*AMA Session with Art - Ask Me Anything - MortgageMinute 12.11.25025

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Good afternoon, everyone. Welcome to this week's Mortgage Minute. My name is Art Alvarez with Mortgage Works, where we have the answers and they're on the house. Coming to you from a pretty warm and toasty Palm Springs in the greater Coachella Valley area. We're actually nearing record highs, mid upper 80s, which even for the desert, that's a little toasty for early mid Jane, mid December. And then as well, of course, I want to make a correction from last week. I had usually I touch on the sports world in some fashion, and I mentioned that we had 47 college football bowl games coming up. Well, that turned out to be an incorrect number. It's not much lower. 41 college bowl games scheduled for the coming, you know, several weeks going into January. Actually going into, yeah, into January with the college football playoffs. The very first bowl game coming this Saturday, the Celebration bowl that's coming to you from Atlanta, Georgia. And it's a South Carolina State vs. Prairie View a and M. And this is actually a should be a pretty good bowl game. Both of these teams have decent records. South Carolina State 9 and 3, Prairie View A and M, which that college is In Texas, they're 10 and 3. So that could actually be a pretty good game. Although the real college football game this weekend, I believe will get a lot of attention just because of the tradition is the Army Navy game. So that's on Saturday as well. I have a feeling they'll probably get a few more viewers than the Celebration bowl, so we'll see how that goes. I've always enjoyed the Army Navy game. Back when I was a kid, I briefly considered maybe going into the Navy coming out of high school. I ended up not doing that, but sometimes I regret that. But in any event, I kind of just pull for Navy just because of my interest in the sea. And I used to be a boater all my life and so forth and so on. So with that, let's go right into what's going on with the mortgage market and the financial markets. First, what we want to do is give you an update on mortgage rates. We encourage you to go to our website. Right on the homepage I post rate indications, and again, I call them indications, because every specific loan is going to be tailored to your specific parameters, including property type and down payment, credit score and so forth. In fact, if you want to get an idea how mortgage rates are determined, don't forget that box at the bottom in red. Click that on and there's a short video where I go into more detail about how mortgage rates are determined in the marketplace. And you know, day to day, week to week, month to month, bond yields are elevated a little bit. But we're still hanging in there in the very high fives on most rate. Most loan programs, including conforming FHA VA Jumbo kind of got back into the sixth level, but still generally pretty good. But as I said, and Jeff's going to bring that chart back up, the 10 year bond yield a little bit elevated. You know, it's not just been probably two, three weeks ago, the 10 year bond was down to four. We didn't see the kind of move in the 10 year yield that we often see in advance of the scheduled Fed meeting. A lot of times we see this yield start to drop in anticipation of the Fed meeting. And then once the Fed meeting has concluded and they make their announcement as to any decision to adjust the fed funds rate, we often at that point see the bond yield jump back up. This time around it didn't really work that way. The bond yield kind of remained elevated in anticipation of the meeting. When they made their announcement midday yesterday, quarter percent lower than the fed funds rate, bond market really didn't react much. It kind of stayed elevated right around 418. Then it finally kind of did drop a little bit early today. We got down to around 411. But then of course you can see there it's kind of trickled back up to 414. So not much of a reaction in the bond market to this announcement from the Fed. So let's go ahead and talk about what is going on in the markets this week that might cause movement or not. And as I've been saying now for the last several weeks, another light week on the calendar as far as data points. The government's still kind of getting caught up with all of their data that they're trying to, you know, pour through and try to get these, these numbers released, albeit they've all been late. The probably the biggest one that came out this week, at least before today, was the jolts. That's the job opening labor turnover survey that actually had a big jump in available job openings. 7.7 million versus 7.2 million forecast. But that was kind of brushed off as I'll call it holiday hiring and low layoffs. So even though there was that increase, it wasn't really perceived or interpreted to mean the job market is softening up that much. It has more to do with new openings as it relates to the holiday shopping season. Of course, the big news this week was yesterday's conclusion of the two day Fed meeting Tuesday and Wednesday, about 11:15 Pacific Standard Time, is when we got the news the Fed lowered the Fed funds rate by a quarter percent. And again, that was highly, highly expected. So not a surprise. What really, I think affected the market and why the bond yields didn't really improve much with this announcement, if at all, again, has more to do with Powell and his commentary. In the press release after the meetings are concluded and they've made their announcement, Powell kind of made it clear that at least for now, the Fed's only looking at one more rate cut. And again, that's the Fed funds rate all of next year, all of 2026. So you might be a little disappointed to hear that a lot of folks were anticipating or hoping, I mean, might be better way to describe it, that we would have multiple rate cuts next year. There was a few folks on the Federal Open Market Committee, and that's what FOMC stands for, who were in favor of more rate cuts, but they were definitely offset by most of the members felt like they should go cautious. And in fact, that was basically Powell's commentary was, hey, look, we're going to go slow on this and we may end up deciding this is about it, other than the one more cut in 26. So that doesn't look like a Fed that's going to be particularly aggressive in terms of future rate cuts, at least anytime soon. Of course, we got Powell will be leaving that job here next year and so we'll see who his successor is and maybe they'll have a different impression. The last bit of data point that came out today was initial jobless claims, you know, for unemployment benefits was forecast to be 223,000 after last month's only 191,000. Or last week's, I should say, came out 236. So higher than expected, but again brushed off as this is the holiday. So that number doesn't have as much meaning because of the fact we're, you know, right in the midst of the holidays. So as a consequence, it's more of the same. Rates are going to stay higher for longer. Rates are not going to come plummeting down anytime soon. In fact, all the major players, Fannie Mae, Freddie Mac, Mortgage, Bankers association, major investment banks, are all predicting that mortgage rates are still going to hover around the 6% range pretty much all through next year. So for those of you looking for or waiting for even the low fives, high fours, it's going to be a while. And forget about the twos and threes. Those are in the rear view mirror and are going to continue to be farther back in that rear view mirror. Those are not coming back anytime soon. We are where we're at and all we can hope for is some modest improvement for the next period of time. So with that, we're going to do a little bit of a different segment this time. Jeff's going to come back on and we're going to, we call it the ama, the Ask Me Anything session. So Jeff's got a bunch of questions ready for me and see if I can pass this little pop quiz. Hey Jeff.

Yeah, I'm excited to be here. First of all, I'm so happy that there's only 41 bowl games because now I can actually fit them all in. So thanks for clearing up. Because I was stressed, I'm like, how am I going to get all these bowl games in? Yeah. But I agree with you. I think, I think we're going to see the attendance viewer wise a little higher in the Army Navy game.

I think so.

Yeah. Hey, I just want to throw this out here to the folks that are online right now. If you have a question that you have for Art, anything about mortgages, whether you're an investor, you're a senior, thinking about one way or the other, should I do a heloc, those kind of things, please put your comments in in and I will grab those. We do have a list of some that have already started to come in and so I'm looking forward to doing this is called out Ask me Anything. So here we go. Here's the first one, Art. The first one is I've been on the sidelines waiting and hoping for rates to drop. Do you think waiting is to my benefit or should I take action now? Now I know, I know this could be kind of slanted because you're a mortgage broker, but I trust your honesty and just transparency that you give me the right answer.

Well, you know what's interesting about the question is I would have to say there has been some and I'll underscore our underlying limited benefit for waiting on rates to drop. What I mean by that and of course I urge everyone all the time, you know, you can all do this yourself. Get online and Google the 10 year treasury bond yield and you can see a history of the yield going back several years, you know, pretty much for a long period of time. And when you look at that, one of the things that tells you is it was true in around middle of 2023, you know, the 10 year bond yield basically was hovering right near 5%. And at that time, you may recall, we were on conforming loans, we were in the sevens and there was some concern about we were heading to the eight. So from that perspective, yes, it's true, waiting for rates to drop, at least if you've been waiting since that period, has had some limited benefit. We're not in the sevens. Most lenders are saying they're still in the low to mid sixes. We've been telling all of our viewers for a while now that most programs we can still offer rates in the high fives. So from that perspective, waiting has had some limited benefit, albeit that's pretty limited. Still, the idea here is if you're waiting for race to get substantially better from where they are now, I would argue that's probably a little bit of a fool's bet. I wouldn't urge you to do that. In particular when you consider the other factors and parameters in the market that I think make it maybe a better time, if not the right time to start, you know, stop waiting and get into homeownership. Because you've got to think of things like there is more inventory in most markets. That's certainly true Here in the Coachella Valley. Inventory is not, you know, totally back to the normal six month of supply based on the sales rate, but it's getting closer to that. It's certainly in the four and a half, five month range. Days on market, of course, has gotten, gotten more extended. Now it's more like 60 plus days to get the home sold versus you know, before we were 30 or less not too long ago. The ratio of list price to actual sale price, that's running like again in this local market here where I'm at in Palm Springs, greater Coachella Valley area, that's running around 96%. In other words, a home, if it's listed for a certain price, selling on average at 96% of that initial listed price. What does that tell you? There's some juice there. Call it that there's some room if you're a buyer, there's some room in that list price that you can negotiate some pretty good benefits in terms of seller incentives, that is credits. Use that towards your financing. So if you're already waiting and have been waiting for rates to improve. And yes, we've had a little bit of improvement over the last couple of years with the other factors. Homes on the market longer. The closing price per the versus the list price now at around 96 and some markets even 95%. The fact that you know, with that, you know, greater amount of inventory, longer days on market, that are all, those are all signals for you as a buyer to consider now as the time to buy. I know that's kind of a old stereotype. All of us in the real estate business, whether on the mortgage side or the real estate side, we're always saying now is the best time to buy. But you know, truly with these conditions, it probably is, at least in the last two to three years, probably one of the best times to buy in that period of time. So from that perspective, yeah, you've helped yourself a little bit. Are you, if you, do you think it makes sense to keep waiting? Because now we're gonna, you want to go from six to four and a half. That to me is a weight that may no longer pay off. Because after all, remember this too. If you're a renter, every day, week, month, year that you put off buying, when it is your desire to buy, you're delaying that point in time where you're going to start building wealth. Because even with more recent news about property values have softened, property values over the last two to three years have still been going up. So that's the downside of having been having waited for lower rates. You've achieved a little bit of a benefit there, but at the expense of you've already lost maybe a couple years of 2, 3, 4%. Some markets 5% appreciation because you didn't, you know, jump into the game sooner. So now we got some pretty good rate levels, pretty affordable. Historically, when you're talking about high fives to six, you using buy downs to get those rates down into the low fives on a permanent rate, buy down or high fours or using the temporary 2 ones or 32 ones where you can get a start starting rate first year and the literally the twos or the threes. When you consider all that, I wouldn't wait any longer. It's time to step in, find that home, negotiate a good deal with seller incentives and get into building wealth creation. Do it now. I think you'll be pleasantly surprised the benefits you're going to achieve.

All right, I just have one quick point. I was looking back since I have access to the 10 year treasury and I went back six months and it was 4316. And I'm just curious, now that it's 41 4, what does that mean? It's barely changed. It seems like on the graph, is that a big difference in what I would make as far as my monthly payment or the, the interest rate that I pay. Is that a huge, a huge bump?

It's not a huge bump. I mean in that respect. Think of the 10 year bond yield, you know that number, you know that 4.36 months ago, that 4.14. Now think of that as a mortgage rate. So you know, if you think of it that way it kind of keeps it simple. Well, 4, 3, well that's almost like 4 and 3 8. Right. You know, 4.375. Yep. 4.14. That's sort of equivalent to 4.124125. In other words, 4 and 1/8. So 4 and 38 six months ago, call it 4 and 1/8. Now that's about a quarter percent. So you've had some improvement just since April to now in terms of the rate. Now a month ago the 10 year bond was actually at 4. So again using that April number to you know, a month ago there was about a 3, 8 improvement in rate. But of course as we tell people all the time, this stuff moves around up and down all the time. You know, you can go back to last year or as I pointed out earlier in 2023 when that 10 year bond yield was close to 5%. And of course no surprise that we weren't talking about five and seven eighths like it's on our website or six and a quarter as the media says is the current mortgage rate. It was more like seven and a half. Yeah, because it was, you know, the 10 year bond was you know, you know, 4:1, 4 versus 5, what is it? 7:8 of a percent in rate. Right. So that's why I always urge people keep looking at that 10 year bond, kind of pretend it's a mortgage rate. And as you see it move, you can pretty much be assured that the actual mortgage rates that you're looking to, you know, use for the program you're going to use are, are going to be moving in a similar fashion.

Great. Well I just want to remind those folks today that are joining us, this is Ask Ask Art Anything. It's actually an AA MA session. We're talking about anything, anything in the world of that. So I'll just answer the question about waiting and staying on the sidelines. So if you missed that, you want to go back to that. This next one, Art is a little bit more, it was a little bit lengthier so I may have a little fill in. It says I had the opportunity to buy my office suite instead of paying a monthly rental. I own my home free and clear. Would you suggest financing the purchase like A commercial loan or take equity out of my home. What are the pros and cons with that?

Yeah, that's a good question. And you know that that brings up a couple of issues that you would want to think about. You know, when this person was asking about buying an office suite, I believe what the intent there was buying a. A lot of folks may not realize this. Some office buildings are actual condominiums, just like a residential condominium building where you can own a unit within that building. Well, some office buildings are the same way. They're actually set up with a legal ownership of a condominium. And so you can buy an individual condominium unit in an office building. So that's what this person, I think is referring to. And so then you've got a couple of choices. Certainly with respect to the actual office condominium unit, you can simply get a loan, a purchase money loan that's going to be secured by that unit. Now that's going to put you into the commercial loan category. That can be a little tricky. Commercial loans, generally speaking, and I've done a few, I can't say I do them all the time, but I have a pretty good idea of the basics of that sector. With a commercial office. A commercial loan for an office condominium unit, you can expect a couple of things. You're probably going to be looking at a little bit higher rate than a residential mortgage. The requirements in terms of documentation and things like the appraisal are going to be a little more expensive and higher cost. And the terms, you can get 30 year financing. A lot of times with commercial lending the terms can be a little bit shorter, like 25 years. And oftentimes they can have a hybrid ARM feature where the rate's fixed for three or five or seven years and then it converts to an adjustable rate loan. And then with this kind of deal too, with commercial loans, oftentimes you're going to get a better deal if the loan amount's bigger. When you're talking about an office condominium unit or suite, that's usually a pretty modest price for that unit. Probably in the, you know, multi several hundred thousand, maybe 500,000 or so. That's actually considered a pretty small loan amount in the commercial lending world. And generally you're going to be looking at a bit of a premium on the rate just because of that. Where I think the opportunity for this person would be is to use that free and clear residential home that they have and instead utilize that equity. So what you're going to be doing is transferring that equity from your home that you live in to this office condominium unit you want to buy. The benefits to that are a couple things. One is you're going to get a better rate on the home. The loan being made on the home that you're already living in, especially if the home has got a pretty decent value to it, and if the amount you need to complete the office condo unit purchase is relatively modest, the loan to value that you're going to be dealing with on the refinance of your primary home is going to be relatively low. In particular, if it's below 60% loan to value, you're going to be able to optimize the rate you can get on that cash out refi of your primary home. Certainly it's going to be a better rate than a commercial loan on an office condominium unit secondarily. And I think almost in some respects this is an even bigger benefit beyond just getting a better rate for the financing. You're going to be able to negotiate a better deal on the purchase of the office condominium unit because you can basically negotiate that. It's going to be a cash purchase. It's not going to be contingent upon getting a purchase money loan secured by that commercial condominium unit. So as a consequence, you're probably going to be able to overall end up with better terms on rate and payment refinancing your primary home for the cash out, then negotiate an all cash purchase of that office condominium unit. That'll probably help you a little bit on negotiating what the price is going to be without having the contingency of having to get a commercial loan to complete the purchase. And of course, if you do the refi first, or if you get that underway even before you start negotiating that purchase of the commercial building or commercial unit, you can then negotiate a much quicker escrow period. If you've already got that refi done, you've got the money in hand. So again, that can further help you in terms of negotiating a better price for that unit. So with that kind of scenario, that would be my take, of course, yes. Full disclosure, I'm a commercial real estate residential mortgage broker. I do primarily residential loans. So you might think, well, I'm a little biased to steer this particular person to going that direction, but I still think overall, objectively, it's going to give you more benefit by doing it that way than getting that commercial purchase money loan on that individual unit.

Well, I was curious, Art, when you said that is, you know, you get a better rate, I was looking at your current loan amounts or loan rates on your homepage. And it's like for, so if I just go get a HELOC, not the, not the fixed rate HELOC, but if I just get a HELOC that's under 7%, will a commercial loan compare with that or is it going to be higher? Like you said, I'm going to pay a premium. Because in the world of commercial loans, this is kind of a little loan. So it's kind of a higher risk, I guess. So I'd pay a higher fee.

Well, yeah, exactly. I mean, the, the rate you're going to get on an office, on a commercial loan for an office condominium unit is probably going to be more comparable to a HELOC rate. And of course, remember, in terms of this particular question, taking equity out of my current free and clear home, a lot of folks would look at, you know, if they're in that position, they'll come to us and say, and I've had this happen actually multiple times recently, they'll come to me and say, well, I own this property free and clear, I want to access the equity, I want to get a heloc. And I'll of course respond to that and provide them the numbers. But I'm always quick to say, well, wait a minute. Understand that when you have that free and clear home, you've got multiple options here. You don't have to take that money out in the form of a heloc. You might want to consider just getting a first mortgage instead of a heloc. And they're going to say, well, why would I do that? You know, I want to use it and reuse it and you know, draw, draw against it, pay it down, draw on it again. Yeah, there is that flexibility. The trade off, though, is more of a, is more or higher rate. In this case, this particular scenario, this person has a specific needle. They have a fixed amount of money they're trying to access to then move it over here to this other transaction and buy this commercial condominium unit. So that's, in my mind, less reliant than on the need to draw against this loan instrument after you pay it down in future years, you have a specific need, specific amount of money, you want to complete this specific purchase and you're done. Well, with that being the backdrop, you're almost always going to be better off refinancing with a new fixed term fixed rate refinance loan, not the heloc. If for no other reason, the rate's better. You know, again, we could probably do one of these at right around 599, especially if you're under 60. LTV on that, on that residential refi purchase or refinance cash out if you've got a good credit score. So a HELOC is going to be probably high sixes to sevens. Why would you take that higher rate when in reality you don't really aren't demonstrating that you're going to have a need to keep going back and re accessing that loan instrument over and over again. You've got a specific need. Once you close that purchase, you don't need the money anymore. So in my mind, you're better off going with that first mortgage. Forget about the heloc. Of course, every case is different, but in a lot of cases that just makes more sense.

I mean, that's a benefit of working with someone like yourself. Art is the fact that you can look at it from so many different angles and so many different examples of what you've done in the past to help coach or guide, if you will, at least present the scenarios and find out exactly what they need. And it sounds like this one is, hey, a first is much better than the, than the HELOC for those reasons. It's a very specific reason. And the rate rates are better. So that's a great answer. Thank you.

Sure.

All right, this next one's a little bit different. This says, my wife and I just turned 70, our home is almost paid off. We find ourselves wanting to travel more. And we've discussed taking out a heloc. But I've heard you discuss reverse mortgages, kind of the plus and the minus. And there, and the part that's not on their art is they said, you know, that the cash flow is okay. You know, they have retirements and then they have Medicare. Excuse me, Medicare. Or excuse me, what is it?

Social Security.

Social Security, excuse me. There we go. And at my age, I forget those things. And so, and so they, they sound like they want to enjoy life, but they don't have enough money to do that. What's your thoughts on that?

Well, it's interesting because again, we run into this kind of scenario fairly often. And so, yeah, what this person is telling us is that, hey, we feel pretty secure financially. We got decent monthly income, but we want to, we got all this echo. You want to tap into it to go have some fun, you know, to live life, enjoy your retirement years and travel a lot. That's, that's a great option. So question is, what's the best way to grab that Equity in order to accomplish those, those goals. And yeah, oftentimes it starts off with somebody in this scenario will contact us and say, hey, I want to get a heloc. Of course, what you didn't mention, Jeff, it's probably true. Home is almost paid off. So they could have a very modest small mortgage on it with that. Maybe they refinanced in 2020, 2021 and they're at 3%. So they're thinking to themselves, well, I don't want to touch that small loan I have. I'll just get a HELOC so we can use that to go travel the world. Well, again, a couple things that think about there. Number one, to kind of pick up on what I said earlier in this scenario, I would first look at their small mortgage they have that's almost paid off and look at that versus how much of a HELOC they might be wanting to get. And if the HELOC is going to be a substantial in size compared to their existing modest mortgage that they don't want to pay off, I may very well say, look, as we just said earlier on the other question, you might be better off just refinancing into a new first, pay off that modest, almost paid off existing first and then use the rest of the money. You'll get it all in a lump sum for your, you know, your travel kitty and off you go. But even that probably isn't going to be the best option when you consider the fact that whether you get a HELOC and you keep your existing modest first mortgage or just get a new first mortgage, you're going to be incurring a new monthly payment and certainly going to be more than what you're paying now. And so oftentimes maybe that's not really the best way to go. And because of the age, as we are pointing out here, just turned 70, this becomes a clear case of looking at a reverse mortgage as a potentially better option. And there's a couple things to think about. There are a couple of reasons why this might make better sense. One may be, especially if that existing modest mortgage amount that's on their home now is of a low rate, the reverse mortgage opportunity could involve getting a second mortgage. So yeah, not, not a heloc, but a second mortgage. But this would be a reverse mortgage type second mortgage. We call it the home safe second. What this would allow is the homeowner can keep that modest almost paid off first mortgage, get a home safe second, that could be the money they use for their travel goals. Now that scenario, they're going to get all the money at once. So they're going to have to park it in interest bearing accounts or at least earning yield until such time they start accessing those funds for their travel plans. So that's part of that scenario. But again, the benefit of the home Safe second is you don't make payments on the loan unless you want to. If you don't, the interest accrues to the balance and it will grow over time. So that would be one way to approach this particular scenario. The second obvious way to go would be to get a reverse mortgage. That's the first mortgage. The most popular option is the FHA HECM home equity conversion mortgage. So you would get a new first mortgage, FHA hecm, that would be a reverse mortgage. It would pay off your existing modest, almost paid off first mortgage. And then what you would do is set up the rest of the available loan amount you're going to be getting, set it up as a line of credit so that that way it's there ready for you to tap into as you start pursuing your travel plan. In the meantime, until you start more aggressively traveling, that line of credit that you've set up in the FHA HECM reverse mortgage, it the unpaid balance, it grows over time. That's a subtle benefit a lot of folks don't realize, compared to a traditional heloc, that most people think about the line of credit in a reverse mortgage after you've set it up. Well, a couple things about that, you're not incurring any interest cost unless you start drawing on that line of credit. And then the other benefit is until you start drawing on that line of credit, that initial line of credit limit, if it has a zero balance on the line of credit, the credit limit's going to grow over time. So that's sort of another benefit folks don't think about. So as a consequence, that probably may be their best approach in this particular case. But in either event, either a FHA HECM first mortgage reverse mortgage or a home safe second reverse mortgage second mortgage. One of those two options I would argue are almost always going to be better than just getting that traditional HELOC or a refinance of your first mortgage with cash out. Because that way, with those options, options, you're incurring a new monthly payment and you don't have the benefit of deciding whether to make it or not. You have to make that payment. So avoid all that, avoid that obligation and be able to make payments only when you want to. If at All I think these couple of reverse mortgage products I just described are probably a better choice.

Well, I love this, I love this last one you talked about because all of a sudden it occurred to me of like, okay, if you get a new first mortgage using the hecm, it pays off my mortgage, so it frees up that money that I was paying to that mortgage. So that could add to my travel plans if you're my travel budget. And maybe I'm not tapping into the unused portion of that very much. So it's really, that's really kind of a cool setup art.

Exactly right. That's, that's why I say, I mean, you know, my first thought when I saw this question was, well, yeah, there's the home safe second. If they've got this modest first mortgage and if it's at a low rate, then that homestead second could be a good option. But you know, when you think about somebody that are in 70s and you know, I'm sure their travel plans are going to be extensive and you know, span over maybe several years. So it's not like you need all this money all at once for your travel plans, but you need access to it on demand when you do start the travel and each travel, each trip, you've got to maybe draw some money on, but you're not using up that whole line of credit. So that way you're keeping your accrued interest costs down because you're only using the money gradually over maybe several years as you travel all over the world. So in my mind, that is a really great option that's even better than the home safe second. You know, the home safe second kind of. It's kind of like that earlier question we were talking about, you know, buying the office condo, you know, the home safe second. Usually that makes more sense if you've got a specific need for the money because you're going to get it all at once. It's not a line of credit. So if you have a particular objective goal, a project or buying another property, a specific need for a specific amount of money, that's where that home safe second probably makes more sense than this particular scenario.

I think that's great. Good point, good point. Hey, this next one is one that as I'm playing with my pickleball friends, they're saying more and more of this. They said our son has completed college and is moving back home. They're not really excited about that part. They said we have space to build an adu, although thinking we can use the equity to buy a duplex so maybe they're living off property. Are there advantages to each of these?

I think so. Of course, the first thing I would comment on is our son has completed college, is moving back home. Well, maybe what they should have done is when the son was at college is buy a property there near the college, maybe the duplex, where that's part of this question. So that the son could be living in a property that they would own near the college. And then of course, once the son graduates, then they could decide to either have the son continue there and he's got the other unit rented out, or if he does want to move back home, then they rent out both units and they've got the start of their, their investment property portfolio. But a couple things about this question. If you have a space for an adu, yeah, that's a great option. Now the benefit of an ADU is that generally, obviously it's going to be a lesser cost than buying a duplex. And you know, most ADUs, I mean they're relatively small in size, you know, one bedrooms, two bedrooms, maybe three at most. And so yeah, there's definitely benefit and you know, an advantage of going the ADU route because it's simply going to be less cost in terms of the property. Now that said, it's not like it's not without some challenges because you got to build the darn thing. Now a lot of cities, local governments have set up in their, in their building planning departments, you know, pre approved plans for different ADU floor plans. So that way you can choose an existing floor plan that the county, the local authority or the city has posted on their, with their planning department. So you can basically off the shelf, get the plant. But that theoretically should help you get that ADU built more quickly so that it actually can be used. So there is that, that's a little bit more work in terms of getting the ADU built. So you got a timing issue there. And then even if you get the ADU built and you put the sum back from college in that, yeah, you've got some separation, there is some privacy, but it's not fully the case as if the, you know, the, the child, the son moves back but decides to live elsewhere, maybe nearby mom and dad, but not actually on their property. So you know, you can take that either way. Some folks will say, well no, it's great, I want to be close to my kids or the son wants to be close to his parents. And so they may like that, you know, more close proximity to each other, the main house and the adu. So that's more of a personal decision, more of a personal preference. I think that they could be better served in this particular case if they have the equity to get equity to, you know, pull cash out in order to buy a duplex. I think that ultimately is a better option for one. Yeah, it's going to cost more to get. So that's true. Keep in mind, one of the benefits of buying a duplex is we can use projected rent from the other unit not being occupied, adding that to your qualifying income to help you meet a debt ratio. So from a qualifying standpoint, it can actually be helpful. But this way what happens is, yeah, you get the son back home, if you will, but not back home into the house, but more maybe in the neighborhood, but in a separate property, entirely separate, not on the lot of the parents home in an adu, entirely separate property, and then buy that duplex, have the son occupy one, rent out the other to help defray the cost of the mortgage payment. And then over time, I mean, that son probably is going to want to move up, maybe gets married and wants to have kids, and then there's going to come a point in time in the future where he's going to want to move. Well, here you go. You've already got the seed, the first of your investment property portfolio that you may build on. So sun moves out, you rent out the other unit, it's fully rented out. And then the son, of course, goes on to buy another property, maybe start a family and so forth. So from that perspective, I would give the edge to go the duplex route because, you know, one thing's about building an ADU that's still going to be a property, part of the existing lot for the parents home. That's not something that you could easily like sell separately from the main property, at least not without doing some lot division, you know, lot line adjustments and so forth and so on. So from that perspective, long term, investment wise, I think the duplex is probably a better choice.

Somehow I can hear the mom saying, thank goodness, because I'm tired of doing his laundry. Here's one that, you know, we see a lot of people, young people getting married and they, they say, hey, my wife and I expecting a baby in March. Our credit is good, we make good money. Currently live in an apartment and saving 20% for a down payment is tough. Do I have other options, Art?

Well, yeah, you certainly do. And of course we've talked about this very many times over the years on this show and it continues. I see it from time to time in headlines, in the financial news and so forth. There continues to be this belief, this, this magical, gotta have 20% down notion about buying a house. It simply is not true. And it's not been true for a very long period of time. So if there's anything I can try to accomplish today is again, to reiterate for those of you who are first time homebuyers, or if you know someone who's a firm, maybe it's one of your kids or something, and they're moaning and groaning about, you know, it's gonna take me 15 years to save up the 20% down payment. Or you see the articles that say, written by these financial people who argue that, yeah, things are getting worse, it's now 13 years to save up a 20% down payment. Well, let's stop all that nonsense and let's start with what's actually possible. And that is you don't need 20% down. If you're a first time home buyer, which is loosely defined as you simply haven't owned a home in the last three years, you can get a Fannie Mae Freddie Mac loan with 3% down, FHA, 3.5% down. And by the way, FHA, you do not have to be a first time home buyer. A lot of folks think FHA is a first time homebuyer program. It is not. It never has been. Anyone can get an FHA loan. We like to say Warren Buffett can get an FHA loan on his little house in Nebraska. You don't have to be a first time homeowner or homebuyer. You know, if you're in a more rural area, there is the USDA program, what we call rural housing, where based on a particular census tract where the property is located. Maybe you want to be out more in the, in the rural parts of the world, there's financing available with no down payment at all. And of course, if you're a veteran, that's obvious, veteran with full entitlement, you have the zero down payment as well. So I think the biggest thing I could urge this family to think about is stop worrying about getting to that 20% down payment threshold. Reach out, talk to somebody like us, like me, be happy to go over where you're at now in terms of what, how much money you do have saved. We can look at what other options there are to get more money for down payment. If you would like to do that. We can look at first time homebuyer programs, which by the way, most first time homebuyer Programs are not ones where you're going to get a better rate because you're a first time home buyer. Most all of them are more about getting access to down payment funds, down payment assistance, and in fact when you need that, there's a bit of a trade off. You're actually going to probably get a higher rate on your mortgage because you're getting down payment assistance and it can be higher or I'm sorry, more difficult to qualify for based on both credit score and debt to income ratio. So the first time homebuyer down payment assistance programs, while available and can help a lot of families, they do come with some trade offs. And so what I try to do is show folks all of those programs but also focus on if you do have some money, if you do have at least three or three and a half or 5% down, maybe you can get access to a little bit more maybe through a gift from a relative or another popular option is if you have a 401k account, borrow against that, get a loan against your 401k. We can help you find ways to buy that home with a lot less than 20% down. And of course as part of that process I'll also determine if you have sufficient monthly income to handle the loan amount, the higher loan amount, and that higher payment that is going to result from putting less down. But I got to tell you, and I've seen this many, many times, I am often surprised at when I encounter a new prospective home buyer that wants to get qualified. They're actually in many cases income is not their problem. They have good income. There's a lot of folks making pretty good money out there and I'm talking including younger folks, despite what the media would have you think. And so when I encounter that I'm oftentimes able to show somebody that you know what, you don't need that 20 down, get it out of your head. Let's, let's look at 3%, three and a half, 5%, maybe 10. And let me show you how we can make that work for you in a very affordable and comfortable way. So again, don't get that 20 number stuck in your head and you're just, you know, with tunnel vision. Focus on that and nothing else. Reach out, talk to somebody like us. We'll happy to be happy to show you there is a better way and you can accomplish homeownership without that silly 20% notion that is still kind of baked into everybody's head.

It almost feels like art when, when we're talking about this it's almost like, you know, you talk about the rates being one thing, and then you look at the news and they're way higher. And is it. Is it kind of that mindset? Is there just, hey, 20% is kind of the only way you can buy a house. And so that's the thing that sets in. And 8% or 7% interest rate is the way it is when it's not even that high?

Well, yeah, that's. That's it. It's like, you know, again, we talk about it all the time, but beware of the headlines. I. You know, one of the most frustrating things is this 20% down notion. In fact, you know, if. If you look at the mortgage industry in the U.S. historically, the whole reason the FHA program was created in the 30s was to help get people away from thinking you needed 20% down. Of course, back then, it was even more like 50% down. So the whole point of the FHA product, the whole, whole point of the program was to make people aware you don't need that much money to buy a home. And so even though that program has been around for, gosh, what are we talking about, 90 years now, there's still so many folks out there, just the general public, those who write material for the business pages and the business news channels and all that. This 20% is just still latched on to everybody's psyche. And it's just like, it's very hard to get it out of everybody's head because it's just. It's become a standard that is a little bit worn out and not realistic anymore in this day and age. And one of my missions is to try to convince everybody that, you know, you don't need to worry about that and you can still buy a house.

Well, we've had, We've had one additional question come in if you have time.

Sure.

Okay. It says we want to sell our house and move out of the area. However, it appears properties are moving a little slower. Any ideas on how we can market our home to stand out and get it sold?

Oh, yeah, for sure. What comes to mind is what I also harp on a lot quite a bit. Do what builders do. If you want to sell your house, if you want to move out of the area, which, of course, in California, that could mean moving out of state, but if that's what you're looking at and you're worried about, yeah, there's more inventory of homes for sale, you're going to get kind of lost in the crowd in terms of making your Home stand out, your listing stand out. I would urge you talk to your agent, talk to your listing agent, and then you and your listing agent talk to somebody like us. Give me a call. What I would do is I will help you come up with some ways to market your home using financing to attract more buyers. When you list your home, you're going to talk to a listing agent, you're going to come up with some price, some list price that the agent's going to recommend. Now you as a seller have got to decide if you're going to agree with that recommendation and, and listed that number or listed a different number. A lot of listing agents will say, well, I'm trying to convince them to list for this, but they want me to list for this +10. And regardless of where you come out on that, you also want to have a frank discussion about, well, once we pick a list price, we need to understand right from the get go, what are we going to do if 30 days, 45 days go by and we don't get an offer? Then you've got to start thinking about making an adjustment to your listing, either in price or some other way. Well, I would argue think strategically about all of that at the front end and then consider this, because this is what builders do. You know, they're going to do their budgeting, figure out based on their cost to build a home, what they should sell it for. But oftentimes, in fact, most of the time, they're going to come up with that number and they're going to tweak that number further. Why? Because they're almost always going to provide some sort of incentive package to that buyer. And what do they often do? They account for the cost of that into the price. So if you, if you're looking at a price your home and you're going to sell it for 750, you decide that's the number. I would suggest, you know what, do something more creative. Listed for not 750, listed for 789. And then put in, you know, have your listing agent put in the public remarks that you'll provide an incentive for a rate, buy down or closing costs with a full price offer. Again, that's what builders do that, do that all the time. We're handling homes for loans for a particular home builder right now where they're offering standard $30,000 with every unit being sold. So we take that money and we show the buyer how they can use that for a permanent rate down rate buy down plus closing cost or a temporary 2, 1 buy down or 3, 2, 1 in some cases, plus closing costs. So we can show the buyer how they can benefit directly in terms of lower rate, lower payments, lower cash to close by using those incentive dollars from the seller. So if you're a seller, think in those terms. Adjust your list price to allow some room for you to offer those kind of incentives at the front end when you first activate the listing. I would suggest you suggest to you, if you do that, you're going to have, I think, a little bit better success in making your listing stand out and more likely going to attract some buyers that you otherwise would not attract.

I think that's great because again, in the area where they mentioned they are at, it's like everybody seems to be at the same time price. And now as you said, after 30 days, all of a sudden, what do we see? Well, we see rates or prices drop, which then gets them all keyed up like, wow, geez, I'm gonna have to give my home away. But it sounds like what you're talking about makes so much more sense. And again, it's, it's not uncommon. As you say, the, the new home sellers use this all the time and, and are very successful with it.

Yep, very much so.

Yeah. Well, Art, thank you so much for, for jumping in and doing this. This was a lot of fun. I hope everyone enjoyed this. This was the Ask Me Anything program with Art. And so if you have any questions, please send them in, put them in the comments and we'll continue this offline. But Art, thank you so much. I'll give it back to you.

All right. Thanks, Jeff. Well, thank you everyone for watching and listening to this week's Mortgage Minute. My name is Art Alvarez with Mortgage Works, where we have the answers and they're on the house. Have a great weekend. It's going to be kind of a toasty week this week, both here in the the Coachella Valley area and I think in greater part of Southern California. Don't forget start of the college football bowl season this Saturday, the Celebration Bowl. But of course, also there's that Army Navy game. So in the meantime, have a great weekend and then we'll see you next week on the next edition of the Mortgage Minute. So long. Take care.