Falling Mortgage Interest Rates

Should I wait for rates to come down before buying a house?

This may be the most complicated question that could be asked of anyone

Answers could vary widely. What if you’re paying $3,950 a month in rent and today’s interest rates provide you with an “all in” payment of $3,800 on your future house? Wait then? You’d probably run to buy a home.

Or you already own a home with an interest rate of 2.625%. Would you rush out to pay current market rates for a mortgage on your next house? Probably slow walk that one.

But let’s say you’re trying to time the market (rates).

First, you’d need to know what drives the mortgage interest rates.

If you think it’s The Fed, as in the Federal Reserve Bank, you’d be wrong. 

The Fed sets the Prime lending rate and the Bank Overnight Rate. 

That’s distinctly not the mortgage rate. 

The Prime is the driver for credit cards, HELOCs, business lines of credit, and bank operations.

Even big media seems to get this wrong almost every time.

Mortgage rates are an entirely separate pendulum.

At this point in history it’s (somewhat) coincidental that both pendulums are high (The Prime rate and mortgage rate).

But that doesn’t have to be. 

The pendulums are entirely detached from each other and have their own forces drawing upon them. There is very little shared momentum. The Prime is set by the white-gloved hand of the Fed’s Jerome Powell.

But mortgage rates are directly tied to the Yield on the 10-year Treasury Bond. The Bond is sold at regularly scheduled government auctions. It’s a traded product. ENTIRELY driven by market supply and demand. 

Visualize seats in an auditorium in front of the bid receiving gavel handed auctioneer. 

Many of the seats are empty this year as the Chinese buyers are preoccupied with their own molten-core real estate market. Japan and Germany are contending with either their energy or their economy. Or both.

The buyers remaining in the audience are aware of the recent downgraded quality of our bonds and the strong possibility the risk grade will degrade further – the deeper the government’s addiction to funding operations with debt becomes. The US is literally borrowing 1 trillion dollars every 100 days just to meet its payroll (Government jobs secure? Debatable).

There is no human involvement in the pricing of the bond. The historical exception was the artificial manipulation of the bond auctions where the Fed “jumped in” to buy up nearly entire bond offerings back in the day. This was called Quantitative Easing. Let’s call it cornering the market. The Hunt Brothers notoriously attempted this in the 1980’s for silver but failed. The Fed was successful – driving bond prices sky-high and the resulting Yield to insanely low levels. Whether these low rates fueled the frenzied buying of homes at inflated prices is purely speculation – it’s not science fiction to picture that.

For mortgage rates to drop below, say, 5% it takes a sleight-of-hand such as Quantitative Easing.

Let’s hope for the future sake of the US Dollar that we never need to see that phenomenon again in our lifetime (it means something really really bad is happening in the financial marketplaces and economy). 

Waiting for record low rates again? That’s like waiting for another Mortgage Meltdown or worldwide pandemic virus (and the reckless bailouts that followed).

Don’t be a sucker.

If you found a great deal on a car would you scrap it because financing wasn’t perfect?

One analogy I use often is looking at financing as a ratchet, a mechanical instrument designed to tighten a line with small incremental moves in one direction, locked in place. A combination of leverage and a backstop. 

Provided you are on a fixed rate for your financing (mortgage, auto, student loan) refinancing is a means to have the best of both worlds. With no risk of the financing increasing – but the full benefit of swapping in a lower rate IF the scenario presents itself.

Yet if you’re about to overpay for your next car (or house) then a premium on financing will only exacerbate that mistake you’re on the fringe of making.

Reading between the lines implies that if you are confident with your asset, and your ability to pay for it, buy, and close on it without potential buyer’s remorse then GO FOR IT.

What if the rates being offered were about to become very desirable?

We have no way of knowing the future with any certainty. But of the three possible future outcomes:

  1. The rates stay the same after your home purchase
  2. The rates go down after your home purchase
  3. The rates go UP after your home purchase

Which is truly a problem for you? Really none. 

They’re all virtual problems, meaning they don’t impact you directly or physically.

But you should benefit from movement.

We just talked about your ability to ratchet down on your rate, if they drop. Refi baby!

But if rates spike (after you close) you’ll probably draw a proud victory breath, adorn a subtle smile, and continue on your daily journey. But it may also mean that your mortgage may be accruing interest at a pace less than what you could earn on FDIC-insured savings or even a short or long-term Certificate of Deposit (CD). 

The mortgage now becomes valuable, too good to give up or pay off early. 

A pleasant problem to have.

Summary to question of waiting for lower rates before buying

If I had to guess – you may not be in the position or mindset to buy a home. You’re asking this question to help support the delay, fear, or procrastination you have on the topic.

You may also be very well the victim of media “Hopeium” that rates will drop.

There are a lot of agencies and industries, hoping and hyping interest rate drops.

Higher interest rates are sure to wholesale bankrupt several business sectors. I can’t list those here but you can run a web inquiry on “which industries will suffer from the effects of sustained higher interest rates”. 

The most concise answer I can provide you is:

  • Does the home meet your medium-time-horizon goals? Is it safe, healthy, and enjoyable?
  • Does the payment work for you and are you confident you can make it on time, ongoing?

If so, that’s permission to proceed.

Your wait is over.

Not sure where to begin your next steps?

Current tenants should visit our Tenants’ Lounge to access resources to learn about their next chapter. 

Already decided you’re Going For It? This article will set the stage for you: First Steps to Buying a Home

Or unlock your free Home Ownership Score®.

And if you really want to get after it, this interview below contains many industry insider tips and dirty little secrets to navigating the home buying process. 

If you prefer to read my interview on the Modern Financial Wellness podcast the transcript follows:

Jim G: welcome to Modern Financial Wellness the podcast dedicated to helping you feel better about your finances I’m your host Jim Grace and I’ll be your guide as we discuss the psychology of money and explore the emotional aspects that shape our financial decisions and how we feel about them. A quick note before we start although I do hope that you find the information on this show to be helpful in no way are any of these discussions to be taken as specific financial advice. Please do your own research and talk your own advisors especially when making important financial decisions. 

John Donlon of Gold Coast Mortgage thanks so much for joining us on Modern Financial Wellness I appreciate you being here.

John D: hey Jim it’s great to be here thanks for hosting and I’m glad to participate.

Jim G: yeah so we’re going to talk about buying a home first time home buyers and what all goes into that hopefully we can leave people with some ways to be best prepared for that experience um before we dig in though why don’t you tell people who you are and what you do a little bit about your business

John D: thanks Jim we’re an independent mortgage broker and we opened up in the late 90s –  I had some experience in the mortgage industry through prior work that I did and also in a former life I own real estate rental properties, so I bought a home and I also bought properties for the purpose of renting out so I had a lot of experience with the mortgage process and then went fully in on opening a mortgage brokerage. We have been working with homeowners for over two decades and having a lot of fun with it and have been learning a lot in the process.

Jim G: how many do you have an idea, you’re a pretty analytical guy so I wouldn’t be surprised if you had the actual number, but generally speaking do you have an idea of how many loans you’ve written over that 20-year period. 

John D:  there’s been literally thousands and in that there’s been even more discussion …so we’ll talk to people about a property that they didn’t buy so we’ll have discussions on that.  Then there’s a lot of failure – the homes fail – the applicant loses their purpose in the transaction (illness, divorce, things can change mid-stream right?) they bail out and they retreat back to the basement of their parents’ house where they were living. So even more than the loans that we have facilitated and the home buyer that we’ve helped there’s been a lot where, in order to get over the Finish Line, we’ve already taken three “at bats” and each of those at bats has a huge amount of intellectual property that we’ve accumulated. So yeah let’s say we’ve worked with 10,000 homeowners there’s probably been another 20 or 30,000 conversations uh before that and failures are even more important. 

Jim G: yeah yeah that’s why you know what you touched on a little bit the failures and the “Why” or the purpose falls off that’s what I’m most interested and maybe talking with you about today.

Jim G: when I think about it, I’ve bought two homes, and sold one. When bought our first home and then moved into our second home a few refinances and a lot of those

transactions were some of the most emotional most anxiety inducing experiences of my life, right? And so I think if it weren’t for our purpose uh I don’t know that we would have ended up getting something done. So hopefully we can kind of unpack some of that today.

And explore you know I guess what maybe I should start off with a question in that

10,000 to 30,000 conversations why is buying a home so stressful. Do you have that boiled down in your mind?

John D:  well there’s a lot at stake, right? There’s potential homelessness right? To some degree whether you’re buying it for yourself and two cats, or you’re buying it for you and your wife, or maybe there’s a family involved …. there’s a lot of people dependent upon the person that’s driving the transaction. 

If you’re the spouse that has to shorten up a work commute –  then you’re leading the charge and trying to get a home closer to work.  You’re bringing people along with you in a lot of cases; there may be kids involved and that means there’s going to be new school districts and there’s uh just an exorbitant amount of unknowns. Things that you don’t have an answer to. 

And some people need an answer to everything. 

And other people are okay saying “okay we’ll figure this out when we get there”. I’ve used the analogy of thumbing through a book and you’re on a page that’s related to real estate. 

Your future house (which you haven’t met yet right?) – you don’t know what it looks like you don’t know where it is. But you know you’ve got to move but you can’t visualize it nor you can’t make it real. You have to have this level of trust in the process where you swing on the vine and you go across a swiftly across a moving river and you’re going to come down safely on the other side. 

There’s a lot of stress in not knowing that you going to fall in the water; how you going to make it to the other side without a collapse? Are there people waiting for you on the other side that’ll receive you? Right? Bets are High Stakes and there’s a million different iterations of that. 

Jim G: I know in my own experience my wife and I were moving from Boston to a different part of the world. We moved up to Portsmouth New Hampshire – for a lot of different reasons. And we felt good about where we were going because we kind of fell in love with the community first. We decided proactively to move up here but when I think back in my own experience it was all these other things and you touched on. A few of them, one. I was responsible because I’m the financial adviser – to make sure that it makes financial sense. So there’s a huge burden there and we live in a what tends to be,  relatively speaking, a little bit more expensive area. So we weren’t going to be saving and investing maybe as much as we could have if we had moved to a different area. The other thing that I dealt with – I grew up in Connecticut and my folks are still there my sisters are still there.  We are fortunate to have a very close family and it was kind of cementing the reality that I wasn’t going to be moving back to Connecticut. I felt even though my folks were supportive I didn’t necessarily feel like I could talk through my emotions of this move. 

Trying to find a place in Portsmouth because I didn’t want to make them feel bad so as I thought about you know preparation for this conversation it wasn’t necessarily the move itself it’s all these other things that kind of go into that transaction. Yeah and then not to mention you’re about to make the biggest Financial commitment of your life potentially.

John D: Yeah it’s all this other stuff so everything competes with the mission right you have to have a job which requires time and that’s how you’re going to pay for all

of this and the homeownership is it has an appetite of itself there’s going to be financial commitments to pay for it – you’ve got to do work on it. Plus you’ve got to keep it clean and take out the trash and do all the things that are necessary. That all competes with some other aspect of your life. 

The home buying process I it has to be 100 hours I’m going to guess it’s more it could be you could be into it for several hundred hours and folks that think they can

do it in for 40 hours – or do it while they’re still working  – not take like time off or take a vacation week … it’s going to start to come to a boil.

Like things will compete and enough that something’s going to go bust.

Jim G: You mentioned that competition I’m actually working with a client right now who because of a job and a relationship should move and they should find a new place to live and I think what they’re struggling with now is the space to commit to the process. It’s just you know the hours that it’s going to take. To take the weekends off. Take the days off from the business to go and find this new location in this new place is a little overwhelming and it competes. I like that word that you just referenced this competition of all these different aspects of our life that need to be kind of rep prioritized something’s got to give right I guess yeah it’s emotionally charged. It’s nothing short of a 10 on a scale of one to 10 and no matter what happens there will be failure along the way.

John D: There’s going to be points in time where you’re disappointed you’ve got to step up to the batting plate you take a swing and somebody is going to come along and pay $50,000 more from your dream house or you’re you just you let it go.

Jim G: yeah I I’m laughing I’m sorry to jump in but I’m re-living this now. It’s been a while since I’ve unpacked some of this stuff but the first offer that we made up here (Portsmouth NH) I literally had a full-blown panic attack I went back to my in-laws and needed a minute to like walk around the block. We failed at that bid and it turned out to be a great failure cuz we you know the home we ended up with in was the place we

really wanted, in hindsight.  So all failure isn’t bad.  

But I I can remember just that roller coaster of man you know thinking about the commitment you’re about to make.  And then not being successful it’s just it’s intense the entire time and failure is necessary in the journey.  

John D: You’ll need the ability to walk away from any negotiation at a certain point of time if you don’t you may wind up owning a house that isn’t perfect for you 

We’ll be part of a failure and I’ll support that failure just it wasn’t meant to be. If there was a smell of oil in the basement. If there was something that just isn’t quite right um you walk away. 

it’s a not knowing everything you need to know – it’s a point to like pack it up and go to the next one.

Jim G:  do you have any thoughts on how to recognize that intuition? 

The example that I gave of the house that I was panicked over it just didn’t feel right to me. It was a bungalow home so the second floor was kind of dormered on both sides. My wife and I are both tall. I felt kind of closed in on the second floor.  I think we talked ourselves into making an offer on that home because of the emotions of needing to move. Not needing to but wanting to leave Boston and finally feel settled. So we went ahead and pushed through all those warning signs. 

Jim G: do you have any thoughts on you know being in a position to kind of recognize those feelings that you’re having or those red flags that people should maybe be aware of? To NOT ignore?

John D:  So you got to be true to yourself right? So I encourage people to write a mission statement of what they want out of the transaction. To design it. I put like a mock mission statement up on my website where I describe things like the future house that I wanted with my wife and ones that we didn’t want. At some point in time you will be exposed to something that’s outside of your mission.  It’s inevitable something’s going to come along and somebody’s going to say hey I’ve got a beautiful lot! Why don’t you build? You: like oh I don’t know anything about building! And that’s outside of your mission and you’re not a builder.  And so you have to shut down all those kind of random things that you’re going to see, and just stay true to what you’re trying to accomplish.

Jim G: YES you have to be very true to yourself walk away from you know a life sentence of banging your head your forehead on a little beam in a bungalow, right? And because that’s what you’re setting up for if you if you’re not true to yourself.  

John D: Make your parameters and stay with them.  And if you’re going to go outside of those parameters get Buy In on the whole team whether it be your wife or in-laws or an attorney or a realtor or anybody.

Say okay we’re going into a different Lane now deliberately and get everybody’s Buy In on Switching gears like you’re looking at a single family but a multi-family comes up in the right neighborhood are you prepared to be a landlord or you just going to become a landlord because of external factors?

Jim G: I think that’s great advice and we’ll link to that in show notes and whatnot. If you have an example on the website and I’m listening to you describe this mission statement but it sounds like you’re telling people to really spend some time with their purpose what’s important to them what their values are kind of upfront. Actually describe those things in a written form which is really similar to what we kick off a financial planning process that has to be done so you know what’s important to you.

It has to be really agreed upon and memorialized up front or you kind of Lose Yourself.

You lose track in the process at some point can get blown off course and when things get really really difficult as they have to. 

John D: You can lean back on that mission for support right? It’ll kind of drive the Journey. it’s the fuel and without it you could lose speed and you could give up right so um that mission will describe what it looks like at the end is it um a glass of red wine in front of a fireplace with a dog at your feet, and is it a 10-minute commute? Is it a kitchen that allows you to host your former college roommates for a night or a weekend and cook for them? Show off your inner cooking skills like there’s a there’s a why behind it.

if you don’t honor and protect it because there’s going to be 10 different people that try to strip that away from you. That want you to do something else oh you can build a kitchen later. You can install a gas fireplace.  Or if you want a garage for your motorcycle. They’re trying to sell you a house without a garage they’ll be like I can just build a garage later. 

Jim G: But staying true to that mission it’s right it’s imperative and it it’s just a reminder where we started. 

John D: It is going to get difficult it is going to get challenging. It is going to get emotionally overwhelming at times for most people you know. Most people are 

driven and have a handle on things and they’re good regardless of the stress but

you know 2024 is it’s so different than 2014 or 2004 and the stakes are higher. 

John D: The competitive aspect of buying and acquiring and living in real estate is significantly more difficult than when I bought my first home. 

I wouldn’t want to have to Re-Buy the home I’m living in I’m not sure I could win it.

The inventory is scarcer there’s more people desiring Sea Port, South Boston and you look over your shoulder and you’ve got people who have more means than you do to pursue this.

They may have more emotion and they may have more urgency than you do and so they can compete and win.

I guess the big thing is going into you can do it reactively that you can see something and go try and buy it or you can be proactive back the clock up six months 12 months 18 months and start to build that mission. And then walk towards it. Those cases where we have the luxury of time it’s not that there’s a a fire alarm ringing and they’ve got 30 days to get out of their apartment because their landlord’s Condo-ed their apartment and they going to be out in a month.

This is something where they have reason to believe that their landlord is going to condo their apartment next year and they begin looking now and we go through the

steps so we do the mission statement and we give it purpose and then 95% of the obstacles that can come up during the process we can address those before the starter pistol gets fired.

So you can we can lock up almost the whole thing by inserting your mission statement house. 95% of it we can address ahead of time. We can roleplay. We can say what if this happens then are we going to use an Escalation Clause? What if there’s a bump out clause? 

All these things can be addressed so that when we go live you’re not calling me crying because we’ve got two hours to respond to a bump out clause.

Jim G: So describe I was going to ask what are what are some of those what ifs can you shed a little bit more light on. Bump out clause? What some of the things that people should be aware of needing to consider what comes up y 

John D: so there could be hundreds if not thousands of things that will come up, right? And we know in almost every case there’s going to be a competitive aspect to buying the house. There’s other people right over your shoulder and they are really hungry to be in this home. Maybe even more so than you are. So you have to present in the best possible light. 

It’s how you arrive and what you’re showing to accompany the offer.

And who your team is.

And knowing that the offer that’s selected is going to represent the lowest risk to the homeowner selling the home, right?

Jim G: That’s the goal they don’t want to necessarily help you fantasize something that may never happen for you. like you say, okay I really would love to buy this home but I

can’t afford it or I don’t have the Down payment for it or I don’t have the means to maintain it but you go through the exercise so they’re trying to weed those people out and who’s left is a contender to buy the home uh should present very confidently and very strong.

John D: We can we can strip away almost all of the all of the things that would make a buyer appear weak and so that they come into it that they’re they’re healthy they’re refreshed they’re they’re ready to buy and not looking like they’re kicking a tire or that they’re not sincere.

Jim G:  and so is that part of your service and what the expectation should be of a buyer that they’re getting some guidance in what’s realistic? And you know am I I truly prepared to be making an offer on this type of property in this type of location do you see folks come to you and after a conversation you’re saying look I you know I’d love to help you but I think your expectations are a little high and maybe we need to go back to that mission and that purpose and revisit what you’re looking for?

John D:  yeah buying takes practice. you won’t know your dream house if it’s the first one you see you won’t know it’s perfect for you so I encourage folks to get in a fair amount of basements and start to gauge like what will work for them and that helps me and them so that when they finally get to the perfect match they’re willing to run through a brick wall to make it happen, right? 

So this is it this is what we’ve been looking for we’ve been at about 19 times right and we’ve swung and missed and this is the one uh so are are we going to take another

swing or you’re going to make sure that you wind up being the owner. There’s a very strategic process to out of all the offers on the table making sure that your offer is the

one that goes to the top of the pile, that gets the most interest and there’s various ways to do that and they take risk too, right? 

We know in in this Marketplace that some offers to be considered serious they are asked to wave their home inspectional contingency which would be a suicidal activity for as long as I’ve  been in real estate people would say never ever wave your home inspection contingency but it’s a paradox because your winning offer will not be accepted with a home inspection contingency. That’s what we’ve seen for the past 30 months uh so how do we minimize that risk? 

Part of the process would be um hiring a home inspector – I call it a home-inspector-in-tow. That you take that home inspector you rent their brain basically at $500 an hour and you take them to the home that you’re going to see and they’ll they’ll give you an opinion if this home has any fatal flaws um which could include asbestos or black mold or a foundational crack. 

You’re taking this person like through an open house or through a viewing of the home prior to making an offer and saying hey I need your expertise to point out anything that you know really concerns you.  Highlight any fatal flaws of the property that could cost us down the line and you’re doing that up front. You’ve had a cup of coffee with this home inspector so that they know, say, I’m not concerned with the age of the dishwasher. Okay if I have to buy a new dishwasher that’s okay uh but I really and am concerned with uh powder post Beetle infestation which could cause a sagging roof line and where repair bill is over 100,000. Or a shim which has a crack in the basement it goes through two floors of the house so the home inspector knows okay we’re we’re looking for $25,000 problems or above or cumulatively of 25 or 100k. They can handle you know a ungrounded electrical outlet right or non GFI service you know. We got to replace those but we’re talking hundreds not tens of thousands. 

So one home inspector I had met with had done an inspection after the purchase (post purchase) inspection. The couple bought the house without an inspection and then they hired him to make a list of what needed to be done. He headed right for the basement and on the second step down he could see already six figures in needed repairs just by not even on the bottom of the steps. It’s the age of the electrical panel, the moisture the content, type of foundation and looking around he knew … catching sight of the furnace still wrapped in asbestos and you’re like okay this is a $150,000 room right now we talking about.

You’re not preparing to waive a formal inspection as part of the purchase and sale but you getting an inspector to give you their opinion, up front, of what you think you’re up against so you can make an informed decision and to whether or not you want to go ahead and waive that inspection when you make your offer. It usually plays out that: “we’re considering your offer but it has a home inspection contingency” which is considered a potential point of failure for the seller (especially if they are hiding some conditional element). They think the deal could fail because of that or you could renegotiate price. So what they’ll do is they’ll say we we’ll consider your offer but you have to remove Home Inspection contingency and sometimes they’ll say financing contingency as well that has to come out. And so knowing that that conversation is likely to happen you’ve already had the inspector through the house he’s eliminated like the big boy concerns right? The real big hazards and if that comes to an end this is the house of your dreams you can say okay I’m going to do that. I’m going to waive off on that. Otherwise you could be looking at 50 offerings on houses before you you’ll get your offer accepted. It’s almost like standard operating procedure to be expected to waive your Home Inspection contingency.  

Jim G: As a side note are you seeing any of that start to slow down with rates? 

We can have more technical convers another time but you are starting to see that a little bit?

John D:  maybe a little bit but there’s still not a lot of inventory for if you look around Salem or Beverly or Boston or Topsfield there’s very little inventory on the market so they’re preserving, they’re trying to minimize the risk to the seller by asking people to waive the contingencies.

Unfortunately almost on three quarters of the deals that are allowing it ….

Jim G: maybe they’re not as fast moving your desirable properties so starting with the mission statement just to kind of go back and summarize where we’re at right now it sounds like a recommendation of yours would be to really spend some time with that mission what are we trying to accomplish what what’s going to make us happy in a home giving yourself enough time I don’t know if that’s a formal or connected to the mission statement but just giving yourself enough of a timeline this is going to be a pretty involved process and then this idea of utilizing the services of a professional inspector up front so you’re better prepared as another idea to kind of get yourself prepared and ready to make a good offer on a home. What else can people can do ahead of time?  What should be they be thinking about and preparing themselves for when they enter into a purchase?

John D:  the earlier you can you can start the process the better and I’m very okay

with talking to people a year out so the more time we have the better. The transaction is going so starting to get involved right at the point of needing a home is the worst thing you can do. 

Jim G: Start it before you need it; when you want it.

John D: Right. You say Okay my time as a child living with my parents is going to

be over. Or I’m going to try to close that chapter of living in an apartment where you can smell cooking and hear footsteps and toilet flushes of other units from your unit. That’s over right? 

Then say okay the goal is in two years I want to I want to have my own privacy and so knowing that you’ve got a little bit of a “why” there and you can begin to put together a plan. I think the most crucial thing is that you have the ability to be proactive on the journey as opposed to reactive where somebody fired a starter pistol and you’ve got 30 or 60 or 90 days to find the home of your dreams. It’s just not going to happen you can’t sync destiny with a clock, right? 

It just needs to unfold at its own period of time. 

Jim G: I think back  – we started um looking in the spring you know the typical spring buying season I think we had looked and secured a real estate agent even earlier kind of end of winter February early March. We were at it until the very end of that year. It took almost the entirety of the Year from start to finish to get something done when we bought our first place.

John D: I think the team that is going to surround and protect you is important as well. The person who’s handling your finances is usually like person heading up the team right? 

They’re talking about where’s the down payment coming from? Is this going to be heavy

Lifting? Is it even within the budget? The financial person I would say is probably where the discussion begins. They question thinks like does the home play a role in their future Financial picture?

I have some clients that their “why” is that they don’t want to pay a landlord rent or they don’t want to pay the landlord’s mortgage. So I’ll  “time out” there and say you may not be paying your landlord’s mortgage payment but you’re going to be paying a Big Bank even more in mortgage interest (than what you’re paying in rent). That may not be the right reason to go for ownership.

I’m okay pre testing the “why” early on in the process. Sometimes the why is, it’s not grounded, it’s kind of loose and so we got to go back and tighten that up.  

Jim G: We’ve had this conversation before offline and I think it’s worth mentioning some people are perfectly fine renting for that fits their lifestyle. You mentioned the amount of mortgage interest and paying a big financial institution. That says nothing about the other costs of ownership. The landlord replaces the light bulbs he fixes the dishwasher when it breaks he you know typically cover snow removal or the other things associated with where you might live those all fall to the to the homeowner. Just simply not paying rent and trading rent for a mortgage payment isn’t maybe the full analysis that people need to consider.

John D I’m glad we touched on that. tenancy could (in actuality) be a dream lifestyle. It  really could. Tenancy offers you freedom on the weekends that you’re not cutting the grass and scraping paint and doing these things. Instead you’re kayaking and walking your dog. Doing things that you enjoy doing. Home ownership definitely competes with other aspects of your life. Whereas renting you’re simply paying it but there’s a lot of things that you don’t have to worry about. 

You don’t ever have to worry about being upside down on your home value – meaning that you owe more than the house is worth. You’ll never have to read an article related to a short sale or a foreclosure because it just doesn’t apply to you. Terms like loan costs and escrow and mortgage interest – those are terms that just simply don’t have a place in your life. And that’s okay. 

If your job is likely to move you around every few years, then having a big financial backpack on that’s called Home Ownership probably isn’t for you.

Jim G:  I was just going to summarize. Just not renting anymore isn’t maybe a good Central Focus on in the mission statement. Or I’m not getting along with my parents right? 

John D: So yes so the decision to own has to be thought out very carefully. There’s more than 20 reasons why renting is the perfect place for many people. There’s a lot of reasons why renting is much much better than home ownership and if you’re in that category then continuing to rent is Your Utopia.

Jim G: You’re not held, you’re not anchored down. You the ability to move around. 

John D: I don’t think the financial consideration i should be the ONLY driver.

It’s more a quality-of-life issue.

What you’re going to do in your residence in your spare time.

Do you like to host? Do you have a creative side? Where you paint or

work on cars? Or play musical instruments? Those are things that are really hard to do in an apartment community, right?

If your landlord comes home and your car’s up on jacks and the tires off and the engines out of it (the car) he’s not going to appreciate that. Or if you’re doing a jam session on your balcony of your apartment with your buddies from college … it  doesn’t fly.

Jim G: Right but you can do those things in the house. Yeah for sure yeah so as long as you have a good “why”. You’ve thought about that. And then you’ve connected with a financial person or done the math yourself. And feel good about the financial situation that you will be in. 

Who else is a part of that team that you’re building? What are the next folks that you need to reach out to – to connect with? And set yourself up with?

John D: As soon as you enlist a commissioned salesperson on your project the projects tend to go quicker than you had thought or wanted.

If you pull in a transactional real estate agent that wants you to buy something he wants to sell you something (earning a paycheck). And if he wants to do it before June 30th he’s going to be encouraging you to put offers on houses really swiftly.

Before you align with somebody who’s going to earn a commission on your project make sure they’re the right person and I don’t necessarily think you have to pull them in too early.

So whether to use a real estate agent or not I recommend you employ a buyer agent

whenever possible. 

I think they bring a ton of good value and you don’t necessarily have to pay for that

service yourself (currently the buyer’s agent commission is set aside to be paid for by the sellers listing commission). 

However, If you bring them in too early you’ll be you may be looking at houses and making offers before you’re actually ready.

The financing side of it is extremely mechanical. We go through pre-qualification process like any other mortgage company. That comes down to mathematics and credit.

I look at the mortgage is a Three-Legged Stool.

Leg 1 – consideration of assets and equity. That’s your cash and down payment.

Leg 2 is income – your job and your employment history. 

And Leg 3 is the credit component. Your payment history and current debt load as it relates to affordability.  

We want to make sure that all those legs are supportive and in good health.

If we start that process earlier, rather than later, we have time to address issues that could come up on those legs. 

Jim G: As far as credit this might be slightly off topic but it came up recently with a client who had something they just weren’t aware of hitting their credit report. There’s no reason to check it and when they did finally get around to it there it was and the score wasn’t quite what they wanted. 

Do you have any thoughts about where people need to be credit wise to really be in a position to buy a home? 

Any other thoughts on the credit aspect?

John D:  I think the word is knowledgeable. You want to be knowledgeable on your own credit. If you’re seeing your credit for the first time when you’re making an offer on a house it’s way too late.

There’s no time to do anything correctively or any anything proactive to the

credit report.

Back the clock up six to 12 months and then let’s take a look at a baseline credit okay? Is it Flawless or are there issues that we need to address? If so, given time, we can address a lot of issues on the credit report. Time is a luxury.

Jim G: how do how do you typically handle that? Six or twelve months when somebody comes to you and says hey I’m thinking about starting this journey at that point are you helping them take a look at that? 

John D: Yes. Then they become more knowledgeable as part of that process. With their permission we’ll pull a credit report and we’ll start to wireframe the transaction. We’ll build the structure around it. See what it looks like hypothetically. There’s no property address in the scenario yet – but we’re looking at price ranges. We’re looking at tax rates for certain towns. We’re considering Massachusetts versus New Hampshire tax rates. We are looking at all the attributes. All the 400 attributes that go into the approval process. Some are static – they can’t be changed. Example: if you’ve been working for the same company for 10 years and you’re on a a 3% annual pay raise your income is pretty static. There’s nothing we can do about that. But if on the other side of the ratio (the debt-to-income ratio) is a lease payment for your vehicle – and if that lease

Is coming due should our client consider paying that lease off early and buying the vehicle off the lease. And as an example, then doing a loan off of the 401K for the lease buy-out amount. Doing so would evaporate the auto expense payment. 

That income now takes your customer that much further in the part of the 

part of the ratio. One side of which is static but the other side of it could be fluid, right? The example I just citied if somebody has a $400 month car lease that certainly sounds like it is static – but there’s probably is a way rearrange the puzzle pieces and make 

adjustments to that.

If we have time, sure we can do a lot of things. We’ve had clients people buy the lease out early. Get a loan for the remainder of it and then do something with the loan related to paying it off. Supposedly you can’t make a lease payment go away – but you can handle these early and convert it into a purchase.

Jim G:  I was just going to jump in but I think you clarified it again it comes down to having enough time. Starting that process and being aware of the implications of your financial profile early enough so that you can proactively affect what it looks like when you do make an offer on a home.

John D: But again, if you’re waiting till you’re going to make an offer on your dream home you can run up against some of these things on your credit report or your debt-to-income ratio. At that point you’re not qualified; just too late or

differential in your credit score can have, no exaggeration, it can have a

$50,000 impact on your expenses. It’s three points, right? How/why it makes no

Sense, right? The interest rate structure is all risk-based pricing. For every 10-point tier of FICO scores it brings, it introduces a new loan-level price adjustment for that applicant. Tripping between a let’s say a 741 and a 738 FICO score may sound meaningless to you as a consumer. On the mortgage side it could trip an either or a quarter percent let’s say in the interest rate. Over the life of the loan and if you extrapolate that difference that the mortgage interest can be outstanding.

It’s criminal when we don’t have the chance to address that ahead of time.

Jim G: But if we have the luxury and in that specific example, I think you said 731 to 728, but the client that I’m working with it was probably everything else all things considered a 750 borrower in the high 600s because of this outstanding thing that they weren’t even aware of that needed to be addressed. 

John D: It came up, hopefully will come up pretty quickly now that they’ve taken care of it and gotten it resolved.

Jim G: but yeah, you know $50,000 from a three-point differential you know what

is it at 25 30 40 50 points right you know where you might qualify for the loan but you’re costing yourself thousands and thousands of dollars over time. You wouldn’t even know it. 

John D: The interest rate that’s proposed to you is based on your FICO score currently. 

A scenario could be the mortgage gets shifted into a Federal Housing Administration type loan (FHA). A great product, however, it comes with a Life-of-Loan mortgage insurance. As you may remember the term PMI, FHA has their own variation of mortgage insurance called MIP. It lasts for the life of the loan in most cases, so it never evaporates.  It never comes off. We hear:  “I could always refinance it down the road”  to which I’ll reply and say “no” there’s, I can give you five reasons why you’ll never be able to refinance:

One example is if interest rates continue to climb, you’re not going to refinance to a higher rate even if you’re dropping the PMI.

The second example is if the value of your home could be lower in the future, and you don’t have the equity to refinance.

When hear people say “I can always refinance” I’ll reply okay that’s not true

Your ability to refinance is contingent on things outside of your control such as maintaining your value. Maintaining your employment. Conforming loan limits staying the same in the future.  Those go up and down right. As of now, we we’ve only seen 10 years of UP but those loan limits may come down in the future.

Jim G: So that your loan becomes a jumbo instead of the conforming loan. 

John D: Yes.  

If you have the luxury of starting this process early you will come in with all your instruments are sharpened and buff polished and shined.

Jim G: I just to jump in here real quick and kind of relate back to my own experience of what you just walk through. Understanding your financial profile and then making some changes to put yourself in the best position. Those things in and of themselves are time consuming and stressful and potentially overwhelming. And when you layer them on top of the fact that you’re trying to buy a home for the first time it just it really

becomes just …it’s overwhelming … is really the best word.

And if the timeline is so fast – it’s all happening in a condensed period of time and there’s this excitement that you’re trying to actually enjoy the experience – it just becomes really difficult to manage all of it.

So if there’s one takeaway we’re circling around, that might be most important, I feel like I’m gonna vote for time.

And just giving yourself space to really deal with it. 

John D: Now imagine walking over your threshold for the first time as a homeowner and being relaxed. You didn’t get wiped out and beaten up. And you didn’t sell your soul. Everything was really planned. Orchestrated.  It went the way it should that’s the luxury of time versus coming over the threshold collapsing, exhausted. 

There’s really no need for that.

We can walk through the threshold to start – ready to enjoy the new life versus you totally be a part of a difficult Journey.

Jim G:  you want enjoy the journey, right? And be as less stressed as you possibly can be. It’s just naturally a stressful anxiety inducing experience. It’s just huge. There’s no way around it. Coming from somebody who felt like I was very prepared and understand the financial implications ….yet  it’s still it’s just it’s an overwhelming

experience to buy a home.  Especially the first time.  Giving yourself that space and that luxury feels so critical.  Especially after talking with you. 

So what about anything we hear a lot about? You know when to start looking for a home that spring buying Market? 

Is there anything else that people should consider about when maybe to start looking for a home?

John D: So there’s here’s seasonal considerations. There are also market cycle considerations. I don’t think any of it really matters. Buying or selling a home in the spring market versus transacting in January? We want to remove any cyclical considerations and take it back to the core mission statement. 

Is the goal to be in by the time a child is starting a school system? Or as you approach retirement? That you want to be in this community before or at retirement age? 

The personal timeline related to your mission statement is the one that we want to respect. Trying to jump into a heavy traffic pattern in the spring market right because it’s the “right time” to do it? Not a good idea. There could be a good deal out there or there’s more inventory. That’s an external influence. I would say if you can keep your internal mission statement preserved and protected – work on your timeline not the Market’s timeline.

And as for trying to time a bigger market it just really can’t be done.

Like any financial market we can’t see behind the curtain what’s going to happen next.

 I think we all have a feeling that there should be more inventory coming along because of higher interest rates. Mortgage rates really went right up a wall. But we don’t know for sure. What I thought was going to be a substantial Market correction when Covid rolled into town turned out to be the exact opposite.

 I have to be really careful about making real estate predictions – which way I think it’s going to go – because Black Swan events can that can disrupt that.

So your own timeline is the most important. The market timeline, the seasonal timeline, trying to do something ahead of an interest rate change – which may or may not happen – you’re really likely to try to rush and you’re more apt to make a mistake when you’re

responding to something that may or may not happen. You’re your worst enemy trying to beat an imaginary villain. 

Jim G: Right! And I hear that from clients and people I talk to. We’ve had this conversation in the past as well; where it’s like man do I need to hurry up and get this done because rates are going to continue to go up or values are going to continue to get away from me? Or whatever the reason is people feel a rush to transact and get in the game without giving themselves enough time to really address everything. We just talked about and specifically what are you doing this for in the first place. Because you feel like you’re missing out or because you feel like the economy is Shifting that is not a reason to go out and buy a house. 

John D: It’s gonna be more stress than it’s worth. If that’s your starting point and

and you’re literally raising your hand and you’re jumping into chaos very reactively so make a proactive game plan and honor it and you will have success. You

will do it in a civilized fashion but if there’s somebody else’s stopwatch that’s running and it’s in your ear. THAT is going to add and elevate cadence of the transaction. It’s going to start to just go a little bit quicker. Mistakes will come easier at that point so always just break it down to your own timeline.  

Jim G: is there any other tip or idea? Anything you want to leave people with

when they’re thinking about starting this journey? Hopefully they’ve got a pen and a piece of paper out. That they’re going to start taking some notes and jotting down some ideas about what’s important to them. But what else? Did we leave anything out or do you think we’ve given people enough to consider? 

John D: You touched upon Jim – it’s just gut instinct – it’s what you’re feeling inside too and if you can’t get an answer for something you have to walk away from it. So find out enough that you can be satisfied and don’t bend on those. Don’t bend on those parameters ever. Honor yourself and what you’re looking for. If you feel that it’s not going right just turn around and walk out – that’s what it’s meant to be and don’t be pressured into something that isn’t perfect for you. It’ll come eventually and so the failures end up always being successes. Every. Single. Time. When it when it fails I think the next one, it’s better. Things fail for a reason and when you try to make them not fail, you’re magnifying the potential of the overarching failure.

Jim G: I again it might sound like I’m embellishing a little bit when I said I had a panic attack when we made the first offer a home. But I’m not I’m not saying that for dramatic effect here. I literally had to take a walk and catch my breath when I got home after that because it just didn’t feel right.

I should have listened to myself and listened to your advice.

So if it’s not right you don’t have to force it. You’ll thank yourself because we ended up you know luckily in the right home which we ended up selling and moving into an even better one! It’s what we consider now to be our forever kind of dream home right now! 

So awesome the failure worked out tremendously in our favor! And we now drive by that house and every time we look at it and say “man I’m glad they didn’t take our offer. I’m glad we don’t live there.” 

I think maybe we could wrap it up here.

Before I let you go this is a show about financial well-being but well-being in general and not to put you on the spot but is there anything, any trick habit ritual that you partake in and practice in your life that helps you feel a little bit better? Resets you mentally physically emotionally that you’d like to spotlight for folks Before I Let You Go 

John D: I’m big on permanent guard rails in my life things that protect me against my own mistakes. Over the past couple years, I’ve just been instituting these guard rails that help me stay focused on where I’m trying to get to. Some of them are easy. Some of them are difficult but once I put it in place it’s like a programming cartridge. I put them in and just kept them right until the finish line. One of the easy financial things that I’ve been doing is making coffee at home every day since January 2019. If I don’t make it I can’t buy it.

Jim G: So any good rituals, good habits setting yourself up for success. I love it! It’s great. So we’ll link to some of this stuff you mentioned:  the sample mission statement that’s on the website but where do people go to check you out? Where do you want to direct some eyeballs, or some clicks for folks?

John D:  We have a a program for folks who are currently renting and are considering going into home ownership.  It’s our home ownership aptitude score. It’s a free quiz they can take and it outputs a score for them which would help them determine where they are in the journey. Are they better situated to stay as tenants? Or should they drill down on ownership a little bit more? I’ll send you the link to the Home Ownership Aptitude Score –  it’s free and tenants can take it and learn more about themselves. It opens up a conversation …  Hopefully earlier in the process than later that allows us to talk about building the mission statement.

Gold Coast mortgage dot com back slash home ownership aptitude score. 

It’s a place to start your journey.

Jim G: Awesome well thanks for the expertise. 

I don’t know many people (I know a lot of great mortgage professionals out there but) I don’t know many with you know 10 to 30,000 conversations under the belt. 

I really appreciate your time and expertise and joining us today, John.

I know that hopefully people can learn from my mistakes that may overwhelm them and they panic and listen to your words of advice and not go through a similar experience it doesn’t have to be that way if you give it’s so key.

John D:  If we can learn from other people’s mistakes and yeah just it helps us move along a little bit more efficient so thank you Jim thanks for having me on the program! 

Jim: You got it.