Rate projections for the new year, Using refunds to buy a house
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Welcome back to Go Gaddis Real Estate Radio right here on AM nine 20. The Answer. I'm Cleve Gaddis in this segment. What are the mortgage interest rate projections for 2023? Curious Minds want to know. Coming up on tax return filing season, do a lot of people use their tax refund as a down payment on a house?
And when do lenders need to see your tax return to verify your income? We've got these questions and more during this segment. Don't forget. If you want to connect with us, if you want to communicate with us, go to go gaddis radio.com, G O G A D D I S radio.com. You can ask questions, you can make comment, and you can subscribe to our podcast.
We would love for everybody who's a listener of the show. To subscribe to the podcast, we have got our special guest expert advisor. John Birch. John . John Birchfield. John Birchfield. I never get tongue-tied when I say your name, Mr. Birchfield, I apologize for that. You're an AVP Mortgage consultant at Capital City Home Loans, and you are my preferred mortgage lender.
And I'll be honest with you, I set a very, very, very high bar for anybody who provides a real estate service and I have to. That, uh, you exceed that every single time we do business together. So it is my pleasure to have you on the show, and I hope you keep coming back for a long, long time. Now we're a week and a half past the UGA win.
You've got your Georgia Bulldog hat on. You don't have a Georgia Bulldog sweatshirt, but it is the right color. It's almost red black every day. It's almost at least a month, the right color. So are you proud? Very proud. Yeah, so I will be honest with you, I didn't enjoy the game at all because it looked like a professional football team playing a little league team.
I actually started to feel sorry for the TCU players. I was like, you know what? Just, just let 'em run a touchdown or two, but you feel differently about that game. Give me, give me your thoughts. Yeah, I felt like we really needed to show that we belonged and that we needed to convincingly win that game.
Um, with the way the semi-final game ended with the Misfill goal and them saying, well, Ohio State should have beat you guys, and so and so got injured in last year. We beat Alabama, but their pop wide receiver got hurt. Uh, so we only won because they got hurt. I feel like, I feel like it was good to make a statement.
So that's so interesting. So you believe that people were saying you were winning by default or winning by accident, and you wanted kinda back into, you wanted it to. Yeah. You, you won that because the other team fell down and, uh, now you came out and I'm, I don't know what the, what was the final score? 60 65.
65 to seven. That is unbelievable. Yeah. That's sounds like a basketball. A basketball game score. Hey, let's jump into this real quickly. Let's, let's do it, do you think is going to happen to mortgage rates in 2023? And I'm gonna throw something in there that I'd also love to have a little bit of a discussion of what you think's gonna happen in 20.
24. Not that I have some opinions of my own, but I probably have some to share. Well, I would say 2023, um, we're probably gonna stay pretty close to where we are now. Yep. Maybe a quarter of a point up, quarter of a point down. Okay. But I think we're gonna see a very stable interest rate environment for 2023.
Okay. Um, but what your listener may not realize is through the holiday season. Yep. And, and into early January. Rates got better. Got that point. They came down, they did over, over a full point. So, um, you know, if they were getting interest rate quotes in, um, late fall mm-hmm. in the sevens, talk about that in the sevens.
Yeah, we need to have more conversations today because they've already come down. And now I think we're gonna stay at these levels for, um, you know, foreseeable future. And so I've heard six and a quarter, six and a half, 6.75%. So rates are moving in the right direction. I had a gentleman, I don't know if you know Mitch Palm or not, but he's with smart real estate data and he was on mm-hmm.
our show last week, and he said that the historic average over 50 years, which I thought was closer to 6%, now he's a data. He said the historic average over 50 years is seven and a half percent. Yeah. No, no, no, no. 7.75%. Mm-hmm. is the average over 50 years. I remember when I got my first mortgage, it was.
1992, it was 8.875%. And I've told you this before, but I thought to myself as I left that those people knew me any better. They wouldn't have loan me this money . They at least charged you a lot. Exactly. Charged me a lot more than that. So, okay. John Birchfield says interest rates are gonna stay about where they are.
So let's say six and a quarter to six and a half percent. Cleave says that by the end of the second quarter of 2023, that interest rates will be under six. I would not be surprised that I'm not a wagering kind of guy and I'm not, uh, contradicting what you're saying. The reality is that the Federal Reserve is raising interest rates.
Mm-hmm. and mortgage interest rates are already falling. Yes. And it's because they're starting to behave the way they're supposed to. So people who are listening are thinking, well, if the federal government doesn't set the mortgage, Kind of who does or what sets it. Yeah. And so why don't you give us a little history on, on what index it is out there that actually determines the mortgage rate more closely than anything else.
That would be the 10-year treasury bill. The yield on the 10-year treasury is the most accurate indicator as to what 30 year fixed rate mortgages are gonna do, uh, up or down. And the, now, the, the tenure treasury yield's kind of been bouncing between a 3.5, the 3.8. And the back keeps interest rates, like you said, right around that 6% level.
Um, but if we can break below Yeah. Into the low threes on that 10-year treasury yield, then you're absolutely right. We'll see. interest rates in the fives again. Yeah, and what's so interesting is that if you look historically, the spread between the yield on the 10 year treasury bond and a 30 year mortgage is, let's just call it 1.75 points.
That's, I don't know that that's an accurate number, but I did some research recently and it was as high as two and a half points. Mm-hmm. . So the spread required by lenders or investors is higher than it used to be. And my guess is that we'll see the yield come down, but we'll also see that spread come down, that required spread, I think in.
Like today, lenders feel like they have more risk, they have more exposure when it comes to interest rates cuz who knows how high they could continue to go. That's true. April 15th is the day you file your tax returns. Unless you're like me, you finally get 'em filed October the 15th. Once you've gotten every last little detail, uh, filed, how many people do you see waiting on their tax refund, uh, for their down payment on their.
you know, it's become a, a big trend, um, because the, you know, especially for your first time home buyers and those kind of, those range of young adults, um, you know, they can have a significant refund. And, uh, that refund can absolutely be used by us, the lender to, uh, pay closing expenses or add to the down payment, uh, and can really bridge that.
without it, uh, without it hurting the savings account too much. So I heard my father growing up saying, if you're gonna buy a house, you need a 20% down. I did not pay 20% down on the first house I bought, I paid 10% down. How little of a down payment can people make? So is it possible? 3%. Wow. So 3%. And that's a conventional loan.
First time home buyer, right? Yeah, yeah. Fh, first time home buyer. FHAs. Three and a half VA loans minimum down. Zero U S D A loans zero. Zero. And there are now U S D A is really an FHA loan, but. In the rural area. So if you move a little bit out from the city center, you can qualify for loans that are 0% down.
So if you are getting ready to file your tax returns, in fact, if I was gonna get a refund, I think I would've already filed my tax return. Yeah. I don't even know that I know what a tax refund looks like. Every time I turn around, they're asking me for more money. They're going, no, Mr. Gaddes, give us a little bit more.
And I'm like, wait a minute. I didn't make that much money. So using your. Refund is a good idea according to John Birchfield, to reduce your cost, to offset, to increase down payment, to offset things when it comes to purchasing a home, when a, and by the way, John, if anybody wants to reach you to talk to you about their specific mortgage situation, I know that you have the heart of a teacher and you'd be happy to have a conversation with them.
How would they reach you? What's the best way? Best is to, to just dial 6 7 8 2 2 6 7 8 8 7. That rings directly to my desk and uh, we've got somebody monitor. That line all the time. So we make sure we get you taken care of perfect. 6, 7, 8, 2, 2, 6, 7, 8, 8, 7, and you will have a conversation with somebody personally.
And even if they're embarrassed about their situation and don't even know how they're gonna get from where they are to being able to buy a home, you're always willing to have a conversation, aren't you? . Oh, we love to do that. That's, that's what we get up every morning for. Love it. So lenders, when uh, someone makes an application for a loan mm-hmm.
uh, you're typically saying, Hey, give me your last two years. W two s. Yep. Gimme your last two years. Pay stubs. Yep. Gimme your last two months. Bank statements. . Mm-hmm. , I think you've said 2 22 As as your rule in the past. Now the rule of twos for me, you get a copy of my w2, but you also ask for a copy of my tax return.
So the question is for all listeners is when and why do lenders need a tax return To verify income? Yeah. So when you're self-employed, you own your, the business that is generating your income. Even if you pay yourself a w2, we're gonna need to dig deeper, grab those tax returns, just so that we can see the health of that.
Uh, and now a lot of times it's just one year of tax returns that's needed. Sometimes we need two years. Um, but it's if you own the business or have any ownership in the business, over 25%. Then we're gonna get into those tax returns so we can see how the, uh, how the income report. Interesting. And you're also, if someone owns a business, you're gonna look at p and l statements, balance sheets, things like that.
And I did not realize this, but if there is a significant change in the income generated by a business, then lenders have to dig in to understand why that is. Is the business falling apart? Are the wheels coming off? Or is it just an adjustment? And the reason I know is because you and I. Had a conversation in May or June of this year where you said, Hey, wait a minute, your income is down compared to last year.
We need to look into some of these details. Well, now it was because one of the businesses that I used to own, I got a divorce and that business went with the ex-spouse. So I just had less income. So it turned out to be no problem at all, but lenders have to look into that. So you need a tax return to verify income when you are self-employed.
If someone's been self-employed, how long? Should they be self-employed before they decide, Hey, let me see if I can get a loan here. Yeah, the standard's two years. Okay. But there are, except. Where it might be a little bit less than that, especially if you, uh, work in the same exact industry and then just stepped out into your, into your, into yourself, uh, to, to open up a business doing exactly what you were doing before, it might be a, you know, be able to shave, uh, uh, some time off of that.
Yeah. We got about 30 seconds left in the segment. I got a quick question for you, and that is, what are the most common mistakes you see? A self-employed borrower, self-employed, bar, borrower, borrower. I cannot speak, borrow, or make, borrow or make Yes, uh, being too aggressive with their, uh, expenses that they claim on the tax returns.
Um, number one, you gotta be careful. The IRS is out there with, uh, 87,000 new agents. Yep. Uh, so, you know, you want to report legitimate expenses, but, um, those expenses are gonna hurt your buying power. How much we can use to qualify you for, for a loan. So if you wanna buy a. We gotta think that through. Yep.
John, will you come back and see us soon? Anytime. We're gonna take a quick break and our next segment is having an an ejector grinder pump in your house a problem. And what happens if a seller fails to disclose prior insurance claims on a home you're buying? Stick with us. We've got those subjects and more we'll be back.