Credit, It's the Elephant in the Room

Rick Ripma  0:00  

We need to talk about credit. It's the elephant in the room. What credit score is needed to buy a house? Can a credit score of 550? How about 630-720-802? How do you know? And how much home can you afford? All this and more today on India's real estate gurus radio show.

Announcer  0:25  

Advisors Mortgage Group is proud to present in these real estate gurus hosted by Rick Ripma, the hard working mortgage guy, please contact Rick for all of your mortgage needs at HardWorkingMortgageGuy.com That's HardWorkingMortgageGuy.com. Now, here's the hard working mortgage guy Rick Ripma.

Rick Ripma  0:52  

Welcome to Indys Real Estate Gurus. I'm Rick Ripma, your hard working mortgage guy and I'm Ian Arnold with advisors Mortgage Group. And thank you so much for joining us today. We truly appreciate it. If you would like to contact Ian or I, please go to HardWorkingMortgageGuy.com That's HardWorkingMortgageGuy.com. We can help you with any questions you have in mortgages, refinances, purchases, cash out refinances, reverse mortgages, whatever it happens to be, or just general questions, maybe you want to know what interest rates are going to do. Just give us a call and or just go online, I'm sorry to hard work your mortgage guys.com, we'd be more than happy to answer your questions. fed the Fed rate hike, we're first I should say we're recording this show right before the rate hike, unfortunately, and but we feel pretty confident that the feds are going to re raise the federal funds rate by 75 basis points when the Feds when you hear that the feds raise the interest rates, that is not a direct correlation to mortgage rates going up. But as a short term, it raises your if you have a home equity line of credit based on prime or if you have a credit cards, those are the short term loans. And those are the ones that are going to go up mortgage rates dependent on how much they actually raise it. Our expectations right now is 75 basis points. So even with that base, you know, with that thought of 75 basis points. I don't know Do you agree? I think it's pretty much gonna stay where it's at could change a little bit. It may be a little knee jerk reaction, but the markets already adjusted for it.

Ian Arnold  2:25  

Yeah, but we see this all the time. There's when they first do it, that next day or two, you have the knee jerk reaction, as you're just saying, and then everything goes back to normal. Yeah. So I mean, don't look at it too much. I mean, and so if you're wanting to possibly lock a rate, you might want to do it within that one or two day mark. But do it quick.

Rick Ripma  2:46  

Depends on which way that Mark goes. Yes, that knee jerk reaction can be good or bad. It could. Yeah. So if it's good, lock it.

Ian Arnold  2:53  

Now I will say this, since we are recording this little early. We're saying 75 points. So if it's 75 points, man, we're good at our job.

Rick Ripma  3:01  

Yeah. But if it's 100 points, which is another option, I don't think that's what's going to happen. And I'd like to say because we have some special insight, but the reality is, the Feds tend to leak what they're going to do to the Wall Street Journal. And then they tell us what is what's going to happen, hey,

Ian Arnold  3:16  

don't give away our secrets. That's what the market is

Rick Ripma  3:19  

expecting. But that doesn't mean it's what's going to happen. Sometimes they changed their mind and their meeting. And the meeting is actually it's it started on Tuesday, it finishes finished on Wednesday at two o'clock, where we were recording because I have to be out of town during the during the show. So we had to record her like, but anyway, if it does go up by 100 basis points. Now, I think many people would hear that and they think, oh, that's gonna be bad for mortgage rates. But what are you thinking?

Ian Arnold  3:52  

No, no, it's going to be basically the same thing. I mean, it might go down a little bit. But again, I don't think it's going to change too much. Again, you'll have that first day or two knee jerk reaction, but the what they're trying to do is bring it down. But who knows what will happen, but I think it'll probably pretty much stay Pat.

Rick Ripma  4:15  

I think that if it's 100 basis points, because the expectation is 75 basis points, there's going to be more of a reaction, and it definitely is much more likely to have a pretty significant knee jerk reaction. And but ultimately, that 100 basis points should be good for the market for the right market and should lower rates. But that may take a while. And the reason is is because the raising of the federal funds rate is to control inflation. Inflation is as I've said before, the biggest negative to mortgage rates. Mortgage rates are a bond they're traded on the market as a bond bonds or fixed rate investments, inflation or roads. is the value of a bond? And so we really, you know, the expectation is that at 75 basis points if they do 100, I think that actually says that to a lot of the investors, because that's really who's you know, it's who's going to invest, how much are they going to put in that type of thing. So a lot of the investors are gonna look at that as that's, that's they're really trying to control inflation. And if they are trying to control inflation, that should be good for bonds. And they might, I think that'll bring ultimately bring the rates down a little quicker. I do think it's going to bring rates down, even though they do 75 basis points at some point, but it's going to take a while. And as we've talked before, inflation, the inflation year over year, numbers are just going to be going up through this through the summer. That's our expectation. I would be very surprised if it's anything but that. The The other thing I wanted to talk about, is this, the second quarter GDP Gross Domestic Product is coming out. I think it's on Friday, the first quarter gross domestic product GDP came out at negative 1.6. And that is the estimate for the second quarter. And when you when you get two negative quarters in a row, historically, like every single time it's happened. Yep.

Ian Arnold  6:19  

Last 10 out of 10 times, recession. Yes.

Rick Ripma  6:23  

But that's not the determining factor. There are more things to it, right. And there's actually a group called the N, B, E are the National Bureau of Economic Research, which is actually the ref in this whole thing. They're the ones who say, you know, they look at everything, and they look at the depth, the diffusion, and the duration. And then they're the ones who call it now they have called it 10 out of 10 times, yes, 10 out of 10 times when we add to two quarters of negative GDP. The other thing that you have to remember is they revise these numbers for three months, well, for they it comes out in July, they'll revise it in August, and they'll revise it in September. So the final number will come out in September. Which means that it could take a little while before they actually the refs say, Hey, we're in a recession. I personally believe we're in a recession. I laugh at what they say, in the political arena. It's kind of funny, and it's actually kind of funny listening to some of the talk radio, I was listening to one the other day, and they were talking about they said, Oh, you know, and let me tell you, I don't want to get political. But they were laughing at what was being said out of the White House. Okay, and how they had changed the way this is done. And the reality is, as much as I don't like to defend the White House right now, they didn't change anything. They're just trying to tell people the way this is done. And

Ian Arnold  8:07  

the rest, I mean, we always mean to the normal person is you're gonna look at the least amount of data and try to make an observation. So most likely when you see two negative quarters, all right, that basically always equals a recession. So that's easy for you. And I just go, Hey, two negative quarters. Now if I told you two new quarters, and then you got add this and then got add this and then you got to do this, and this. That's a lot more to comprehend. It's easier to say that. So yes, there is a lot more to it. But we're just looking at the art on average. 10 out of 10 times looks like on average. 100% is still an average,

Rick Ripma  8:47  

I guess. Yeah. I mean, I It's I believe we're in a recession I have for quite some time. So I just think it's just a matter of them saying we're in a recession, really. But it's always in in retrospect, when they look at things, they go back and say, Okay, it looks like we're going to reset, we were in a recession at this point in time. And I do believe that, that that's the case. The other the other piece is the unemployment numbers. And we're starting to see those go up. And that's, you know, everybody says, well, when the unemployment numbers are so low, but that's when a recession starts is when they're at their lowest, and they turn and start going back up. It's another telltale sign that we're we're in are going into a recession, along with a variety of other things that are going on, that we're seeing inflation is another big one. There's just so many things that happened, that it just really I do believe that we're in a recession. But on a positive note, that's usually good for interest rates, always. I mean, historically has been very good for interest rates. It's been good for the housing market housing values other than in 2008 when it was caused by housing, housing, housing values held their own and even appreciated. And as we expected, we're seeing house appreciation go down a little bit. but not negative. No, we were at 20% 19%. Unsustainable number. Okay, a historic high number, and it came down a little bit. And, you know, the media wants to run around and say, Oh, look at this, look at this. Well, that's, it's still very good. And expectations are still very good. So let's talk about one other piece in the in the numbers, because I've heard it on the radio quite a bit. Let's look at the recession numbers. You know, they're being reported. And it's how they're reporting them. And they're being reported as these numbers we, we missed. The repossessions have gone way up, and they've kind of misleading. And it's, it shows how you can take statistics and totally mislead people. And it goes back to what they what they were talking about on the radio show I told you about, you know, these guys who are telling us that they're changing the way you know, they're changing the rules. The reality is, is that it's my problem. And I've told you this long time ago with with the news media, every time I know something about what they're talking about, they're wrong. So if I don't know what they're talking about, I now assume they're wrong. I really, I really struggle with that. But anyway, let's talk about the recession. So Adam data solutions, which is a big reporter reported that lenders repossessed 20,750 properties during the first six months of 2022. And that, and this is the number they want to do this. It's up 113%. So in 2021, we had 9739, repossessions. And now we're up 113%. We're over 20,000. But if I remember, right, there was a basically a moratorium on repossessions.

Ian Arnold  11:54  

Oh, yeah, you couldn't do that. I mean, even what is it even renters? Could not rent, renters could not evict people. I mean, there was so much gray area and there was so much cut off that the government put in process that you couldn't get rid of people, right. So what happened is they got backlogged. So, and then they kept pushing them back, pushing them back. And once those periods ended, hey, guess what? Now you have a cluster right now. Now your number is going to jump for the next couple of months, and then I'll come right back down.

Rick Ripma  12:25  

Right? And even then it they these these houses that go into repossession may not actually be repossessed, okay, that's, that's a misnomer to it goes into repossession, and it can take sometimes a year or two, most times it's three to six months, but it can take longer than that.

Ian Arnold  12:44  

But think about this is most of those numbers gonna change? Because last year again, Indiana, their equity Rose 19%. And then this year, we're close to like 17 18% again. So think of how much equity that house would have got, you can easily sell it. I mean, depending on everybody's situation is different. But if you had I mean, and had the equity and just got out of it.

Rick Ripma  13:11  

Right. So let's look at okay, they want to report it from last year, which was a historic low because of things that were unusual in the market, actually the government stepping in and controlling the market which which lowered it significantly. So 2019 pre COVID pre any issues, repossessions for 2022 Compared to 2019 they're down 70% And we're down 88% from 2017 That's That's incredible. Yeah, that's that's a huge number why aren't they reporting that why are they only reporting that up 113% To scare everybody? Fear sale? Sir. I know they do. Fear sells it's easiest thing in the world to sell. And you know, the other part of this is we have an average the average loan to value on on properties in the US is 42%. So, if you have a the average person who has $100,000 home owes $42,000 on it, according to now this is including people though, you know, the cash, they don't get

Ian Arnold  14:20  

free and clear zero, all the way up to 97%.

Rick Ripma  14:24  

Right? Or even more, yeah, it'd be even higher. But because of this, and that's one of the highest levels, I think it is the highest level we've ever seen. So it's it's just really great loan devalues. And it's really hard who's going to have their house repossessed when they when they they have a 40 even at a 70% loan to value? No, why would you repossess the home? You're gonna sell it and get your money.

Ian Arnold  14:49  

Even if you're at 100% Guess what? You're 100% You just sell it and call it even

Rick Ripma  14:53  

if you can. short sell probably but, but how many people do you know what 100% Yeah, we don't finance 100% anymore. And you're not foreclosing on 100% No, you're not, it's not happening. So with that we are we are at a break after the break, we're gonna go over, you know, talking about credit, it's the elephant in the room.

Unknown Speaker  15:18  

Advisors, mortgage brokers licensed by Indiana Department of Financial Institution equal housing opportunity. NMLS 33041 Rick Ripma NMLS 664589.

Rick Ripma  15:26  

Hi, I'm Rick Ripma. With the hard work and mortgage guys and advisors Mortgage Group, where we believe delivering the best mortgage for you is why we exist, and it's how we all succeed. We believe

Unknown Speaker  15:35  

honesty, kindness, and hard work are how we honor each client at hardworking

Ian Arnold  15:39  

mortgage guys, we believe in custom tailored loans, not the one size fits all approach,

Unknown Speaker  15:45  

we believe in always presenting you with all your options. So you get the loan, you want the way you want it.

Unknown Speaker  15:50  

We believe in continually monitoring the rules, rates and market trends. So you don't have to

Unknown Speaker  15:56  

we believe in working hard to meet your closing date so that your entire plan isn't upended. We

Unknown Speaker  16:01  

believe in offering the same quick online process that the bookstore mortgage companies brag about whether you're refinancing or buying your first home, we believe

Rick Ripma  16:09  

there is the best mortgage for you. And we believe we are the team to deliver it find us online at hardworking mortgage guys.com.

Announcer  16:21  

Brought to you by advisors Mortgage Group, where we believe the more you know about financing a home, the less stressful buying and refinancing will be.

Ian Arnold  16:35  

Question of the week is brought to you by the renovation loan, helping you buy a whole house that may need some work. And this is actually done through us. It's a great program that we do that you can if you find a house that just needs a little bit of work to it, maybe he needs a new kitchen or need some new flooring, a HVAC back system, you can actually still get the house and get that stuff taken care of.

Rick Ripma  17:00  

Yeah, it's a it's a great program, if you if you're looking at a house and it needs, even if it doesn't necessarily need any work, but you want to redo the kitchen or you want to or your own house, but you want to buy a house and redo the kitchen, redo the baths. Whatever, that that's a great option for that type of purchase.

Ian Arnold  17:18  

Yep. So last week's question is, The Red House is on the white Street and the Blue House is on the red Street. Where's the White House? Well, of course, people it's in Washington, DC.

Rick Ripma  17:33  

No matter where the red or blue houses are? The White House is in Washington, DC. And

Ian Arnold  17:37  

that is true. All right. So the new question is, what has what has a bank? But it has no money in it? Wow. That'll make you think for a little bit. Yep. So we're, let's get back to talking about this. We're talking about credit and the elephant in the room. So when we're when somebody's looking at getting approved for a home, how much let's start there. How much does credit matter?

Rick Ripma  18:07  

credit matters? Quite a bit. Okay? It, it matters in a variety of ways. Number one, can you be approved? Number two, what's your rate going to be? What's the interest rate going to be how much you're going to have to put down. So it makes a huge difference on what you're going to be whether you're going to be able to finance and then what your financing is going to look like.

Ian Arnold  18:29  

And let's be on it. We all everybody knows the better credit, the better. So let's let's go with this. So if I'm at a 690 right now, should I wait until I get to 720? To do to get a house?

Rick Ripma  18:46  

Well, it depends, I would say as a general rule, no, it doesn't make any sense to do that. As a general rule, what I would say is if you have a 690 credit score, what you would want to do is get with us go to hard working mortgage guys.com Contact us from our website. And once you've done that, then we can we want we would want to pull credit, we'd want to look at your credit. And then we can run a scenario to see what might need to happen to get the credit scores where they need to be to if we can get it from a 690 to over 700 that may make a difference in your rate, it may not. We need to look at that and see if it's going to change anything. It depends on whether you're using FHA or conventional financing. So it does depend on what you're actually doing. But we want to look at that and then help you guide you through if you need to do any repair on your credit. I've had people who they were 690 I ran our scenarios, I could get them to a 720 but I did that while they were in the process of either buying a house or refinancing the house or in the finance of the house. You may get to I've had people who they they buy a house. They did a they did a pre The approval but they didn't start the credit repair at that point. But then when they got the house now they're ready they want to do something, I run my scenario. I give them that what they need to do. And then they do that we send it in, we do what's called a what I call a rapid rescore. It's, I think they call it something different, but that rescore is the credit, and it jumped it up. And now they now we got a better rate based on the higher credit score, but we get the better rate based on the day we lock the rate. The other piece is whether rates are going up or down, which direction do we think they're gonna go? That can make a difference? If you wait, so you have a 690 credit score and you wait six months you get and you do it yourself and you think you're gonna have a 720 and then you don't get there.

Ian Arnold  20:42  

Okay, so, alright, so we understand credit scores, you want a better credit score, but what roughly what's the lowest score, you can have and still get a home?

Rick Ripma  20:52  

Well, it depends 640 pretty much on a conventional 620 on an FHA, although in certain scenarios, we can go to a 580. There are programs out there non conforming programs that they can go as low as 500. But you don't go you don't go below a 620 on an FHA or a 640 on a conventional without other factors that are that are compensating for the credit score, like large down payment, you come in, you say I don't want to put any money down, I have 550 credit scores. And I just started my job yesterday. Nope, compensating factors can make it very difficult.

Ian Arnold  21:34  

Alright, and I will tell you this with the lower scores, usually we we need more documentations. I will say that and that takes more work. Yep. So more risk to the lender. Yep. So the higher the score, the easier it makes it on you and us. So

Rick Ripma  21:52  

absolutely. And not just the easier, it's easier, but it's also a lot better for the customer, if we get that credit score up, if there's anything we can do. If they can finance, they should go ahead and do that. But we can while they're trying to finance we can we can work on that credit.

Ian Arnold  22:06  

Alright, so does credit actually affect how much you can afford?

Rick Ripma  22:11  

Yes, it does, for a variety of reasons. Number one, it affects the interest rate, the interest rate is going to affect what you can afford. Number two, you're not going to be able to go to the same debt to income ratios, that somebody with higher credit scores can go to so it does very much affect what you can afford.

Ian Arnold  22:30  

Okay. All right. So talking about the whole afford. So if I'm looking to get in my first house, and I'm sitting at home playing on a computer, how can I find out just quickly how much I can afford?

Rick Ripma  22:46  

I am sorry, but the best way to do it is to go to hard working mortgage guys.com fill out the information there, send it to us, and then he and I are will get e n or I will get back to you.

Ian Arnold  23:00  

And here's the reason why we say that is it's not an easy one plus one equals two calculation. There are tons of things that is how much do you owe on your car? How much payments do you have on credit cards, student loans, even if you're not making student loans, if they're deferred, there's still a we have to run calculations and and depending on what program depends on how much we have to say that you would be getting charged on that per month. So there are tons of calculations. So yes, the easiest way and it takes 510 minutes, we can have you some pretty good answers.

Rick Ripma  23:40  

And it's not just calculation. You hit on a two which which program yes is a conventional? Is it FHA? Are you a first time homebuyer? Is it USDA? Do you qualify as a VA? That what are your credit score's, what's your income, you think your income is x, but we may not count it the same way, if you haven't been there long enough, we may not be able to count some of the income, or if you've had a downturn in income. So we have to get all the information to give you accurate numbers. And you don't want to have a wrong number when you're out there looking for a house. The other thing is you have to have an accurate interest rate. When you got a lot of these on online pre qualification type systems where they you just put it in there. And you put in your own numbers and it kicks out your interest rate and all that those are what I have found very inaccurate. You need accurate information. So go to hardworking mortgage guys.com and contact us from there.

Ian Arnold  24:38  

Hey, let's let's be on it. If you spend 30-40 minutes on your own trying to figure this out. How much is your time worth? It could take us maybe 10-15 20 minutes, and then you have accurate numbers. That's the key. It's accurate and your time is always money. So why waste your time? I mean, let's look at it waste our time.

Rick Ripma  24:59  

Yeah Well, it's not even wasted. You know, but,

Ian Arnold  25:02  

but I'm just saying that

Rick Ripma  25:05  

why, you know, to me, and I've been around a long time, I don't understand why you wouldn't want to go right to an expert, who knows what they're doing, who can do it, and they'll save you time, energy, money, and give you accurate information.

Ian Arnold  25:20  

All right. So as we're talking about that, so what what type of income do you do you look at before taxes, income, or do we actually look at after taxes or what you bring home? When you look at your pay?

Rick Ripma  25:34  

You know, a lot of people have that question. You hear it all the time. And you are, you know, the answer, it's we look at before tax income, we look at what's called gross income, if you're employed, and you're getting a paycheck, w two person if you're not a W2 person, you're 1099 self employed 1099 person, that's totally different. And that definitely, I mean, there is no question that requires us to look at it because there are a ton of rules makes it more, there's more difficulty and for the customer and documentation. But it certainly can be done. It's it's not that difficult. It just requires more documentation.

Ian Arnold  26:17  

And you're not joking. Even my wife, and she's an accountant. Like she would say, Oh, well, we we make this much. I'm like no, honey, you can't you can't look at take home, because everybody's take home is going to be different. Maybe you got to look up before because whether you have kids, whether you what your insurance costs, what all the taxes, what tax bracket, you you say you are dependents you put on there, that changes everything? Yep. So that's why we always look at what everything is before. Yep. So we got about a minute or so left? How often? Or how would you look at locking a rate right now?

Rick Ripma  26:58  

Well, again, I think it's one of those things we just have to look at and see right now I tend to go and lock in a rate, especially in a market like this, where the volatility is there, and it's more likely the rates are going to go up, I would be very, I would be very leery of, of not locking the rate. It can, if long as we watch it on a, you know, hour by hour basis, it can be okay. But I wouldn't necessarily do that. You know, another another piece of that you're probably going to ask me is, you know, what about what is locking it mean? What happens is when we lock a rate as we go out, and we actually lock that rate with conforming, or FHA or VA, USDA, whoever we're doing that through, we actually pay them and lock that rate in for you. So if it goes up or down, you get the rate that we locked in as long as nothing changes in your documentation.

Ian Arnold  27:46  

And we can lock it for 45-60 90 days easily. So it makes it so you're going through that process of buying the house, it takes a week or two longer what you anticipated, guess what? We can have that time period to have it locked long.

Rick Ripma  27:59  

Yeah, we can if you if you anticipate it up front, but it's not always that easy to anticipate up front. Next week, we're running out of time. So next week, we're going to talk with Ray Sumire, Senior Vice President of residential services with near North Title Group, and he's going to talk about how to survive your first mortgage closing. Again, thank you so much for joining us. This is Rick Ripma, your hard working mortgage guy,

Ian Arnold  28:23  

and this is Ian Arnold with Advisors Mortgage Group. Thanks again,

Rick Ripma  28:26  

have a great weekend.

Announcer  28:28  

Branch NMLS number 33041. Rick Ripma NMLS number 664589. And Arnold's NMLS number is 1995469. Equal Housing opportunity, some restrictions apply.