We get so many questions from buyers about whether or not to buy during this “Seller’s Market” or to wait for things to cool off. We asked Justin Messing of NJ Lenders to weigh in and to crunch some real time numbers for us. The numbers may surprise you! **HINT** Mortgage rates make all the difference!

Thinking about buying now? We’d love to help you weigh your options. Reach out today! info@adamsonramsey.com

Feel free to reach out to Justin for all of your mortgage questions and needs! justin.messing@njlenders.com

Video Transcript

Justin (00:04):

All right,

Bonnie (00:04):

Hi Justin. Good.

Justin (00:07):

How are you?

Bonnie (00:07):

Good, how are you? Welcome to REal Talk.

Justin (00:09):

Thank you. Thank you for having me.

Bonnie (00:11):

So I’m sure all of our listeners are wondering where is Susie? She’s on vacation, which is awesome for her. And I’m just glad that you joined me today to do some, some chatting.

Justin (00:26):

Happy to jump in.

Bonnie (00:28):

Yeah so everybody, this is Justin messing. He is one of our tried and true lenders over many, many years, and you’re just thorough and even keel. And you are always available to our clients. You work incredibly hard and we’re just so grateful to have you as one of our main vendors. So thank you Justin so much. And I just was thinking it would be fun. I don’t know fun is the right word, fun for me, but just to kind of talk through a few different mortgage scenarios, and I know it’s kind of confusing to a lot of people, you know, it’s like, people’s eyes just go, go blank. When you bring up sometimes, you know, all this financial stuff and the numbers and it can be very overwhelming. And you know, when we get to the bottom line, people really want to know what can I afford? Why should I pay so much for a house? And the main issue right now obviously is that it’s a crazy market and people are having to pay above asking in our market to get a house. And especially in a competitive situation, houses are very often going for a hundred thousand over asking or more, right. You’re probably seeing not a lot on your end.

Justin (01:46):

Yeah. I’m writing pre-approvals for a lot higher than the list price. Yes.

Bonnie (01:50):

Yes. So a question I’m getting a lot lately from our clients is should, should I wait for either the prices to come down or for it to be less competitive or should I buy now? So I was thinking maybe we could run through this scenario of a house. Let’s say the house is listed for 799K and there’s, you know, five people bidding on the house and we’re, you know, thinking it’s probably going to go around a hundred over. If we ran the numbers for a house, that’s going to go a hundred over 899K with like today’s rates, which are by the way, what, what are today’s rates?

Justin (02:29):

So rates are always in a couple of different buckets, but the first bucket, which is with a loan amount in the 548K or less range is considered a conforming loan limit. Those rates are around 2.75% / 30 year fixed. Then over 548K but less than or equal to around $822,000, that’s kind of the middle range. It’s considered a high balance loan. Those rates around 2.875%. So in your scenario that you’re about to bring up, it sounds like we’re going to be high balanced. So we’ll just go with today’s rate of 2.875%.

Bonnie (03:03):

Can you comment on that rate?

Justin (03:06):

It’s getting close to free money, right? I mean, anything in the twos historically is amazing. You know, my parents, your parents have sure had rates in the 15%, you know, granted house prices were lower, but still, I mean the lowest of the low last year during the middle of the pandemic, when it started, I mean, 30 year fixed probably around two and a half, you know, it was the lowest at gap. So to be not far off that mark right now is still really amazing. I remember, I don’t know, seven, eight years ago when people were like, oh my God rates are under 5%. That’s great. You know, so…

Bonnie (03:45):

Yup. And what do you mean, I will get back to our scenario, but what do you mean when you say it’s almost free money? Can you explain that?

Justin (03:52):

Well, I mean the lower you pay it’s, I mean, I’m doing refinances at 2.2, 5% on a 15 year. So, I mean, it’s getting to the point where you might see rates in the ones on a 15 year, well closer, you get to zero it’s free money. Right. So exactly.

Bonnie (04:09):

They’re just giving you…You’re just borrowing the money for free. Yeah. Yeah. Okay. So what I was curious about is if you ran numbers, so if someone’s going to spend 899K on a house, let’s say at the current rate, and they’re kind of like, oh, white knuckling it, like, I hate that I’m paying a hundred grand over. What if I wait? So let’s say that they do wait and the same house is available and there’s less competition, or maybe they’ve even brought the price down. And they buy the house for, let’s say 825K instead of 899K. So here, they’re getting, you know, they’re getting a deal of $74,000 less and they’ve waited and they feel better that they’re not overpaying, but let’s say the rates have gone up maybe 3/4th of a point or something like that, which, which could happen. Right. The rates are always moving and changing.

Justin (05:03):

I mean, yeah. Rates golden rule is rates always go up a lot higher quickly. Then they come back down. So if you’re talking next year, they’re like, ah, let’s wait for six months and six months from now that same house, not that it might be the exact house, but the same type of house in the same areas, you know, it goes for 825K and rates instead of 2.875%, or now recorder’s higher 3.625%. Like we could run that scenario.

Bonnie (05:29):

Yeah. Let’s run that scenario. And are we, I want to know, like, did that person wait for a good reason? Are they saving a lot of money?

Justin (05:38):

Well, we’re also wasting money on rent during that time too, but that’s a different topic.

Bonnie (05:42):

Yeah. That’s a good point. No, that’s good. I mean, you have to consider those thousands of dollars that you’re just basically flushing away.

Justin (05:48):

Not putting towards equity. So that’s the first answer is yes. If you wait, just you’re wasting money regardless, but on rent. I’m of the feeling as if you are able to purchase a home you know, kind of do it. Why would you rent? So I don’t know. That’s just me. So I did write notes down ahead of time. Cause obviously this is kind of more of a specific scenario. So at 899K you put down your 20%, we’ll keep it equal. It’s about $180,000 down, the loan amount, 719K your principal and interest at the 2.875% is around $2,985 okay? Taxes and home insurance are going to be what they’re going to be.

Bonnie (06:36):

Right. Ok. We’e right around $3,000…$2,985

Justin (06:41):

Right around three, sure. Okay. Now that same scenario that you said, well, Hey, what if the house goes cheaper, eight and a quarter, you know, 20% down to that, your loan amount it’s going to be 660K and now we’re going with a higher rate now because they waited and maybe rates went up that point, maybe 3.625%, and your principal and interest there on the 660K loan, although it’s a lower loan amount higher interest is $3010. So I mean you’re within $10, $20 or so, which is crazy, but that’s what it is because yeah.

Bonnie (07:21):

You’re actually paying more. So the person that waited and bought the house for cheaper, their monthly cost is more.

Justin (07:28):

They have a higher payment. Yes. They’re putting down $15,000 more in the beginning. Right.

Bonnie (07:36):

You mean for the down payment is $15,000, less

Justin (07:41):

$15,000 less in the future. If you waited but your payments actually higher.

Bonnie (07:47):

Right. But they waited a year. They’re probably paying more than a thousand dollars a month in rent. So that money is being spent, regardless?

Justin (07:55):

Yeah. Well, that definitely equals itself out for sure. Yeah. So apples to apples, when you put all the numbers together, it’s, it’s the same payment, so, okay. And again, the wild card is rates who really knows what they’ll be.

Bonnie (08:11):

And what are we hearing? I mean, is there a rumor about what rates are doing and what they’re going to do? It’s hard to speculate, but…

Justin (08:19):

It is, you know, a lot is tied to the pandemic, right? It’s every day you turn on the news and sometimes it’s like, Hey, the economy is great. You know, we gained 965 jobs in July. Amazing. Right. Economy is good. What’s going to happen to rates. They’re going to go higher when the economy is good, three weeks later, you hear, oh, you know, the Delta variant could be spreading and this is a problem. And then, you know, maybe rates will go back down. But my feeling is the further we eventually distance ourselves from the pandemic and it back to normal when that will be, I don’t know when that happens, my opinion is rates are or should go up significantly. That’s just my opinion because when everybody’s happy with the economy and good times are here again, and people are dancing in the streets and going on vacation and taking their cruises and not wearing masks. That’s when everybody likes to spend money and the economy booms and rates go up. But that’s just a general thought.

Bonnie (09:23):

Okay. So it sounds like buying is, you know, as long as you can find a house and as long as there’s some inventory to choose from, seems like it’s still a good time to buy, even though it is a sellers market.

Justin (09:37):

I’d agree.

Bonnie (09:39):

Yeah. Anything else you want to add about buying.

Justin (09:40):

I think we covered everything. I mean, always good to get a pre-approval. Always good to get a pre-approval from a local lender. A lot of the times the listing agents, when they see all these pre-approvals, if they see somebody with a local name, they feel more comfortable with that offer. Right? So apples to apples, if everything’s equal, and then you have a couple, you know, major companies like Quicken and things like that, Bank of America, and all of a sudden you have NJ Lenders, oh, Justin, I know Justin or whoever it is that puts a little different spin on that offer. But I think that’s important that the listeners should know.

Bonnie (10:22):

Yeah. We definitely encourage all of our clients to talk to all of our local lenders. It can help in a multiple bid situation because we know when we work with the people that we know well, that, you know, the deal will go smoothly and you guys will do whatever you have to do to make things close on time. And it’s worth it. And often your rates are better if not equal to something that they’re finding online or at bank of America or whatever, have you.

Justin (10:51):

Yeah, that is true. And then on rates I know this whole world is a trending thing, right? Everything is trends. So rates are, I took down some other notes here. I almost forgot. So the 10 year treasury is a good indicator of interest rates. Okay. Now, when the yield goes up, rates go up, yield goes down, rates go down. So that the yield in 2018 was 3.2%. Well, you remember what rates were back then? I mean, higher than they are now. 2020, again, March, April, May the beginning of the pandemic, the treasury plummeted, I mean 0.59%. That’s why we saw, yeah so huge difference. That’s why we saw rates at two and a half. Now, since then the treasury, for instance, today is 1.3%. So basically doubled from what it was last year rates are up. So again, if that trend continues and the treasury goes up, rates go up. Just to give you, you know, that kind of information too. Yeah.

Bonnie (11:58):

So they’re, they’re related. They’re not the same numbers, but they’re related in the way they Go up.

Justin (12:05):

Correct.

Bonnie (12:05):

Good to know. Good to know. All right, everybody. Well, thank you, Justin. I hope everybody learned something. And as always, if you have questions, reach out to us, we’re happy to connect you with Justin. I’ll put his information below if you want to reach out directly with any questions. And we wish everyone a great weekend.

Justin (12:25):

Have a great weekend. Yes. Yes.

Bonnie (12:28):

Thank you, Justin. Talk to you soon.