Fairway Mortgage Manager Tu Phan

Full Video Transcript Below

Fairway Mortgage Manager Tu Phan and Host Alice Lema

Alice Lema: [00:00:00] Well, Hey, real estate fans. Welcome back to the weekly podcast. And today I have my friend, Tu Phan, from Fairway Mortgage. He's going to join us cause there's a lot of new cool stuff happening. Isn't there in the lender world.

Tu Phan: Well, thanks for having me, Alice. Excited to be here. Yes, a lot is going on. It's a crazy time in the market. It depends on your, your observation and your purview, but thanks for having me on. How can, what can I do for you today?

Alice Lema: Well, you, I know you're super busy, so thanks for jumping in. But I think all of our listeners are going to really groove on this. There's some fun stuff happening with the multifamily world, and that's a big part of what we're doing down here in. Southern Oregon. How about you speak to that?

Tu Phan: Wow. Thanks. Thanks for bringing that up. Yes. Fannie Mae beginning, with our next release or their update, as they say in mid November, I'm going to say shortly after the 18th or 20 of November, Fannie Mae is updating their primary residence, owner occupied as we call it [00:01:00] multi unit purchases where you can put as little as five percent down on a multi unit purchase up to four unit property.

So if you're looking at a fourplex you can actually buy it with five percent down and what's even more crazy People don't, you know, and we'll get into the loan limits, but this is the exciting piece. The the loan limit on a four unit property, nationally is 1. 4 million, 1. 442, 600.

Alice Lema: What does that mean exactly?

Tu Phan: So basically that is a conforming loan amount. If you're buying a fourplex.

Alice Lema: You can spend that much money.

Tu Phan: If you qualify, obviously it's if you qualify. So traditionally when we talk about loan limits, let's just dive into it. Fairway just recently increased their loan limits to 750, 000 in line with a couple of the lenders locally in the or nationally in the industry. And what that means is The current loan limit is [00:02:00] 726, 200. We've increased it to 750, 000 in anticipation of the loan limits going up. So what that means to our buyers is they're buying a home and instead of borrowing 726, 200, they actually can borrow 750, 000 and still be considered a conventional loan.

Alice Lema: Wow. So what you're talking about, I don't think people realize there's two ceilings. There's the personal finance ceiling and then the lender ceiling. That's what you're talking about.

Tu Phan: Correct. So you hit it on the nose, the loan limit ceiling. So with each unit property, you know, single family lending, there's one unit duplexes, two unit, triplex, three unit, fourplex. So with that said, each of them has their own loan limit tier and a lot of people get or miss it and think, oh, it's the 726 or the 750 number, the new number and without realizing if they are in fact, let's just say buying a, looking at a four plex for 1. 5 [00:03:00] million, they, they only have to put down 62, 000 or 5 percent of that.

Alice Lema: That's shocking.

Tu Phan: And still have a conventional loan.

Alice Lema: Wow. And so what happens if, if it's not a conventional loan, like we're saying you'll still have a conventional loan. Otherwise it would be what?

Tu Phan: It would be a jumbo and basically what we call a nonconforming loan. So anything above conventional loan limits.

Alice Lema: Okay. Okay. So wow. those are so many zeros.

Tu Phan: Yes, it is.

Alice Lema: So is that an Oregon thing? Is that a regional thing?

Tu Phan: No, it's a national thing. So Nationally, these are the new loan limits. And once again, you know, let me put in an asterisk, you know, shortly after Thanksgiving, the FHFA will formally increase rates or excuse me, increase loan limits.

And, and keep in mind that 750 number could be higher. It could be lower. But based on everything we understand in the marketplace, it will be probably slightly higher. So [00:04:00] this adjustment upward by, by a few lenders is anticipation of that mortgage or loan limit increases.

Alice Lema: Wow. That is, exciting and scary at the same time. So I bet a lot of people's, neighborhoods in the United States do have that many zeros for their multifamily.

Tu Phan: You are correct. and I believe in, in, in Medford as well that you're in the, depending what, what's the multi unit average, multi unit sales price.

Alice Lema: There are, if you can find one, see, that's the thing. So we've got, probably 200 a door, maybe more. So that would put duplexes at like 450 sometimes 500 if they're newer construction. And so that would put a fourplex, yeah, I guess so because it'd be 800 to a million. So, and then how do you qualify the rents for that. So let's say you have somebody wants to live in one. Then what.

Tu Phan: So basically, let's use the fourplex as [00:05:00] the example, rule of thumb is based on the proposed rents existing rents, is what we look at first. And then, if they're not in place, then the appraiser will provide us, proposed rents on each unit. And then we'll take, 75 percent of that, that, that proposed rent amount, factoring in maintenance and, and vacancies.

Alice Lema: And that's part of your qualification.

Tu Phan: Correct. So basically that 75% in income can further help qualify the borrower purchasing.

Alice Lema: Wow. That's what they call looking good on paper. How fun. So, that's pretty exciting news and that's a big, big change.

Tu Phan: It's a big jump. I, you know, a significant jump, you know, you know, if, if people been around, they understand that the rule of thumb for four plexus or multi units has always been at least.

15 to, you know, for a duplex to 25 percent for a four plex. So this is a significant move on behalf of Fannie Mae to bring in more buyers into owner occupied buyers, [00:06:00] have you, into the multi unit space.

Alice Lema: Because they don't want to support investors. Well, okay, we understand that's where the 20 to 25 percent comes in, right? Not going to live there. So, , so, let's talk about renovation because Fairway is great at renovation loans.

Tu Phan: Well, thank you. Yes. We have a fantastic renovation program. Let me lend to you first that it is our own program. It's in house and it is basically based off of Fannie and Freddie's.

Alice Lema: Oh, I didn't know that. That's in house.

Tu Phan: So, you know, Fairway actually closes it, and processes it. We're not outsourcing it. We're managing it. So it is our own, you know, in this case, conventional F you know, Fannie Mae's home style, Freddie Mac's, choice renovation, as well as FHA's 203K. We do the, the limited [00:07:00] is what they used to call it.

And the full full renovation loans as well. We do provide one thing to keep in mind that a lot of people don't realize is we do have a VA renovation.

Alice Lema: Really? Okay. Well, let's, let's go there. Cause that's super exciting. What, what does that look like to the buyer? Yeah. What can you do with it?

Tu Phan: It's, it's very similar to, and I would equate it to more of a, an FHA limited type renovation loan. So nothing major, but more cosmetic and energy efficient repairs. The key here with the VA piece is it it's 50, it's capped at 50, 000 for the renovation. So at the borrower only has about 50, 000 in a renovation cost. You can go the VA route.

Alice Lema: So if you have more than 50, 000, then you just look at a different program or a different house.

Tu Phan: A combination of both, or yes, you're right. And renovation, conventional or FHA, but if they're a veteran and a they just need some, you know, up to, in this [00:08:00] case, 50,000 in, in cosmetic repairs. That would be a great program for them.

Alice Lema: So, does that renovation program work? We have a lot of double wides on land in southern Oregon. It's real common. Is that a program that would work on a double wide if it was on land, not in a park?

Tu Phan: Great question. We do offer it on, on manufactured homes. I'm not even gonna say it's a case by case basis. It's something that we need to look at. Hopefully what, what they're asking to do is nothing you're not altering the, the structure itself.

Alice Lema: So like windows and a roof.

Tu Phan: Yeah. There's it's, it's very limited. You, if you think about it, you know, from an engineering standpoint on a manufactured home, you probably don't want to alter a manufactured home too much.

Alice Lema: No, no. Could you, could you, build a shop?

Tu Phan: An ADU or a shop?

Alice Lema: Yes. So, so you could use the VA. Wait a minute, the VA renovation loan, you could use that to build another [00:09:00] building?

Tu Phan: We might want to strike that. I need to confirm that. I think it's mainly just, on the VA renovation loan, it's just mainly cosmetic renovations.

Alice Lema: Okay. Okay. But the other renovation loans you can build. Right. You can build garages and shops and yeah, yeah. Let's talk about the conventional renovation. Cause that's more fun. So, yeah. And what kind of buildings can you add with that?

Tu Phan: So my experience we've added ADU's and, and we're talking detached aDUs as well, depending on, you know, the question is how big can you build? It really depends on the local jurisdiction and the requirements for ADUs, in your respective city municipalities, et cetera.

But for the purpose of the renovation loan, yes, you can add an ADU, a full blown, you know, detached ADU that you, some people want to Airbnb. Absolutely.

Alice Lema: Wow. So how do you qualify for that? Is that different?

Tu Phan: No, the qualification process is exactly the [00:10:00] same as any other loan. The difference here is remember with a renovation loan, you have whatever you qualify for that inclusive of that dollar amount is what what you can build into your renovation costs. Good example, if you're qualified for a 500, 000 loan, all right, and you purchase a home for 400, 000. Potentially, there's 100, 000 in renovations you can build into that loan because you qualify for that 500, 000 loan or loan amount.

Alice Lema: That's pretty cool. That's pretty cool. So if you can build an ADU, then you could certainly build a shop with that money.

Tu Phan: Yeah. Absolutely. Absolutely.

Alice Lema: Wow. Wow. That is super cool. So, yeah, I think renovation is the way to go, but hardly anybody agrees with me.

Tu Phan: They're great for this current market. If you have properties that have sat on the market for a long time, if agents are trying to find ways to sell their properties or they're just not very desirable, if you can, you know, [00:11:00] basically paint the you know, as some painting painters do paint the picture for the buyer, what it might look like if they added 50, 000 in renovation, perhaps that would work, that would convince a buyer. Our first time home buyer that to, to go all in on a renovation.

Alice Lema: Yeah. My first introduction to renovation was during the crash. The big one, like the 08 - 09. And I watched one of my clients do it, a new roof And a central, , heating system and it was quite remarkable and they got theirs done in like two or three months. And they weren't nervous at all, but everybody after that, it was like, Oh, I don't know if I want to do that.

Tu Phan: I can't dismiss the, the, the stress and anxiety behind the whole process of, of renovating or building. We, we know that exists, but for the most part, it's a great tool potentially to build equity. Yeah. And make the home the way you want it to be, have it [00:12:00] move in with the nice amenities. A lot of buyers homebuyers who, I would say, who have some imagination and look at an older home and say, Hey, I want all those fine finishes or fancy finishes. They can do that. That's fine. The right home and pair it with a with a renovation loan and boom.

Alice Lema: And I should knock wood, but every time I watched one of these or done one of these, 100 percent so far knock wood that the properties then worth more than what it appraised for when we started. So it's, it's been pretty lucrative, but it is market specific, isn't it?

Tu Phan: But there there's homes in every single market that, that would fit nicely into a renovation loan.

Alice Lema: So what about this, this new multifamily, owner occupied thing?

Tu Phan: Yes, you can do those on a renovation loan as well.

Alice Lema: Can you really? Wow. Wow.

Tu Phan: Waiting until [00:13:00] the, that, that, that Fannie Mae updates their guidelines, but yes,

Alice Lema: Well, that's just a few weeks. You won't have to wait long. How exciting. We'll have to have you back and see how many people did it this winter. So what do you think is going to happen with our market? We're asking everybody this time of year. We're getting into the, you know, third quarter, first quarter 24. What do you think is going to happen with the housing market?

Tu Phan: The housing market is resilient. Overall, as we know, you've been in a long time. I think this is certainly a season as someone would call it. Interest rates are a little bit higher. And so with that said, the buyers are a little bit less and far in between. But, there is a lack of inventory as well. So with that said, I don't believe home prices, you know, the fear has been said, you know, home prices are going down. As you noted, you know, do you think there's a crash? I don't believe there's a crash. I mean, I believe, the market will be resilient. You know, we're [00:14:00] facing a downtime right now. Home prices are probably flat. If anything, statistics actually show that they're increasing year over year, about 3 or 4%.

If interest rates continue to go up, we might see that decrease just a little bit, but for the most part, what's, what's keeping it right at those levels is the lack of inventory Nationally and in, in specific markets. So I don't, I don't see the market doing anything crazy. I believe homeowners and homebuyers who want to buy right now are buying, regardless of interest rates.

And, and some of them have unique situations that, that they're in as well. And they're having to buy or having to sell. So, Based on that, I'm optimistic that the market will be fine. Hopeful that the spring market brings, you know, cross your fingers, you know, reprieve in interest rates so that, you know, we see more homebuyers. Yeah. Even just a little bit.

Alice Lema: So are the number of people getting qualified, cause that's something that gets tracked nationally, the you have a name [00:15:00] for it. The, is it applications? Yeah. How's that going?

Tu Phan: They're certainly down, you know, obviously driven by interest rates, but there is a, a sector of the market that is actively still wanting to buy, still wanting to apply, and finding out what they qualify for. And a lot of them, you know, over the past several years, starting with the pandemic, a lot of them were priced out of the market because of the increase in home prices. So, you know, You're asking me questions. What do you think will happen based on the current market will home affordability return based on interest rates going up?

Alice Lema: So I think about that a , and I think that if the interest rates go down too much or go down too much too fast, then that's the, feeding frenzy, the price thing is going to go up at least in our area, because we're kind of this lifestyle destination. And so we have all this open space.[00:16:00]

And as the world gets weirder we get more of the world. Because they feel comfortable, safe and, and that, but if it turns out that it only goes down a little bit, I think we just get normalcy. Like maybe we would actually see that four to six month turnover for people selling their houses. And maybe we would see more listings. I think people are nervous right now.

Tu Phan: I, it's natural. A lot of people in our market, I'm going to say this, cause I say this a lot to a lot of borrowers is as well as agents is that we've been spoiled the last three, really the last 10 years, interest rates have been historically low. And since they've gone up and since the fed has adjusted upwards, people are like, Oh my gosh, you know, this has, this has never been the case.

I'm like, yes, this, this is just you know, direction to a normal market that we were accustomed to prior to all [00:17:00] these years of low interest rates. As well as what the Fed would say is quantitative, easing.

Alice Lema: Yeah, yeah, yeah. They do like their big words. So how are you and your buyers adjusting to the interest rate? Like if, if, if somebody came into the housing market in May or June and got qualified and they still haven't found a house, how are they adjusting and how are you guys adjusting?

Tu Phan: Here's the thing, everybody's adjusting based on their purview. Do they want to buy now or wait? My experience so far with homebuyers is that a lot of them have the interest rate shock and continue to have the interest rate shock.

It's, it's a, I wouldn't call it a tough hurdle it's more of back to the conversation. What can you afford? What do you want your payment to be? And based on that work backwards and say, okay, this is what we need to look at to keep your payment in this in this category, this loan amount or this [00:18:00] purchase price.

Alice Lema: So are they deciding to pull the trigger or are they waiting?

Tu Phan: They are, they are. A lot of them have decided, you know what, the rates are the rates. They, you know, their situations unique, either they've been renting, they want to be at, they want out, certain parts of my, you know, my location up here in the Northwest, you know, certain people want out of certain neighborhoods. And so they will make the adjustments sooner than later.

Alice Lema: It's very diplomatic. So, the other thing is, how many of the buyers that are working with you guys understanding the equity opportunity that if you buy now on this little dip, when things do turn around, you're going to have a nice little wealth building exercise there.

Tu Phan: That's a great point. I bring that up to all the buyers that are getting pre approved. You know, my response to them with the interest rate conversation, you know, early on when the rate, fed started increasing rates, you [00:19:00] know, many lenders inclusive of myself, you know, we could, we would interject, oh, you can refinance. But as the year has drawn on and rates have continued to go up, I've really gone away from that conversation of refinancing. Yes, they, a borrower can always refinance when they want to, or when the rates come down, but the reality is, and we're in the current market.

Let's look at some of the things that we can control in this case, if you can control what your payment can be, that will be the response to what your actual, you know, amount that you can qualify for.

Alice Lema: So, and I think that's a really good point that gets overlooked because this idea of you're going to refinance in the future you're assuming that your financials will be such that even with lower interest rate you can refinance life can be somewhat, you know, surprising.

Tu Phan: I as optimistic as I usually am, I I'd love to see the market change. And I love to see a lot of lenders and banks would love to see the refinance, [00:20:00] refinances come in with lower interest rates, but we're in the current market. And like to answer your question about homebuyers, the ones that want to buy, like you said, the when they are ready to refinance, you're right, that's when they can realize the equity they have. But if they're not in the game, you know, to kind of come full circle on the question, they're not in the game and they don't own a home there's nothing to refinance.

Alice Lema: Some buyers that have been waiting for a crash for five years. So COVID was what three years ago. So they started waiting right before COVID, then COVID and they're still waiting. They're still renting and and anybody who pulled the trigger five years ago, at least in our neighborhood, they have like 50 to 100, 000 in equity. We, we don't, we don't always see that, but, yeah, just it's, and, and we're not pushy people, right. We're not going to make, you know, a big argument for somebody to buy something if, if they don't feel ready. But boy, I mean the prices, they're [00:21:00] just a little bit down and it's super exciting because it makes it a lot more, available to other buyers.

Tu Phan: Yeah, the affordability factor starting to come back a little bit. I'm not saying it's back by any means, but there are pockets just in Oregon where you can, you can purchase a home and it still be affordable to the monthly payment. And, and, you know, that, like I said, one of the things I concentrate with buyers is what are you comfortable in paying first? Cause that that's what they're stuck with paying.

And obviously the other plug is, you know, if some of them know they have jobs where they'll get pay increases or life circumstances change in a year or two years, we can also look at, a one 0, buy down, two, one, buy down or or a three, one.

Alice Lema: What does that mean?

Tu Phan: Basically, you know, in, in turn, you're basically lowering your payment for the respective first 12 months, 24 months, or three years of a mortgage, typically funded by hopefully a seller buy down. So really so, so [00:22:00] basically a simple two, one buy down is let's say the start rate of the actual rate is 8%. You're buying the first year's rate down to 6%. So your payment for the first 12 months, Is based on an interest rate of 6%.

And the second year, the interest rates based on interest rate of 7%. That's your principal interest payment. And so what what's collected up front in the form of an escrow account is the buy down, which is covering the difference between, in this case, the actual interest payment between 6 percent and 8 percent the first 12 months and the respective 7 and 8% the next 12 months.

And in this case, if we ask the seller to fund the buydown, that buydown gets set aside in an escrow account. And each month as the buyer makes their payment, they make the smaller payment at the 6%. And that difference from 8 percent to 6 percent is deducted from the escrow account.

Alice Lema: Well, that's cool. So, but they're qualified at the higher rate. [00:23:00] Is that right? Yeah. Okay.

Tu Phan: So this is really just giving relief to the buyer temporarily.

Alice Lema: But it's that first year that's the hardest. Right.

Tu Phan: It usually for first time homebuyers. Yeah. It. But one of the things I at least like to remind buyers is whether we do a 2- 1 or a 1- 0 buy down, will you be comfortable with a payment when the rate's fully at 8%? Whether the seller, because in that instance, I also let the borrower know, maybe we also look at a permanent buy down as opposed to just a 2- 1 buy down. But the more options the borrower has, or the buyer has in this market, or more information helps them say, okay, I can afford this.

Alice Lema: Well, I think Fairways been really great about having programs as quickly as possible and being creative. So it's one of the reasons we love you guys. . Yeah, that and renovation.

Tu Phan: We are, you know, obviously we were, we want to cater to the [00:24:00] buyers and provide as many products as possible. Obviously, closing is essential for us and ensuring that everybody's super happy in the process as well.

Alice Lema: Well, and all that great news about the multifamily down payment and the loan limits. That's, that's great. So I so appreciate you talking to us today. How do people get ahold of you? They want to talk more.

Tu Phan: They can find me on the web at TuPhan.com or they can call me at (503) 780-6872. You can cut that out.

Alice Lema: And he answers his phone.

Tu Phan: Yes. Available. I'm not going to say 24 seven.

Alice Lema: No, no I think your family would have a cow as they should. But and you can text, right?

Tu Phan: Yes. Call, text or email.

Alice Lema: Great. Well, I hope you'll come back on again in a few months and give us another update on kind of what's going on in, in all those different categories.

Tu Phan: Well, thanks for having me, Alice. Hopefully this was helpful for at least one person. [00:25:00]

Alice Lema: Well, I'm sure it was for everybody. So thanks again. Have a beautiful week, everybody. Thanks, Alice. Bye bye.