

A common consideration for people living in colder climates is purchasing a second home in a warmer region to escape the winter months. However, in March of 2022, the Federal Reserve began Increasing interest rates to combat inflation. This move caused many potential buyers to hit pause on their plans for a second home.

Recently on September 18th, 2024, the Fed announced its first rate cut, lowering the federal funds rate to 4. 75 to 5%, marking a half a percent decrease. Mortgage rates, which had soared as high as eight percent, are now starting to come down. As a result, more people are reconsidering downsizing or purchasing that second home.

At the same time, there has been a rise in aggressive sales tactics from mortgage lenders. To help navigate these waters, I invited my friend Frank Ellerbrook. A season mortgage broker to join today’s podcast. He’ll share insights on the current market trends and offer advice on what to watch out for if you’re thinking of [00:02:00] financing a second home or downsizing to a more manageable property.

On a personal note, Frank and I have been friends for nearly 20 years and my firm has referred many clients to him over the years. I trust him because he consistently delivers great service. And I worked with Frank when I purchased my home. That said, whether you’re considering working with Frank or someone else, I always recommend talking to more than one professional to make sure that you’re getting the best terms for your unique situation.

So without any further ado, here is my conversation with Frank Ellerbrook. It’s my good fortune to have Frank Ellerbrook back on the show with me. Frank, welcome back to Sound Retirement Radio. Hi Jason. It’s

great to

be back. I wanted to talk to you today ’cause you sent this email out to, to warn people about some of the scams that are, or language that’s going out that people are experiencing from a mortgage standpoint.

So we’re gonna get to those in just a minute. But before I do, you know, I just want your perspective. This is an area that you’ve. Um, worked in for a long time now. You’ve been our number one go to guy for [00:03:00] referrals. When we, when somebody is thinking about getting a mortgage, you’re the guy that we send them to.

So from your perspective, what do you see happening in the housing market? How has the rising interest rates impacted things from your perspective?

Well, definitely the rising interest rates has slowed the market down quite a bit, but the, the main thing behind the market and maybe why the market is slower at this point is, uh, there’s just a real big lack of inventory and we may see a lot of building going on around us, but we have yet to ever catch up, uh, to in building from what we are down from, from the, you know, the 2008, uh, mortgage, uh, bus that we had.

And since then, you know, they’ve been trying to struggle to get more construction going on, get more housing. Uh, on top of that, we have just a huge amount of clients that are in interest rates of 5 percent or less up to 92 percent of interest rates are lower than 5%. Uh, so that has that lock in effect.

For the lot of folks that they don’t want to get out of their current house or their current mortgage due to the [00:04:00] fact that they have such a low interest rate.

These rates that we saw recently, were they some of the highest rates that you’ve seen in your career? Or have they, uh, do you remember what they got the highest?

What was the highest mortgage rate you saw in the last couple of years?

Well, uh, my career, it started in 1997. Uh, actually, uh, when I went to go buy my first house, I happened to hit some of the highest interest rates I’ve ever seen. In fact, uh, interest rates are all the way up to, uh, 9 percent back then, uh, in the early 2000s.

Yes. And, uh, I remember locking my interest rate, my first home at, uh, eight and three quarters percent. So from my perspective, uh, the interest rates haven’t been that high. Um, but boy, you know, coming from low threes, high twos, all the way up to 8 percent range or above 8 percent below that in the high sevens, that’s quite a shock to the system and, and can be seen quite high.

So there was a time recently where you saw interest rates get all the way up to 8 percent or higher on mortgages on 30 year fixed rate. Wow.

Correct. Yes. For a short [00:05:00] period of time, we recouped, uh, a long way since then. We’ve seen interest rates drop down, uh, a lot of interest rates down into the mid sevens, uh, low sevens, high sixes.

Uh, so we’ve seen them, you know, kind of in that range of the sevens, but we did see them pop up to that 8 percent range for just a short period of time.

Wow. And the Fed just recently announced back in September that, um, they, they cut the federal funds rate by half a percent. Did you see any immediate impact on.

rates when they made that announcement?

Uh, no, I didn’t. And the reason why is the bond market pretty much had that priced in. Uh, so one of the biggest misconceptions out there for a lot of consumers is they think that the mortgage rates are tied to what the feds do. And so a lot of times when the feds cut rates, we get a lot of phone calls, a lot of people contacting us going, Hey, I heard they cut mortgage rates by a half percent.

Well, it’s just not true. What happens is, you know, mortgage rates are driven off the mortgage backed securities, the bond market, and bonds are [00:06:00] traded every single day, just like stocks. And it’s what the bond market does or how it reacts to what the feds do and other economic indicators out there. Uh, so a lot of times when we were looking at this, unless it’s a big surprising cut or big, uh, surprising increase, usually the bond market has it kind of built into it already.

Where are interest rates now? And I know that we’re doing a podcast and this is just a moment in time, but are you seeing rates down below 7 percent at this point or?

Yes. You know, as a mortgage broker, I work in the wholesale end of things. So I have access to over 35 wholesale lenders out there and have access to very good interest rates.

Uh, so what we see now, uh, with mortgage rates is we’re seeing government rates down into the mid to high fives at this point in time. And then you’re probably seeing your conventional rates, uh, especially since the last couple of days with a good employment number that came out today. We’re probably seeing a lot of these conventional rates range from about, uh, Plus or minus [00:07:00] six and a half percent range.

Okay. And in the newsletter you sent out, you, there was some mention of interest rates getting down to that 6 percent or maybe even below 6 percent as kind of a sweet spot. Like as soon as, uh, they break through 6%, maybe they’re in the high fives. It seems like it’s a real motivating factor for people. Is that what we’re hoping is going to happen here soon?

Or what do you see happening there?

There’s been a lot of studies from National Association of Mortgage Brokers, National Association of Realtors, um, just a lot of economists out there, especially in the real estate field. They have done a lot of studies and they feel that the trigger point, especially when conventional loans get underneath 6 percent into that 5 percent range, that it’s going to kind of unfreeze those folks and it’s the right range of interest rates and they don’t feel it’s too high.

They’re going to start to make some decisions out there. Um, and that’s Kind of the range we’re going to see now, when does it get there? Uh, again, a lot of those, uh, associations and people giving us that information, [00:08:00] it’s stating that we could potentially see that in 2025, but I think it’s going to be a lot like this year, 2024, we saw interest rates kind of just slowly inch their way down.

And I can kind of see that moving forward. And it’s all going to be dependent in case. Uh, of any major economic indicators coming out that are bad or, uh, geopolitical things that can cause flight to safety. Uh, but I would presume that we’re probably going to see interest rates start to inch down and hopefully get into that mid to high five percentage interest rate range.

In terms of trying to time when to purchase a house, you know, some people are sitting on the sidelines because they’re hoping that interest rates are going to get down. Maybe they can’t afford a mortgage where the interest rates are, but for some people, they just want to wait. They’re saying, you know, I want to wait until interest rates come down.

In the newsletter you sent out there, you talked about the fact that when interest rates come down, then the housing market heats up and then you start seeing more and more. Uh, competitive offers coming in on houses and it can make it actually more difficult. So in some [00:09:00] ways it seems like this could be a good time to buy and then know that you have the opportunity that if interest rates do drop down by a percent or two that you could be thinking about refinancing in the future.

Is that, is that how you’re thinking of this?

You hit it right on the head. I mean, I have been preaching that for many years with a lot of my clients and my database and people that I talked to, uh, because I’ve seen so many people put the buying a house on hold and then they come back to me six months later, nine months later, 12 months later, and then they’re in shock by how much the house went up during that period of time.

And so the key is, is if you can afford and it fits in your budget to be able to buy a house, the recommendation is always sooner than later, because I’m going to go back to that, Um, thing I talked about earlier, and that is a supply. We just don’t have enough supply out there. And if you get more people into the marketplace, when rates hit a sweet spot, uh, that’s going to create additional pressure on that supply.

And we could see house pricing start to go up a little bit higher than what it is currently right now.

And that’s just [00:10:00] hard to believe that house prices can go higher. You know, I, I was out jogging with a friend of mine the other day and I told him, I said, you know, I, I know I’m getting old because now I’m telling people how a new car today costs more than how much I paid for my first house.

Have you, it’s crazy, isn’t it? Have you, have you had that experience?

Oh, are you, you know, pricing shock? Yeah. You would have never thought that, but you know, it’s. It’s, it’s so true. I, and I’m going to tell a lot of folks, I remember buying one of my first homes for 125, 000. I sold it for 250, 000 within about six years.

And, uh, when you buy a house, it’s, it’s very typical that every 10 years it doubles in value, uh, is very typical of that. And that’s, that’s why people should get into home ownership because it is one of the greatest tools to use for creation of wealth.

Yeah. And the housing market is a big part of the U S economy.

I’ve seen reports that say anywhere, almost as much as 20 percent of the U S economy is based on the housing market. So, and I don’t think that includes [00:11:00] all of the businesses like yours that are impacted by the housing market.

Yeah. You, you know, you have home Depot, you have builders, you have all, all of the trades out there that get affected by the housing market.

Uh, so there, it is a very large part of the economy.

And what kind of impact are you seeing this have on people maybe that have home equity lines of credit that have been adjusting? Do you find that people are starting to get squeezed out there that, uh, had maybe borrowed when home equity lines of credit were one, two, 3%, and now they’re getting hit with these high interest rates on the adjustable rates?

I, you know, what’s surprising about that, what happened is we really didn’t see people utilizing home equity lines of credit until the interest rates started going up. And so it already happened. When uh, you know interest rates were higher at that point But we saw a lot of folks because of their low interest rates on their first mortgages They went out and got smaller second home equity lines of credit Because by the time you blend the rates out between that [00:12:00] and what your first mortgage is They came ahead by, you know Taking a higher rate home equity line of credit to do the things they needed to do either Debt consolidate.

Um, but mostly it was a lot of home remodeling that people took those home equity lines out for.

As people are preparing for retirement, downsizing is something we often hear. Also maybe buying a second house in a different location is something that we hear from a lot of people. Do you think these higher interest rates are.

Causing people to not want to downsize. They’re staying in the bigger house for longer because they’re waiting for these interest rates to come down.

Surprising. Uh, that’s a very surprising question there because in actuality, I am doing a lot of, uh, folks that are downsizing at this point in time, a lot of baby boomers that are downsizing, they are sensitive to interest rates, but they’ve been there before they understand interest rates.

Uh, so really they got to make the move. They want to downsize into a smaller house. And so we’ve been seeing a lot of that. I would say a good 25 to 35 percent of my clients had [00:13:00] just been clients that are actually downsizing out there. And again, they’re doing it, but they’re able to carry some of the equity from the current home to keep that next loan lower.

And they know that either they’re going to pay off that loan or take the opportunity to refinance when they can.

In your email, in the newsletter you sent out, it said, we’re sadly seeing some of the most significant violations of the consumer protection laws and ethics in the mortgage industry. And this is due to the lack of enforcement and desperation from the sector after these difficult years through inflation and higher rates.

And then you give a bunch of different things to look out for. And so I was hoping we could just educate our listeners, help them know the things that they need to look out for. The first one that you have here. Is a no cost refinance. You want to talk to our, our listeners about this. No cost refinance.

Yeah, there’s, I always have to say it. There’s like, we always heard there’s no free lunch, right? Well, you know, there’s no free, no cost refinances out [00:14:00] there. And the reason being is, is to achieve that no cost, you have to go up higher in interest rate. So the lender can get a higher margin off that loan to pay for the closing costs in the transaction, or maybe even some of your prepaid items for your escrow account, taxes, insurance, and those types of items.

So what happens is that, yeah, you may not have paid those costs directly on top of your loan amount, but what you are doing is you basically finance those costs into your interest rate. So it’s not a no cost scenario because you took a much higher interest rate to do that. Okay. Now that can make sense.

You know, if we have some folks out there that are looking to do something rather quickly, like do something with a mortgage within 12 months or we know refinance is going to happen, then what we can do is educate them on how to do a low cost refinance could potentially benefit them if they’re going to sell their home or, or do something with that loan in a short period of time.

But we also educate them to let them know that this is not free. [00:15:00] They’re paying a higher payment to obtain that.

Okay. The next bullet point here was equity stripping. What’s that?

So equity stripping is when you have loan officers out there trying to basically churn up business by promoting, uh, Hey, we can get you this refinance.

We can save you a 125 a month and it’s going to cost you 13, 000. Well, they don’t tell them it’s going to cost 13, 000. Basically showing them the savings and by the time they actually see what the costs are, they’re usually knee deep into the loan. And then what happens is because they’re, they’re paying these absorbent fees to get that slightly a little bit lower interest rate and also just a smaller, just a little bit smaller payment.

That’s being added on to their loan balance. So it’s basically stripping the equity out of their property. And it’s kind of the same thing, or there’s another term for that. They’ll say churning, they’ll actually churning the loans out there where they try to refinance their clients as soon as possible.

But it needs to [00:16:00] have a net tangible benefit to the client. And that’s one of the things we always do is we’ll compare their current mortgage and always compare the net tangible benefit before refinancing.

The next one you have is bait and switch.

Oh, this is, this is the big one. Uh, this is what’s going on.

I’ve had several clients that I’ve obtained because of the scenario. Uh, their servicer, um, which again, a servicer doesn’t own the loan. Fannie Mae, Freddie Mac and conventional loans or Jenny Mae for government loans. Uh, they typically don’t, they own the loans and you have the servicer who you’re making the payment to.

So either a servicer or, uh, folks that are getting lead generations, Uh, generated leads and calling clients and there’s, you know, they’re going to him and saying, Hey, we can get you this interest rate. And so I’ll have a client call me up and say, Hey, Frank, I’m getting this interest rate out there. Can you beat this interest rate?

And as a broker, it is very rare that I get beat out in interest rate. It is super, super rare. And so when I start to see something that doesn’t make sense and I say, I just don’t know how [00:17:00] they’re doing that. We need to get a loan estimate for that to understand, you know, what it’s really costing you.

What’s going on is, uh, they’re calling, stating what it’s going to be, uh, and they’ll maybe provide a loan estimate, but what they’ll do is they’ll check on that loan estimate that the, you know, loan is not locked, and so by it not being locked, that means that pricing is not effective until the loan is actually locked, and so at the end, what we’ve seen is they go into the closing disclosure, and then at that point, the loan finally to get locked, and it’s a much higher, Fee for that interest rate.

It wasn’t a low cost or it wasn’t the interest rate that they wanted And so they kind of feel like they got to move forward and it was at the very end of the transaction So luckily i’ve caught several of my clients They got a hold of me once they saw the closing disclosure and it is a refinance They didn’t need to move right away.

So they basically canceled the transaction out And we are able to move them over and get them a lot lower cost option. And actually a couple of them, I just told them to wait. I just didn’t make sense for them. So again, [00:18:00] it’s just, you’re going to get a lot of folks out there because of lack of regulation and enforcement.

Uh, they’re going to try to trick a lot of clients into getting into scenarios. And sometimes it’s, it’s kind of a sad scenario because some people will actually spend that payment that they were supposed to make in that refinance. And they get kind of stuck to where they got to refinance. And there’s a lot of that going on out there.

Yeah. Yeah. It’s hard to back out of a loan when there’s so much emotion riding on trying to get into the house that you want to live in. And when you’re that far into the transaction, people just, they just like, Oh, let’s just keep going. And they just kind of throw up their hands and accept the higher costs, but it’s at the last minute.

That’s too bad. The next bullet point, the next thing you said to watch out for are free refinance again, if rates drop later.

Yeah, this is another one. It’s just another tactic to tell people, Hey, you know, if you refinance with us, we will give you a free, a free refinance in the future. So it’s very easy to understand that once again, it wasn’t free to begin with.[00:19:00]

Um, if you’re trying to do a low cost or if you did that initial refinance, but what they’re going to do in the future is they’re going to build that free ride, refinance into the rate, into the margin again. And so instead of you getting the lowest available interest rate, what you’re going to get is an interest rate that has some of the fees built into that overall margin.

So again, it’s not free. Uh, so it’s just the way the words are being used and why we always advise with clients is you should be getting. a cost analysis of each loan product and the interest rates with the different interest rate structures. And that allows you to make an informed decision. Is it makes sense to take this lowest cost option or does it make sense for me to go with a slightly lower rate and get a better benefit out of it?

Uh, so again, it’s never, ever free. And, um, you’d never want to take a mortgage just because you think you’re going to get a refinance that’s going to be free.

Okay. Trigger leads. What are trigger leads?

Ah, this is the, this is another big one. [00:20:00] Uh, so what happens is, uh, the federal government allows the credit agencies, TransUnion, Equifax, and TransUnion, whenever there is a mortgage credit report pulled, they sell that information to third parties so that the third parties get that information, understanding that you are entering into a mortgage transaction.

So these trigger leads, what happens and literally we timed one out, we pulled a credit report and client was sitting right there and literally within 90 seconds, they were getting text messages and actually got a phone call of third parties trying to convince them why they should be using them and that they received a copy of their application, which is Completely not true.

So what they’re doing is really, they’re using every strong arm tactic they can to get you into the transaction because they think they can save you additional money. And it is just a terrible thing that goes on in the industry, and it’s not the mortgage industry’s fault. fault is really [00:21:00] the federal government, and they are trying to pass a law here in 2025.

There’s a bill out there trying to get trigger leads taken away. And we all want that because it just really confuses the borrower when they’re being attacked by so many different lenders out there trying to get them to move forward with them. So my biggest. thing I tell folks, and this is the biggest takeaway I can give your listeners today is, uh, please, uh, before you even go into a financial transaction, go to opt out prescreen.

com and, and, uh, get out of any trigger leads or, uh, do not call registries, uh, get, uh, please put your number on those. Uh, the reason being is, uh, it takes up to 10 days once you register for those. Um, but, uh, that will take away those trigger leads. So you’re just not going to be barraged. Um, I, I literally heard, uh, they counted them, it was up to 65 contacts that somebody got within, within about four to five days.

And so they’ll stop after a while because they realize that they don’t get you in the first few days. Uh, they realize that they’re not [00:22:00] going to have you. So, but it’s just that initial point of when that, uh, credit report is pulled.

What’s the name of the website where people can opt out?

OptOutPrescreen.

com

OptOutPrescreen. com Is that a federal website or is that a private website?

I believe, I would have to check. I’m not 100 percent sure on that one.

Okay. You’ve shared with us a lot of the tactics or a lot of the things that people are experiencing when they’re trying to get a loan. What, uh, how do people navigate all of this?

I mean, what do they do to make sure that they’re making the best decision for their family? And they’re working with mortgage people that are really above the board, that are looking out for their best interest and not just somebody trying to sell them, you know, the highest, the highest commission product, or just trying to get them through a process without really caring about what’s happening.

Yeah, it’s I think the best thing to do. And I think this is always good things. to tell folks is don’t believe everything you see on the internet. [00:23:00] And so the internet is probably not the best place to go shopping for a mortgage. I mean, actually putting your information out there and shopping for a mortgage, because again, you may not know who you’re really dealing with.

Uh, I always say, you know, get a referral or work with someone that you’ve worked with before that’s done a great job for you. And as Rhett pointed out, Reputable out there. And some of that takes the time to really look at your scenario and give you true cost analysis. So you understand the true numbers involved in it and that they’re being up front.

I think that’s just super, super key. Uh, and when you start hearing some of the things that we talked about, that should be a red flag for you. You know, Hey, we could do this no cost refinance or we’ll refinance you for free later on. Or, you know, that 125 a month savings is going to save you a ton of money.

I think those are some of the red flags out there. Um, if someone’s not willing to lock the loan, if you want to lock your interest rate in, um, and they’re not willing to lock your loan and provide a loan estimate, which is required by federal [00:24:00] law, and that loan estimate doesn’t show your loan locked, uh, that would be a huge red flag out there.

So the key again, is just like, you know, you Jason is, um, Folks come to you because you’re reputable, uh, you do a great job. And I think that’s the most important thing I can tell people is get a referral to a highly reputable mortgage person. And if you’re looking for really competitive interest rates, usually typically again, where I’m at is the broker side of things.

If you find somebody reputable that is a mortgage broker, uh, they will typically be able to get you very competitive interest rates in terms.

From when somebody is buying a house, what do the ratios look like? How much, how, when you’re sitting down with somebody and they’re trying to figure out if they can purchase a house, uh, debt to income, um, what, what are those numbers typically looking like these days?

Well, you know, for. What we see are underwriting guidelines are just guidelines and a lot of folks know these is they want to try to keep their housing ratio under 30 percent of their gross income. And typically, you know, their total debt to income ratio about 35 percent [00:25:00] or less of your gross income.

However, we see wide ranges of that. We see folks that have no debt whatsoever. You have plenty of assets at the bank and they’re perfectly happy with a 38 percent housing ratio or they can do a 41 percent or 45 percent housing ratio because their wife does side work that we’re not counting on the application so they are getting the income in there just the ratios look high at that point or maybe the spouse is self employed and they’re not counting on income or they’re getting a large raise in about a couple weeks and they know they’re going to be able to go ahead and afford it.

Forward that slightly higher payment. So usually it’s just really dependent upon, uh, what’s going on in the financial condition of the borrower. But more importantly, I always work with my borrowers. It’s not about the debt to income ratio. I really go straightforward to them and say, really, what’s the maximum budgeted payment?

Have you planned for and at the very max point. And so I’ll typically reverse engineer the loan programs and interest rate structures and the maximum housing price off that amount. And if [00:26:00] we got to move it from there, we do, but I think it’s most important to start where that client’s budget is on their payment that they want to go ahead and get.

Reverse mortgages. We’re seeing more and more people look to reverse mortgages once they’re in retirement, either to purchase their retirement house or to generate some tax free income. Do, does this current interest rate environment impact reverse mortgages at all?

Yeah, greatly impacts, especially when interest rates are a little higher, because what it does is it takes away the equity available and how much that reverse mortgage will qualify for.

So say the interest rates were in the threes percent range, maybe someone was able to get a reverse mortgage, um, with a loan that they have a 200, 000, the house was at. 400, 000 value. So what typically happened when the interest rates went up is you saw the housing prices, you know, remain the same or go up, but instead of being able to qualify in that 200, 000 range, it actually cut their qualification maybe down to a hundred and 25, [00:27:00] 000 to 150, 000.

So it ate away at what they could get out of that reverse mortgage. So lower interest rates do greatly help with folks doing reverse mortgages because it does create more equity in the actual reverse mortgage itself.

How are, how willing are lenders to make loans right now? Is it a competitive landscape?

Are lenders looking to lend money or have things tightened up?

Uh, as far as money being tightened up? No, no, not at all. In fact, especially in the wholesale market, lenders are knocking on our doors all the time, uh, being very, very competitive out there. Uh, so the money’s there, uh, the key thing is just being able to qualify, uh, and making sure you have good credit and making sure you’re able to qualify with your job and your income.

Uh, so loans are readily available. I haven’t seen any tightening in the credit whatsoever. The area that I’ve seen the tightening the most in is really, um, a while back here, Fannie Mae and Freddie Mac. put on some heavy, uh, loan level price [00:28:00] adjustments for second homes used to be that, um, you know, investment properties costs you typically about a half percent higher in interest rates than say, uh, owner occupied property.

And so what Fannie Mae and Freddie Mac did is they added some loan level pricing adjustments because they didn’t want too many more second homes. They’re starting to see loan fraud out there in second home. financing. Uh, so they went ahead and added quite large loan level pricing adjustments. And basically second home pricing is very, very similar to investment home pricing.

However, on a second home, uh, you can get 10 percent down option. Whereas investment property usually want to see a 20 percent down payment versus a 10 percent down payment option. Uh, so that would be the only area that I’ve seen just a lot of tightening in is that second home product.

If somebody is thinking about buying a second home, How early, how, how, um, how much time do they need to get pre qualified?

When, when should they reach out to start the process? If they’re thinking about buying a second house or, or maybe downsizing, buying a new [00:29:00] house, how much time do you need to get everything ready?

Oh, If we can get all the information from the borrower, typically we can do a pre approval within about 24 to 48 hours if, if the borrower is working quickly with us.

Uh, but I always say if you’ve got an idea of possibly doing a second home in the future, it’s a great time to have a conversation with a mortgage professional just to go over just the, the general terms, what it looks like, will they potentially qualify? That doesn’t mean they need to get an application.

They can just work with some general numbers just to kind of get a good. picture of what’s going on and to see if that there should be an application to go a little bit deeper to make sure they do qualify. But if everything looks good and it’s gonna be a while is out, then what we would typically say, Hey, let’s get you about 45, 60 days before you’re gonna start shopping for a home.

Go ahead and set up your pre approval at that point in time. So you’re ready to go when you want to start shopping. However, the big key is, I always say this is if you’re looking at homes online and if the perfect home comes up, Do you want to be in a position to buy it? That’s a common [00:30:00] question I ask.

And if they are looking at homes online and they answer, yes, if I found the right home, I’d want to buy it, then they need to be pre approved now. Uh, that’s always the kind of big telltale. If they’re looking online, uh, it’s a good time to get pre approved. Now there’s two points of that. One is someone may just want to get an idea of what homes are going for, but if they’re looking specifically online or at specific houses, get pre approved because they will, I guarantee it.

When everybody puts that off. I always get the frantic phone call on a Friday night. Frank, we found the perfect house. We got to have it. Can we get pre approved? And they need it today. So much rather great, uh, not have the stress in the transaction. We, and so we always tell people get pre approved ahead of time, take the stress out of the transactions.

That way you can just concentrate on the offer of the house.

Is there anything that we haven’t talked about that you think would be valuable for our listeners?

Um, I think, you know, the big things I really think is just understanding again, um, there, it’s a little bit of the wild, wild west out there. And, you know, there’s a lot of reputable banks and [00:31:00] mortgage banks and brokers out there, but there are just a lot of things going on out there.

And the regulatory, As far as people going after them, it’s just not happening as much as it should. Uh, so again, just really those things that we talked about, just make sure you’re aware of those things at this point. It’s the biggest advice I can give you. The other, the other advice is those trigger leads.

Please, you know, if you can get, uh, into opt out pre screen. And, uh, then if you’re thinking about buying, get pre screen. Pre approved ahead of time and, and just make the transaction much easier by understanding exactly the range you’re looking for. And so that way, when you go in, you go in with confidence, knowing that you’re ready to go to make that offer.

Awesome, Frank. Thanks. I’ll include a link to your company in the show notes, if anybody’s interested in reaching out to you, but appreciate your expertise and helping our listeners watch out for some of these unscrupulous practices. I appreciate you. Thank you.

Oh, I greatly appreciate talking to you today, Jason.

All right. Take care, Frank.

Alright, take care. [00:32:00]

Thank you for tuning in to Sound Retirement Radio. For articles, links, and resources from today’s show, visit sound retirement planning.com. If you enjoy the podcast, share it with a friend and give us a five star review. Ready to kickstart your retirement planning head over to retirement budget calculator.com.

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Investing involves risk. Jason Parker is the president of Parker Financial, LLC, an independent fee based wealth management firm located at 9230 Bayshore Drive, NW, Suite 201, Silverdale, WA. For additional information, call 360 337 2701 or visit us online at soundretirementplanning. com.