Buying
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Sometimes Housing Inventory Levels Are Not A Good Indication Of Housing Availability |
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Reflect with me for a moment on the definition of a paradox... paradox - a seemingly absurd or self-contradictory statement or proposition that when investigated or explained may prove to be well founded or true. Here's the paradox of the day... Sometimes Housing Inventory Levels Are Not A Good Indication Of Housing Availability Let's think it through together... Let's say you want to live in the infamous (and completely fictitious) "Riverside" neighborhood in Rockingham County. If you wanted to get a sense of whether it is possible to find housing in the Riverside neighborhood which method would you use? Method #1 for understanding housing availability... Look at how many homes are for sale in Riverside right at this very moment. There are currently zero homes for sale in Riverside, thus it is seemingly *impossible* to buy a home in Riverside, right? Method #2 for understanding housing availability... Look at how many homes have sold in Riverside during a particular timeframe, such as the past year. Oh, wait. There have been 15 home sales in Riverside over the past year. Thus, you likely will be able to buy a home in Riverside if you can wait for some new listings beyond what happens to be on the market at this very moment in time. As can be seen above, housing inventory levels were not a good indicator of housing availability in Riverside. -- Shifting gears a bit, let's consider whether housing inventory levels are a good indicator of housing availability in a real place, the City of Harrisonburg, but only examining homes priced under $300,000. Method #1 for understanding housing availability... Houses Currently For Sale in the City of Harrisonburg Under $300K = 5 houses Hmmm. Method #1 would lead us to believe that houses are not generally available in the City of Harrisonburg for less than $300,000. Method #2 for understanding housing availability... Houses Sold In The Past Year in the City of Harrisonburg Under $300K = 275 houses Wait a minute. There were 275 home sales under $300K in the City of Harrisonburg over the past year? That seems to point to a rather different conclusion about housing availability. -- And one more real example... Houses in Harrisonburg and Rockingham County combined priced under $200K: Currently Available Homes = 5 Sold Over The Past Year = 211 -- So... again... Sometimes Housing Inventory Levels Are Not A Good Indication Of Housing Availability Now, this does, of course, create the possibility that a would-be home buyer will simultaneously feel... 2. Encouraged... to know that there may very well be 270 more options in over the coming year. -- And one last point... If LOTS of homes sell each year in a particular location and/or price range but VERY FEW are available at any particular moment in time then two things would seem to be true... 1. Houses are generally available for purchase in this location and price range. 2. Demand for said houses likely exceeds supply, and if more such homes existed that could help bring more balance to that segment of the market. -- OK, fine, one more last point... If you are looking to buy a home in the coming year, yes, let's look at what's available now... but much more importantly, let's look at what has sold in the past year. The number of homes that have sold in the past year will likely be the best indicator of what to expect in the year to come. | |
This Is Completely Anecdotal, But Showing Activity Seems To Be Trending Upwards Again |
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Clearly, showing activity (the number of showings on any listing) will vary from property to property, based on... - price range - property type - location - how competitively it is priced ...but, based on several of my recent listings, combined with conversations I have had with other local agents about their recent listings... ...it seems that showing activity is trending upward again. The number of buyers in the market to buy seemed to have trended downwards during November, December and January, but things now seem to be starting to speeding back up again. It's important to note that... [1] November, December and January are usually some of the slower (or slowest) months of the year, so it shouldn't be totally surprising that buyer activity might start increasing again as we move into and through February. [2] Mortgage interest rates climbed above 7% in November and then took there time during December and January drifting back down towards 6%. The average rate (for a 30 year fixed rate mortgage) is currently hovering around 6.1%. It shouldn't be totally surprising that buyer activity might start increasing again as rates settle in at or near (or just under!?) 6% -- if that is where they are over the next few months. [3] This is totally, totally, anecdotal. Over the next month or two (or three) we'll see what the actual data shows us as to the pace of buying activity. Until then.. just know that we're starting to see a few more buyers in the market, more showings on new listings, etc... after a few months of slightly slower buyer activity. | |
What Is An Affordable Home Purchase For A First Year Teacher? |
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Q: What Is An Affordable Home Purchase For A First Year Teacher? A: Technically, $161K, but maybe more? Let's look at the numbers... It seems a first year teacher in the City of Harrisonburg would expect to be paid around $50,000 annually per this salary scale. A commonly accepted guideline for housing affordability is a housing cost, including utilities, that does not exceed 30% of a household's gross income. If we estimate utilities at around $125 per month, to include $40 for water/sewer and $85 for electricity, we would then conclude that this first year teacher could spend up to $1,125 per month on their mortgage payment. $50,000 x 30% = $15,000 for mortgage + utilities (per year) $15,000 / 12 = $1,250 for mortgage + utilities (per month) $1,250 - $125 utilities = $1,125 for mortgage How, then, does that translate into a potential purchase price of a home for this first year teacher? We'll assume a small-ish (5%) down payment for this first year teacher, and thus 95% financing, and a slightly above market rate of 6.5% for a 30 year fixed rage mortgage. To determine a housing budget for this first year teacher, let's look at a few mortgage payments (including principal, interest, taxes and insurance) given 95% financing at 6.5% and City taxes... $250K purchase = $1,748 / month $225K purchase = $1,572 / month $200K purchase = $1,398 / month $175K purchase = $1,223 / month $161K purchase = $1,126 / month $150K purchase = $1,048 / month So, a few things to note here... [1] An affordable home purchase for a first year teacher given the assumptions above would be priced right around $161K. [2] Let's tweak the numbers a bit. We'll look at a teacher's salary after three years ($52K) and we'll round utilities down a bit ($100 instead of $125) and we'll hope for a loan program with a slightly lower (6.25% instead of 6.5%) interest rate. This increases the monthly budget to $1,200 which translates into a $176K home purchase instead of $161K. So... a bit better, but not much. [4] Circling back to the original $1,125 per month figure... there are rental options at this price point even if it proves difficult to find a suitable home to purchase for $161K with that same $1,125 per month budget. [5] Certainly, if the first year teacher is married or is in a relationship such that there are two buyers instead of one, with two incomes instead of one, then all of this math changes... and they will find more housing options that will fit the affordable criteria. P.S. Do you come up with different numbers when you do that math? What assumptions above are too high or too low? What else am I not considering in this analysis? Let me know. | |
Resale Home Might Be Harder To Find This Year Than Last |
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We saw a 14% decline in existing home sales (sales of resale homes) in 2022... Existing Home Sales in 2021 = 1,347 Existing Home Sales in 2022 = 1,159 With many homeowners having bought with or refinanced to long term mortgage interest rates below 4%, it seems likely that plenty of homeowners will not want to sell in 2023 based on mortgage interest rates alone. After all... if you bought a home in 2015, refinanced in 2021 at 3.5%, and now have the possibility of selling, paying off that 3.5% mortgage and taking out a new mortgage at 6% or higher... would you? Plenty of homeowners will sell because they are moving out of the area, because they really need to move into a larger home or really need to downsize... but I think there will be an overall decline in resale home sales this year. How low will it go? Will we see as few as 1,100 existing home sales this year? As few as 1,000? If you are looking to buy a home in 2023 -- and you're not planning to buy in one of the area's new communities -- keep in mind that resale listings might be coming on the market a bit less frequently than last year. | |
Home Buyers Happy To See Mortgage Interest Rates Continuing To Decline |
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A year ago, the average 30-year fixed mortgage interest rate was 3.6%. Over the course of the past year that climbed... and climbed... and climbed... to a peak of 7.08% in October and November of 2022. As such, many buyers entered 2023 assuming we would likely see mortgage interest rates at or above 7% for much or most of 2023. Thankfully, that doesn't seem to be how 2023 is likely to unfold. After peaking at 7.08%, the average mortgage interest rate has been mostly declining... down to an average last week of 6.15%. I think it is extraordinarily unlikely that we would get back down to mortgage interest rates below 4% in 2023. It is also relatively unlikely that we'll see interest rates below 5%. But... I think it is now seeming unlikely that we'll see mortgage interest rates stick around above 7%. As such... we seem likely to see mortgage interest rates above 5% and below 7% in 2023... and if we give it a few more weeks we might conclude that rates might stay above 5% and below 6% for most of 2023. This is a trend that home buyers in 2023 are quite happy to see! | |
We Are Starting 2023 With Fewer Homes On The Market For Sale Than Anytime In The Past Decade |
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Yet another reason why it seems relatively unlikely that we will see home prices start to decline in this area... One main factor that could cause downward pressure on home prices would be if inventory levels were starting to meaningfully rise. If more sellers wanted to sell homes than there were buyers to buy them... then we might see prices level out or decline. But... as shown above... we're starting 2023 with fewer homes on the market for sale than anytime in the past decade. So... there's that. Will we see meaningful increases in the number of homes available for sale at any given time during 2023? Buyers sure hope so... but it is not yet clear whether that will actually happen this year! | |
Maybe, Just Maybe, Buyers Might Be Able To Look At More Than One House At A Time In 2023?? |
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The actual process of home buying has been a bit bananas for the past two years. Buyer: I want to buy a house. Me: Cool. Buyer: Let's go see a bunch later this week, K? Me: Every house for sale you might like is already under contract. Buyer: Ugh. Me: Wait, a new listing just came on the market, let's go see it, ASAP. Me, Two Weeks Later: Now there's another new listing! Me, Three Weeks Later: Ooooh, another new listing! Basically, many (most?) home buyers have only been able to consider one house at a time for the past two years. Homes were going under contract so quickly after they were listed for sale that it was rare for there to be two or more houses of interest on the market, not under contract, all at the same time. Which... lead to some less than ideal decision making for buyers. A buyer would have to decide whether to make an offer on each house, individually, without yet knowing what the other options would be (or might be) in the coming days or weeks. So, if the market starts to transition a bit in 2023 -- and if (a big IF) inventory starts to creep up a bit -- then maybe, just maybe, buyers will finally be able to look at more than one house at a time this year?? And compare and contrast them? What a novel concept! ;-) | |
Trading Up For A New House Will Likely Also Mean Trading Up Your Interest Rate |
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For about three years (2019-2021) the average mortgage interest rate for a 30 year fixed rate mortgage was less than 4%. It even dropped below 3% at times. As such, anyone who bought a home during that timeframe likely has a mortgage interest rate below 4%... and many (many) other homeowners refinanced during that timeframe to lower their rate and their mortgage payment. So now we find ourselves in a situation where many mortgage holders have a mortgage interest rate below 4% or even below 3%. Thus, when any such holder of a low mortgage interest rates considers selling their home to trade up for a new house... they will also be trading up their mortgage interest rate. It was often an easy decision to sell a $300K home and buy a $400K home when you were paying off a 5% mortgage and taking out a new 3.5% mortgage. Now, if you're selling a $300K home with a 3.5% mortgage and are considering the purchase of a $400K home with a 6.5% mortgage... the math is going to work out a BIT differently. I suspect there will still be plenty of people selling and buying homes in 2023, even with these higher mortgage interest rates, but I think there will be fewer people swapping one house for another unless it is a significant upgrade in the house... because it will more than likely be a significant upgrade in the mortgage interest rate. :-/ | |
Monthly Housing Payments Have Changed A LOT In The Span Of A Single Year! |
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With some regularity I take a look at trends in mortgage interest rates... but nobody really specifically cares about their mortgage interest rate... they really care about their monthly housing payment. The graph above shows how much monthly housing costs have changed over the past year. A year ago, a home buyer purchasing a $300K house in the City of Harrisonburg, with a 20% down payment, would lock in a housing cost of just over $1300 per month. Today, a home buyer purchasing a $300K house in the City of Harrisonburg, with a 20% down payment, would lock in a housing cost of just under $1800 per month. The slight bit of good news, I suppose, is that this potential monthly housing cost has been edging down over the past month-ish from over $1900 to under $1800 as mortgage interest rates have started to decline a bit. I don't think we're going to get back down anywhere close to the 3% ($1300) range in 2023 or 2024, but perhaps the monthly housing cost for a $300K home can work its way back down to $1700 (5.75%) or even $1600 (5.15%) over the next few years? | |
Comparison Shopping (For Homes) Is Difficult In A Low Inventory Market |
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If you were going to buy a ____, it would probably be nice to look at multiple options, compare them, and then decide which one to buy, right? That is often possible with buying a home, whenever we have a balanced market (or a buyer's market) when buyers can find multiple houses on the market at any given time that might work for them. A buyer would then go view multiple houses, compare them, and decide if they want to make an offer on one of the available homes. These days (and for the past few years) we have been in a strong sellers market, with very low inventory levels. The same number of houses have typically been available for a buyer to consider... but they are often evaluating them one at a time, every few weeks... instead of all at once. Sorta like this...
Basically, home buyers have had to make a decision about whether to buy a house... one house a time... without the ability to compare multiple options that are available at the same time. That may eventually change, in some or most price ranges, if we start to see inventory levels increase over time. Until then, it can be a challenge to be a thoughtful and intentional comparison shopper when trying to buy a home! | |
So You Think Home Prices Will Decline? We Would Likely Need To See Much Higher Inventory Levels First! |
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It's all about supply and demand. Over the past few years there have been plenty of home sellers... but WAY more home buyers. This resulted in buyers fighting over each new listing, competing to offer the most compelling terms, often being willing to pay a higher and higher price. Basically... [ Plenty Of Sellers ] + [ Way More Buyers ] = [ Rising Prices ] Some think that given higher mortgage interest rates and seemingly fewer buyers in the market, that we are certainly going to see home prices start to decline in this area. I suspect that will only happen if we see significantly higher inventory levels (of homes available for sale) such that sellers find themselves fighting over each new buyer, competing to be willing to offer buyers the most compelling terms, often being willing to accept a lower and lower price. (I'm exaggerating a bit here, but I just flipped the language above to show you what I mean.) That type of a market would look like this... [ Lots Of Sellers ] + [ Not Many Buyers ] = [ Falling Prices ] Until and unless we actually see measurable, significant increases in inventory levels, what I think we'll actually see is... [ Plenty Of Sellers ] + [ Fewer But Plenty Of Buyers ] = [ Stable Or Rising Prices ] Feel free to offer up your counterpoints or contrary perspectives. I'd love to hear them! | |
If You Bought A Home In 2020 Or 2021 You Should Be Retroactively Thrilled About Your Mortgage Interest Rate |
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Did you buy a home in 2020 or 2021? If so, you likely locked in a mortgage interest rate that was the lowest we've seen in the past 10 years... and actually... the lowest we've seen... ever! So, for all of the buyers from the past two years, please look back and be thrilled that you were able to take advantage of that unique opportunity to lock in a very low interest rate on what is likely to be one of the largest purchases of your lifetime. Hopefully your home will work for you for many years to come and you will continue to enjoy the benefits of that super low interest rate. And... for would-be home buyers of 2022... yes, current mortgage interest rates are the highest we have seen in the past 10 years. In fact, we have to go all the way back to 2000 to find an interest rate above 7%. But... mortgage interest rates are starting to trend back down over the past month. They have dropped from about 7% to about 6.5%... and I have seen some recent prequalification letters much closer to 6%. Just as those record low mortgage interest rates didn't stick around forever, it seems unlikely that these record high mortgage interest rates will stick around forever... and they might pass more quickly than we realize. | |
The Conundrum Of What Price To Offer On A Slightly Overpriced New Listing |
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Oh, silly sellers, why did you have to make this so difficult!? ;-) There's a fantastic new listing on the market... very likely worth $415K. But... the sellers listed it for sale with a price of $430K. Ugh. You want to make an offer on this house... you want to buy the house... but what do you offer? If the house had been priced at $415K, you would immediately make an offer of $415K. If the house had been priced at $420K, you may very well have made an offer of $420K. But the house is priced at $430K. So do you... [1] Offer $430K, the list price, ignoring the fact that you think this is too much to pay for the house? [2] Offer $415K, the likely value of the house, but $15K lower than the list price? If you offer $430K you are likely paying more for the house than it is worth in the current market. If you offer $415K the seller is almost certainly going to stall in responding to your offer, hoping for another offer that is higher... and is going to alert other interested buyers that they have an offer... which might result in other offers coming in as well. There is no easy answer to this question... it's situational in some ways... and your course of action should be guided by your level of interest in the house and the amount of other early interest in the house. But darn those sellers, pricing the house a bit of market value. ;-) | |
Are Things Slower Now In The Local Real Estate Market? |
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This is the number one question I am asked these days when I am chatting with non-buyers and non-sellers around town. In other words, folks who are not currently buying or selling or trying to buy or trying to sell. Are things slower now? The answer is, as perhaps you might expect... yes and no. Yes, things are slower...
No, things are not slower...
So, things definitely feel slower - the hectic, crazed, frantic pace of 2020-2022 has cooled off. But in many ways (number of sales, price of homes sold) the market is just as strong, brisk, vibrant, as ever... it's just not over the top, unbridled exuberance as it has been for the past few years. | |
Some, But Not All, New Listings Will Still Have Multiple Offers Within Days! |
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Some new listings are now remaining on the market for a week or two -- instead of a day or two -- before going under contract. That being the case, there are still plenty of homes going under contract in a matter of days, often with multiple offers. For example... in the past 60 days 175 properties have gone under contract... and of those, 62 of them were under contract within four days. So, yes, you may be able to pause for a day before making an offer, but keep in mind that plenty of properties are still going under contract quickly and they might require faster action. My advice... Go see a new listing of interest as quickly as possible, start working your way through your decision making process as quickly as possible, and ask to be notified if any offers have been received. | |
Many Home Buyers Now Find They Can Actually Think For A Minute Before Making An Offer |
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For a few years now, many home buyers in Harrisonburg and Rockingham Countuy have felt the PRESSURE to make a decision QUICKLY after viewing a new listing. Monday, 8:00 AM - new listing hits the market Monday, 1:00 PM - go see the house Monday, 4:00 PM - make an offer Much of this mad rush, however, was due to an EXTREME number of home buyers pursuing every new listing. It was not uncommon to have 20+ showings on a new listing within 24 or 48 hours of the property being listed for sale. Higher mortgage interest rates have reduced overall levels of buyer activity and enthusiasm, resulting in many new listings having a more normal-ish three (or so) showings a day for the first few days that the house is on the market. As a potential buyer, when you are competing with other potential buyers -- instead of 19+ other buyers -- you have a bit more time to make a decision about whether you want to make an offer on a new listing. This change -- in my opinion -- is good, normal and healthy for our local housing market. It doesn't mean that houses aren't selling... or that they are taking ages to sell... or that they are selling for lower prices... it just means that sellers might have to wait a few days longer to have an exciting offer to review... and that buyers can actually take a minute to decide whether they want to make an offer on the exciting new listing. So, buyers... yes, let's go see houses quickly when they hit the market, but you might not need to make a decision about an offer within a matter of a few hours now... maybe you can sleep on the decision and let me know in the morning! | |
Fewer Than 10% Of Buyers Spend Less Than $200K On Single Family Homes In Harrisonburg, Rockingham County |
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If you're hoping to buy a single family home for less than $200,000 in Harrisonburg or Rockingham County, you might find it challenging to do so. Only 8% of the single family homes sold in the past 12 months have sold for less than $200,000. Getting straight to the numbers... Total Detached Home Sales = 1,123 Detached Home Sales Under $200K = 86 | |
The Buyer Pool For Starter Townhouses May Be Smaller For Now |
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Starter townhouses (think two story, 15 - 25 year old) in the City of Harrisonburg used to sell for $150K-ish but have increased in price over the past five years to a range of somewhere between $200K and $240K. Why have prices escalated so quickly? Similar to much of the market, it's largely related to low interest rates... [1] With mortgage interest rates of 3% to 4%, the pool of potential home buyers expanded considerably... lots and lots of potential first time buyers were delighted to find that they qualified to purchase a townhouse. [2] Real estate investors were also happy to scoop up these types of townhouses as they were able to finance those purchases with exceptionally low mortgage interest rates as well. Certainly, the interest rate would be higher for an investment purchase than for an owner occupant, but an interest rate that is higher than "very very low" is perhaps "very low" so plenty of investors were purchasing these properties as well. But now, mortgage interest rates are a bit higher... OK... twice as high. The current average 30 year fixed mortgage interest rate is 6.95%. As such, and as shown on the "not at all based on real numbers or data" graph above... [1] Would be home buyers who could only qualify to buy with a mortgage interest rate of 3% - 4% clearly do not quality any longer and thus are not buying. [2] Investor buyers who were delighted to buy when interest rates were quite low are also likely not buying right now. That just leaves owner occupant home buyers who still qualify with 6.5% to 7.5% mortgage interest rates. What does this actually mean for this segment of our local housing market? [1] There will likely be fewer buyers coming to see your townhouse if you are selling a starter townhouse in the City of Harrisonburg. [2] There will likely be fewer offers on said townhouse, and less competition from other buyers if you are trying to buy such a townhouse. [3] We might see these townhouses take a bit longer to sell. Maybe? [4] Maybe the price of these townhouses won't climb quite as quickly over the next year or two. Maybe? These are my observations about this segment of our local housing market, very unscientifically graphed above. Let me know if you have other observations, thoughts or questions about the market for this type of property moving forward into 2023. | |
Where Do Home Prices Go From Here? |
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This is a question very much on the mind of potential home buyers and potential home sellers in the local real estate market in late 2022... Where DO home prices go from here? As per the illustration above, do we see... 1. Home prices keep in rising, perhaps another 10% in 2023. 2. Home prices plateau in 2023, with similar prices as in 2022. 3. Home prices correct, drop, droop, decline by 10% in 2023. It's hard to imagine won't keep increasing (scenario one) given that they have through the first nine months of 2022 even in the context of quickly rising mortgage interest rates. But yet at the same time, it's hard to imagine that prices won't level out or decline some given those quickly rising mortgage interest rates. I can be convinced by those that I talk to (buyers, sellers, agents, bankers, appraisers) that prices will keep on rising in Harrisonburg and Rockingham County... and I can be convinced by those same folks (or a different set of them) that home prices will flatten out or decline slightly in 2023. So, I have absolutely zero answers as to what we should expect in 2023, but interestingly, even if home prices dropped by 10% in 2023... that would take us ALLLLL the way back to 2021 sales prices. ;-) | |
Talking Things Through With Multiple Lenders Makes Sense Again |
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Over the past three or four years mortgage interest rates were sooooo low that there often wasn't too much of a difference in the interest rate quoted by one lender vs. another. Furthermore, buyers didn't have to think too creatively about different loan programs as far as fixed rate vs. adjustable rate, etc. The thirty year fixed mortgage rate was so exceptionally low that almost all buyers were purchasing with that program. But, now things have changed... Mortgage interest rates are quite a bit higher now... at or above 7% for a 30 year fixed mortgage rate! As such, savvy home buyers are... [1] Talking to more than one lender to see how interest rates and closing costs compare. [2] Considering fixed rate mortgages alongside adjustable rate mortgages that start out fixed for (usually) five or seven years. If you are buying a home in late 2022 or early 2023 it will matter now more now than ever that you talk to an experienced, professional, responsive, creative mortgage lender to make sure you are finding the financing program that is the best fit for your financial scenario and your plans for the coming years in your new home. | |
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Scott Rogers
Funkhouser Real
Estate Group
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scott@funkhousergroup.com
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