Is Your Low Interest Rate Stopping You From Buying A New House?

Christian: [0:08] Welcome to another episode of the Awesome in Seattle podcast. This is your host, Christian Awesome, of the Awesome Nossum Group at Wilson Realty Exchange, Inc. Today, we're talking about something that we have been hearing a lot from past clients that have owned a home for a few years, and I think it's something that people all around the country can relate to, and that's having something called golden handcuffs, and they're golden handcuffs to a very low mortgage rate. Mm-hmm. And the idea is that if you can't buy a different house because your interest rate is so low on your current home, even if your current home doesn't even make sense for you anymore. So if you fit into this category, definitely wanna listen. We got some ideas for you on not only how to allow you to buy a new place, but allow you to make the most money you possibly can as well in the process. So since we're talking numbers, I have the one, the only, Mr. Dan Keller of New American Funding here.

Dan: [1:03] Yeah. I'm the culprit. I'm the one that put all these homeowners in these, uh-

Christian: [1:07] Low interest rates … low

Dan: [1:08] interest rates. Yeah.

Christian: [1:09] How dare you put them into 2, 3, 4% interest rates, Dan?

Dan: [1:12] Hey, if, if I didn't do it, someone else was gonna do it. So I think I

Christian: [1:15] had to. Also true. Also true. So golden handcuffs are basically having that super low interest rate. Yep. Like we said, 2, 3, 4%. So many people bought or refinanced their interest rate between, what, 2020, 2022, somewhere in there, to get that low 2, 3, maybe 4% interest rate. Is that about the right timeframe?

Dan: [1:37] Yeah. Yeah. If they bought in 2020, 2021- First half … first part of 2022. So I mean, you got two and a half years of life- Yeah … of a housing market, which is a big cut, right? Yeah,

Christian: [1:48] yeah.

Dan: [1:48] It's a big part. So- Yeah … yep.

Christian: [1:51] Yeah. Yeah, so there's a lot of people that either bought or refinanced at that time.

Dan: [1:54] Mm-hmm.

Christian: [1:54] Anybody that had a house probably refinanced- Mm-hmm if they had a mortgage.

Dan: [1:58] So think of it this way. You're not alone. I mean, I read a stat the other day. In America, 84% of mortgages in America are at 4% or lower. Yep. I saw that same thing. Right? That's a big, big, big- Yeah … and then there was another stat out there talking about how mortgage f- how many Americans, like 40-something percent of Americans are mortgage-free. Yeah, yeah. So this is a big deal right now. Yeah. This podcast that we're doing today, this article that we're gonna reference, is actually a very big deal in America right now because how often have you seen it as a real estate agent where people are like, "I bought this home, we're super excited, but, ah, it's not meeting our needs right now"- Yeah "or life has"- Yeah … "changed," or, you know, kids are growing, or whatever. There's 100 different reasons why people buy and then need to move on. Yep. So this is a big deal right now.

Christian: [2:43] Yeah. Yeah. So even though your rate might be really low and you want to move, a lot of times people are, like, hesitating 'cause they're like, "I can't, I can't sell." Yeah. "I have a 2.5% interest rate or a 3.5% interest rate"- Yeah … "and the interest rates right now are in the sevens."

Dan: [2:59] Mm-hmm. " Speaker: Does it make any sense for me to do that? Like, my payment's gonna jump so much more." Yeah.

Christian: [3:06] I guess maybe let's talk about first where we see rates going, kinda what you're hearing from experts. I mean, you, you follow this all day, every day. Yeah. This is all you do. Well,

Dan: [3:16] a big part. Well, a big part because I h- and I have to know this, Christian- Yeah … because ev- the number one question I get asked is, I mean, it is the, the big pink elephant in the room, rates. Yeah. And they're high, and they're ugly, and they're high compared to where they've been for the most part of our careers- Yep since the, you know, I got in in 2008. Mm-hmm. And I feel like rates have been low since, like, 2009. So, you know, a- answering that question, you know, when do you see relief coming? Mm-hmm. So what I've done, and I'll put this, I'll put this up on the screen if you're watching this. If you're- Yep. So if

Christian: [3:46] you haven't already found out, we have this on YouTube as well. Yes. Definitely search Awesome in Seattle Podcast. That's all you need to do. On YouTube you'll find this.

Dan: [3:53] Yeah, you'll wanna see this, though- Yeah … 'cause if you're listening, you really wanna look at this. But what I did is I went back from, uh, 2022- Mm-hmm … all the way to 1970. And I needed to do this for my own- Yep.

Christian: [4:05] Knowledge.

Dan: [4:05] Yeah. And just, like, I needed to have a history lesson in finance or mortgage and- Yep … in economics. So what I did, Christian, is I took from 1970 to current, I took the Fed rate. Mm-hmm. I took mortgage rates. Mm-hmm. I took CPI, which is inflation- Mm-hmm … rate. That's how we monitor inflation in, in our, in the US. And I took Case-Shiller- Yeah … which is how we monitor how home values are doing, right? And I overlapped them. And the reason why I wanted to do this is I was curious when we had inflationary periods in the '70s and the '80s and the '90s and the early 2000s, what the economy did. Yeah. 'Cause I wasn't in the mortgage business, let alone in- You

Christian: [4:43] weren't paying attention at that

Dan: [4:43] point. Yeah, and I wasn't even in the markets in- Yeah … you know, d- obviously. I was born in the m- mid-'70s. And so I wanted to see data- Yep … and, and how the markets reacted during these times. 'Cause this is, my clients, it's new. Yeah, totally. Like, they've never seen the, uh, inflation where it's at right now- Yeah … or the Fed rate. The Fed rate's higher today than it's been in, like, 40-something years, right? Yeah, yeah. So I wanted to be able to instead of just giving my opinion to answer the question, answer it with data. But you gotta look at this. So Dan, the question you just asked, when do you think we're gonna see some relief? When do you think rates are gonna come down? Yes. Data is going to be our crystal ball here. Yep. And what this is gonna show you guys is every single time, s- from the '70s over the, s- into current, every single time the Fed stopped raising the Fed rate, meaning not raised it, stopped, continued to raise it, stopped. When they were done with their Fed rate hike, right? Yep. Every single time. I think there's seven I can document here since 1970. Six or seven since 1970. Every single time the Fed stopped raising the Fed rate, mortgage rates right after- Yep … came down. But here's the other kicker. Home values, Case-Shiller, went up. Yep. Okay? This is all the data you need right now. Yep. This is what you need to know. So let's talk about 2023. What does that mean? The Fed just came out this last month and said they are keeping one more Fed rate hike on the table for this year. Mm-hmm. And then they're done. Yeah. They think that that's gonna allow for a smooth landing It's not gonna allow for a smooth landing. It's gonna be a crash landing. Okay? And they'll count the casualties. But if they do raise it one more time, it could probably be ugly. But they've said potentially one last time. Yep. Okay, cool, before the end of the year. So we know that by the end of the year they'll be done. They're

Christian: [6:28] done, yeah.

Dan: [6:28] So what I'm telling clients, the closest to a crystal ball that we have is probably Q1 to Q2 of next year. Mm-hmm. And the data is showing all of that.

Christian: [6:38] Totally. Yeah, and that's the same thing that I've been hearing and reading and in research that I've done independent of what you just said. Mm-hmm. Seeing the same exact thing.

Dan: [6:45] Yeah.

Christian: [6:46] Yeah. Once inflation is curtailed, once the Fed stops raising rates, then mortgage rates and the Fed funds rate will start- Yeah to fall- Yeah … in conjunction with each other, not- Mm-hmm … totally in line. Yeah. And there's sometimes a little bit of delay for interest rates for mortgages. Mm-hmm. But they will drop.

Dan: [7:01] Well, you guys have a great slide that you share- Yeah … at our home buyer classes- Yep … too around recessions. So the next thing is by do- by raising the Fed rate- Mm-hmm it will put us into a recession. It's n- no doubt about that. Yeah. So now the other big fear is, well, I don't wanna buy before or during a recession, 'cause don't home values go down?

Christian: [7:21] Yeah.

Dan: [7:21] Your data- This- … says the contrary.

Christian: [7:23] Yeah. So- But- … what is it, seven of the last nine, or seven of the… yeah, seven of the last nine recessions that have happened-

Dan: [7:30] Mm-hmm

Christian: [7:31] which go back, I don't know, 60 years I think is the slide, only in two of those have, have home values gone down.

Dan: [7:38] Yeah.

Christian: [7:38] In one of 'em, it was in the early '90s. Mm-hmm. Home values went down 0.9%, just under 1%. Mm-hmm. And they recovered in 12 months. So home values went down one time in the early '90s, and then obviously in 2008-

Dan: [7:52] Mm-hmm

Christian: [7:53] when the home, houses price bubble happened. Yeah. And that was due to mortgages.

Dan: [7:58] Yeah.

Christian: [7:58] You weren't in the business- Yeah … at that time. Yeah. So I can't blame you.

Dan: [8:00] Yeah, yeah.

Christian: [8:02] Yeah. But home prices drastically fell throughout the country. Yeah. They actually didn't go down that much in Seattle, 'cause we had a very strong- Mm-hmm economy already, so we didn't really see a giant drop-off in home values. But in a lot of California, Florida, Arizona- Yeah … Nevada-

Dan: [8:18] Yeah … Speaker: they just saw home prices crater. So that's the only other time- Mm-hmm … Speaker: in the last 60 years-ish- Yeah … that home prices have gone down during a recession. Yeah.

Christian: [8:28] All the other ones, home prices actually went up.

Dan: [8:30] Yeah, and the '08 one was an anomaly. That was propped up- Totally an anomaly … by greed and fake money. Yes. Today, you know, the, the, the ride that we've been riding now since '08- Yep … has been full- fully qualified mortgages- Yeah … people that have income, in a good economy- Yeah … with good jobs. So, you know, the data right now is gonna be your best friend if you're a homeowner or a home buyer.

Christian: [8:51] Yeah.

Dan: [8:51] Mm-hmm.

Christian: [8:52] All right, so let's talk about some options now that we kinda know what rates are gonna do. Basically, the prediction is once the Fed stops raising the Fed fund rate and it starts to go down, interest rates will go down. Could be six months, could be 12 months. Who knows what it is. Mm. But probably Q1, Q2 of 2024. Mm. When that happens- What do you see happening? I know what I am predicting. Yeah. And then we just wrote about it in our monthly newsletter as well, and in our last podcast actually.

Dan: [9:18] So guys like you and I that have been in the mortgage industry and the real estate industry, the space for the time that we have, we don't just close mortgages and sell homes. No. We stay in touch with our past clients. Totally. We talk with our people that we've helped in the past. And in my dialogue that I'm having with past clients, some of them are perfectly happy and they're loving life. Yeah. Some of them are thinking, "Hey, this is an opportunity of a lifetime where I can rent my house out and make money- Yeah a decent amount of money."

Christian: [9:48] Yep.

Dan: [9:49] And then the others are, you know, "Hey, you know, we did buy in 2021- It was nice at the time. Yeah. But it was what everyone was doing. We kinda bought into the hype, and like we should have, just get in the market 'cause it was so cheap and so easy. Yep. And so we did it, but the house just, you know-

Christian: [10:06] Doesn't make sense

Dan: [10:06] for us anymore doesn't make sense anymore. We've outgrown it. Either we have kids

Christian: [10:08] or whatever.

Dan: [10:09] Yeah. And so in talking with them, you, you have those three scenarios right now. I think, and I don't think, here's what I know what's gonna happen. When rates drop, you're gonna have a lot of those people right now that this article was written about- Mm-hmm that are not making moves. They're homeowners right now with a 3% 30-year fixed, for example- Yep … that are not wanting to make a move or not wanting to go buy something else because rates are so high on that exchange. So they're staying put. I think we're gonna see those people, when rates drop, we're gonna see those homes get for sale.

Christian: [10:39] Yep.

Dan: [10:39] And- Or s- get on the market. Yeah … which we

Christian: [10:40] have no inventory right now.

Dan: [10:41] Yeah.

Christian: [10:42] Yeah.

Dan: [10:42] But what you're also gonna see, you and I were talking about this before we went live. Mm-hmm. We have a greater number of, I call it babysitting right now, we have a greater number of pre-approved clients than I've ever had at a particular time in my career- Yeah because people that are pre-approved, people that have thought about getting into the market, but either they're priced out- Mm … or they're nervous because of affordability- Mm … or there's just nothing available for them right now.

Christian: [11:10] Yeah.

Dan: [11:11] And so we have all these people now, and I'm just a tiny little mortgage guy up here in Seattle, and there's thousands of us, and there's banks and credit unions that have the same situation or scenarios going on. Yeah. So I think as rates drop, I think the magic number's gonna be right around 5%. Yep. When they get to that point, you're gonna see homeowners go, "You know what? I can swallow five. I can't seven." Yep. And so they're gonna be like, "Okay. I can exchange a 3% for a 5%. Christian, will you list my home? We're gonna make a move."

Christian: [11:38] And this is the exact same thing. Zillow just released a study last week basically saying the same thing. Mm-hmm. They surveyed homeowners that want to sell but aren't.

Dan: [11:46] Mm-hmm.

Christian: [11:47] And they said, "Hey. At what interest rate- Yeah … would you actually consider- Yeah … selling?" Yep. And they said, "If it starts with a five- Yeah I would consider it."

Dan: [11:54] Yeah.

Christian: [11:55] So it might be 5.75. It might be 5.25. Yeah. Who knows? But- Yeah … if it starts with a five, that's- Yeah … when they're gonna see more inventory- Yeah … on the market. Well, and it is- I don't think it's gonna be a flood of inventory.

Dan: [12:05] No.

Christian: [12:06] I think there's gonna be way more buyers- Yeah … at that time.

Dan: [12:09] Yeah.

Christian: [12:10] We might see more inventory, but we're gonna see- Yeah … way more buyers. So supply and demand is still gonna be- Yeah … so out of whack. Home prices are still- Yeah … gonna escalate very quickly.

Dan: [12:19] Yeah.

Christian: [12:20] And it, it's just, it's not gonna change anything. Right now it's- Yeah … already competitive. Even- Yeah … with these high rates, there's still a ton of buyers buying.

Dan: [12:26] Yeah.

Christian: [12:27] Because- Yep … they're smart. Yep. They're going, "Hey. There's not as much competition right now."

Dan: [12:31] Yeah. " Speaker: I'm gonna buy right now with this higher rate, knowing that in 6 to 12 to 18 months- Yeah … when rates do get down lower, I'm gonna refinance for free." Yep. " Speaker: My lender will do that for me-" Yep … 'cause Dan's awesome. Yep. " Speaker: And I'm going to benefit from this higher, or this, this lower home purchase price of-" Yep … right today. Yep.

Christian: [12:52] Refinance into that lower rate whenever it happens, and enjoy the appreciation- Yeah … ride over that time.

Dan: [12:57] Yeah.

Christian: [12:57] That's what's gonna happen.

Dan: [12:58] Well, think about it this way. That home buyer that you just described is trusting their lender, trusting their realtor, okay? Yes. There's some risk in that- Mm-hmm … because there is a chance, a small chance, but there is a chance that we could completely be wrong.

Christian: [13:15] Totally.

Dan: [13:16] Right?

Christian: [13:16] Yeah.

Dan: [13:17] Anything could happen in our economy. Yes. We've got an election year coming up. Yep. We've got things that are going on across the world right now. Yeah. I know you have a property in Hawaii. Yeah. All of this stuff. Craziness, right? So anything can happen, and that is a slight risk. Yeah. Okay? But it's a smart move. Exactly. That's a really smart move. Yeah. But here's, here's the thing. The people that are gonna wait- Mm-hmm … to 2024 for rates to drop, I want you to think about this. Let this sink in real quick. Remember 2020, you and I were doing a home buyer class, and I can remember, it was literally a week- I- … before we got shut down. Yeah. Right? I remember this too. And we always would put on the board what today's going rates are, and affordability and, and some scenarios. And it did have a five on it. We were in the low fives. Yeah. Low to mid fives at the time. Okay? Yeah. So think about this. Interest rates went from, let's just say 5.375, and once COVID hit, shutdowns, economic stimulus pullback, let's just give it a month. We saw interest rates in the low to mid threes. Yep. So less than a 2% drop in interest rates, okay, and home buyers flooded the market. Flooded. Okay? It was perception. Yeah. It was five, three, that's a deal. Yep. Okay. We've been conditioned for the past almost two years- Yep … seven to 8% 30-year fixed rates. If rates drop to 5%, which I'm hearing a lot of economists are thinking they'll be in the fours. I'm not promising that to anyone. No. I'm saying I think we're gonna see five. Yep. If rates dropped into the fives, potentially into the fours, you're gonna see even crazier- Yes … numbers than we saw during COVID, right? Yep. For, in regards to savings. Yep. So I just think y- you know, we've, there's been a conditioning over the past couple of years- Totally … of seven, 8% 30-year fixed rates. You drop that to five, you're gonna see all these home buyers flood the market. We're gonna be right back to 2018, '19, 2020, where you're gonna have a listing. It's gonna be listed for 870, and it's gonna go for 1-1. Yeah. You know what I'm saying? Oh, it's happen- With 35 offers.

Christian: [15:18] I already had one. Had one, like, a month ago- Yeah in Green Lake. Listed it for 1-1-1. Mm-hmm. And it went for 1-3. Yep. 200,000 over, six offers. Yep. Didn't even take 34 offers this time.

Dan: [15:29] Seven plus interest rates. Yeah. Right?

Christian: [15:31] Yeah.

Dan: [15:31] Yeah.

Christian: [15:32] They weren't cash.

Dan: [15:33] No.

Christian: [15:33] They put 10% down, I think.

Dan: [15:35] Yeah.

Christian: [15:36] Yeah. It-

Dan: [15:37] Yeah.

Christian: [15:37] It's already happening.

Dan: [15:38] Yeah. So it's, you gotta know the data. Yep. And if you can understand this now, I would rather see someone take the risk right now, buy right now. At some point, someday, rates will come down. Yes. Okay? So you will be able to lower that. But you can't, I always tell clients this, you can always go rework your mortgage. You can't ever go back and re-buy the house.

Christian: [16:00] Exactly.

Dan: [16:00] Lock in the house- Got to lock in that price … at the price point right now.

Christian: [16:03] All right. So people that have golden handcuffs, meaning they have a low rate, but they're stuck in a house they don't really like or doesn't work for them or whatever. Mm-hmm. And they want to move up to a better house that does make sense for them. The three options that they have are- Mm … they can stay in the house and do absolutely nothing.

Dan: [16:20] Mm-hmm

Christian: [16:21] Stay with that low rate, enjoy it, but you're in a crappy house you don't like. Mm-hmm. Maybe it's not a crappy house.

Dan: [16:26] Yeah.

Christian: [16:26] I say that, it's not truly crap. Yeah. It's a house you like at one point, and it just doesn't make sense for you anymore.

Dan: [16:31] Mm-hmm.

Christian: [16:32] Second option, buy another house and sell the house that has that low rate That's an option. Third option, buy a new house, keep the old house.

Dan: [16:41] Mm-hmm.

Christian: [16:42] So let's go over these a little bit more in depth. So if the numbers make sense for you, keeping your current house with its low rate, and because of that, a low monthly payment, and then buying a new house often, not always but often, can make the most sense.

Dan: [16:59] Yeah.

Christian: [17:00] And the reason why is because you got that low rate. You might be able to break even or cashflow or maybe just lose a little bit every single month on what the rent payment and what your mortgage payment is.

Dan: [17:10] Mm-hmm.

Christian: [17:11] That's an easy way to become a landlord.

Dan: [17:13] Mm-hmm.

Christian: [17:14] By doing this, what you get to do is you're also buying that other house. Now you got two properties.

Dan: [17:20] Mm-hmm.

Christian: [17:21] When home prices go up, which everyone is predicting that they will-

Dan: [17:24] Yep … Speaker: you're gonna get double appreciation. Both homes are gonna continue to go up in appreciation. Cash flowing in the Seattle area is a little tough. Mm-hmm. It's not easy to find cash flowing homes. Mm-hmm.

Christian: [17:35] But with low rates, it's much more likely that you could do that. So if you are financially able to keep that house with the low rate and buy that next one, that's always the preferred option for me- Yep … in my opinion. I am a landlord. I love being a landlord. It's not as hard as everyone makes it seem. You just gotta do the right steps, and I can always educate people on that. That's another day. The other thing with that too is that you could still sell that house in a couple years- Yeah … the original house that you had that has that low rate. If it's just not making sense and you don't like it, sell it in a couple years once the home prices have gone up.

Dan: [18:12] Mm-hmm.

Christian: [18:13] Cash in on that equity. Maybe use that to buy something else that does make sense as a pure rental. Yep. Or use it to buy down your, your loan balance on the current house, the new house. Or just keep it. Invest it in something else.

Dan: [18:27] Mm-hmm.

Christian: [18:28] Like, there's a lot of different ways you can use that capital. The nice thing is, since this was their original owner-occupied home- Mm-hmm … if they've lived in it two of the last five years- Mm-hmm … the way the tax code's set up right now, you can actually make, if you're married, up to $500,000 tax-free.

Dan: [18:48] Yeah. Yeah.

Christian: [18:49] Tax-free. Yep. If you're single, it's half of that, $250,000 tax-free. Yep. So it makes a lot of sense to try and do this if you can handle it, if it makes sense financially.

Dan: [19:00] Yeah. They're actually giving you a chance to say, "Hey, give it a shot if you want." Yeah. Yeah. "Hey, try this out. Look how the cashflow looks. Look how being a landlord looks." You got a handful of years to say, "Ah, I don't like this," to still sell that and, and reap the benefits of, uh- Exactly of, uh, not having to pay taxes. And the

Christian: [19:18] thing that a lot of people get caught up on is- Mm-hmm … they see, "Well, I'm only breaking even every single month." Mm-hmm. "I don't wanna just break even. I don't wanna lose money. I don't wanna lose 200, 300 bucks a month." Okay, but long term, let's look at this. In two years, just two years- Mm-hmm if you held it and home prices went up 5% each year That's gonna way outweigh the amount appreciation, is gonna way- Yeah … outweigh the amount of money you lost every single month.

Dan: [19:45] $700,000 house goes up $5,000 or 5% a year, that's 35 grand, times two, that's 70 grand. Yeah. So what's that old, uh, saying? You're tripping over dollars to pick up pennies. Yeah, exactly. Sometimes you just need to have a d- a little bit different perspective- Yeah … and understand that. Exactly. Yeah.

Christian: [20:02] Yeah.

Dan: [20:03] Wow.

Christian: [20:03] So, yeah, and then also when you have a rental property, you have a lot of extra tax deductions. Mm-hmm. Depreciation, interest payment- Mm-hmm … all those things you can deduct. So it can eliminate some or reduce some of your taxable income- Yeah … which is always necessary. Yep.

Dan: [20:19] Yep.

Christian: [20:19] The next thing, how do you qualify to buy a house if you do have that, that lower interest rate on the current home, and you're gonna keep it? Like, how do people do that, Dan? This is why I wanted to- Yeah bring you on.

Dan: [20:31] That's the number one concern. Mm-hmm. It's the number one fear that I think keeps people from even reaching out to a real- Yeah … estate agent like you or a lender like me because they think that because older pre-2015 mortgage guidelines would have required you to put 20% down on the new home- Mm-hmm or more money down on the new home, or you'd have to qualify with both mortgage debts. Um, both of those are inaccurate, so-

Christian: [20:55] That's good to know … Dan: I just need a lease agreement and an earnest money deposit or basically first month's rent, right? Showing- Like a security

Dan: [21:04] deposit type thing. Yeah. Yeah. A security deposit showing that you actually have a real tenant, and you're not trying to manipulate mortgage guidelines, right? Got it.

Christian: [21:10] Yeah.

Dan: [21:10] So- Which you'd

Christian: [21:11] never do that, by the way.

Dan: [21:12] No, don't do that. It's not worth, uh- No … going to jail. Yeah, they came… They cracked down really hard on that after the last housing crash. They're like, "We're not gonna do this thing again." Yeah, no. So if you wanna break the rules, you're gonna pay the, you're gonna pay the piper. Yes, as they

Christian: [21:22] should. So,

Dan: [21:23] so that's the biggest myth there. So number one, if you could do that. Number two, if it's a conforming loan, which in King County, Snohomish County, and Pierce County, as long as it's, like, right under a million, the loan amount- Yeah. Not the purchase price- Not the purchase price- … but the loan amount but the loan amount, you can put 5% down.

Christian: [21:40] Yeah.

Dan: [21:40] That's huge. You don't have to put 20% down. Yeah. So I made an Instagram video on this, shoot, like two or three years ago, and it was one minute or less on how I teach first-time home buyers how to create wealth. I know you teach this, too. Yep. Buy a house with minimum down, your first home- Mm-hmm 5% down, 3% down, whatever it might be. Live in it for a year. Do it again 'cause I get, we get people coming to us all the time. They go, "Hey, I have $200,000 for the down payment." Awesome.

Christian: [22:04] Yeah.

Dan: [22:05] Really cool. Great job. Yeah. But what if you just took 50 of that, put it down on a home, lived in it for a year, take another 50, go buy another home, live in it for a year, rent it out. Yep. Go buy another home. Yep. And you spread out that $200,000 over three or four homes. Yeah. That's a way to… You gotta think bigger, but that's a way to create long-term wealth in real estate. Yep. So same holds true here. We're seeing this right now, or you as a consumer or a homeowner is seeing this, "Oh, I got a 3% rate on a home that I'm living in. I'm handcuffed," right? A lot of people are seeing this as an opportunity. So I'm, I read an article the other day and actually did a blog, uh, video on it called ac- being, homeowners are turning into accidental landlords- Yeah … that are turning them, helping create wealth- E-

Christian: [22:48] exactly … Dan: for them. Yes, yeah. This isn't a bad thing. No, not at all. So looking at it the way you're looking at it is a great approach. All right, so now that you've kinda demystified that it's hard to get a mortgage when you- Mm-hmm … already have a house, 'cause it's not necessarily. No. I mean, obviously you gotta qualify. Mm-hmm. That's what it boils down to.

Dan: [23:06] You gotta qualify for the new one. Yeah. Like, if you get a lease agreement that's help- that's showing that you can cover your mortgage payment, for the most part, that mortgage debt is- Right … set off to the side. Now we're just go- take your income, your debt, and focus that on the new, the new price. Yeah.

Christian: [23:19] Yeah. Yeah. So h- if they don't have the cash- Mm-hmm on hand, how do they afford it? What are some options that people have?

Dan: [23:28] Yeah. So we're seeing a lot of people… So I don't offer these, so I've had to go out in the community and find some local banks and credit unions that have access to, to HELOCs, home equity lines of credit.

Christian: [23:39] Yep. Which we have a whole podcast episode about these- Mm-hmm so if you are interested, just look back. Out of our 105, 6, 7 episodes- Yeah … there's one all about home equity line of the credit. HELOC is the, the term.

Dan: [23:50] Yeah. They… What you can do is you can go pull a HELOC, a home e- a line of credit against your equity- Mm-hmm … and use that for a down payment. Yep. You can use- Which a

Christian: [23:58] lot of people are doing, by the way.

Dan: [24:00] Yeah. You can, which we just saw this the other day. We had a client that was unhappy with the, how their 401was performing, so they did a loan against their 401. Yep. There's another way where you can get gift funds. So here's the thing, if you're buying an investment home, you can't get gift funds to buy an investment home. We're not buying an investment home. No. We're renting out- You're- … your existing. You're gonna go buy- Yep … another owner-occupied home. Yep. You can get gift funds from a family member or, you know. So there's gift funds, and then the other is just, "Hey, I got money in the bank and I'm gonna put some money there," and you can always- Yeah go do a home equity line of credit down the road to replenish the money that you put down. Exactly. So yeah, there are options there.

Christian: [24:36] Yeah. So one question that I hear a lot is, what happens to the current loan and interest rate on the house that I already have? Mm-hmm. What happens to that when I move out? I'm not owner occupied anymore. Does that interest rate now change?

Dan: [24:50] That's a really great… So by law, no, it cannot change. Yeah. It can- it's a fixed rate for a reason, right? Yep. So it cannot change, and lenders are not i- in the business of going back and reworking loans. So again, e- let's say you broke the law and you broke mortgage guidelines, and you bought a home, and you lived in it for three months, and you're like, "I'm gonna go buy another one." It would be more difficult to go buy that other one because that new mortgage company or bank is gonna see on your credit report that you have an owner-occupied mortgage- Yep … that hasn't been seasoned, if you will, for 12 months. Yep. So the general rule of thumb, if you've lived in that home, which if you have a 3% 30-year fixed, you've lived in it for more than a year.

Christian: [25:31] Yes.

Dan: [25:31] We haven't seen those rates in a while. So the general rule of thumb is if you bought a home, owner occupied, and you lived in it, you occupied it for one year- You're free to do whatever you want with that Keep

Christian: [25:43] that loan in place- Yeah … that interest rate in place. It is there for the length of the term of your mortgage. Mm-hmm. If you got a 30-year fixed mortgage, it's fixed for 30 years- Yep … even if you don't live there anymore.

Dan: [25:53] Yep.

Christian: [25:54] Even if you bought it as owner occupied-

Dan: [25:56] Yep … Speaker: because that's how its system- that's how the system's set up. That's how it is. Yeah, there's no audits. There's no post… I've not

Christian: [26:03] seen in 15 years- And you're not breaking the law either. No. You're

Dan: [26:05] not

Christian: [26:05] breaking any rules. Nope. This is how it's set up. We're

Dan: [26:07] giving you- Yeah … regulations and guidelines today. Yep.

Christian: [26:10] Yep. All right, so what if you don't wanna keep it as a rental? Mm-hmm. And is it financially smarter to sell and buy a more expensive house at a higher rate? Can we go over some of these numbers to help… I know this is kind of demystifying another myth that a lot- Yep … of people have right now. So what are… Are you actually financially better selling your, your current house- Mm-hmm … at that low interest rate and buying a bigger, better house that fits you better?

Dan: [26:34] So this is where working with a professional versus a salesman is gonna come into play. Yeah. Okay? Because when a client… I take this very seriously. If a client were to come to me with this scenario-

Christian: [26:46] Which I'm sure you have only heard, uh, four billion times in the last, I don't know, year

Dan: [26:50] Yeah. And it's y- And, and, I know you as well. Yeah. And you gotta be careful the advice you give here, because you are in a really good situation. A 3% 30-year fixed, your debt on that, that property is gonna be very low. I'm sure that you can easily stomach it with your finances. So when this scenario comes an- and I'm presented with a scenario like this with a client, I'm gonna ask them, "What, what's the driving factor that's wanting you to look, h- to have this conversation with me today- Yeah about selling your home, taking that equity?" And I just call it, it- it's a transition homeowner, right? Yep. You're transitioning equity from one home to another. A lot of the times it's we outgrew it, there's been a de- you know, maybe a separation- Yep … change in the family status, more kids or whatever, size, or school districts, job.

Christian: [27:39] Or we got a better job and we're making way more money, and-

Dan: [27:42] Yeah … Speaker: we wanna be closer to our new jobs. Yeah. The reason why you and I were so busy in 2020 through 2022 is that with rates being low, people are like, "Ah, never really thought of this, but what the heck. Why not?" Yeah. "We can go buy that $1.1 million home instead of living in our 800." So makes sense. Right? Yeah. Because of affordability. Exactly. Now it's a lot more serious. It's there's something driving that. If what's driving that makes financial sense to go make the move, now we're having a conversation that looks like this. And, and again, if you're on the podcast, go over to YouTube and so you can see the graph that we're gonna put up on the screen. Yeah. But the scenario that we took is a client that bought in, let's just say 2020, 2021. They bought a alm- a $875,000 house, for example. Yep. And they put 10% down. I think that was the scenario. They t- put 10% down, they have a 3% 30-year fixed. So their total monthly payment with taxes and insurance is about $3,800 a month. Yep. Okay? The home that they really wanna buy now, of course home values have gone up, the home that they really wanna buy right now that would meet all of their needs is priced at 1.1. Yeah. Okay?

Christian: [28:46] This is a very common scenario.

Dan: [28:48] So it's a common scenario in this, in King County.

But here's the thing: [28:50] they're going from a 3% to a 6.875% rate. Now, we're not gonna go too deep here. There's buydown options, which we do have a podcast on that. Yep. Ways to lower your rate, and all this stuff. But let's just, let's not talk about that right- let's just go apples to apples right now. 3% 30-year fixed to today's 6.875, for example. Your payment's going from $3,800 a month to almost $6,400 a month. That's a big jump. What is that? Big jump. Like $2,600 a month jump.

Christian: [29:18] Yeah, yeah.

Dan: [29:19] So the first thing I'm gonna do, we're gonna look at your debt, and we're gonna look at your income, and does that impact, that jump of $2,600 a month, severely impact your quality of life and your finances? Yeah. Most of the time in these scenarios, it's not. It's tightening things up a little, but it's not- You're not

Christian: [29:38] house poor. You're n- We never want anyone to be house poor.

Dan: [29:40] No, correct. And we don't want you eating Top Ramen every single day like I did in college. And so- Exactly … you know? Yeah. And so we'll look at that. And if that is something that you can stomach- Mm-hmm now we're gonna look at this, and this is the determining factor. If you were to look at, I just like to use this, a five-year window. Yep. So your total net worth, does your total net worth increase over the next five years or not by making this move? If it does, then let's look at this and let's potentially do this. So-

Christian: [30:07] And I think just so you know, everyone listening, I think this is the most important part we're gonna make in this entire podcast- Yeah … is right now. So make sure you're paying attention.

Dan: [30:15] Pay attention to this 'cause a lot of lenders and banks and cre- they're not really focused on this. They're not giving this kind of advice, and I think this is the advice you need if you are helping someone that you care dearly about, which we care about our clients dearly, but let's just say, hey, you're gonna help a family member, and a family member came to you. Christian, off the record- Yeah … should I do this? Yeah. And this is how I

Christian: [30:35] would approach it. This is the same data that I'm looking at it myself.

Dan: [30:35] Yeah. You're an invest- I always put myself in their- As an investor, yeah … Speaker: in their shoes. Yeah.

Christian: [30:38] Yeah.

Dan: [30:39] So the way I'm looking at this is total net worth over five years, and let's just use a round number. So CoreLogic, um, there was Black Knight, uh, Zillow, a bunch of, um, entities came out last month, and they showed where we were at for home appreciation for 2023. We're on track, and they're predicting anywhere between 5 and 10% year-over-year appreciation for 2023. So let's just kinda split that down the middle. I chose 7% appreciation. Okay? That's fair. Yeah. Which is congruent with the last 40 years in- Yeah … in the US. Yep. So 7% appreciation- On an $875,000 home is, let's just say $60,000, okay? 7% appreciation on a $1.1 million home is a little bit different, isn't it? Yeah, yeah. Okay? It's a little bit more. So now you multiply that by five. Mm-hmm. You've just increased your total net worth based off of appreciation because you're driving a more expensive vehicle that's appreciating. Yep. Okay? So from a net worth standpoint, it makes sense. Mm-hmm. Okay? Now here's the kicker. I do believe, like at the beginning of the podcast, the interest rates are gonna come down. Yep. So let's say you refinance a year from now, or less, to 5%. Mm-hmm. Now you're only paying about $1,500 a month more for this house- Yep … that's gonna go up in value a little bit more than your other one, and it's meeting all of your needs.

Christian: [32:08] Yeah.

Dan: [32:08] So it's a decision that you have to make. But by knowing these numbers, it helps you make that decision with more clarity. Yeah,

Christian: [32:15] yeah. So to recap, does it make more sense to sell your house at a lower interest rate and buy a bigger, more expensive house at a higher interest rate? What I think I just heard you say is, with your net worth on that bigger, more expensive house, it's gonna go up more. If home prices go up 7%- Yeah … 7% on an 875 house is gonna be less than a, a 1.1 house.

Dan: [32:41] Mm-hmm.

Christian: [32:42] Now, buyers are gonna go, "Well, yeah, but my monthly payment doubled." Yeah, it did. But doubled over- Mm-hmm … let's say, even two years. That's still way less than how much the home is gonna go up.

Dan: [32:56] Yeah.

Christian: [32:56] And during that time, at some point, interest rates may, probably, most likely, will drop down- Yeah and you can always refinance into that lower rate at that point. And the lenders are gonna do that at no cost to you. Yep. So it kinda makes sense to make this move.

Dan: [33:10] The report here on the screen shows you over a five-year window, just shy of $100,000 increase in your total net worth- Mm-hmm … by purchasing up with a higher interest rate than staying, than staying put, so,

Christian: [33:23] um- And this is what we've been showing to a lot of clients right now. Yeah. And it's helping them make a decision one way or the other- Mm … if they wanna do that. And a lot of them are making that choice to do it.

Dan: [33:30] Yeah, yeah. But let's go back real quick, 'cause I think it's important to know. Yeah. In a perfect world, I would love to see my client keep the house- Same … rent it out- Yes and then figure out a way to buy the new one. This particular scenario made sense because they took, of the $400,000, so get this, of the $400,000 they would get from the sell of their home, they took 300 of that, put it down, and then invested the extra 100. So that was kind of a win-win scenario.

Christian: [33:59] Yep, yep. All right. So I think big picture, doesn't make a lot of sense to stay in a house that doesn't make sense for you. Mm-hmm. I think that's really what it boils down to here. Whether you do nothing, which we don't really recommend to do- If it doesn't make sense for you, look at and explore the options that you have. We are happy to chat with you. We will do a free strategy session call with you. There's no obligation, no cost, no nothing. It's not a hard sale or anything like that. We're literally just gonna give you the data based on your specific situation to help you make that informed decision. Yeah. So if you wanna do that, go to our website, AwesomeNossumGroup.com/schedule. Schedule a strategy session. We'll try and get Dan on the same call with you, and we'll go over all of your options, give you the data so that you can make that informed decision. And if it makes sense for you, then we'd love to help you out. If it doesn't, no harm, no foul. You got the info. You don't regret anything- Mm-hmm 'cause now you made that smart, informed decision.

Dan: [34:59] Yeah.

Christian: [34:59] Now, if, if you are ready to do that, obviously reach out. If you're not, no big deal, just keep learning, keep educating yourself. Buying a house and owning a house is an investment and should be looked at as an investment. If it makes sense financially for you and for your lifestyle, then maybe you keep doing it. That's why we keep doing this podcast as well. We're not doing this just for fun. We love to educate our clients so that you guys are always informed on what's going on. So thank you so much, Dan, for your time today. Yeah. Do you need to give your MLLS number? I don't know what they have.

Dan: [35:34] Well, if you're on YouTube, it's on the screen. But yeah, my MLO number to make sure- There you go, MLO … we're all legal. Yeah, my MLO number is 115349, and no, this was great. We, uh, we love teaching, and this is stuff that is kind of next level. Yeah. And this is… Let's, we're trying to raise the bar in both of our industries. Totally. This is what you should be getting from your lender and your realtor. This is a big deal.

Christian: [35:54] Yes.

Dan: [35:55] Big financial decision. It's

Christian: [35:56] a very, very big deal. Yeah. I'm not seeing a lot of people unfortunately talk about it, though. Yeah. So this is why I wanted to make this podcast- Yeah … why it's such a more in-depth than normal podcast, because it really is important for you to have this knowledge- Yep as a homeowner that is trying to make that decision right now. Yeah. So thank you so much for listening. Yep. We'll see you next time on the Awesome in Seattle podcast. See ya.