YFP REI 111: Big Changes in House Hacking Investing

Loan officer Jack Bowers (NMLS# 1957264) joins the show to talk about the evolving lending landscape and changes in house hacking investing.

Episode Summary

As we near the end of 2023 and anticipate 2024, the lending landscape is undergoing significant changes. Conventional mortgage underwriting guidelines are evolving, impacting down payments and cash-out refinance considerations, especially for owner-occupants in small multifamily houses. Today, we’re joined by Jack Bowers (NMLS# 1957264), a loan officer from Union Home Mortgage, who provides some key insights into these changes. In our conversation, we explore historical interest rates in relation to where they are now, house hacking, and corresponding lending options, along with nuances in different loan programs. Jack also outlines Ohio-specific programs for first-time homebuyers and walks us through a practical example. He advises on buying fixer-uppers and the shifting cash-out refinance strategy, and shares valuable advice for those considering the real estate investment journey!

About Today’s Guest

Jack Bowers is a Loan Officer with Union Home Mortgage who has been in the mortgage industry for over 3 years and has helped hundreds of families directly & through his work on a top-producing team. Jack grew up in Northeast Ohio and earned his Bachelor of Science (Major in Fashion Merchandising, Minor in Marketing) from and played rugby for Kent State University.

Key Points from the Episode

• House hacking, what it is, and why we wish we would have done it,
• A quick recap on the FHA mortgage. 
• A look at Jack’s professional background. 
• An update on where things are and how the market is being affected
• Historical interest rates (and where we are at now).
• Jack’s overview of house hacking and the corresponding lending options.
• A few nuances and caveats of different loan programs.
• Programs available to first-time home buyers: Ohio Heroes and the Grant for Grads.
• Different income restrictions and home purchase price restrictions.
• A practical example: what a buyer needs to bring to the table. 
• Buying a fixer-upper: the appraisal, down payment assistants, and mortgage options.
• How the cash-out refinance strategy is shifting in 2023.
• A quick note on the renovation loan that will also be changing. 
• Jack’s tangible strategy for working on your business without getting stuck in your business: it’s all based on relationships!
• How mentorships have made the biggest difference in Jack’s career.
• His advice for someone contemplating a start in real estate investing.

Episode Highlights

“There’s a little bit of information overload on the internet and not all of it is good information. I like to tell people there are definitely ways that, as you progress in your real estate journey or home ownership journey, you can use a lot of useful tools.” — Jack Bowers [0:11:00]

“I think any lender would agree that one transaction isn’t worth their entire license or your legal safety.” — Jack Bowers [0:16:32]

“[As healthcare professionals] there are just so many resources and so many things that really solidify your ability to qualify that will allow you to get into real estate a lot faster than a lot of other people.” — Jack Bowers [0:43:20]

“My biggest focus — is relationships. That’s what I’m investing the majority of my time on. What I’ve found is that it’s not only fundamental to my business, but also it’s nice to be around people, have conversations with people, get coffee with people, or have phone calls [with] people. That helps with the morale of everything versus just making those conversations the backseat and focusing only on the technical aspects of my job.” — Jack Bowers [0:40:01]

Links Mentioned in Today’s Episode

• Jack Bowers on LinkedIn
• Jack Bowers Email
• Jack Bowers Phone — (330) 848-7203
• Union Home Mortgage
• Ohio Housing Finance Agency
• Ohio Heroes
• Grants for Grads Program
• Apply for Grants for Grads
• YFP REI 95: Investing Ideas: House Hacking, 401k Real Estate, and Glamping
• YFP REI 85: Pharmacist House Hacking in a HCOL State
• YFP REI 30: Short-Term Rental House Hacking
• YFP REI 10: Getting Started Through House Hacking
• Your Financial Pharmacist
• YFP Real Estate Investing Facebook Group

Episode Transcript

[INTRODUCTION]

[0:00:05] NH: Welcome to the YFP Real Estate Investing podcast. I’m Nate Hedrick. 

[0:00:09] DB: I’m David Bright. We’re both pharmacists and real estate investors that believe that real estate investing does not have to distract from a meaningful career in pharmacy. 

[0:00:17] NH: Each episode we share stories that educate and inspire pharmacists to leverage real estate investing as a part of your financial plan. 

[INTERVIEW]

[0:05:16] NH: Hey, Jack. Welcome to the show. 

[0:05:16] JB: Thank you. I’m happy to be on. 

[0:05:17] NH: Yeah, I know you and I got a chance to talk in person a couple of weeks back. There’s been some changes going on in the lending space and we’re always eager to talk to a savvy lender like yourself. Appreciate you joining us. For those that don’t know your background, maybe just jump right in, give us a little bit of story on yourself. 

[0:05:34] JB: Absolutely. Yeah. I’m with Union Home Mortgage. We’re based out of Strongsville near Cleveland, Ohio here. We’re a fairly large lender, especially for our market position. I’ve loved being here. I have been a loan officer for just under four years. I’ve seen one of the best ever markets. I’ve seen a little slice of a normal market. Then I’ve seen this current market, which is a little more challenging, but still got a lot of solutions. Yeah. I love what I do. I’m really passionate about it. I spend a lot of time developing what I do and talking with other professionals, seeing how we can just assist both first-time home buyers, real estate investors, and everybody else. 

[0:06:13] DB: I love it. I think you hit on something that is on everybody’s mind right now. It’s fall 2023. Interest rates are hovering real close to 8% right now. It just feels wild for anyone that’s been through the rate drops of the pandemic, right, like things were like a quarter of that for a minute. Now, it’s wild. Can you give us just an update on where things are at and what that’s doing to the market in general? 

[0:06:39] JB: Yeah, absolutely. Like you said, what we’re seeing right now is just really between the 7 and 8% mark. I’ve seen people who right from the get-go are able to be in the mid-7s or high-mid-7s, maybe 7 and 3 quarters. Then I’ve seen people that are a lot of the first-time home buyer programs and things are around 8 or just above 8. Then sometimes people will choose to buy down a rate. I’ve seen people closer to 7, if they choose to do that. 

Yeah. I know the Fed’s hope is to cool down the action on the market so that there can be a little bit more inventory opened up. I think that functionally that might be happening a little bit, but there’s still a huge amount of demand. Really, it can be frustrating for some borrowers to encounter a little bit higher interest rates and not qualify for quite as much as they were used to a year or two ago. Again, that’s part of what we’re hoping to find solutions for today, I think, and talk about a little bit more. 

[0:07:41] DB: Yeah. I think that’s really important if you are looking to buy a house personally. If you’re flipping houses to know where a lot of retail buyer sentiment is, and where these rates are shaking out. But I think one thing that caught me off guard when I was a new investor is that, the rates you’re talking about aren’t necessarily investor rates, like folks that buy rental properties, particularly two or more-unit properties, may pay a little higher than that. Is that right? 

[0:08:04] JB: Yeah. That’s absolutely true. That’s going to depend also on what your initial intention is. Like I said, if you’re looking at a two-unit, three-unit, four-unit, and you’re going to use one of those units as your primary residence, you’re still going to probably be in that high seven to low eight area there since it’s a primary still. If you talk about buying purely an investment property, especially if you’re talking about multi-units. You’re going to be more into the eight. You’re going to see a little bit higher interest rates, but also a little bit higher closing costs typically in the form of it’ll be a requirement that you pay some basis points, typically. 

[0:08:41] NH: These rates we’re talking about, I know it’s hard to quote a number, right, because it’s going to change if somebody listens to this in six months. But historically, like where do these fall just for the audience’s sake? Where do these fall in history? Because I think it’s easy for us to look back eight months, 12 months from right now and say, “Man, we’re double what we were just this time last year.” But historically, like where are we at? 

[0:09:03] JB: Yeah. What I would say is, as far as interest rates are concerned, the past couple of years, what we saw with – or I should say past few years, it’s really been probably a year, a year and a half now that we’ve been escalating beyond it, but when you’re talking about rates in the twos, rates in the threes, that’s much more of a deviation from historical interest rates than these are. I would say, there’s some numbers out there. People say, highest interest rates in however many years, I think I saw maybe 30 years or so.

Some of the highest that I’ve seen in my lifetime, but mortgages have been around for a lot longer than that. When we’re talking about six, 7% or a little bit higher, that’s more of, actually, average or market equilibrium. Then obviously, going back to 40, 50 years ago, people saw as high as approaching 20%. Obviously, there’s a little bit of a difference with average home purchase prices and the way that factors in and things like that, but as far as interest rates concerned, this is much more historically average than what we had seen in the past few years. 

[0:10:08] NH: I think that’s a good perspective to have. You hit on something that I think is the big difference between now and maybe back 20, 30, 40 years ago. That is that the home prices, right, the purchase, the average purchase price is way elevated from where it was. What we’re seeing is that people are trying to find ways to get creative, right, whether you’re a first-time homebuyer or you’re just looking to purchase a home to live in, whether you’re trying to break into real estate investing. I think a lot of people are trying to use creative lending or just options within lending to get more creative. 

One of the ways that we’ve seen people do that that I want to talk about for a minute is house hacking, right? We talked about house hacking back on season one. We covered it extensively on episodes 85, 30, and episode way back in episode 10, but maybe just for our audience, maybe give them a super quick overview of house hacking and how the lending might work with that. 

[0:10:58] JB: Yeah, absolutely. I think there’s a little bit of information overload on the internet and not all of it is good information. I like to tell people there are definitely ways that as you progress in your real estate journey or home ownership journey, you can use a lot of useful tools. But of course, as a mortgage lender, I have to give my caveats and talk about guidelines too, as far as that’s concerned. 

I know we’ll get in that a little bit later, but typically, what people will do is there are a lot of great programs out there either for first-time homebuyers or to help people whose credit isn’t developed as developed or things like that to still purchase a home, such as FHA loans or different products that might apply to different people like USDA loans, VA loans and some of these different programs. 

When you buy your first house, you might have to put as little as three to three and a half percent down, even on a conventional FHA loan and or for some homebuyer product, and then again, getting into more specific programs. 0% down payment required on VA and USDA. Once you do that, that’s going to be a primary residence that you’re going to have to purchase, and that’ll have to be your intent for the time being for sure. That doesn’t mean it has to be a single unit though. I mean, you can buy a two-unit, three-unit, four-unit, and rent out those other units and start with investments right away, but as far as purchasing a single-family home, something like that, it would have to be your primary residence. 

Now, once you decide to upgrade or maybe you move away for a different job or something else like that, you can still retain that loan on that house and then you can utilize some tools to again, put a minimum down payment on the next one. Now, you don’t have too much capital invested in either property and you can get passive rental and come out of that first one. That’s what I think you’re referring to there. Yeah, there are a lot of options as far as getting that first house to begin that process. 

[0:13:02] NH: Yeah. You mentioned that idea of buying that primary residence and then renting out by the other units, even if it is a multi-unit, like that’s where that magic can happen with house hacking, right? It’s not just taking on a roommate. It’s actually getting multiple units under that same loan. So, all of a sudden, you’re a first-time home buyer and an investor all in one go, like you said, there are a lot of options that make that a little bit easier. 

[0:13:23] JB: Definitely. Yeah, absolutely. That’s the thing is I would say that’s probably the smartest way to get right into it, is buying a multi-unit. That way, you’re able to take advantage of that investment strategy right from the very beginning and perfectly fine within program guidelines and all those things. Yeah, I would say, that’s the best way to get started on it. 

[0:13:44] DB: One other thing you mentioned in there because Nate and I have talked over the years and said like we both totally should have done the buying a multifamily living in it. I just wasn’t thinking of that at the time. I don’t know that I was brave enough at the time to be a landlord right out of the gates. So, what my wife and I chose to do is buy a property, live in it for a while, then move out and keep it as a rental. 

I’m also a big advocate of that model to get a property. But there’s a lot of questions that come in there. Things like, how long do you have to live there before you’re allowed to move out? I often get the question of, do you have to refinance or can you keep that loan? If you keep that loan, is it some deep dark secret that I can’t tell my lender or they might, you know, or is it something that’s like, it’s fine to do and to move out as long as you’ve lived there for x amount of time? 

[0:14:30] JB: Yeah. I mean that’s going to vary by program. Really, what you’re looking at, FHA specifically has a rule that you have to be your primary residence for a year. Now there’s a couple of caveats. If you end up moving 100 miles away or moving for a job or whatever the case, obviously they’re not going to say you have to stay in this house and commute 300 miles. There’s definitely some, like nuance and caveat to that. Those are things that I would definitely talk to mortgage professional about. Yeah, if you are in FHA, there is a one-year requirement that your intention is to live in the home and then before you can make that home specifically a rental if you’re moving within the same area. 

The other programs, it’s not quite as specifically defined. Again, typically that just comes down to intent for the mortgage. They may, if you buy it and right away, two months later buy another property. You might run into some issues there. But if your intention is to make that your primary residence and then through life circumstances or after being there for a year or whatever the case, you decide that you want to live in another home and you want to rent that one out. That’s perfectly okay and you can retain that loan. 

The one thing I will mention is there is a rule with FHA loans, like I said, having to do with proximity. So, when you go to out and buy that second property, if you have that FHA loan on that first and you’re moving within the same area, you may have to look at that point getting a conventional loan or another loan product, but it’s really about your intention and being there for about a year unless you have a really good reason to move or you’re moving away somewhere. 

[0:16:08] NH: Great. It sounds like the moral of the story there is either way, talk to your lender, so you can make sure you’re on the up and up and not – is that like what you said, David, it’s not a deep dark secret. You’re not trying to hide this from – 

[0:16:18] DB: Yeah.

[0:16:20] JB: Any lender will tell you they’ll be honest about guidelines and things and how to be — find the most flexible solutions that are still within guidelines, not committing fraud or anything like that. I think any lender would agree that it’s not one transaction isn’t worth their entire license or your legal safety. They’ll be honest and upfront with you and tell you that. Then hopefully, they’ll tell you all the solutions that are available within the nuance to all of that. 

[0:16:48] NH: That’s something that I want to dive a little deeper on, because you and I had the opportunity a couple of weeks back to get some coffee and talk about some of those unique products, and some of those unique special solutions that are out there. Now, obviously, some of the things we’re going to talk about are going to be Ohio-specific, right? These are, we’re both Ohioans, we’re both local to Cleveland, but there are other programs out there in other states. 

This is just a taste of what is available to give people some ideas, because if I were a first-time home buyer right now or thinking about house hacking for the first time. I’d want to know what other options are available besides just a typical conventional loan. Maybe we can dive through a couple of those programs and just talk about some of those examples and give people an idea of what else might be out there. Maybe start with a general first-time home buyer program and something that might be available for them. 

[0:17:33] JB: Yeah, absolutely. The one in Ohio, it’s called OHFA. There are also a lot of local grant programs that you can possibly apply for. I won’t get into all of those, because there are tons of them, but if you do some searching online, you can find those. But as far as OHFA, it’s a program that the State of Ohio does through the Ohio Housing Finance Agency, and that’s the one that I write the most frequently for first-time home buyers.

There are some requirements, and some guidelines that are a little bit different from other loan types, but essentially what it is would be that you’re able to put a minimum amount down. FHA, three and a half. Then obviously, conventional, actually 3%, if you’re a first-time home buyer. Then you can choose based on there’s different options that correlate with different interest rates. If you want a 2.5% down payment assistance grant or 3%, or sorry, 5% grant. Then with the 2.5% grant, you can actually get a mortgage tax credit as well. 

Those break down differently for each program as far as when the grant needs to be paid back and things like that, but essentially that grant covers your full down payment and some of your closing costs. With that being the case, your initial investment can be very minimal as well as when you pair that with, if you’re able to get seller credits, where the seller pays for some of your closing costs as well, if your real estate agents, were able to negotiate some of that. You can really close with an extremely minimal amount if anything at all. I’ve had clients close where they haven’t had to bring any cash to the table. 

[0:19:10] NH: I mean, yeah, just to like, really make sure we highlight that. You’re saying, first-time home buyer, there’s options out there that you’re basically getting a grant for the – it’s essentially a loan, right? For lack of a better word, a separate loan for that down payment, and you’re getting it in the form of assistance, right? 

[0:19:26] JB: Yeah, absolutely. But what’s really nice about it is it is a second loan that’s going to be attached to your home, because you have the primary mortgage, which is a regular one, you think of that 3% down in conventional terms. Then you have this secondary loan, that’s a 5% grant, for example. What’s nice about it is that’s not going to be for the entire lifetime of your primary loan, like a 30-year stint. After seven years of owning that home, that grant, and that second loan is actually forgiven. 

[0:19:54] NH: Oh, wow.

[0:19:55] JB: That’s forgivable. If you’re in the home for seven years, and then we’ll talk a little more specifically, but actually, another program Grants for Grads, if you’re in the home for five years, that grant, that second loan is actually forgiven. I should also mention that you don’t have to make any payments during that time, either on that second loan. You’re only making payments on that first, that primary loan, and then if you’re there for seven years in the standard program, then it’s forgiven as well. It is technically a loan, but like I said, being a grant that is forgivable, and that you don’t make payments on it’s different in that regard. 

[0:20:32] NH: Yeah. I just think that’s incredible. Again, I don’t know if those existed when I bought my first house, but I wish I knew about it, right, like that sounds awesome. Then, you can take it a step further, right? Again, I know these are Ohio specific, but you’ve got the Ohio Heroes program, and then Grant for Grads, which takes that even one step further, right? 

[0:20:48] JB: Yeah, absolutely. Ohio Heroes, obviously, there are a lot of people out there that they want to give even more benefit to people that are working in their communities and doing different things. So, you get a little bit of an interest rate break on the Ohio Heroes program. The other requirements of that income credit all those things are the same. Then the seven-year grant forgiveness, but what’s nice is, with the interest rate break, there’s a ton of different professions that can qualify. 

Unfortunately, no pharmacists yet. Hopefully. Yeah, we should all petition for them to include it, because I think that’s definitely another very worthy medical profession that works alongside some of these other people, but it does apply to veterans and active duty, reserve members police officers, firefighters, EMTs, paramedics, physicians, nurse practitioners, nurses, nursing assistants, teachers, school counselors, school administrators. A pretty wide range and just for having that profession, everything else about the loan is fairly similar, but you’ll get an interest rate break. 

[0:21:56] NH: Man, we got to get pharmacists on that list. That’s like crazy. Yeah. 

[0:22:00] JB: Well, there is another program that goes along with that, that actually pharmacists can benefit from alongside the standard one, if they’re coming right out of school. The Grant for Grads Program is for somebody who has received an associate’s, bachelor’s, master’s or doctorate degree within 48 months of that loan application, that OHFA reservation. What’s nice is you not only get an interest rate break, like I detailed before, but as well as the grant that’s on there is actually, only a five-year period. Instead of being all or nothing, it’s like seven years and it’s forgiven. 

You actually are forgiven on that grant at a rate of 20% each of those five years. If you end up selling the house three years in and you stay within the state of Ohio, typically you only have to pay 40% back of that grant instead of the whole thing. Whereas with the other program, if you’re not there for seven years, you’d have to pay back the whole second loan. 

[0:23:00] NH: Yeah. It’s huge.

[0:23:01] JB: That can be a big benefit. 

[0:23:03] DB: Yeah. I think this highlights a lot of things to me like you need to be working with a knowledgeable loan professional, a mortgage professional that has a lot of these details and understands a lot of these programs. These are also pretty hyper-local like you’re talking about Ohio programs here. I know where I’m at in Michigan, there are other programs. I know even locally, there are some like county-based down payment assistance things where I’m at that are income-driven. 

Yeah, a lot of different variations there. Some of these things too, are there income restrictions or are there other grants for folks at different income levels? I’m thinking that could be useful either for pharmacists that are looking to buy a house while they’re still in school maybe and don’t have a great income, but I know folks that will do that through college to help offset their college living expenses or if you are a house flip and flipping at a lower exit price point that’s more to that first-time homebuyer market, that could also be really helpful to know about. 

[0:23:59] JB: Yeah, absolutely. There are income restrictions and home purchase price restrictions. I will say, especially for a lot of first-time homebuyers who maybe are just getting into real estate and not necessarily at the peak of their careers yet or the top of their income bracket yet. I don’t find them to be incredibly restrictive based on just averages. Nate and I have talked about that a little bit as far as income averages. Then, of course, like you said, if somebody’s in school or a medical professional, like a resident or something like that, typically they’ll still fall under those income restrictions and they’ll have just received a degree within the last 48 months too. 

It can be, there are restrictions, but for the OHFA program, I think they’re fairly generous and those can be found online. They actually vary by county, so that’s why it’s hard to say exactly what they are, but the other piece of information there is some of the grants that you’re talking about that are more local to like a city or a county, where maybe they want to especially, in urban areas where they may want to have people living and investing. Sometimes you’re also able to find different mortgage grants and programs within those neighborhoods that don’t have as many restrictions on them. 

Then, something that cities do as well or different areas do are tax abatements as well, which can, again, not necessarily minimize your initial investment. I mean, they do a little bit, because your prepaid and your escrow account is going to be less and your closing costs initially, but then also your monthly payment is going to be less, so you can actually qualify for loan house as well, if you’re in an area where they have a tax abatement. There’s all kinds of different tools and things like that in a local lender who’s in your area should really know about a lot of that and be able to help you pinpoint those items. 

[0:25:47] NH: I love it. I think it’s just like David said, it shows that having a good lender that actually knows these programs inside and out and can start directing you toward them, like that’s make or break. Again, I’m glad that we’re talking about this stuff. Maybe for the bring it full circle before we move on, maybe like let’s just do a quick example just to put some numbers in front of this. Let’s say I’ve got a $300,000 duplex, right? I’m looking at it at a rent set 1500 per side, which is right at the 1% rule, right? 3000 in rent per month on a $300,000 purchase. Let’s ignore the fundamentals, the deal for just a second, but like, what would a buyer if I’m a recent grad, I’m a resident right now, I’m thinking about house hacking that place, what would a person like that need to bring to the table to purchase a property like that? 

[0:26:33] JB: Yeah. It’s a great question. Essentially, like we talked about earlier with the grant program, I mean, 300,000 in most counties would be well under the purchase price restriction for this program based on what I’ve seen. In that case, if you can qualify for the housing finance agency program you have that 3% down payment, 5% grant. Then you’re going to have some closing costs, obviously, associated with title work and appraisal and escrow accounting being established. Then whatever fees that the lender has for an underwriting fee or whatever. 

Typically, after all of that is settled it’s hard to say exactly, but the ballpark of typically what I see for an investment there is typically around three to six thousand that you’ll have to bring to the closing table. Pretty minimal, and that’s, again, going to depend on loan amount and things like that. But if you say, let’s say you have six or seven thousand, you need to bring to the closing table. If you have let’s say in this example, a conventional loan, again, if you’re a real estate agent and you are able to negotiate on the contract or even if you’re working alone and you’re able to negotiate on the contract, seller credit, on a conventional loan, you can get up to 3%. So, on a 300,000-dollar house, that’d be 9,000. 

I mean, hypothetically speaking, you could negotiate to have all of your closing costs covered, and then have that grant money cover your down payment. Then essentially from there, you could be bringing little to nothing to the closing table, potentially. Again, I’ve seen deals that the purchase prices upwards of 200,000, and they’re bringing maybe 500,000 or, in one case, even zero dollars to the closing table when they structure it, right? 

[0:28:17] DB: Wow. 

[0:28:17] NH: I mean, if we take that a step further, right, and look at, let’s say it’s, again, just for easy numbers. If it’s a $300,000 loan at seven and a half percent interest. My mortgage calculator over here showing me that’s about a 2,000, maybe $2,100 monthly payment. In this example, right, you’re basically living for 500 bucks a month while that mortgage is being paid by somebody else. That’s crazy. With that little down to be able to do that, that’s pretty awesome. 

[0:28:40] JB: Yeah, absolutely. I ran those numbers too beforehand when you give me that example. I came up with current rates, yeah, around, like you said, 21, 2,200. The one thing to remember, of course, and, again, your mortgage professional will go over this with you. There are some other costs just to consider, as far as the homeowners insurance, the property taxes, and then PMI, if you’re putting a minimum down, but even after calculating for all those, I think it’s safe to say if you’re at 21, 2,200 mortgage payment, if you’re somewhere in like Ohio, we have pretty high property taxes. 

Let’s say you’re all in at 2,500 to three grand with your entire payment, you’re still living in that one side of the two-unit for 1,000 to 1,500 bucks, which is at least around me cheaper than any rent. Definitely, for that type of house, you’ll be able to buy, that’s an extremely good deal. 

[0:29:39] NH: Yeah. We can’t rent for that around here. Then again, like we’ve talked about. You’re paying down the balance of that house, right? You’re creating equity, and you’ve got the potential to refinance if rates ever do come down, right? You’re not locked into that forever. Yeah, that’s awesome. That example helps. Thank you. 

[0:29:56] JB: Yeah, absolutely. Yeah. That refinance is huge too. If interest rates ever do go down, I mean, like you said. You could get in a place depending on where your balance is, where you’re living almost for free. 

[0:30:07] NH: Right. 

[0:30:07] JB: Interest rates go down quite a bit, and you’ve paid down the balance, and that person is paying down a large majority of your actual mortgage payment to gain that equity in that house, and you’re just gaining an asset there. Then hopefully, it’s appreciating as well on the other end. Yeah, I mean, just huge investment opportunity there. 

[0:30:25] DB: Yeah. I think that could be a really cool strategy, especially as student loans kicking in and all those kinds of things, hitting everybody’s budget from every angle, seeing the effects of inflation. I think that finding ways to drive down your personal housing costs can be huge. Another way that we often talk about on the podcast about driving those costs down is we often refer to as the BRRRR method, where you’re buying a house, you’re renovating it, you’re renting it out, refinancing it, and then repeat it if you want to. But in this way, buying that fixer-upper and renovating it, hopefully, you’re getting it even cheaper as a way to house hack. 

That can also potentially, reduce the net out of pocket when you do that refinance at the final step. But one of the things that’s changed is some of the rules regarding the refinance process. Before we get there, though, I often hear people say like, “I could never buy a $300,000 duplex in cash, like that would never work.” But even with a product like this, like you’re talking about some of these down payment assistants and some of the mortgage options you’re talking about, you can buy a fixer-upper as long as it’s not like completely trashed, right? 

[0:31:35] JB: Yeah, absolutely. Especially with a conventional loan. There’s again, some of the loan programs like VA, FHA, they’re going to have a little bit stricter appraisal, but again, I mean, if it’s just not updated or in solid condition, but just needs to be fully updated or made nicer or fresh coats of paint, things like that. Those aren’t going to be huge issues when it comes to appraisal. It’s really going to be that functional stuff or peeling paint or holes in the siding or whatever. I mean, if you can find something, again, that needs updated, things like that, you should have no problem with almost any loan type, but a conventional specifically will be a little less strict on the appraisal than FHA. 

[0:32:16] DB: Yeah. One of the things we were talking about, right, before we hit record is that we oftentimes hear about conventional and FHA, but as you’ve already shown, there’s way more than the option, than those options out there, like the homestyle renovation as an example of a way that you can finance into that purchase, some of those renovations. If you buy that house that hasn’t been updated since the era of disco, you can get new kitchen cabinets and new flooring and new paint and all those things to make it a much more attractive house that has a higher value at the end of the day. 

[0:32:47] JB: Absolutely. Yeah, that’s what’s really exciting. There are so many different renovation loan programs, cash-out refinance programs, and different things that you can do beyond just purchasing a home that’s ready to go. 

[0:33:02] DB: Yeah. On the topic of cash-out refinance too, that’s one of the things that you were saying, right before you record, that’s going to be a big shift right here at the end of 2023, because historically, when folks would buy a duplex as an example and then do a renovation and want to refinance at the end, there’s a limit to how much you can do in a cash-out refinance that it historically was sometimes in that 85% or 75% threshold depending on how many units are in that property for how much cash you’re able to pull out in a refinance, but that’s another variable that’s shifting here in 2023. Is that right? 

[0:33:38] JB: Oh, absolutely. That’s one of the most beautiful things, the good news that we can share with people today who maybe earlier are listening to Ohio Housing Finance Agency or some of those local grant programs and saying, “Well I’m not a first-time homeowner and or maybe my income’s too high for income requirements.” Whatever the case may be, if you’re not able to look into those programs. 

Now, starting November 18th, Fannie Mae announced that they’re going to drop their LTV or loan-to-value requirements across the board for those one to four-unit properties down to 95%. If you are just looking at a regular conventional loan, you want to purchase a house at the two, three, or four-unit property where you used to have to put 15 to 25% down. Now, as long as you’re going to live in one of those units and it’s going to be your primary residence, you’ll need to put 5% down. Then similarly, let’s say you buy a house either in cash or as your primary residence and you had put more down prior to this and you’re finishing up your renovation and you want to get it reappraised and pull some cash out into refinance. You now are going to be able to use that to pull up to that 95% loan-to-value out of it. 

Well, I should say the difference between what you owe on it with your current mortgage and that 95% loan-to-value. Again, that typically would have been only up to 85% or 75% loan-to-value. That’s huge. That’s going to be another opportunity for people who are even beyond that first-time homeowner window or the income window to be able to still have the minimal amount invested with a really good mortgage product. 

[0:35:10] DB: Yeah. I think that’s huge. I want to emphasize that that’s for people that are choosing to live in the property, right? You are one of those two or three or four units is yours that you’re living in, but by doing that, by making that sacrifice to live in the property, you’re able to pull out so much of that investment. Particularly for folks that are choosing to live in the property in that kind of house hack angle, if you do a little bit of the work yourself, if you do some painting, if you do some flooring, if you do something like that, there’s generally, ways that you can keep your rehab costs down, drive the appraisal up really high, and get a lot of that money back so that you have just more money to put in the next investment or whatever else your strategy may be. 

[0:35:51] JB: Yeah, absolutely. The one thing I would say about that as well, that’s really good is that it doesn’t just apply to when you look at a renovation loan, which is another product through Fannie Mae that is now going to change to those loan-to-value guidelines as well, which is really helpful for people who, maybe purchased properties that need a lot of work and have contractors come in and do that. Then it needs to appraise that whatever loan to value of the original purchase price plus the renovations. 

Now, aside from just being able to do that, if you’re able to buy a property that passes appraisal from the very beginning, but there are ways for you to improve it a lot and get a lot more appraisal value later out of what you put into it, then you can still, on the other side, make that initial purchase, do that work yourself once you already own the property and then still get it reappraised and use that cash-out refinance strategy and not have to use a renovation loan, maybe where you have to use contractors and there’s a lot more time and effort involved. Again, that’s just going to depend on the condition of the property, but yeah, like you said, that’s huge, being able to do that on a cash-out refinance level. 

[0:37:01] NH: Yeah. It feels like now, this is the best time to house-hack, like I’m even more jealous than I was before, like starting of end of November, like it is house-hack city, like I can’t wait to – I honestly expect I’m going to have more buyers asking like, “Hey, I want to buy a multifamily, because I can do this this way.” 

[0:37:16] JB: I think what’s huge about what you’re saying is that we did talk about interest rates earlier, being a little bit higher, maybe than people are used to, but still fairly good historically. What’s cool is with these guidelines changing, let’s say you do get into that invest in property, that multi-unit for a more minimal amount down than you would have had to historically, that 95% LTV in the future if rates ever go down, you can refinance that. Since, let’s say you’re taking cash out now or you’re buying the property now, if you’re just doing a regular refinance later too, that’s always been at a place where you only need that like 5% down if you’re not taking cash out. 

Let’s say you do purchase the property now or you take cash out now and then you refinance later if interest rates go down. Then not only did you get to purchase that property and become invested for a much more minimal investment, but now your payment’s going to be a lot lower too, because you’re refinancing to a lower interest rate. That’s another potential future benefit that doesn’t require you to go all in with your capital that’s tied up in the actual property. 

[0:38:24] NH: Yeah. I love it. So many good options. Again, further reminder that having somebody who knows these programs inside and out is going to be key in moving forward. Jack, I really appreciate it. I want to move to our last three questions. This is our final infusion question, three things we ask every guest on the show. Just get your hot take on these. This is especially relevant to you, the first one, since you get the new little one at home, but what is one tangible strategy that you use to make sure you stay working on your business rather than getting stuck in your business? 

[0:38:55] JB: Yeah. That’s a great question. I’m glad you posed that to me beforehand. I had some time to think about it. I’m still in the thick of it.

[0:39:03] NH: I get it.

[0:39:04] JB: Yeah. Baby being three weeks old and stuff. I mean, it’s beautiful, but it’s a big transition being my first. One thing that’s really helpful, and this isn’t – I’ll get into my strategy in just a second here, but I will say I’m blessed in the fact that my wife is also a loan officer. She totally understands what the business requires. She has a lot of grace with me there. She has some time off to help take care of the baby here initially. But I would say that my business, just like a real estate agent or even a real estate investor working with having good contractors they’re able to work with or whoever. It’s really based on relationships. You’re not only my business connections, but also directly with clients. 

The biggest thing for me is that through the years of working, I’ve become really efficient at the technical side of what I do. I really try to grow my knowledge base, so that it’s right on the top of my brain, I can share that with clients in what programs are available and things. My biggest focus on what I’m keeping rolling versus don’t have to spend as much time is those relationships. That’s what I’m investing the majority of my time on. What I found is not only is that fundamental to my business, but also, it’s just nice to be around people to have conversations with people, to get coffee with people, or to have phone calls of people. That helps with the morale of everything versus just making those conversations, the backseat and focusing only on the technical aspects of my job. That’s been huge for me. 

[0:40:34] NH: I like that. 

[0:40:35] DB: Second question is, what’s one resource that has been most helpful to you in your journey, whether it’s a book, podcast, person, author, website, whatever that would be? 

[0:40:44] JB: Yeah, absolutely. I mean, I’m a pretty big reader. I love reading books. I’ve read various books on whether it’s real estate sales, things like that. I would actually say that what I’ve found through my life, and my career, again, going back to people is that, for me, mentorships have really made all the difference. Then the biggest influence on me. I would say, and he doesn’t know I’m going to shout him out, but actually, my current branch manager, Tim Bullock. He’s been in the mortgage business for a very long time. He’s not only a huge resource, as far as knowledge, but he has really invested in me a ton, as far as personal and professional development. 

We have a call once a week, specifically, but then obviously, [inaudible 0:41:28] through business functions. He’s still writing loans, as well as managing people. He does an incredible job. He’s actually, he’s the one who initially brought me in from a more consumer-direct mortgage role to a fully self-generated and relationship-based mortgage role. It’s been almost three years now that I’ve been with him at his branch at Union. He’s taught me so much about not only networking relationships, but also how to just be really creative with the mortgage process itself. That morale, that relationship is huge, but also the technical knowledge he’s given me has been just invaluable. 

[0:42:08] NH: That’s great. All right. Then the last question, what’s one piece of advice that you’d give to a pharmacist or healthcare professional contemplating a start in real estate investing? 

[0:42:18] JB: Yeah. One piece of advice that I would give is actually on the positive end. I think one of the really cool things is in the healthcare profession, you are really able to do two things that I think are really important in real estate. The first one being most healthcare professions are very people facing and you encounter a lot of different sorts of people. Again, when you’re talking about building business relationships and then also working with different renters or clients of yours that you may have. 

Then I would say the other thing that I think is a really huge benefit is when you talk about the way that medical professionals are really able to make solid income that gives them some stability, but also, typically they’re going to be W2. Then even from a standpoint of things like travel nurses. We have really seen a rise in information regarding how we’re able to qualify them. The mortgage industry is really responding to a lot of these medical professionals. Then like we talked about earlier, there’s the Ohio Heroes program that’s going to apply to a lot of medical professionals. 

There are just so many resources and so many things that really solidify your ability to qualify that I think will allow you to get into real estate a lot faster than a lot of other people. What’s really cool about that is once you get into that, and let’s say you buy that multi-unit and you have that passive income, that’s just going to become scalable after that. If you can get in that initial real estate investment, which you’re going to really have an upper hand from an education and income standpoint and things like that, then you can just get started and keep it rolling. I think that’s a really positive thing. 

[0:43:55] DB: I love it. Love it. If people want to reach out and talk with you more about Ohio things or working with you, or if people want to find someone with your love of knowledge in their own market. First, how would they connect with you? Then two, where would we find someone like you elsewhere? 

[0:44:10] JB: Yeah, absolutely. One thing I’ll definitely plug my company, because I really believe in what we do and we’re in multiple states. I think, we might be in 49 now, but we’re at least in a vast majority of states. If you do contact me or contact through our website has all the branches listed and the loan officers or if there’s even some direct numbers you can call. If you contact Union Home Mortgage and you’re almost anywhere in the US will have somebody who’s able to help you. 

I really think, because I’ve gotten to meet a lot of people at not only in my branch and locally, but at corporate and then also at certain company events. It’s just one of the most honest and straightforward and knowledgeable groups of people that I’ve ever met in the mortgage industry. These are a lot of lifelong, very invested professionals who are super passionate about helping you achieve your goals. That’s something that if you’re in another state, I would be happy to connect you with a loan officer in that state. As far as for me, I mean, you can reach me via email at [email protected], [email protected]. 

Then you can also Google Jack Bowers, Union Home Mortgage in my website and application on my branch should come up there as well if you want to get connected with me and more than happy to schedule phone calls, Zoom call, an in-person meeting, whatever the case. I’m licensed in both Ohio and Florida. I can help people in Florida too. 

[0:45:38] NH: Perfect. Well, we’ll make sure to put that in the show notes too, so people can connect a few if they need to. Jack, we just really appreciate your time, your expertise and again, joining us with a three-week-old little daughter sitting upstairs. It means a lot for you to spend the time with us. I appreciate it. 

[0:45:52] JB: Yeah. Thank you so much. I’m really thankful for you guys to have me on the show. I’m really excited about it. Thank you. 

[0:45:58] DB: Thanks so much. 

[END OF EPISODE]

[0:46:00] DB: Thanks for listening to the YFP Real Estate Investing podcast. If you like what you heard on today’s show, please leave us a review and subscribe to the show so you never miss an episode. If you have a question, know someone that would make a good guest or want to connect with us, head on over to yfprealestate.com and join the growing YFP Real Estate Investing Facebook group. 

[0:46:18] NH: As we conclude this week’s episode of the YFP Real Estate Investing podcast, an important reminder that the content of this podcast is provided to you for informational purposes only and is not intended to provide and should not be relied on for investment or any other advice. Information in this podcast and corresponding materials should not be considered as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with their financial advisor with respect to any investment. 

Furthermore, the information contained in our archive newsletters, blog posts, and podcasts is not updated and therefore may not be accurate at the time you listen to it. Opinions and analyses expressed herein are solely those of Your Financial Pharmacists unless otherwise noted and constitute judgments as of the dates published. Such information may contain forward-looking statements which are not intended to be guarantees of future events. Actual results could differ materially from those anticipated in the forward-looking statements. For more information, please visit yourfinancialpharmacist.com/disclaimer. 

[0:47:12] DB: Thank you for your support of the YFP Real Estate Investing podcast. Have a great rest of your week.

[END]

 

Current Student Loan Refinance Offers

Advertising Disclosure