06 Jan Ep. 7: Investing High/Low Value — Selling In Winter — 97% Loan

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Adam talks about a website he’s been checking out called Fiverr.com,  investing in higher value rental property vs. low income, not cancelling utilities in empty properties, updating the site’s property search options, the importance of proof of signatory authority, why agents shouldn’t take the winter off, how to decide between renting and buying, whether we are in a housing bubble, what the real importance of using a real estate agent is, whether buying a home is a good idea for someone in their 50’s, predictions for interest rate increases, and whether the recent protests will affect St. Louis housing prices. John Charlton of Midwest Mortgage Capital shares his excitement for 97% conventional loans and why they may be better than an FHA loan. Email questions to Podcast@HermannLondon.com

WHAT’S INSIDE

1:30-Using Fiverr.com to get tasks done for cheap

3:20-Agents owning and renting out vacation properties

5:21-Why invest in higher value rental property when they don’t cashflow as easily

10:28-Landlord leav-on for utility companies/leaving the heat on in an empty house to improve comfort when showing the property to potential buyers

14:39-Why use proof of signatory authorization

17:13-Why do agents take time off in the winter

19:48-Living in a duplex while renting out the other half

20:17-Renting versus buying and a calculator to help with that decision

22:14-Are home prices approaching a new bubble

24:31-Why do I need an agent when I can find a house online myself

26:50-Is it a good investment for someone in their 50’s or older

28:35-What will happen with interest rates this year

30:15-Will housing prices be affected by the events in Ferguson

33:04-John Charlton of Midwest Mortgage Capital talks about the guidelines for the  Fannie Mae/Freddie Mac 97% loan purchase program

47:19-How to get in contact with John Charlton of Midwest Mortgage Capital

TRANSCRIPTION

Segment 1

Welcome to 2015 and The St. Louis Realtor Podcast. We’re recording live from the Hermann London studios in beautiful downtown Maplewood. We’ve got a great show. I’m going to cover a ton of topics and maybe even invite John Charlton in to cover a deal we just did together. I’m just going to jump right in. By the way, we do have some great questions for this show but I’m always looking for more questions. I don’t know what you don’t know. I don’t know what you need to know. Please email PODCAST@HermannLondon.com and submit your questions. We can answer them anonymously if you prefer or we can give you some credit like what we’re going to do with Dan Peskorse. What an honor to have a question from Mr. Dan Peskorse, St. Louis’ number one entrepreneur.

I wanted to tell you real quick about a little website I heard about in the last week. It is called Fiverr.com. By the way, I’m not sponsored by them or anything, I was just blown away when I saw you can pretty much get someone to do pretty much anything for you for $5 on this website. You can pay someone to stand there with a sign that says HermannLondon.com and take a video saying how great the company is. You can have someone design a logo for you. I’m having someone install a WordPress theme for me. I just gave him the $5 and we will see if they do what they are supposed to do. A friend of mine bought 250 Gmail email addresses for a campaign that he is trying to do. Another guy bought 30 free jingles for his podcast. I thought it was neat.

I wanted to remind you to go to HermannLondon.com to check out our blog, podcast, and see the pictures of stuff that we talk about on the show and the people I’m interviewing. You can also search for information and properties.

I wanted to give a quick shout-out to some of our new agents. We’ve had about 6 agents join in the last 4 weeks and it’s exciting to see the company grow, get all these new faces in the office, and it’s cool to be adding to our talent pool/knowledge base. For example, one of our agents owns, manages, and operates a bunch of different vacation rentals. Her and her family own some condos in Florida and Colorado that they rent out on a per night basis instead of a per month basis. Her name is Kara and it’s been neat to talk to her and learn about that business model and if someone asks about that I can tell them to talk to our agent, Kara. We’ve had a few other agents join that are on what we call a retail path. They help people like you buy and sell dream homes for your family. There is another couple that are what I would call investor friendly. They are very savvy with working with different types of investors. You’ve heard us talk about flipping, wholesaling, re-habbing, and buying and holding and it’s great to have more agents that are specializing in that and know about it. When it comes time to make some cash-flow or get some return on an investment, we have people that can share their perspectives. That’s how I learned about what I know about real-estate investing is from going to networking clubs, investing associations, and asking all these different investors how they do it. I was always surprised by how many different approaches people take to making money in real estate. You never know which will be best for you.

The question from Dan Peskorse kind of goes in line with that. He said, “Why invest in higher value rental property when they don’t cashflow as easily and why would I even bother?”

I think what Dan is asking is why should I buy a $150,000 house in Ballwin that I might make $200 a month on when instead for that same amount I could buy 3 or 4 lower income properties in a different area of town where you can buy a home for $40,000 or so and each of those properties might cashflow $400 or $500 each? Why would I leave $1000 on the table? I think that if it was that simple the answer would be you are right, Dan. Go to a lower income part of town and buy 3 houses at $50,000. But if you look at that investors income statement and balance sheet at the end of the year I think that we would find that the higher income home did actually net $2,400 the year and when the tenants moved out the property was left in better condition than what they found it in. I’m not going to say that is not possible in lower income areas. I’m just going to say that it is not typical. A lot of times, from what I’ve heard from investors, when the low income tenants move out, they had to replace the carpet, a few doors, paint the property, & replace a couple windows. On a net income basis, maybe it ends up being equivalent to the higher income house if you consider the value of headaches. Every investor has their own perspective on how they want to do it, risk tolerance, & time spent tolerance. That’s why different investors do things differently. I started out buying homes that I would live in and several of the investment properties that I own are in that $150,000 range and they have higher income people living there. They don’t cashflow that well but they do cashflow. Maybe I’m making between $200-$450 month per property. You’ve heard me talk about the 4 family property that I bought a little over a year ago and that really changed my perspective on investing. Now we have this 4 family property where one unit pays for the other three and the other three are profit. We spent a lot less on that property, probably in the $60,000 range, and now I’m making more on that property than all of my other homes combined. Where do I stand on this? Maybe get a mix or try to find a property that is lower cost with higher cashflow but in a marginal area that you would consider something you would want to deal with and with medium income type of people. I hope that answered you question, Dan. A little follow up to that is in general you should buy a property in an area that is going to appreciate. If we are talking about buying property we are talking about cashflow purposes or appreciation and flip and the best property will be cashflowing while you hold it and appreciating in value so you can eventually sell it and make a profit or eventually refinance it or take a line of credit out on it so you can use it to rehab another property, put a down payment on another property, or pay for your kid’s college or whatever you want to do. I hope that helps.

Next up, just a quick tip. The other day it was 15 degrees in St. Louis. We have a property where the lease ended December 31st and the tenants called to say they turned their utilities off and warned that the owner may want to winterized the property. On most of the properties that we manage, and Tom Potter discovered this, but there is a thing the utility companies do called landlord leave-on. If a tenant does take the utilities out of their name, the utility company is not going to rush out to turn everything off and let the pipes freeze. They will leave everything on and the bill will go into the landlord’s name, which is great. While we are showing a vacant property, and I have show a lot of properties in the cold cold winter months, we tend to spend more time at a property that is comfortable. If we get to a freezing cold property we are going to run through it and get back into the warm car. I definitely encourage you to leave the utilities on just for the security of the home but also for the convenience and comfort of the people that are looking at the property.

Lately we have been considering our international data exchange options. That is bascially codewords for the property search part of our website. One of the most well visited parts of our current company site is people coming to the site to search for properties. Why would thye choose HermannLondon.com as opposed to realtor.com or zillow? It is a mix of reasons. Hopefully we have a fantastic property search experience for our clients. They might like the way the results show up or how they can search or looking through the map. Essentially all of the properties on HermannLondon.com are actually for sale. It feeds directly from the MLS. Any realtor in town puts their property on the MLS, no matter who they work for, and the MLS feeds the data to all of our property search websites so that if a property goes under contract or if it is sold it is not going to be on our search anymore. We get a lot of calls from people who found a home on Zillow and when we look it up it happened to have sold 6 years ago. My point is that we are considering our IDX provider and the property search functionality on our website so any feedback that you have about searching on our site would be appreciated because we want to make a great choice.

This is a question from a client of ours who is a flipper. He buys properties in his company name and when he sells them he signs for his company and we as a real estate brokerage require proof of signatory authorization and he was wondering why. If we list a property for him or help him buy a property in his company name we always ask him to give us a copy of either his articles of organization or his operating agreement to prove that he personally has the ability to sign for the company. The point is, if we are going to list someone’s house and we look up in the tax records that it is owned by GreenGrass123.com or any other company then we need to know that the human being that we are going to meet with has the ability to sign and make the choice to list and sell the property. I’ve read articles before about fraud where people are selling homes that they don’t actually own. They are taking the money and running. I don’t know how they do that to be honest. In today’s world of title companies, insurance, and searches it is surprising to me that people can do that.
I was going to talk about agents taking the winter off. If you are a realtor then listen up. If you are a non-realtor then this might not be too interesting to you. I’ve seen this a lot online, in Facebook groups, and with agents in our office, and a lot of them consider the winter the slow months. This may apply to sellers too. They may take their home off the market in the winter and re-list it in spring and I say, “Why?”. I don’t understand why. Why are you doing that? If you take the winter off because you can and have the money saved up and want to go to Florida for a few months, that’s fantastic. I’d like to do that to. But if you think that there just isn’t going to business deals and no one buys and sells in the the winter time, I believe that is incorrect. Your mindset needs to change. Some of my biggest months have been the winter times. This December, once again, is going to be my biggest month of the year. I would encourage realtors to think of their career as a full time thing. Maybe we can spend some more time in the winter doing some planning for the next year, catching up on some of the projects that we wanted to do, and making updates to our systems, but in general don’t take the winter off or get a part time job over the Christmas holiday because you think that there aren’t any real estate deals going on, because there are. If someone is looking at property on December 24th they are probably pretty serious. Take the time to do it and meet with them. Take them out and show them homes because they really need to buy or sell. If you just work in the summer time when it is comfortable you might end up working with some people that don’t have quite the urgency to make a decision. Agents, stop taking the winter off, or I guess I should say, Hermann London agents. Other company’s agents can keep taking the winter off. That’s fine. We will take the business. We will sell the houses for you.

This is a question that a client today asked herself. I was showing her properties around town and we were looking at duplexes. She is going to live in one side and rent out the other. Basically she will have a roommate that she doesn’t live with pay a good part of her mortgage. I asked her how she decided to become an investor and she said it started back in college when she was looking for a rental and she said to herself, “Why rent when I could buy?”. I love the way she framed that because I agree with it. Financially it might make more sense. I wish more people would ask themselves that question. I’ve rented before and I’ve helped people find rentals. Just because we are realtors doesn’t mean we think everyone should buy all the time. I truly believe that we like to help people make smart real-estate decisions and sometimes renting may be the smartest decision you can make. At one point I had a friend who had a condo that was vacant. His fiance owned it and she moved in with him. He offered me to rent it for so far below market value that I would have been crazy not to take it so I moved in. It was a condo in Brentwood Forest and I paid so little rent that it made sense. I was making money buy saving extra money that I would have otherwise been putting into a larger rent or a mortgage somewhere else. It made sense. There are some good calculators out there, even one on Trulia that is a buy vs. rent calculator. We will put a link to that on HermannLondon.com under this podcast episode so you can do the math and see what makes sense for you.

Are home values approaching a new bubble or will prices continue to appreciate? I would like to say, “I don’t know. How should I know?”. I don’t necessarily feel like we are approaching a new bubble. I don’t feel like properties have been appreciating that much. From what I hear, back in the day in the year 2000, property prices were appreciating and you could buy a house one day, sell it the next, and make a profit. That kind of thing is definitely happening now but I think there are other factors at play that are making it so we are not necessarily at a bubble. Hopefully we are just correcting ourselves. That 2008 thing was sort of a pricing correction from getting the prices too high and now we are bringing the prices back up to where they should be. One of the things is that lending is not at easy as it was in 2004 and 2005. In 2005 the first home I bought I brought my lender a piece of paper from an accounting company that offered me a job and they put my offer on a piece of paper and I gave it to a banker and they saw I was going to be making some money and they gave me a $200,000 loan. You can’t do that now. A great group of factors played into this whole bubble pop that we had. I don’t feel like we are approaching a new bubble. I think prices will continue to appreciate some in certain areas if it is in good condition. You really need to have a realtor who is extremely familiar with your market, pricing property properly, and will help you evaluate your purchase before your purchase so you know if this home you are buying is going to appreciate, depreciate, or stay stagnant. I wish I had a crystal ball but I don’t but that is my 2 cents about the whole thing.

Why do I need an agent when I can just as easily find a house online myself? This sounds like the type of question you could find on a website when you are figuring out questions you should ask your realtor. I don’t think that you do need an agent to find a house online. You can go to HermannLondon.com, realtor.com, or Zillow and you can find homes for sale. I don’t think you need an agent necessarily to help you find a home that you are interested in but you do need an agent to help walk you through the entire process like how to get into the home to see it, you love it what do you do next, make an offer, negotiating, inspections, rights you have, things you can ask for. These are the kind of questions we get all the time. Often when I’m working with buyers we drive around and if I have trouble with the key to get in and the lock gives me trouble, I’ll give the keys to the client to let them try it and make them the door unlocking expert. I like to make little jokes of it because I’m not just here to be a door unlocking expert or drive you around. Our job really comes into play once we find you a home that you like. That’s when a realtor can really start adding value. It is true you can find them online yourself but to go through the process and protecting your best interests and buying the house to make it yours, you can definitely benefit from using a realtor. Also if you are working with an agent as a buyer you typically don’t have to pay commission since it is being offered by the agent who has the home listed. The question I would be asking is why not use an agent when I am buying a house.

Is buying a home a good idea for someone in their 50’s? Is it still a good investment? That is a good question. I think it depends on a person’s situation and not their age. It all depends on the property and what they are buying it for. How are they financing it? Is it still a good investment? I can’t say. Potentially. I assume when you are 50 you are not planning on kicking the bucket anytime soon. Lets say you are going to buy a home and it will appreciate in value then you sell it when you are 70 and you move in with your kids. If you bought it for $200,000 and 20 years from now it is worth $250,000. Was it a good investment? That is up to you. It depends on what you put down and paid for it. Lets say you bought a four family like the one I bought. Is it still a good investment? Yeah. It’s gonna cashflow for you. It is going to give you the money you need for the rest of your life so you can continue to live and go on vacations and buy the grandkids lots of presents. Talk to a realtor, me, John Charlton, and lets evaluate the property. I don’t think age has anything to do with it. You could be 20 and buying a home could be a bad investment.

What do you think will happen with interest rates this year? I have no idea. It seems like I’m not going to let myself fall victim to the game of are they going to go up, down, or stay stagnant. People say, “rates are going to go up. You better refi. Rates are going to come up. You better buy now.” It seems like the same person that tells me that tells me the opposite thing 3 months later. I’m not sure what will happen with interest rates this year. Honestly, I don’t care. No matter what the interest rate is, people are still going to need to buy and sell real estate. Rates right are lower than I ever remember them being. 5 and 6 years ago when I was buying properties I was getting loans in the 6.5% range. I don’t remember what my first rate was but even the idea of getting a loan for a 6% interest rate I couldn’t believe it. Now when people are getting loans for 3% and 4%, and I think I refinanced one at 2.5%, it is crazy. In the grand scheme of things, I like to look at the big picture. Interest rates are still going to be cheaper than saving up and buying the entire property with cash and it is still going to be lower than what you could use to invest your money somewhere else. Not to be rude but I don’t care what is going to happen with interest rates.

Do you think that the unrest in our area over the past few months will cause a housing crisis in the new year? That’s a good question, and again, I don’t have a crystal ball. I would probably answer that with, “It depends.”. I’ve talked to some people about it and they think it will cause no one to buy houses over there and it is a fire sale. I talked to other people like our new investor friendly agents and they say people are buying properties up there like crazy. Will it affect the housing crisis? Probably. I think it will affect the kind of home that has priced itself out of being investor friendly. In those general areas where the unrest is happening I think those prices will go down a little bit. I sold a home in Ferguson 6 months ago and I actually got a call from that seller recently and he was so happy we sold when we did. I didn’t look up to see what his home is worth now but he obviously feels that the price of the properties is going to go down. It just all depends. That’s one of the interesting crazy things about real estate. Thing change and fluctuate and everyone has all these different perspectives. When it’s bad for someone it is good for someone else. Everyone’s always been talking about how bad the real estate market has been the last few years and I always say, “Bad for who? It is bad for sellers but what does that mean for buyers? Buyers are loving that they are getting great deals.” Now people are saying the opposite thing and I still say, “Good for who? It’s great for sellers but talk to someone who is trying to buy a home in Webster or Kirkwood right now.” They are going to say that the market sucks because every home that gets listed there has 5 and 6 offers the first day and there are 30 people outside an open house waiting to get in. Who is that good for? It is good for the seller. The seller is loving it but the buyer is not. Market being good. Market being bad. I think it is all a matter of who you are talking to and what position they are in.

Coming up next we are going to bring in John Charlton from Midwest Mortgage Capital. He’s been banging on my door. He’s got some exciting stuff to tell us so here we go. Lets bring in John.

 

Segment 2
Adam-John, I brought you in because I’ve got some questions for you but I can tell by the look on your face that you are excited about something and you are about to interrupt me now. What is it that made your storm in here and I’m sure it is not the PBR.

John-It is not the PBR. No. What I’m excited about is today we got guidelines reintroducing the Fannie May/Freddie Mac conventional loan 97% purchase program.

Adam-So you got an email from Alan Greenspan and he said you could get loans at…

John-Actually it was a Tweet.

Adam-Alan Greenspan is not in the business anymore is he? Who is the guy now?

John-It’s not a guy. It is a woman.

Adam-I’m sorry.

John-No offense. Bernanke was next and now there is a new gal.

Adam-There is a new gal in town and she said you can now give out loan for up to 97% of the purchase price.

John-Actually, she has nothing to do with it because she would be the head of the Federal Reserve Bank. Fannie May/Freddie Mac are government sponsored banks that hold about 80% of the loan paper here in the U.S. and they expanded a guideline meaning we went from a minimum down payment for a conventional loan of 5% down to just 3% down.

Adam-2% difference. Is that going to make a big difference in your life?

John-It is going to make a big difference because it basically means that people that have been opting to FHA loans with 2.25% upfront mortgage insurance premium, which can be a lot of money and with permanent MI, and now get a loan for less of a down payment with expire-able MI that will come off the loan at a certain point versus having it for the entirety of the loan. That is why it is a big deal.

Adam-Okay. A couple questions there. Number one: are you saying that right if I got an FHA loan and I told you I am buying a $100,000 house, here is my 3.5% down payment, you are going to take my $3,500 dollars and take $2,250 of that and say thanks for our upfront mortgage insurance premium?

John-They are going to add it to your loans. You are getting a loan for $100,000. You are putting 3.5% down. Your actual loan amount is for $99,000 and some change.

Adam-So I didn’t really get 3.5% equity. I got a little bit of equity. 1% or less.

John-1% roughly. Yeah.

Adam-Okay. Now the numbers that you are running me through are that if I am buying this $100,000 house, I can put down 3% which is $3,000.

John-Immediately have that equity.

Adam-I have that equity. And what did you say about that forgivable MI?

John-Your mortgage insurance will actually come off the loan once you have 20% equity in the home. FHA loans, just last year, they changed their guidelines so that they have permanent MI meaning you pay mortgage insurance even when you have 60% equity in the home you still have mortgage insurance which you are paying to the bank in case you foreclose. Now with this program you have an expire-able MI policy for someone who is just putting 3% down.

Adam-I’m still paying MI. I can’t get away.

John-You can do buyouts. You can buyout of mortgage insurance. You are paying MI unless you put 20% down.

Adam-What you are storming in here now to tell me about is if I have a client that wants to buy a $100,000 house, they need to come to the table with $3,000 then they will buy this house, owe $97,000, and every month they are going to pay their mortgage and eventually one day they are going to only owe $80,000 and when they do you are automatically going to make them stop paying this mortgage insurance.

John-Mortgage insurance will come off automatically. There are other ways to remove MI. When it is a expire-able MI policy you can get a new appraisal done. If you have permanent MI there is now getting rid of it. That is the big deal but there is more than that associated with that. If you are a realtor and you have been doing FHA loans, you have grown into FHA appraisals that have inspection notices for stuff that is kind of silly. GFCI’s. Kitchen and bath. Peeling paint. If you’ve run into that on a FHA loan, you are not going to run into that on a conventional. That is a big deal. Another big deal is that a lot of people have FHA mortgages now and they want to move. They don’t have a whole lot of savings. They want to buy a new house. A lot of these people are FHA borrowers still in terms of credit score and the amount of down payment they can do. They now have an option where they can put 3% down and still keep that FHA loan. If they are turning it into a rental property or whatever this is expanding the market.

Adam-Let me ask you a few shotgun questions. Can I put down 3% on an investment property?

John-No. Never.

Adam-I know. I was just hoping to slip that one in. Using my $100,000 example, if I now owe you $80,000 is that going to affect my monthly payment?

John-Yes. The MI would drop.

Adam-The MI drops so my payment should go down.

John-That’s correct.

Adam-I like that. Are these loans assumable?

John-No. Conventional loans are never assumable.

Adam-Why do we care since I’ve never seen a loan be assumed anyway?

John-There is some argument to be made. Certainly if you have the ability to get a VA loan, the VA loan is good to have because of the assumability when the market interest rates are this low because if you have a VA loan, which is assumable and often times is assumed. It’s a lot more complicated to get an FHA loan assumed. That’s the only other one. USDA also. All the government loans have assumability. VA loans are pretty straight forward. If a person wants to buy a house that has a VA loan on it, with limited restrictions, they can assume it. What’s the advantage to an assumable loan? Interest rates are at 3.5% right now. In 2020 interest rates are at 7% you can sell that house as an assumable loan and the person can have a 3.5% mortgage on what was owed. That’s a pretty sweet deal for that buyer.

Adam-You heard it here, folks. In the year 2020 interest rates will be 7%.

John-7% baby.

Adam-You are sure about that.

John-No, I’m not sure about that.

Adam-But you just said it.

John-It’s a hypothetical.

Adam-Oh. It’s a hypothetical. I was just answering a question about what I think will happen with interest rates this year and I said I don’t care. I’m sure that’s not the answer you would give.

John-Okay. I don’t care but with certain restrictions. This is a country that is built on constant fluidity and growth. A little rise in interest rates, slow and steady, is good for everybody because values go higher. Interest rates may go higher but people’s ability to buy and sell and move increases with that. What you don’t want to see is a day where interest rates go from 4%, roughly where they are now, to 6% in a short period of time because that causes panic in the marketplace.

Adam-Part of the reason I say I don’t care is because things change so much. Everything is fluctuating all the time. Ten minutes ago I didn’t know you could have a conventional loan with only 3% down. It seems like the market is always fluctuating and the rules are always changing.

John-Correct.

Adam-Lets say that interest rates do go to 7%. I’m guessing there is going to be some new program out there or maybe everyone is going to be assuming the loans of the homes that they are buying.

John-That was really common. Assumability was huge in the 1980’s.

Adam-Now we have this new conventional loan where I can put 3% down instead of 5% so what is that going to mean? Is that going to make interest rates and home values rise to where we get another bubble or do you think it is going to be a great thing in general?

John-I think it brings more people to the marketplace. Looking at a million people, there are going to be more home buyers. Does that necessarily affect someone who is going to be doing 3 purchase deals a month? Maybe instead of doing 3 deals they do 4.

Adam-In theory, home values could appreciate because we have more demand?

John-Correct. It should increase demand. It’s the first loosening of restrictions that’s happened since the crash back in ’07/’08. That is what is significant. It is significant to see the beginning of expanded guidelines. One thing that has happened in our economy is that even though people want to move their ability has been sabotaged by the marketplace. That has to do with home values. People feel like they can’t sell their homes. Any increase in value is going to increase the amount of business and sales that happen.

Adam-So it is good for realtor?

John-Realtors. Lenders.

Adam-Sellers?

John-It is good for sellers. I wouldn’t discount the fact that over the past 5 years that FHA mortgages were a huge part of the marketplace and I don’t know how big they are for each individual realtor but overall it was 3 out of 5 purchased loans at one point were being done with FHA paper. That’s a huge percentage. Because of the restrictions on FHA loans most people that you talk to have heard from the news that they need to avoid an FHA loan because of permanent MI. That deters buying. Anything that says this program is not good is deterring somebody from moving forward.

Adam-Can I ask you an inappropriate question?

John-Do it.

Adam-Are lenders paid differently on conventional loans versus FHA loans?

John-Yes.

Adam-Better or worse? Don’t give me numbers.

John-For me it means nothing. It doesn’t matter to me. I’m not compensated and the restricts compensation to individual loan officers. I can’t steer somebody to an FHA loan because I would make more money. It is not the case. Lenders do make more money on FHA loans because of the MI. That MI policy being in permanent place makes the bank very safe if somebody goes to foreclosure.

Adam-So the loan officer doesn’t necessarily make more but the bank makes more.

John-The bank makes more because it is seen as more secure paper.

Adam-Again, this is the interesting thing about real estate. There are so many variables and things changing and different perspectives. You stormed in here excited about the whole 3% down thing. As soon as Aunt Marsey hears about this she is going to freak out. She is not happy.

John-I think everybody has a client that has an FHA mortgage right now. Lets talk brass talks where I see this as actually being significant. You probably will talk with somebody who has an FHA loan that they got a couple years back and their family has gotten larger. The house that they have isn’t big enough. If they went to sell that house today that house is not going to be worth more than they paid for it. They feel kind of stuck. They have some savings. Not a whole lot. They have been trying to find a way to get into their next house. This isn’t going to be every buyer but you will run into someone with an FHA loan, and you can’t have two FHA loans. That person has been trying to figure out how to make this happen. Do they need to borrow money from a family member? The significance is that person can now enter the marketplace with a conventional loan and a 3% down payment.

Adam-I support it. I like it. I like putting down small down payments because I like you to be able to use your money for other stuff. Save it for a rainy day. Put it towards a home, fixing it up, or whatever. There are always going to be the people out there like Aunt Marsey who think we are all criminals if we don’t put down 20%. Anyone who doesn’t put down 20% is crazy and criminal.

John-No. I disagree. When houses were $16,000 there was a great argument for that but houses are hundreds of thousands of dollars now and that’s just a change in the world so lets deal with it.

Adam-We’re just going to have to have Aunt Marsey in here one day and you guys can have a little debate.

John-We can. Bring her in.

Adam-You hear that, Aunt Marsey? He’s calling you out.

John-I want her here and I want to talk with her.

Adam-Do we have to go over the stuff?

John-Yeah. You always bring it back to the center at the end. My name is John Charlton. Our company is Midwest Mortgage Capital. My NMLS number is 188910.

Adam-What about your phone number?

John-My phone number is 3147447851. That’s my office direct. My cell phone is 3145170262.

Adam-Perfect. Thanks very much and see you next time.

John-Thank you.

Adam-I guess that’s it for today. I’m going to wrap it up. Joey has a whole page of notes from today’s podcast. Please check out HermannLondon.com for all our updates. I implore you to submit your questions. We are actually going to start taking call-ins in the next few podcasts so get ready for that if you want to call a question in and be live on the air with the Hermann London Real Estate Group. That’s it. See you next podcast. Happy New Year. Thanks for listening. Take care.