Learning With A Lender • What Do Increased Market Rates Really Mean?

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Welcome to the October episode of Learning With A Lender with Joel Schaub!

Lending rates are up! Should you be worried? Short answer = no! Joel Schaub, Vice President at Guaranteed Rate, discusses how to interpret recent rate increases and how little that actually affects monthly payments. We also tackle low-down payment loans that have recently been covered by the news and what you need to know – specifically how these products are different from 7-8 years ago. Finally, Joel discusses an opportunity for buyers to purchase real estate at a significant discount on the day of the year with the lowest offers.

You’re invited to a Halloween party Joel is throwing on 10/25 from 2-4pm. Click here to RSVP.

Joel Schaub can be reached at joel@rate.com or 773.654.2049.

Joel Schaub


D.J. Paris 0:14
Hello and welcome to another episode of Keeping it real the only podcast made by Chicago real estate brokers for Chicago real estate brokers. My name is DJ Parris. I am your host of the show. And today we have our regular segment a regular episode learning with a lender with guaranteed rate superstar lender. Joel Schaub, let me tell you a little bit about Joel, if you are not familiar, although you should be familiar, but if you aren’t, you will be here in just a moment. Joel is vice president of lending at guaranteed rate, and he’s been doing loans at a high level since 2003. He’s gotten to that level because what he what he does directly for Agents Brokers, he gives back his commission, part of his commission to the buyer on every transaction. Last year alone, Joe gave back over 244,000, enclosing class to buyers who worked with him. And that put Joe’s volume in the top 1/10 of 1% of lenders nationwide. Now, that was last year this year. Joel has already surpassed what he gave back in commissions last year, which was 244,000. This year, he’s already done 270,000 in commissions back to the borrowers and the year is not over. So he’s probably going to give even much more back out of 380,000 loan officers in the country, Joel was is ranked number 181 and production year to date, he’s done over 176 transactions for just around 61 million and closings, and he is here with us today. Let’s say hello to the biggest Cub fan. I know Joel,

Joel Schaub 1:45
thank you IBJ. Thank you so much for having me those kind words are great. But as you know, it’s all about giving back. So we’ll jump right in and just do some things that I think will be actually really helpful. Great for the realtors. And I can take it away if

D.J. Paris 2:02
you’re ready. I know you have a full agenda. So take it away. Well, we’re going to do three

Joel Schaub 2:06
things today, the first thing I want to talk about will be going into where rates are at. I think it’s important for agents to really have an understanding when they know that the market is up what that actually means where rates are at. So we’re going to go through that. The second thing that we’ll cover will be all of the proliferation of the low to no downpayment scenarios, okay, that we’re seeing in the news, and we’re gonna go through some of those. And then last, I want to end with an opportunity. I want to end with ways that agents can actually close out the year with several more deals than they thought. The years not over just because it’s cold out there. Let’s hit the fall season running and close some more deals.

D.J. Paris 2:48
Great job before you get started with those three, three items. I want to promote a event that you are hosting just in case we have listeners. That’s right make it to the end of this podcast, which I don’t know how they couldn’t but let’s just share just to be safe. Let’s talk about this event. Joel is hosting on this Thursday. It’s called booze brews and bingo and you can come join Joel and and I will be there as well along with a lot of great people. I’ve been to Joe’s events in the past they are awesome. For this particular one. He is giving away some pretty amazing prizes like he always does. This is no exception. There’s a 55 inch television $1,000 Nordstrom shopping spree a 12 person boat cruise, yeah, air pods, front row, cubs tickets, all sorts of I mean, these are real amazing prizes. I have been to I went to Joe’s last event, and I did not win any of these prizes, which I’m not super happy about but the event was really great. And anyway, any more Oh, if you would like to attend. If you’re interested in attending, it’s a few ways you can you can RSVP and you have to RSVP. First you can email Joel directly, which is joel@rate.com. Also, in the notes of this episode, you will see a Facebook link directly to the the event page for booze brews. And bingo. So you can obviously RSVP there anything else you want to say about the event. Joel, before we get started. It’s a

Joel Schaub 4:13
Thursday and it’s a two hour event. And it’s really about having fun. Okay, so it’s real estate bingo. And it really is as simple as it sounds. I’m the sponsor of an event where we’re just giving away 1000s of dollars of prizes. And so you could literally bring a guest so you can RSVP and plus one and you just go and it’s at Montrose harbor. So it’s easy parking, and it’s at the Yacht Club. So two hours on a thursday from two to four. Come have fun, win some prizes, and then go back to work and say

D.J. Paris 4:48
hi to Joel and if you see me say hello to me and I have a new silly beard. And you can make fun of my beard because it’s probably it probably needs to go but

Joel Schaub 4:57
good. It’s not silly. We like it.

D.J. Paris 5:00
All right, Jill, take it away. Let’s, let’s go through our your three, three points today.

Joel Schaub 5:05
Well, I just want to start with market rates. Okay, so we’ve seen these rates move up, we saw earlier in the year, a standard 30 year mortgage around four and a quarter percent right. From there, we’ve literally seen this market push almost up to 5%. On a 30. Year today at guaranteed rate, the best rate in the market would be 4.75%. And so what I wanted to do is put that in perspective. Okay, I wanted to give three quick scenarios so that we know what that actually means as far as dollars on a mortgage. Okay, wouldn’t that be helpful? Yes. So I did three scenarios, I did a borrower borrowing 200, grand, 500, grand, and 1,000,002. Okay, so three segments of the market that I see all the time. It’s the first time homebuyer and they’re buying a condo at 200 grand. So what I wanted to do is put this in perspective so that people knew this rate increase isn’t the end of the world right rates pushing up to almost 5%. On that scenario, most people would guess that the payments are going up hundreds of dollars. And they’re certainly not. So scenario number one, a $200,000. Mortgage, it goes up $61. Right. Okay. All right. That’s not bad, not the five. No, it really isn’t. Okay, on a $500,000 transaction, you’re borrowing 500 grand, the payment is $149 more per month than it was in the spring. Okay. And if you’re borrowing 1,000,002, the payment goes up $356. But guess what? My clients that are borrowing a million plus $300 is not the end of the world. Right? It really is not. And so the takeaway here, when I did the math on it, is if you’re borrowing $100,000, the payment right now versus the spring is about $31. Higher per $100,000.

D.J. Paris 6:58
Yeah, I think that’s really important because we get sucked into the news headlines that rates are at a high, and that’s going to dramatically affect people’s ability to borrow. And we’re not talking about a ton of ton of increase here. Even though it might appear that way. If you look at the percentages,

Joel Schaub 7:14
we’re not and we’re here at guaranteed rate, what I focus on is educating the borrower where so many times you’ll have loan officers telling your buyers Oh, you better hurry up and buy because the rates are going up, sir. Right. They’re scaring the buyers, right. And we just don’t do that. You just got to educate people and understand where the market is today versus where it was and where it could be going. So likewise, from now, if rates moved up another half a percent, right, that $200,000 borrower is going to pay another $61. So these aren’t things that should be used as scare tactics, or sales pressure techniques, although so many people do. If you can just educate the buyer, they’re going to be much more happy with your service, they’ll refer more people. And it’s common sense, they’re going to find out you don’t really need to pressure people into doing things. So putting this into perspective, that $100,000 is $31 more, I think was a really helpful way to start the

D.J. Paris 8:18
podcast, Agree. Agree grid.

Joel Schaub 8:21
The second thing, let’s dig right into it. You and I were talking over the weekend, and we’re seeing all the all the news talking about the return of low downpayment, right? Yes. What are you seeing? Tell me some of the scenarios that you’re hearing about I

D.J. Paris 8:37
just saw prominent bank is investing $2 billion into subprime low downpayment or no downpayment products. And that’s an i What I know is people have to now also take a some sort of seminar to qualify, but I don’t that’s literally all I saw, and I didn’t know what to make of

Joel Schaub 8:59
it. And so people are seeing the exact same thing you are and what the headlines read are no downpayment money is back, right? Right, no doubt. And really, it’s a really small segment, right? So what is back, however, is the return of low downpayment, okay? And what I call the new low downpayment scenarios, okay? Meaning FHA has always been there, right? You could put three and a half percent down, but the conventional players got into the game. And this scared a lot of people, conventional is your loans that are non jumbo, that are under 453 100, here in Illinois, that are backed by Fannie Mae and Freddie Mac, right. Okay. So they got into the market, and they have their 97% financing program. Okay, so, do the math. Yeah. What’s the downpayment? There? 3%. Okay, so now it’s less than FHA and people are getting up in arms about it. They’re saying, Oh my god. All this bad mortgage practices are back. And I’m here to tell you that the low down payment scenarios of today are so drastically different from what we saw 10 years ago. And I’d like to go through a couple of reasons why. Sure, yeah. So it is true. We can do loans right now at 3%. Down, and they’re actually really good. Fundamentally back mortgages. Okay. They require full income documentation. Go figure. Right, right. Makes sense. Whereas in years past, we did not have that. But more importantly, after Dodd Frank, the rule was, there is ability to repay. Okay, right ATR rule. So the ability to repay, can we can we talk about this for a second? Yes, we actually dig into what this meant. So, I’m gonna take you back to literally just seven or eight years ago, after the market crashed. Borrowers sued the banks, they said, you let me for $100,000. I had no way in hell to pay that back. Sure. It’s your fault. It’s your fault. Okay. So let’s think about this. The banks literally were sued by class action lawsuits against borrowers that stated, you should have never given me the money. Okay, and to some small degree, they were right. Yeah. What happened was after Dodd Frank, the banks had to produce the borrower’s ability to repay, which just simply means a borrower’s income typically has to be double the amount of the mortgage or, inversely, the maximum debt ratio on most borrowers is between 43 to 50%. It just means, if you’re taking out the mortgage, we don’t care how much money you have in the bank. We don’t care how big of a downpayment you have, what we really care about is that monthly, sure you have enough money coming in to pay the mortgage payment, okay, ability to repay Sure, and it always made sense. Okay. However, we got away from that, and there was a good reason to get away from it in certain scenarios, and a bad reason. So let me just tell you one of the quick ways that years ago, maybe somebody who didn’t have enough money to make a mortgage probably should have still gotten the perfect scenario where you’re buying a $200,000 house, and you are putting $100,000 down, right, the bank should give you that mortgage, even if you don’t really have steady income or the monthly income to make the payment. Because if you are unable to make the payment, the bank will just take the property back. Right. Okay. All that’s changed, the banks are no longer in the business of having any properties and they never were originally, they want the monthly payments to come in on time. And they don’t want to ever take over a property. Sure. Okay. So there used to be no common sense. And now there’s kind of no common sense, right? People that should get mortgages don’t and before people that got mortgages shouldn’t have, right. So it all boils back down to right now, some of the low downpayment scenarios that are out there are great for your buyers, so realtors, if you’re looking at buyers that are paying a certain dollar amount in rent, we always want to encourage that conversation. Maybe we should look at buying, right? Wouldn’t we rather have a buyer buying a $200,000 place or $400,000 place and get that commission versus just a rental commission?

D.J. Paris 13:39
And I want to interject for a second because this is like hot off off the press, so to speak. So Zillow, just did their a little plug for Zillow in 2018 consumer trends report just came out a few weeks ago, and I was poring through it this morning, I was looking at some renter data and to Joe’s point, and this is a really interesting statistic. I think brokers could find interesting 78% of renters move, experience a rental increase. So that’s we’ll just call that eight out of 10. Eight out of every 10 renters. So hey, how about a great opportunity to have the you should be buying conversation.

Joel Schaub 14:14
And a lot of times when I asked this to agents over the years, I’ve always said when you ask a renter, why are we renting and not buying? Over 80% Say it’s down payment.

D.J. Paris 14:24
Right, exactly. You’re exactly right. Yes, it is right.

Joel Schaub 14:28
And it’s still a fallacy that they think that you need to have the days that they think you need 20% are gone, but they still think you need a sizable downpayment. Otherwise the rates are going to be through the roof and it’s simply not the case. These 3% down programs are within 1% of what somebody’s putting 20% down on a mortgage would

D.J. Paris 14:50
be that’s shocking to me and also very encouraging.

Joel Schaub 14:53
It is it just means that if the best rate in the market is 475 You’re going to be somewhere in the mid and fives with 3% down, it’s not a major increase. And so it’s it opens the doors for a lot of folks that are out there that have a good income out of college or they have a good income and they simply are paying cheese 2500 bucks in rent, let’s find them a place that they can buy with 3% down. And we do it all the time a $300,000 transaction, show me nine grand. And let’s work with one of your great agents that can help the buyers negotiate a closing cost credit from the seller to cover the closing costs Sure, they’re in for just the 3% I teach this time and time again, when buyers are short on cash, we can literally have them come to the table with just the downpayment money. And we could ask for a seller credit. Okay, so some great opportunities for agents out there to close more

D.J. Paris 15:54
deals huge. And also, you know, as just as I’m thinking even people who have the ability to put down the conventional 20% may opt not to if if they fail, that they could get a better return investing elsewhere, and maybe even go with the lower downpayment product just might be a good fit in that sense as well. I don’t know if you ever see that, how common that is. But see it

Joel Schaub 16:17
a lot right now where you’re buying a property or sell right? Do you do what you find is, if they have the ability, what they typically have is they’re buying a house, and they may want to do some renovations or they don’t want to be cash poor afterwards, right? They don’t want to have all of their cash in the house, they don’t want to be house poor, I should say. And let’s do something with a lower down payment. And they typically aren’t educated, or the mortgage professional doesn’t do a good enough job of explaining that, it’s not going to change the payment by all that much. And if you have a good credit score, we can also do a lot of no private mortgage insurance options where the lender pays the PMI for the borrower. Okay. So there’s a lot of scenarios, you just talk to a professional. Okay. And that’s why I’m here. Awesome.

D.J. Paris 17:04
So let’s does that. Does that get us through the opportunities as well?

Joel Schaub 17:11
No, I want to end with some really good opportunities for agents know that

D.J. Paris 17:15
opportunity, you are over delivering my friend. I thought this was the end of all the great stuff. And there’s more, so keep going?

Joel Schaub 17:22
Well, it’s Don’t give me too much credit yet. I don’t know how great it is. I just know that I’ve seen I have years of anecdotal evidence here of an opportunity. I see a lot of agents right now. And the market rates have come up and the markets really slowed in certain areas, right. And I’m here, I’m going to end 2018 Really strong. And so I want to make sure that the agents can think of a way to close, strong as well. Close with me. So I want to present the story of this opportunity that with properties. Finally now we’ve seen in the last 60 days, a switch? Do you kind of feel it in the air a little bit of a change from it being such a strongly dominated seller’s market to not that way at all right. Okay. Okay, so I don’t know about you, but I like buying things on sale. Okay. I like buying my shoes on sale. And I’d love it when a sport coat that I like goes on sale. Yes. Okay. So why not buy real estate on sale? Right, right. And so, right now, I believe that there’s an opportunity in December in January specifically for buyers to go out there and buy a property that is literally 1020 Even 30 grand lower than it was in May or June. Okay. Yeah, that’s so let’s talk about why Oh, of course, you know, it’s the winter. But there’s a perfect storm here. So we have all the inventory that’s coming on the market in the fall, right, we see new inventory being added. We couple that with all the inventory that sat on the market that didn’t sell so we have the spring and summer inventory that now is starting to get 200 days, 120 days you’re seeing price reduction or they’re not moving. Okay, so now we have probably more inventory than we’ve seen in a while. And Realtors you know this. Now we also have the opposite. We have less buyers, right? We truly have less buyers and here’s what I’m seeing because I talked to so many buyers, all the buyers that had to buy. They bought right okay, who had to buy deejay people that had a job relocation right they had to buy they were the ones doing multiple offers right winning people that had to buy for a certain school district etc. All these people that absolutely had to buy bought, and what are we left with? Lesson buyers that are just going to look and write how many times in agents, you’ll hear this. I just not sure I, I’m waiting. And that’s what people are saying right now. And it’s a combination of rates going up, and then not being informed that there’s a real opportunity. So let’s inform them, okay? Let’s go and find properties that have been on the market for over 120 days, let’s go present really strong offers not on price. But because the buyer is really strong. Here’s the buyer, he can close in two weeks, he’s got a guaranteed rate pre approval. By the way, a little side note, most of my closings from start to finish are under 14 days, start to finish, give me a contract. I had one this morning, that was clear to close in 11 days. And that’s not the exception. That’s the rule. We want to have your files done. Approved. And I don’t care when the close date is. But we’re done with financing in the first two weeks, appraisal, everything good. So we present a good strong pre approval letter, and we’ll say I know Mr. Seller, you wanted 440. But my client is very strong, he can close very quickly. And we’re going to offer X guy, it’s gonna be a lot less than the offer. And we’re gonna see a lot of people winning. Okay, so mark this date down December 20. That one of the lowest days of the year for offers, okay, right before the holidays, you start making sure that buyers that are in your queue could actually go out and put some sticks in the fire. I think there’s a real opportunity that or what do you think? Yeah, no,

D.J. Paris 21:36
it makes it makes sense. Because it’s, it’s just enough before the holiday to to maybe get the seller to agree. Right? They may want to just close it out before the holidays and the end of the year? And also who’s looking on the 20th? Nobody, right? So huge opportunity for discounted pricing. Makes perfect sense. So

Joel Schaub 21:53
let’s do that and turn these into some some actual closing. So a little takeaway here, just something that we can do get those buyers in that mindset that if the offer is accepted, that’s unbelievable, we really got a great deal. And these are the buyers that don’t necessarily need to move. And they said, Well, I’m thinking about, you know, buying, and I’m waiting, what are they waiting for, they just need somebody to educate them that this is how you win when you buy real estate, you could buy this literally for 20 3040 grand less than what somebody in the same building bought for in May or June. Okay. So let’s get some deals

D.J. Paris 22:33
I love it makes all the sense in the world and hopefully invigorates the brokers who maybe feel like they’re going into a slower time, and that maybe things are not ideal conditions, there’s always opportunity. And if you’re always willing to do just a little bit more than everyone else, you’ll you’ll probably always be successful. So I couldn’t agree more. And I want to make one final plug for Joe’s event, which is time sensitive is this Thursday, it is from two to four at the munch and Montrose harbor at the Chicago Corinthian Yacht Club. But you don’t need to remember any of that you just need to remember to email Joel to RSVP, which you can do actually one of two ways you can email Joel, Joel array.com. Or you can follow the link in the notes to this Facebook page and RSVP that way as well. I will tell you with these prizes being so significant, people get very excited and very emotional when they win and when they lose. So it’s a lot of fun. I went to the last one, I’ll be there again. And and whether I win or not, it is it is a tremendous amount of fun. And Joel has the most fun of anyone there, and his beautiful wife and their assistant and everyone there is having a great time. So I couldn’t, I couldn’t encourage everyone to attend more.

Joel Schaub 23:46
We appreciate that so much. It’s all about giving back and doing some of those things that others are just not doing. And so it’s the same way that any of the buyers that come over just a reminder that they’ll get a $1,500 closing cost credit, we always waive guaranteed rates, fees and pay the appraisal for your buyers. So on all those transactions. If you don’t have a mortgage guy, you can always connect with me at Joel rate.com. And we’re always willing and able to give back to your buyer

D.J. Paris 24:12
and Joe works around the clock. He’s always available. I know he’s incredibly easy to find. And maybe that’s maybe even the most important thing to look for in a lender, somebody that’s easy to find. And in addition for being incredibly knowledgeable and busy, I don’t want people to think he’s so busy. He can’t, he won’t have time for you. He has time. In fact, he’s closed loans for friends of mine. And you know, they all say the same thing that he’s incredible. So anyway, on behalf of Joel that will that will do it for this this episode. Joe will be back in a month. So and we appreciate it because Joel does not have time to do this and he makes time for it. And then we’re so grateful and really his only intention is to give back and that’s important to us. And obviously we’re grateful to have him on the show. So on behalf of Joel and myself, we will see you next A month learning with a lender and thank you for listening. Please share these episodes with friends. If you have questions for Joel, please shoot them to us. You can visit our website keeping it real pod.com Visit us on Facebook keeping it real pod. Send us your questions and we will tackle them on the next episode. So thanks, Joel.

Joel Schaub 25:18
Absolutely, it’s genuinely My pleasure. I’ll see you next time.

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