Five Key Takeaways from our Conversation with a Leading Mortgage Professional
While catching up on the news, you may have run across headlines such as:
“Where Are Home Prices in Your Local Housing Market Headed?”
“Housing Market Recession: Housing Starts Down Sharply!”
“Higher Interest Rates Making Buying a Home Difficult for Most”
“Mortgage Applications Hit a 10-year Low!”
YIKES! While this may seem scary, we all know the purpose of headlines such as these is to get your attention and when you dig into the facts, the actual story doesn’t exactly line up with the headline. If you are like many Americans who are looking to buy or sell a home, you might be interested in knowing what is actually going on beyond the headlines. Well, Mentoro is here to help.
We recently sat down with an industry expert to help us make sense of the housing market, with a specific focus on how interest rates are impacting mortgages. Brian McCauley is one of the top producing mortgage professionals in the U.S. and is part of a team that has over 40 years of experience in the Real Estate Finance Industry. He is a producing branch manager with Fairway Independent Mortgage Corporation and the face of Dallas Mortgage News.
Below are five key takeaways from our conversation:
1. What It Means to Own a Home
To begin with, home ownership means different things to different people. Brian feels that owning a home gives you a place to call your own, a place of refuge. In addition, owning a home is a way to create wealth. Most houses go up in value – they can be referred to as an appreciating asset – and owning a house is a form of forced savings. Brian summed this up by stating, “As human beings, we can only work so much, earn so much, save so much. But homeownership, with the appreciation rate, can let somebody get a $50,000 or $100,000 head start.”
2. Tips for First-Time Home Buyers
First, have the right mindset. Buying a house is often the biggest investment and purchase you will make so you need to be mentally prepared.
Next, find a good realtor in your area. How do you go about doing so? Brian recommends you lean on those you know (and trust) who have bought a house. Ask who they used as a realtor and then schedule a meeting to see if this person is the right fit for you. After you find the right realtor, you will need to get pre-approved for a mortgage by a loan officer.
Some very important advice Brian gave is to make sure you can afford the house. He suggested we don’t just look at the here and now and stated, “Becoming a homeowner is great but you have to get your finances in order, so you won’t have any hardships down the road.” To help with this, analyze the monthly payments to ensure you won’t be stretched thin. Traditional advice holds that your monthly payment should not exceed 30% of your income. While a good starting point, Brian points out this is not a one-size-fits-all all formula. If you have no debt, you may be able to exceed this some. On the flip side, if you have a lot of credit card and/or student loan debt, you may consider borrowing less. This is why it is extremely important to run the numbers and make sure your American Dream doesn’t turn into a nightmare!
3. Suggestions for Existing Homeowners
Brian recommends being proactive when it comes to maintenance. Schedule set times – spring and fall for instance – to inspect the HVAC unit, clean the gutters, etc. This way you catch any issues when they are minor. Brian also mentions that home warranties can be a form of protection in case big-ticket items need to be repaired or replaced.
4. Breaking Down Current Housing News
First, we wanted to know how the Fed raising interest rates affects mortgage loans. According to Brian, while the Fed and the interest rates they set are not directly tied to mortgage rates, mortgage rates usually follow what the Fed does.
In addition, anytime it becomes more expensive to borrow money, (which happens when the Fed increases interest rates) things like the sales of homes slow down. Brian predicts that mortgage rates will most likely hold steady for the next 6-12 months and then slowly go down.
Many of us remember the housing crisis of 2007-08 and how certain areas of the country were in a bubble. We asked Brian if this was a repeat. He does not think so. Many people got into trouble back then because they bought homes they truly could not afford and overextended themselves. Brian says now many do not care about the total cost of the house but more about the monthly mortgage payment and if they can comfortably afford it.
5. How Home Ownership Leads to Financial Freedom
Brian pointed out that most homes appreciate (increase in value) every year. When you combine this appreciation with paying down the amount you owe on the house – this happens every month when you make a mortgage payment – you can see how this can eventually lead to financial freedom! According to Brian, “There are a lot of things people can buy in life and most of them go down in value. Homes go up in value, historically, over a period of time.”
No matter what category you are in – whether you are an established homeowner or someone looking to buy your first house – we are here to help. As a Mentoro member, you have access to the “Goals” tool that allows you to set savings goals linked with your accounts and track your progress through the portal on a monthly basis.