Big Mortgage Energy: Finding the Right Loan for You | Millennial Money Matters

Description

So, you’ve decided to buy a house—congrats! Now comes the fun part: figuring out which mortgage won’t completely wreck your financial future. From FHA vs. conventional to VA and USDA loans, we’re breaking down your options in a way that won’t make your head explode.

Whether you're a first-time buyer wondering why there are so many acronyms or just trying to flex that Big Mortgage Energy, we’ve got you. Let’s talk loans, bust some myths, and make sure you don’t accidentally sign up for a financial disaster.

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek. And yeah, we're here. It's like a really cold Friday recording. It's been a little bit.
Speaker #1
Yeah, it's been a while. Well, because you've been Miss Classy traveling all over the world here. You're going to Disney and Mexico.
Speaker #0
Yeah, I was living my very best life. I went on a lot of vacations. So we went to Disney with the kids the day after Christmas. So like literally woke the kids up at 3.30 in the morning on the 26th of December, put them on an airplane. Um, sounds amazing. Then we needed to take a vacation from that trip.
Speaker #1
Uh, well, cause you're not just like hanging out in Disney. You're, you're walking like 20 miles a day,
Speaker #0
right? Correct. Like 20,000 steps. Well, that's, you can eat whatever you want in Disney because all you do is walk. It was a little chilly. Um, and I am a Disney maven. Um, I know exactly what I'm doing. There's a mission. There's an itinerary. I'm like the, I have my phone out, like, follow me. We're going here. We have a lightning lane. Uh,
Speaker #1
I don't know what any of that means.
Speaker #0
It was very intense and it was glorious, but you're very tired when you leave that. So we came home for like 10 days and then my husband and I went to Mexico for a week. And then we got stuck in Washington, D.C. overnight because of some snow. So that was like really fun. And then like three days later, it was my company's kickoff for the year. So I literally rolled home from Mohegan Sun and I'm here recording with you.
Speaker #1
Yeah, and I know for the audience, because this is a podcast, so no one can see us, but Kelly is fully decked out. She got a t-shirt can blown into her face and hat, and she got a total mortgage sweatshirt on, a hat.
Speaker #0
The hat is covering the sins of last night, though. The dry shampoo couldn't do it, so the hat is trying to cover that.
Speaker #1
Well, it looks good on you. I would look like a five-year-old boy wearing a hat. What, you're not a hat guy? No, I love hats, but I have to wear them backwards, even though I'm getting too old for that, apparently, because... So the problem is I look like a 12-year-old with a beard.
Speaker #0
A 12-year-old with a beard. So what's interesting about my hat, and if you watch the video on Instagram, you'll see it. It's like one of the new Gen Z hats. It's like kind of flat. I was telling one of the young folk in the company because... He I curved mine a little bit and he's like, what are you doing? You got to leave it flat. I was like, yo, I come from the land where you jammed your hat in a coffee cup to curve it as much as humanly possible. So the like flat and they yelled at me for taking the sticker off that like you're supposed to leave the sticker on the hat. That's not my jam.
Speaker #1
I mean, anytime you have a total mortgage sticker, you got to leave it on there. I mean, I feel like the type of hats kind of matter, right? Like it's a total mortgage. It's not like a like a baseball cap or something.
Speaker #0
I don't know. It was cool, though. So they I got some swag and I'm wearing it home from my night where I. over-served myself. And here we are.
Speaker #1
Well, this is, uh, sounds like the perfect segue then to talk about mortgages today.
Speaker #0
It was.
Speaker #1
See that transition. See,
Speaker #0
I spent a whole day and a half talking about mortgages. Um, you know, and it's fun. The podcast has started to elicit some commentary from people. And one of the questions that got asked of me is like, you know, there's all these loan types. Like, how do you know what loan you're supposed to get? And, you know, in my brain, and I think that's the hard thing as a professional is you're like, Oh, well. this is why you take this one, but we were talking about it. And you kind of had the same thoughts when you bought your house that you were like, we just took the loan they told us to buy. Like,
Speaker #1
yeah, I didn't honestly probably should ask more questions. But I mean, I obviously trusted the mortgage broker I was working with. But at the end of the day, I know there's so many because I've been enough networking groups, we hear mortgage brokers talking about FHA loans, or they're talking about VA loans, or hey, we've got this thing, if you're a doctor, or if you have four legs, like, you know, here's what you can you can get like, I don't know what all this stuff is. And I don't know why you would get one over the other or what the pros and cons are. So Kelly's going to educate us on all these types of loans. And now you know to, hey, what about this loan? Or maybe I qualify for this one,
Speaker #0
right? Yeah. Well, and I think what's interesting between, you know, we talk a lot about the generational differences is, you know, the loans that our parents were getting are different than the loans that we're getting. Honestly, our parents were generally like going to the local bank and saying like, hey, I want a mortgage. And they're like, cool, can I see your pay stub? And you'd show them your pay stub. And they'd be like, here's your loan. And they were lending the bank's money. And now that's not really how it works anymore. We have loans that are often backed by the government through government. We call them GSEs. And they are different products that have different purposes. And as a first time homebuyer, it can be really confusing. And I think one of the most confusing parts is the first time homebuyer part is the main question I get is Yeah, I want one of those first-time homebuyer loans. And I'm like, okay, let's talk about what that means. Because there's nothing, there's nothing is a first-time, I'm making air quotes right here, a first-time homebuyer loan. There are products that you must be a first-time homebuyer to use, but they don't exclude you from using other products necessarily. There are also times where a loan that is only for first-time homebuyers may not be a great fit for you, even though you are a first-time homebuyer.
Speaker #1
Walk me through. So first-time homebuyer, is that the same as the FHA loan?
Speaker #0
No. Oh,
Speaker #1
see, there we are.
Speaker #0
Okay. So an FHA loan is a Federal Housing Administration loan. And all it means is that, because people, when they say the FHA, people are like, and they do it to me all the time, they're like, first-time homebuyer, FHA? And I'm like, nope, nope, Federal Housing Administration loan. So that is a loan that many first-time homebuyers do like to utilize, okay? But it is not exclusively for first-time homebuyers. Anyone can actually use that loan as long as they don't currently own another home with an FHA loan.
Speaker #1
Okay. So if I own a home that wasn't FHA, I can go get an FHA loan right now.
Speaker #0
Yep. And you have to live on FHA property as your primary residence. Okay. So you got to live in it.
Speaker #1
So why don't we walk back to the first time homebuyer? So what's the deal with the first time homebuyer?
Speaker #0
Who is a first time homebuyer? So a first time homebuyer is anyone who has not owned a home in the last three years.
Speaker #1
Interesting. That does not sound like a first time homebuyer. That's like a... Recent non-first-time homebuyer.
Speaker #0
Yeah. So it's anyone who has not owned a home in the last three years because considered a first-time homebuyer. True first-time homebuyers, right, have never owned a home. What is the definition of owning a home? Well, that's also a complicated question.
Speaker #1
That doesn't sound like it should be a complicated question.
Speaker #0
Yeah. Have you owned a home before? If you are untitled to your parents' house, you've technically owned a home. Okay. If you were put untitled to your grandparents' house for purposes of inheritance, you own a home. Now, there are some loan programs that have stipulations for those sort of things. You're on title to a property, but you've never lived in it as your primary residence. We can exclude that. But your parents' home, that can be a problem. We are going to often count that as your home if you're on title or the mortgage for that house. But we're going to talk about an actual first-time homebuyer here. Sure. Somebody, you're newly married or a lovely single male or female or anybody. and you're going to buy a house.
Speaker #1
You're ready to go. I got a little down payment saved up. We're ready to do this. What do we do?
Speaker #0
What are we looking at? So the FHA loan is the one that all first-time homebuyers gravitate towards to me. They're like, I want that FHA loan. Here's the FHA loan. Okay, this is a government-backed loan, and it is designed for borrowers with generally lower credit scores and smaller down payments. Okay, so it has a requirement of at least 3.5% down, so fairly low down payment.
Speaker #1
Has that gone up? Because I always thought it was 3. No,
Speaker #0
that's a different program.
Speaker #1
Of course it is. Okay.
Speaker #0
That's a different program. The down payment is little less 3.5%. It has more lenient credit requirements. So things like bankruptcies, foreclosures, those can have happened more recently than other loan products. It also allows a higher debt to income ratio. Okay. So if you are in a position where, you know, maybe what you're making is a little bit lower, maybe you have some car payments or student loans, this loan is often a great fit. What is the downside to it? So the downside is actually the way that the mortgage insurance is structured on these loans. So many loan products, if you're putting less than 20% down, you're going to have mortgage insurance. FHA mortgage insurance, however, is number one for the life of the loan. So it doesn't matter when you hit 20% equity, you're going to have it. And there is also upfront mortgage insurance. So there is a fee that's essentially added into your loan amount at the beginning that you pay off as part of your 360 payments that covers the mortgage insurance. Now, why is that? Well, this program is a government-backed program. They have to refund the pot. And also, it does have a higher foreclosure rate than other loan programs.
Speaker #1
Well, I imagine if you're taking higher debt ATOs, then yeah, you're taking more risk on that.
Speaker #0
It's higher risk. Now, what are some other cons to this program? One is it does have a higher appraisal requirement. So the appraiser is not only looking for the value of the home, but they're also looking for health and safety issues. So if you're trying to buy a home that maybe has peeling paint, broken windows, missing deck boards, house that's really not in great condition that we don't consider livable, FHA may not allow you to purchase that home. Okay. Okay. With that loan product. So that can be a little bit tricky. The other thing that can be a little bit complicated with it is because of that fact, sometimes sellers are less likely to choose that offer over other offers.
Speaker #1
which like yeah that can make sense yeah you know like oh it's gonna be harder appraisal i'm not gonna pick that loan yeah i mean so so it sounds like to me maybe i'm misreading this and correct me if i'm wrong but it sounds like okay i'm not a person that's maybe i don't say desperate but like i've got a little bit more income maybe i don't have the cash flow that i need and i just kind of want to get this house and this is the loan i need to go to is that am i reading that correctly yeah it's not it's not a first choice loan for the most part um but it is a great product that can get you into a house and it's still generally for most people better than renting
Speaker #0
You can also refinance out of it. So if down the line, maybe your credit score improves, maybe your debt to income goes down, maybe you hit an equity position where you won't have mortgage insurance anymore, we refi. We refi. So you're not stuck in it. And it also, the bonus of it is it generally has a lower interest rate than other loan products. Because again, it's built to help people get into homes. That's the purpose of it. So FHA can be a great product, not a first-time homebuyer loan though, okay? Just often used by first-time homebuyers. Conventional loans is sort of the gold standard, okay? That's the one that most people get. But a lot of people think that's not a first-time homebuyer loan, okay? But... It totally can be. A conventional loan is a kind of the most standard product that's out there. It's what almost all lenders offer, banks, lenders like me, brokers, everybody's got it. We generally have two types. One is a Fannie Mae conventional loan and one is a Freddie Mac conventional loan. And these are just two different entities that sort of make the rules for each of them. They're both a little bit different though. So as a consumer, if you're looking at a conventional loan, you should ask your lender, do you offer both types? Because there can be benefits for you. from one type versus the other.
Speaker #1
When would someone do a Fannie versus Freddie?
Speaker #0
One example is if you have a lot of student loans, Freddie Mac allows us to use, if you don't have a payment already showing up in your credit report, allows us to use 0.5% of the outstanding balance as the monthly payment. Fannie Mae, 1%. So that can hurt you a little bit. And there's also some other guidelines. Freddie Mac tends to be a little bit less conservative for self-employed borrowers. We tend to find that you get more. property inspection waivers, which is called an appraisal waiver with Freddie Mac than we do with Fannie Mae. Sometimes the rates are a little bit different. So that's the other thing is when we're pulling rates, we might see a... And that really goes back and forth who's cheaper. It's not like one versus the other. Some days Fannie's better, some days Freddie's better. But having your lender have the ability to run both loans is very important. And I think a lot of consumers have no idea.
Speaker #1
Well, at the end of the day, it sounds like you just want to have options because your situation could be very different and you... most likely don't know any of this stuff, like I'm learning right now along with everyone here, how all these things work. So it would behoove you to talk to a mortgage professional and say, okay, what are the options? What do we have?
Speaker #0
What are the options? So what are the pros to a conventional loan? So one pro is flexible terms, five-year, 10-year, 15-year, 25-year, you've got flexible terms. No upfront mortgage insurance if you're putting more than 20% down, okay? No mortgage insurance at all. If you're putting less than 20% down, The mortgage insurance is variable depending on your credit score. Okay. Interesting. So that can be really helpful if you have great credit, where FHA, it's just a set number.
Speaker #1
Oh, so it doesn't matter your credit score.
Speaker #0
It doesn't matter your credit score for FHA for mortgage insurance. For conventional, credit score matters. The mortgage insurance also eventually goes away on a conventional loan. So once you hit 20% equity, you can request that the lender remove it. When you hit 78% equity, it's automatically removed from your payment. Goes away.
Speaker #1
Why would you wait till 78%?
Speaker #0
Because to do it at 80%, it's not just a, hey, take this off. You generally have to get an appraisal. And so if you figure out what that is and how many months it is between 80% and 78%, I usually do the math for my borrowers. And I'm like, it's going to cost you $500 to get the appraisal, or it's going to cost you $486 to just wait. Just wait at that point because you don't want the appraisal to come in low. Yeah,
Speaker #1
because then you're stuck anyway.
Speaker #0
Exactly. What's the cons to it? Oh, the other pro is if you are a first-time homebuyer, there are programs for conventional loans where you can put just 3% down.
Speaker #1
So is that... So, all right, because I know you mentioned first-time homebuyer, conventional, regular homebuyer, conventional. So is that the biggest difference between the first-time homebuyer? That's the advantage?
Speaker #0
Correct. That's the advantage. Now, there are some non-first-time homebuyers who have income that are maybe a little bit lower that can sometimes do 3% down through the Home Ready and Home Possible programs. But generally, if you've already owned a home before, you're going to put a minimum of 5% down on a conventional loan. First-time homebuyers, 3% down. So that's a big pro. So it's even less than FHA that you have to put down. What's the con? Stricter credit requirements. So it is, if you have credit, I'd say in the 600s, it can be a little bit tougher for us to get an approval for you. Mid-6s to... you know, low sevens, that's usually fine. It's really like that 650 and under. It can be very hard for us to get approvals. Income requirement, same thing. The debt to income ratio is usually a little bit lower. So you kind of have to have a little bit of a lower debt load generally.
Speaker #1
Yeah. You got your financial stuff together a little bit better, a little tighter.
Speaker #0
Exactly. But great product. The vast majority of loans that are being written are conventional loans. So it is the most common loan type. Now, these two are not the only, right? things in the game. There are also things like VA loans. That is a loan for veterans. That is a zero percent down loan. There is no down payment required. There is no private mortgage insurance, and there's very competitive interest rates. This is like my favorite loan product. What's the downside to a VA loan? You got to be a veteran. Okay. So it's only available to a small pool of people, but they're very deserving of this loan product. And it can be a really great way for them to get into a home.
Speaker #1
Well, I imagine with putting nothing down, the payment probably goes up, correct? So that's probably the downside is that you have to have the cashflow to support that.
Speaker #0
Correct. Yeah, absolutely. And they don't use debt to income ratios. They use something called residual income. And that's where, again, having a knowledgeable loan officer is really important is the way that you qualify for a VA loan is different than all the other loan products.
Speaker #1
So if you, let's say, are a VA and you want to, sorry, veteran, I don't know why I said that. If you want to put down, you know, 5%, you can still qualify for a loan. So it's not like you have to do 0%.
Speaker #0
No, you can put down however much you want. And yeah, it's a really great loan product. I love it. There's a lot of misinformation, however, about this loan product, both for consumers, for veterans themselves. I love this. who are often I'm like, Hey, have you ever if you use your VA loan before and they're like, No, you know, my realtor told me it's terrible and I shouldn't use it. I'm like, cool, that's somebody who didn't know what they're talking about. Let me tell you why it's great product. Or they were they don't don't even know that it's a benefit of theirs. I get that occasionally where they're like, No, I didn't know I could get that. And I'm like, Well, you can. Or sometimes people think it's tied to certain programs like, Oh, I have to use USAA or I have to use Veterans United or I have to use Navy Federal. credit union in order to use my VA. Though all of those banks, I'm making air quotes again, are just regular banks. This loan program is totally separate from them. Most lenders can do it. There are a few hangups for people that, again, if you're using a lender that doesn't have a lot of experience in VA loans, can kind of throw them off. Like your child care costs are actually included in your debt to income on a VA loan, not included in any other loan product, probably actually smart that it's included. But it's something that, you know, if you have a lender who's, you know, kind of less comfortable, they may not know some of the little nuances of that program. Another product that's similar to that is the USDA loan. OK, when I say USDA loan, people like like the stake, like my stake. Same department of the government.
Speaker #1
That's very normal. Yeah. Makes sense to me.
Speaker #0
Very different use of that that department. So we're not looking at stakes. We are looking at people who are looking to purchase in rural areas. So this is a product that's trying to incentivize people to move out to more rural areas.
Speaker #1
You get a better rate the more cows you have. Is that correct?
Speaker #0
Well, here's the actually fun fact. You cannot have a working farm and use this loan product.
Speaker #1
That's interesting. I thought the opposite.
Speaker #0
Right? Nothing on your property can be income producing. Even to the point where, like, if you have a barn that has five garage bays and it looks like maybe you're renting those garage bays out, that's not going to happen for USDA. But what's the pros of it? No down payment. Okay. So just like VA, no down payment. Competitive interest rates, so lower interest rates than others, and kind of flexible credit guidelines, which we like. Downside, limited to rural areas, and they're very specific. Okay, so there is a map on the USDA website where you can go and plug addresses in, but you can have an address that works, and a mile down the road the address doesn't work.
Speaker #1
Okay. Is this the same concept as the Opportunity Zone, or is this a totally different thing?
Speaker #0
Totally different concept. Of course it is. Totally different. It's their own map. Everybody uses their own. None of these government entities talk to each other, Derek. That's the first thing you need to know. None of them converse. And all of them have guidelines that are like kind of similar to somebody else's because somebody read their guideline book and was like, that's a good idea, but we want ours to be a little different. We want to just change it like a little bit. So we deal a lot in that. Yeah. So cons, very specific area. I'm also going to tell you that on the borrower side, your debt to income generally has to be fairly low to qualify for this, but there's also an income cap. So you can only make a certain amount so it's a little bit of like thread in the needle on this product of like does This work for you not always so I know we're like halfway through the episode We should probably clarify what debt to income ratio is.
Speaker #1
Oh,
Speaker #0
that's a great idea I forget about that sometimes so debt to income debt to income is literally how much gross income you have coming in So gross is what your company says they pay you okay, not what actually gets deposited in your account What they say they pay you before anything gets removed versus Europe obligated liabilities coming out every month. What are obligated liabilities? One is this proposed mortgage payment. Okay. And then anything else that is currently reporting on credit or is an obligated debt. Now, what is the definition of an obligated debt? So credit cards, obligated debt, car loans, obligated debt, personal loans, obligated debt, student loans, obligated debt, your cell phone payment, not obligated. Your Cox Communications payment, not obligated. Technically child care, other than for VA, not obligated. Your car insurance, not obligated. So what does that mean? Obligated generally, I tell people to think of it as you already own that and you owe money back. Non-obligated debt is things that you can stop. And then don't have to pay.
Speaker #1
What about the buy now, pay later? Does that?
Speaker #0
That's usually actually shows up on your credit report. So that's usually obligated.
Speaker #1
Because I know that's a hot new thing.
Speaker #0
Hot new thing. We see a lot on credit. And I'm like, oh, look at your finger hut. And you're, you know, there's a lot of that sort of stuff. And I like tell people like that has a 35% interest rate. You probably should not use that. But yeah, so debt to income is how much you have coming in every month versus how much you have going out. We turn it into like a ratio. And there you have two debt to income ratios. You have your what we call front end, which is just your income versus the housing ratio versus how much the mortgage is going to cost you. And then you have your back end ratio, which is all of your debt plus the housing lumped together. And all loan programs have like a minimum and a maximum of those two numbers.
Speaker #1
Okay. It makes no sense they would just do one, but okay.
Speaker #0
Correct. Correct. Welcome to mortgages. We, again, mortgages is like a whole bunch of different things kind of mushed together sometimes.
Speaker #1
Yeah, it sounds like it. Sounds very complicated.
Speaker #0
So the other program that I... Okay, so that's like a couple programs. There's way more programs than this. The other one that I am going to touch on, though, for first-time homebuyers are what's called state bond programs. Okay, you have to ask about an opportunity zone and that falls within state bond programs. So state bond programs here, we're in Connecticut, so we're going to talk about Connecticut, but most states have a state bond program. Ours is called CHAFA, the Connecticut Housing and Finance Authority State Bond Program. And it's essentially... state-run housing programs where we're trying to make home ownership affordable for people. There's lots of different versions of them. Every state runs these completely independently and different than everybody else. Our program here in Connecticut sort of has a couple different options. These are normal loan products. So you're getting a conventional loan or an FHA loan. It's just sponsored by the housing authority. And they pick their interest rate here in Connecticut. And it's different. Not all states are like this, but in Connecticut. chaffa sets their own rates every lender that's lending chaffa lends at the same rate today it was a 6.875 for a conventional and i think a six and a half for fha but i didn't look at that so don't quote me but that's the rate everybody gets the same rate and you can just take that as a normal first loan so you can make a down payment like normal and take it as a normal first loan there are income caps to these programs so it's not for everybody you There are two other programs currently here in the state of Connecticut. One is called DPA or down payment assistance, where you can get up to $15,000 in a repayable second loan with a 5% interest rate up, which pays for your minimum down payment. So either 3% or 3.5% of your loan, plus 1% of closing costs up to $15,000. So the payment ends up fairly cheap, 60 bucks a month, 50 bucks a month. This is great for people who don't have a lot of cash and they're trying to get into a home. And then we have another program, which is magical. which is the opportunity zone that you were asking. The opportunity zones have actually gone away, but it is a program called Time to Own, which before there were two versions of the program, one where you could get $25,000, one where you could get $50,000, depending on if you were in an opportunity zone or not. And that $50,000 went towards your down payment and closing costs in kind of any combination, and you could use up to that amount. Again, fairly strict income caps on these. They're definitely intended for first-time. sort of lower income borrowers. They generally have to be under 100% of the AMI or area median income, which means they vary town by town. So it's not always the same. So these programs can be amazing for people. But getting into a house, very affordable. However, from a lender standpoint, they are very complicated.
Speaker #1
I imagine. So let me ask you this. All right. So we threw out all of these mortgages, right? No one's going to probably remember all of those,
Speaker #0
right? No, I don't want you to. Well,
Speaker #1
it's it's. It sounds like a lot. So is this something where you guys have just kind of peeling behind the curtain, I guess here, you have this computer program where you like, does it automatically know or you have to kind of figure out, okay, like based on what this person's profile is,
Speaker #0
I feel like this loan is going to be- That is the art of mortgage right there. Yeah. So I take an application, people give me all the information that I asked for, and then it's my job to kind of run them through these programs. Now I can look baseline at a full profile and automatically exclude programs. Okay. Right. Nope, that was not going to work. Nope, this one's not going to work. Nope.
Speaker #1
Like, you know, someone's not a veteran. So like VA's out.
Speaker #0
Right. They want to buy in glass and bear, but USDA is out. Right. You know, whatever it might be, I can exclude some. But then I'm usually left with a pile of a couple that I'm like, what about this one? What about, and that's where we start to kind of really dial in trying to find the best execution of a loan program. Right. This is the one that makes sense. Sometimes I have to say to people, this is your one choice. Okay. This is it. This is the only thing you qualify for. Sometimes it's, hey, both of these work for you. One would work in these circumstances a little bit better and one would work in these circumstances a little bit better. So we're going to kind of keep them both on the table and we'll see what makes the most sense. But that's where working with a loan officer who is knowledgeable, who knows their programs, who has access to a lot of programs. There are some lenders I pick on the bank sometimes where like they maybe only offer a conventional loan. So they're going to look at you. And this happens to borrowers a lot where they'll go somewhere and they'll. they'll be told by a loan officer, you don't qualify for a mortgage. And they're like, oh, okay. It's not always kind of continued with, you don't qualify for a mortgage I offer.
Speaker #1
Right, our mortgage.
Speaker #0
You just don't qualify for a mortgage and then they're all discouraged and then we get ahold of them and we're like, oh, actually you qualify for these three things. Maybe you don't qualify for a bank's conventional loan or a lender's conventional loan, but FHA is perfect for you. Or, hey, did you know you were a veteran? They don't offer VA loans there, so they didn't share that with you. You can qualify for this. So making sure that who you're working with has lots of information, but also being clear about your goals, right? One of the questions I ask borrowers a lot is what's worth more to you, cash on hand or cash over time? OK, because how we structure these can look a little bit different. How much money do you have in the bank? Right. Do I want to deplete every ounce of savings that you have to get you into this house? But now you close and you don't even have enough money to go to Walmart and buy your cleaning supplies. Or can we set this up in a way where you have some money left over? But I think working with. you know, someone who really understands like what your goals are, number one, and what products are available, number two, and can match those two things together.
Speaker #1
Yeah, that's so important. I feel like when I bought the two properties that I have, it was, here you go, here's your mortgage, like here's the rate and here's that. He didn't show me like a menu of items. He was like, well, how about this one, this one, this one? Because I think at the end of the day, like we don't know this stuff. So we have to kind of trust the mortgage professional that we're working with to kind of delineate and say, okay, this is the type of program. Now, with that said, I feel like after listening to this episode, if you are in one of those categories, I would definitely ask about these loans. I mean, to make sure like maybe you're in the bank situation where someone's not offering you a loan that you wouldn't potentially qualify. Or maybe that's a screening question you ask when you are looking at mortgage brokers other than what's your rate?
Speaker #0
Yeah. Oh my God. And that's always the question. What's your rate? And to tell people that like, there's no what's your rate. Okay. It's not the bank's rate. It's your rate. Right. Okay. Because you as the consumer have an impact on the rate that we quote. Is it for a different loan program? Is it your credit score? Is it you know, there's so many factors that go into interest rates and the average consumer doesn't know that and they can get they sometimes get really frustrated with us because that's like the phone call question like, Hey, I'm calling to see what your rates are today. Okay.
Speaker #1
Yeah. Cool. That's like the my oh, what's your return on this? It's like, well, what kind of account we look at that? Yeah,
Speaker #0
factors come into play. There's so many factors that come into play. I just want to touch upon really quick before we're done. Also, you know, sort of the stuff that impacts first-time homebuyers. So just a couple quick tips. If you're thinking about buying a home, what can you do to make sure that you're prepared? The number one thing that I see currently right now that is stopping first-time homebuyers from buying houses is how high their car payments are. If you're making $100,000 a year and you've got a $1,200 a month car payment, it's going to be hard. to qualify for a mortgage. So trying to keep those car payments under control. I know it's hard. Cars are very expensive right now. Interest rates are high for car loans. But that's kind of a prohibitive factor for a lot of young professionals right now. Credit score is the other big prohibitive factor for people is credit is something you are either I find with consumers are either 100% dialed into. They know and they're almost overly Ausha about credit where I'm like, listen, you got to have like a little bit, right?
Speaker #1
Yeah. Yeah. Use your credit card.
Speaker #0
Use your credit card. They're either too dialed in or they have zero idea what's on their report. I pull their report. They're utterly shocked. Like, oh my God, I only have a 600. Like you had 11 lates a year and a half ago. Like, I don't know what to tell you. And then we got to go through credit repair. So knowing what your credit scores are, if anybody wants information about that, I can send you a link on how to get it. What you're looking at, credit karma, not accurate for a lender. Okay. Credit karma is a great way to review your own ups and downs of your credit score, but it is not anything a lender is going to use. It's going to look very different from our scoring. But even the scores that you're seeing on like your Capital One card or your Discover card, that's generally, it's one credit bureau and it's a credit card score. We could do a whole episode on credit score. We're going to at some point. But talking to a lender up ahead of time. The other thing that I would just tell you is if buying a home is in your one-year plan, you should be speaking with a lender at the beginning of that one year.
Speaker #1
Yeah. It's not a, oh, I think I'm ready now. Let's talk. I'm a very big fan of, all right, get an idea of what your rates are right now. They're going to change. Yeah. But they're not going to change from 6% to 2%. No. So they're going to...
Speaker #0
Do some math. Let's see what it looks like. Let me pull your credit. Let's see what your scores are. Let me tell you how much money you're going to need to make this happen because a year is a long time. We can fix a lot of transgressions in a year.
Speaker #1
Gives you time to fix it. Gives you time to build the down payment. And then if you're working with an advisor...
Speaker #0
You know, we can model that kind of thing out for you and say, OK, this is the type of loan you should get because, you know, we need to emphasize, to your point earlier, the payment versus the cash on hand. Yeah.
Speaker #1
Yeah. You know, and I think that's something that a lot of people miss. And especially one of the struggles we've had over the last few years for millennials specifically, Gen Zers and Gen Xers as well, is a lot of people have been happily living in rentals for a couple of years. The market got really good for sellers and a lot of landlords like. up and sold properties right out from underneath people. Like, yo, you've been on a month month for three years. That means I need to give you 60 days notice. Here's your 60 days notice. I've sold your unit, get out and you need to find something. And a lot of those people are like, oh, I'll buy now. And then they got to me and I was like, cool, let's look at it. And then I'm like, um, you are not going to buy now. Here's why. Um, and then, and then it just like, there's nothing like a kick in the gut like that. Like, sorry, I know you want to do this thing, but you can't do this thing. Um, and it's something that. you know, can be really, really tricky for people. So just, you know, kind of having a plan, knowing that it's something you want to do at some point and we can help you out.
Speaker #0
Yeah. Yeah. Just like always have a plan, work with someone that knows what they're talking about. And I think the right questions to ask are what types of loans do you use versus what's your rate?
Speaker #1
Exactly. So happy to help. Don't get discouraged. Homeownership can absolutely be in your future. It doesn't matter how much money you make, how much money you have. There's a plan that can be put in place to get you into something.
Speaker #0
Yeah. I think the takeaway should be there are a lot of different avenues that can be used. to get you that house that you want.
Speaker #1
Absolutely. The other takeaway for today is don't go to Mohegan Sun and think that you're 20 and then need to wear a hat for the podcast because you look like a hot mess. So that's the other takeaway.
Speaker #0
Good advice. Moderation. Oh, just drink some water in between, right?
Speaker #1
I didn't do that.
Speaker #0
Why don't you tell people about your nice elixir that you take?
Speaker #1
Oh, this is great for parents too, okay? My magic drink is you mix Gatorade with clear unflavored Pedialyte over ice. It will hydrate you like nothing else. If you feel lousy after an illness or, you know, after you've had too much fun, this mix, usually it's because you're dehydrated. So hydrate yourself.
Speaker #0
See, there we go. You're getting two types of advice. Two tips. Organs advice and hangover.
Speaker #1
It also works for the stomach flu, which if you are currently eating anywhere, probably in the U.S. in January, the stomach flu is rampant right now. Everybody has it. So if my kids call it the magic drink and they throw up and they're like, can I have the magic drink? You sure can. Yep.
Speaker #0
There we go, pal.
Speaker #1
Love it. All right. See you next time.
Speaker #0
See you next time. Bye.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Welcome to "Millennial Money Matters," your essential guide to navigating the world of finance as a millennial. Hosted by Kelly Turner, a mortgage loan officer, and Derek Mazzarella, a financial advisor, this podcast offers straightforward, practical advice on managing your money.

Kelly and Derek tackle topics like budgeting, student loans, real estate, and investing, breaking down complex financial concepts into easy-to-understand tips. Each episode delivers actionable insights and real-life stories to help you make smart financial decisions and secure your future.

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek. And yeah, we're here. It's like a really cold Friday recording. It's been a little bit.
Speaker #1
Yeah, it's been a while. Well, because you've been Miss Classy traveling all over the world here. You're going to Disney and Mexico.
Speaker #0
Yeah, I was living my very best life. I went on a lot of vacations. So we went to Disney with the kids the day after Christmas. So like literally woke the kids up at 3.30 in the morning on the 26th of December, put them on an airplane. Um, sounds amazing. Then we needed to take a vacation from that trip.
Speaker #1
Uh, well, cause you're not just like hanging out in Disney. You're, you're walking like 20 miles a day,
Speaker #0
right? Correct. Like 20,000 steps. Well, that's, you can eat whatever you want in Disney because all you do is walk. It was a little chilly. Um, and I am a Disney maven. Um, I know exactly what I'm doing. There's a mission. There's an itinerary. I'm like the, I have my phone out, like, follow me. We're going here. We have a lightning lane. Uh,
Speaker #1
I don't know what any of that means.
Speaker #0
It was very intense and it was glorious, but you're very tired when you leave that. So we came home for like 10 days and then my husband and I went to Mexico for a week. And then we got stuck in Washington, D.C. overnight because of some snow. So that was like really fun. And then like three days later, it was my company's kickoff for the year. So I literally rolled home from Mohegan Sun and I'm here recording with you.
Speaker #1
Yeah, and I know for the audience, because this is a podcast, so no one can see us, but Kelly is fully decked out. She got a t-shirt can blown into her face and hat, and she got a total mortgage sweatshirt on, a hat.
Speaker #0
The hat is covering the sins of last night, though. The dry shampoo couldn't do it, so the hat is trying to cover that.
Speaker #1
Well, it looks good on you. I would look like a five-year-old boy wearing a hat. What, you're not a hat guy? No, I love hats, but I have to wear them backwards, even though I'm getting too old for that, apparently, because... So the problem is I look like a 12-year-old with a beard.
Speaker #0
A 12-year-old with a beard. So what's interesting about my hat, and if you watch the video on Instagram, you'll see it. It's like one of the new Gen Z hats. It's like kind of flat. I was telling one of the young folk in the company because... He I curved mine a little bit and he's like, what are you doing? You got to leave it flat. I was like, yo, I come from the land where you jammed your hat in a coffee cup to curve it as much as humanly possible. So the like flat and they yelled at me for taking the sticker off that like you're supposed to leave the sticker on the hat. That's not my jam.
Speaker #1
I mean, anytime you have a total mortgage sticker, you got to leave it on there. I mean, I feel like the type of hats kind of matter, right? Like it's a total mortgage. It's not like a like a baseball cap or something.
Speaker #0
I don't know. It was cool, though. So they I got some swag and I'm wearing it home from my night where I. over-served myself. And here we are.
Speaker #1
Well, this is, uh, sounds like the perfect segue then to talk about mortgages today.
Speaker #0
It was.
Speaker #1
See that transition. See,
Speaker #0
I spent a whole day and a half talking about mortgages. Um, you know, and it's fun. The podcast has started to elicit some commentary from people. And one of the questions that got asked of me is like, you know, there's all these loan types. Like, how do you know what loan you're supposed to get? And, you know, in my brain, and I think that's the hard thing as a professional is you're like, Oh, well. this is why you take this one, but we were talking about it. And you kind of had the same thoughts when you bought your house that you were like, we just took the loan they told us to buy. Like,
Speaker #1
yeah, I didn't honestly probably should ask more questions. But I mean, I obviously trusted the mortgage broker I was working with. But at the end of the day, I know there's so many because I've been enough networking groups, we hear mortgage brokers talking about FHA loans, or they're talking about VA loans, or hey, we've got this thing, if you're a doctor, or if you have four legs, like, you know, here's what you can you can get like, I don't know what all this stuff is. And I don't know why you would get one over the other or what the pros and cons are. So Kelly's going to educate us on all these types of loans. And now you know to, hey, what about this loan? Or maybe I qualify for this one,
Speaker #0
right? Yeah. Well, and I think what's interesting between, you know, we talk a lot about the generational differences is, you know, the loans that our parents were getting are different than the loans that we're getting. Honestly, our parents were generally like going to the local bank and saying like, hey, I want a mortgage. And they're like, cool, can I see your pay stub? And you'd show them your pay stub. And they'd be like, here's your loan. And they were lending the bank's money. And now that's not really how it works anymore. We have loans that are often backed by the government through government. We call them GSEs. And they are different products that have different purposes. And as a first time homebuyer, it can be really confusing. And I think one of the most confusing parts is the first time homebuyer part is the main question I get is Yeah, I want one of those first-time homebuyer loans. And I'm like, okay, let's talk about what that means. Because there's nothing, there's nothing is a first-time, I'm making air quotes right here, a first-time homebuyer loan. There are products that you must be a first-time homebuyer to use, but they don't exclude you from using other products necessarily. There are also times where a loan that is only for first-time homebuyers may not be a great fit for you, even though you are a first-time homebuyer.
Speaker #1
Walk me through. So first-time homebuyer, is that the same as the FHA loan?
Speaker #0
No. Oh,
Speaker #1
see, there we are.
Speaker #0
Okay. So an FHA loan is a Federal Housing Administration loan. And all it means is that, because people, when they say the FHA, people are like, and they do it to me all the time, they're like, first-time homebuyer, FHA? And I'm like, nope, nope, Federal Housing Administration loan. So that is a loan that many first-time homebuyers do like to utilize, okay? But it is not exclusively for first-time homebuyers. Anyone can actually use that loan as long as they don't currently own another home with an FHA loan.
Speaker #1
Okay. So if I own a home that wasn't FHA, I can go get an FHA loan right now.
Speaker #0
Yep. And you have to live on FHA property as your primary residence. Okay. So you got to live in it.
Speaker #1
So why don't we walk back to the first time homebuyer? So what's the deal with the first time homebuyer?
Speaker #0
Who is a first time homebuyer? So a first time homebuyer is anyone who has not owned a home in the last three years.
Speaker #1
Interesting. That does not sound like a first time homebuyer. That's like a... Recent non-first-time homebuyer.
Speaker #0
Yeah. So it's anyone who has not owned a home in the last three years because considered a first-time homebuyer. True first-time homebuyers, right, have never owned a home. What is the definition of owning a home? Well, that's also a complicated question.
Speaker #1
That doesn't sound like it should be a complicated question.
Speaker #0
Yeah. Have you owned a home before? If you are untitled to your parents' house, you've technically owned a home. Okay. If you were put untitled to your grandparents' house for purposes of inheritance, you own a home. Now, there are some loan programs that have stipulations for those sort of things. You're on title to a property, but you've never lived in it as your primary residence. We can exclude that. But your parents' home, that can be a problem. We are going to often count that as your home if you're on title or the mortgage for that house. But we're going to talk about an actual first-time homebuyer here. Sure. Somebody, you're newly married or a lovely single male or female or anybody. and you're going to buy a house.
Speaker #1
You're ready to go. I got a little down payment saved up. We're ready to do this. What do we do?
Speaker #0
What are we looking at? So the FHA loan is the one that all first-time homebuyers gravitate towards to me. They're like, I want that FHA loan. Here's the FHA loan. Okay, this is a government-backed loan, and it is designed for borrowers with generally lower credit scores and smaller down payments. Okay, so it has a requirement of at least 3.5% down, so fairly low down payment.
Speaker #1
Has that gone up? Because I always thought it was 3. No,
Speaker #0
that's a different program.
Speaker #1
Of course it is. Okay.
Speaker #0
That's a different program. The down payment is little less 3.5%. It has more lenient credit requirements. So things like bankruptcies, foreclosures, those can have happened more recently than other loan products. It also allows a higher debt to income ratio. Okay. So if you are in a position where, you know, maybe what you're making is a little bit lower, maybe you have some car payments or student loans, this loan is often a great fit. What is the downside to it? So the downside is actually the way that the mortgage insurance is structured on these loans. So many loan products, if you're putting less than 20% down, you're going to have mortgage insurance. FHA mortgage insurance, however, is number one for the life of the loan. So it doesn't matter when you hit 20% equity, you're going to have it. And there is also upfront mortgage insurance. So there is a fee that's essentially added into your loan amount at the beginning that you pay off as part of your 360 payments that covers the mortgage insurance. Now, why is that? Well, this program is a government-backed program. They have to refund the pot. And also, it does have a higher foreclosure rate than other loan programs.
Speaker #1
Well, I imagine if you're taking higher debt ATOs, then yeah, you're taking more risk on that.
Speaker #0
It's higher risk. Now, what are some other cons to this program? One is it does have a higher appraisal requirement. So the appraiser is not only looking for the value of the home, but they're also looking for health and safety issues. So if you're trying to buy a home that maybe has peeling paint, broken windows, missing deck boards, house that's really not in great condition that we don't consider livable, FHA may not allow you to purchase that home. Okay. Okay. With that loan product. So that can be a little bit tricky. The other thing that can be a little bit complicated with it is because of that fact, sometimes sellers are less likely to choose that offer over other offers.
Speaker #1
which like yeah that can make sense yeah you know like oh it's gonna be harder appraisal i'm not gonna pick that loan yeah i mean so so it sounds like to me maybe i'm misreading this and correct me if i'm wrong but it sounds like okay i'm not a person that's maybe i don't say desperate but like i've got a little bit more income maybe i don't have the cash flow that i need and i just kind of want to get this house and this is the loan i need to go to is that am i reading that correctly yeah it's not it's not a first choice loan for the most part um but it is a great product that can get you into a house and it's still generally for most people better than renting
Speaker #0
You can also refinance out of it. So if down the line, maybe your credit score improves, maybe your debt to income goes down, maybe you hit an equity position where you won't have mortgage insurance anymore, we refi. We refi. So you're not stuck in it. And it also, the bonus of it is it generally has a lower interest rate than other loan products. Because again, it's built to help people get into homes. That's the purpose of it. So FHA can be a great product, not a first-time homebuyer loan though, okay? Just often used by first-time homebuyers. Conventional loans is sort of the gold standard, okay? That's the one that most people get. But a lot of people think that's not a first-time homebuyer loan, okay? But... It totally can be. A conventional loan is a kind of the most standard product that's out there. It's what almost all lenders offer, banks, lenders like me, brokers, everybody's got it. We generally have two types. One is a Fannie Mae conventional loan and one is a Freddie Mac conventional loan. And these are just two different entities that sort of make the rules for each of them. They're both a little bit different though. So as a consumer, if you're looking at a conventional loan, you should ask your lender, do you offer both types? Because there can be benefits for you. from one type versus the other.
Speaker #1
When would someone do a Fannie versus Freddie?
Speaker #0
One example is if you have a lot of student loans, Freddie Mac allows us to use, if you don't have a payment already showing up in your credit report, allows us to use 0.5% of the outstanding balance as the monthly payment. Fannie Mae, 1%. So that can hurt you a little bit. And there's also some other guidelines. Freddie Mac tends to be a little bit less conservative for self-employed borrowers. We tend to find that you get more. property inspection waivers, which is called an appraisal waiver with Freddie Mac than we do with Fannie Mae. Sometimes the rates are a little bit different. So that's the other thing is when we're pulling rates, we might see a... And that really goes back and forth who's cheaper. It's not like one versus the other. Some days Fannie's better, some days Freddie's better. But having your lender have the ability to run both loans is very important. And I think a lot of consumers have no idea.
Speaker #1
Well, at the end of the day, it sounds like you just want to have options because your situation could be very different and you... most likely don't know any of this stuff, like I'm learning right now along with everyone here, how all these things work. So it would behoove you to talk to a mortgage professional and say, okay, what are the options? What do we have?
Speaker #0
What are the options? So what are the pros to a conventional loan? So one pro is flexible terms, five-year, 10-year, 15-year, 25-year, you've got flexible terms. No upfront mortgage insurance if you're putting more than 20% down, okay? No mortgage insurance at all. If you're putting less than 20% down, The mortgage insurance is variable depending on your credit score. Okay. Interesting. So that can be really helpful if you have great credit, where FHA, it's just a set number.
Speaker #1
Oh, so it doesn't matter your credit score.
Speaker #0
It doesn't matter your credit score for FHA for mortgage insurance. For conventional, credit score matters. The mortgage insurance also eventually goes away on a conventional loan. So once you hit 20% equity, you can request that the lender remove it. When you hit 78% equity, it's automatically removed from your payment. Goes away.
Speaker #1
Why would you wait till 78%?
Speaker #0
Because to do it at 80%, it's not just a, hey, take this off. You generally have to get an appraisal. And so if you figure out what that is and how many months it is between 80% and 78%, I usually do the math for my borrowers. And I'm like, it's going to cost you $500 to get the appraisal, or it's going to cost you $486 to just wait. Just wait at that point because you don't want the appraisal to come in low. Yeah,
Speaker #1
because then you're stuck anyway.
Speaker #0
Exactly. What's the cons to it? Oh, the other pro is if you are a first-time homebuyer, there are programs for conventional loans where you can put just 3% down.
Speaker #1
So is that... So, all right, because I know you mentioned first-time homebuyer, conventional, regular homebuyer, conventional. So is that the biggest difference between the first-time homebuyer? That's the advantage?
Speaker #0
Correct. That's the advantage. Now, there are some non-first-time homebuyers who have income that are maybe a little bit lower that can sometimes do 3% down through the Home Ready and Home Possible programs. But generally, if you've already owned a home before, you're going to put a minimum of 5% down on a conventional loan. First-time homebuyers, 3% down. So that's a big pro. So it's even less than FHA that you have to put down. What's the con? Stricter credit requirements. So it is, if you have credit, I'd say in the 600s, it can be a little bit tougher for us to get an approval for you. Mid-6s to... you know, low sevens, that's usually fine. It's really like that 650 and under. It can be very hard for us to get approvals. Income requirement, same thing. The debt to income ratio is usually a little bit lower. So you kind of have to have a little bit of a lower debt load generally.
Speaker #1
Yeah. You got your financial stuff together a little bit better, a little tighter.
Speaker #0
Exactly. But great product. The vast majority of loans that are being written are conventional loans. So it is the most common loan type. Now, these two are not the only, right? things in the game. There are also things like VA loans. That is a loan for veterans. That is a zero percent down loan. There is no down payment required. There is no private mortgage insurance, and there's very competitive interest rates. This is like my favorite loan product. What's the downside to a VA loan? You got to be a veteran. Okay. So it's only available to a small pool of people, but they're very deserving of this loan product. And it can be a really great way for them to get into a home.
Speaker #1
Well, I imagine with putting nothing down, the payment probably goes up, correct? So that's probably the downside is that you have to have the cashflow to support that.
Speaker #0
Correct. Yeah, absolutely. And they don't use debt to income ratios. They use something called residual income. And that's where, again, having a knowledgeable loan officer is really important is the way that you qualify for a VA loan is different than all the other loan products.
Speaker #1
So if you, let's say, are a VA and you want to, sorry, veteran, I don't know why I said that. If you want to put down, you know, 5%, you can still qualify for a loan. So it's not like you have to do 0%.
Speaker #0
No, you can put down however much you want. And yeah, it's a really great loan product. I love it. There's a lot of misinformation, however, about this loan product, both for consumers, for veterans themselves. I love this. who are often I'm like, Hey, have you ever if you use your VA loan before and they're like, No, you know, my realtor told me it's terrible and I shouldn't use it. I'm like, cool, that's somebody who didn't know what they're talking about. Let me tell you why it's great product. Or they were they don't don't even know that it's a benefit of theirs. I get that occasionally where they're like, No, I didn't know I could get that. And I'm like, Well, you can. Or sometimes people think it's tied to certain programs like, Oh, I have to use USAA or I have to use Veterans United or I have to use Navy Federal. credit union in order to use my VA. Though all of those banks, I'm making air quotes again, are just regular banks. This loan program is totally separate from them. Most lenders can do it. There are a few hangups for people that, again, if you're using a lender that doesn't have a lot of experience in VA loans, can kind of throw them off. Like your child care costs are actually included in your debt to income on a VA loan, not included in any other loan product, probably actually smart that it's included. But it's something that, you know, if you have a lender who's, you know, kind of less comfortable, they may not know some of the little nuances of that program. Another product that's similar to that is the USDA loan. OK, when I say USDA loan, people like like the stake, like my stake. Same department of the government.
Speaker #1
That's very normal. Yeah. Makes sense to me.
Speaker #0
Very different use of that that department. So we're not looking at stakes. We are looking at people who are looking to purchase in rural areas. So this is a product that's trying to incentivize people to move out to more rural areas.
Speaker #1
You get a better rate the more cows you have. Is that correct?
Speaker #0
Well, here's the actually fun fact. You cannot have a working farm and use this loan product.
Speaker #1
That's interesting. I thought the opposite.
Speaker #0
Right? Nothing on your property can be income producing. Even to the point where, like, if you have a barn that has five garage bays and it looks like maybe you're renting those garage bays out, that's not going to happen for USDA. But what's the pros of it? No down payment. Okay. So just like VA, no down payment. Competitive interest rates, so lower interest rates than others, and kind of flexible credit guidelines, which we like. Downside, limited to rural areas, and they're very specific. Okay, so there is a map on the USDA website where you can go and plug addresses in, but you can have an address that works, and a mile down the road the address doesn't work.
Speaker #1
Okay. Is this the same concept as the Opportunity Zone, or is this a totally different thing?
Speaker #0
Totally different concept. Of course it is. Totally different. It's their own map. Everybody uses their own. None of these government entities talk to each other, Derek. That's the first thing you need to know. None of them converse. And all of them have guidelines that are like kind of similar to somebody else's because somebody read their guideline book and was like, that's a good idea, but we want ours to be a little different. We want to just change it like a little bit. So we deal a lot in that. Yeah. So cons, very specific area. I'm also going to tell you that on the borrower side, your debt to income generally has to be fairly low to qualify for this, but there's also an income cap. So you can only make a certain amount so it's a little bit of like thread in the needle on this product of like does This work for you not always so I know we're like halfway through the episode We should probably clarify what debt to income ratio is.
Speaker #1
Oh,
Speaker #0
that's a great idea I forget about that sometimes so debt to income debt to income is literally how much gross income you have coming in So gross is what your company says they pay you okay, not what actually gets deposited in your account What they say they pay you before anything gets removed versus Europe obligated liabilities coming out every month. What are obligated liabilities? One is this proposed mortgage payment. Okay. And then anything else that is currently reporting on credit or is an obligated debt. Now, what is the definition of an obligated debt? So credit cards, obligated debt, car loans, obligated debt, personal loans, obligated debt, student loans, obligated debt, your cell phone payment, not obligated. Your Cox Communications payment, not obligated. Technically child care, other than for VA, not obligated. Your car insurance, not obligated. So what does that mean? Obligated generally, I tell people to think of it as you already own that and you owe money back. Non-obligated debt is things that you can stop. And then don't have to pay.
Speaker #1
What about the buy now, pay later? Does that?
Speaker #0
That's usually actually shows up on your credit report. So that's usually obligated.
Speaker #1
Because I know that's a hot new thing.
Speaker #0
Hot new thing. We see a lot on credit. And I'm like, oh, look at your finger hut. And you're, you know, there's a lot of that sort of stuff. And I like tell people like that has a 35% interest rate. You probably should not use that. But yeah, so debt to income is how much you have coming in every month versus how much you have going out. We turn it into like a ratio. And there you have two debt to income ratios. You have your what we call front end, which is just your income versus the housing ratio versus how much the mortgage is going to cost you. And then you have your back end ratio, which is all of your debt plus the housing lumped together. And all loan programs have like a minimum and a maximum of those two numbers.
Speaker #1
Okay. It makes no sense they would just do one, but okay.
Speaker #0
Correct. Correct. Welcome to mortgages. We, again, mortgages is like a whole bunch of different things kind of mushed together sometimes.
Speaker #1
Yeah, it sounds like it. Sounds very complicated.
Speaker #0
So the other program that I... Okay, so that's like a couple programs. There's way more programs than this. The other one that I am going to touch on, though, for first-time homebuyers are what's called state bond programs. Okay, you have to ask about an opportunity zone and that falls within state bond programs. So state bond programs here, we're in Connecticut, so we're going to talk about Connecticut, but most states have a state bond program. Ours is called CHAFA, the Connecticut Housing and Finance Authority State Bond Program. And it's essentially... state-run housing programs where we're trying to make home ownership affordable for people. There's lots of different versions of them. Every state runs these completely independently and different than everybody else. Our program here in Connecticut sort of has a couple different options. These are normal loan products. So you're getting a conventional loan or an FHA loan. It's just sponsored by the housing authority. And they pick their interest rate here in Connecticut. And it's different. Not all states are like this, but in Connecticut. chaffa sets their own rates every lender that's lending chaffa lends at the same rate today it was a 6.875 for a conventional and i think a six and a half for fha but i didn't look at that so don't quote me but that's the rate everybody gets the same rate and you can just take that as a normal first loan so you can make a down payment like normal and take it as a normal first loan there are income caps to these programs so it's not for everybody you There are two other programs currently here in the state of Connecticut. One is called DPA or down payment assistance, where you can get up to $15,000 in a repayable second loan with a 5% interest rate up, which pays for your minimum down payment. So either 3% or 3.5% of your loan, plus 1% of closing costs up to $15,000. So the payment ends up fairly cheap, 60 bucks a month, 50 bucks a month. This is great for people who don't have a lot of cash and they're trying to get into a home. And then we have another program, which is magical. which is the opportunity zone that you were asking. The opportunity zones have actually gone away, but it is a program called Time to Own, which before there were two versions of the program, one where you could get $25,000, one where you could get $50,000, depending on if you were in an opportunity zone or not. And that $50,000 went towards your down payment and closing costs in kind of any combination, and you could use up to that amount. Again, fairly strict income caps on these. They're definitely intended for first-time. sort of lower income borrowers. They generally have to be under 100% of the AMI or area median income, which means they vary town by town. So it's not always the same. So these programs can be amazing for people. But getting into a house, very affordable. However, from a lender standpoint, they are very complicated.
Speaker #1
I imagine. So let me ask you this. All right. So we threw out all of these mortgages, right? No one's going to probably remember all of those,
Speaker #0
right? No, I don't want you to. Well,
Speaker #1
it's it's. It sounds like a lot. So is this something where you guys have just kind of peeling behind the curtain, I guess here, you have this computer program where you like, does it automatically know or you have to kind of figure out, okay, like based on what this person's profile is,
Speaker #0
I feel like this loan is going to be- That is the art of mortgage right there. Yeah. So I take an application, people give me all the information that I asked for, and then it's my job to kind of run them through these programs. Now I can look baseline at a full profile and automatically exclude programs. Okay. Right. Nope, that was not going to work. Nope, this one's not going to work. Nope.
Speaker #1
Like, you know, someone's not a veteran. So like VA's out.
Speaker #0
Right. They want to buy in glass and bear, but USDA is out. Right. You know, whatever it might be, I can exclude some. But then I'm usually left with a pile of a couple that I'm like, what about this one? What about, and that's where we start to kind of really dial in trying to find the best execution of a loan program. Right. This is the one that makes sense. Sometimes I have to say to people, this is your one choice. Okay. This is it. This is the only thing you qualify for. Sometimes it's, hey, both of these work for you. One would work in these circumstances a little bit better and one would work in these circumstances a little bit better. So we're going to kind of keep them both on the table and we'll see what makes the most sense. But that's where working with a loan officer who is knowledgeable, who knows their programs, who has access to a lot of programs. There are some lenders I pick on the bank sometimes where like they maybe only offer a conventional loan. So they're going to look at you. And this happens to borrowers a lot where they'll go somewhere and they'll. they'll be told by a loan officer, you don't qualify for a mortgage. And they're like, oh, okay. It's not always kind of continued with, you don't qualify for a mortgage I offer.
Speaker #1
Right, our mortgage.
Speaker #0
You just don't qualify for a mortgage and then they're all discouraged and then we get ahold of them and we're like, oh, actually you qualify for these three things. Maybe you don't qualify for a bank's conventional loan or a lender's conventional loan, but FHA is perfect for you. Or, hey, did you know you were a veteran? They don't offer VA loans there, so they didn't share that with you. You can qualify for this. So making sure that who you're working with has lots of information, but also being clear about your goals, right? One of the questions I ask borrowers a lot is what's worth more to you, cash on hand or cash over time? OK, because how we structure these can look a little bit different. How much money do you have in the bank? Right. Do I want to deplete every ounce of savings that you have to get you into this house? But now you close and you don't even have enough money to go to Walmart and buy your cleaning supplies. Or can we set this up in a way where you have some money left over? But I think working with. you know, someone who really understands like what your goals are, number one, and what products are available, number two, and can match those two things together.
Speaker #1
Yeah, that's so important. I feel like when I bought the two properties that I have, it was, here you go, here's your mortgage, like here's the rate and here's that. He didn't show me like a menu of items. He was like, well, how about this one, this one, this one? Because I think at the end of the day, like we don't know this stuff. So we have to kind of trust the mortgage professional that we're working with to kind of delineate and say, okay, this is the type of program. Now, with that said, I feel like after listening to this episode, if you are in one of those categories, I would definitely ask about these loans. I mean, to make sure like maybe you're in the bank situation where someone's not offering you a loan that you wouldn't potentially qualify. Or maybe that's a screening question you ask when you are looking at mortgage brokers other than what's your rate?
Speaker #0
Yeah. Oh my God. And that's always the question. What's your rate? And to tell people that like, there's no what's your rate. Okay. It's not the bank's rate. It's your rate. Right. Okay. Because you as the consumer have an impact on the rate that we quote. Is it for a different loan program? Is it your credit score? Is it you know, there's so many factors that go into interest rates and the average consumer doesn't know that and they can get they sometimes get really frustrated with us because that's like the phone call question like, Hey, I'm calling to see what your rates are today. Okay.
Speaker #1
Yeah. Cool. That's like the my oh, what's your return on this? It's like, well, what kind of account we look at that? Yeah,
Speaker #0
factors come into play. There's so many factors that come into play. I just want to touch upon really quick before we're done. Also, you know, sort of the stuff that impacts first-time homebuyers. So just a couple quick tips. If you're thinking about buying a home, what can you do to make sure that you're prepared? The number one thing that I see currently right now that is stopping first-time homebuyers from buying houses is how high their car payments are. If you're making $100,000 a year and you've got a $1,200 a month car payment, it's going to be hard. to qualify for a mortgage. So trying to keep those car payments under control. I know it's hard. Cars are very expensive right now. Interest rates are high for car loans. But that's kind of a prohibitive factor for a lot of young professionals right now. Credit score is the other big prohibitive factor for people is credit is something you are either I find with consumers are either 100% dialed into. They know and they're almost overly Ausha about credit where I'm like, listen, you got to have like a little bit, right?
Speaker #1
Yeah. Yeah. Use your credit card.
Speaker #0
Use your credit card. They're either too dialed in or they have zero idea what's on their report. I pull their report. They're utterly shocked. Like, oh my God, I only have a 600. Like you had 11 lates a year and a half ago. Like, I don't know what to tell you. And then we got to go through credit repair. So knowing what your credit scores are, if anybody wants information about that, I can send you a link on how to get it. What you're looking at, credit karma, not accurate for a lender. Okay. Credit karma is a great way to review your own ups and downs of your credit score, but it is not anything a lender is going to use. It's going to look very different from our scoring. But even the scores that you're seeing on like your Capital One card or your Discover card, that's generally, it's one credit bureau and it's a credit card score. We could do a whole episode on credit score. We're going to at some point. But talking to a lender up ahead of time. The other thing that I would just tell you is if buying a home is in your one-year plan, you should be speaking with a lender at the beginning of that one year.
Speaker #1
Yeah. It's not a, oh, I think I'm ready now. Let's talk. I'm a very big fan of, all right, get an idea of what your rates are right now. They're going to change. Yeah. But they're not going to change from 6% to 2%. No. So they're going to...
Speaker #0
Do some math. Let's see what it looks like. Let me pull your credit. Let's see what your scores are. Let me tell you how much money you're going to need to make this happen because a year is a long time. We can fix a lot of transgressions in a year.
Speaker #1
Gives you time to fix it. Gives you time to build the down payment. And then if you're working with an advisor...
Speaker #0
You know, we can model that kind of thing out for you and say, OK, this is the type of loan you should get because, you know, we need to emphasize, to your point earlier, the payment versus the cash on hand. Yeah.
Speaker #1
Yeah. You know, and I think that's something that a lot of people miss. And especially one of the struggles we've had over the last few years for millennials specifically, Gen Zers and Gen Xers as well, is a lot of people have been happily living in rentals for a couple of years. The market got really good for sellers and a lot of landlords like. up and sold properties right out from underneath people. Like, yo, you've been on a month month for three years. That means I need to give you 60 days notice. Here's your 60 days notice. I've sold your unit, get out and you need to find something. And a lot of those people are like, oh, I'll buy now. And then they got to me and I was like, cool, let's look at it. And then I'm like, um, you are not going to buy now. Here's why. Um, and then, and then it just like, there's nothing like a kick in the gut like that. Like, sorry, I know you want to do this thing, but you can't do this thing. Um, and it's something that. you know, can be really, really tricky for people. So just, you know, kind of having a plan, knowing that it's something you want to do at some point and we can help you out.
Speaker #0
Yeah. Yeah. Just like always have a plan, work with someone that knows what they're talking about. And I think the right questions to ask are what types of loans do you use versus what's your rate?
Speaker #1
Exactly. So happy to help. Don't get discouraged. Homeownership can absolutely be in your future. It doesn't matter how much money you make, how much money you have. There's a plan that can be put in place to get you into something.
Speaker #0
Yeah. I think the takeaway should be there are a lot of different avenues that can be used. to get you that house that you want.
Speaker #1
Absolutely. The other takeaway for today is don't go to Mohegan Sun and think that you're 20 and then need to wear a hat for the podcast because you look like a hot mess. So that's the other takeaway.
Speaker #0
Good advice. Moderation. Oh, just drink some water in between, right?
Speaker #1
I didn't do that.
Speaker #0
Why don't you tell people about your nice elixir that you take?
Speaker #1
Oh, this is great for parents too, okay? My magic drink is you mix Gatorade with clear unflavored Pedialyte over ice. It will hydrate you like nothing else. If you feel lousy after an illness or, you know, after you've had too much fun, this mix, usually it's because you're dehydrated. So hydrate yourself.
Speaker #0
See, there we go. You're getting two types of advice. Two tips. Organs advice and hangover.
Speaker #1
It also works for the stomach flu, which if you are currently eating anywhere, probably in the U.S. in January, the stomach flu is rampant right now. Everybody has it. So if my kids call it the magic drink and they throw up and they're like, can I have the magic drink? You sure can. Yep.
Speaker #0
There we go, pal.
Speaker #1
Love it. All right. See you next time.
Speaker #0
See you next time. Bye.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

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Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek. And yeah, we're here. It's like a really cold Friday recording. It's been a little bit.
Speaker #1
Yeah, it's been a while. Well, because you've been Miss Classy traveling all over the world here. You're going to Disney and Mexico.
Speaker #0
Yeah, I was living my very best life. I went on a lot of vacations. So we went to Disney with the kids the day after Christmas. So like literally woke the kids up at 3.30 in the morning on the 26th of December, put them on an airplane. Um, sounds amazing. Then we needed to take a vacation from that trip.
Speaker #1
Uh, well, cause you're not just like hanging out in Disney. You're, you're walking like 20 miles a day,
Speaker #0
right? Correct. Like 20,000 steps. Well, that's, you can eat whatever you want in Disney because all you do is walk. It was a little chilly. Um, and I am a Disney maven. Um, I know exactly what I'm doing. There's a mission. There's an itinerary. I'm like the, I have my phone out, like, follow me. We're going here. We have a lightning lane. Uh,
Speaker #1
I don't know what any of that means.
Speaker #0
It was very intense and it was glorious, but you're very tired when you leave that. So we came home for like 10 days and then my husband and I went to Mexico for a week. And then we got stuck in Washington, D.C. overnight because of some snow. So that was like really fun. And then like three days later, it was my company's kickoff for the year. So I literally rolled home from Mohegan Sun and I'm here recording with you.
Speaker #1
Yeah, and I know for the audience, because this is a podcast, so no one can see us, but Kelly is fully decked out. She got a t-shirt can blown into her face and hat, and she got a total mortgage sweatshirt on, a hat.
Speaker #0
The hat is covering the sins of last night, though. The dry shampoo couldn't do it, so the hat is trying to cover that.
Speaker #1
Well, it looks good on you. I would look like a five-year-old boy wearing a hat. What, you're not a hat guy? No, I love hats, but I have to wear them backwards, even though I'm getting too old for that, apparently, because... So the problem is I look like a 12-year-old with a beard.
Speaker #0
A 12-year-old with a beard. So what's interesting about my hat, and if you watch the video on Instagram, you'll see it. It's like one of the new Gen Z hats. It's like kind of flat. I was telling one of the young folk in the company because... He I curved mine a little bit and he's like, what are you doing? You got to leave it flat. I was like, yo, I come from the land where you jammed your hat in a coffee cup to curve it as much as humanly possible. So the like flat and they yelled at me for taking the sticker off that like you're supposed to leave the sticker on the hat. That's not my jam.
Speaker #1
I mean, anytime you have a total mortgage sticker, you got to leave it on there. I mean, I feel like the type of hats kind of matter, right? Like it's a total mortgage. It's not like a like a baseball cap or something.
Speaker #0
I don't know. It was cool, though. So they I got some swag and I'm wearing it home from my night where I. over-served myself. And here we are.
Speaker #1
Well, this is, uh, sounds like the perfect segue then to talk about mortgages today.
Speaker #0
It was.
Speaker #1
See that transition. See,
Speaker #0
I spent a whole day and a half talking about mortgages. Um, you know, and it's fun. The podcast has started to elicit some commentary from people. And one of the questions that got asked of me is like, you know, there's all these loan types. Like, how do you know what loan you're supposed to get? And, you know, in my brain, and I think that's the hard thing as a professional is you're like, Oh, well. this is why you take this one, but we were talking about it. And you kind of had the same thoughts when you bought your house that you were like, we just took the loan they told us to buy. Like,
Speaker #1
yeah, I didn't honestly probably should ask more questions. But I mean, I obviously trusted the mortgage broker I was working with. But at the end of the day, I know there's so many because I've been enough networking groups, we hear mortgage brokers talking about FHA loans, or they're talking about VA loans, or hey, we've got this thing, if you're a doctor, or if you have four legs, like, you know, here's what you can you can get like, I don't know what all this stuff is. And I don't know why you would get one over the other or what the pros and cons are. So Kelly's going to educate us on all these types of loans. And now you know to, hey, what about this loan? Or maybe I qualify for this one,
Speaker #0
right? Yeah. Well, and I think what's interesting between, you know, we talk a lot about the generational differences is, you know, the loans that our parents were getting are different than the loans that we're getting. Honestly, our parents were generally like going to the local bank and saying like, hey, I want a mortgage. And they're like, cool, can I see your pay stub? And you'd show them your pay stub. And they'd be like, here's your loan. And they were lending the bank's money. And now that's not really how it works anymore. We have loans that are often backed by the government through government. We call them GSEs. And they are different products that have different purposes. And as a first time homebuyer, it can be really confusing. And I think one of the most confusing parts is the first time homebuyer part is the main question I get is Yeah, I want one of those first-time homebuyer loans. And I'm like, okay, let's talk about what that means. Because there's nothing, there's nothing is a first-time, I'm making air quotes right here, a first-time homebuyer loan. There are products that you must be a first-time homebuyer to use, but they don't exclude you from using other products necessarily. There are also times where a loan that is only for first-time homebuyers may not be a great fit for you, even though you are a first-time homebuyer.
Speaker #1
Walk me through. So first-time homebuyer, is that the same as the FHA loan?
Speaker #0
No. Oh,
Speaker #1
see, there we are.
Speaker #0
Okay. So an FHA loan is a Federal Housing Administration loan. And all it means is that, because people, when they say the FHA, people are like, and they do it to me all the time, they're like, first-time homebuyer, FHA? And I'm like, nope, nope, Federal Housing Administration loan. So that is a loan that many first-time homebuyers do like to utilize, okay? But it is not exclusively for first-time homebuyers. Anyone can actually use that loan as long as they don't currently own another home with an FHA loan.
Speaker #1
Okay. So if I own a home that wasn't FHA, I can go get an FHA loan right now.
Speaker #0
Yep. And you have to live on FHA property as your primary residence. Okay. So you got to live in it.
Speaker #1
So why don't we walk back to the first time homebuyer? So what's the deal with the first time homebuyer?
Speaker #0
Who is a first time homebuyer? So a first time homebuyer is anyone who has not owned a home in the last three years.
Speaker #1
Interesting. That does not sound like a first time homebuyer. That's like a... Recent non-first-time homebuyer.
Speaker #0
Yeah. So it's anyone who has not owned a home in the last three years because considered a first-time homebuyer. True first-time homebuyers, right, have never owned a home. What is the definition of owning a home? Well, that's also a complicated question.
Speaker #1
That doesn't sound like it should be a complicated question.
Speaker #0
Yeah. Have you owned a home before? If you are untitled to your parents' house, you've technically owned a home. Okay. If you were put untitled to your grandparents' house for purposes of inheritance, you own a home. Now, there are some loan programs that have stipulations for those sort of things. You're on title to a property, but you've never lived in it as your primary residence. We can exclude that. But your parents' home, that can be a problem. We are going to often count that as your home if you're on title or the mortgage for that house. But we're going to talk about an actual first-time homebuyer here. Sure. Somebody, you're newly married or a lovely single male or female or anybody. and you're going to buy a house.
Speaker #1
You're ready to go. I got a little down payment saved up. We're ready to do this. What do we do?
Speaker #0
What are we looking at? So the FHA loan is the one that all first-time homebuyers gravitate towards to me. They're like, I want that FHA loan. Here's the FHA loan. Okay, this is a government-backed loan, and it is designed for borrowers with generally lower credit scores and smaller down payments. Okay, so it has a requirement of at least 3.5% down, so fairly low down payment.
Speaker #1
Has that gone up? Because I always thought it was 3. No,
Speaker #0
that's a different program.
Speaker #1
Of course it is. Okay.
Speaker #0
That's a different program. The down payment is little less 3.5%. It has more lenient credit requirements. So things like bankruptcies, foreclosures, those can have happened more recently than other loan products. It also allows a higher debt to income ratio. Okay. So if you are in a position where, you know, maybe what you're making is a little bit lower, maybe you have some car payments or student loans, this loan is often a great fit. What is the downside to it? So the downside is actually the way that the mortgage insurance is structured on these loans. So many loan products, if you're putting less than 20% down, you're going to have mortgage insurance. FHA mortgage insurance, however, is number one for the life of the loan. So it doesn't matter when you hit 20% equity, you're going to have it. And there is also upfront mortgage insurance. So there is a fee that's essentially added into your loan amount at the beginning that you pay off as part of your 360 payments that covers the mortgage insurance. Now, why is that? Well, this program is a government-backed program. They have to refund the pot. And also, it does have a higher foreclosure rate than other loan programs.
Speaker #1
Well, I imagine if you're taking higher debt ATOs, then yeah, you're taking more risk on that.
Speaker #0
It's higher risk. Now, what are some other cons to this program? One is it does have a higher appraisal requirement. So the appraiser is not only looking for the value of the home, but they're also looking for health and safety issues. So if you're trying to buy a home that maybe has peeling paint, broken windows, missing deck boards, house that's really not in great condition that we don't consider livable, FHA may not allow you to purchase that home. Okay. Okay. With that loan product. So that can be a little bit tricky. The other thing that can be a little bit complicated with it is because of that fact, sometimes sellers are less likely to choose that offer over other offers.
Speaker #1
which like yeah that can make sense yeah you know like oh it's gonna be harder appraisal i'm not gonna pick that loan yeah i mean so so it sounds like to me maybe i'm misreading this and correct me if i'm wrong but it sounds like okay i'm not a person that's maybe i don't say desperate but like i've got a little bit more income maybe i don't have the cash flow that i need and i just kind of want to get this house and this is the loan i need to go to is that am i reading that correctly yeah it's not it's not a first choice loan for the most part um but it is a great product that can get you into a house and it's still generally for most people better than renting
Speaker #0
You can also refinance out of it. So if down the line, maybe your credit score improves, maybe your debt to income goes down, maybe you hit an equity position where you won't have mortgage insurance anymore, we refi. We refi. So you're not stuck in it. And it also, the bonus of it is it generally has a lower interest rate than other loan products. Because again, it's built to help people get into homes. That's the purpose of it. So FHA can be a great product, not a first-time homebuyer loan though, okay? Just often used by first-time homebuyers. Conventional loans is sort of the gold standard, okay? That's the one that most people get. But a lot of people think that's not a first-time homebuyer loan, okay? But... It totally can be. A conventional loan is a kind of the most standard product that's out there. It's what almost all lenders offer, banks, lenders like me, brokers, everybody's got it. We generally have two types. One is a Fannie Mae conventional loan and one is a Freddie Mac conventional loan. And these are just two different entities that sort of make the rules for each of them. They're both a little bit different though. So as a consumer, if you're looking at a conventional loan, you should ask your lender, do you offer both types? Because there can be benefits for you. from one type versus the other.
Speaker #1
When would someone do a Fannie versus Freddie?
Speaker #0
One example is if you have a lot of student loans, Freddie Mac allows us to use, if you don't have a payment already showing up in your credit report, allows us to use 0.5% of the outstanding balance as the monthly payment. Fannie Mae, 1%. So that can hurt you a little bit. And there's also some other guidelines. Freddie Mac tends to be a little bit less conservative for self-employed borrowers. We tend to find that you get more. property inspection waivers, which is called an appraisal waiver with Freddie Mac than we do with Fannie Mae. Sometimes the rates are a little bit different. So that's the other thing is when we're pulling rates, we might see a... And that really goes back and forth who's cheaper. It's not like one versus the other. Some days Fannie's better, some days Freddie's better. But having your lender have the ability to run both loans is very important. And I think a lot of consumers have no idea.
Speaker #1
Well, at the end of the day, it sounds like you just want to have options because your situation could be very different and you... most likely don't know any of this stuff, like I'm learning right now along with everyone here, how all these things work. So it would behoove you to talk to a mortgage professional and say, okay, what are the options? What do we have?
Speaker #0
What are the options? So what are the pros to a conventional loan? So one pro is flexible terms, five-year, 10-year, 15-year, 25-year, you've got flexible terms. No upfront mortgage insurance if you're putting more than 20% down, okay? No mortgage insurance at all. If you're putting less than 20% down, The mortgage insurance is variable depending on your credit score. Okay. Interesting. So that can be really helpful if you have great credit, where FHA, it's just a set number.
Speaker #1
Oh, so it doesn't matter your credit score.
Speaker #0
It doesn't matter your credit score for FHA for mortgage insurance. For conventional, credit score matters. The mortgage insurance also eventually goes away on a conventional loan. So once you hit 20% equity, you can request that the lender remove it. When you hit 78% equity, it's automatically removed from your payment. Goes away.
Speaker #1
Why would you wait till 78%?
Speaker #0
Because to do it at 80%, it's not just a, hey, take this off. You generally have to get an appraisal. And so if you figure out what that is and how many months it is between 80% and 78%, I usually do the math for my borrowers. And I'm like, it's going to cost you $500 to get the appraisal, or it's going to cost you $486 to just wait. Just wait at that point because you don't want the appraisal to come in low. Yeah,
Speaker #1
because then you're stuck anyway.
Speaker #0
Exactly. What's the cons to it? Oh, the other pro is if you are a first-time homebuyer, there are programs for conventional loans where you can put just 3% down.
Speaker #1
So is that... So, all right, because I know you mentioned first-time homebuyer, conventional, regular homebuyer, conventional. So is that the biggest difference between the first-time homebuyer? That's the advantage?
Speaker #0
Correct. That's the advantage. Now, there are some non-first-time homebuyers who have income that are maybe a little bit lower that can sometimes do 3% down through the Home Ready and Home Possible programs. But generally, if you've already owned a home before, you're going to put a minimum of 5% down on a conventional loan. First-time homebuyers, 3% down. So that's a big pro. So it's even less than FHA that you have to put down. What's the con? Stricter credit requirements. So it is, if you have credit, I'd say in the 600s, it can be a little bit tougher for us to get an approval for you. Mid-6s to... you know, low sevens, that's usually fine. It's really like that 650 and under. It can be very hard for us to get approvals. Income requirement, same thing. The debt to income ratio is usually a little bit lower. So you kind of have to have a little bit of a lower debt load generally.
Speaker #1
Yeah. You got your financial stuff together a little bit better, a little tighter.
Speaker #0
Exactly. But great product. The vast majority of loans that are being written are conventional loans. So it is the most common loan type. Now, these two are not the only, right? things in the game. There are also things like VA loans. That is a loan for veterans. That is a zero percent down loan. There is no down payment required. There is no private mortgage insurance, and there's very competitive interest rates. This is like my favorite loan product. What's the downside to a VA loan? You got to be a veteran. Okay. So it's only available to a small pool of people, but they're very deserving of this loan product. And it can be a really great way for them to get into a home.
Speaker #1
Well, I imagine with putting nothing down, the payment probably goes up, correct? So that's probably the downside is that you have to have the cashflow to support that.
Speaker #0
Correct. Yeah, absolutely. And they don't use debt to income ratios. They use something called residual income. And that's where, again, having a knowledgeable loan officer is really important is the way that you qualify for a VA loan is different than all the other loan products.
Speaker #1
So if you, let's say, are a VA and you want to, sorry, veteran, I don't know why I said that. If you want to put down, you know, 5%, you can still qualify for a loan. So it's not like you have to do 0%.
Speaker #0
No, you can put down however much you want. And yeah, it's a really great loan product. I love it. There's a lot of misinformation, however, about this loan product, both for consumers, for veterans themselves. I love this. who are often I'm like, Hey, have you ever if you use your VA loan before and they're like, No, you know, my realtor told me it's terrible and I shouldn't use it. I'm like, cool, that's somebody who didn't know what they're talking about. Let me tell you why it's great product. Or they were they don't don't even know that it's a benefit of theirs. I get that occasionally where they're like, No, I didn't know I could get that. And I'm like, Well, you can. Or sometimes people think it's tied to certain programs like, Oh, I have to use USAA or I have to use Veterans United or I have to use Navy Federal. credit union in order to use my VA. Though all of those banks, I'm making air quotes again, are just regular banks. This loan program is totally separate from them. Most lenders can do it. There are a few hangups for people that, again, if you're using a lender that doesn't have a lot of experience in VA loans, can kind of throw them off. Like your child care costs are actually included in your debt to income on a VA loan, not included in any other loan product, probably actually smart that it's included. But it's something that, you know, if you have a lender who's, you know, kind of less comfortable, they may not know some of the little nuances of that program. Another product that's similar to that is the USDA loan. OK, when I say USDA loan, people like like the stake, like my stake. Same department of the government.
Speaker #1
That's very normal. Yeah. Makes sense to me.
Speaker #0
Very different use of that that department. So we're not looking at stakes. We are looking at people who are looking to purchase in rural areas. So this is a product that's trying to incentivize people to move out to more rural areas.
Speaker #1
You get a better rate the more cows you have. Is that correct?
Speaker #0
Well, here's the actually fun fact. You cannot have a working farm and use this loan product.
Speaker #1
That's interesting. I thought the opposite.
Speaker #0
Right? Nothing on your property can be income producing. Even to the point where, like, if you have a barn that has five garage bays and it looks like maybe you're renting those garage bays out, that's not going to happen for USDA. But what's the pros of it? No down payment. Okay. So just like VA, no down payment. Competitive interest rates, so lower interest rates than others, and kind of flexible credit guidelines, which we like. Downside, limited to rural areas, and they're very specific. Okay, so there is a map on the USDA website where you can go and plug addresses in, but you can have an address that works, and a mile down the road the address doesn't work.
Speaker #1
Okay. Is this the same concept as the Opportunity Zone, or is this a totally different thing?
Speaker #0
Totally different concept. Of course it is. Totally different. It's their own map. Everybody uses their own. None of these government entities talk to each other, Derek. That's the first thing you need to know. None of them converse. And all of them have guidelines that are like kind of similar to somebody else's because somebody read their guideline book and was like, that's a good idea, but we want ours to be a little different. We want to just change it like a little bit. So we deal a lot in that. Yeah. So cons, very specific area. I'm also going to tell you that on the borrower side, your debt to income generally has to be fairly low to qualify for this, but there's also an income cap. So you can only make a certain amount so it's a little bit of like thread in the needle on this product of like does This work for you not always so I know we're like halfway through the episode We should probably clarify what debt to income ratio is.
Speaker #1
Oh,
Speaker #0
that's a great idea I forget about that sometimes so debt to income debt to income is literally how much gross income you have coming in So gross is what your company says they pay you okay, not what actually gets deposited in your account What they say they pay you before anything gets removed versus Europe obligated liabilities coming out every month. What are obligated liabilities? One is this proposed mortgage payment. Okay. And then anything else that is currently reporting on credit or is an obligated debt. Now, what is the definition of an obligated debt? So credit cards, obligated debt, car loans, obligated debt, personal loans, obligated debt, student loans, obligated debt, your cell phone payment, not obligated. Your Cox Communications payment, not obligated. Technically child care, other than for VA, not obligated. Your car insurance, not obligated. So what does that mean? Obligated generally, I tell people to think of it as you already own that and you owe money back. Non-obligated debt is things that you can stop. And then don't have to pay.
Speaker #1
What about the buy now, pay later? Does that?
Speaker #0
That's usually actually shows up on your credit report. So that's usually obligated.
Speaker #1
Because I know that's a hot new thing.
Speaker #0
Hot new thing. We see a lot on credit. And I'm like, oh, look at your finger hut. And you're, you know, there's a lot of that sort of stuff. And I like tell people like that has a 35% interest rate. You probably should not use that. But yeah, so debt to income is how much you have coming in every month versus how much you have going out. We turn it into like a ratio. And there you have two debt to income ratios. You have your what we call front end, which is just your income versus the housing ratio versus how much the mortgage is going to cost you. And then you have your back end ratio, which is all of your debt plus the housing lumped together. And all loan programs have like a minimum and a maximum of those two numbers.
Speaker #1
Okay. It makes no sense they would just do one, but okay.
Speaker #0
Correct. Correct. Welcome to mortgages. We, again, mortgages is like a whole bunch of different things kind of mushed together sometimes.
Speaker #1
Yeah, it sounds like it. Sounds very complicated.
Speaker #0
So the other program that I... Okay, so that's like a couple programs. There's way more programs than this. The other one that I am going to touch on, though, for first-time homebuyers are what's called state bond programs. Okay, you have to ask about an opportunity zone and that falls within state bond programs. So state bond programs here, we're in Connecticut, so we're going to talk about Connecticut, but most states have a state bond program. Ours is called CHAFA, the Connecticut Housing and Finance Authority State Bond Program. And it's essentially... state-run housing programs where we're trying to make home ownership affordable for people. There's lots of different versions of them. Every state runs these completely independently and different than everybody else. Our program here in Connecticut sort of has a couple different options. These are normal loan products. So you're getting a conventional loan or an FHA loan. It's just sponsored by the housing authority. And they pick their interest rate here in Connecticut. And it's different. Not all states are like this, but in Connecticut. chaffa sets their own rates every lender that's lending chaffa lends at the same rate today it was a 6.875 for a conventional and i think a six and a half for fha but i didn't look at that so don't quote me but that's the rate everybody gets the same rate and you can just take that as a normal first loan so you can make a down payment like normal and take it as a normal first loan there are income caps to these programs so it's not for everybody you There are two other programs currently here in the state of Connecticut. One is called DPA or down payment assistance, where you can get up to $15,000 in a repayable second loan with a 5% interest rate up, which pays for your minimum down payment. So either 3% or 3.5% of your loan, plus 1% of closing costs up to $15,000. So the payment ends up fairly cheap, 60 bucks a month, 50 bucks a month. This is great for people who don't have a lot of cash and they're trying to get into a home. And then we have another program, which is magical. which is the opportunity zone that you were asking. The opportunity zones have actually gone away, but it is a program called Time to Own, which before there were two versions of the program, one where you could get $25,000, one where you could get $50,000, depending on if you were in an opportunity zone or not. And that $50,000 went towards your down payment and closing costs in kind of any combination, and you could use up to that amount. Again, fairly strict income caps on these. They're definitely intended for first-time. sort of lower income borrowers. They generally have to be under 100% of the AMI or area median income, which means they vary town by town. So it's not always the same. So these programs can be amazing for people. But getting into a house, very affordable. However, from a lender standpoint, they are very complicated.
Speaker #1
I imagine. So let me ask you this. All right. So we threw out all of these mortgages, right? No one's going to probably remember all of those,
Speaker #0
right? No, I don't want you to. Well,
Speaker #1
it's it's. It sounds like a lot. So is this something where you guys have just kind of peeling behind the curtain, I guess here, you have this computer program where you like, does it automatically know or you have to kind of figure out, okay, like based on what this person's profile is,
Speaker #0
I feel like this loan is going to be- That is the art of mortgage right there. Yeah. So I take an application, people give me all the information that I asked for, and then it's my job to kind of run them through these programs. Now I can look baseline at a full profile and automatically exclude programs. Okay. Right. Nope, that was not going to work. Nope, this one's not going to work. Nope.
Speaker #1
Like, you know, someone's not a veteran. So like VA's out.
Speaker #0
Right. They want to buy in glass and bear, but USDA is out. Right. You know, whatever it might be, I can exclude some. But then I'm usually left with a pile of a couple that I'm like, what about this one? What about, and that's where we start to kind of really dial in trying to find the best execution of a loan program. Right. This is the one that makes sense. Sometimes I have to say to people, this is your one choice. Okay. This is it. This is the only thing you qualify for. Sometimes it's, hey, both of these work for you. One would work in these circumstances a little bit better and one would work in these circumstances a little bit better. So we're going to kind of keep them both on the table and we'll see what makes the most sense. But that's where working with a loan officer who is knowledgeable, who knows their programs, who has access to a lot of programs. There are some lenders I pick on the bank sometimes where like they maybe only offer a conventional loan. So they're going to look at you. And this happens to borrowers a lot where they'll go somewhere and they'll. they'll be told by a loan officer, you don't qualify for a mortgage. And they're like, oh, okay. It's not always kind of continued with, you don't qualify for a mortgage I offer.
Speaker #1
Right, our mortgage.
Speaker #0
You just don't qualify for a mortgage and then they're all discouraged and then we get ahold of them and we're like, oh, actually you qualify for these three things. Maybe you don't qualify for a bank's conventional loan or a lender's conventional loan, but FHA is perfect for you. Or, hey, did you know you were a veteran? They don't offer VA loans there, so they didn't share that with you. You can qualify for this. So making sure that who you're working with has lots of information, but also being clear about your goals, right? One of the questions I ask borrowers a lot is what's worth more to you, cash on hand or cash over time? OK, because how we structure these can look a little bit different. How much money do you have in the bank? Right. Do I want to deplete every ounce of savings that you have to get you into this house? But now you close and you don't even have enough money to go to Walmart and buy your cleaning supplies. Or can we set this up in a way where you have some money left over? But I think working with. you know, someone who really understands like what your goals are, number one, and what products are available, number two, and can match those two things together.
Speaker #1
Yeah, that's so important. I feel like when I bought the two properties that I have, it was, here you go, here's your mortgage, like here's the rate and here's that. He didn't show me like a menu of items. He was like, well, how about this one, this one, this one? Because I think at the end of the day, like we don't know this stuff. So we have to kind of trust the mortgage professional that we're working with to kind of delineate and say, okay, this is the type of program. Now, with that said, I feel like after listening to this episode, if you are in one of those categories, I would definitely ask about these loans. I mean, to make sure like maybe you're in the bank situation where someone's not offering you a loan that you wouldn't potentially qualify. Or maybe that's a screening question you ask when you are looking at mortgage brokers other than what's your rate?
Speaker #0
Yeah. Oh my God. And that's always the question. What's your rate? And to tell people that like, there's no what's your rate. Okay. It's not the bank's rate. It's your rate. Right. Okay. Because you as the consumer have an impact on the rate that we quote. Is it for a different loan program? Is it your credit score? Is it you know, there's so many factors that go into interest rates and the average consumer doesn't know that and they can get they sometimes get really frustrated with us because that's like the phone call question like, Hey, I'm calling to see what your rates are today. Okay.
Speaker #1
Yeah. Cool. That's like the my oh, what's your return on this? It's like, well, what kind of account we look at that? Yeah,
Speaker #0
factors come into play. There's so many factors that come into play. I just want to touch upon really quick before we're done. Also, you know, sort of the stuff that impacts first-time homebuyers. So just a couple quick tips. If you're thinking about buying a home, what can you do to make sure that you're prepared? The number one thing that I see currently right now that is stopping first-time homebuyers from buying houses is how high their car payments are. If you're making $100,000 a year and you've got a $1,200 a month car payment, it's going to be hard. to qualify for a mortgage. So trying to keep those car payments under control. I know it's hard. Cars are very expensive right now. Interest rates are high for car loans. But that's kind of a prohibitive factor for a lot of young professionals right now. Credit score is the other big prohibitive factor for people is credit is something you are either I find with consumers are either 100% dialed into. They know and they're almost overly Ausha about credit where I'm like, listen, you got to have like a little bit, right?
Speaker #1
Yeah. Yeah. Use your credit card.
Speaker #0
Use your credit card. They're either too dialed in or they have zero idea what's on their report. I pull their report. They're utterly shocked. Like, oh my God, I only have a 600. Like you had 11 lates a year and a half ago. Like, I don't know what to tell you. And then we got to go through credit repair. So knowing what your credit scores are, if anybody wants information about that, I can send you a link on how to get it. What you're looking at, credit karma, not accurate for a lender. Okay. Credit karma is a great way to review your own ups and downs of your credit score, but it is not anything a lender is going to use. It's going to look very different from our scoring. But even the scores that you're seeing on like your Capital One card or your Discover card, that's generally, it's one credit bureau and it's a credit card score. We could do a whole episode on credit score. We're going to at some point. But talking to a lender up ahead of time. The other thing that I would just tell you is if buying a home is in your one-year plan, you should be speaking with a lender at the beginning of that one year.
Speaker #1
Yeah. It's not a, oh, I think I'm ready now. Let's talk. I'm a very big fan of, all right, get an idea of what your rates are right now. They're going to change. Yeah. But they're not going to change from 6% to 2%. No. So they're going to...
Speaker #0
Do some math. Let's see what it looks like. Let me pull your credit. Let's see what your scores are. Let me tell you how much money you're going to need to make this happen because a year is a long time. We can fix a lot of transgressions in a year.
Speaker #1
Gives you time to fix it. Gives you time to build the down payment. And then if you're working with an advisor...
Speaker #0
You know, we can model that kind of thing out for you and say, OK, this is the type of loan you should get because, you know, we need to emphasize, to your point earlier, the payment versus the cash on hand. Yeah.
Speaker #1
Yeah. You know, and I think that's something that a lot of people miss. And especially one of the struggles we've had over the last few years for millennials specifically, Gen Zers and Gen Xers as well, is a lot of people have been happily living in rentals for a couple of years. The market got really good for sellers and a lot of landlords like. up and sold properties right out from underneath people. Like, yo, you've been on a month month for three years. That means I need to give you 60 days notice. Here's your 60 days notice. I've sold your unit, get out and you need to find something. And a lot of those people are like, oh, I'll buy now. And then they got to me and I was like, cool, let's look at it. And then I'm like, um, you are not going to buy now. Here's why. Um, and then, and then it just like, there's nothing like a kick in the gut like that. Like, sorry, I know you want to do this thing, but you can't do this thing. Um, and it's something that. you know, can be really, really tricky for people. So just, you know, kind of having a plan, knowing that it's something you want to do at some point and we can help you out.
Speaker #0
Yeah. Yeah. Just like always have a plan, work with someone that knows what they're talking about. And I think the right questions to ask are what types of loans do you use versus what's your rate?
Speaker #1
Exactly. So happy to help. Don't get discouraged. Homeownership can absolutely be in your future. It doesn't matter how much money you make, how much money you have. There's a plan that can be put in place to get you into something.
Speaker #0
Yeah. I think the takeaway should be there are a lot of different avenues that can be used. to get you that house that you want.
Speaker #1
Absolutely. The other takeaway for today is don't go to Mohegan Sun and think that you're 20 and then need to wear a hat for the podcast because you look like a hot mess. So that's the other takeaway.
Speaker #0
Good advice. Moderation. Oh, just drink some water in between, right?
Speaker #1
I didn't do that.
Speaker #0
Why don't you tell people about your nice elixir that you take?
Speaker #1
Oh, this is great for parents too, okay? My magic drink is you mix Gatorade with clear unflavored Pedialyte over ice. It will hydrate you like nothing else. If you feel lousy after an illness or, you know, after you've had too much fun, this mix, usually it's because you're dehydrated. So hydrate yourself.
Speaker #0
See, there we go. You're getting two types of advice. Two tips. Organs advice and hangover.
Speaker #1
It also works for the stomach flu, which if you are currently eating anywhere, probably in the U.S. in January, the stomach flu is rampant right now. Everybody has it. So if my kids call it the magic drink and they throw up and they're like, can I have the magic drink? You sure can. Yep.
Speaker #0
There we go, pal.
Speaker #1
Love it. All right. See you next time.
Speaker #0
See you next time. Bye.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Description

Reach out to Kelly Turner at kturner@totalmortgage.com and Derek Mazzarella at dmazzarella@mygfpartner.com

Hosted on Ausha. See ausha.co/privacy-policy for more information.

Transcription

Speaker #0
All right. Welcome to another episode of Millennial Money Matters with Kelly and Derek. And yeah, we're here. It's like a really cold Friday recording. It's been a little bit.
Speaker #1
Yeah, it's been a while. Well, because you've been Miss Classy traveling all over the world here. You're going to Disney and Mexico.
Speaker #0
Yeah, I was living my very best life. I went on a lot of vacations. So we went to Disney with the kids the day after Christmas. So like literally woke the kids up at 3.30 in the morning on the 26th of December, put them on an airplane. Um, sounds amazing. Then we needed to take a vacation from that trip.
Speaker #1
Uh, well, cause you're not just like hanging out in Disney. You're, you're walking like 20 miles a day,
Speaker #0
right? Correct. Like 20,000 steps. Well, that's, you can eat whatever you want in Disney because all you do is walk. It was a little chilly. Um, and I am a Disney maven. Um, I know exactly what I'm doing. There's a mission. There's an itinerary. I'm like the, I have my phone out, like, follow me. We're going here. We have a lightning lane. Uh,
Speaker #1
I don't know what any of that means.
Speaker #0
It was very intense and it was glorious, but you're very tired when you leave that. So we came home for like 10 days and then my husband and I went to Mexico for a week. And then we got stuck in Washington, D.C. overnight because of some snow. So that was like really fun. And then like three days later, it was my company's kickoff for the year. So I literally rolled home from Mohegan Sun and I'm here recording with you.
Speaker #1
Yeah, and I know for the audience, because this is a podcast, so no one can see us, but Kelly is fully decked out. She got a t-shirt can blown into her face and hat, and she got a total mortgage sweatshirt on, a hat.
Speaker #0
The hat is covering the sins of last night, though. The dry shampoo couldn't do it, so the hat is trying to cover that.
Speaker #1
Well, it looks good on you. I would look like a five-year-old boy wearing a hat. What, you're not a hat guy? No, I love hats, but I have to wear them backwards, even though I'm getting too old for that, apparently, because... So the problem is I look like a 12-year-old with a beard.
Speaker #0
A 12-year-old with a beard. So what's interesting about my hat, and if you watch the video on Instagram, you'll see it. It's like one of the new Gen Z hats. It's like kind of flat. I was telling one of the young folk in the company because... He I curved mine a little bit and he's like, what are you doing? You got to leave it flat. I was like, yo, I come from the land where you jammed your hat in a coffee cup to curve it as much as humanly possible. So the like flat and they yelled at me for taking the sticker off that like you're supposed to leave the sticker on the hat. That's not my jam.
Speaker #1
I mean, anytime you have a total mortgage sticker, you got to leave it on there. I mean, I feel like the type of hats kind of matter, right? Like it's a total mortgage. It's not like a like a baseball cap or something.
Speaker #0
I don't know. It was cool, though. So they I got some swag and I'm wearing it home from my night where I. over-served myself. And here we are.
Speaker #1
Well, this is, uh, sounds like the perfect segue then to talk about mortgages today.
Speaker #0
It was.
Speaker #1
See that transition. See,
Speaker #0
I spent a whole day and a half talking about mortgages. Um, you know, and it's fun. The podcast has started to elicit some commentary from people. And one of the questions that got asked of me is like, you know, there's all these loan types. Like, how do you know what loan you're supposed to get? And, you know, in my brain, and I think that's the hard thing as a professional is you're like, Oh, well. this is why you take this one, but we were talking about it. And you kind of had the same thoughts when you bought your house that you were like, we just took the loan they told us to buy. Like,
Speaker #1
yeah, I didn't honestly probably should ask more questions. But I mean, I obviously trusted the mortgage broker I was working with. But at the end of the day, I know there's so many because I've been enough networking groups, we hear mortgage brokers talking about FHA loans, or they're talking about VA loans, or hey, we've got this thing, if you're a doctor, or if you have four legs, like, you know, here's what you can you can get like, I don't know what all this stuff is. And I don't know why you would get one over the other or what the pros and cons are. So Kelly's going to educate us on all these types of loans. And now you know to, hey, what about this loan? Or maybe I qualify for this one,
Speaker #0
right? Yeah. Well, and I think what's interesting between, you know, we talk a lot about the generational differences is, you know, the loans that our parents were getting are different than the loans that we're getting. Honestly, our parents were generally like going to the local bank and saying like, hey, I want a mortgage. And they're like, cool, can I see your pay stub? And you'd show them your pay stub. And they'd be like, here's your loan. And they were lending the bank's money. And now that's not really how it works anymore. We have loans that are often backed by the government through government. We call them GSEs. And they are different products that have different purposes. And as a first time homebuyer, it can be really confusing. And I think one of the most confusing parts is the first time homebuyer part is the main question I get is Yeah, I want one of those first-time homebuyer loans. And I'm like, okay, let's talk about what that means. Because there's nothing, there's nothing is a first-time, I'm making air quotes right here, a first-time homebuyer loan. There are products that you must be a first-time homebuyer to use, but they don't exclude you from using other products necessarily. There are also times where a loan that is only for first-time homebuyers may not be a great fit for you, even though you are a first-time homebuyer.
Speaker #1
Walk me through. So first-time homebuyer, is that the same as the FHA loan?
Speaker #0
No. Oh,
Speaker #1
see, there we are.
Speaker #0
Okay. So an FHA loan is a Federal Housing Administration loan. And all it means is that, because people, when they say the FHA, people are like, and they do it to me all the time, they're like, first-time homebuyer, FHA? And I'm like, nope, nope, Federal Housing Administration loan. So that is a loan that many first-time homebuyers do like to utilize, okay? But it is not exclusively for first-time homebuyers. Anyone can actually use that loan as long as they don't currently own another home with an FHA loan.
Speaker #1
Okay. So if I own a home that wasn't FHA, I can go get an FHA loan right now.
Speaker #0
Yep. And you have to live on FHA property as your primary residence. Okay. So you got to live in it.
Speaker #1
So why don't we walk back to the first time homebuyer? So what's the deal with the first time homebuyer?
Speaker #0
Who is a first time homebuyer? So a first time homebuyer is anyone who has not owned a home in the last three years.
Speaker #1
Interesting. That does not sound like a first time homebuyer. That's like a... Recent non-first-time homebuyer.
Speaker #0
Yeah. So it's anyone who has not owned a home in the last three years because considered a first-time homebuyer. True first-time homebuyers, right, have never owned a home. What is the definition of owning a home? Well, that's also a complicated question.
Speaker #1
That doesn't sound like it should be a complicated question.
Speaker #0
Yeah. Have you owned a home before? If you are untitled to your parents' house, you've technically owned a home. Okay. If you were put untitled to your grandparents' house for purposes of inheritance, you own a home. Now, there are some loan programs that have stipulations for those sort of things. You're on title to a property, but you've never lived in it as your primary residence. We can exclude that. But your parents' home, that can be a problem. We are going to often count that as your home if you're on title or the mortgage for that house. But we're going to talk about an actual first-time homebuyer here. Sure. Somebody, you're newly married or a lovely single male or female or anybody. and you're going to buy a house.
Speaker #1
You're ready to go. I got a little down payment saved up. We're ready to do this. What do we do?
Speaker #0
What are we looking at? So the FHA loan is the one that all first-time homebuyers gravitate towards to me. They're like, I want that FHA loan. Here's the FHA loan. Okay, this is a government-backed loan, and it is designed for borrowers with generally lower credit scores and smaller down payments. Okay, so it has a requirement of at least 3.5% down, so fairly low down payment.
Speaker #1
Has that gone up? Because I always thought it was 3. No,
Speaker #0
that's a different program.
Speaker #1
Of course it is. Okay.
Speaker #0
That's a different program. The down payment is little less 3.5%. It has more lenient credit requirements. So things like bankruptcies, foreclosures, those can have happened more recently than other loan products. It also allows a higher debt to income ratio. Okay. So if you are in a position where, you know, maybe what you're making is a little bit lower, maybe you have some car payments or student loans, this loan is often a great fit. What is the downside to it? So the downside is actually the way that the mortgage insurance is structured on these loans. So many loan products, if you're putting less than 20% down, you're going to have mortgage insurance. FHA mortgage insurance, however, is number one for the life of the loan. So it doesn't matter when you hit 20% equity, you're going to have it. And there is also upfront mortgage insurance. So there is a fee that's essentially added into your loan amount at the beginning that you pay off as part of your 360 payments that covers the mortgage insurance. Now, why is that? Well, this program is a government-backed program. They have to refund the pot. And also, it does have a higher foreclosure rate than other loan programs.
Speaker #1
Well, I imagine if you're taking higher debt ATOs, then yeah, you're taking more risk on that.
Speaker #0
It's higher risk. Now, what are some other cons to this program? One is it does have a higher appraisal requirement. So the appraiser is not only looking for the value of the home, but they're also looking for health and safety issues. So if you're trying to buy a home that maybe has peeling paint, broken windows, missing deck boards, house that's really not in great condition that we don't consider livable, FHA may not allow you to purchase that home. Okay. Okay. With that loan product. So that can be a little bit tricky. The other thing that can be a little bit complicated with it is because of that fact, sometimes sellers are less likely to choose that offer over other offers.
Speaker #1
which like yeah that can make sense yeah you know like oh it's gonna be harder appraisal i'm not gonna pick that loan yeah i mean so so it sounds like to me maybe i'm misreading this and correct me if i'm wrong but it sounds like okay i'm not a person that's maybe i don't say desperate but like i've got a little bit more income maybe i don't have the cash flow that i need and i just kind of want to get this house and this is the loan i need to go to is that am i reading that correctly yeah it's not it's not a first choice loan for the most part um but it is a great product that can get you into a house and it's still generally for most people better than renting
Speaker #0
You can also refinance out of it. So if down the line, maybe your credit score improves, maybe your debt to income goes down, maybe you hit an equity position where you won't have mortgage insurance anymore, we refi. We refi. So you're not stuck in it. And it also, the bonus of it is it generally has a lower interest rate than other loan products. Because again, it's built to help people get into homes. That's the purpose of it. So FHA can be a great product, not a first-time homebuyer loan though, okay? Just often used by first-time homebuyers. Conventional loans is sort of the gold standard, okay? That's the one that most people get. But a lot of people think that's not a first-time homebuyer loan, okay? But... It totally can be. A conventional loan is a kind of the most standard product that's out there. It's what almost all lenders offer, banks, lenders like me, brokers, everybody's got it. We generally have two types. One is a Fannie Mae conventional loan and one is a Freddie Mac conventional loan. And these are just two different entities that sort of make the rules for each of them. They're both a little bit different though. So as a consumer, if you're looking at a conventional loan, you should ask your lender, do you offer both types? Because there can be benefits for you. from one type versus the other.
Speaker #1
When would someone do a Fannie versus Freddie?
Speaker #0
One example is if you have a lot of student loans, Freddie Mac allows us to use, if you don't have a payment already showing up in your credit report, allows us to use 0.5% of the outstanding balance as the monthly payment. Fannie Mae, 1%. So that can hurt you a little bit. And there's also some other guidelines. Freddie Mac tends to be a little bit less conservative for self-employed borrowers. We tend to find that you get more. property inspection waivers, which is called an appraisal waiver with Freddie Mac than we do with Fannie Mae. Sometimes the rates are a little bit different. So that's the other thing is when we're pulling rates, we might see a... And that really goes back and forth who's cheaper. It's not like one versus the other. Some days Fannie's better, some days Freddie's better. But having your lender have the ability to run both loans is very important. And I think a lot of consumers have no idea.
Speaker #1
Well, at the end of the day, it sounds like you just want to have options because your situation could be very different and you... most likely don't know any of this stuff, like I'm learning right now along with everyone here, how all these things work. So it would behoove you to talk to a mortgage professional and say, okay, what are the options? What do we have?
Speaker #0
What are the options? So what are the pros to a conventional loan? So one pro is flexible terms, five-year, 10-year, 15-year, 25-year, you've got flexible terms. No upfront mortgage insurance if you're putting more than 20% down, okay? No mortgage insurance at all. If you're putting less than 20% down, The mortgage insurance is variable depending on your credit score. Okay. Interesting. So that can be really helpful if you have great credit, where FHA, it's just a set number.
Speaker #1
Oh, so it doesn't matter your credit score.
Speaker #0
It doesn't matter your credit score for FHA for mortgage insurance. For conventional, credit score matters. The mortgage insurance also eventually goes away on a conventional loan. So once you hit 20% equity, you can request that the lender remove it. When you hit 78% equity, it's automatically removed from your payment. Goes away.
Speaker #1
Why would you wait till 78%?
Speaker #0
Because to do it at 80%, it's not just a, hey, take this off. You generally have to get an appraisal. And so if you figure out what that is and how many months it is between 80% and 78%, I usually do the math for my borrowers. And I'm like, it's going to cost you $500 to get the appraisal, or it's going to cost you $486 to just wait. Just wait at that point because you don't want the appraisal to come in low. Yeah,
Speaker #1
because then you're stuck anyway.
Speaker #0
Exactly. What's the cons to it? Oh, the other pro is if you are a first-time homebuyer, there are programs for conventional loans where you can put just 3% down.
Speaker #1
So is that... So, all right, because I know you mentioned first-time homebuyer, conventional, regular homebuyer, conventional. So is that the biggest difference between the first-time homebuyer? That's the advantage?
Speaker #0
Correct. That's the advantage. Now, there are some non-first-time homebuyers who have income that are maybe a little bit lower that can sometimes do 3% down through the Home Ready and Home Possible programs. But generally, if you've already owned a home before, you're going to put a minimum of 5% down on a conventional loan. First-time homebuyers, 3% down. So that's a big pro. So it's even less than FHA that you have to put down. What's the con? Stricter credit requirements. So it is, if you have credit, I'd say in the 600s, it can be a little bit tougher for us to get an approval for you. Mid-6s to... you know, low sevens, that's usually fine. It's really like that 650 and under. It can be very hard for us to get approvals. Income requirement, same thing. The debt to income ratio is usually a little bit lower. So you kind of have to have a little bit of a lower debt load generally.
Speaker #1
Yeah. You got your financial stuff together a little bit better, a little tighter.
Speaker #0
Exactly. But great product. The vast majority of loans that are being written are conventional loans. So it is the most common loan type. Now, these two are not the only, right? things in the game. There are also things like VA loans. That is a loan for veterans. That is a zero percent down loan. There is no down payment required. There is no private mortgage insurance, and there's very competitive interest rates. This is like my favorite loan product. What's the downside to a VA loan? You got to be a veteran. Okay. So it's only available to a small pool of people, but they're very deserving of this loan product. And it can be a really great way for them to get into a home.
Speaker #1
Well, I imagine with putting nothing down, the payment probably goes up, correct? So that's probably the downside is that you have to have the cashflow to support that.
Speaker #0
Correct. Yeah, absolutely. And they don't use debt to income ratios. They use something called residual income. And that's where, again, having a knowledgeable loan officer is really important is the way that you qualify for a VA loan is different than all the other loan products.
Speaker #1
So if you, let's say, are a VA and you want to, sorry, veteran, I don't know why I said that. If you want to put down, you know, 5%, you can still qualify for a loan. So it's not like you have to do 0%.
Speaker #0
No, you can put down however much you want. And yeah, it's a really great loan product. I love it. There's a lot of misinformation, however, about this loan product, both for consumers, for veterans themselves. I love this. who are often I'm like, Hey, have you ever if you use your VA loan before and they're like, No, you know, my realtor told me it's terrible and I shouldn't use it. I'm like, cool, that's somebody who didn't know what they're talking about. Let me tell you why it's great product. Or they were they don't don't even know that it's a benefit of theirs. I get that occasionally where they're like, No, I didn't know I could get that. And I'm like, Well, you can. Or sometimes people think it's tied to certain programs like, Oh, I have to use USAA or I have to use Veterans United or I have to use Navy Federal. credit union in order to use my VA. Though all of those banks, I'm making air quotes again, are just regular banks. This loan program is totally separate from them. Most lenders can do it. There are a few hangups for people that, again, if you're using a lender that doesn't have a lot of experience in VA loans, can kind of throw them off. Like your child care costs are actually included in your debt to income on a VA loan, not included in any other loan product, probably actually smart that it's included. But it's something that, you know, if you have a lender who's, you know, kind of less comfortable, they may not know some of the little nuances of that program. Another product that's similar to that is the USDA loan. OK, when I say USDA loan, people like like the stake, like my stake. Same department of the government.
Speaker #1
That's very normal. Yeah. Makes sense to me.
Speaker #0
Very different use of that that department. So we're not looking at stakes. We are looking at people who are looking to purchase in rural areas. So this is a product that's trying to incentivize people to move out to more rural areas.
Speaker #1
You get a better rate the more cows you have. Is that correct?
Speaker #0
Well, here's the actually fun fact. You cannot have a working farm and use this loan product.
Speaker #1
That's interesting. I thought the opposite.
Speaker #0
Right? Nothing on your property can be income producing. Even to the point where, like, if you have a barn that has five garage bays and it looks like maybe you're renting those garage bays out, that's not going to happen for USDA. But what's the pros of it? No down payment. Okay. So just like VA, no down payment. Competitive interest rates, so lower interest rates than others, and kind of flexible credit guidelines, which we like. Downside, limited to rural areas, and they're very specific. Okay, so there is a map on the USDA website where you can go and plug addresses in, but you can have an address that works, and a mile down the road the address doesn't work.
Speaker #1
Okay. Is this the same concept as the Opportunity Zone, or is this a totally different thing?
Speaker #0
Totally different concept. Of course it is. Totally different. It's their own map. Everybody uses their own. None of these government entities talk to each other, Derek. That's the first thing you need to know. None of them converse. And all of them have guidelines that are like kind of similar to somebody else's because somebody read their guideline book and was like, that's a good idea, but we want ours to be a little different. We want to just change it like a little bit. So we deal a lot in that. Yeah. So cons, very specific area. I'm also going to tell you that on the borrower side, your debt to income generally has to be fairly low to qualify for this, but there's also an income cap. So you can only make a certain amount so it's a little bit of like thread in the needle on this product of like does This work for you not always so I know we're like halfway through the episode We should probably clarify what debt to income ratio is.
Speaker #1
Oh,
Speaker #0
that's a great idea I forget about that sometimes so debt to income debt to income is literally how much gross income you have coming in So gross is what your company says they pay you okay, not what actually gets deposited in your account What they say they pay you before anything gets removed versus Europe obligated liabilities coming out every month. What are obligated liabilities? One is this proposed mortgage payment. Okay. And then anything else that is currently reporting on credit or is an obligated debt. Now, what is the definition of an obligated debt? So credit cards, obligated debt, car loans, obligated debt, personal loans, obligated debt, student loans, obligated debt, your cell phone payment, not obligated. Your Cox Communications payment, not obligated. Technically child care, other than for VA, not obligated. Your car insurance, not obligated. So what does that mean? Obligated generally, I tell people to think of it as you already own that and you owe money back. Non-obligated debt is things that you can stop. And then don't have to pay.
Speaker #1
What about the buy now, pay later? Does that?
Speaker #0
That's usually actually shows up on your credit report. So that's usually obligated.
Speaker #1
Because I know that's a hot new thing.
Speaker #0
Hot new thing. We see a lot on credit. And I'm like, oh, look at your finger hut. And you're, you know, there's a lot of that sort of stuff. And I like tell people like that has a 35% interest rate. You probably should not use that. But yeah, so debt to income is how much you have coming in every month versus how much you have going out. We turn it into like a ratio. And there you have two debt to income ratios. You have your what we call front end, which is just your income versus the housing ratio versus how much the mortgage is going to cost you. And then you have your back end ratio, which is all of your debt plus the housing lumped together. And all loan programs have like a minimum and a maximum of those two numbers.
Speaker #1
Okay. It makes no sense they would just do one, but okay.
Speaker #0
Correct. Correct. Welcome to mortgages. We, again, mortgages is like a whole bunch of different things kind of mushed together sometimes.
Speaker #1
Yeah, it sounds like it. Sounds very complicated.
Speaker #0
So the other program that I... Okay, so that's like a couple programs. There's way more programs than this. The other one that I am going to touch on, though, for first-time homebuyers are what's called state bond programs. Okay, you have to ask about an opportunity zone and that falls within state bond programs. So state bond programs here, we're in Connecticut, so we're going to talk about Connecticut, but most states have a state bond program. Ours is called CHAFA, the Connecticut Housing and Finance Authority State Bond Program. And it's essentially... state-run housing programs where we're trying to make home ownership affordable for people. There's lots of different versions of them. Every state runs these completely independently and different than everybody else. Our program here in Connecticut sort of has a couple different options. These are normal loan products. So you're getting a conventional loan or an FHA loan. It's just sponsored by the housing authority. And they pick their interest rate here in Connecticut. And it's different. Not all states are like this, but in Connecticut. chaffa sets their own rates every lender that's lending chaffa lends at the same rate today it was a 6.875 for a conventional and i think a six and a half for fha but i didn't look at that so don't quote me but that's the rate everybody gets the same rate and you can just take that as a normal first loan so you can make a down payment like normal and take it as a normal first loan there are income caps to these programs so it's not for everybody you There are two other programs currently here in the state of Connecticut. One is called DPA or down payment assistance, where you can get up to $15,000 in a repayable second loan with a 5% interest rate up, which pays for your minimum down payment. So either 3% or 3.5% of your loan, plus 1% of closing costs up to $15,000. So the payment ends up fairly cheap, 60 bucks a month, 50 bucks a month. This is great for people who don't have a lot of cash and they're trying to get into a home. And then we have another program, which is magical. which is the opportunity zone that you were asking. The opportunity zones have actually gone away, but it is a program called Time to Own, which before there were two versions of the program, one where you could get $25,000, one where you could get $50,000, depending on if you were in an opportunity zone or not. And that $50,000 went towards your down payment and closing costs in kind of any combination, and you could use up to that amount. Again, fairly strict income caps on these. They're definitely intended for first-time. sort of lower income borrowers. They generally have to be under 100% of the AMI or area median income, which means they vary town by town. So it's not always the same. So these programs can be amazing for people. But getting into a house, very affordable. However, from a lender standpoint, they are very complicated.
Speaker #1
I imagine. So let me ask you this. All right. So we threw out all of these mortgages, right? No one's going to probably remember all of those,
Speaker #0
right? No, I don't want you to. Well,
Speaker #1
it's it's. It sounds like a lot. So is this something where you guys have just kind of peeling behind the curtain, I guess here, you have this computer program where you like, does it automatically know or you have to kind of figure out, okay, like based on what this person's profile is,
Speaker #0
I feel like this loan is going to be- That is the art of mortgage right there. Yeah. So I take an application, people give me all the information that I asked for, and then it's my job to kind of run them through these programs. Now I can look baseline at a full profile and automatically exclude programs. Okay. Right. Nope, that was not going to work. Nope, this one's not going to work. Nope.
Speaker #1
Like, you know, someone's not a veteran. So like VA's out.
Speaker #0
Right. They want to buy in glass and bear, but USDA is out. Right. You know, whatever it might be, I can exclude some. But then I'm usually left with a pile of a couple that I'm like, what about this one? What about, and that's where we start to kind of really dial in trying to find the best execution of a loan program. Right. This is the one that makes sense. Sometimes I have to say to people, this is your one choice. Okay. This is it. This is the only thing you qualify for. Sometimes it's, hey, both of these work for you. One would work in these circumstances a little bit better and one would work in these circumstances a little bit better. So we're going to kind of keep them both on the table and we'll see what makes the most sense. But that's where working with a loan officer who is knowledgeable, who knows their programs, who has access to a lot of programs. There are some lenders I pick on the bank sometimes where like they maybe only offer a conventional loan. So they're going to look at you. And this happens to borrowers a lot where they'll go somewhere and they'll. they'll be told by a loan officer, you don't qualify for a mortgage. And they're like, oh, okay. It's not always kind of continued with, you don't qualify for a mortgage I offer.
Speaker #1
Right, our mortgage.
Speaker #0
You just don't qualify for a mortgage and then they're all discouraged and then we get ahold of them and we're like, oh, actually you qualify for these three things. Maybe you don't qualify for a bank's conventional loan or a lender's conventional loan, but FHA is perfect for you. Or, hey, did you know you were a veteran? They don't offer VA loans there, so they didn't share that with you. You can qualify for this. So making sure that who you're working with has lots of information, but also being clear about your goals, right? One of the questions I ask borrowers a lot is what's worth more to you, cash on hand or cash over time? OK, because how we structure these can look a little bit different. How much money do you have in the bank? Right. Do I want to deplete every ounce of savings that you have to get you into this house? But now you close and you don't even have enough money to go to Walmart and buy your cleaning supplies. Or can we set this up in a way where you have some money left over? But I think working with. you know, someone who really understands like what your goals are, number one, and what products are available, number two, and can match those two things together.
Speaker #1
Yeah, that's so important. I feel like when I bought the two properties that I have, it was, here you go, here's your mortgage, like here's the rate and here's that. He didn't show me like a menu of items. He was like, well, how about this one, this one, this one? Because I think at the end of the day, like we don't know this stuff. So we have to kind of trust the mortgage professional that we're working with to kind of delineate and say, okay, this is the type of program. Now, with that said, I feel like after listening to this episode, if you are in one of those categories, I would definitely ask about these loans. I mean, to make sure like maybe you're in the bank situation where someone's not offering you a loan that you wouldn't potentially qualify. Or maybe that's a screening question you ask when you are looking at mortgage brokers other than what's your rate?
Speaker #0
Yeah. Oh my God. And that's always the question. What's your rate? And to tell people that like, there's no what's your rate. Okay. It's not the bank's rate. It's your rate. Right. Okay. Because you as the consumer have an impact on the rate that we quote. Is it for a different loan program? Is it your credit score? Is it you know, there's so many factors that go into interest rates and the average consumer doesn't know that and they can get they sometimes get really frustrated with us because that's like the phone call question like, Hey, I'm calling to see what your rates are today. Okay.
Speaker #1
Yeah. Cool. That's like the my oh, what's your return on this? It's like, well, what kind of account we look at that? Yeah,
Speaker #0
factors come into play. There's so many factors that come into play. I just want to touch upon really quick before we're done. Also, you know, sort of the stuff that impacts first-time homebuyers. So just a couple quick tips. If you're thinking about buying a home, what can you do to make sure that you're prepared? The number one thing that I see currently right now that is stopping first-time homebuyers from buying houses is how high their car payments are. If you're making $100,000 a year and you've got a $1,200 a month car payment, it's going to be hard. to qualify for a mortgage. So trying to keep those car payments under control. I know it's hard. Cars are very expensive right now. Interest rates are high for car loans. But that's kind of a prohibitive factor for a lot of young professionals right now. Credit score is the other big prohibitive factor for people is credit is something you are either I find with consumers are either 100% dialed into. They know and they're almost overly Ausha about credit where I'm like, listen, you got to have like a little bit, right?
Speaker #1
Yeah. Yeah. Use your credit card.
Speaker #0
Use your credit card. They're either too dialed in or they have zero idea what's on their report. I pull their report. They're utterly shocked. Like, oh my God, I only have a 600. Like you had 11 lates a year and a half ago. Like, I don't know what to tell you. And then we got to go through credit repair. So knowing what your credit scores are, if anybody wants information about that, I can send you a link on how to get it. What you're looking at, credit karma, not accurate for a lender. Okay. Credit karma is a great way to review your own ups and downs of your credit score, but it is not anything a lender is going to use. It's going to look very different from our scoring. But even the scores that you're seeing on like your Capital One card or your Discover card, that's generally, it's one credit bureau and it's a credit card score. We could do a whole episode on credit score. We're going to at some point. But talking to a lender up ahead of time. The other thing that I would just tell you is if buying a home is in your one-year plan, you should be speaking with a lender at the beginning of that one year.
Speaker #1
Yeah. It's not a, oh, I think I'm ready now. Let's talk. I'm a very big fan of, all right, get an idea of what your rates are right now. They're going to change. Yeah. But they're not going to change from 6% to 2%. No. So they're going to...
Speaker #0
Do some math. Let's see what it looks like. Let me pull your credit. Let's see what your scores are. Let me tell you how much money you're going to need to make this happen because a year is a long time. We can fix a lot of transgressions in a year.
Speaker #1
Gives you time to fix it. Gives you time to build the down payment. And then if you're working with an advisor...
Speaker #0
You know, we can model that kind of thing out for you and say, OK, this is the type of loan you should get because, you know, we need to emphasize, to your point earlier, the payment versus the cash on hand. Yeah.
Speaker #1
Yeah. You know, and I think that's something that a lot of people miss. And especially one of the struggles we've had over the last few years for millennials specifically, Gen Zers and Gen Xers as well, is a lot of people have been happily living in rentals for a couple of years. The market got really good for sellers and a lot of landlords like. up and sold properties right out from underneath people. Like, yo, you've been on a month month for three years. That means I need to give you 60 days notice. Here's your 60 days notice. I've sold your unit, get out and you need to find something. And a lot of those people are like, oh, I'll buy now. And then they got to me and I was like, cool, let's look at it. And then I'm like, um, you are not going to buy now. Here's why. Um, and then, and then it just like, there's nothing like a kick in the gut like that. Like, sorry, I know you want to do this thing, but you can't do this thing. Um, and it's something that. you know, can be really, really tricky for people. So just, you know, kind of having a plan, knowing that it's something you want to do at some point and we can help you out.
Speaker #0
Yeah. Yeah. Just like always have a plan, work with someone that knows what they're talking about. And I think the right questions to ask are what types of loans do you use versus what's your rate?
Speaker #1
Exactly. So happy to help. Don't get discouraged. Homeownership can absolutely be in your future. It doesn't matter how much money you make, how much money you have. There's a plan that can be put in place to get you into something.
Speaker #0
Yeah. I think the takeaway should be there are a lot of different avenues that can be used. to get you that house that you want.
Speaker #1
Absolutely. The other takeaway for today is don't go to Mohegan Sun and think that you're 20 and then need to wear a hat for the podcast because you look like a hot mess. So that's the other takeaway.
Speaker #0
Good advice. Moderation. Oh, just drink some water in between, right?
Speaker #1
I didn't do that.
Speaker #0
Why don't you tell people about your nice elixir that you take?
Speaker #1
Oh, this is great for parents too, okay? My magic drink is you mix Gatorade with clear unflavored Pedialyte over ice. It will hydrate you like nothing else. If you feel lousy after an illness or, you know, after you've had too much fun, this mix, usually it's because you're dehydrated. So hydrate yourself.
Speaker #0
See, there we go. You're getting two types of advice. Two tips. Organs advice and hangover.
Speaker #1
It also works for the stomach flu, which if you are currently eating anywhere, probably in the U.S. in January, the stomach flu is rampant right now. Everybody has it. So if my kids call it the magic drink and they throw up and they're like, can I have the magic drink? You sure can. Yep.
Speaker #0
There we go, pal.
Speaker #1
Love it. All right. See you next time.
Speaker #0
See you next time. Bye.
Speaker #2
The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

About Millennial Money Matters

Join Kelly and Derek each week for honest and fun discussions about the financial issues that matter to you. Subscribe to "Millennial Money Matters" and take control of your financial journey today.

Hosted on Ausha. See ausha.co/privacy-policy for more information.

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