Mortgages with Brooks Kelly

Mortgages and the housing market are a hot topic for?Falcon Wealth Advisors?clients, and Jake and I are pleased to have mortgage agent?Brooks Kelly?on?Upticks?this week. Brooks is based out of Dallas and is a partner at The Mortgage Link, a nationwide lender. A summary of our conversation is below.

Jake:?Brooks, I know you’re based in Dallas, but work with clients all over the country—much like Falcon Wealth Advisors, as we have clients in more than 30 states. What type of client do you work with?

Brooks:?Thanks, Jake. The Mortgage Link is licensed in 22 states and I’m licensed in 12 of those, including Kansas and Missouri. We help clients with everything ranging from first homes to secondary homes to investment properties. Most of my business is done via Zoom these days, especially as I work with people all over the country.

Jake:?A lot of people assume they should just work with their local bank to get a mortgage. How is working with a mortgage lender like The Mortgage Link different?

Brooks:?Simply put, we offer a different level of service. We do one product only: residential mortgages. We aim to communicate, provide excellent service and close on time. Banks don’t have the expertise or knowledge to do the same. And they don’t have as many products as a lender like The Mortgage Link, so it’s possible they can’t even offer the right mortgage option for you.

Not to mention, if you work with a bank and not a local lender, your offer on a house goes to the back of the pile, as realtors know banks sometimes don’t close on time or properly vet clients. In a competitive environment like the one we’ve seen in recent years, you obviously don’t want to have to start from the back of the line.

Jake:?That’s similar to how we operate at?Falcon Wealth Advisors. While we have strong tax planning capabilities, we wouldn’t claim to be able to replace a client’s accountant. We want to stay in our lane and focus on financial planning and investment strategy.

Brooks, because you’re not at a bank, does that mean you can shop around for different mortgage products for your clients?

Brooks:?It does. Mortgages are essentially a commodity, and we can work with 35 different investors that offer mortgages. Certain banks move their rates up and down, but we can connect our clients with 35 different options and choose the one that’s right for them. Once we work with our client to choose a loan, we can process, underwrite, close and fund that loan in-house.

Cory:?How have rising mortgage rates affected mortgage applications?

Brooks:?We saw applications fall dramatically last year, though a decent number of buyers remained interested, as this market opened up opportunities for people who weren’t or didn’t want to win bidding wars last spring. But as more people recognized this opportunity, we got considerably more busy after Christmas and into January. People have gotten used to higher rates and buyers who can afford the payment are back in the market.

Jake:?And even though rates are higher than recent years, in Kansas City, the number of potential buyers still exceeds the supply of homes available. Are you seeing the same phenomenon in Dallas?

Brooks:?It’s the same in Dallas, especially with so many people moving here. We have 1-2 months worth of inventory, but a healthy market would have 4-5 months worth—we haven’t seen that in several years. We’re hoping some more houses will go on the market this spring, but prices are continuing to rise.

Jake:?I want to note our discussion today shouldn’t be considered advice. Anyone reading this should work with qualified mortgage and real estate professionals. But with that said, what are some tips you have for first time home buyers, like Millennials who have finally saved enough for a down payment?

Brooks:?The first thing they should know is you don’t need to put that much money down to buy a house. You can get a conventional loan with a 3% down payment. There’s no reason for anyone to wait until they can put down 10% or 20%, because home prices are going to continue to rise, and demand will continue to outpace supply.

Jake:?That’s a good point. Obviously, it’s ideal to avoid having to pay private mortgage insurance (PMI), but it’s good to reiterate that 20% isn’t required.

Brooks:?I actually think PMI is something we should welcome. It takes the average buyer seven years to save enough for a down payment, and the appreciation on the house you’re going to lose in those seven years will be greater than whatever you pay in PMI. And PMI prices are friendlier for buyers than ever. I’ve seen people with good credit scores not put much down on a $300,000 house and only have to pay about $130 a month in PMI.

Jake:?Cory, didn’t you have a personal experience with PMI?

Cory:?I did indeed. When my wife and I bought our house in summer 2020, we put 7-8% down, but a year later the home value had appreciated enough that the PMI was canceled, because that 8%, plus the money we paid on our mortgage, became 20%.

Brooks:?We see that a lot. According to the expected PMI schedule, a buyer will often have to pay PMI for 8-11 years. But in reality, the home’s value often rises enough to lead to that PMI being canceled earlier. If you bought a home in the last couple years and suspect its value has risen considerably, contact your lender and see if it’s worth reevaluating the value of the home.

Cory:?Let’s now talk about families who want to move from one home to another. We all know about families who begin with starter homes before moving to larger and nice houses. What tips do you have for these people?

Brooks:?We’ve talked with a lot of people who have a low interest rate on their mortgage, as they’ve lived in their home several years, but they’re just not in the house or area where they want to be long term. Even with that low interest rate, staying in the home doesn’t fit their lifestyle, because owning a primary residence is about having a home for you and your family.

I would encourage potential buyers not to let interest rates hold them back. You will have the opportunity to refinance if they come down, of course. If you’re comfortable with the monthly mortgage payment and would be happier in the new house, I think it’s worth going for it.

And if you do have a low interest rate on your current house, rather than selling it you could keep it as a rental property and hopefully let its value continue to grow.

Jake:?And the price you buy and sell a home for is more important than the mortgage rate, right? We don’t know when or if rates will go down, but many people believe they will.

Brooks:?Absolutely that’s correct. There are not too many opportunities to get a deal these days.

Jake:?Let’s now talk about people who are preparing for retirement or already retired and want to downsize. What tips do you have for them?

Brooks:?The equity in their home has likely no been as high as it is today. Hopefully they can “cash out” and buy a smaller home and have a much smaller mortgage, or even no mortgage at all. If you’re a seller, it’s an excellent time to capitalize on that low supply of homes we mentioned. And it’s spring, a time when many buyers are looking to make a move.

If you’re at least 62 years of age, it may be worth considering a reverse mortgage. A reverse mortgage can eliminate your mortgage payment and allow you to stay in a home you enjoy, while increasing your cash flow.

Jake:?I think?reverse mortgages?have become more useful than when they were first introduced.

Brooks:?And you can do a reverse mortgage after buying a new home, too. If you don’t want to pay cash for a house, you could pursue a reverse mortgage after closing on the house.

Cory:?Are there any other mortgage products people should consider right now?

Brooks:?It may be worth discussing?non-qualified mortgages. These can be helpful for self-employed people who write off most of their income. There’s still a qualification process involved in non-qualified mortgages, but it may involve a bank statement, for example, rather than taxable income. Interest rates on these types of products are usually a point or two higher, though.

Jake:?What is the interest rate on a 30-year fixed mortgage right now? I know it changes all the time.

Brooks:?For a conventional mortgage, you’re in the low-to-mid 6% range, maybe in the high 5s.

Jake:?How about adjustable rate mortgages, are they being used more?

Brooks:?We get a lot of questions about them, but it’s difficult to find a good one because so many lenders don’t offer them. We’re more likely to use an ARM on a jumbo mortgage loan.

Jake:?As we wrap up our conversation, any final thoughts you want to share with readers?

Brooks:?I would encourage some buyers to explore a?temporary buydown?on their mortgage, which allows you to achieve a lower interest rate for the first two years of a mortgage. Temporary buydowns have to be funded by the seller, but can of course be negotiated into the contract.

Finally, I tell clients you have to be in the market to take advantage of it, just like the?stock market. Use the options available to you and buy a house that you’re comfortable with.

Jake:?Thanks so much for joining us, Brooks. If you’re reading this and would like to speak with Brooks, please contact?Falcon Wealth Advisors?and we would be happy to connect you. And if you want to discuss how real estate fits into your?financial plan, we would of course love to talk. You can reach us directly at?[email protected]?and?[email protected].

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.