YFP 245: Getting Under Contract in a Competitive Home Buying Market

Getting Under Contract in a Competitive Home Buying Market

On this episode, sponsored by First Horizon, mortgage manager, Tony Umholtz, discusses getting under contract in a competitive home buying market.

About Today’s Guest

Tony Umholtz graduated Cum Laude from the University of South Florida with a B.S. in Finance from the Muma College of Business. He then went on to complete his MBA. While at USF, Tony was part of the inaugural football team in 1997. He earned both Academic and AP All-American Honors during his collegiate career. After college, Tony had the opportunity to sign contracts with several NFL teams including the Tennessee Titans, New York Giants, and the New England Patriots. Being active in the community is also important to Tony. He has served or serves as a board member for several charitable and non-profit organizations including board member for the Salvation Army, FCA Tampa Bay, and the USF National Alumni Association. Having orchestrated over $1.1 billion in lending volume during his career, Tony has consistently been ranked as one of the top mortgage loan officers in the industry by the Scotsman’s Guide, Mortgage Executive magazine, and Mortgage Originator magazine.

Episode Summary

If you’re looking to buy a home shortly in an area with a competitive market, this episode is for you. Today we welcome Tony Umholtz back to the show, a mortgage manager for First Horizon, formerly IBERIABANK. In this episode, Your Financial Pharmacist Co-Founder & CEO, Tim Ulbrich, PharmD, sits down with Tony to talk through the tips for securing a home purchase contract in a competitive housing market, the current state of the housing market, the current housing shortage, and reasons behind that shortage. Tim and Tony discuss interest rates and trends Tony has seen through his experiences working with pharmacists across the country. Hear why the lender and agent you choose to purchase a home through matters, why the type of loan you choose to get matters, top advice for first-time homebuyers looking for a low down payment, and the pros and cons of various strategies to make an offer stand out. Tony also shares information on how to get out of your contract if necessary without losing your earnest money. From escalation clauses, and appraisal gap clauses, to waving inspection contingencies, this episode breaks down everything you need to know as a pharmacist trying to secure a home in the current real estate market.

Key Points From This Episode

• Hear about Tony’s background and the work he’s doing right now with First Horizon.
• How we’re still at historically low-interest rates, even with the recent rise we’re seeing. 
• Some context on the current market and why we currently have a housing shortage.
• Tony shares why it matters what type of loan you get.
• Important factors to consider when evaluating and considering the lender that you choose. 
• What an escalation clause is and some of the potential pros or cons to look out for.
• Tony comments on the recent trend of waving inspection contingency.
• Whether the earnest dollar amount is going up in this market and if offering more makes a difference.
• The three pieces that will allow you to get out of the contract and not lose your earnest dollars. 
• Some advice on what to do if you’re looking for an option with a lower down-payment.
• Why there are so many cash offers out there at the moment.
• We talk about some great strategies to help out with the seller cost.

Highlights

“We’ve had the lowest interest rates we’ve ever seen as a country the last couple of years during the pandemic. Now they’re just slowly going back up again and we’re still at historic lows, even with the move higher that we’ve seen in the last six, seven months.” — Tony Umholtz [0:04:47]

“I think having a very good realtor who is trusted in the market and has a good reputation can really help you get a contract right now. That’s a big thing, a big deal.” — Tony Umholtz [0:15:00]

“We have the housing shortage and rents are escalating at a faster pace than appreciation on housing is, so that is why owning real estate is valuable right now.” — Tony Umholtz [0:26:26]

“Learning as much as you can about the seller and the situation can help you in getting that under contract.” — Tony Umholtz [0:29:15]

Links Mentioned in Today’s Episode

• Learn More About First Horizon’s Pharmacist Home Loan and Start the Pre-Approval Process
• YFP Planning: Financial Planning for Pharmacists
• Schedule a free Discovery Call with YFP Planning
• YFP 136: The Ins and Outs of a Pharmacist Home Loan
• YFP 154: Getting a Home Loan in a Pandemic
• YFP 169: Helpful Tips for Getting a Mortgage
• YFP 191: 10 Common Mortgage Mistakes to Avoid
• YFP 204: The Current State of Buying, Selling, and Refinancing a Home
• YFP 216: Common Credit Blunders to Avoid When Buying a Home
• YFP 230: 5 Steps to Get Ready for a Home Purchase
• Apply for Pharmacist Home Loan
• Schedule a Free Call with Nate Hedrick
• YFP Concierge Service
• Homebuying Resources
• Your Financial Pharmacist Disclaimer and Disclosures

Episode Transcript

[INTRODUCTION]

[0:00:00.4] TU1: Hey everybody, Tim Ulbrich here and thank you for listening to The YFP Podcast, where each week, we strive to inspire and encourage you on your path towards achieving financial freedom.

 This week, I had a chance to welcome back on to the show, Tony Umholtz, a mortgage manager for First Horizon, formerly IBERIABANK. During the interview, Tony and I talked about some tips for securing a home purchase contract in a competitive housing market. If you’re looking to buy a home in the near future and live in an area that has a competitive market, this episode is for you. 

During the show, we talk about the current state of the housing market interest rates and trends Tony has seen through his experiences working with pharmacists across the country, why the lender and agent you choose to purchase a home matters, and the pros and cons of various strategies to make an offer stand out, including escalation clauses, appraisal gap clauses and waving inspection contingencies.

Before we hear from today’s sponsor and then jump into the show, I recognize that many listeners may not be aware of what the team at YFP planning does in working one-on-one with more than 240 households in 40 plus states. YFP planning offers free only, high-touch financial planning that is customized for the pharmacy professional. If you’re interested in learning more about working one-on-one with a certified financial planner may help you achieve your financial goals, you can book a free discovery call at yfpplanning.com.

Whether or not YFP Planning’s financial planning services are a good fit for you, know that we appreciate your support of this podcast and our mission to help pharmacists achieve financial freedom. 

Okay, let’s hear from today’s sponsor, First Horizon, and then we’ll jump into my interview with Tony.

[SPONSOR MESSAGE]

[0:01:38.0] TU: Does saving for a down payment on a home feel like an uphill battle? It’s no secret that pharmacists have a lot of competing financial priorities including high student loan debt, meaning that saving 20% for a down payment may take years. We’ve been on the hunt for a solution for pharmacists that are ready to purchase a home with a lower down payment and are happy to have found that option with IBERIABANK/First Horizon. IBERIABANK/First Horizon offers a professional home loan option, AKA, a doctor or pharmacist home loan that requires a 3% down payment for a single-family or townhome, has no PMI, and offers a 30-year fixed-rate mortgage on home loans up to $548,250.

The Pharmacist home loan is available in all states except Alaska and Hawaii. To check out the requirements for IBERIABANK/First Horizon’s pharmacist home loan and to start the pre-approval process, visit yourfinancialpharmacist.com/homeloan. 

[INTERVIEW]

[0:02:42.2] TU1: Tony, welcome back to the show.

[0:02:44.0] TU2: Tim, thanks for having me, always good to be here with you.

[0:02:46.4] TU1: Really looking forward to this, our first recording together in 2022. We’ve had you on the show many other times before, we’ll link to those in the show notes for folks that are looking for guidance in the midst of that home buying process. We’ve talked before about the professional home loan option, the pharmacist home loan and we’ll get to that at the end as well but if folks want other references and resources on that, we’ll certainly link to those previous conversations in the show notes.

Tony, I don’t want to assume that all of our audience knows who you are and so if you just take a moment to give us some background on yourself and the work that you’re doing with First Horizon.

[0:03:21.5] TU2: Sure, well, I’m a mortgage banker and I’ve been doing mortgage lending now for almost 20 years I’m afraid to say, it would be 20 years in October but we handle residential lending and I run a team here, we’re based in Florida but we lend all over the country, we are actually in 48 states. The lower 48 we’re licensed in and we handle the residential financing both purchase loans, purchase money, and refinancing but it’s been a lot of fun, I’ve had a lot of fun in my career. We’re in a very interesting time now, Tim.

[0:03:53.4] TU1: We are and I appreciate you as always, sharing your expertise, and today, we’re going to be talking about some tips and strategies for getting under contract in a competitive home buying market, I would say that’s a timely topic for sure. Tony, we’ve been talking over the last few years and it seems like each season we talk, it’s just a wild time to be buying a home, the home market as a whole. 

Here we are in another time period, I think there’s some uncertainty, we see some changes that are happening to interest rates, for those especially, they are first time home buyers, I think it right to be a little bit anxious about the process and the competitive nature of what’s out there. From your viewpoint of working with pharmacists and others all across the country, just give us a quick summary of what you’re seeing as we really get into the beginning of spring of 2022. 

[0:04:41.6] TU2: Sure, Tim, you’re exactly right, the market has been changing here this year. We had some of the lowest interest rates – the lowest interest rates we’ve ever seen as a country the last couple of years during the pandemic. Now, they are just slowly going back up again and we’re still at historic lows, even with the move higher that we’ve seen in the last six, seven months. We’re still near very historic lows. 

Back when I started in the industry, 7% for 30-year fixed was actually not bad, it’s trended lower during that time frame but it’s – we’re in this time right now where we have a housing shortage throughout most of the country and a lot of that happened post the downturn of ‘08 and ‘09, we just didn’t build enough homes and apartments for the population growth. We saw people moving in together, builders couldn’t get financing for a number of years so we went through a decade of underbuilding and now, this is the consequence. 

We don’t have enough housing inventory and housing stock and what’s caused the further delay is that builders can’t build as quickly as they like to because we have supply chain issues. Builders can’t – I work with builders as well and they’ll tell me, “You know, it’s taking me six months to get roof trusses” and different things, different components of the building process are constrained. 

They can’t output the number of units for demand and I think that’s a good thing over time, I mean, they’re going to catch up eventually and it will normalize but we’re going to be in this type of market for the foreseeable future until they can catch up.

[0:06:19.1] TU1: Naturally, Tony, what we see then is, and of course, we’re generalizing across the country, certainly different in parts of the country, different markets but that means, home prices going up significantly, supply and demand, more people that are looking for homes. And we’re hearing from our community, as to be expected, whether it’s their first home, second home or third home, that they’ll be on the pinch, right? 

For many pharmacists, we see salaries – great salaries coming out of school but are relatively flat over the course of one’s career. Obviously facing many folks is significant student loan debt that first decade or so of their career and now, we’ve got rising home prices that are layered on top of that and so, all the more reason that we’ve got to be thinking about the home buying decision and the context of the rest of the financial plan. 

Before we go into individual tips or strategies for getting under contract in a competitive home buying market, I’d be remiss if I didn’t first say that we need to make sure that we’re not losing perspective on the budget for buying a home and how that fits into the rest of the financial plan, right? As we say many times in the show, we can’t look at any financial decision in a silo, and if the end goal is to get under contract but we do that in a way that significantly disrupts the rest of the financial plan, we’ve got to obviously put that in check.

Really taking a step back, what is your home buying budget, what is your personal situation as it relates to investing and saving for the future, other debts that you have incurred and are paying off, and how can we make sure we’re purchasing a home in a way that also allows us to thrive with the rest of the financial plan?

Tony, first question I have for you as it relates to getting under contract in a competitive market is, does it matter what type of loan someone may have? If I’m a seller and I’ve got 10 offers that are on the table and some folks are coming with maybe an FHA loan, a VA loan, a conventional loan, perhaps something like a doctor loan, a pharmacist home loan product, that does that really matter in terms of what type of loan someone is bringing to the table as they’re trying to bring that competitive offer forward?

[0:08:18.6] TU2: Well, it certainly does. I think it’s a really good question because when you get an FHA or a VA pre-approval letter, if you’re a seller and if you had experience with that, there’s typically a much stricter appraisal that’s done on your property versus maybe a conventional loan or like a special pharmacy or doctor product. It’s going to be a much more stringent appraisal and it’s just because those loans, FHA and VA loans are federally backed loans that are backed by what’s called Ginnie Mae, which – anyway, not to get into the complexities of the mortgage market and everything else, they’ve got sets of guidelines for these products. 

Now, they’re good programs, they have opportunities for individuals to qualify for different things but as a seller, you’re going to probably, if all things being equal, right? If that price is the same, you’ll probably going to want to avoid those offers just because they do come with some extra sets of eyes. And the other thing too that both these types of loans, if you get the home appraised and that appraisal comes back lower or whatever it might be, that’s attached to the home for quite a while.

[0:09:31.1] TU1: Yup.

[0:09:31.3] TU2: That seller cannot – if another buyer comes in, they have to use the appraisal that was done on your unit. It’s – there is some overlays to those two products so that will probably put you in a more inferior position.

[0:09:44.6] TU1: One tangible story I have here, Tony, personal experience, we were selling, my wife Jess and I are selling our home up in Northeast Ohio before we moved to Colombus and the buyer had FHA loan and I remember during the inspection process, this was my delinquency as the homeowner, I think one of our boys had pulled the railing off the wall or just something normal that happens in our house with four boys.

I was in the process of kind of getting that back up of the rail going up to the stairs and at the time when they came out to the inspection and there wasn’t a whole lot of notice, they take a bunch of pictures and whatnot and they had requested that that be put back on and they had to come back out to see that it was put back on. This was in the pre-pandemic time period so maybe now they allow for photos or other things but that time gap could be significant, right? 

If you’ve got multiple offers and things that are going on and if folks again are looking for ease of closing and they’ve got options of different buyers with loans that may not be astringent, it certainly could be something that can come into play.

[0:10:41.6] TU2: Absolutely, there’s no question, it happens all the time. When we do approvals for – we do FHA and VA loans too and when we have them, I have listing agents call me and tell me these things. This is just from experience and – but there’s no question that can put you at a disadvantage but again, those programs are there to serve a purpose. They’re not bad loan programs for different people, they have pros and cons. 

I don’t want to downplay it but they certainly, if you are qualified with you, those products are going to put you in an inferior position going into getting the offer, for sure, and to getting it accepted, the contract accepted.

[0:11:15.6] TU1: Next thing Tony, I want to ask you about is the who on your team. Specifically, first, I want to talk about from a lending standpoint and then second, from the agent standpoint and really highlighting that not all options are created equally. And I think when it comes from a lending perspective, speaking from personal experience as a former first-time home buyer, I was very fixated on getting the best rate, right? 

That was something that had been drilled into me that you’re looking at something over 30 years on a 300, 400, $500,000 purchase, 0.1% or whatever would be the difference, can be significant. But not stopping there, of course, a competitive rate really matters but other things, communication, timing to close, accessibility of that individual during the process, so important to bringing a competitive offer for it. 

Tell us more about how we can really evaluate and consider the lender that we’re using.

[0:12:07.9] TU2: Yeah, another good point, Tim. I mean, during this time where everything’s so competitive, most markets around the country have less than two months of inventories, that’s very much a seller’s market and very competitive. We had a situation happen this weekend with my team and we had a borrower that said, “Hey, I’m going to go in at this set purchase price for a home.” And they actually had to pay quite a bit more and the seller was going to go with them but they didn’t have a letter stating that, and they were approved for that amount and even more than that. But they thought like a negotiating tactic would be, “Hey, let’s go in at this, what my offer price is going to be.” Which was under value.

They almost didn’t get the contract. Fortunately, a member of my team was able to send them the updated pre-approval letter this weekend so they could get the house under contract. Communication is really important and especially during this time. And I will say also that the listing agents call us, and we don’t disclose anything personal and we don’t – we can’t do that but a lot of them will want to know, “Hey, can you close on time? Can you get this done, can you get an appraiser out there and have an appraisal done in a meaningful matter of time?” 

And also, the commitment letter deadline, a lot of contracts call it commitment letter, which is basically a formal underwriting approval where you’ve been through underwriting formally, a lot of orders are done within a few days and other lenders, some other lenders may be like this too, but having it done quickly is so important. And being able to get underwritten quickly and having open communication is critical with the lender in this time because it’s – I always tell people, you can go with certain lenders if you’re just refinancing, if it takes 90 to 120 days, it’s okay, it might cause some stress a little bit for you but it’s just a refinance, right?

On a purchase, you have to hit these deadlines, you have to hit these timelines or you could be out of contract, and not only lose the contract but also lose your earnest money too. Yeah, it’s very important. And I would also say with the agents too, your real estate is very important that you have a good real estate agent that knows the market and I’ve seen just from my years of experience, I’ve gotten feedback where listing agents would call me and say, “Hey, this buyer’s represented by so and so,” we’ll call it Mr. Smith, “Everything he brings me has been over the years has been great.”

“He’s always transparent with me about his buyers, he keeps things together and I have these six offers but I think all things being equal, he’s always treated me right so I’m going to go with him.” I’ve heard that, just because they feel all things being equal, right? All these other buyers’ kind of equal pricing, whatever else, I know that he, what he’s telling me from experience is going to happen. I think having a very good realtor who is trusted in the market and has a good reputation can really help you get a contract right now. That’s a big thing, a big deal.

[0:15:12.3] TU1: Yeah, it’s the second or third time Tony, you’ve mentioned, with all things being equal, right? I think that’s worth highlighting, that you can have the best lender and the best agent but if you’re not bringing a competitive offer for it, brother, that’s not going to help you. But I would argue, a good lender that’s a partner and a good agent who really knows the market, assuming it’s within your budget and other goals and whatnot, they’re going to help you put forward a competitive offer, right? 

Those things I think do go hand in hand. Shout out here to Nate Hedrick, a friend of YFP who does our home buying, concierge service who helps connect pharmacists with agents in their area, that are certainly going to be coming forward as someone who is reputable and able to take someone through that deal. We’ve got a home buying page where folks that are looking to get connected with an agent, looking to learn more about the First Horizon professional home loan option, if you go to yourfinancialpharmacist.com and then click on home buying, you’ll see all that information and can read through that further.

Tony, one of the things that I’m hearing a lot in this competitive market is escalation clauses and why it’s potentially valuable to have an escalation clause built into the contract? What is an escalation clause and what are some of the potential pros or cons that people need to be on the lookout for?

[0:16:26.0] TU2: Well, the escalation clause are essentially saying, we’re going to pay – we’re going to stay in this bidding war, right? We’re going to stay at this bidding war for this property and we’ll go up X amount. I have seen these happen where you’re putting in your offer and you’re willing to go X amount higher than just to keep up with the next guy, right? Whatever that number might be, $10,000, $5,000, 10% or 5% and you’re escalating above the sales price essentially and we’re seeing that happen, right? 

There is a bidding, a bid up of housing. You know, the pros and cons, clearly the pros are you can stay in the transaction and maybe it will help you secure the home. The cons are you may be bidding at more than it’s worth and when we have that appraisal done, you are going to have an appraised value that might be at the original sales price where they started. 

Now, you are paying, let’s say $10,000 more than where you started because you participated in the escalation clause and now when we get that appraisal, you’re $10,000 under the value. So lenders can only lend off the original appraised value and if you owe $10,000 more, because if you want the property that’s what you are going to have to do because there is other buyers that are willing to do it too, then you’re going to be bringing your down payment plus the $10,000. 

That’s the risk, Tim, is that you’re getting in a situation where it may not appraise and you are having to bring more money to the table than you anticipated in the beginning. 

[0:18:13.5] TU1: Yeah and I think this is a very natural feeling in the moment, right? Where people are living in areas where they are hearing of 30 showings in a weekend and 25 offers that are on the home. And so you come in maybe asking a little bit more and then you put these clauses that go up another 20 or $30,000, but then the risk, as you mentioned, which is part of just the reality of the market, but also one that somebody has to plan for is, what happens when you have to bring more cash to close? 

Are you ready for that, right? What does that mean for the rest of the financial plan? Is that coming out of savings? Is that putting you behind on their goals or is that something you can cash flow without causing too much headache or concern? Tony, the other thing I am hearing a lot, of course again, as we are talking about just a competitive market, is waving an inspection contingency, and that one gives me a little bit of heartburn but I didn’t buy a home in the chaos that is today’s market. Has this become a norm, what is this all about? 

[0:19:11.4] TU2: Well, I never recommend it so I come in the same boat as you. You know, I’ve had a few of my clients ask me this, and you just never know what you’re getting into and you want to know, “Is my roof going to last? Is there another major issue, a foundation problem or whatever it might be?” I always think you get an inspection and then you know what you are getting into, and so I am not a big believer in that. But I do know some clients have waved it especially if they are familiar with the property and if they have been looking at it for a number of years. 

I had someone that had – it was a property they had been in before, someone that they knew they lived there and they wanted it and they knew it was good and sound. I think I would not be in a case where I would not wave it personally and I do not recommend it. But you know, that would be my opinion. But again, it happens and as lenders, we don’t look at the inspection. We look at our appraisal but we don’t look at the inspection, so we don’t need it. 

We don’t require it, so anyway, that is just some feedback from us. And I would say that I am a big believer in getting an inspection though. 

[0:20:19.4] TU1: Yeah, just to define this further for those that are first-time home buyers. Inspection contingency meaning that the offer would be contingent upon the completion of an inspection and that inspection often would allow folks for an out if something significant would come up. And so, by waving that, you are essentially waving the contingency of that result of an inspection. 

[0:20:41.4] TU2: That’s right. 

[0:20:42.1] TU1: You either have a really good understanding of the home or you are taking on that risk that there might be something there. 

[0:20:48.2] TU2: Or what happens too, Tim, if they wave their inspection rights and they decide not to buy the home and they put $5,000 in earnest money to secure the contract, they walk away from the contract, they lose the $5,000. 

[0:21:00.0] TU1: Yeah. 

[0:21:00.6] TU2: That’s what’s happening and I’ve had people call the listing agent and say, “Hey look, we’ve got two offers but they’re waving their inspection contingency.” And you know in that case, what it is is, if they put their earnest money up, they’ll lose it. They can still get an inspection but if they walk away from the contract, they are going to lose their money. 

[0:21:24.7] TU1: Got it, good clarification, thank you. Since you brought up earnest money Tony, let me ask about that. Maybe I am dating myself, the last time we bought a home 2018 would have been, I feel like the earnest money was more than the house in dollar range. You just mentioned five, is that something that we have seen go up in terms of earnest money that folks need to be planning for? Hopefully they would be able to re-coop those dollars but you give an example where that maybe wouldn’t happen. 

Is that earnest dollar amount going up in this competitive market and does offering more earnest money make a difference? 

[0:21:58.7] TU2: Well, I normally see a couple of things here. I think I normally see Tim, earnest money is more tied to the price of the home. If it is a larger contract, usually a bit more earnest money versus a smaller purchase price. I think on average that there’s earnest money – earnest money has gone up a bit but I haven’t – you know, I would say on average it has, but I definitely believe the more you put up, the stronger your offer is going to look. 

If there, again, all things being equal, you have the same price and one person puts up a thousand dollars in earnest money and the other puts $5,000 and all things are equal, well, if I am the seller, I am taking the $5,000 because I have a little bit more if something goes wrong, right? In this transaction. I think a larger earnest money deposit definitely puts you in a better position. 

Again, you want to have some – typically in the contract, there is going to be an inspection contingency and appraisal contingency and a financing contingency. Those are the three main pieces and if you have those in place in the contract and one of those things falls through, you have the ability to get out of the contract and not lose your earnest money, so that is what the importance of having those pieces in the contracts. 

Again, all things being equal, I think the more you can put down, the stronger you’re going to represent yourself to the seller but then again, a lot of these programs we offer don’t require a lot of money down.

[0:23:26.7] TU1: That’s right, you can ask that, yeah, exactly. 

[0:23:29.3] TU2: Yeah, so I will say this, there’s another program, I had a builder call me and said, “Hey, we require 10% to build the house for this client and I see that your approval letters is 95% financing, so are they basically going to get 5% back at closing?” And I said, “Yes because they advanced money to you to build the home, and then when we do the loan at the end, we are going to give 95% financing so 5% of their earnest money will come back.”

So different situations but clearly, everyone is different in how much they can put up and I think in speaking with their realtor so they can get a better idea what’s a good offer. 

[0:24:10.8] TU1: Tony to that point, you know I would imagine if someone is selling a home and there is, I don’t know, 10, 12, 15 offers, I would expect we are seeing more cash offers that maybe are out there. If I am a first-time home buyer and I am looking at an option that has a lower down-payment, I am wondering, do I even have a shot in that market? In terms of competing with cash offers or even offers that have more earnest money down, what advice, what thought would you have there? 

[0:24:37.9] TU2: In that case, I mean there are all sorts of sellers out there and you’re right Tim, a lot of cash offers. Typically cash offers are lower-ball offers, a little bit lower than the market, right? Most of them do that because “Hey, if I am paying cash I want a better value.” They are going to ask a seller to sell it for it less. A lot of times, people with financing will pay a little bit more and that’s how you are able to secure it above them, because you are paying a little bit more than the lower-ball cash offer. 

Now the other thing with cash is, not all but a lot of them are investors, right? They are investors, it might not even be people. It might be corporations that are buying rental properties and some sellers, I mean not everyone but some sellers, if you have raised your family in a home or your kids have been in this house and your family has been in this house, you kind of like the idea of another family moving in, right? Or another owner occupant moving in. 

Not necessarily a family but just someone that is going to live in my house and take care of it like we did, you know? That is the mentality that some sellers have versus some investor coming in, right? I think that that sometimes can connect with people too and you know, you might have to write a letter or say, “Hey, this is who we are.” And again, I am just giving an idea here but I think that can hold value.

All things being equal, if I have a pre-approved person, they are going to pay $5,000 more than the 10 cash offers are, “Hey, I am going to live in your house and this is where we are living and I own it.” Owner-occupied versus those 10 cash offers where 90% of them are investors, right? I think that is a good way to kind of position yourself differently. And I think we are talking about all of these things, guys, and it sounds scary and it does this like, “Why would you want to compete with and deal with this?”

Well, the reason there’s all these cash offers is, we have the housing shortage and rents are escalating at a faster pace than appreciation on housing is, so that is why owning real estate is valuable right now. Because rental, the rental market is going up faster than the percent appreciation. But I guess all things being said, any connection you can have with the seller can help you in this market and help you compete with cash but naturally, you are going to have to typically pay a little bit more than cash normally to get the home. 

[0:26:59.1] TU1: Yeah, a good clarification that often cash offers might, generally speaking, might be a little bit lower and also might have a greater pool of folks that are looking at that as an investment property. Again, if somebody was selling this owner-occupied and they want to maintain that as an owner-occupied unit, that could be good, be able to communicate that to the seller.

[0:27:17.0] TU2: That’s right. 

[0:27:17.9] TU1: Tony, other strategies out there. I know there is a myriad of things that I have heard different folk use in terms of helping out with seller cost. It could be moving expenses, it could be having some flexibility to seller align and to stay in the home longer. Other strategies that you are seeing or recommending that seemed to be working in terms of again, getting under contract in this competitive market?

[0:27:42.0] TU2: Well again, we mentioned the seller. I did see, I have another contract that came in where some folks connected with the seller and that seller stayed with them, even though they could have gone and got a higher price on the market if they listed it. So that connection with the seller anyway is important. Now, what they did do, I will say this, they are letting them stay in the house 60 days after close so they can move all their stuff out and take their time because their place won’t be ready until then. 

Clearly, any sort of connection with the seller on some other variables is going to help you get the contract. And if you allow them to stay in the house, now you got to be careful with post-occupancy agreements because meaning that the seller is going to rent back from you or stay in the house a set amount of time after you purchase it, because most buyers that are listing are buying to owner-occupy the property. 

If you are essentially buying it and letting them lease from you for a period greater than 60 days, it can be looked at as a problem with the lender. So you do have to keep that in mind when you are allowing someone to stay, but I think flexibility is really an important way to help you look stronger in the eyes of seller, just meeting them on other terms that aren’t just financial, you know, giving them that extra time. 

Because a lot of sellers are maybe moving into a new condo or they’re downsizing into a new community where it’s being built. And then the builder is taking a little bit longer to build a property, so there is always these other variables. I think learning as much as you can about the seller and the situation can help you in getting that under contract. 

[0:29:23.0] TU1: Great stuff Tony. As always, I appreciate your insights from your experiences each and every day talking with pharmacists and others across the country looking to purchase a home. I think this is a good segue and transition to talking more about the pharmacist home loan product that is offered by First Horizon formerly IBERIABANK. And we’ve got lots more information, educational information. 

You can learn more about this product and other information related to purchasing a home, at yourfinancialpharmacist.com/home-loan. Tony, give us some of the highlights, some of the key facts as it relates to the First Horizon pharmacist home loan product, down payment, how that works with PMI, maximum loan amount and then we’ll reference folks to more information from there. 

[0:30:06.0] TU2: Sure, so we will allow up to 97% financing if you are a first-time home buyer with 3% down and then if you have owned a home before, it is 95% financing, so 5% down. As Tim mentioned, there is no PMI insurance, which is the most compelling piece of this and we do have a minimum credit score of 700, a maximum loan amount currently of $647,200, which serves plenty of markets at that size. 

Then we do offer a 30-year fixed mortgage and the rates tend to be every bit as good as if you put 20% down for a normal buyer so that’s what’s been compelling too as you are not getting penalized to put less money down. And there are no prepayment penalties, so it’s got a lot of flexibility for those that are in this occupation. And we can write it, as Tim mentioned, in 48 states. Alaska and Hawaii are the only two I can’t write it, so we haven’t gone that far yet. 

[0:31:02.9] TU1: Yeah, that was really a big part of, when we formed the collaboration a few years back, was a national option for pharmacists that were looking to make that home purchase, right? You mentioned the lower 48, obviously, we’ve got a community of pharmacists all across the country, so really grateful for your insight and the contributions you made to the YFP community. 

Again, if folks want to learn more about that product, you can go to yourfinancialpharmacist.com/home-loan. Tony, great stuff as always, and looking forward to continuing the conversation as we go throughout the rest of 2022. 

[0:31:37.4] TU2: Thanks again Tim, I enjoyed being with you today. 

[END OF INTERVIEW]

[0:31:39.8] TU: Before we wrap up the show, I want to again thank this week’s sponsor of Your Financial Pharmacist Podcast, IBERIABANK/First Horizon. We’re glad to have found a solution for pharmacists that are unable to save 20% for a down payment on a home. A lot of pharmacists in the YFP community have taken advantage of IBERIABANK/First Horizon’s pharmacist home loan, which requires a 3% down payment for a single family home or townhome and has no PMI on a 30-year fixed-rate mortgage. 

To learn more about the requirements for IBERIABANK/First Horizon’s pharmacist home loan and to get started with the pre-approval process, visit yourfinancialpharmacist.com/homeloan. Again, that is yourfinancialpharmacist.com/homeloan.

[DISCLAIMER]

[0:32:21.8] TU: As we conclude this week’s podcast, an important reminder that the content on this show is provided to you for informational purposes only and it is not intended to provide and should not be relied on for investment or any other advice. Information of the podcast and corresponding materials should not be construed as a solicitation or offer to buy or sell any investment or related financial products. We urge listeners to consult with a financial advisor with respect to any investment. 

Furthermore, the information contained in our archived newsletters, blog post and podcast is not updated and may not be accurate at the time you listen to it on the podcast. Opinions and analysis expressed herein are solely those of your financial pharmacist 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. 

Thank you again for your support of the Your Financial Pharmacist Podcast. Have a great rest of your week.

[END] 

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