Episode 7 – Myth busting and so much more!

you have to put down % when buying a home already that that was a hard no
that is I mean I don’t think we get that question as much anymore but it definitely still comes up uh you know
when I’m at the country club with a lot of my dad’s older friends you know they always ask me that question you need % still to buy a house you definitely
don’t need % to buy a [Music]
house episode s mortgage daddies we’re here we’re back we’re ready to rock and roll today we’re going to be going over
appraisals explaining what appraisal gaps are what to look for in appraisals
as well as kind of going over rate buy downs and what that looks like for the consumer awesome you ready to rock and
roll I am I mean appraisals are uh probably about % of my day explaining to the consumer to the real estate
population you know the differences and why uh why yeah it’s bananas to me but
we’ll go over that um but first let’s do some questions yeah
let’s have some fun with this all right so this is a game called MythBusters I’m going to read it out then you’re going
to tell me USDA loans allow people to buy a home in rural areas with zero%
down that is true as long as they qualify and they’re inside the income GS
absolutely you know what though I feel like we need to give you a little PTSD today oh you are bringing them
out oh great good good job Craig good job can you elaborate like when somebody
calls you about a USDA loan M how do you tell them if you think it’s going to qualify so the property has to qualify
so you have to check on the USDA website if the property is within it most of the time you you can’t even say it’s all
towns because it’s not I mean in the area that we live in you know most of all of Dartmouth qualifies if you check
the map but if you look at a town like f Haven not all F Haven qualifies pieces which you think it would because it’s a
town but it’s too densely populated in certain areas so the outside closer to matap poit would qualify and a cushion
it but not all so you really have to check the address specifically but in any City typically you’re not going to qualify so the buyer or the real estate
agent should just call you run it through an address yeah the agent can look it up you can look it up on the website um you also when a USDA loan can
only use it on a single family house so if you’re looking at a multif family even if it it’s in a rural area you can’t use it oh good all right this is a
good one we get this all the time seller concessions can be negotiated into your purchase agreement
that is correct seller concessions can be used to pay your closing costs prepaids
escrow anything any part that’s not your down payment so if you have a seller concession and you have say a $
seller concession but your closing costs are only $that additional five can’t go towards your down payment so you want to talk to your loan officer
your realtor figure out what your closing costs are going to be if you’re not planning on buying the rate down making sure you’re only asking for the
amount that you need or right around that amount so there’s not a massive excess credit because it can and not go
towards your down payment damn it Craig I was really trying to buy a house get $seller credit not have to put
any money down no PMI I don’t want any PMI you want use seller credit for no PMI and then you also got to watch out
on the seller credit side of things on how much you’re asking for depending on how much money you’re putting down and what Loan program you’re using depends
on the percentage that you can ask for back got it got it all right we get this
a lot we have a lot of veterans around us VA loans are for active military only
that is incorrect I think you should be doing this wrong wrong as Olivia would do WR beating
those things I have like a lot of PTSD from last I think I had a headache the entire weekend from that I was just
waiting for Javier to uh come back out after he scrubbed it and cleaned it all up and made it look pretty you want to
know a crazy fact about VA loans that I did not know about too long ago but I learned in this business you’re always
learning things no matter how much you think you know there’s always something or some guideline or a change that comes out
now typically most people say you either have to be a veteran or you have to be married to a veteran to be on the loan
with the veteran what happens if you have somebody who’s not married is that a possibility % down and a half
and a half% down see I’m learning something new every day I’ll give you the right it was close yeah you were closer than I thought you were going to
be on that my uh my origination skills have taken a little step back that was
honestly that was one that I I was not aware of but there is like and a half or is there a calul that goes into it
from what I was told it was a half% is what you would need yeah not based off of when you’re looking at VA loans
as far as the calculation goes that’s more on if a veteran doesn’t have %
entitlement left so if they’re keeping their property and they’re using to trying to buy another property you can
actually have two VA loans it just depends on how much entitlement you have left on how much of a down payment you have to give got it paying off your
mortgage early should be your goal this is a good one this is a per personal preference I think I don’t know if’s a
right or wrong answer here I’m going to go with no so I’m going to say this one more time paying off your
mortgage should be your goal paying it off early should be your goal I think that that is not your goal that should
not be your goal I agree I just got off the phone with a good friend of mine uh he’s done all his loans through
Milestone myself local firefighter right so I have at least one more firefighter
client out there that Craig does not know has not taken um good guy though
owns a multif family here in New Bedford rehabbed it off street parking called his agent and get to
with my eyes closed oh was I said what’s your mortgage on that that we did he’s like well you got me at like
and I got nine and a half years left said all right so you’re going to take throw it down on the next
house okay there’s some things going on in his life where you know he needs a bigger house it’s time to get out of um
uh you know living living in a multif family so I asked them I said your new
mortgage payment with that down payment on $purchase going to be right around bucks a
month your mortgage payment now is all in just if you collect the rents on
the two units a unit they’re great they’re it’s a great mul probably more
than that at this probably more that’s so now you’re positive you can throw towards the other mortgage
payment it’s like five get it down to $a month on the new house this two family is now paying for you know % of
the of the next one and I asked them like you’re only going to have to do this for nine more years and then that house is paid off and now you’re living
in a house for the next years at the end of this both houses are paid off and
you were able to stop inflation and everything else with having a fixed interest rate for that time period so
selling it it can go both ways if you really need that payment you didn’t want to be a landlord and those type of
things I get it it’s a lot of money mhm but anybody that’s watching this that thinks that house prices are going to
just we’re on the bubble and they’re going to go down by % you’re going to be renting for a while you’re going
to be rent for a long time and his thing was maybe I’ll hold on to it for a year or two and wait till it really maxes out
said as soon as you start playing the real estate investment game if you’re going to buy high sell high sell low you
cannot predict this market like in did if you would have had a
gun to my head in and said Vern we’re going to see interest rates at % in the next months months I would
I would have I would have bet you my house like nah you know what maybe we’ll see five maybe we’ll see five seven five
six% I just don’t know I agree this is a hard not for me paying off your mortgage
early even if you look at it just as an investment s if you dump all your funds that you have into your mortgage to pay
it off and your rate was % % if it was % maybe it’s % yeah what is that money
going to do for you somewhere else in an investment account or I mean the average investment account if you just threw it
in whatever you’re going to make maybe % on that money what makes more
sense yeah and you have up Cycles right so I mean at the end of the day I just look at it as like you the hardest part
about real estate is the acquisition that’s what I tell people all the time the hardest part about any of this
process is you’re dealing with a real estate agent mortgage person deadlines time frames Home Inspection dates
contingency dates on getting financing you eliminate all that seven months from now you want to refinance you call me up
you want it done in two weeks or you want it done in two months you want to wait to the play the rate game for six
months it doesn’t matter there’s nobody pushing you what happens if he buys that $house like I told him to
do and he refinances it down and maybe we get to the fives in the next two or three years now his payment has
considerably gone down he’s still holding that this one’s going to be the multif family is going to be paid off in
less than years this one’s got a -year fix his rent from this one in years
pays for that one over here at the end of it when he gets the retirement age he’s in his early s so call it
years from now he goes to retire at not only does he have the house that he bought in we’re in let’s say in
years that house is now worth it should be worth that multif family
he would have sold to get him $in in cash to buy the next one it’s if
it’s worth today why would it not be worth a minimum of million in another years yeah absolutely now I
like I told him now you overMillion worth of paid off real estate that now
if you want to go and sell something you already used all that money you took advantage of all the interest rates you borrowed other people’s money now you
can go sell it you got three four million bucks in in equity and go go figure out if you want to move to the Caribbean
yeah I think that that one’s a definite I’m a hard know on that I’m even a hard know on paying extra
principal on my mortgage I wasn’t for the longest time until I sat with my financial planner he
yelled at me yelled at me and I didn’t listen to him and I kept making my payments yeah if you if you have that question go talk to a financial planner
they’ll they’ll show you where the numbers are and what you can do and what you can turn that money that you would have dumped in wish I wish I would have
done that when I first bought my house cuz every single month I’m like oh an extra$$a month next thing you
know if I would have just put that into an investment account broke made you much more than the interest you would have spent yeah and your rates at % %
% you would have made way more money anyway on to the next one appraisal what is a gap rate buy down
that’s we’re going to do that next we’re mixing all this stuff that’s for the topic after your credit score must be over
to buy a [Music] home facts that is definitely not true
no based off of the majority of the people that we do loans for uh you can have depending on the loan program you
can have a credit score much lower than with now how much money you have to
put down and and everything can change that so it’s not like you can call me with a credit score and say you want
to do a conventional loan and put down % it’s probably not going to work it’s not going to get approved but with a larger down payment with more Equity you
can get a credit score to run on a conventional purchase with an FHA loan you can go down even lower you can go
down to with and half% down might need some reserves at that point but it’s a possibility and even lower with
% down so you somebody could buy a house called the mortgage daddies at
Milestone with a fos score three and a half% down have some money in their retirement
their own down pay some reserves are usually needed once you start getting under depending on the strength
of the rest of the file but it’s definitely a possibility SO waiting for your credit to come up to points
doesn’t necessarily one matter that much especially with an FHA loan you know just I was just in between I was just on
a call with a client you know he has a credit score he’s like I was going to use some money to pay some try to get
a better rate it’s not going to change with with an FHA loan or above the rat’s the same it’s all all the same
another one on FHA question that came in FHA Loans are for firsttime home buyers only that is a question that I get a lot
and a lot of people think that you do have to be a first-time home buyer to use an FHA loan and you actually do not
have to be a first-time home buyer you can actually own another property and use an FHA loan as long as you don’t
already have an FHA loan so it’s going to be a no on that one hard no yep and
you could always sell if you had an FHA loan you wanted to buy another house FHA because your credit wasn’t ready for a
conventional lo you were selling and buying you could simultaneously buy and sell same day same day same day I get
that all the time so I have an FHA loan I’m going to sell that house on May th and I’m going to buy a house on May th
like yeah you’re go yeah no worries you have to put down % when
buying a home already answer it was a hard no that is I mean I don’t think we get that
question as much anymore but it definitely still comes up uh you know when I’m at the country club with a lot
of my dad’s older friends you know they always ask me that question you need % still to buy a house you definitely don’t need % to buy a house depending
on what you want to buy is going to depend on how much money you need to put down but as a first-time home buyer on a single family you can put down as little
as % with a conventional loan and a half% FHA single through four family and if you’ve already owned a house with a
conventional loan you’re going to look at needing only % on a single so your buddy that was just talking to you thinking you need all all of that money
to put down he really only needs to come up with % and he could buy that single family house and then wait a year or two
years for the market to appreciate go up in value refinance that take advantage of a lower rate and remove all the PMI
because now he’s going to have % Equity this is a good lead into this
question when you pay pay PMI you have to pay it off pay for the life of the loan so do you have to pay PMI for the
entire entire loan on a conventional loan you do not
it would fall off when you hit you can call to get it to to technical term here
you can call to get it to be removed when you hit % equity in the properties you hit would would be %
down as % it automatically falls off now with an FHA loan it’s a little bit more complicated if you put down less
than % the Mi the PMI is there for the life of the loan you’d have to refinance to remove it into either a conventional
loan or if you put down % or more it falls off after years got it do you
find that there’s it’s it’s better for a first-time home buyer to go FHA or conventional like I’m going through
these questions now I I always you know the the biggest thing that I always say to everybody
when they talk to me they start asking questions is everybody’s situation is different you’re you might have a
situation where it is better to go FHA because like we talked about and if you’ve been listening to this podcast
credit score is a big factor on what Loan program is going to be your best option what your debt to income ratio is
are going to be the two kind of biggest pieces that come into play on what Loan program you’re going to do so for the
majority of people that are maybe don’t have perfect credit and they they are looking at putting down a small down
payment most of the time FHA makes the most sense where their payment is cheaper um but if you’re going to
compare apples to apples the payment difference is not very big one way or the other you’re going to you know with
us because we have such great pricing on government loans you’re going to really have a small payment difference with
with good credit one way or the other it really going to depend on you know how much money you do want to put down and
how high you want to go you’re going to have you’re going to have different pre-approval amounts based on the different loan amounts I’m I’m sorry the
different loan programs so you might have a $pre-approval with an FHA loan but if you want to go with a
convention loan you can still get approv for it your payment might not be different comparing Apples to Apples but you might only get approv for
for a conventional because you have too much debt in your name your credit score might not be as high so you can’t run those ratios as high so that’s where you
want to look at both options to figure out what makes the most sense and what you want so I get that a lot right so
somebody wants to come in they’re going to put down to % you look at the FHA loan rates as opposed to where they are
conventionally even with a great FICO score everything there more times than not it’s cheaper per month to go with an
FHA loan right so I get it all the time but I don’t want to pay PMI for X number of
years the average homeowner doesn’t have their loan for
more than seven years you’re going to refinance sell upsid downsides now the
average is not going to be seven years in another three or four years because of where the rates are now so everybody’s going to refinance down and
you’re not going I mean unless you don’t touch it and you don’t pay attention to what’s going on and or you’re not in a
position to refinance you’re going to hit a point where you’re going to have enough equity in that prod property that you can refinance into a conventional
loan um or you’re going to end up selling the property and upgrading or doing something I tell them control the
controllables and you can’t control the uncol if you so like this is the other piece of that too right even if you’re
paying PMI you’re either paying PMI or paying interest yeah one of the two so if you go with a conventional loan this
is what happened when I had my first house right I came to you and I said I don’t want to have PMI I’m in trouble
right now no I’m just kidding he it was the it probably would have been the same either way right but it was a high it’s
a higher rate to not have PMI y than it would have been to have PMI now if you
go with a conventional loan even if you have mortgage insurance like you’re putting down five or % you’re going to have mortgage insurance or you’re going
to pay them the rate it’s one of the other unless you have a certain first-time home buyer bucket where you don’t have to have PMI but you’re going
to pay it one way or the other so do you want to have a cheaper payment as a whole with mortgage insurance included
or do you want to have no PMI with a higher rate with a higher payment you’re pay paying it just towards the interest
there’s no you’re not paying it towards the principal so there’s no difference on it and I try to tell people too if they come to me with like the odd number
that they might have saved up let’s say they’re buying a $house they have like it’s very common like
they’re just missing the % down and then they’re like well we want to put down and a half per. yeah and like
well you’re going to go FHA right here’s your payment conventional where you’re and a half% down here’s your FHA payment
more times than not the FHA payment with lower money down and then they can leave that money in there control the
controllables look at their credit and I can guide them and say go work on paying these credit cards down with this extra
money in six two years you know nine months months later come to me
refinance your credit score is going to be higher The house’s values are going up I mean there I haven’t read one
report maybe somebody can throw something on there that says hey uh we think the real estate Market’s going to crash I had somebody told me that the
other day I was like wow really we have thousands of pre-approved buyers just in our system here at Milestone we don’t
live in a huge Community where we uh have a big footprint at Milestone there’s just not enough houses out there
right which is a whole another segue to a whole another uh podcast it’s a hell of a lot harder to pull money back out
of a property so if you’re looking to put down % and but you have an option
to put down % or and a half% your interest rate in your mortgage insurance are not going to be any different if you
put down % or and a half% it’s going to be the same the only difference is going to be the principal and interest because you’re financing a little bit
more money for every $that you finance typically depending on where the rates are right now to maybe if
the rates jump up a little bit we’re at $a month so if you if you’re going to take an extra $and dump it onto
the loan because you want to have a lesser loan amount to try to pay it off faster it’s going to change your payment
$now you just spent every dollar you had now you bought this house you’re going to need Furniture something’s
going to go wrong you’re going to have to fix something you want to put a patio in you want to do something I mean I haven’t stopped doing stuff to my house
since I bought the thing and if I would to spent every dollar I had now you can’t do anything to the house or you
got to do what you got to go get credit cards now now you’re going to rack up your credit now your credit’s going to come down now when you call you want to
refinance now you can’t because your credit is in the how often that happen all all the time and they’re
sitting on all this Equity but they don’t want to touch their interest rate we we’ve touched on that before but it it’s crazy so I mean typically I mean my
opinion is put as least amount of money down as you can if there’s not a massive difference I mean unless you have
somebody’s talking about putting down % or % put it down right and you have other stuff and you want to get
keep it lower you want to have that payment I mean everyone’s situation is different everyone has different preferences but you’re not really moving
the needle that much by going from five to seven and a half percent down yeah % well that was a good game yeah I
know we got a couple other things you need to talk about yeah I thought that you know what we could kind of talk about especially in this competitive
market for a lot of people that are looking to put offers in and they’re losing out left and right on their offers because even if they’re offering
the same as somebody else they’re losing because that person’s putting down more money substantial amount of more money
but another thing that comes up a lot is well they put in a an appraisal Gap
contingency so you know if you are financing or you’re purchasing a house and you’re buying the house for
and you’re putting down % that house has to appraise at for your loan terms to stay the same if it doesn’t
appraise at and appraises less you now need to cover the appraisal Gap
and still put down what your minimum percentage down on the house is so if it appraises at thou if it appraises at
and you’re buying the house for you can’t just take that extra
five thand pull that out and go towards the appraisal issue y but what you can do is if you are putting down a
larger amount of money or you have extra money that you’re okay putting towards the transaction if needed is you can put
an offer and you can put in an appraisal Gap contingency so if you’re asking me
to buy my house and you want to buy my house for and you want to put in a $appraisal Gap contingency is
that something that you can do yes yes but you need to understand you have to
have some money in the you have the money because that extra that you’re agreeing to is on the side right
it’s not going towards what that down payment is so hypothetically I’m buying your house for
I have % down because that’s everybody likes to use that So % down
down praa comes in at I had the gap for I had it for it only came in $light so essentially I’m still
going to put down my that I initially wanted to and well I’m going to have a little PMI on the other side
of that or just pay the other there’s and if you have good credit the mortgage insurance percentage is so low and it’s
going to fall off right like a conventional loan so you’re going to have it for a short amount of time it’s going to be at a really low percentage
you can still put down the you wanted you got your offer accepted because hey I was going to put down anyways I put an appraisal Gap
contingency in for they came in okay I can now put towards the loan
the other is going to go to the appraisal Gap y so you’re going to have less you’re not going to have % down
on the house you’re going to have a little bit of mortgage insurance but you’re not out of pocket any more money so if you’re somebody that’s out there and they’re putting down % and you’re
trying to get an offer you’re not winning an offer with % down maybe we look at an appraisal Contin if you’re
okay paying that and now people will say well if it doesn’t appraise I’m not paying that well you wanted to pay that
before you knew what the appraisal was yeah so if you’re okay paying that amount I mean a seems like a normal Gap in this type of environment I
think if I saw one for um they’d have to have a lot
more money in the bank they would have I mean obviously you’d have to really want the house right this is only a conversation the downside is If I Only
Had in the bank I’m buying your house for half million prais at I only have for a down
payment based on the $purchase price right because that’s going to loan it up so my % down it’s going to be
it’s kind of using up all my cash right so that appraisal Gap I think it’s
just there to really help everybody win their offers yes but it goes back to and I keep using this word in the last
couple episodes just communication right like communication and educating our business partners to be able to add this
in and know their client and have this conversation on the from the loan officer to their client um you know
explaining it out we we were talking you know in the last episode about certain Realtors not knowing certain things I’ve
had it happen where they talked their they didn’t speak to me about it they talked their client into doing an
appraisal Gap contingency because they were under the impression that as long as it are praed higher than what their
loan amount was oh it was okay huge issue that’s not the case you still have
to now if you’re putting down % like we talking about and it appraises in what you would be left with after
covering the appraisal Gap was only % and that worked for your loan terms and you okay doing that you can do that but
if you’re only putting down % and that’s needed because you’re not a first-time home buyer you’re buying a single family and all you have is % and
you do an appraisal gap for or you still now in a the percentage that
you have to put down on a loan is off of the purchase price or the appraise value
whatever is less meaning if you offer but the house comes in atyou
have to put your down payment percentage that you need to qualify off of the that extra has
to be covered or you’d have to renegotiate but if you agree to an appraisal gap for you now have to
put down there and then still the minimum % off of the so you have to
understand what you’re doing but in certain situations if you have the money and you really want the house and that’s the price you’re okay paying talk about
an appraisal Gap contingency because it’s going to help get your offer accepted I’ve had plenty of deals where I’m the one who brought it up and I
didn’t bring it up in a way you know to talk to them in but I’m like guys it doesn’t change your loan terms in any
way all it is is just you’re you’re going to have the same loan amount at the end of the day the amount of money
that you were putting down wasn’t changing really anything you were going from you know % to % down or
whatever the the numbers were but it’s not going to change anything really you’re going to spend the same amount of money out of pocket but now you’re going
to put your offer to the top of that table because the number one thing that every listing agent and sellers
concerned about is as these prices are going higher or as other people are asking for concessions or now with the
realtor buyer concessions being in there for realtors are the houses going to a praise high enough well if you have the
ability to put it in and it’s really not going to change your out- of pocket term much at all and maybe none in your
situation or maybe some mortgage insurance would get added on there for for $or so but if it’s not
drastically changing things that’s something that you can do to kick you to the top of that list because now they’re
not so worried about what that appraisal is going to be that’s interesting I’ve only been doing this for years and I
never went out on the street in all honesty and and you know kind of pushed that and educated that but sitting here
listening to you explain that out I knew how it all worked I’ve I’ve been a part of a handful of them here and there but
I really think like if you go out and educate and communicate that over to the real estate agents like you’re amazing
at uh I am not that that cre at that I’m full disclosure I know don’t worry about it big surprise there guys everybody’s
watching this um I think that’s that would win over a lot of offers a ton of
them it came the the first time I had it happened and I’m sitting there and I’m looking at the deal and this was back
years ago and the conforming loan limit was much much less so you have a conforming loan on conventional loan so
you can only finance up to a certain amount and then you would have to either put more money down to get into it or you go to a jumbo loan or a high balance
loan if you’re in a certain Market that has it this situation there was no high balance so the people had to get I’m
just going to use an example I can’t remember what it was it was was the conforming loan limit so no matter
what they had to put down X number of dollars to get into it it wasn’t going to change their loan so they were going
to pay say and for the house and they wanted to put it in I brought
up well guys either way you’re having to put down X to get into the conforming loan limit it’s not changing your loan
terms you’re going to stay within this certain percentage still either would you you were still going to have either
no mortgage insurance or some mortgage insurance or whatever it was but now you’re guaranteeing that extra money to
the sellers no matter what and no matter what happens here you’re good you’re good because you would have you would
have had to put that money down towards the loan to get into the conforming loan limit if it appraised less now you’re putting down less towards the loan but
you’re still putting down the exact same amount of money and it won the deal and it got there offer accepted and now they’re they’ve been living in that
house for probably or four years hm yeah that’s an interesting one I think we should make a note of that wrap that
up and move on to the uh to the next one what else we got shaking on over here so
the last piece that I wanted to talk about was what are some options for
somebody who maybe doesn’t qualify for enough for what they want we were in an increasing rate environment over the
last couple of years so this has come up quite a bit you know everyone’s pre-approval started to come down as the
rates went up but the prices of the houses weren’t coming down with it they were increasing so it’s become more and
more popular is buying down the interest rate yep so when you’re looking at somebody’s situation and you have
somebody who you know there’s multiple reasons as to why to buy down interest rate typically it’s just to get a lower rate to have a cheaper payment paying
you’re paying at closing points it’s called to be able to get a lower interest rate so that you save money
over the life of the loan yep now that can make sense and not make sense depending on how long you want to keep the house for but taking that side of it
out we can talk about that piece later down the line in another episode but in this episode it buying down the interest
rate is a great way to spend less money out of pocket to get a higher
pre-approval because I’ll use this scenario you’re approve for $you only have X number of
dollars to put down you can’t the house you want is$ you can’t put down $more yeah your pre-approval is
maxing out at a purchase price of$ but what you could do is you can
buy the interest rate down so you could possibly depending on how it’s pricing out the last one I just did it was a
cost a $to the buyer to be able to buy their interest rate down usually it’s ranges between to
depending on the purchase price and depending on where the rates are but in this situation we bought the interest
rate down for $we got that payment down because at the end of the day you’re not qualifying off of the
purchase price you’re qualifying really off of what your max payment can be depending on your debts and what your income is so we get that payment down so
that payment now at a higher loan amount stays the same as what your max was we qualify you for because now your
payment is the same as if you paid with a higher rate and now you can even ask for a salary concession to
cover that money because if you don’t have any extra money now we just increased your pray approval that’s awesome well I think that is a wrap for
uh the mortgage daddies like comment share give us some uh some some feedback
down below if you guys looking to uh get pre-approved or refinance your house call the mortgage daddies see you guys