The Real Cost of Waiting to Buy a Home

I've spent over three decades helping people think clearly about major financial decisions, and buying a home is one of the biggest. So, I sat down with mortgage expert Tyler Crowley to talk about what's really happening in the housing market and to answer questions like, is the housing market, is it broken or is this just a new normal? Why didn't rates crash the market like everybody thought they would? If they're going to buy a home in the next 6 to 12 months, what's the one thing they could do that would cause them to have a lot less pain later?

So, Tyler, we're talking about mortgages. So, here comes the first question. Is the housing market, is it broken or is this just a new normal?

Well, I guess it depends on what you mean by broken. So, if you mean from a residential perspective, from a borrower perspective, not necessarily. It's more broken in the sense that the industry has changed. That the way it used to work is not going to work the same way it used to. For example, you're seeing less loan originations, realtors are getting less business. So, I don't want to say it's broken, but like I said, it's changing and you're seeing sort of, I think existing home sales were at 25-year lows last year and mortgage originations are around 20-year lows. And so, like I said, you're seeing less activity, but from a consumer perspective, if you own a house, it's not broken.

So, I want to come back to that.

Okay.

But before I do, let's talk interest rates for a minute because not too long ago, a year or two ago, everyone said if rates keep going, if they get high enough, they crash the market.

Yeah.

Right? They crash the real estate market. That didn't really happen.

No.

So, we saw rates get above 7% for a minute. It didn't crash the housing market. In fact, we saw housing continue to sell, albeit at a slower pace.

Yes.

It feels like more of a correction now than when rates capped or peaked at around 7%. So, why didn't rates crash the market like everybody thought they would?

Well, I think it's because it's a kind of fundamental misunderstanding of the mortgage market where a lot of people thought that it was rising rates that caused 2008, which is a whole 'nother conversation. But if that was the case, it was because it was adjustable rates that were, someone was at 5% and then all of a sudden adjusted to 8% and all of a sudden that payment was unaffordable. That can crash a market. But if you're locked in at 4%, 3%, some people are 2% and rates go to 8%, it doesn't impact you. It only impacts future buyers, which goes back to what I said when we started, which is it's impacting the current sort of business model, where borrowers are facing higher costs. But the people that are in their home are not being impacted because they have a fixed rate and so rates jumping up is not going to be an impact.

Now, if you're trying to sell your house, that could be a problem. But the equity gains that we saw from 2020 to 2024, even if you do see a 10, 20% dip in home prices, which we haven't seen, but even if it did happen, you're still sitting on 60, 70% equity. And so there's not going to be that crash that you saw with the adjustable rates where all of a sudden you couldn't make your payment, tried to sell your house, but you were 20% under water. There was no economic theory that says that if rates go up, you're going to see housing crash unless there's some problem with housing or lending.

Well, suffice it to say, everyone got so used to 3% money. So, for things to be at five or six or seven,

Yes.

naturally it made a lot of people think this must be the end.

Yeah.

But, if you go back just a few decades, 6 and 7% was quite normal.

Yeah.

That wasn't unusual. So, today 3% just a few years ago and now it, say what, 6% is today, none of that should really seem that unusual because it's really going back to what is more normalized versus what I think was free money when we were in the 2 and 1/2 or 3 range. That was unheard of and probably should have never gotten that low. I think that probably drove a lot of what we called the overpriced housing market in the first place. So, it was much easier for people to bid up a property

Yep.

or to be willing to pay more. Right? Would you agree with that?

Yeah, I think that it's the idea that I was actually surprised that when rates did go up, we did not see more of a pullback in home prices. So, I was never expecting a crash, but I thought, "Okay, we are going to see a correction in home prices."

Which did not happen.

Which that did surprise me to some extent.

Interestingly, we went back, here a few years ago, we did a study all the way back to 2015, '16, and '17 and we came to around 2024. So, this is about a year or so ago. And we were looking at pockets of real estate. And these pockets almost across the board increased 50 to 100%.

Yeah.

in 7 years.

Mhm.

One place in particular would be some of the beachfront areas, north and south. We saw that kind of appreciation. Some interior properties were increasing at that rate. So, not just in Wilmington or Topsail Beach or Ocean Isle, those areas, but more inland. And so, to do that, we believe that it had everything to do with low interest rates.

Yeah.

But then all of a sudden rates go up. We didn't see this major pullback. But as we're looking closer today, we're starting to wonder is there a correction going on that's not what most people believe is a correction? Is it a more quiet sideways correction waiting on this market to catch up to itself? Because we're actually seeing some prices come down. For example, I was talking to clients in Alabama today. They've put a home on the market, million-dollar property a year ago, has yet to sell, and has now been reduced by 15% and still nothing in terms of a buyer. Same thing in Topsail, we're seeing certain homes up there come down. So when we look at the charts, we're seeing little bits of pullback, not huge. To your point.

So is there some kind of a correction going on and we don't know it, and it's not so much a correction of prices coming down rapidly like we saw them in '08?

Yeah.

But is it just a potentially an opportunity for the buyer to come up to speed? Because so many of the buyers 10 years ago are not buyers today. Their income hasn't gone up enough. And they don't have the wherewithal to do it. So I feel like the buyer has been pushed out a little bit because of the high rates. Didn't necessarily bring prices down because as you said, if you already have a home financed at 3%, why is it hurting you?

Yeah.

Right? But is there enough buyers to keep that? And you said that mortgage applications have slowed a little bit. Do you see that coming back? Is that going to pick up? And then piggyback onto that, what's the difference today when we say that someone can qualify for a certain amount of money versus what they should actually buy?

There's a phenomenal book by Kevin Erdmann. I can't, I'm totally blanking on the title of it. But he wrote about 2008 and was essentially, it's about sort of the misunderstanding about 2008. And one of the things that he says that was so bizarre about 2008 was it was a countrywide collapse in home prices. Normally what you see in housing is certain markets falling based on what is happening in those individual markets.

Right.

Where markets where you don't see a lot of building, he calls them closed cities, places like San Francisco, places like New York, places like Boston, DC, where you don't see a lot of building, those markets should never collapse because they're always desirable locations for people to move. And so I think what was happening right now is regional declines. You go and look and see what's happening in places in Texas like Austin and Houston.

Yeah.

We saw massive construction. And what's happened is a lot of people are arguing there's some sort of cautionary tale about these cities. When in reality, homes are affordable because they built. They actually met the market. That's supposed to happen. But we're sort of told this idea that home prices are always supposed to rise and that they're always supposed to rise by a lot. And then COVID's kind of messed us up on that a little bit.

COVID and 3% interest rates.

Yes, exactly.

Put those two together, it's, and it seems like everyone's in agreement that everything should keep rising.

Yes. And the whole purpose of Erdmann's book is that we just didn't build enough. 2008 was based on this idea that we overbuilt and we didn't. And then we didn't build at all for about a decade.

Yeah.

And so what we're essentially facing is a shortage of housing. And it's hard to get people to wrap their heads around it because they were sold this bill of goods that we were overbuilt in 2008, and we weren't. And so, that's why we haven't seen that housing crash because only time prices can crash is if you have too much supply and not enough demand. And we don't have that problem. We still have an undersupply of homes, especially in desirable locations.

I think your argument is spot-on. The building can continue, and needs to continue. Therefore, home prices stay high as long as the supply is still not outweighing the demand. And right now, that's not the case. As much as we may not like all the apartment building, sounds like we needed it. At some point, we won't. And at some point, I wonder, that another show, but maybe does someone get stuck holding all of that? If we eventually get to that equilibrium where we don't need all this, but we'll save that for another show.

So, thinking about one, there's one element to this that makes me wonder, will we hit that equilibrium sooner rather than later? And that is because of what was a huge infiltration, if you will, so lots of illegal immigration coming to our country. Now, supposedly, a lot of that population being pushed out, does that change the picture in this supply and demand thing that you're talking about?

I think it does, but I think also at the same time, if there's one thing that we know about illegal immigration is that they do tend to stay under the radar. And so, the idea that they, first of all, they're not getting a mortgage.

Right.

Going to make that very clear.

Right.

There might be some confusion on that.

Right.

I don't, maybe some other cities, but a lot of times what you see with illegal immigrants is that you tend to see them occupying kind of a lot of people in one home. And so you'll see four or five maybe and they come here. There's no way, they're not going to be able to rent. You're not going to be able to get an apartment. You're not going to be able to get a mortgage. So what's going to happen is you're going to rely on friends and family. Right? And so a lot of that I think was just them piling into already existing homes.

Yeah.

Where what caused the COVID boom was essentially people after 2008 getting kind of gun-shy about kids moving out of their parents' house or maybe a couple staying together because they can't afford to get divorced. And then all of a sudden in this, home prices became more affordable or their incomes went up, all of a sudden you saw this massive increase in home formation.

Yeah.

And then that's what caused the demand. Like I said, it does exist with illegal immigration, but I think it does get sometimes over exaggerated because of how difficult it is for illegals to get access to living on their own.

I threw that question out because so many people keep saying, "Well, it must be that we're building all these apartments because of the illegals."

Yeah.

And I just don't believe that most landlords are renting to illegals, people with no identification, without the right credentials.

It's not the luxury apartments.

Right. Right. Probably not the ones, the luxury ones that we're seeing built in Wilmington for 2,500 bucks a month for a one-bedroom, right?

So Tyler, you've been in the mortgage business a long time. You know what this thing looks like. You know what it takes to qualify. Do you ever see someone get approved for a mortgage and you say, "Okay, on paper, technically yes, this passed"? But in a more personal way you're saying, "I'd be a little nervous if I'm that buyer." Do you ever see that happen?

I do that mostly because the issue that we tend to run into with loan officers is someone's income, what they actually make, is not what we're using to qualify them for.

So a lot of times you'll run into a couple where one of, the husband or wife's W-2 and the spouse has just started a business or they've been in a business but they're very good, they have a very good accountant and so it's showing much less income, or we can't even use their income because they haven't had the business long enough for us to be able to use it.

And that's generally what you want, at least three years on those returns.

Well, so it depends. You can do mostly two years is sort of the industry standard. I think if it's longer than five years you can maybe just use one, but it all depends on the scenario, cuz sometimes you maybe want to use two.

If it's a business owner with two years or fewer, chances are pretty low that they're getting a mortgage.

Yeah.

If they're two years or more, then there's a good chance they can.

Yes, and but the thing is is that if you're two years in a business you're probably not making that much money unless you're just knocking it out of the park. And so the issue that I usually run into is I am, you are pushing those limits, but I feel confident because either there's another person living in the house that we can't even use their income, or they actually technically do make more money but it's not qualifying income. And so that's where I don't feel that bad about pushing those limits.

I think that's also one of the reasons why a lot of times you'll see stats and they'll say, oh man, these debt-to-income ratios are getting high, here comes the crash, and it's not really, because once again we're using this qualifying income standard that I think is very important. I'm not here saying we need to get rid of those standards and go back to no docs, but it doesn't give you the full picture because there could be someone else in the house who's contributing that we just can't account for on the application.

And so yeah, every once in a while you will find someone, but I would actually argue that most of the consumers tend to be more gun-shy than maybe they were in the past because 2008 is so fresh, where it's they want to make sure that they're going to be able to make these payments. And so they will maybe pull back and say, "I want to put more money down," or "I want to lower that monthly payment."

And so I feel like the consumer is actually, cuz I'll be like, "Well, you could actually afford more." And they'll say, "No, no, no. This is..." They usually have a set payment. They're like, "I want to pay less than $4,000 a month." And it's like, "All right." And so I could say, "Well, you could actually qualify for five." And I'm not pushing them that way, but I'm like, "You can qualify for more," but they're like, "Nope, this is what I want." And so the consumer seems to be driving that affordability right now.

One of the things that we do with all of our clients, particularly the young ones who are getting close to either wanting to buy a home or they're at that point where they're going to buy a home, say in the next 30, 60, 90 days, we try our best to set them up with a number that makes sense for them, that still gives them some runway, gives them room for mistakes to happen. And so I think what you're describing is pretty synonymous with that. It's the consumer not being overzealous, wanting to just buy more than they can afford. So that's a good thing and I'm glad to hear that that's how you handle it, that you're not pushing them to the brink.

Yeah.

Because a lot of times in the world of sales, people will do that. So it's great that you don't.

One of the things that I hear, and this one bothers me a little bit, right? That this one bothers me a little bit. Today, everyone says, "I'm going to go ahead and take the plunge. It's a little more than I want. Interest rates are higher, but I'll just refinance later when rates come down." And it seems like everyone is betting that rates come down as though they've got a crystal ball and they know it's going to happen.

Yet, our debt in this country is continuing to rise. The cost of payback is continuing to rise. The current administration, they'd love to see rates go down because it's easier for them to refinance debt at the government level, at the federal level. Most consumers don't recognize that they need rates to be lower for them to finance debt. They'd love for rates to come down. But rates haven't come down a lot, even though a year ago people were surmising that, well, don't worry, rates will be way down next year. And that hasn't occurred.

So, are people making a mistake to assume that just because rates are high today and it's pinching me a little bit, or maybe I'm feeling a little uncomfortable, I'll just go ahead and buy this home cuz I've got to have it. It's the one I want. It's my dream house. And I'll just refi later. Is that potentially a mistake?

Well, in the mortgage business, you always hear the phrase we've been using for 3 years and hours. [laughter] It says marry the house, date the rate.

Right. Right. Right.

20 2022 rates pop and then 23, that kind of became the thing. All of a sudden, every mortgage company in the world was offering the free refi. Or hey, we'll be, you have 18 months, we'll be able to refi it. We all thought rates were going to fall. 2024, yeah, we're like, all right. It didn't happen last year. It's going to happen next year.

And so, now we're in 26 and I feel like not only loan officers, but consumers are like, all right, maybe rates aren't falling. And so, I don't feel like people, I think maybe people in 22 23 were thinking that, but I feel like a lot of consumers now are not. Where even if I were to say that, they'd be like, "Yeah, yeah, that's what I heard a year ago or 2 years ago."

And so, yeah, if anyone is thinking about doing that, I would not advise someone to do that because as I always tell my clients, if I knew what interest rates were going to do, I'd be on a private island right now. I'd be retired because I would have made so much money. And so, no one knows what rates are going to do.

Well, if you look at the 10-year, and that is really what people should be looking at to know what the mortgage rates going to do. And the 10-year's been backing up lately. It's heading, we've seen it get almost back to 4 and 1/2%. The 30-year certainly clipped it. And so, now 10-year's right in that direction. And all of that is correlated to the debt. It's correlated to inflation. All of those things, the bond market sniffs things out much faster than the stock market does. And so, many people don't know that. Having been in that business for 35 years, I'm used to that and that's what we look at. We look at the bond market ahead of anything.

Oh, yeah.

So, it really tells the story. And so, I wonder if people are getting a little bit maybe getting out over their skis a little bit just assuming that rates are going down because nothing says they will.

Yeah.

And there's no guarantee of that.

Yeah, I do have to quote the great quote from James Carville where he famously said during the Clinton administration, when he was obviously an advisor for Clinton, he said that when he was growing up, he used to think that it he bleeds in reincarnation, he wanted to come back as either a movie star or a baseball player hitting over 400. But now he realized he wants to come back as the bond market because that can intimidate anybody.

And everyone was quoting the James Carville quote because I don't care who you are, President of the United States, the most powerful man in the world can still get talked off of any decision because of the bond market, because of how important it is, as you're right, because you look at what right now our service cost for the United States is over a trillion dollars now in servicing our own debt. And it's like it's going to get worse. And where we, I'm sure you just saw the news about us eclipsing 100% of GDP for the first time since COVID and the first time since World War II. And so, all of a sudden, it's like, okay, this is an issue.

And so, yes, the bond market is something that I watch every single day. And then, what's so important about the bond market is not just the 10-year, but it's also that spread that exists between the 10-year and the 30-year, which many people don't realize that during COVID, after COVID, when rates shot up, there was this fear that rates were going to come back down. And so, what happened was is the spread between the 10-year and 30-year, which historically is I think 175 185 basis points, jumped to 300.

Yeah.

And so, someone pointed out recently that this recent jump in the 10-year, if we were at the historically high levels that we saw in '23 and '24, rates would be closer to 8%. [laughter]

Right.

And so, it's not only the 10-year, but it's also what bond investors are expecting with regards to that spread. And so, luckily, we have seen that spread contract pretty drastically. We're close to historical norms, and that's why we are seeing rates in the mid-6s, which has been a godsend because, like I said, 7 and 8% I think would be really making things even worse right now.

Well, when you take that and you put that on paper,

Yeah.

what a person can afford is much different from say 2021,

Yeah.

even 2020 during COVID, '21, '22, the amount of home that they can purchase, the value, has come down pretty significantly because that rate is so much higher. So, you're right. I think staying in the, at least in the five handle, low six handle, people can still afford a fair amount. But it's much different from what people could afford a few years ago.

So, another question, and before I get to this question, so Tyler, you've been in the mortgage business, you're with Town Bank. When people need to find you, when people are looking for a mortgage, trying to figure out how do I get this stuff done? How do they find you?

You can always give me a call. 910-274-4775 is my phone number. And then I also have a website. Very simple, wilmingtonmortgage.com. Now, it's wilmington-mortgage.com. I didn't move quick enough to get the wilmingtonmortgage.com.

Hey, wilmington-mortgage.com, [laughter] that'll work.

Yeah, yeah. And so, there I do a daily podcast talking about what happened with rates. I also do interviews kind of like this. I'm hoping to get you on, Phil.

For all our listeners, just know Tyler, he's been at this a long time. He knows what he's doing. If you've got questions, you're not sure, and you want to better understand what kind of a mortgage is right for you, and probably more importantly that you don't step into a mortgage that's not right for you, or that is one that you really should stay away from, reach out to Tyler. He can help you. You can find him at wilmington-mortgage.com.

So, let's get back to a couple more questions, Tyler. We get this question a lot, especially from our young investors, young clients. Is, and the argument strong because they've been taught to believe that owning is always better than renting? Is it? Always better to own real estate versus renting?

We'll get right back to today's show, but first I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button, and make sure that you're subscribed to our channel, so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan? Why not get a second opinion? Visit omnistarfinancial.com to schedule a consultation with one of our team members. It's quick, [music] it's easy, and it can make a huge difference in your financial future. Now, let's get back to the show.

I think it depends on who you are. Great example would actually be my parents. So, my parents were living on Pawleys Island and they were here, moved out of Pawleys Island, decided they didn't like being so far from me and my sister. So, they wanted to move back. And they were thinking, maybe we don't need as much space anymore because it's just them. It's just the two of them. And they thought, maybe we're just going to rent.

And so, they found great rental over here in the Mayfair area and they hated it. My dad did not like it. He did not like not owning his house. And so, he then found a house to buy, they bought and they love it. And so, in that case, my dad thought renting would make more sense because it wouldn't tie up any of his money and he'd just be making his rental payments. Anything that broke in the house, he'd just call the landlord to come and fix it. He didn't like that. He likes fixing the stuff.

He likes calling people and being a part of it. He's retired, nothing else to do. But his thought was it would save him a lot of money and he'd have no responsibility. Yes. Yeah. Yeah. In the end, he could maybe save a little bit, didn't have to do all the repair work and no responsibility. That was his thesis on this whole

But he was also giving up the control. And I think he wanted that control. I think he, cuz he's 86 and I think that there's something about owning your home, especially for people in a certain generation, that there's something about that. And so, for him, he tried to go the rental route, didn't like it.

And then there's some people where it's the opposite, where they think that, you know what, I got to own a house. I got to own it. That's a good thing to do. But all of a sudden, they to fix everything in the house and their homeowners insurance goes up or the property tax. They weren't expecting that. And they don't like the fact that during the course of the year, they're seeing payments rise and then fall. And they want a consistent payment, and they don't want to have to take care of anything. Then renting is right for you.

And so, I think it depends on who you are and what kind of person you are and also where you are in life I think matters. And so, I don't think it's ever easy to say absolutely is always right. I think it comes down to the individual. Some people can rent their whole lives and be fine. Most people in New York do that.

Yeah. [laughter] Yeah.

And don't have a problem with it. And there are some people that just can't do it.

We believe that it depends on the person. Yeah. Stage of life, who you are, what you make, how you handle money, all of those things really matter.

Mhm.

I think owning it's right for me. I like to own versus rent. I enjoy fixing things. I enjoy the freedom and the flexibility that comes with owning. I don't want to ask anyone if I can change the color or put some a nail in the wall or whatever. I don't want to worry about that.

Yeah.

And so, I enjoy it. And along the way, people have come to believe that there's this appreciation that clearly makes owning better than renting. We've run the numbers dozens of times. And the fact is there are many cases where we can prove by way of the numbers it actually makes more sense to rent than it does to own. But I think to your point, it matters about the person, stage of life, habits, things that they really want, don't want.

I also think you have a nest egg, if you have a million dollars

Yeah.

and you can decide whether you're going to buy a house with that and park it in the house

Yeah.

or you can decide if you're going to put it in the market and make 5 to 10% a year, and that can just pay for your rent. I think that also matters, where I think for the middle class average American, I think being kind of forced to save by owning a home where you are getting that equity, because a lot of people would say, "Oh, I'm going to rent and save money and I'm going to put that money in a bank and I'm going to save it." And then they don't do it. And so, I think that for the average person, cuz most people, myself included, are not great with money. And so, being forced to save, I think is an asset for a lot of people out there because

And it's a great way to force people to save. Even if you got no appreciation on the home.

Yeah.

Just paying off the mortgage.

Yeah. Cuz chances are it doesn't depreciate.

Exactly. Right. Exactly. So, it's a good way to park money and create discipline.

Exactly.

And I'm going to come back to that because you sort of slid into a question that I wanted to ask. Before I get there, HELOCs. Let's talk about home equity lines of credit. Is that really The rules have changed on those in huge ways over the last 10 years. And so, now what was deductible, how you use them, all of those things changed. Is a HELOC really a great financial tool or is it more of a credit card with your home as collateral?

Yeah, so, it really once again comes down to, I think, what you're going to do with that money.

Yeah.

Cuz a lot of times the problem with the HELOC is you get a HELOC and then you get this payment and you're like, "Oh, that's a great payment." But it's like interest only. And so, it's like you're not

Cuz for the first 10 years it could be interest only.

Yeah. Yeah.

And what if you're buying a $150,000 boat?

Exactly.

Right? That probably isn't going to appreciate.

Yep.

You can't write off the interest. Probably aren't itemizing anyway. And so, all of a sudden, it could become a little bit of a ball and chain that it sits there and it looks good and it allows people to do things that might not be so disciplined as we talked about just a couple minutes ago. But on the other hand, I would say that they are a great tool because used in the right way, whether it's upfitting a home or with a business need, in some ways I think a HELOC is a great way to get credit. Certainly it's a lot cheaper.

Yeah. Yeah, well it's I always tell people housing debt, if you're going to have debt, is the best debt.

Yeah.

And so I think if you're sitting on a 2.5% mortgage

Dave Ramsey might argue with you on that, but I agree with you.

Well, yes, yeah. That's what I said, if you're going to have debt, you should go into housing. I think even Dave Ramsey would agree with that.

You have credit card or a house. You're right. I agree with you though.

If you're going to have debt Housing is always going to be the cheapest.

For sure.

Whether it's a mortgage, whether it's a second, whether it's a HELOC. And so I think the HELOC matters what your current mortgage is, because if you're sitting on a 3% mortgage, refinancing to 6.5 with more money potentially might not make sense. So a HELOC might be more sense for you. If you're someone who's at 6% mortgage, it might be better for you just to do a cash out if you have the equity and lock in that rate, because the HELOC is floating.

Right.

And we don't know what's going to happen with mortgage rates. And if we do see a spike, because if you look at the last 3 years, every year we have seen, 2022 was the Ukraine war. And then in 24 we had the liberation day of tariffs, spiked rates, and then 26 we have Iran. And so it's like we've had three shocks to the system that have caused rates to jump. And we don't know what's going to happen with Iran. And so we don't know what's going to happen with rates. And so you're getting this floating rate instrument that you don't know where it's going to be a year from now.

At least with an adjustable rate mortgage or an ARM, you have some time to think about what am I going to do? And it's limited. Most ARMs you're looking at 1% at most a year. Yeah, with the HELOC, that thing can move quick. You don't really have time to worry about what you're going to do. You just get hit with this change. And all of a sudden your payment is moving on you, and if it's moving in the wrong direction, you're going to feel it.

Right. And then selling that $150,000 boat, probably aren't going to get enough to pay off the HELOC.

Exactly.

You've been paying interest only and the boat depreciated and now you're probably then, that situation.

then all of a sudden if let's say we do see a slight downturn in houses, all of a sudden that you've taken out equity on your home that all of a sudden doesn't make sense with the bank, and now all of a sudden they might call in parts of it. And so it's That's the other fear, versus having that sort of locked in with a doing a cash out.

And so that's why people cuz I've had people ask me, more so when rates were looking like they were going to be under six,

Yeah.

they were thinking about doing a cash out refi and or going the HELOC route. And I said it really just depends on what your current mortgage is, cuz if you're sitting on a 2 and 1/2% mortgage or 3% mortgage, yeah, HELOC, even if you do see a little bit of a rate rise, probably will be better for you versus having to refi all that money into twice the rate.

I agree. Let's go back to that point that you made on people with equity in their home. Great way for them to create some savings, if you will. Creates discipline is probably the better way to say it. So, let's say that you find someone and they've got that 300, 400, 500, 800,000 of equity in the home. Do we call that a sense of wealth? Or to your point a few minutes ago, is it just money trapped in those walls because they can't access it? Doesn't make money for them. They can't spend it unless they refi and do a cash out. But it's really trapped money until they sell.

Yeah. Well, I think that's kind of once again, it depends on sort of what you're going to do with it. And so I think for a lot of people keeping it trapped probably is a good thing for long-term situations. And so it's always nice that you have that money there and that it does take you a little bit of time to access it.

That's what I always tell a lot of people when they come to me and they say trying to figure out how much they're going to put down is I always say it's never a horrible idea to put maybe a little less down, because if you do need that money in case of emergency, it's going to take you some time to access it. It's going to take you 2 weeks minimum for the most part in order to do a cash out refi. And so would you rather have that money that you can access immediately or do you want to have it somewhere where it's harder to access? It just depends on the person.

And so I think it's always good to have some money in your house for that exact reason. But yeah, to your point, if you got 800, mostly your house is paid off or whatever it is, and it feels great and that's a great thing to do, but you don't have a lot of assets or anything else. And so what's the benefit of having that $800,000 if you can't use it to live a little better and enjoy some aspects of life. And so you can't go on a trip because you don't have the money for it, but your house is paid off. And so it's like I think some lot of people rather go on a trip. Now you shouldn't abuse that, but I definitely think that, yeah, tying up all your money into any single asset is probably not ideal. And you would know more about that than me.

Well, it's interesting because I think what you're saying is it's consistent with a lot of what we talk about. But you take a Dave Ramsey for example and he says no matter what, pay off that house.

Yeah.

So what if you have all that equity sitting in the walls? Pay it all. Yet he will tell people if you just invest in his favorite four mutual funds, 12% return, so easy. So why is it that you'd want to hurry up and pay off the home and literally lock all of that equity into the house when you could have a reasonable payment and put that money to work dollar cost averaging into the market where you can get this easy 12% that Ramsey talks about. Feel like some days he talks out of both sides of his mouth. So go get 12% but hurry up and pay off the mortgage. And the two tend to oppose one another.

Tyler, as we start to close today's broadcast, let's talk about one final question.

Okay.

This is the one that every listener needs to hear from you, and that is if they're going to buy a home in the next 6 to 12 months, what's the one thing they can do in the next day, the next week? What's the one thing that you would tell them to do that would cause them to have a lot less pain later?

So if you're someone who's high income, a lot of assets, I would, in that perspective it would be making sure that if you're self-employed, for example, it would be like, all right, you're a very account- you're a very creative accountant. Maybe be less creative this year. So you're showing more income.

Show me a little more income.

Yeah. And I've advised people on that.

They come to me and I'm like, all right, you wrote off everything. I don't have any income to work with. So if you're in that situation, it would be maybe getting you some more income if necessary.

Or also knowing your credit score is a big deal. It's not the... You go to these free websites. That credit score is not going to be the same the one that I'm using. It's very different. But, it'll give you an idea. And so, it's always going to check your credit and see where it is. Like I said, a lot of people come to me and they go, "I got 800 credit score." And then I pull it and it's mid-700, which is still not bad, but it'll at least give you an idea of are there any potential problems there. So, credit was always the big thing.

Now, if you're somebody who's not high income, doesn't have a ton of assets, it would be probably start saving to have that money for a down payment.

And what amount of a down payment do you recommend?

It depends on what you're comfortable with. You can go as low as 3% on a conventional, 3 and 1/2% FHA. If you're VA, you can go 0%. And we do have down payment assistant programs, which helps you bring less money if you're lower income. But you want to... You find a house that you like, we do have those options that are available. But, you're still going to need some money. There are some cases where you can find people who put very little down, but you're always going to need some amount of money.

So, if you're somebody who doesn't have a ton of assets, you're a year away from buying, start saving and just having some money so we can figure out if that's going to be enough for you to be able to buy a home. But, I would say credit's probably the biggest thing is do one of those free credit reports and see if there's anything on there that's surprising you. Sometimes a medical collection pops up people didn't realize or something else that they just, they got a credit card.

That was a horror story one time. I remember some guy was had some card that he'd gotten from TJ Maxx or whatever and forgot about it and there was a balance on it for 20 bucks and they basically sent it to collections and it nailed his credit. It was still usable, but if you can find out about that, talk to the collection agency, maybe get it taken off the credit report. All of that takes time. So, the earlier you know that, the better off you're going to be.

So, I would say if there's the one thing, it would be kind of making sure that your credit's pretty strong because that is one thing that we have seen change in the business where before if it was like you were mid high sevens, you were probably going to get one of the best rates. And now you are seeing some people in the mid sevens that are maybe getting a little hit on rate. And so, getting your credit score to the best possible place is never a bad thing.

It's so... So, what does it take to get the best rate?

The best rate would be if you're putting a good amount down. I think 25% is probably the ideal. You're not really seeing much of a benefit after that. But 20% will get you, almost the best rate, too. It just depends on the situation. Having a credit score in the 800s is always great. And yeah, it's really those two things are what's going to get you that rate. And obviously DTI.

So, if you are buying a house that you can't afford and not pushing those ratios. So, if you're right around the... I think they say 30% is kind of the number that you want. So, as long as you're around there, you got 20 25% down, and 800 credit score, you're going to get the best rate. But that doesn't mean you can't buy. I think a lot of people get...

So, when you say DTI or debt to income ratio, what's the number?

So, like I said, I think right around between anything under 30, I think it's going to get you a better rate. But you can push that. That's what I was talking about earlier about pushing some people's ratios when I know that they have extra money that maybe we can't use as qualifying income. With some loans you can go as high as 50%. And with some VAs, you can be in... I've seen some people online that posted some loan officers that have posted getting approval at like 60, 70%.

And so it doesn't... not going to stop you, but like I said, with regards to having the best possible rate is having a kind of perfect kind of DTI, which would be about 25 to 30%. And then having a good credit score and putting 20 to 25% down is going to get you the best rate.

But people forget or they just never look at the number. They don't realize when that rate keeps going up on them, when they're paying a higher interest rate, that asset is costing significantly more.

Yeah.

And they don't really think about that and most bankers are not going to show the person that. They just want to get the deal done.

Yeah.

But I think every consumer, if you've never thought about it this way as a consumer, you need to be looking at what that amortization is really costing you. That interest cost is huge potentially. So you want to do the things that Tyler's telling you. You want to make sure that your credit score is as high as it can be. You want to get your DTI or that debt-to-income ratio in the best place you can. That is going to cause you to have a better rate and you're going to pay a lot less for that property over time.

It's always a good idea to talk to someone, very similar for your industry. Is that it's never a bad idea just to talk to someone and say, "Does this make sense? Is this what I should be doing?" And be like, "Yeah, yeah." Or it's like, "No, don't do that." [laughter] I've people who tell me, "What if I pay off this credit card off?" And I'm like, "No, no, no, no, no, no, no, wait. It'd be better if we do it at closing. So do not pay it off

Bottom line is planning is paramount.

Absolutely.

Get ready. This could take you a year to be prepared or maybe more. But talk to your lender, talk to your financial advisory team, whoever you work with. Get good advice. Get it as early as possible so that you're better prepared. And don't come to the party late because chances are it's going to cost you more.

Well, yeah, it's sort of the running joke online about everyone that's like, "I'm going to wait next year. I'm going to wait till next year." And yeah, I remember there was this great tweet that I saw back in I think it was '23 where someone had said that they sold their house in 20 late 2020 because they were convinced the housing market was going to crash. So, they sold their house and then started renting. And the guy said, "This is going to be great because I'm going to buy my house back for half of what it was."

And the house is probably now 100% more and it's like to cost you 50% more to even think about buying that home because of what I said at the top of the show or at the beginning of the show. We've seen homes appreciate in some areas by as much as 100% in the last 10 years. So, he made a pretty bad decision.

Yeah, and it was like... I'm sure he probably read some blog that was like home prices are going to crash. And I just cannot stress stop listening to those people. They've been calling for the housing crash for 5 years now and it amazes me they still have followers, but they have a ton. And it just drives me nuts because the fundamentals of housing are strong.

Until we see a drying of the credit or a situation where people can't get credit.

Yes.

And as long as we don't have a glut of supply then you really can't have a recession if credit is still available. And today credit seems available. Everything that we use, everything that we track says the credit's available. And so, until credit's gone there's no way for things to retract too much. You need one man's paycheck to stop becoming another man's paycheck for a recession to occur.

Yeah.

And so, I think that's another way of saying what you just said. The market's strong. Don't be listening to too many of these people out there on YouTube that are telling you what to do because chances are they have no idea.

No, they don't. And like I said, if they did, they'd be, like I said, on a private island. They wouldn't be making YouTube videos. [laughter]

Everyone, you heard it from Tyler. Town Bank Mortgage, this guy's an expert. He knows what he's doing. If you've got questions, reach out to him at wilmington-mortgage.com. Talk to us at omnistarfinancial.com if you have questions about your finances. We're here to help. Love to give you a second opinion. We'll see you next time on We're Talking Money.