Lower Rates, ARMs Return, and When to Refi

Dave:
Financing is still the biggest gatekeeper for most real estate deals. And therefore, small changes in rates, credit trends and loan programs can make huge differences for investors trying to build their portfolio. I’m Dave Meyer and today on the Market I’m joined by Jeff Welgan from Blueprint Home Loans to talk about the state of lending right now, what investors should understand as we move through this phase of the cycle and how lending conditions, shape prices, inventory, and opportunity. We’ll cover what’s changed recently, which loan products are most useful today and you should be looking into and the practical tactics borrowers should be using to get better terms on their next deal. This is on the market. Let’s get into it. Jeff, welcome to On the Market. Thanks so much for being here.

Jeff:
Yeah, thanks for having me on. Dave,

Dave:
For those who don’t know you, could you just give us a quick introduction?

Jeff:
Sure, yeah. My name’s Jeff Welgan. I’m the VP of Investor Lending at Blueprint Home Loans. We are a nationwide direct lender and we specialize in strategic planning for real estate investors and I’ve personally been in this incredible industry for the last 22 years and I grew up in a real estate investing family, so I’ve been around it my whole life and I love it and what I’ve really made it my mission to give back any way that I can and teach what I’ve learned and love what I do.

Dave:
Well, thanks for being here, Jeff. We’ve been through a lot of cycles in the last 22 years, so you were doing this in oh eight, obviously the last few years have been crazy. Maybe you could start there and just tell us a little bit about where you feel like we are in the financing cycle.

Jeff:
Looking back to that period that you mentioned of oh eight through, let’s call it 2012, my industry went through the exact same cycle where we had mass layoffs, company closures, and now we’re going through M and as mergers and acquisitions and we’re seeing a lot of that occurring right now, which leads me to believe that we’re coming to the end of this cycle because we’ve seen it before and the big money is preparing for the next cycle and the next wave. So as of right now with what’s been going on with mortgage rates and how they’ve improved a bit, I mean they’ve come down about a point or so here over the last six to nine months, it’s been enough to where we’ve seen an uptick in the refinance business, the side of the business, and then purchases have really been picking up as well. So it’s been an interesting evolution and I think we’ve got some good days ahead.

Dave:
What is the driving the increase in demand? Is it just that one single point reduction in mortgage rates?

Jeff:
I think it’s more momentum than anything where you’ve got to really think about what’s occurred here over the last three years and how challenging this has been as a country. And I mean we’ve all experienced borderline runaway inflation. I mean it could have been a lot worse, but not quite the seventies, but it really has been ingrained into all of our psyche now to where we’re cognizant of what’s happening with inflation, what’s happening at the prices of goods and services. And so now that we’re starting to see inflation easing and mortgage rates coming down a bit, it’s opening opportunities for people that couldn’t qualify at the elevated rates, let’s say at seven or 8%. So keep in mind the only thing that’s changed since 21 or 22 is that rates over doubled. And so you got to think how many people we had pre-approved back then that have been stuck on the sidelines just couldn’t qualify because property values didn’t come down and rates went up and it’s caused an affordability crisis.
It’s as low, the affordability percentage number is the lowest it’s been in a very long time and unfortunately it’s just been stuck there. So without something changing here significantly with either rates or property values, I think this is going to be fortunately the way things are going to be for the foreseeable future. But I think a lot of it because the people smart money, the people that are actively still in the game are trying to buy investors and even people that are buying primary residences that are paying attention are taking advantage of these dips and getting in because the inflection point that we have seen coming here for the last few years is when rates convincingly get back down to around five and a half or so, and when the media starts getting back on board and we start hearing rates are in the 5% range convincingly again, we’re going to see a lot of these people that have been stuck on the sidelines jump back in, which creates that imbalance again where we have too much demand and not enough supply and there’s no big amount of supply coming anytime soon in most markets at

Dave:
Least. I do want to focus most of our conversation today about people who want to be in the market today, but you said a couple things that I got to follow up on. Even though I know you don’t have a crystal ball. You said things will be like this for the foreseeable future unless rates change or home values change. Do you see that coming this year or what’s your read on the market?

Jeff:
You and I are pretty much in alignment on this. I mean, I think I’m a little more optimistic with rates because of the industry that I’m in, obviously and some of the economists that I follow. But the reality is I think there’s still room for rates to improve. And we’ve seen what’s happened with the mortgage spread this year. Mortgage spread was the hero of the year last year in 25. There’s still room for it to come down a little bit further. And I talked about this a little bit on Tony and Ashley’s podcast here last year, and I caught a little heat for it. So I try to be careful and I want to preface this, that I stay out of politics. I don’t touch politics with a 10 foot pole. I don’t care what side anybody’s on as far as politics is concerned, but it’s important as investors that we’re able to have these conversations to understand where the opportunities are.
The current administration love ’em or hate ’em. They are probably the most real estate and mortgage friendly administration that we have had. And everything that they’re putting out is if you listen to what they’re saying, one of their primary objectives is to lower mortgage rates and unfreeze the housing market because they understand how important this is. And so with it being an election year, there’s a lot of momentum towards that right now, and you’ve talked about it, I’ve heard your updates and I mean you’re spot on with it. I just think that given all the momentum and what they’re trying to do, I think we’re probably going to see rates go a little bit lower. I don’t think that they’re falling off a cliff. I agree with your rate range for this year, five and a half to six and a half. That’s where they’re probably going to swing back and forth, which means we can still see rates come down three quarters of a point on the lower end, and that’s going to open up a lot of opportunities potentially

Dave:
For sure. I still think the trend is down. We’ll see on Friday the

Jeff:
Inflation

Dave:
Report, but all of the suggestion is that inflation is not as bad as a lot of people thought they might post the implementation of tariffs and the administration has really suggested that they want to bring down these rates. And so hopefully I think that’s a good range. If we get in the lower half of that range, it’s pretty good in the high fives even it’s a point and a half higher than we were lower, excuse me, than we were last January. That is the difference between deals making sense and not making sense. So just something to keep an eye on. But as we talk about on the show, waiting for rates to go down is sort of futile. They might go down this year, they might go up, we don’t really know. And so the only thing you can realistically do is underwrite deals based on current rates and pick deals that make sense today. So Jeff, let’s talk a little bit about what kind of products you think work best for investors in today’s market.

Jeff:
So we lend in the conventional and non-conventional space, and I’ve seen a lot of changes on both sides over the years. And what’s interesting about the differences between conventional and government financing and non-conventional financing like the DSCR loan is on the conventional side, the government forecasts when there’s going to be changes and when things are going to come down the pike. On the non-conventional side, it’s all the big investment banks on Wall Street and they change the guidelines depending on which way the wind’s blowing. So if we have an announcement over the weekend that comes out about tariffs or we’re going to war with our rent, whatever it may be, we come in Monday morning and all of a sudden we have new guidelines. And so
It’s just we’ve watched the ebbs and flows in that space. The good news is, is that the market volatility and specifically in the non-conventional mortgage space, is having less of an effect now where in the last, let’s call it year or two, every time we’d have an inflation reading that would come out or a jobs number that was better than expected, we’d see pretty significant swings and we needed a week or two to wait for the dust to settle to see where the new rate range was going to be. That doesn’t occur as often anymore. The markets are used to it. So we’ll see some swings, especially on the larger announcements. But as far as programs are concerned, I think, and this is don’t have a crystal ball, anything could change this, but as of right now the trend is things are continuing to improve incrementally.
The appetite for risk is starting to come back again on the secondary market to where we’re starting to see new products. We’re starting to see looser guidelines again where we’ve gone through over the past 12 months, a very restrictive period on the secondary market when it comes to DSCR loans and non-conventional financing, conventional options, I mean it’s pretty much been business as usual. I mean, there hasn’t been a lot of significant changes with the exception of the Trump administration allowing a lot of the first time home buyer programs to expire. So there was some $6,000, $8,000 incentives, they allowed that money to expire and they didn’t fund it again. But outside of that, there really hasn’t been any significant changes on that side.

Dave:
It’s great that we don’t see that volatility anymore. I just feel like everyone was so hypersensitive to every piece of news during the pandemic. No one knew what was going to happen. There was just so much policy shifting, but now we know who the next fed chair is going to be. I think people have a sense of what to expect. And so hopefully every announcement every week, every headline isn’t swinging mortgage rates that much, which I think is good for investors because you’re not waiting thinking, oh man, next week some piece of news might bring rates down a quarter point. It makes it a little bit more predictable, which is good for underwriting and for looking for deals. More with Jeff Welgan after this quick break. Welcome back to On the Market. I’m Dave Meyer with Jeff Welgan. Let’s jump back in. So for the average buy and hold investor, are people still looking at 30 or fixed rate mortgages or what are people using the most?

Jeff:
It’s a mix right now, depending on the strategy. Let’s start with short-term rentals. Most short-term rental investors are wanting to put as little down as possible and they’re using some of the conventional 10 and 15% down options. Those are all going to be 30 year fix. There’s no adjustables or interest onlys. There are a handful of credit unions out there that I’m aware of that are starting to do or have been doing some arms in that space. But outside of that, usually in the higher leverage, it’s 30 year fix. And then in the long-term rental rent space, we’ve been doing a lot of those 30 10 interest onlys where that really made a comeback where it’s helping make the numbers work, but you need to understand how to use that program interest only for the first 10 years. And then we’ve really seen arms come back.
So what’s been interesting with everything the government’s been doing with the shorter term debt, it’s really driven down five, seven and 10 year arm rates where we are really starting to see a spread between 30 year fix and arms, and that’s forecasted to continue going into this year. So throwing a dart at a board, I think this is going to be the year of the arm. And it is important to understand, and I try to get the right information out there about this. These are not the adjustable rate mortgages that cause the great recession. These are totally different products. Back then we were doing negative amortization loans where if you made the minimum payment, the principal balance went up and they were adjustable. We were doing two year fixed with three year prepayment penalties. So they’d go adjustable that third year and you’d be stuck in it.
And so those types of products were all done away with after the great recession. All of these armed products, nowadays, they’re all fixed for, let’s call it three, five or 10 years, and then they adjust every six months to a year after that. And there’s caps on them. They typically don’t have prepayment penalties, and if they do, they don’t exceed the length of the fixed period. The reputation these loans have got because of that period just kind of precedes them. And that’s why I try to get that correct information out. Caveat to it is it will go adjustable if you hold it obviously long enough. So what I always recommend is if you think you have a five-year timeline, take the seven year, always build on a little bit of a contingency. Same thing with seven years. If you plan on selling within five to seven years, take the 10 years so that way you’ve got enough of a buffer in there that if rates do go the opposite direction and we start seeing inflation really go in the wrong direction again, that you have enough of a long enough timeline here where you’re not going to get stuck, the adjustable rate period for too long.

Dave:
Thanks for bringing this up, Jeff. The arm I think is a super interesting option. Just so everyone knows, if you’re not familiar with the terminology 30 year fixed rate mortgage, you get a mortgage, you pay back over 30 years, your interest rate, it doesn’t change the entire time. Your payment is exactly the same. There are other types of loans where the interest rate floats or adjusts, and basically you lock in one interest rate for a certain amount of time. Jeff alluded to maybe a five year adjustable rate, a seven year, a 10 year. And then once that period is up, you still keep paying. It’s not a seven year mortgage, but your interest rate starts to adjust based on current market conditions. Now, if you can imagine this, an adjustable rate lowers the risk for a lender because rather than saying, I’m going to give you the, I promise you the same interest rate for 30 years, so like I promise you this rate for five years, and then we’ll see what happens. Because that lowers risk to the lender. You typically get a lower interest rate than you would on a 30 year fix. So Jeff, I don’t know, maybe you have an example. Do you know where a seven year arm rate is compared to a 30 year arm today, roughly speaking?

Jeff:
Yeah, I mean they’re touching high fives versus mid sixes in some cases on investment properties. I’ve heard of some of the bigger banks doing private client money that’s down in the low fives. If you move over a bunch of money, they’ll give you preferred pricing, but they’re all on arms.

Dave:
Do you think that spread is going to increase? Because just so everyone knows, the spread between an arm and a 30 year fixed in the last couple of years hasn’t been very wide. It wasn’t even worth it two or three years ago because you were just so much more security with your 30 year fix and the interest rate reduction was not good enough. But the way that the mortgage market works is that arms, like Jeff was saying, are much more influenced by the federal funds rate, which has been going down. And we think we’ll keep going down a little bit. The 30 year fix is much more tied to the bond market, which is also influenced by the federal funds rate, but has all this other stuff going on here. So I’m curious, Jeff, if you think that spread is going to get wider and therefore the opportunity to use an arm is going to be greater, the incentive will be greater.

Jeff:
Well, yeah, absolutely. I mean, I think if you look at again what the current administration is putting out, if you look at Scott Besant, our treasury secretary, they have been dumping a lot of money into the shorter term treasuries, which has been driving down these rates and that’s why the spread’s increased. And so I think this will continue. I think the emphasis is going to be on that. We’ll see what they decide to do with the mortgage backed securities, 200 billion that they’re going to be buying the Fannie Mae’s buying. So if they end up putting that into longer end like they’re talking, that may keep the spread relatively similar, which will mean both will come down in theory. But I think again, the caveat is I don’t think it’s enough to really move the needle significantly with what they’re talking about as far as that 200 billion is concerned unless they really start, like you’ve talked about, really start doing QE again, quantitative easing, which I hope they do not do unless we get into bad times again. But it’ll probably increase as rates continue to come down. But we’re going to hit a point. I don’t think we’re going to see threes and either one anytime soon. Personally, I hope we never see ’em again because of the longer term consequences and all of the problems that’s occurred. But I do think that there’s room for them to come down a bit and we may see arms in the high fours, which would be great.

Dave:
So when you’re talking to clients, then how do you advise them on when it’s advisable to use the arm versus fixed rate?

Jeff:
We give options and we explain the options. We don’t push clients one way or the other because there’s no, with the way that our industry is set up nowadays, there’s no benefit. Prior to the great recession, we used to be able to, as loan originators, steer clients towards certain products that would pay more. Now it’s an even playing field, so it doesn’t make any difference. And so what we do is we try to figure out what our client’s goals and objectives are, and if they’re planning on keeping the home 30 years, we’re not going to put ’em in a three or a five year arm, at least not make that recommendation. But if it’s somebody that has a shorter term outlook that’s thinking about keeping the property for three to five years or maybe even five to 10, it could be a better alternative right now, especially when you’re looking at ways as rates are still staying elevated to make the math work and get these deals to pencil. So it’s another way that you can approach this where you’re not having to buy the rate down significantly, and you’re also not having to go with an interest only program. So you still get the effect of amortization and you’re paying down the principle with most of these loans where on that 30 10 that we were talking about briefly with that one, if you just make the interest only payment, your principal balance stays the same. I mean it maximizes cashflow, but you lose the benefit of amortization.

Dave:
It is very individualized on your strategy. I personally usually favor fixed rate debt. I just think it’s one of the unique things about the US housing market. I think as a real estate investor, if you find a deal that makes sense with a 30 year fixed rate debt, there’s really no reason not to. I get maybe you save a couple extra points, but if you’re trying to hold onto that property for 10 or 20 or 30 years, I would much rather just know that my deal pencils for the next 30 years and there’s no big question mark coming five or seven or 10 years down the line. But one question, Jeff, I’ve been getting increasingly both for investors and friends buying homes is should people be buying down points right now? And I’m curious what your thoughts are on that.

Jeff:
Our advice on this has shifted here over the last few years. So when rates were up in the sevens and eights, I mean it was a way to get the deal to work in a lot of cases. And what we would do is build in seller credits. The max is up to 6% on a lot of programs, especially on the DSCR side, which you build in 6% of the purchase price and you can get the rate down pretty low, whatever the floor rate was at that time. And that can mean the difference between an 8% rate and one that was down in the six, around six. So it made sense, especially if they had a longer term outlook with the property. And the downside to this is, and why our advice has shifted is because now we’re in a downward trending market. Back then there was no telling.
I mean, there was a lot of fear that rates were going to continue to go up and that inflation was going to continue to increase. Now that we know that rates have come down and it could potentially come down a little further prepaying all of that interest and buying the rate down that far, if you end up refinancing that loan at any time in the first five to 10 years, you’re leaving a lot of money on the table and that just the benefit outweighs or the risk outweighs the benefit. Now at this point, I will say though, where we are still trying to find a middle ground on this once, if we do hit a period where rates stay stagnant, let’s say we stay in this range still building in maybe like a $5,000 seller credit on a purchase, a small one to help cover closing costs, minimize that upfront cost, maybe buy the rate down a little bit to increase cashflow.
There’s a good argument for that. And that’s what I would recommend is explore your options, look to see what a no point loan looks like. Look to see what building an extra 5,000 into the purchase price looks like because we’re going to go one of two ways and you want to be prepared either way. If rates go up, then hey, you’re locked in, you’re good. You don’t have to worry about it. At least for the foreseeable future, if rates come down, you just don’t want to be stuck in a loan that you’ve paid $20,000 in rate countdowns right now because it’s a long timeline to recoup that initial cost. Even with tax benefits of being able to write off those points. I mean, you’re still looking at probably a five to seven year timeline. And so
The example I like to use, and it feels like we’re kind of going into this right now, is that 2016 through 2019 time period where rates had come up to about five and a half and we thought rates were high, then a little bit we know was coming. But when rates did start to drop in 2020 and 2021, we implemented a refinance strategy that we’ve done numerous times over the years where as rates come down every time our clients are saving a hundred, 150 bucks a month, we do a no closing cost loan. Oh, wow. And that way they’re benefiting with the lower rates and lower payments and then not tacking on three to $5,000 worth of closing costs every time. And then eventually, when rates did drop down into the twos, the way our clients were able to get rates down to the ones where they bought the rates down a little bit, did one last refinance at that time and never touched it again.
So the way it actually works from a fundamental standpoint on mortgages where if you look at the par rate, which means no points, what we can do is raise the rate an eighth, we get a spread on the back end of the loan that usually, depending on the loan amount, it’s based off of a percentage, we can then apply toward closing costs. And on a $300,000 loan, it’s very easy to do by raising the rate an eighth or a quarter, and even larger loans, it’s much easier. But smaller loans, it gets a little trickier because it’s again, all based off of percentage.

Dave:
Well, I want to ask you a little bit more about refinancing because that’s a really important topic right now. But first I should explain what points are, by the way, it’s just an upfront cost. You can pay when you’re closing on a mortgage that will lower your interest rate. When you talk to a lender, they will give you usually a grid, a table with different options. Like Jeff said, no points, that’s going to be the cheapest. You buy some points, your interest rate will come down. Usually the breakevens like six, seven, eight-ish years. If you hold onto it, it can be worth it. But I have a calculator, it’s free biggerpockets.com/resources that allows you to put in some assumptions. The big question is always how long you’re going to own the house, which is always a variable, but if you have an idea of how long you want to hold it, you can make these estimates for yourself. So definitely think about that. Before we move on though, Jeff, what we’ve been talking about so far is buying down the points yourself, but given that we’re in a buyer’s market, are you seeing sellers buying down people’s points or what are the trends with some of the concessions that buyers are able to extract on the financing side?

Jeff:
And that was part of what I was talking about as far as the up to 6% of the purchase price. So years ago we would do, let’s say a $500,000 purchase price build in 30,000, that’s 6% of 500,000 and offer five 30 with a 30 K credit to cover closing costs. And by the rate down, well now that’s shifted. And so what we’re seeing primarily is in this market, given the fact that it is a buyer’s market, we’re seeing a lot of sellers willing to negotiate and willing to work with our buyers. And so what we’re typically recommending is building in more of like a five to $10,000 credit at the most. And then that way you can go into a deal, let’s say at 500, offer five 10 with a $10,000 seller credit and use that 10,000 to cover all of your closing costs. And then that way it keeps that money in your pocket and you can find your next deal with it.

Dave:
Nice. And so most people are, I know for a while, two, one buy downs and 3, 2, 1 buy downs were popular, but now are people just buying down points.

Jeff:
So the problem is with the two one and the three, one is that it’s user or lose it. So if you end up refinancing, you don’t get that money back.

Dave:
So

Jeff:
We’re still doing quite a few one ones where it’s for the first year, it’s one point lower than whatever the note rate is. So let’s just say if it’s six and a half, you do a one one buydown that the seller pays for or you can pay, there’s flexibility with the one one where even the buyer can pay for it and buy the rate down. Basically for the first 12 months, you’re prepaying that interest. So your payment’s going to be based off of a five and a half rate, and then it goes up to the note rate on the 13th month. But they’re becoming less and less commonplace, I would say. I mean, I still hear people that are on our team that are doing those for their clients that are working primarily in the primary residence space, but the investment is second home space where I haven’t done one in a while and I know we’re not doing them with any frequency.

Dave:
Well, yeah, I mean I think for most investors, if you’re in a position where you have some leverage to negotiate, you’re just better off getting the permanent. So I think this is a good thing that everyone listening, if you’re looking to acquire and build your portfolio right now, this is one of the benefits of being in a buyer’s market is that you can extract these kinds of concessions that can significantly improve your cashflow if you’re getting a half point off your loan, something like that, that could be hundreds of dollars a month. And these are things that your agent should be able to, not for every deal, but should be at least inquiring about and trying to negotiate if you’re cashflow focused. I think this is a great tip for everyone listening right now. We got to take a quick break, but when we return more on which loan products you should be looking at how to use buy downs and how to get the best possible turns for your Lex loan, welcome back to On the Market. Let’s get back into it with Jeff Welgan. Jeff, let’s turn our conversation to refinancing. You mentioned that refi activity is picking up. Is it mostly people who got mortgages that start with the seven or eight in the last couple of years, or what are the trends you’re seeing

Jeff:
Primarily? Yeah, I mean these are the last few years. Everybody that’s taken out loans that don’t have prepayment penalties are looking refinance now. And so that’s been the majority, but there’s still, we’re going into a period where we’re seeing more layoffs and people have been needing money. And so we go through these periods where even clients that have lower rates, twos, threes, fours, they’re doing cash out refinances and to pay off debt. And when you look at it, when you actually do that blended rate calculation versus your 25% credit card debt, and depending on you don’t want to do this over $10,000, but if you’re a hundred K in debt, I mean it’s worth taking a look at. I always recommend people look at second mortgages first if they have a lower rate loan because my first and foremost, don’t ever touch those loans if you don’t. Absolutely have to. But also, don’t wait until you start falling behind on credit card payments and car payments to start doing something because then it becomes much more difficult. And the problem that occurs a lot of times with our clients that have more debt, they can’t qualify for second mortgages in a lot of cases because the underwriting criteria is more stringent because they’re going in second position and the increased risk. So just trying to find that balance. But that’s a lot of the other refinances and second mortgages that we’ve been seeing, and I think as rates continue to drop,

Dave:
Is that something you see across investors? Is that homeowners everyone?

Jeff:
It’s both, yeah. And it’s not, don’t get me wrong, this is not leading up to oh eight, that kind of a situation by any means, but we are starting to see more people. I mean, you’ve seen the employment numbers. I mean, there’s some cracks, and I don’t think we have 15% inflation coming anytime soon like we were talking about before this. But I do think that we’re probably going to start seeing some more layoffs and as less the market really starts heating up again. I mean, I think with the evolution of AI and everything that’s going on right now, there’s a big argument that we’re going to see an uptick in unemployment here for the foreseeable future, which means people are going to need money. And from an investor standpoint, that means people are going to be motivated to sell. So going into this next, let’s call it year, two, year three year period, I think there’s going to be a lot of opportunities ahead of us because there are going to be people that are transitioning out of all of these jobs that AI is slowly taking and you’re going to have a lot of people that need to sell homes, which creates opportunities for the people that are prepared.
And all the conversations we’re having are our end. This is not the time to get overextended. I mean, be ready for the next cycle because it’s coming.

Dave:
Yeah, I’m with you on that. I am not super optimistic about the labor market these days. I think if you look beneath try and read between the lines you see, especially youth unemployment is really getting higher. I think we see a huge plunge in the number of job openings across the us even though we’re layoffs, I think is the highest it’s been since the great recession in January. There’s a lot, even though the total unemployment number isn’t bad, I think there’s a lot of signs that it could get worse in the near term.

Jeff:
Agreed.

Dave:
Let’s hope I’m wrong. Yeah, we were both wrong. I think it makes sense to be prepared for

Jeff:
That. Yeah, definitely.

Dave:
Last question, Jeff, what about HELOCs if you need, you talked about a second mortgage, is that what you mean? Do you see people using HELOCs? How do those terms compare to refi and how do you advise clients on using a line of credit these days?

Jeff:
Yeah, I mean if you have a rate below, let’s call it five and a half, 6%, you definitely want to take a look at your home equity line options. So the primary residence options are going to be your best first jumping off point because they’re directly tied to prime. Prime is currently at six and three quarters right now, and there’s banks and credit unions out there that are doing free home equity lines where it’s literally no closing costs, no appraisal fee because they do desktop appraisals and they service ’em. So they make the money on the servicing side. But that is the place that you’re going to want to start for the cheapest money. And I mean, being that we’re coming in out of this period where the cost of capital has been as high as it is, we’re always looking for ways to keep the cost down.
This is my best recommendation. You’re not typically going to get these from brokers or direct lenders like myself, full transparency, because we are not servicing them. Typically, we have lower rates on these, but you still have to pay the title fees, which can be a couple thousand dollars. So I always recommend primary residents, whoever you bank with, either in a regional bank or a credit union level, all of the big banks have stepped out of this space back in 23, and you can find out what’s available. You can typically go up to about 80% loan to value. So you basically just take whatever your property’s worth, multiply it by 80%, subtract out your first mortgage balance, and that’s what you theoretically could qualify for on your primary residence. And then if that doesn’t work, because the credit unions and regional banks have pretty tight underwriting criteria, it’s all full doc loans.
It’s going to be ready for pain in the more challenging yeah, process. It’s not fast, but hey, that comes at the cost. So that’s the trade off of a better rate and a free loan. But as far as additional options, so if that doesn’t work, then look at second homes and investment properties, though they’re available home equity lines and closed end seconds, the rates are typically going to be start at about a point higher and go higher than that than where the prime rate is. So where on a primary, if you’ve got great credit and you can qualify, you’re going to be looking at a rate and somewhere in the mid sixes on investment properties, they’re going to start somewhere in the mid to high sevens and go up from there depending on what the LTV is, but most are going to cap out at about 75% in that space.

Dave:
Yeah, I mean, I just think this is a good option, whether it’s because of a lifestyle need or you’re just seeing opportunity right now. Personally, I would choose to take the heloc, even if it’s a slightly higher rate than giving up those fixed rate mortgages at two, three 4%. That’s something you’re going to love to own for the next 25 years. And if you can find capital to grow your portfolio in a different way, like a HELOC or a second mortgage or private capital even in most scenarios, I think that’s probably a better option. So these are really good things to start looking at. And as Jeff said, just one thing to call out, these can take a while, so don’t wait until you have a deal lined up to try and go figure this

Jeff:
Out. Great advice.

Dave:
That’s the beauty of a HELOC too. You don’t have to draw on it until you need it. And so if you are getting into a time where you’re either going to do an acquisition or you want to do a rehab or something, start before you think you need to give yourself a little bit of time, there’s really no downside to doing it that way. So just something to think about. Jeff, this has been super helpful. Before we get out of here, any last advice to our audience about financing here in 2026?

Jeff:
Going back to what we originally talked about in the beginning as far as the market cycle and where my industry is, what we’re going to see, just to do a little forecasting here, we’re going to go through the same cycle in my industry that we did back in about 2012 through 2014, where there’s not going to be a lot of people in the industry, but once rates do drop and we see that refinance, boom, come, everybody’s going to jump back in. We’ve lost over a quarter of a million employees or people in the industry due to this shift. And what occurs is that as soon as rates drop, everybody starts jumping back in, which can cause a lot of problems for real estate investors because this space is the most challenging thing we can do as mortgage loan originators. I mean, it’s just the nuances and variability in the investor space is not like working with primary residents, home buyers or veterans, things along those lines.
So just keep in mind that when you guys are looking at whoever you’re going to work with here, you’re going to want to do your research, find out what your loan officer has been doing for the last five years, have they been in the business, those kinds of things. And you guys do a great job of vetting through the BiggerPockets lender finder. You guys really just want to make sure you know who you’re talking to because we saw so many problems during that period coming out of the great Recession where people would jump into the industry for a quick buck and didn’t know what they were doing, and deals are falling out, clients are losing deposits, those types of things. All the horror stories that we all have heard of, we’re going to go through a period like that where it’s going to be a free for all at some point here in the not too distant future. So just be prepared for that. And I really do your research on whoever you’re working with,

Dave:
Especially in these times. Like Jeff said, just focus on people who are going to shoot you straight, be honest with you, and trying to build a long-term relationship and not just maximize on a single transaction.

Jeff:
Absolutely.

Dave:
Well, Jeff, thank you so much for your help today and your insights. This was really beneficial. I think our audience will be really grateful to get these tips on how to find good financing for investors here in 2026. Thanks for joining us, Jeff.

Jeff:
Yeah, thanks, Dave. Thanks for having me back on.

Dave:
That’s it for today’s episode of On The Market. Big thanks to Jeff Welgan for breaking down the lending landscape for us. If you haven’t already, make sure to subscribe to On the Market, wherever you get your podcasts, or if you prefer, you can subscribe to the On the Market YouTube channel for BiggerPockets. I’m Dave Meyer. I’ll see you next time.