The Brad Weisman Show

Understanding Rate Locks, PMI and Appraisal Gap Coverage with Mike Bower

August 03, 2023 Brad Weisman, Realtor
Understanding Rate Locks, PMI and Appraisal Gap Coverage with Mike Bower
The Brad Weisman Show
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The Brad Weisman Show
Understanding Rate Locks, PMI and Appraisal Gap Coverage with Mike Bower
Aug 03, 2023
Brad Weisman, Realtor

Hi This is Brad Weisman - Click Here to Send Me a Text Message

Did you KNOW that the term Mortgage means "DEATH PLEDGE"?  YIKES!!! 

Mike Bower of CMG Home Loans is back with Brad Weisman to discuss RATE LOCKS, PMI (private mortgage insurance), and Appraisal Gap Coverage.  Things you need to know when you are purchasing a home!

Ever question the real implications behind the term 'mortgage'? Get ready to have your mind blown as Mike Bower, our mortgage whizz, takes us through a thrilling exploration of the current tumultuous market and the perks of rate locks. We delve into the fascinating world of "Rate Flex", a program granting borrowers the privilege to relock if rates drop before closing – talk about a safety net!

Mike sheds light on why Appraisal Gap Coverage is a staple in this competitive market. He shares tips to keep your cash safely tucked away in the bank, even amidst the whirlwind of appraisal gap coverage. Talk to your lender, ask the right questions.  Tune in for an episode packed with wisdom and essential pointers for your mortgage journey!
#bradweisman #MikeBower #appraisalgapcoverage #PMI #RateFlex #realestateagent #mortgage #homeloan

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Welcome to The Brad Weisman Show (formerly known as Real Estate and YOU), where we dive into the world of real estate, real life, and everything in between with your host, Brad Weisman! 🎙️ Join us for candid conversations, laughter, and a fresh take on the real world. Get ready to explore the ups and downs of life with a side of humor. From property to personality, we've got it all covered. Tune in, laugh along, and let's get real! 🏡🌟 #TheBradWeismanShow #RealEstateRealLife #realestateandyou

Credits - The music for my podcast was written and performed by Jeff Miller.

Show Notes Transcript Chapter Markers

Hi This is Brad Weisman - Click Here to Send Me a Text Message

Did you KNOW that the term Mortgage means "DEATH PLEDGE"?  YIKES!!! 

Mike Bower of CMG Home Loans is back with Brad Weisman to discuss RATE LOCKS, PMI (private mortgage insurance), and Appraisal Gap Coverage.  Things you need to know when you are purchasing a home!

Ever question the real implications behind the term 'mortgage'? Get ready to have your mind blown as Mike Bower, our mortgage whizz, takes us through a thrilling exploration of the current tumultuous market and the perks of rate locks. We delve into the fascinating world of "Rate Flex", a program granting borrowers the privilege to relock if rates drop before closing – talk about a safety net!

Mike sheds light on why Appraisal Gap Coverage is a staple in this competitive market. He shares tips to keep your cash safely tucked away in the bank, even amidst the whirlwind of appraisal gap coverage. Talk to your lender, ask the right questions.  Tune in for an episode packed with wisdom and essential pointers for your mortgage journey!
#bradweisman #MikeBower #appraisalgapcoverage #PMI #RateFlex #realestateagent #mortgage #homeloan

---
Welcome to The Brad Weisman Show (formerly known as Real Estate and YOU), where we dive into the world of real estate, real life, and everything in between with your host, Brad Weisman! 🎙️ Join us for candid conversations, laughter, and a fresh take on the real world. Get ready to explore the ups and downs of life with a side of humor. From property to personality, we've got it all covered. Tune in, laugh along, and let's get real! 🏡🌟 #TheBradWeismanShow #RealEstateRealLife #realestateandyou

Credits - The music for my podcast was written and performed by Jeff Miller.

Speaker 1:

Hello, this is Brad Wiseman. You're listening to Real Estate and you we're back in the studio with another fantastic show. Of course, we have a repeat guest. He comes in here once every so often and he gives us all kinds of information about that very interesting topic of mortgages. It's a very interesting topic, right, Mike Bowen.

Speaker 2:

Oh yeah, Absolutely.

Speaker 1:

Mortgage, mortgages it's just really fun to talk about. Oh, you know what it means, right? What does it mean Death pledge? Death pledge Is that what actually mortgage means? It does. I've been doing this for 31 years now and I never knew that it means death pledge.

Speaker 2:

I think the marketing is better with mortgage. I've been trying to, you know maybe not put that out there, but I figured why not Hugo.

Speaker 1:

Did you know that? No, that's. I've learned something very interesting. That changes a lot, doesn't it it does.

Speaker 2:

It's hard to sell Death pledge.

Speaker 1:

Obviously. Years ago somebody said well, you know you're going to have to do this death pledge for me to give you the money. And then they said wow, can we call it something a little bit better than that? Is there something we can come up with like mortgage? Yeah, something like that.

Speaker 2:

Yeah, that's crazy. I think it's how it went down.

Speaker 1:

I did not know that. That's amazing, very, very interesting, and thanks for coming back. Also, thanks for being one of our ongoing sponsors too. Mike just happens to be one of our sponsors. He's been sponsoring us for a while now, and we appreciate that You're welcome. It really is nice of you to do that. So let's jump right in A couple of the topics that we talked about before we got here. Because we had a lot of time to talk because somebody was late, I'm not going to mention any names. Would you want to mention any names? No, I wouldn't. It starts with an H and ends with an O and it sounds like Mewgo Just busting your butt, buddy, yeah. So let's get right into rate locks we talked about. Yeah, it's a big thing today for, like, new construction and because of the volatility of our market right now our rates people get a little nervous. They want to make sure that they can lock in on something. So what do we?

Speaker 2:

got going on with rate locks. Well, a couple of things actually. We definitely have a. Rates are up and down, they're all over the place. Yeah, they came down a little bit when we had a good inflation number, and then they went up again. So, right now there's probably a range, let's just say, somewhere between six and a half and seven and a half. It depends on credit scores and stuff like that, but not knowing where they're going to end up and being so volatile, you know we're. We have a program actually it's called the instead of a rate lock, which we are locking you in, but we're calling it the like a rate flex program, and what that means is we're going to lock you into today's rate, but if they get better, we're going to, before closing, we're going to be able to let you relock.

Speaker 1:

Go down, so let's give it. For instance, I come to you, I'm ready to buy a house, I lock in at seven and a quarter percent and all of a sudden, 30 days before settlement, it drops down to 6.75, six and a half. You're going to let me go down to that at no cost to me, correct?

Speaker 2:

That's amazing, one time redo.

Speaker 1:

One time redo, yeah. Now, if it goes down to six after that, that's it. You're not doing that again, correct, right, okay, so it's a one time float or one time down. Correct, got it. That's actually pretty cool. Now, in your opinion, right now you're going to be able to lock it down If the rate is it's. If somebody comes to you say seven and a quarter percent, do you think it is? I guess you should still lock it, right. Yes, because I can go to seven and a half and go to 7.75. I mean, we're hoping not, but it's a good thing to do.

Speaker 2:

Yeah, okay, maybe rates will come down and great, we'll let you relock.

Speaker 1:

So there's really no risk at that point. Why not, right? Okay, that's good.

Speaker 2:

Okay, that's good to know, yeah, and there truly is no cost to the relock.

Speaker 1:

Yeah, and that's what you're always looking at in anything in life cost versus risk, risk versus cost. What is it so? Basically, it's a no-brainer.

Speaker 2:

Correct. So I mean, if something did happen and rates went up, at least you're protected.

Speaker 1:

Right, so lock the damn rate. Yeah, I would. That's gonna be our thing today. Yeah, ldr, lock the damn rate.

Speaker 2:

Yeah, I'm sure you'll refinance in a year or two anyway. But we'll you know we're hoping for that.

Speaker 1:

Yes, Are they still saying? You know this, we hear this all the time and every time I go to any kind of dinner with friends or any kind of gatherings with family, when do you think the rates are gonna come down? I mean, you probably hear it 10 times more than I do. Yeah, yeah, we do. So what are they saying? What are the rates gonna come down?

Speaker 2:

Well, if you look at the MBA NAR, you know they're all still predicting that one might see rates in the fives by maybe even the end of the year. That would be fantastic, but certainly into 2024. Yeah, that's great. Now where do they go from there?

Speaker 1:

I mean, we have an idea.

Speaker 3:

And.

Speaker 1:

I take what those predictions are very lightly, because I've seen Do you remember when you were on the podcast and they said I'll never forget that? I think we said something like it's gonna be it might go to 4% by the end of the year which was last year.

Speaker 2:

They were predicting the high three.

Speaker 1:

Yes, yeah, high threes, maybe four, and then all of a sudden up to five and a half 6%.

Speaker 2:

We went right through five.

Speaker 1:

We just sailed right through. We didn't even see fives.

Speaker 2:

Yeah, yeah, yeah, yeah, yeah, it went right. So it's somebody's prediction. Yeah, exactly, nobody really knows, but yeah.

Speaker 1:

They're about as good as the eight ball. Yeah right, Pretty much as good as the eight ball. The eight ball might be more accurate.

Speaker 2:

You think so, we'll ask it something then.

Speaker 1:

Well, yeah, I'd kind of like to get its opinion every once in a while. We hope the rates don't go to eight, though that would be, bad. That would be really bad, yeah, okay. Let's keep away from that. By the way, this is my sons, and I got yelled at for stealing it from him, so we'll get it back to him at some point. I want to get a red one just so you know, get a red one, all right. So moving on, we have the other thing we talked about before Hugo got here was PMI private mortgage insurance right, correct, and people get that so confused they think it ensures them. It does not ensure them, it does not Insures the lender, the bank.

Speaker 2:

It ensures it gives the bank an insurance that if something went bad and what banks look at okay, we're going to give this person this money. Only thing they're concerned with is are they going to pay us back?

Speaker 1:

Which is what I would be concerned with. Are we going to own this home? Yeah, banks don't want to own the home. They do not.

Speaker 2:

They do not.

Speaker 1:

They do not like homes.

Speaker 2:

No, they don't. So you know putting 5% down. If someone didn't pay, you know you have to get the house back. There's a lot of costs associated with foreclosing and then reselling the house. You know you'd be underwater, right? So the insurance, the PMI insurance, kind of covers them for the loss.

Speaker 1:

So if I'm putting 5% down and lose my job, you know, jess says you're jerking leaves and I'm stuck with the house or whatever they pay for the insurance company. A private mortgage insurance pays for that 15% in between, right, so it's just like an old insurance policy. Yeah, yeah, okay, so that's easy. So that is determined on the mortgage amount and a percentage, right, it is Okay. So, like, if they're covering me for 15%, you're gonna pay a certain amount. If they're covering me for 10% of that, they're gonna cover me at a certain amount, right, correct?

Speaker 2:

But the rate factor is very much like how we determine someone's interest rate, right? Oh, okay, so there's a chart and you know there's a line item that goes down, says all right, if you're putting 5% down, and then it has different credit scores.

Speaker 1:

So it is credit-based too, oh, absolutely yeah, because I remember years ago when, if you, there would be times when the private mortgage insurance company would turn you down. So, like, the mortgage company would say, yep, you're approved, but we need to shop for another PMI company because nobody wants you right now.

Speaker 2:

Yeah, yeah, interesting. So they're interesting. So even if we sometimes, you know, even if we're saying, okay, we figured this out, you know you're approved that we do have to get PMI approval yeah, you know it's very rare that we wouldn't if we approve it, but you know we do have to get that as well. It's like there because you need it. They're underwriting the loan as well.

Speaker 1:

So if I say I'm putting 20% down, I don't need to worry about it.

Speaker 2:

No, pmi is needed at that point.

Speaker 1:

Right, and that PMI? What we talk about it's a monthly payment. There's a monthly figure that's going to be part of your part of your mortgage payment, Correct?

Speaker 2:

Right, yeah, now, at any point. Yeah, so basically, you know your PMI factor, that they figure will go up as your credit score is low, right, okay? So if somebody has you know credit score in the sixes, yeah, you know their PMI is going to be a higher number and their interest rate, their interest rate, is going to be a higher number. So FHA doesn't really do it that way. Oh, so that's a bonus for FHA.

Speaker 1:

Yeah, is that you get to you, don't? They don't? They don't rate it that way.

Speaker 2:

No, your, your payment usually, or your rate isn't usually increased by credit score, unless it's like really low. But also your PMI factor is the same for everyone Amazing.

Speaker 1:

Yeah, so it just kind of levels out.

Speaker 2:

Yeah, so you know a lot of times, but it doesn't disappear.

Speaker 1:

No right, doesn't go away. That was something that changed like five years ago, whatever it was, and I, so it doesn't disappear. Whereas conventional, if I'm, if I'm paying PMI once I get to 20%, now you got to get an appraisal to prove that. If, if, if they don't agree, Right, well, once it.

Speaker 2:

once it reaches, it's actually once it reaches 22% once you have it once it reaches 22%, it will automatically go away. Gotcha, all right, okay, but now that can happen because you paid it down, right and then? So if we're basing everything on the original purchase price and you get your loan balance down to 78% of the original purchase price, the PMI will automatically go away. Now you could do that. Three days after you close. You could put a big chunk of money down and get rid of the PMI immediately, right? Or over time. Let's say you know you're two years into this and you still have PMI, but the value of your house is increased Right Now. You could go back to them and say, hey, I think I have at least 20% equity and you could get the. Usually at that point they'll probably ask you to approve it by getting an appraisal Right, get an appraisal.

Speaker 1:

But over the last five years that's very possible. Oh yeah, yeah, I mean we've been gaining some serious equity. So getting to that 20% is going to be faster over the past five years than it was in the past five years before that. Maybe If things keep going.

Speaker 3:

And just get an appraisal Right.

Speaker 1:

You just need an appraisal and obviously talk to your lender to find out what they want you to do and how the process works to remove PMI. Yep, but that's interesting.

Speaker 2:

Like sometimes we're right now, with the way this market is, people are, when they call to get pre-approved, they're saying, well, how do I buy this next house without first selling my house? One of the things that we can do is say, okay, you want to buy this next house. You do qualify Mathematically, you qualify to buy the next house without selling, but they need the money from the sale of their home. So what we can do is and we have done is say can you come up with 5%? at least put the minimum down by the next house we'll make it non-contingent. And then, when their house sells, you take that money and you pay down your loan, you get rid of the PMI, and then we can do what's called a recast.

Speaker 1:

Is that a new settlement? Though that's not a new settlement, it's not no.

Speaker 2:

So if you put down at least $10,000, we can basically recalculate your payment based on the new balance.

Speaker 1:

So we've done that sometimes for people that yeah because somebody might have a big chunk of change that they want to put down and it's in their house. The cash is not liquid, Correct, but that's really cool.

Speaker 2:

But we can do that instead of going to a home equity bridge loan, and Exactly all that other stuff.

Speaker 1:

Amazing, that's very cool. Very cool, hugo. Any questions there about that and that stuff?

Speaker 3:

So who decides? Does the buyer shop for the PMI or does the broker? Who decides who?

Speaker 2:

would it go with? That's a great question. So there's I don't know the exact number of PMI companies, but let's say there's four or five of them, and what we do is we actually have a tool built into our system that we get a PMI quote and we ask for a best execution on all of this loan, for and it literally comes up, all five of them will come up at the same time and we pick whoever's the lowest.

Speaker 1:

Almost like an insurance quote for a car.

Speaker 3:

They do the same thing for cars, so let me ask you this does the broker pass the credit rate, the credit score of the buyer to the PMI company, or do they have to do a hard pull again?

Speaker 2:

Yeah, they're looking at all of our information.

Speaker 3:

Oh, okay, my writing.

Speaker 2:

So we're basically sharing everything about the file. Yeah, they see it, they see everything. That's a good question?

Speaker 1:

yeah, because it would be another pool on your credit which could then lower your credit. So they're using everything you have already to determine what the rate will be for the PMI and everything else. That's interesting. Very good question there, hugo. He might have his own show at some point. You know, hugo and you or something, I don't know what. It would be something like that. So next let's talk about this. It's a big thing. That's going on a lot the appraisal gap coverages, and I don't know if this is going to keep going on. You know, we talked about let's just look, let's go backwards a little bit. We talked about before we got on here how I feel the quantity of buyers is changing. It seems like there's not as many, there's not as many offers, not as many showings, and the quality is changing, and I'm not saying that they're turning into terrible buyers. It's going back to a little bit back towards the old days when we thought, when we knew that a conventional 5% down buyer with good credit scores was a good buyer, you know, and it doesn't have to do the gap coverage. But people are still doing that. So let's go back to the gap coverage. So the appraisal gap coverage. Just to explain what that is. If I say I'm gonna offer 220 on the house and the house appraises for 200,000, the buyer is agreeing to pay for either a that 20,000 our gap, or if they agreed on the agreement of sale that they would pay 10,000 or 5000 gap, whatever it is right. So you said that If you're putting 20% down, that is not as big of a challenge, as you don't have to bring all this cash. Explain that situation.

Speaker 2:

Yeah. So just to make sure everyone that's listening understands why we would even offer an appraisal gap, is because you know, a lot of these offers are still multiple offers and we're competing and we're trying to get our offer accepted, right. So we're saying, look, we're gonna pay you a little bit more than what your list price is. Yeah, and just to take the your worry of it, does what if it doesn't appraise? You're gonna come back to me and tell me that you can't do this anymore. We're gonna offer that will pray, will do an appraisal gap, right. And so a lot of people automatically assume, if let's say we we agreed to 20,000 dollar appraisal gap, that it's automatically I need 20,000 dollars more, and sometimes that is the case. So like if you're putting the minimum down on the loan to be 5% or something like that, yeah so you know, yeah, you do you do probably have to come up with close to the $20,000 difference, right, but if you were putting a lot of money down let's say 20% or more, let's just use a 20% example so when we did this, you were putting 20% down from that sale price and the loan amount was like, let's say, is 250 was the price. You were going to borrow 200, right, and now it only appraised for 240. Yeah, right, so you could still keep everything the same, borrow 200 and and we're going to base the the value at 240, so you might have a small PMI yeah, right or? or you could write a check for the difference. That's totally fine. We can adjust the loan amount down. But you do have options and I don't think everyone realizes that. Just it doesn't have to necessarily be. I'm going to write a check. We could just restructure the loan a little bit and maybe your PMI adds 30 bucks a month for a little bit, yeah we can get right.

Speaker 1:

And you know, but it's better than pulling yeah that we were talking about this. Like I don't want to pull $20,000 on my savings. If you tell me I can spend 100 bucks a month more and keep 10 or 15 or $20,000 a bank, that's a no brainer Because it's going to go away at some point, you know.

Speaker 2:

So to me that's that's good information and a lot of, a lot of times people are putting a lot of money down. Yeah, you know, like, so then it really is 3040% and now it really doesn't impact us at all. Now you know you can, you can offer the appraisal gap coverage and it may not even do anything to change anything.

Speaker 1:

Correct, because you're putting that much money down. Right, because the risk is not there for the bank. Right?

Speaker 2:

it's really what it comes down to, but I think that people will automatically think oh well, I may have to write another check, yep, yep, not necessarily.

Speaker 1:

That's cool. So talk to your lender, talk to you if they're working with you. Obviously, talk to you, like you know, work through, and that's something I always say. You know, ask the questions. You know when things start, when things are not going the way you want to in a transaction. Yeah, start communicating. You know, communicate, let's, let's figure it out. Is there another way that you can work the numbers to make it an advantage? Is there a way that can be that doesn't hurt as much money out of your pocket? Things like that. But that's, that's awesome, good information. So I think what? Is there anything else that you want to talk about? Cause we're we're just about at the end here, believe it or not, is your birthday coming up? Well, actually, it's actually. Yes, it is coming up in August. Yes, so it'll be up in August and it's, uh, I'll be 53 years old. Can?

Speaker 3:

you believe that, Hugo?

Speaker 1:

stop laughing.

Speaker 3:

He just keeps laughing when I say that 50 is the perfect amalgamation between youth and experience.

Speaker 1:

That's right, thank you. I paid him 50 bucks to say that Just so you know. But yes, and my wife has a birthday in August and we also have an anniversary in August, wow, so there's a lot that goes on. Yes, absolutely, we'll have to do that. So let's ask a question why don't we ask a question of the eight ball before we end the show? Cause I think it's something that we should do, cause this, this business, is so you know. So nobody knows what the hell's going on. So what do you want to ask it?

Speaker 2:

What do you think our rates going to come down by the?

Speaker 1:

end of the year, by the end of the year. Okay, what? Let's go a number. What? What are the rates going to come down to it by the end of the year? Oh, will it be that specific? No, no, but are they going to come down to 5% by the end of the year? Let's ask it. That, Is that work?

Speaker 3:

Sure.

Speaker 1:

Cause I want it to be really specific. Um, ask again later. So we're not going to do that, we're just going to next show. We'll have to come back and ask it again. You know, this eight ball I think is is faulty because you know it said the same damn thing in the last show we did. So maybe they all say the same thing that was anti-climactic, that was really really boring. Yeah, Very boring answers yeah, sorry about that. All right, there you go. Don't go by the eight ball. Go by what Mike Bauer says, cause he knows what he's talking about. He's some CMG home loans and he will help you out. He's an advertiser with us, so just get in touch with him. What's your number? Again?

Speaker 2:

610-533-3151.

Speaker 1:

There you go, awesome. All right, get in touch with Mike. That's about it. We'll see you next Thursday at 7pm. Tune in, please. All right, bye.

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