Episode 227: Mortgages in a High-Rate Environment with Erica Powers

The rates are high in the mortgage world. There’s no denying it! In this chat, Melissa Joy dives into the ever-changing landscape of mortgages with guest Erica Powers, CMPS®, CDLP®, NMLS#739673. First Merchants Bank is an Equal Housing Lender and a Member FDIC. We’ll spill the beans on today’s mortgage scene, chat about savvy refinancing moves, and talk about some little-known home buying hacks. Plus, we’ll bust some mortgage myths wide open! It all starts with being well-informed.

Listen and Learn:

1. Are the rates high? We talk historical averages for some comparison.

2. Buy now or wait for the rates to drop? Homebuyers get some advice on waiting, prices, and limited inventory.

3. How to add up the costs of homeownership (property taxes + insurance + maintenance).

4. Refinancers beware! How to balance the costs, potential savings, and long-term financial impact of your refi.

5. Special tips for first-time homebuyers to help bridge the gap between savings and that hard-to-reach down payment.

Links are being provided for information purposes only. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Pearl Planning cannot guarantee that the information herein is accurate, complete, or timely. Pearl Planning makes no warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. Pearl Planning financial advisors do not render advice on tax matters. You should discuss any tax matters with the appropriate professional.

Transcript

Melissa Joy: 0:01

Welcome to the Women's Money Wisdom Podcast. I'm Melissa Joy, a certified financial planner and the founder of Pearl Planning. My goal is to help you streamline and organize your finances, navigate big money decisions with confidence and be strategic in order to grow your wealth. As a woman, you work hard for your money and I'm here to help you make the most of it. Now let's get into the show. And I'm here to help you make the most of it. Now let's get into the show. I feel like real estate is always a hot topic, and with real estate comes mortgages. So as a financial planner, we need to be up to date on what's happening in the world of financing and mortgages all the time. My go-to resource is Erica Powers, and so we're going to have her as a guest here today. She is a lender at First Merchants Bank and is my expert consultant. She doesn't just do mortgages, she knows the field. She's been there through the ups and the downs, so she has all that experience. Just like we like for our experts to have Erica. Welcome to the podcast.

Erica Powers: 1:08

Thanks, melissa, I am happy to be here.

Melissa Joy: 1:10

We are going to be talking about current mortgage environment and how that impacts you whether you are buying a new house, primarily, but also talking about refinances. It's just kind of a current state of the mortgage market for 2024. We're recording this at the beginning of the summer. I know this episode is coming out mid summer. We'll make sure to do any updates as we go, but tell me, Erica, just to start, what is your kind of bullet point? Here's what the environment is today. Analysis of the mortgage market today.

Erica Powers: 1:47

I would say that today rate, although they seem extremely high historically, they're actually at an average of where rates have been over the past little over 50 years. So if you go back to the beginning of the 70s and look at from then until now, the average rate is around 7.41 for a 30-year fixed mortgage and today the average rate is at 6.92. So we're still actually a little bit below where average rates have been over the past 50 years. However, average rates over the past 10 years have been below 4%. So when people are thinking about where rates are at today, they're feeling that rates are very high in comparison to their recent memory.

Melissa Joy: 2:38

It's so interesting. Recency bias happens in investing, where you assume whatever happened most recently is kind of it's the biggest thing in your rear view mirror and I think that there's an automatic assumption like we're just going to boomerang back to where we were, and where we are isn't always the average of where we've always been Correct and maybe we're getting back to a little bit more normalized rate.

Erica Powers: 3:04

So this could be a rate environment that we see ourselves in for a longer time period than a lot of people are thinking.

Melissa Joy: 3:12

Do you feel like you can predict where we're going? Or what do you say when people say where a rate is going to be in the future? That I wish I had a Bristol ball.

Erica Powers: 3:21

Same that's what I say about investments yeah, unfortunately, I can't predict that.

Erica Powers: 3:25

So I think what I say about investments yeah, unfortunately I can't predict that.

Erica Powers: 3:26

So I think what I'm telling a lot of my clients who are coming to me and they're saying well, I really want to buy or I really want to move, I'm sick of renting, but should I wait it out another year or two and see where rates are at?

Erica Powers: 3:39

I'm telling a lot of them if you're ready to purchase now and if you're seeing homes in the price range that fits your budget, then I recommend that you move forward with purchasing a home currently, instead of waiting for two years or waiting until rates come down. Because my concern is that when rates do come down, we're going to see even more of a flood of buyers into the market. We still may not have a huge amount of inventory, and so the limited homes that are available will be even more expensive at that point in time. So while you might get a less expensive interest rate, you will get a more expensive home. So if you buy now and you get lucky and rates go down in the next couple of years, then you can refinance and take advantage of the lower interest rate, but at least you'll have purchased your home at a lower price.

Melissa Joy: 4:32

I think about that and I know so many people want to be patient, they want to be price conscious and when they see the changes in prices in real estate they think I don't think this is sustainable. But again, that's a prediction. They think I don't think this is sustainable, but again that's a prediction. And certainly I think we live in Michigan where there really wasn't building occurring that met even a stabilized population demand. There wasn't like kind of upgrades to housing for a good amount of time and we really lost with that the construction industry just in general. So we happen to live in a particularly scarce environment for kind of refreshed inventory when it comes to housing market.

Erica Powers: 5:13

Yeah, I am speaking of this from a seller's market right now, where a lot of people are having to bid above asking prices in order to win the house.

Melissa Joy: 5:26

Well, how do people? So let's talk about that. So you see a ton of people. You have to get to know them very well, cause it's not just like hey, I already found my house, but we're going to, you know, we have a week to put in the offer. It's very much like in the housing market where we live near Ann Arbor, michigan and Metro Detroit. It's very much right now like you've got to be ready and know what you're going in with and know what your ranges are and know your escalation clauses. So what are you seeing? That helps people get not only put in a bid but get the offer For all of my clients.

Erica Powers: 6:01

I really recommend that they get pre-approved ahead of time and with that pre-approval that we're getting all of my clients. I really recommend that they get pre-approved ahead of time and with that pre-approval that we're getting all of their detailed information so they're submitting all of their documents to us so that we can be very comfortable with the loan that we're going to tell the seller that they're going to be able to qualify for. But also so that as they're going out and looking, they are going to also be comfortable with what they may have to pay, because it's likely not the asking price of the home. So they need to be comfortable.

Erica Powers: 6:29

If they are escalating above the asking price, is that payment still going to fit in their budget? So we're having a lot of those conversations early on. But also, as they're shopping and people are putting in multiple offers, they're not getting the first home that they put an offer in on, so it is a little bit longer of a process. And then we're also trying to make our offer as competitive as possible. So closing quickly in a timeframe that's more similar to a cash offer. In case they're going against a cash offer, they're talking about doing appraisal gaps in coverage in case the home does not appraise for as high as the purchase price ends up to be.

Melissa Joy: 7:10

What's an appraisal? Can you define an appraisal gap and exactly what that means?

Erica Powers: 7:14

Sure. So if, let's say, someone's purchasing a home and the purchase price ends up being maybe the listing price of the home is $100,000. Being maybe the listing price of the home is $100,000 and the buyer ends up having to pay $125,000 for the home to beat out everybody else that is putting offers in on the home. But with that, since they're offering a higher price than the asking price and if there are not a lot of similar homes that have sold for the same value, the home may not appraise for that $125,000.

Melissa Joy: 7:47

And the bank cares about the appraisal right.

Erica Powers: 7:50

Yes, we care about the appraisal. We are only willing to lend on the lesser of the appraisal value of the home or the purchase price of the home. So if the appraisal comes back at $100,000, but the purchase price is $125,000, then the buyer needs to pay the difference between the $100,000 and the $125,000, plus whatever amount they were planning to put as their down payment. Okay, that's helpful. So it's something to be really cognizant of, that. If the home is going to appraise for less than the purchase price, are you going to be willing to pay that additional amount and do you have those funds Interesting.

Melissa Joy: 8:30

What else can you do to make your offer look good?

Erica Powers: 8:33

I find it helpful to call the listing agent to explain that I've been working with the buyer, that I'm confident in their ability to qualify for the loan, and then also, like I said, a short time period so that you are competitive. I think that doing some of those things and in an escalation clause, to be quite honest, in a hot market is really important.

Melissa Joy: 8:57

Can you define the escalation clause and what that would look like?

Erica Powers: 9:01

Yeah, so a lot of times I think people are used to the old ways where you would put an offer on the home, and maybe you even put it less than the offer price, and then the seller comes back and says oh, you know what? Can we meet in the middle of what you offered and what I had originally listed the home for, and you do a little negotiation. That's not typically how it's done anymore, because a home will go up for sale and then there may be five or 10 offers on that property in the first 48 hours, and so the listing agent will gather all of those offers up and they will call for best and final and tell everyone put in your best offer. And then we're going to just look through the offers and determine which is the best offer, and that's who's going to win.

Melissa Joy: 9:50

And now they're not supposed to tell your agent this is what you need to beat, or something like that. It's supposed to be kind of a fair game where there's not insider information. It's a fair game.

Erica Powers: 9:55

So a lot of people will put an escalation clause in that says this is what we're offering for the price, but we're willing to pay up to whichever higher amount that they've chosen above. Sometimes they'll put $1,500 above the highest price that you have received, the highest offer you've received up to a certain amount, and so that's a way to say that you're putting the lower offer but you're willing to go up to this. Other people have bid higher for the home.

Melissa Joy: 10:31

So then you don't have to overcommit if you don't have full information and feel like you may be putting in a really good offer but you really want the house.

Erica Powers: 10:35

Yeah, because it's hard to say in this environment. There are some houses that you think that your client put in a really good offer and they offered high above and that they're going to for sure win it, and then you find out that somebody else paid $25,000 more than that. So it's hard to tell in this market.

Melissa Joy: 10:54

Well, there can be, psychologically, both. You know we already described the people that have just opted out of this and just said I'm just going to wait until prices go back down, and it may be that the market isn't as hot. But they don't go down. They, you know, stay stable. Who knows? We can't predict.

Melissa Joy: 11:09

Predicting that we have another 2008, 2009, I think we can talk about at the end of the episode. You know, some of the kind of old wives tales that are out there right now of people being overtaxed. But I don't see that necessarily and things tend to not happen the same way they did in the past in the future. But you know, you can then be like well, I had, I really feel like I could only afford a house that's $450,000. And then, all of a sudden, because there's this tight market, you end up at $550,000.

Melissa Joy: 11:41

And I do think, like A, you need to be going in flexible and looking at houses, knowing that there's a potential, in our area at least, of needing to pay over ask, but also, then, you know, be realistic and this is one of the reasons I really like working with you If you can't afford that, even if you can afford it for the bank's records.

Melissa Joy: 12:01

But like, let's say, you're retiring in a couple of years and your income's going to change radically, or you don't love your job and you'd be willing to take a pay cut to work somewhere else, or it just feels too tight because you have other things that are priority, then don't start looking at your max price and do consult with a financial planner like me or firms like ours, because we can actually put in all the other things going on outside of you know kind of your housing decision in a way that's different than what Erica can do, and Erica can also be realistic and consultative. So one of the things I love is you're not just thinking well, here's the very most I can lend to somebody, so let's aim there. You really want to be seeing people in the future and have them not be upset because they overtax themselves.

Erica Powers: 12:47

That's probably the most important thing to me is I don't want you to get into a home and feel house poor, that you are stuck in your home and you can't do anything else. So it's really important to determine, for you are shopping for a home, what are you comfortable paying monthly, so that then we can back into that? And then, if you're in a very competitive market, I am constantly telling buyers if you want to end up paying 350, we need to look at homes that are 300 or below, so that you have room to escalate up to the top of your budget, versus looking at homes that are 350 and then escalating up to 400. That's not going to have you end up with the payment that you want.

Melissa Joy: 13:31

I think that the ancillary costs are very important for you to be aware of as well. If you have a home that hasn't turned over in the market for many years and we have these changes in prices, then the taxes that the previous owner is paying are not going to be the same as the property taxes that you will likely be paying, and there can be radical differences between townships and cities and other considerations between the tax costs of different homes. What are you seeing there?

Erica Powers: 14:02

I agree with that 100% and I do think that it's good to have the conversation up front because for mortgage purposes, we are qualifying you on what taxes are currently for the current owner of the home. So if you have someone that's lived in the home for 20 years and the taxes are based on a much lower value of the home the minute you buy the home, they're now based on the new purchase price and they're going to increase and you're going to get an increased tax bill in the next year.

Melissa Joy: 14:33

They might even be double or triple. Like I mean real increases of thousands of dollars, it can be significant.

Erica Powers: 14:40

So it's really important to ask those questions up front too, of what to expect, so that you can start setting some extra money aside for when your escrow changes or when your taxes are reassessed and have a realistic expectation of what your tax costs are going to be and then what that's going to do to your payment.

Melissa Joy: 15:02

I also know that this is a very we have to do an episode soon on homeowner's insurance and property insurance, because this used to be kind of a throwaway of like oh, yeah, you're paying. You know, for most houses, unless they were above 3,000 or 3,500 square foot, it was between a thousand and $2,000. It was kind of like yeah, it's kind of a pain in the butt, but definitely necessary. But for a variety of circumstances, the insurance industry is experiencing significant losses, including in the Midwest from storms, and also just like the economics of insurance is changing and you better be ready to pay more than you might think.

Erica Powers: 15:43

I used to be able to very easily estimate what I thought the insurance would be, and then and I've been doing this for I'm in my 20th year and then recently I've started to see that the price is much different. So I do have some partners that I work with on the insurance side and in talking with them they have explained rates have increased a ton and so now I have to estimate a much higher amount. But also when I look at a lot of the listings, the amount that's estimated for the insurance is not adequate. So that's something that even when you're looking at a listing and it's estimating what the taxes and insurance might Because likely the value of what you're going to pay monthly is going to increase.

Erica Powers: 16:35

I think it's also important to really talk to the agent and make sure you're getting correct coverage, Because you find sometimes that clients will, because it is so expensive now, try to skip out on some coverages that you really need. If you have a basement, you should probably have some backup coverage in case you get water in your basement. There's other things, so it's important that you factor all of those costs in upfront.

Melissa Joy: 17:02

Absolutely. I couldn't agree more. And then when you get the actual statement of you know the cost of the transaction, I just can't emphasize enough too, if people are like yeah, oh, hey, I think I want to live here for two or three more years and then I'm going to relocate, and things like that, and there's this assumption that I especially see this with divorcing people. There's this assumption that you're less than if you don't own a home at all times or if you rent. And even though you're in the business of helping people buy homes, erica, I just don't. There's huge transaction costs from moving houses every few years and so if you're not quite sure if you're going to stick around, like there's no shame in renting for a year, and a lot of these costs we're mentioning would be much less of a carry much less of a carry.

Erica Powers: 17:56

Yes, 100%. I think that when you decide if you're going to buy a house, it has to make sense to you and where you're at in your life and where your budget is. So you shouldn't just make the decision because you want to be a homeowner. It has to really fit your life.

Melissa Joy: 18:08

And you may be able to. I'm not a. Most of my clients own homes, but if some clients rent and they may be able to have a bigger life outside of that real estate decision with a rental, so it's, everybody's circumstances are different. Even though at the water cooler with your friends, they're like, concerned for you because you're renting, Trust me, there are circumstances that are specific and unique to each person. Where it may make sense, Same goes for, like maintenance.

Melissa Joy: 18:34

I always assume at least 1% of the cost of a home. But if you're somebody who's loving home improvements or just looking at a house that has not been updated, you need to be realistic about what you can do when you can do it and know that you can't just finish your very last project. You know, years before you sell a house, Like I have some people who are, they're going to retire and they're like well, I finished every single update we're ever going to need and so you know we won't have any other costs for the house. Just not true. You're going to need to replace a furnace, You're going to need to patch a hole in the roof. It's not all going to be covered by insurance. So please make sure you're including those assumptions.

Erica Powers: 19:11

Anytime I see a person who is telling me that they are going to put every dime they have down to purchase their home, I'm constantly saying to them but you need to keep an emergency fund because even if you buy a brand new home, I guarantee that two weeks after you move in, something will break. Something will come up at some point maybe not within two weeks, but within the first year that you completely don't expect and you need to have a contingency budget for when those things come up, so that you're not charging that repair and then you're paying a ton of interest on that or maybe you don't even have the room to charge that repair.

Melissa Joy: 19:52

So it's really important to set a safety budget aside, I do you kind of carry that cost if you choose a condo in the association fee, although there can be unexpected assessments that you need to be prepared for sometimes. But I do think I will specifically accommodate for lower maintenance costs when you are in that condo where you don't have to take care of the exterior as much or do the landscaping and things like that.

Erica Powers: 20:22

So those are also tradeoffs that are, you know, relevant to both of our work and, honestly, people underestimate what update and remodeling to a home costs today. So true. So it's important to be realistic about what those costs might be. If you're purchasing home and thinking, oh, I'll just put in a new kitchen for $10,000, you probably won't be putting in a new kitchen for $10,000.

Melissa Joy: 20:49

I mean, when people do it for 50, I'm shocked and like how did you do that? So it can be a huge expense. And I'm not saying we don't want to say no. I mean you know, you, you work with bankers who help do renovations, remodels, all those you're. You do them yourself, so that's, that's part of your work as well. It could be another episode. So we're not, we're not here to say no, we're here to help people make educated choices and decisions. So I've heard some buzzwords. People are obviously like looking they're reasonably anchored to we're in a much higher interest rate environment than we used to be and hoping for rates to fall. I'm kind of on the fence of that hope because that might reflect a weaker market and economy and you know that comes with some trade-offs. But what are people doing to try to combat those higher interest rates? Are there strategies that could help you keep the interest rate lower?

Erica Powers: 21:49

Yeah, there's a couple different products that some banks offer. Today. We offer what we call a temporary buy down. So you either have a 2-1 buy down or you have a 1 buy down. So you're either having the seller pay for two years for you to temporarily have a lower interest rate that would be on a 2-1 buy down or we have the buy down where the lender ourselves will pay for you to have a lower interest rate the first year.

Melissa Joy: 22:29

And is it typically 1% lower?

Erica Powers: 22:31

It's 1% lower.

Melissa Joy: 22:33

And is it 2% lower the first year and 1% lower the next year for the 2-1?

Erica Powers: 22:38

Yes, okay. So, for example, if you were doing a 2-1 and the interest rate today is 7%, then the first year your interest rate would be 5%, the second year it would be 6%, and then the third year and thereafter it would be 7%.

Melissa Joy: 22:55

And so somebody has to pay that cost. The seller would need to be willing to do that concession.

Erica Powers: 23:01

Yes, the seller would need to be willing to do that concession. So in our market here in the Ann Arbor Detroit area you're less likely to have a seller be willing to pay for that because it is a more competitive market. But there are other areas of the country that are not as competitive so that could be a useful tool for a seller to offer to their buyer.

Melissa Joy: 23:24

And you'd like if there, if you were in this market, maybe a house that had been sitting on the market longer or there's some reason it's unloved or something like that. That might be a consideration. What else do you have that could get you potentially lower costs in the beginning?

Erica Powers: 23:40

Sure. So another option that some buyers are looking at, depending on where rates are at at any given time, would be an adjustable rate mortgage where the rate will start out at a lower interest rate for a set period of time. We offer all different levels, but it may be three years, five years, seven years, and then after that the interest rate will adjust for the remaining term of if you're doing a 30-year loan, the remaining 30 years.

Melissa Joy: 24:08

So you need to pay attention in those cases to how much it would potentially adjust and how frequently right.

Erica Powers: 24:13

Yes, so for some people. We have people that sometimes move to Ann Arbor because they're coming to work at the university and maybe they know they're only going to be here for a couple of years. Their contract is for a short period of time. They're coming to get some type of training and then they plan to move somewhere else. In their instance, if rates are lower on adjustable rate mortgage, it might make sense because they know they're going to live here during the time that the rate is lower and then they plan to sell the home after.

Melissa Joy: 24:42

Well, I was going to say I don't think A. You need to know what you're getting yourself into. Going in Arms have a bad name, which is another name for adjustable rate mortgages because they were overutilized in a lending environment that was really I don't know, for lack of a better word a boozy environment around 2005 to 2007. And almost everybody had arms, and then the shock of a lifetime, you know like. Interest rates went higher and people were stuck holding the bag on you know things they weren't aware of that they were going to get themselves into and stuff like that.

Melissa Joy: 25:17

But or and you know, if you had a seven year arm, for example, let's say, the interest rates are still high. Well, that probably means inflation is also not super low and the economy is pretty strong. Over that period of time, well, the price of a dollar may be cheaper. A dollar might not buy you as much then. And, yes, they may be higher, but you've bought yourself some time and it may not be as punitive as you think. So I don't, you know like, keep that in mind.

Erica Powers: 25:46

Yeah, I think it's a tool and for some people it's a really great option, and for other people it's not going to make sense.

Melissa Joy: 25:59

You need to be educated on it and understand what you're getting yourself into. Yeah, anything else that can be helpful for people to save. I know sometimes people may get a bigger mortgage and then make a big payment so that you're trying to reduce their cost, either to pay off the mortgage early or reduce their you know kind of current payments.

Erica Powers: 26:12

Yeah, so that's always something that can be. An option is if you start out with a larger mortgage and then, let's say, you get a large bonus, or you inherit some money or there could be many different things that come up or you've just saved, you could put additional funds down in a larger lump sum and you could recast your mortgage. So you could keep your interest rate that you currently have, but you would lower your payment because we would re-amortize your loan over the remaining term based on the new lower balance.

Melissa Joy: 26:44

I've also seen an article I'll put it in the show notes for some startup companies that are seeking to find properties that are for sale that have assumable mortgages. Assumptions come up sometimes if there's, for example, a divorce or kind of a change of hands or getting one person off of a mortgage, something like that. But there are a few mortgages. So what is assumable mortgage?

Erica Powers: 27:07

first, so an assumable mortgage would be a mortgage in which you would be able to transfer the ownership of the property to someone else and they would keep the terms of your current mortgage. So this has kind of been a popular term that people have started talking about because current interest rates for most people, a lot of people have a low rate in their current mortgage so they feel that they could pass that low rate on to somebody else, with them taking over their mortgage.

Erica Powers: 27:34

How many mortgages are assumable, like it depends, right it depends, and typically less mortgages are assumable than people think they are, so most people's mortgage is not assumable. A way people can find out if their mortgage is assumable is they can look at their closing disclosure from the last time that they purchased or refinanced their home and on that closing disclosure it says if the loan is assumable or not. There are some exceptions to that, but you'd have to reach out to the lender or the servicer to see if they would make any exceptions to that, and sometimes the reasons for exceptions are divorce, some type of situation that's outside of the norm. However, some other types of mortgages that are typically assumable would be an FHA loan or a VA.

Melissa Joy: 28:30

Now would the person assuming also need to qualify? So if you had a VA loan, you can't not be a veteran and then go in and get that loan Correct.

Erica Powers: 28:38

Correct. Okay, so those are the ones that I mostly see listed are. I've seen a couple of them where someone has a current VA loan and they're saying, hey, you could assume my VA loan, but you need to qualify for that VA loan.

Melissa Joy: 28:53

And I would assume that the price might be a little richer for the house if you could. In the case of like all the stars align, you have an assumable type transaction, then A you're going to need to fully qualify for that, just like the originals did, and B the price may be higher on that home.

Erica Powers: 29:09

Correct yeah, so that's something to keep in mind is that when you're trying to assume the mortgage, you still have to go back to that mortgage company that holds the mortgage currently and you have to now qualify based on the terms of the original mortgage. So you're not able to just take over the mortgage, sign a paper and suddenly the house is yours. You are still qualifying just like you would for any mortgage, and sometimes there's high fees involved with assuming another mortgage. So you have to take that into account too, because if they're too high and you're not going to recoup those fees over the time that you're going to own the home, then maybe the assumption didn't make sense.

Melissa Joy: 29:51

Thank you for saying that, because our next topic is refinances and you have got to not only be focused on any of these conversations. Do not only focus on the interest rate, because built into the transaction and often added to your loan are embedded costs and those embedded costs have to be factored in. So when we get into, you know what many people are who have recently gotten mortgages are hoping to do whether they have an arm that has you know a clock ticking or they're just at a high interest rate is they want to refinance eventually if rates go lower. So what are you talking to people about in order to prepare for when there is a time? I think you've actually done a few refinances, haven't you recently?

Erica Powers: 30:36

I have actually done a few refinances this year because I had some people that purchased when rates were even higher last year, and so it actually made sense to refinance this year.

Erica Powers: 30:48

But when we look to make sure that it makes sense to refinance, we're looking at the costs that they paid when they first obtained that last mortgage. Have they recouped those costs? And then taking into account if you're incurring new costs, how much is the savings that you're going to be seeing on the new interest rate and then how long will it take you to recoup those costs as well? So it's really important to talk to someone who's taking all of those costs into account, because there, sadly, are some people in our industry where you call and they'll just do a refinance for you without taking those things into account. Also really important that, if you're looking to refinance or even looking for a purchase mortgage, that you ask for the details about the fees involved, because sometimes, if the rate seems too good to be true, it likely is, and so you need to see all of the costs and that could be impacting why you're getting offered that rate, but those costs could be extreme.

Melissa Joy: 31:48

It's probably not going to make sense to refinance when the rate is a quarter point lower or 0.5 lower. You need to have a bigger spread and, like both of us said, the costs do matter. There are closing costs and you're also resetting the clock. Let's say you've had a mortgage this probably isn't relevant for most people right now, but for five years and you need to refi. When you refinance and you set a new clock for 30 years, you may still be adding more costs unless you start to pay a similar amount so that you end up paying it off more quickly. That might be okay, but you need to be aware of the way the math works when you refinance. Maybe in some cases people that had mortgages from the early 2000s they might have refied into a 20-year mortgage if it had been seven or eight years since they refinanced and they still got a lower payment, but they also in a lower rate. But they also didn't reset the clock on when they'd have it paid off and so state saved some elsewhere.

Erica Powers: 32:47

Yeah, yeah, it's really important to look at all of the numbers and it's important to talk to a loan officer who is going to take the time to look at all the numbers and make sure that it makes sense.

Melissa Joy: 32:59

So I also want to dispel some rumors I hear when people are talking about the economy in general. A couple of things. One is like everybody in America is swimming in debt. I can't believe you know, like how bad their balance sheets are, how much they have in credit card debt. Now, when I look at like Federal Reserve data on either credit card debt, mortgage debt et cetera, that's not what I see generally. But what are you seeing with borrowers and how difficult are the lending standards? Are we just giving money to everybody that walks in the door, or is it more difficult to qualify than it was 15 years ago?

Erica Powers: 33:36

I think it's probably more difficult to qualify than 15 years ago because we had some types of mortgages that maybe we shouldn't have been doing. However, I'm not necessarily seeing that all of my clients are swimming in debt, but that doesn't mean that there aren't some out there. I haven't necessarily seen a huge uptick in people having a ton of debt.

Melissa Joy: 34:00

Well, many people have very low interest rates on their mortgage. So even if they borrowed more because the prices are bigger, the property values are going up there's equity in these homes and their payments. This is part of the reason that the inventory is going to be less for longer, is they? You know, when you're sitting on a two and a half 3% loan, you don't want to give it up and switch it to a 7%.

Erica Powers: 34:23

Yeah, that's why I don't think that we're going to see some of the same scenarios that we've seen play out historically in the past, because people aren't going to be willing to give up the current terms that they have.

Melissa Joy: 34:35

The other interesting thing is I've heard statistics or assumptions that you can like. All it is is wealthy people changing hands of houses and you can't be a first time homebuyer, for example. Oh, woe is me for the millennials and Gen Zers, because there's just no way to be a participant in today's market. Now I see those people as clients who are making, in many cases, really good money with their education, even if they're carrying student loans, they're being compensated with equity compensation, which is also driving the market. Are you doing loans for only the olds I think I might be a part of that group or are you also doing loans for first-time homebuyers and things like that?

Erica Powers: 35:24

We're doing a lot of loans for first-time homebuyers and I think one of the I don't know wives tales out there is that you have to put 20% down, so you have to have all of these funds saved to be able to purchase a home, and that's not true. You can purchase a home with. We have programs that are just 3% down and we also have down payment assistance programs. There's a lot of down payment assistance funds that are available to first-time homebuyers that can help them get into a home and bridge the gap between what they've saved and maybe what they need to save to get to where they need to be. So I think it's really worth it to reach out to a lender if you're interested in buying even if you don't think that you have saved enough to see what options you might have available, because you might be surprised that you could be ready to purchase a home.

Melissa Joy: 36:18

Well, that's one of the things I really emphasize to people. One thing I would be telling them right now if they haven't bought a house, but they think they might make the phone call sooner. I mean, you guys are busy as mortgage originators nowadays, but not as busy as you have been some of the refi times. Also, I'm assuming and I've actually sent people to you that you didn't do their original loans. You've got a list going of where everybody's interest rates are to be looking for the right time to do refinances, like you should tell your lender now. Hey, I mean, hopefully they know if they originated your loan, but if not, get on one of those lists.

Erica Powers: 36:59

Yes, I think it's really important. If you worked with a good loan officer, then they are going to be constantly looking out for opportunities for you so that when the time is right to refinance, they're going to reach out to you and say, hey, I think it's time for you to take advantage of looking at some other options. So I think it's important to always be having the conversations and keep in touch with your loan officer, and hopefully they're keeping in touch with you too.

Melissa Joy: 37:26

Well, Erica, thank you for being a voice of wisdom in an area that is constantly changing. Erica, thank you for being a voice of wisdom in an area that is constantly changing.

Erica Powers: 37:38

Is there anything our listeners need to remember as we're signing off? I guess what I would say is don't be afraid to reach out to a loan officer If you have questions about the process or if you're really not sure if you could qualify, you can always call and have a conversation.

Melissa Joy: 37:49

There's nothing stopping you from doing that and getting the information so you can be a better informed borrower Well and I would say that your loan officer should be proactive and consultative If it's done right. It's not a transactional deal, sleazy sales pitch. It's not something where the lender isn't putting themselves in your shoes and trying to advise you for what might be in your best interest. And, erica, just an appreciation for all the thoughtfulness that you bring to that conversation. Thank you for listening to the Women's Money Wisdom Podcast. If you found value in this episode, the best way you can support the podcast is to forward an episode to a friend or leave a review. Go to pearlplancom and the podcast link to get all the resources and links mentioned.