What do you do if you’re looking to buy a house in 2023 but you don’t qualify? What things should you focus on to put yourself in a better position to buy a home? How important is down payment and credit score when it comes to getting pre-approved? In this episode, we discuss what we believe are the 3 main things you should focus on to not only maximize your qualifications and buyer power but to help you become The Educated Homebuyer.

✅ – Want to get connected with us or to a local expert in your market, please reach out at http://www.theeducatedhomebuyer.com/expert

📧 – Join Our Free Community – https://educatedhomebuyer.circle.so/join?invitation_token=3d978b36ae3df35120fd1dbad793c5afc0c027da-116130ee-51ad-4611-a48a-f6f2b39f3c1c

Connect with me 👇 Jeb Smith (huntington beach Realtor/orange county real estate) DRE 01407449 Coldwell Banker Realty ➡I N S T A G R A M ➳ https://www.instagram.com/jebsmith ➡Y O U T U B E ➳https://www.youtube.com/c/JebSmith

Connect with me 👇 Josh Lewis (Huntington Beach Certified Mortgage Expert) DRE 01209148 Buywise Mortgage M:714-916-5727 E: josh@buywisemortgage.com ➡I N S T A G R A M ➳ https://www.instagram.com/borrowsmartjosh ➡Y O U T U B E ➳https://www.youtube.com/c/buywiseborrowsmart

📩 – info@theeducatedhomebuyer.com

👕 – Merch – https://jebsmith.myspreadshop.com/

🙏 If you found any value today, please be sure to rate and review us. Follow us on social media. Thanks for listening.

For Show Notes, See Below 👇

[00:00:00] Josh Lewis, California Mortgage Broker: All right, Jeb, we are here in January of 2023 and have been having deep conversations on where is the market, where is it going, what does it mean for first time buyers move up buyers. So in the coming weeks we’re gonna do a deep dive on affordability, the things that are not necessarily inside of your control.

What are the three components of affordability? It’s mainly home prices. An individual buyer doesn’t control. Interest rates and individual buyer certainly doesn’t control interest rates and incomes. Those are the three things that impact that equation. But today we do want to talk about the fact that even though you think most of those items are outside of your control, you can.

Impact and manipulate to a degree. So we’re gonna go through, if you’ve been pre-approved in the last month, three months, six months, and you didn’t quite get where you wanted to be or worse yet, you were told you don’t qualify at all, we’re gonna go through today the steps on the mortgage side that you can do to get qualified and the steps that you can do on the real estate side, maybe to readjust your targets, to enable you to get into a home.

You know, Jeb, we were just talking, a minute ago. There’s a saying that it’s not about timing the market, it’s time in the market. That’s not to say that there’s not better or worse entry points into the market, but with housing, the key is owning it for 10, 15, 20, 30 years. And if you’re outside of the market, those factors are working against you.

So with that, why don’t we jump into some of these things that you can control on a day-to-day basis. Now, the first of those Jeb that I want to talk about is income. Most people think my income is what it is, right? 

[00:01:39] Jeb Smith, Huntington Beach Real Estate Broker: And to some extent it is, right? I mean it can take some time to change jobs, to get promotions, to do certain things with regards to income and you know, earlier, Josh, you mentioned people that maybe weren’t able to qualify for what they wanted or weren’t able to qualify at all. But maybe you’re just sitting on the sidelines, maybe it’s not the right time in your life. We often on this show talk about when should you buy a home? And one of the things that we mention all the time, is it becoming the right time in your life?

And so for an 18 year old out there listening to this, it might not be the right time in your life, but maybe you just got married. Maybe you’re having kids, maybe you’re at that point where you’ve graduated college, you’ve been living with your buddies and now you’re ready to go out on your own and maybe buying a house is what you want to try to accomplish.

And so what we’re gonna do, we’re gonna tell you some things that you should focus on in that downtime, right? If it’s not the right time, or maybe like Josh said you’re at this point where you just didn’t get what you want.

What can you do? And income is one of those things, right? So for me, like, let’s just kind of be real here, Josh, during the pandemic, March of the Pandemic, right? 2020. Real estate kind of got put on hold. I was at home more than, I mean, I wouldn’t say more than I wanted to be, but, I wanted to work, I wanted to make money, and it was kind of a scary time, just because none of us knew what was going to happen.

But I looked at my position, had said, dude, if real estate doesn’t move, if nothing happens here, I’m screwed. Like all of my eggs are literally, in one basket, with regards to my ability to create income. And so I started doing some other things, not because I thought I was going to make income off of them necessarily.

I just thought it was a good way to get information out there. Well, two years now, three years now, I’ve been doing that. And it’s created another income for me. Now, people call it a side hustle, people call it whatever. It’s directly related to real estate with some regard, but it’s allowed me to create another income, if you will.

And so when you’re looking at yourself and you’re looking at this position to buy, when you think of income, Josh, let’s talk about it. Like what else can you do outside of say quote unquote a side hustle. What can you control as someone bringing an income to put yourself in a better position?

And with that said, Josh, when people do side hustles, they get secondary jobs or what have you. How is that looked at from a mortgage side, because I think that’s important. 

[00:04:06] Josh Lewis, California Mortgage Broker: Let’s start there. It’s very important, Jeb. So let’s start there, because a lot of people, that’s the thing. Hey, I have a job and I make $42,000 a year where my career path is, I’m not likely to get a substantial raise, but I’ve got some time, I have an interest, I have a hobby, I can do a YouTube channel. I can do, any number of things. I can do some teaching karate on the side. Literally anything we see a number of things that people come up with as their side hustle.

The important thing to remember is most of these jobs are not a paid W2 job the way an employer writes you a check every two weeks. And as a result you get a 1099 or you just collect income through Venmo, stripe, whatever that is. And you are going to report that at the end of the year. 

So a lot of times, a lot of people say, “Hey, I got a side hustle. I made about 25 grand extra last year.” 

I go, “Awesome, how did you report it?” 

“Well, I put it on my tax return on the Schedule C.” 

“Okay, cool. [00:05:00] How much profit did you report after all of your expenses?”

“Oh, none. It actually was a $10,000 loss. It helped me get a much bigger tax return or tax refund.”

And you’re like, “OK, I get it. I see where you’re going. Everyone’s trying to make ends meet, but that does nothing for us. That side hustle does absolutely nothing.” 

So if you have a second job and it is a true side hustle, self-employment, whether it’s, Uber, Lyft, DoorDash, YouTubing, teaching courses, teaching, people on the side, whatever that is, we have to go off of your net income and we generally have to have a two year history of it.

There definitely are instances where we can get one year, but you wanna be thinking in terms of two years. So these are not instant short-term fixes but you absolutely want to think in terms of, it’s great that I’m making it, but if I’m making it with the hope of using it to qualify for our home, we have to declare it and declare as much of it with as little expenses as possible so that we’ll be increasing your tax burden a little bit.

So that’s the side hustle side of it. Job. Uh, Jeb, some of the people will go out. Job. Jeb. 

[00:06:02] Jeb Smith, Huntington Beach Real Estate Broker: Hey, That works.. 

[00:06:04] Josh Lewis, California Mortgage Broker: That’s, that’s the side hustle of it. But some people will say, “ah, I’ll go out, I’ll get a side job. I used to attend bar in college, so I’m gonna do a tend bar on the weekends.”

So that’s a unique type of job. You have an hourly component and then you have tips. So again, how much of those tips get reported? But most importantly, whether that’s a job, you might go work at Staples on the weekend and put in 12 hours and it’s an hourly wage, and we can look at that. The way lenders want to see it is you need to have had a second job for two years.

The reason for that is they don’t want you to go, “Ooh, I’m short a thousand dollars a month on qualifying. I can go get a part-time job, add that thousand dollars in, and in two months, once I’m in my new home, I quit that second job” and you go back to not really qualifying. So that’s why we wanna look at that two year history.

So both of those are really good ideas for boosting your income, but they’re a little bit longer term play. And Jeb, this kind of leads me back to something you said when we were discussing today’s topic and outlining it. I’m thinking in terms of how does someone go in three months, six months, nine months to be able to buy?

But you mentioned. We get people on the show, the live show asking questions. They’re 18, 19, 20 years old and they’d like to buy. Look at today’s show as sort of a roadmap for if you’re 18 and you want to buy a home, you’re probably not gonna buy until you’re 20, 22, 25. This is the roadmap for what you need to be doing, especially as the economy has changed.

When I graduated from college a hundred years ago in 1995, The gig economy and these side hustles, they weren’t a thing. You were gonna go get a W2 job or you were gonna be self-employed and they’re gonna take you a couple of years to build that up. Now this is the reality. I have folks that I talk to all the time, younger people, that they have two or three things they do. 

It’s not a 40 hour a week office job. They’re making money like that. You know, one of the contractors that we use for helping us with a lot of our digital marketing, Jeb, He’s got seven employers. He’s self-employed, but he contracts with like seven different people doing all of their stuff. That’s just not something that really existed in the same way a while ago.

So there’s that piece. What I will say, we talk a lot about inflation, CPI, unemployment figures coming out every month. Unemployment right now is at basically an all time low 3.5%. Tells you that the job market is still very tight. Now we do have major employers, some of the tech employers, Tesla, Amazon doing layoffs, but for the most part, the job market is still tight.

That gives power to workers. So one of the things I would not be afraid, if you are an employee, and again, using that example we had before you make a $42,000 salary, go to your boss and don’t say, “Hey, I would like a raise.” 

Say “what can I do here to be more valuable? What is the path to promotion? What is the path to earning more money? I’m trying to buy a home and I need some additional income. I’m not just asking for a handout. I’m saying, what can I do here to be more valuable?” 

So there’s that piece, the promotion path with inside your own company, either same position, higher rate, new position, higher rate. And what we’ve seen, Jeb, over the last year, people changing jobs are getting twice the increase that people staying at their jobs are.

Now, that’s uncomfortable and especially if you have a good job, you like your boss, it’s close to your home. All those things. You have to weigh it all out, but you would probably get a bigger wage increase by changing jobs if that’s something that you have a comfort level with.

[00:09:23] Jeb Smith, Huntington Beach Real Estate Broker: No, I think that’s good. I mean, I was gonna tell him to go to the boss and say, “I want your job. I want your job.” 

[00:09:28] Josh Lewis, California Mortgage Broker: “You’re outta here, buddy. You are gone!” 

[00:09:31] Jeb Smith, Huntington Beach Real Estate Broker: Yeah. No, but I think that’s good. I mean, that’s good value for anybody listening to this. How do you provide more value? I mean ask your spouse that , I might go home today and ask that question, Josh. might get booted. 

[00:09:42] Josh Lewis, California Mortgage Broker: I think it’s more likely you’re gonna go home and tell your kids, “Hey boys, I, I need more value outta you. What can you do to be more valuable to this family?” 

[00:09:49] Jeb Smith, Huntington Beach Real Estate Broker: There’s a possibility. In all reality, I, I think like you said, you hear of how bad the economy is, you hear of layoffs. But, when you go out and you’re in [00:10:00] these places, department stores, retail, whatever, everybody is looking for help. And not to say that’s your space or that’s the area that you serve, or, where your talent is, but it just shows that the economy, you know, job market is still doing well.

If you’re looking to increase your buying power. If you’re looking to put yourself in a better position to buy a house, whether it’s now or in the future, income is one of the main components. Like Josh said, when we talk about affordability, there’s only a couple of things that are really controllable here, and income is really one of ’em. And I say it’s controllable, it’s obviously it’s not quite as easy as me saying that, but by providing more value, you’re able to up that. 

So Josh, if I don’t necessarily go out and get a new job, but I just wanna increase the number of hours that I’m working. I do more overtime, or maybe I’m starting to do more over time or whatever, how does an employer look at that? Because I think a lot of people say, “well, I just, I’ll stay here, but I’ll just work more hours.” Is that an option? 

It’s an important question, Jeb. Very good question. I’m glad you asked. Um, to a degree, it’s not usable. Let’s say if you’re a 40 hour employee and you go to your boss and they go, “Hey, we’re having a hard time finding people, I will actually absolutely give you an extra shift.” 

You want to go six days a week, eight hours and work 48 hours? Absolutely fine. If your employer will say “Yes, Joe works 48 hours a week starting as of this date.” We can use that as long as they will guarantee that you are assigned a 48 hour a week schedule.

Now if they say, “you know what, several days a week, we have a few hours. If you want, come to me at three o’clock in the afternoon and I’ll let you know if I can approve one or two hours of overtime at the end of the day.” That’s variable. It’s not guaranteed, it’s dependent on the schedule, the availability of the work. We’re gonna need a two year history to average that. 

So, if you’re willing and your employer is willing to allow you to work a set additional hours, we can use it. If they’re willing to give you overtime hours as available, it’s gonna be less likely that we’re able to use it immediately.

Now, here’s a good one, Josh. We talked about self-employment, the ability to write off some of this stuff. Getting a 1099. In full transparency. When I bought my house, what, 10 years ago? The house that I’m in…. 

[00:12:13] Josh Lewis, California Mortgage Broker: We’re old, bro. We are old. 

[00:12:17] Jeb Smith, Huntington Beach Real Estate Broker: But, as a self-employed business owner, the way that my taxes were reporting, the write-offs that I had at that time, showed my income, it wasn’t great with regards to being able to qualify for a home. So how about doing what I did at that time, Josh, which was getting, a non occupying co-borrower? In this case it was my wife’s parents went on the loan to essentially use their income in addition to our income to be able to qualify for a house.

Now, I know a lot of people out there don’t have that for one reason or another. Parents aren’t in a position, they don’t have that other person. But is that still an option? Can you use someone that’s not going to live in the property to help you qualify to buy it? 

[00:13:02] Josh Lewis, California Mortgage Broker: You know, again, when I started doing this in the nineties, it was much more restrictive on conventional loans. FHA has always allowed non occupying co- borrowers, and we just blend everyone’s rates, everyone’s income and everyone’s debts go into the pot and we figure out whether you qualify. Conventional used to be more restrictive on that, but it’s now the same. Everyone’s income, everyone’s debts go into the same pot.

So what I wanna say, Jeb, I wanna clarify in your situation, you made plenty of money to make your house payment, you declared less, legally and legitimately based off of business expenses, things that are deductible, that we couldn’t quite get the ratios in line. So that was where the co-borrower helped. The best example of this that I use, not so much for a co-borrower, but people talk about with F H A and VA loans, they will both allow you to go to a very high debt to income ratio.

I was just having this conversation with a borrower yesterday. They asked,. “Would you be comfortable going to that high of a debt to income ratio?” And I said, “no, I wouldn’t. And I can tell you most of my clients that are in a similar situation, they actually have more income. Either they have that side job, that side hustle, they declare more expenses to keep their tax bill low.

So yes, for qualifying purposes, that debt to income ratio looks high, but in real world purposes, they can handle it. So when we’re talking about getting a non occupying co-borrower or someone to co-borrow with you, that’s not gonna live in the house, it is important that you have a comfort level with that payment.

If your fixed income, you and your spouse are significant other, both make $40,000 a year and that’s it. That’s a fact. And we’re saying we can’t get you qualified and you have someone co borrow for you, you still have to make that payment unless the co-borrower is gonna chip in every month. 

So it is very important that you know it is a way to qualify you for more, but where I like to use it is in situations like yours, Jeb. Someone self-employed that was deducting legitimately a lot of expenses that pushes the ratios too high. Or the situation where, I was gonna say the borrower we had here in Huntington Beach a few years ago went to a 70% debt to income ratio on a VA loan.

And we look at [00:15:00] that and go, what? What lunatic would do this? He’s gonna lose that house in five minutes from the outside. That might be a real thought, but when you talk to him, no, my girlfriend’s gonna live with me. She makes as much money as I do, and she has no debts. So no problem between the two of them. 

[00:15:12] Jeb Smith, Huntington Beach Real Estate Broker: By the way, she didn’t live with him very long. He continued to make the payment. Somehow I, I don’t know. But he’s now married to someone else. So way too much information for the viewers out there, but, you know, interesting. Nonetheless. 

We talk about income, right? It’s controllable to some extent, right? So we talked about what you can do there, but that’s something to focus on is income. Second thing is interest rates, right? Obviously a lot of talk about rates at the moment. Last year this time rates were in the mid three and a half percent range.

Today we’re sitting somewhere around 6%. So Josh, we’ve also talked about how much interest rates actually affect the housing payment. More so than the house price to some extent. But interest rates, let’s talk about that, Josh.

Where do you need to be? Because I feel like this honestly is one of the things that is not super controllable. But your credit score and some of the the components that go into that interest rate are very controllable.

One of the biggest factors is credit score. And credit score is 100% controllable to a certain extent, right? So let’s talk about what you need. Like loan wise to get certain loan programs and a little bit about credit and how that impacts things and how that’s really one of the major pieces that you should focus on if you don’t have really good credit.

[00:16:31] Josh Lewis, California Mortgage Broker: So I have a really, really good example of this. A client that we’re dealing with right now, she’s looking at an FHA loan and she thought she had a 640 credit score and most likely Credit Karma is reporting something like 640 for her. We pulled the credit, it’s actually 595, something just under 600.

Now the good situation, she makes a lot of money. She doesn’t have a lot of debt. She went through a divorce. There’s some weird stuff, keeping the scores lower. So from that perspective, we can get her a manual underwrite, but now we have less lenders to choose from and they want a higher interest rate for that lower credit score.

And in her instance, that was a half a percent difference. Now we go through and look at the what if analysis on the credit report and she has, after the divorce, a few credit cards and they don’t have as big a limits as someone who maybe was established longer. So not big balances, but they’re a high proportion of the limits.

She has the money. We can just pay them off and it’ll get above 640 and that makes a half percent difference in the interest rate in terms of FHA, what’s the next tier? If we got to a 680 credit score, it’s probably another quarter percent better. So all of these things make a difference if there’s something on your credit report that you can improve, so if you’re looking at FHA financing, you absolutely want to be above a 640.

If possible, you want to be above a 680. Now we’ll switch over onto the conventional side. We’ve got a couple things that come into play. Conventional, the rate is going to get better at every 20 point increment all the way up to a 740. There’s an exception to this here, and I’m going to tell you guys here in just a second.

But with that, I still would say you wanna maximize your credit score as much as possible. For the most part 830 835 is the highest score you can achieve. With the mortgage insurance companies all the way up to an 800 credit score, maybe even 820, the mortgage insurance rate is gonna get lower and lower and lower.

So for the most part, who are we talking to right now? It’s people who are not making big down payments. So they’re looking at mortgage insurance. So we absolutely want to get to a 740, if possible. And if we’re gonna get mortgage insurance, we want to push that absolutely as high as possible. Now, on the interest rate front, something that we want to talk about in November of last year, the FHFA who regulates Fannie Mae and Freddie Mac came out and said, we want to help in terms of affordable housing.

So for first time buyers that are at a 100% of the area median income or less, or in high cost areas like Southern California, 120% of the area median income or less, they’re going to waive all loan level price adjustments. You don’t really need to know what loan level price adjustments are other than that is the component that makes someone with a 640 credit score get a worse rate than someone with a 740 credit score.

Those loan level price adjustments get bigger. The lower your score is. And Jeb, you did a great video on this last year, showing what the difference is for someone with a 640 credit score on a conventional versus an FHA. The difference was big enough that you would never look at the conventional loan.

You would just say, I’m an FHA borrower. Now, if you’re a first time buyer and you’re under a hundred percent of the area median income, it’s worth having that conversation cuz all of those loan level price adjustments go away. So from a rate perspective, they’re gonna be much more similar. 

Now that doesn’t impact the mortgage insurance. That 640 credit score borrower still gonna have fairly high mortgage insurance on a conventional loan. But it is what it is. So if we’re talking about maximizing your credit, Jeb, a couple [00:20:00] weeks back, you and I here on the podcast did a deep dive, I think two full episodes on absolutely how to maximize your credit report.

So if you want that information, go back and listen to that because I would say nothing is more important than getting that score as high as possible. 

[00:20:15] Jeb Smith, Huntington Beach Real Estate Broker: Yeah. Episode 38 and 39. It’s a two-part series because it’s such a deep dive, and Josh, you mentioned something a moment ago, it made me think if, unless you have perfect credit, unless your credit score’s sitting at 850, there’s something to work on. 

That’s the reality, right? And if it’s at the point where it’s above 760, then you don’t really need to work on it to start with, right? It’s at the highest tier of which is going to impact your interest rate anyway. But if it’s under, 760, whatever, there’s always something that could potentially improve it.

And what we’re talking about here is an eighth of a percent on an interest rate, it might not sound like a lot, but depending on your loan amount, that could be 50 bucks. It could be, 30 bucks and it’s like, oh, okay, save me 30 bucks a month. Who cares? Well, 30 bucks a month times, you know, 10 years is a lot of money.

And if you’re not in the position where you’re buying today anyway. That’s where we’re coming at you from . If you’re not buying today, take the time , and spend it doing some of these things to put yourself in a better position.

So I think that’s really where it comes in. So episode 38 and 39. Make sure you check those out. Last thing, Josh. Home prices, right home prices are a big component of affordability. Now, a moment ago, I mentioned the idea that interest rates impact affordability way more than house price. And for a lot of people out there, they still want the lower price house, right?

Because ultimately they believe having the lower price house puts them in a better position financially, long term. And if rates go lower, they would be able to refinance. Now, I’ve talked in the past, I think most people look at the payment and not the price right in just having those conversations.

That’s why a lot of people, when they go buy a car, they get the lease because it’s less expensive than actually buying the car. But nevertheless, somebody wants to put themselves in a better position to buy. Should they be waiting for house prices to come down? How do house prices actually affect the scenario?

Is it something they can control, Josh? 

[00:22:15] Josh Lewis, California Mortgage Broker: Here’s how you can control it. We’ve talked a lot here recently, Jeb. I talk to people around the country, so this isn’t just in our market here. Home prices have been remarkably sticky for the beautiful, perfect condition, turnkey, move in ready, HGTV homes. The middle of the road homes, that little bit dated, nice clean, you could move in, but you’re not gonna, bring your friends over and say, look how rad my house is.

Those have suffered a little, and the ugly ducklings have suffered a lot. Because why would you buy one of those when you can get something else, nicer, cleaner at a better price. So….

[00:22:48] Jeb Smith, Huntington Beach Real Estate Broker: well, let me add to that, Josh. Part of the problem, right? And maybe not a problem, but a lot of people out there don’t have the money to buy the ugly duckling and fix it up, right?

They just have enough money for the down payment, and maybe that’s you as the listener, right? You don’t have the money to go in. And fix up the property. And you don’t want to buy the property that doesn’t look great and live in it for a year or two years while you save the money. So a lot of people out there want to build those improvements, those upgrades into the property to start with because it’s something they can finance.

It allows ’em to leverage their money a little bit more. And so, I think that’s why a lot of people go that direction. It’s not that they don’t want to buy a house and fix it up because I think a lot of people out there do want it. A lot of people don’t have that additional income to do it, which I creates a whole different thing.

So with that said, the ugly ones are still sitting. 

[00:23:34] Josh Lewis, California Mortgage Broker: You’re a hundred percent correct, Jeb. What I would say though, Tell me if you feel, this is anecdotal from the clients that I deal with, the folks that you deal with, people’s, ideas and expectation of the condition of a home over the last 10, 15 years because of hgtv, because of home flipping, have greatly elevated. So what someone thinks is really nice versus a nice clean house.

Like in my neighborhood, it’s an older, more established neighborhood. So a lot of times when a home comes on the market, it’s not a beater. It’s not gross. But the 75 year olds that just downsized or went into an assisted living, they redid that home in 1990, that’s now 32 years ago. And they kept it beautiful and clean.

I showed you one in my neighborhood the other day. I’m like, look at this. It’s like a time capsule. I don’t wanna move into it, but you could. Your family could move into it. So I’m just saying if we’re saying time in the market is important, and the way to get in the market at an affordable level is to set more realistic expectations and realize that 10 years from now, if you buy a home with good bones, that’s in an area you want to be with the square footage that you need.

It’s going to look much more affordable 10 years from now than it is today. And maybe at that point we get a dip in interest rates. You can do cash out, refinance, redo the kitchens and the baths. This expectation that everything be turnkey is making it much, much harder. And the opportunities are in the middle of the road or the ugly ducklings.

And a piece of that Jeb is if you go into the perfect turnkey home and they have three offers, trying to get a seller concession is really, really hard. If [00:25:00] we look back to November, rates are almost a full, 1% lower than they were now. So let’s say if you’re talking nice house, multiple offers, you’re paying top of market.

So rates were a percent lower. Now, if you go down to that middle tier home, that’s nice, clean in the area, you’re happy in, but they’re not getting many offers, you can cut the price, which you talked about, Jeb. Or you could say, Hey, I would like a 2% seller concession. Now that 2% seller concession, instead of cutting the price 2%, we buy the rate down a half of a percent, or we pay for a two, one by down if you think rates are going to be lower still in the future. 

Either of those are gonna get that payment much, much lower. Now we’re a percent and a half lower. You do the two one by down, we’re 3% lower than we were just a couple of months ago. So there’s ways of structuring it and doing this. 

The last thing I like to say that we didn’t really close the loop on in the interest rate discussion is if you were told in October or November that you don’t qualify, but it was marginal, you probably qualify for a lot more now. 

Go back to your lender, find another lender and take a look at it because a percent makes a difference. And the ability to potentially get a credit from a seller to buy that rate down even further. It makes even more difference. Now, it’s not gonna take you where, homes are $400,000 in your area and you qualify for $250,000. It’s not gonna make that kind of a difference. 

But if you qualified for $350,000 and you’re like, I need to get to $400,000 for a home, it could make that kind of a difference. You could possibly structure a deal where there would be that big of a difference. 

[00:26:27] Jeb Smith, Huntington Beach Real Estate Broker: You said something a minute ago that made me think, you know, I mean hgtv, Instagram, all of these different platforms have essentially skewed the home buyer into their expectation of what they should get into a property.

They see all these fancy houses, they see all this upgraded properties, and then they walk into a house that doesn’t have that, and immediately, they’re like, let down. Right? And I get it. I mean, I have a nice house, Josh, what I believe is a nice house, and I walk into some of these properties and I come home. I’m like, damn, my house sucks. 

It’s like…

[00:26:56] Josh Lewis, California Mortgage Broker: I’ve gotta do some work. 

[00:26:57] Jeb Smith, Huntington Beach Real Estate Broker: This, this isn’t good. You know, because you see all of these and you’re comparing your property to those. But what I will tell you is if you’re willing to sacrifice a little bit, get into the property that needs a little bit of love, you know the worst house in the best neighborhood, right?

Something your parents have probably mentioned at some point in your life. There’s the potential to add so much more value to those properties by doing the minor improvements. Making them your own, in your own way. And that’s completely okay. Nobody needs to go in and do it day one to get the immediate boost in that appreciation.

And I’ll tell you, coming from a real estate perspective, I see a lot of houses. I’ve helped a lot of homeowners maximize price on their house in profit in different ways. Carpet, paint, just some basic TLC in a property makes the biggest difference in the world. Maybe it’s not the perfect home, the HGTV home with marble waterfall countertops or whatever, but just changing a couple of things in a property changes the perspective from you as a buyer and it makes it a more livable property and just puts you in a better position.

 In this market, consider the property that needs a little bit of work. Now, we don’t want you to go out and sacrifice on living on a busy street, buying the house on the major freeway just to buy a house unless that’s the right decision for you. Right? 

I have clients that don’t care, right? We see the house and it backs to the street, blah, blah, blah. I don’t care. I’ve lived down a street my entire life. This is fine. I’m completely okay with it. And we talk about pros and cons of that. But if that’s your thing, great. If it’s not, don’t sacrifice for there, cuz there are other opportunities out there in the market.

But Josh, if you’re looking at this, so one of the things that we talk about often is maybe considering a potential move to an area that you haven’t considered before. And now this is tough for me because I don’t want anybody to ever sacrifice on location to buy a house because you should live where you wanna live but at some point, I will say housing affordability, where prices are going, it’s going to be difficult for some people.

If you want to be a homeowner, you’re gonna have to consider, if you can’t get a larger down payment, if you can’t boost your income in a significant way, you might have to consider moving outta state. You might have to consider moving to another area and this is honestly what Caused a lot of the house prices in some of these areas to go up so much over the last couple of years is because homeowners did exactly that.

They were tired of living in a state for one reason or another, housing affordability, prices, taxes, whatever, and said, Hey, you know what? I’ve had enough. I’m gonna go live in a state where it’s more affordable. Taxes are better. Maybe the weather’s not as great, but I’m willing to sacrifice in these areas.

And they went out, bought a property for a lot less money, the payment’s a lot less expensive, and so that’s something that you have to consider as a potential home buyer as well when you’re not in that position to necessarily buy exactly what you wanna buy. Josh 

[00:29:56] Josh Lewis, California Mortgage Broker: Jeb, let me throw two comments that are actually gonna sound contradictory here.[00:30:00] The first one is, I believe that home ownership is so foundational to wealth that if it means you have to move out of your primary area, the area where you grew up, the area where you would most like to live. Us here in Huntington Beach. I hear people all the time, I surf, dude. I surf every day. I can’t leave the beach.

Well, the beach communities are the most expensive, I believe. Home ownership is so important that you should be willing to sacrifice location to make it happen if that’s the only way to make it happen. So there’s that piece. The other side of it that will say, you and I, Jeb we both see clients that sell and move out of the area, and I would say whether they moved to Arizona, they moved to Vegas, they moved to Texas, they moved to Boise.

Probably 65% of ’em are happy with that decision. They go, no, it’s great. We got outta the rat race, slower pace of life, a lower cost of living. We love it. And about one outta three curse their life there. This is terrible. It’s not California. We hate it. We want to come back home. We can’t afford to get back here.

So know yourself. I think someone should be willing to make that sacrifice if it’s the only way to get into a home. But if it’s gonna make you miserable, there are things that are more important than owning a home. 

[00:31:05] Jeb Smith, Huntington Beach Real Estate Broker: And I think that’s where we’ll leave it today, Josh. If you’re planning on buying a house, something I’ve said before, got it from Dave Ramsey, I’ll repeat it. Renting is buying patience until you’re ready to buy a house. 

So don’t beat yourself up if you’re not in a position to buy. It’s okay. Just work on the things that we talked about in today’s episode to put yourself in a better position so that when the stars align with credit, with down payment, with interest rates, with everything that you want in a home, you’re in the best position to purchase.

We appreciate you listening. We appreciate you being here, and we will see you again on next episode. Adios

Support this podcast: https://anchor.fm/theeducatedhomebuyer/support