Where Is The Housing Market Going | 2025 Mortgage And Housing Predictions

Hey, what's up, everybody? It's your mortgage expert, Brian McCauley here. So you're looking to buy a house in Dallas, Texas, and you want to know how you get a much, much cheaper interest rate and what the current market is offering. Stick around in this video. I'm going to show you how. So the biggest challenge with buying a house in the DFW housing market is all around interest rates. You know, they're hanging somewhere, depending upon when this video drops. We'll call it seven percent, maybe a little lower, maybe a little higher. It all depends. But what a lot of people are doing right now is they are waiting on interest rates to drop because their number one priority in their head is affordability and monthly payment. Well, that's not a bad thought. I don't think it's a great thought and something to necessarily hold out for. So in today's video, I'm going to show you how to get a much, much cheaper interest rate more than what the current market offers. And I'm also going to explain the two different types of buy downs. There is what's called a temporary buy down, and there's what's called a permanent buy down. We're going to go through. What's the difference? What's the cost? When should I do one versus when should I do the other? So let's get into it. So interest rates work like this. There is a natural rate that is given to a consumer for what they actually qualify for. Most of the time, that's based on like occupancy type of house, down payment, credit score, property type. If it's like a condo town or whatever, blah, blah, blah. So who you are and what you're buying spits out this rate. It's called a par rate like golf, but I'm just saying it's a natural rate. So let's say that your natural rate right now is seven and a quarter. OK, so we'll say, all right, well, seven and a quarter is too high, Brian. I don't want that. I would like it to be at least six and a half. And I want my payment, you know, lower by X amount of dollars. So lenders have access to two different components of rate. When you have a natural rate, you get what's called a premium rate. So a premium rate is, hey, can you give me seven nine nine as opposed to seven to five? And somebody would say, why in the world and why in the hell would I want a higher rate? Because with a premium rate, you get money back. So this is designed for people that say, hey, I only have $15,000 in the bank. I've got to do a down payment. My down payment plus the closing costs are 15 grand. I don't want to eat up all my money. So what I will do is I'll have Brian, instead of giving me a natural rate, I'll give me a premium rate. And I say, Brian, I need 5000 bucks at closing. So instead of coming with 15, I come with 10. I'll say, cool, let's move that seven and a quarter to seven nine nine. Yeah, the payment will be higher by 100 bucks, 200 bucks, whatever it is. But we'll kick you a 5000 dollar credit. So that way, instead of coming to the table with 15 grand, you come to the table with 10. Save yourself five K. OK. So that's what a premium rate is. We're going to go the opposite way now on lowering rates, which is called discounted rates. So there are two versions of lower rates, discounted rates, which is where you hear discount points, which is where you hear like online discount fees. So when making your interest rate lower than what you actually qualify for from the natural rate, you would like to buy down the interest rate. The way you buy down the interest rate is you buy points. You can buy little points, a lot of points. And obviously, the more points that are bought, the further down the rate goes. Now, you can also do this to two ways. Buy down the interest rate temporarily. Buy down the interest rate permanently. OK, so these are the most two popular things that people are doing right now to try to say, hey, what can I do to get my monthly payment lower? Most of the time, not a whole lot when it comes to like lowering the price of the house or putting a little bit more money down. It just doesn't move the needle. The way to really get the payment where people want it is to take that natural rate and buy it down to one or two or three percent lower than what it actually is. So the kicker is if you do it temporarily, it's a lot less expensive. Example numbers. I'm going to use a five hundred thousand dollar loan. Everything I speak on is loan amounts, not price of house, because this is how we run our calculations. So if you have a six hundred thousand dollar house and somebody puts one hundred thousand dollars down, their loan amount with me is five hundred grand. So I'm going to use five hundred grand as an example for now. So let's say they have a five hundred thousand dollar loan amount. Their natural rate is seven and a quarter. They say, hey, Brian, I want to do a temporary buy down, which means I only want to buy the interest rate down for a short period of time. That short period of time can be one year, two years or three years. And it can be one percent, two percent or three to three percent. So if you do a temporary buy down, the way to calculate the math is really probably one, two and three percent of the loan amount. Now, it's not exactly apples to apples, but it's close. Meaning if you have a five hundred thousand dollar loan amount and your interest rate is seven and a quarter and you want to buy that interest rate down for one year, one percent lower, should move it from seven and a quarter, six and a quarter. It would be one percent of the loan amount. So if you have a five hundred thousand dollar loan and you want to buy it down temporarily, one percent, it would be one percent as a fee off the five hundred thousand. So it'd be five grand. If you wanted to buy it down two percent from seven and a quarter to five and a quarter for two years, year one and two, it'd be about 10 grand. Now, it's actually a little bit more than two percent, but it's easy math. And if you wanted to do the same thing, which is, hey, I want to get this thing from seven and a quarter to four and a quarter by a down three percent starting on year one and then to two and one. It would be about three percent of the cost of the loan. Call it 15K. Now, it's a little bit more than that, but simple math. If you're out there in the street, really, it'd be about five grand for a one year and a one percent. It'd be about 12 grand for a two year, two percent. It would be about 17 to 18 grand on the three. But easy math for dumb people like me. Just figure out exactly where you want to be. Take one percent of the loan amount. And then obviously, that's how much you would need to pay in fee. So the question is, all right, well, Brian, why would I want to do a temporary? And I, as the buyer, really don't want to pay $10,000 to lower that interest rate. So let's talk about that. So temporary buy downs are 30 year mortgages. You're just teasing the rate down for one, two or three percent for year one, two and three, depending upon what you want to do. Now, if you tease it down two percent for two years, if you don't do anything after that, it just goes back to the natural rate of seven and a quarter. So a lot of people get this confused with arms. It's not an adjustable rate. It's just a temporary buy down for a short period of time. And if you don't do anything, which I will make sure you do something because obviously I'll follow up with you to refinance. But it would just go back to the seven and a quarter rate and stay there for the rest of the life of the loan. There's really only one reason that people do temporary buy downs to get their interest rate and their payments in line with their goals short term for the next year or two. So their payments are much cheaper until the natural interest rate market starts to come down. So we all know we're in that seven percent, seven percent range. We all believe, including me, that maybe by Christmas 25, rates are probably going to get down somewhere, I think safely in the fives. Now, is that going to be five and a quarter or five nine nine? I don't know. But I think saying somewhere in between five and a half and five nine nine is probably safe. So you don't need a long period of time to keep your interest rate lower and keep the payments lower, because as soon as we get to that place to where rates are permanently and the fives again, everyone's going to refinance off of these seven and a quarter temporary buy downs and say, hey, I want that five and a half so I can get the savings and I want that rate forever. So the temporary is designed to be a short term, cheaper solution for a consumer that doesn't need four and a quarter, five and a quarter forever. They just need it for a short period of time until the market interest rates start to come back down and then go refinance and get that on their new loan for the life of the loan. And it saves them a lot of money. Second piece about a temporary buy down for the cost that it takes to get the interest rate down one, two or three percent. I'm just going to say cannot for now, but should not ever be paid for by the buyer. So the concept behind this is if you're out in the market and you and your agent are shopping and you find a six hundred thousand dollar house and the seller will take 580 for it. Conceptually, it's don't take the twenty thousand dollars off the price. Why? Well, you're still going to have the seven and a quarter rate. You're just going to be, you know, buying it at 580 versus six hundred and twenty thousand dollars over 30 years. It doesn't move the needle at all in the payment for you as the consumer. It's not what I call the highest and best use of the concession. If the seller says, yes, we'll give it to you for 580. They don't care where you use the 20. I do. OK, so my strategy would be give them the 600, but just ask for the twenty thousand dollars as a closing cost credit. And then you can take that twenty thousand dollars and buy down that interest rate at their expense for two or three years, two or three percent lower. So you've got really, really cheap payments for a long period of time until the rates come down. And then you can refinance and get yourself a permanent fixed rate for a longer period of time. Also, bonus bucks, if it costs you twenty thousand dollars to buy this interest rate down for two or three years. But let's say, hey, Brian, I end up refinancing Christmas the following year and I had 24 payments and I'll leave 17 payments. Any of the unused money on that temporary buy down goes back to you as the consumer as a refund. So that money will get credited towards your principal balance. And most of the time, whatever the surpluses that's left will pay for your refinance fees the next time around. So it literally cost you little or no money. OK, that's part one. So that's a temporary buy down. These are rare. They only are utilized and used in markets where people are just waiting on interest rates to come down. We all know it's right around the corner and not years, probably months, anywhere from months to maybe a year and a half. But the temporary is cheaper. It's faster and it's short term. Second piece is you can do what's called a permanent buy down. So we talked about buying these down one, two, three years short term. Somebody else's expense just to get us where we need to be until the market gets good. So let's talk about a permanent buy down. So if you have that seven and a quarter natural rate, let's fast forward in time two years from now. Let's say interest rates are at five nine nine. People are refinancing left and right. There's a refi boom. People are good, good, going nuts. So let's say somebody wanted to refi and now the market gives them a natural rate of five nine nine. Well, they might say five nine nine is great. But what I really like, Brian, is I'd like to move that interest rate from five nine nine down to four nine nine. I want it to be permanent and I want it to start from payment one all the way through the life of the loan, because obviously it's going to save them a ton of money. At that point in time, you could elect to do a permanent buy down, which is because it's a refinance and because it's your house and you're using the equity, you could spend probably 10,000 bucks. OK, so remember, the temporary buy downs are cheaper. Earlier I said it's like one percent off the loan amount, two percent, whatever in this scenario. If you bought it down permanently from five nine nine to four nine nine and you had a $500,000 loan, it probably cost you ten grand. So it's much more expensive. But you're going to do it one time. You're going to make a deep cut. You're going to have a really aggressive and low rate. And as long as you're going to be in that house for a long period of time, it makes sense to buy down the interest rate. Now, what I don't want clients doing is spending $10,000 to buy down the rate from five nine nine to four nine nine. It may save them $400 a month on the payment, but they know that they're going to be moving out of that house in 15 months. And I'm like, well, don't do that. You're wasting equity. So when I get into these strategies with clients, I also do what's called a break even point of, hey, if you spend $10,000 to buy down the interest rate from five nine nine to four nine nine, it saves you $500 a month. You have to say, how many months will it take me to get the 10,000 back? And if it takes 25 months, I say, hey, are you for sure going to be in this house and be making payments on this house for 25 months or longer? If the answer is yes, do it. If the answer is no, don't because you'll waste the money. You never get the equity back. Sometimes it's like, well, I'm only going to be here for, you know, 18 months. So instead of buying it down from five nine nine to four nine nine, you could buy it down from five nine nine to five and a half. So that may cost you five grand, but you may be able to get all that back within 12 months. So there is a component and a break even strategy here to make sure not only can you buy it down permanently for a longer period of time from payment one, you have to make sure that you're going to be in that property for a long time and break even. You would rarely, rarely ever do a permanent buy down on this side because rates are so high. It would cost so much money to get it from seven and a quarter down to four four nine nine. It would just be like 80 grand. And so what happens is that most people don't buy it down permanently because they're like, one, it's too expensive. But to the interest rate market is going to give itself back to the consumer, hopefully up to two percent over the next 24, four months. So let it come back for free so you don't have to pay for all of that. And then when it gets to a bottom, if you decide that you want to take that natural rate two years in the future, take it down a percent, percent and a half, you know, whatever you want will go through the numbers, do a permanent buy down because you're probably never going to refinance again. And as long as you understand the cost to do it, the savings in the payment and the break even point, it is a great idea to potentially do a permanent buy down as long as you know the numbers. So two components of interest rates, natural rate, premium rate, discounted rate that splits into temporary short term, maybe one, two or three years, two or three percent just to hold the payments low until the market drops. And then you get over here, which is, hey, let's let rates get as low as they can. If I like them here, don't touch it. If you want to get it lower, you can buy it down even more from your own expense. It's a little more expensive. It's permanent. But as long as you know you're going to make the payments on it and stay there for a long period of time, you may end up winning the long game because obviously it's going to save you a whole lot of money So listen, I hope you found this interest rate video useful. If you did, do me a favor, like, comment, subscribe, even share with somebody that you know that can benefit from this information. If you're interested in getting a preapproval, talking about buying a house or just want to have a conversation around mortgage term strategies, the state of the DFW housing market heading into twenty four and twenty five. Reach out to us, email us, call us, text us. We're always here for you. Until next time, stay tuned.