What questions should I ask a mortgage lender in Chester ? If you’re dealing with a mortgage broker there’s some questions that you should ask both on your first meeting with the mortgage broker and throughout working with your mortgage broker to make sure that you’re getting the best service possible.
USDALoanInfoPA is going to go through 10 different questions that you can ask your mortgage lender in Chester. Be aware that your USDA Loan or Mortgage broker will be getting the loan that you need and the service that you want.
The first question that I think everyone should ask a mortgage broker is a pretty straightforward one.
How Much Will a Mortgage Broker Cost?
Most mortgage lenders in Chester actually work for free.
So it doesn’t actually cost you anything in order to do it.
They get money because they are paid by the banks when you successfully get a loan.
So they get a small commission of the loan that you apply for and if you get it.
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So most mortgage brokers in Chester will work for free and it won’t cost you anything.
However, there are some mortgage brokers out there who do require deposits or who do require you to pay.
So, it’s important to ask, “How much will this cost me?” when assessing which mortgage broker you want to go with.
How much do Mortgage Lenders earn in commission from me and from my loan?
This is less to understand exactly how much they make.
You can see what percentage of commissions they make and things like that by visiting USDALoanInfo.
But it’s more to understand whether or not they’ll be willing to give you this information.
A transparent mortgage broker is someone that’d be willing to give you this information and you know that they have your best interest at heart.
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If they skirt around this issue and they don’t tell you how much they earn.
Well then that would send out red flags for me because I can’t trust them to put my best interest at heart because there are some circumstances where one loan will earn them more money than a loan that could potentially be better for me but not as good for them.
So, I’m just trying to establish whether or not this mortgage broker in Chester is someone that I can trust.
And by asking them the big question, the money question,”How much will you earn from me?” That’s a great way to understand whether or not you can trust the mortgage lender.
So ask that question and see how they respond.
Do Mortgage Lenders Invest Themselves?
Now, I don’t think a mortgage broker has to be a property investor in order for them to be able to get you a good loan and for them to help you successfully invest in property.
However, if they are interested in property in Chester, if they do invest themselves, then that is going to go a long way to help you because they understand what it’s like to be in your shoes.
They understand what you’re trying to get out of this and they’ve done it themselves so they can help you miss some of the pitfalls and things like that.
If they don’t invest themselves, then I would want to ask them, “Have you worked with many people that invest in property?” Because as mortgage brokers, some of them just work with people who are buying their own home.
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Some of the mortgage lender folk who work with people who are doing particular investment strategies.
So, some might work with people who invest in positive cash flow property or who invest in rural areas, who invest using developments.
So let's say you want to invest in propertybut you don't have the minimum 20% deposit required.
Well, you're likely going to haveto pay what's called Lender's Mortgage Insurance.
But what exactly is Lender's Mortgage Insuranceand is it worth the cost? In this episode, I'm going explain Lender's Mortgage Insurance.
What exactly it covers and why you would want to get it.
Hey, I'm Ryan from onproperty.
Au, helpingyou find positive cash flow property and I've just moved house.
If you're watching the video,you can see a bunch of boxes in the background behind me so I apologize that I don't havethe best setup today, but I did want to create some good content for you.
And this is a questionthat a lot of people ask.
A lot of people want to see lender's mortgage insurance explained.
And I do feel like often times, banks and lenders and sometimes mortgage brokers don'treally explain exactly what lender's mortgage insurance is or they don't take enough timeexplaining it so you actually understand it.
So we're going to get down to it, try andunderstand exactly what it is and why it could benefit us and whether or not it's worth payingfor.
Lender's mortgage insurance is an insurancefee that helps to cover the lender when they're taking an increased risk on a loan.
So, lender'smortgage insurance, some people believe that it's actually to cover you personally as theborrower of the loan, but it's not.
It's for the lender to protect them if they're takingan increased risk on a loan.
What exactly is an increased risk? Well, for most properties- most residential properties - banks want to see at least a 20% deposit in which casethey won't charge you lender's mortgage insurance.
They like to see a 20% deposit because ifyou, for some reason, default on your loan and they need to sell their property, they'requite confident that they're going to get at least 80% of the value that you paid forthe property back when they sell the property and this will cover their loan.
However, if you're only borrowing 5% of theproperty's value, then they're a lot less confident that if you default on the loanthey're going to get 95% of the value of the property back.
So it's a higher risk loanfor them.
And so, in order to cover this higher risk, they charge an insurance fee to coverthat extra risk.
Obviously, a lot of people will take out this insurance, not everyonewill need it.
That's the way that insurance works.
So the banks will charge you a one-timefee and everyone else a one-time fee and I guess this insurance covers them against thosefew circumstances where people do default on a loan and they have more trouble sellingthe property and getting enough value back.
So lender's mortgage insurance, it's a one-timefee that you pay and it goes to protect the lender because they're taking an increasedrisk on you to get the loan.
This sounds like it's not very beneficialto you, right? It's a fee that you have to pay, generally, it's added on to the loanso your loan gets bigger, but you've got to pay it and it protects them as the banks.
Well, what's the benefit to you as a borrower? Well, the benefits aren't obvious, but theyare there.
The benefit of lender's mortgage insurance is that if you don't have the fulldeposit, then you can still get money from the bank.
If lender's mortgage insurance didn'texist, then if you didn't have a 20% deposit, you might not be able to get a loan at all.
So, those of you who are going out and wanting to invest with a 5%, 10%, 15% deposit, youwould need to keep saving.
Or, the flip side of that is if they would still lend out themoney, they would need to hike up their interest rates an give you much larger interest rates,so you wouldn't have a great interest rate on your property.
You'd be paying a certainamount of points above the standard interest rate because they're taking increased on that.
So, even though lender's mortgage insuranceis a fee that you need to pay, at least, you can still get a loan and you can still geta loan at a good interest rate.
If lender's mortgage insurance didn't exist, then youprobably couldn't do that.
So, lender's mortgage insurance does have value to borrowers.
However,it's just a bit less apparent than the value that it is for the lenders.
So how much does lender's mortgage insurancecost? This is an impossible question to answer because there's so many different varyingfactors.
For example, the value of the loan is a varying factor.
The percentage of deposit- whether you've got 5%, 6%, 10%, 15%.
That's all going to affect the value of the lender'smortgage insurance that you have to pay.
Basically, the larger the risk the bank feels that they'retaking, the larger your lender's mortgage insurance is going to be.
They may take intoaccount whether you've got proven savings or not.
And if you don't have proven savings,your lender's mortgage insurance might be higher.
They might also look into your credithistory and things like that, but I'm not really sure if that affects lender's mortgageinsurance.
But another factor is that lender's mortgage insurance varies from lender to lender.
So you may go to one lender with the same loan value, the same percentage of depositand you may have a slightly different figure than if you go to another lender.
So if youwant to find out how much lender's mortgage insurance is going to cost for your specificsituation, then just go to Google, type in "lender's mortgage insurance calculator".
You should get a few of those come up and you can punch in your figures and it'll giveyou a pretty close estimate to how much you're going to pay.
But, obviously, you're goingto need to speak to your lender or speak to your mortgage broker to get a more accurateestimate of how much lender's mortgage insurance is going to cost.
If you want to avoid paying lender's mortgageinsurance, the only ways I know how to do this is to save a larger deposit.
So thatmight mean 20% for residential property, it might mean 30% for commercial property.
Butmake sure you speak to lenders to find out how much you'll need to save.
So you can savea larger deposit.
You could buy cheaper properties so your deposit is now worth more as a percentageof the property.
So if you get that percentage over 20% for residential, then you may beable to avoid lender's mortgage insurance.
Or, you can get a family guarantor on yourloan.
so if you've got parents or you've got immediate family who are willing to put uptheir property as security for your loan, then the banks can take some security forthem.
It then becomes a less risky deal for the banks.
And, therefore, you don't haveto pay a lender's mortgage insurance.
So, having a family member go guarantor on yourloan is a way to reduce or remove lender's mortgage insurance.
So, that's how you canavoid it.
Save more, buy a cheaper property so you're deposit's worth more as a percentageof your property or get a family to guarantor your loan.
The last question and thing that I want tocover is: Is it actually better to pay lender's mortgage insurance or is it better to waituntil you have a large deposit? I've seen people talk on both sides of the scale andto say you should absolutely never pay lender's mortgage insurance.
You should always savea 20% deposit when you invest.
Lender's mortgage insurance, absolutely wasted money becauseit's a fee that goes to the bank and you've got nothing to show for it.
And then, theother side of the pendulum are people saying that you should always pay lender's mortgageinsurance and always invest with the smallest deposit possible so you've got the least cashin the deal so that you can take the cash you do have and invest in more propertiesand grow your portfolio faster.
So, some people say never pay it, always save at least 20%.
Some people say always pay it, put as little cash into each deal as possible, which meansyou're going to pay basically the maximum lender's mortgage insurance for your situation.
So there's people on both sides of the table.
I think a better approach to it is to actuallylook at your own situation and assess whether it's worth it for you.
Lender's mortgage insurancecost thousands of dollars.
So you need to weigh up: is it worth investing in this propertynow with the smaller deposit and paying thousands of dollars versus actually saving more toget a deposit? Someone who only has a 5% deposit, they have a lot of trouble saving, but theycould get into the market now.
Maybe they're great at renovation so they can build equityand value in their property, it might be worth investing for them and paying the lender'smortgage insurance because they can into the market faster, they can build equity and they'regoing to make more than the lender's mortgage insurance cost them.
Or they might be someonewho's more risk-adverse.
They want a larger deposit or maybe they've got 15% and they'regreat saver so it's only going to be a couple of months until they're at 20%, well then,it might not be worth it for them to pay lender's mortgage insurance because they are more risk-adverseand they can save the money so they don't have to pay it anyway.
I think the best approach is to look at itand say, what are the risk versus the reward? How much is the lender's mortgage insurancegoing to cost me? And am I going to make more money back than the lender's mortgage insuranceis going to cost me? So if I can invest one year earlier, but I have to pay lender's mortgageinsurance, can I make that money back in one year of capital growth? Or one year of theability to have access to that property and improve the property? Or one year of positivecash flow from a property? So how much is it going to cost me? And then, how much amI going to make out of that and can I make more than it's going to cost me? And that'skind of how I would assess it.
For me personally, I would pay lender's mortgageinsurance to get into the market earlier because I'm not the best saver in the world.
So ifI had enough deposit to go, but it means I got to pay lender's mortgage insurance, aslong as I've done my research, I'm confident in the area, I'm confident in the propertythat I've purchased and I've got a strategy to make money for that property, I'm happyto lock that property down.
Pay some lender's mortgage insurance, but I get it and I'vethen got the opportunity to make money versus just saving and waiting and waiting and thenmaybe not investing in the future because we all know things happen that dwindle ourmoney supply.
Emergencies come up or we decide to go on holidays or whatever it may be.
SoI'm not the best saver so I like taking action, locking it in and moving ahead.
Other peopleare different.
So you really need to assess whether it's worth it for you.
I hope that this has explained what exactlylender's mortgage insurance is and then you can assess for yourself whether or not youthink it's worth the cost that it's going to cost you or whether you'd be better offactually saving extra money so you don't have to pay lender's mortgage insurance.
Just tocover it off again, in case you didn't completely get it at the start, lender's mortgage insuranceis a one-time fee that you pay on the creation of your loan and that fee goes towards de-riskingthe banks.
It's lender's mortgage insurance, it's their insurance - the lender's insurance.
It's going to protect the lender against the increased risk their taking on you becauseyou don't have what they consider a large enough deposit to be a low-risk loan thatthey're riding.
So you pay a one-time free, it protects them.
Apart from that, there'sno benefit to you.
It means you can borrow money, but that money is protecting the lender.
It's not going to protect you in any way.
I hope we made clear what lender's mortgageinsurance is.
So when you're talking to your mortgage broker or talking to your lenderand they mention it, you say, "Okay, yup, I understand.
That's a fee I have to pay becauseI don't have a large enough deposit and it's helping you to be able to lend me this moneywithout charging me an exorbitant interest rate or without saying, 'No, sorry.
We can'tgive you that loan.
'" I'm a big fan of lender's mortgage insurancein the industry.
It lets a lot of people get into the market earlier who want to.
And so,I'm not against the fee.
But, again, you need to assess it for your own situation.
If you're interested in investing in positivecash flow property and you need help finding it, then go ahead and check out my membershipwhere I go out, I find a high rental yield property every single day and share it withthe community.
So head over to onproperty.
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Otherwise, until next time, stay positive.
So I would want to find a mortgage broker who either had that experience themselves or who had clients that they had got similar deals for ’cause that way I know that they can negotiate on my behalf and they can get this deal across the line.
What details do Lenders need from me?
It’s one thing to call up a mortgage broker and just to get an estimate of your borrowing capacity but if you’re going through pre-approval and stuff like that, then you’re going to need to provide the mortgage broker with more in-depth details.
You might need pay slips; you might need proof of identity, all of that sort of stuff.
If you ask them up front, “What details do you need from me?” And when you go to your meeting with them you actually provide them with those details, well that just makes things so much easier.
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Remember, a mortgage lender is only paid once the deal goes through and once you actually get financing.
So the easier you make it for them, the more likely you are going to get better service.
What can I do as a client to make this go as smoothly as possible?
You have the goal of getting financed for your property, the mortgage lender has a goal of you getting financed for your property and no one wants it to be difficult.
And so, if you can ask the mortgage broker, “Look, how can I work with you? How can I make things easy for you?” They’re the experts; they know what they’re doing.
They can tell you exactly what they need and then you can work hard to provide that for them so that they can get everything across the line as quickly as possible.
You know, I have customers,I deal with customers and even though I’m not a mortgage broker myself, I know that when there’s difficult customers that you don’t want to deal with, it just makes life so much harder and you don’t want to work hard for those people.
And when there’s customers who are really nice to you and who try really hard to help you provide them with the service you provide, you will bend over backwards to do anything you can for those customers to get them across the line, to help them as much as possible.
So, be one of those customers that the mortgage broker wants to bend over backwards to help you because you have their interest at heart as well.
You want to see them get paid.
You want to see them do an easy mortgage so they get paid easily.
And so you can develop a relationship into the future.
Which lenders can I borrow the most from?
Most people go into a mortgage broker looking for the cheapest interest rate possible.
What is the cheapest interest rate I can get? And the fact of the matter is a mortgage broker is likely to show you the banks that will lend you the amount of money you need and will also have the cheapest interest rate as well.
However, they might not showy ou banks that will lend you more money than you potentially need at the moment.
Now, it’s important to ask, “Which lenders can I borrow the most from?” because this will help you to project into the future.
Maybe you don’t need to know that for this loan right now but maybe, in the future, you might need to borrow money again and you know, or roughly my borrowing capacity is this.
Or if you find out which lenders you can borrow more from, and you find that you can actually borrow an extra $300,000, well you might split up your deposit and invest in two investment properties instead of just one.
And so asking them, “Which lenders can I borrow the most from?” is a great question to ask to really understand your position.
Because, yes, interest rate is important but how much you can borrow is also important as well.
Can I see a full list of my borrowing options?
Most mortgage brokers will provide you with, usually, like a top three or sometimes only a top one.
And I always like to think, “Can I see a full list of my borrowing options?”Again, this is less to say you want to go through all of this in minute detail and see.
You’re probably going to still choose from one of the top three ones.
But you just want to see that they’re giving you the full amount of information.
And most mortgage brokers are good people but there are some dodgy mortgage brokers out there who are just trying to get the deal that gives them the biggest commission.
And so by asking to see a full list of what your borrowing options, you can then look at that and you can then assess, “Okay, well which loan do I think is going to be best for me?” rather than just taking the recommendation of the mortgage broker who may or may not be thinking about themselves.
So, again, most mortgage brokers are great people out there to help you but it’s always a good idea to get a full list of your borrowing options that are available.
Will this put a mark against my credit file?
And so this is when you’re trying to work out how much you’re going to borrow and stuff like that.
When you go into a bank and you try and find out how much you can borrow, often, the bank will do a credit check and this puts a mark against your credit file.
And what happens is if you have a lot of these marks against your credit file, even though it’s nothing bad, this can actually stop you getting a loan.
So, talk to your mortgage broker and when you’re looking at, “What can I borrow?”or your looking at getting pre-approval, just understand, “Will this put a mark against my credit file?” ‘Cause it’s not bad to have a couple or whatever.
But if you’re getting lots and lots of marks against your credit file, then that could be an issue.
So just make sure and you know when a mark’s being put against your credit file and when a mark isn’t being put against your credit file.
How soon can I revalue or borrow again?
So if you’re investing in a property to renovate it or to develop it or even if you’re investing in a property that’s potentially under market value, you want to know how quickly can you revalue that property so you can get equity and then hopefully draw equity out of the property to go ahead and invest again.
There are a lot of lenders out there who don’t allow you to revalue within a 12-month period.
So, speak to your mortgage broker about the lenders that will allow you to revalue faster.
And basically, this will give you an idea of how quickly you can revalue to consider going again.
You’re also going to want to ask them, “After I invest in this property, how soon can I borrow again or what do I need to do to put myself in a position to be able to borrow again and to purchase the next property?” Because hopefully, your goal isn’t just to purchase one property but to grow your property portfolio and to achieve that financial freedom and that financial security that you’re striving for.
Will My Loans be ‘cross-collateralised’?
Now, I have heard a lot of stories about investors whose loans have been cross-collateralised and it’s cause major problems when they’ve gone and sold their property because the bank shave been able to take that money and pay off debt.
And basically, you want to avoid this at all costs from what I hear.
And so, it’s good to ask your mortgage broker, “Will my loans be cross-collateralised in any way?” Generally going with the same lender for two loans does it by default, even though it doesn’t say they’re cross-collateralised.
So, it’s just something that you want to look at the fine print, you want to understand, “Are these cross-collateralised?” And if they are, try and avoid it, try and get loans that aren’t going to be cross-collateralised.
So there you have some questions to ask your mortgage broker next time you go and see a broker to find out how much you can borrow or get pre-approval or get financed for another property.
If you are in the market, looking at properties and you want to see some high rental yield properties, then I’ve got 10 property listings that I’ve gone out and found for you guys.
You can see what high rental yield properties look like that are likely to generate a positive cash flow.
Did You Know – You Can Get Pre-Approved for a USDA Loan in Chester?
- [Voiceover] What Iwant to do in this video is explain what a mortgage is.
I think most of us have atleast a general sense of it, but even better than that,actually go into the numbers and understand a little bitof what you are actually doing when you're paying amortgage, what it's made up of and how much of it is interest versus how much of it isactually paying down the loan.
Let's just start with a little example.
Let's say that thereis a house that I like.
Let's say that that is the house that I would like to purchase.
It has a price tag of, let's say that I need to pay $500,000 to buy that house.
This is the seller ofthe house right here.
And they have a mustache.
That's the seller of the house.
I would like to buy it.
I would like to buy thehouse.
This is me right here.
And I've been able tosave up $125,000 dollars.
I've been able to save up$125,000 but I would really like to live in that house so I go to a bank.
I go to a bank, let me geta good color for a bank.
That is the bank right there.
And I say, "Mr.
Bank, can you lend me "the rest of the amountI need for that house?" Which is essentially $375,000.
I'm putting 25% down.
This number right here, that is 25% of $500,000.
So I ask the bank, "Can Ihave a loan for the balance? Can I have $375,000 loan?" And the bank says, "Sure.
You seem like a nice guy "with a good job whohas good credit rating.
"I will give you the loan but while you're paying off the loan you can'thave the title of that house.
"We have to have that title of the house "and once you pay off the loan, "we're going to give youthe title of the house.
" What's gonna happen here isthe loan is gonna go to me, so it's $375,000.
Then I can go and buy the house.
I'm gonna give the total $500,000, $500,000 to the seller of the house, and I'll actually moveinto the house myself, assuming I'm using itfor my own residence.
But the title of the house, the document that says who actually owns the house.
This is the home title.
This is the title of the house.
It will not go to me.
It will go to the bank.
The home title will go from the seller, or maybe even the seller's bank, because maybe they haven'tpaid off their mortgage.
It will go to the bankthat I'm borrowing from.
This transferring of thetitle to secure a loan.
When I say "secure aloan," I'm saying I need to give something to thelender in case I don't pay back the loan or if I just disappear.
This is the security right here.
That is technically what a mortgage is.
This pledging of the titleas the security for the loan, that's what a mortgage is.
It actually comes from old French.
Mort means dead, andthe gage means pledge.
I'm 100% sure I'm mispronouncing it, but it comes from dead pledge because I'm pledging itnow but that pledge will eventually die once I pay off the loan.
Once I pay off the loan thispledge of the title to the bank will die and it will come back to me.
That's why it's called adead pledge, or a mortgage.
And probably because itcomes from old French is the reason we don't saymort-gage, we say mortgage.
But anyway, this is alittle bit technical, but normally when peoplerefer to a mortgage they're really referringto the loan itself.
They're really referringto the mortgage loan.
What I want to do inthe rest of this video is use a screenshot froma spreadsheet I made to actually show you the math, or actually show you what yourmortgage payment is going to.
You can download thisspreadsheet at khanacademy, khanacademy.
Org/downloads/mortgagecalculator Or actually, even better, justgo to the downloads folder and on your web browseryou'll see a bunch of files, and it will be the filecalled MortgageCalculator, MortgageCalculator.
It's a Microsoft 2007 format.
Just go to this URL, thenyou'll see all the files there and you can just download this file if you want to play with it.
What it does here, in thiskind of dark brown color, these are the assumptionsthat you can input and then you can change thesecells in your spreadsheet without breaking the whole spreadsheet.
Here I've assumed a 5.
5% interest rate.
I'm buying a $500,000 home.
It's a 25% down payment, that's the $125,000 that I had saved up, that I talked about right over there.
And then the loan amount.
Well, I have 125, I'mgonna have to borrow 375, it calculates it for us.
And then I'm gonna get apretty plain vanilla loan.
This is gonna be a 30 year.
When I say term in years, thisis how long the loan is for.
So 30 years.
It's gonna be a 30 yearfixed-rate mortgage.
Fixed rate, which means theinterest rate won't change.
We'll talk about that a little bit.
5% that I'm payingon the money that I borrowed will not change over thecourse of the 30 years.
We will see that the amount I've borrowed changes as I pay down some of the loan.
This little tax rate that I have here, this is to actually figureout what is the tax savings of the interest deduction on my loan.
We'll talk about that in a second, you can ignore it for now.
Then these other thingsthat aren't in brown, you shouldn't mess with these if you actually do open up thespreadsheet yourself.
These are automatically calculated.
This right here is amonthly interest rate.
So it's literally theannual interest rate, 5.
5%, divided by 12.
And most mortgage loans arecompounded on a monthly basis so at the end of every monththey see how much money you owe and they will charge you this much interest on that for the month.
Now given all of these assumptions, there's a little bit ofbehind-the-scenes math, and in a future video Imight actually show you how to calculate what theactual mortgage payment is.
It's actually a prettyinteresting problem.
But for a $500,000 loan--Well, a $500,000 house, a $375,000 loan over 30 yearsat a 5.
5% interest rate, my mortgage payment isgoing to be roughly $2,100.
Right when I bought the house, I want to introduce alittle bit of vocabulary, and we've talked about thisin some of the other videos.
There's a asset in questionright here, it's called a house.
And we're assuming it's worth $500,000.
We're assuming it's worth$500,000.
That is an asset.
It's an asset because itgives you future benefit; The future benefit ofbeing able to live in it.
Now there's a liabilityagainst that asset, that's the mortgage loan.
That's a $375,000 liability.
$375,000 loan or debt.
If this was your balance sheet, if this was all of your assetsand this is all of your debt, and you were essentiallyto sell the assets and pay off the debt, if you sell the house you get the title, you can get the money, thenyou pay it back to the bank.
Well actually, it doesn'tnecessarily go into that order but I won't get too technical.
But if you were to unwindthis transaction immediately after doing it, then youwould have a $500,000 house, you'd pay off your $375,000 in debt, and you would get, inyour pocket, $125,000, which is exactly what youroriginal down payment was.
But this is your equity.
The reason why I'm pointing it out now is, in this video I'm notgonna assume anything about the house price,whether it goes up or down, we're assuming it's constant.
But you could not assume it's constant and play with thespreadsheet a little bit.
But I'm introducing thisbecause as we pay down the debt this number's going to get smaller.
So this number is getting smaller.
Let's say at some pointthis is only 300,000.
Then my equity is going to get bigger.
So you could do equity ishow much value you have after you pay off the debt for your house.
If you were to sell thehouse, pay off the debt, what do you have left over for yourself.
This is the real wealth in thehouse, this is what you own.
Wealth in house, or theactual what the owner has.
What I've done here is-- Actually before I get tothe chart let me actually show you how I calculate the chart.
I do this over the course of30 years, and it goes by month.
So you can imagine that there's actually 360 rows here in the actual spreadsheet, and you'll see that ifyou go and open it up.
But I just want to show you what I did.
On month 0, which I don't showhere, you borrow $375,000.
Now, over the course of that month they're going to charge you.
Remember, that was 5.
5% divided by 12.
46% interest on $375,000 is $1,718.
So I haven't made anymortgage payments yet.
I've borrowed 375,000.
This much interest essentiallygot built up on top of that, it got accrued.
So now before I've paidany of my payments, instead of owing 375,000 atthe end of the first month, I owe $376,718.
Now, I'm a good guy, I'm notgonna default on my mortgage so I make that first mortgage payment that we calculated right over here.
After I make that paymentthen I'm essentially, what's my loan balanceafter making that payment? Well, this was before making the payment, so you subtract the payment from it.
This is my loan balance after the payment.
Now this right here, thelittle asterisk here, this is my equity now.
So remember, I startedwith $125,000 of equity.
After paying one loan balance,after my first payment, I now have $125,410 in equity, so my equity has gone up by exactly $410.
Now you're probably saying,"Gee.
I made a $2,000 payment, "roughly a $2,000 payment, "and my equity only went up by $410 "Shouldn't this debthave gone down by $2,000 "and my equity have gone up by $2,000?" And the answer is no because you had to pay all of this interest.
So at the very beginning, your payment, your $2,000 payment, is mostly interest.
Only $410 of it is principal.
So as your loan balance goes down you're going to pay less interest here, so each of your payments are going to be more weighted towards principal, and less weighted towards interest.
And then to figure out the next line, this interest accrued right here, I took your loan balanceexiting the last month, multiplied that times.
You get this new interest accrued.
This is your new pre-payment balance.
I pay my mortgage again.
This is my new loan balance.
And notice, already by monthtwo, $2 more went to principal.
and $2 less went to interest.
And over the course of 360months you're going to see that it's an actual, sizable difference, and that's what thischart shows us right here.
This is the interestand principal portions of our mortgage payment.
So this entire heightright here, this is-- Let me scroll down a little bit.
This is by month.
So thisentire height, you notice, this is exactly our mortgagepayment, this $2,129.
Now, on that very first monthyou saw that of my $2,100, only $400 of it, this is the $400.
Only $400 of it went toactually pay down the principal, the actual loan amount.
The rest of it went to pay down interest, the interest for that month.
Most of it went for theinterest of the month.
But as I start paying down the loan, as the loan balance getssmaller and smaller, each of my payments, there'sless interest to pay.
Let me do a better color than that.
There's less interest.
We goout here, this is month 198, over there that last monththere was less interest, so more of my $2,100 actuallygoes to pay off the loan until we get all the way to month 360.
You can see this inthe actual spreadsheet.
At month 360 my final payment is all going to pay off the principal.
Very little, if anything,of that is interest.
Now, the last thing I wantto talk about in this video, without making it too long, is this idea of a interest tax deduction.
A lot of times you'll hearfinancial planners or realtors tell you the benefit of buying your house is it has tax advantages, and it does.
Your interest is tax deductible.
Your interest, not your whole payment.
Your interest is tax deductible.
I want to be very clearwhat deductible means.
First let's talk aboutwhat the interest means.
This whole time over 30 yearsI am paying $2,100 a month, or $2129.
21 a month.
Now the beginning, alot of that is interest.
So on month one, 1,700of that was interest.
That $1,700 is tax deductible.
As we go further and further, each month I get smaller andsmaller tax deductible portion of my actual mortgage payment.
Out here the tax deductionis actually very small, as I'm getting ready topay off my entire mortgage and get the title of my house.
I want to be very clear on this notion of what tax deductible even means, because I think it ismisunderstood very often.
Let's say in one yearI paid, I don't know, I'm gonna make up a number, I didn't calculate it on the spreadsheet.
Let's say in year one Ipay $10,000 in interest.
10,000 in interest.
Remember, my actual paymentswill be higher than that because some of my payments went to actually paying down the loan.
But let's say 10,000 went to interest.
And let's say before this, let's say before thisI was making 100,000, let's put the loan aside.
Let's say I was making $100,000 a year, and let's say I was payingroughly 35% on that 100,000.
I won't go into the whole tax structure and the differentbrackets and all of that.
Let's say if I didn't have this mortgage I would pay 35% taxes, which would be about $35,000in taxes for that year.
This is just a rough estimate.
When you say that $10,000is tax deductible, the interest is tax deductible, that does not mean that I canjust take it from the $35,000 that I would have normallyowed and only pay 25,000.
What it means is I can deductthis amount from my income.
When I tell the IRS howmuch did I make this year, instead of saying I made $100,000,I say that I made $90,000 because I was able to deduct this, not directly from my taxes, I was able to deduct it from my income.
So now if I only made $90,000 -- and this is, I'm doing agross oversimplification of how taxes actually get calculated -- and I pay 35% of that, let'sget the calculator out.
Let's get the calculator.
So 90 times.
35 is equal to 31,500.
So this will be equal to $31,500.
Off of a 10,000 deduction,$10,000 of deductible interest, I essentially saved $3,500.
I did not save $10,000.
Another way to think about it, if I paid 10,000 interestand my tax rate is 35%, I'm gonna save 35% ofthis in actual taxes.
This is what people meanwhen they say deductible.
You're deducting it from the income that you report to the IRS.
If there's something thatyou could take straight from your taxes, that'scalled a tax credit.
If there was some specialthing that you could actually deduct it straight from yourtaxes, that's a tax credit.
But a deduction justtakes it from your income.
On this spreadsheet Ijust want to show you that I actually calculated, in that month, how much of a tax deduction do you get.
So for example, just offof the first month you paid $1,700 in interest of your$2,100 mortgage payment, so 35% of that, and I got 35%as one of your assumptions, 35% of $1,700, I will save$600 in taxes on that month.
So roughly over thecourse of the first year I'm gonna save about $7,000 in taxes, so that's nothing to sneeze at.
Anyway, hopefully you found this helpful and I encourage you togo to that spreadsheet, and play with the assumptions, only the assumptions in this brown color unless you really know whatyou're doing with a spreadsheet, and you can see how thisactually changes based on different interest rates,different loan amounts, different down payments, different terms.
Different tax rates, that will actually change the tax savings, and you can play aroundwith the different types of fixed mortgages on this spreadsheet.
Mortgage Lenders, How To Choose The Right Accredited Home Lender
What is the best loan program for a first-timehomebuyer? How's it going everyone, Matt Leighton welcomeback to another video.
In this video we're going to go over the bestloan program for a first-time homebuyer.
I'm here with Sean Glennon.
Sean, take it away, what's the best programfor a first-time homebuyer? Well, beauty is in the eye of the beholder.
So it depends.
Now there's a lot of first-time homebuyerpopular loan programs and it really depends on what you're capabilities are in terms ofdownpayment, whether or not you have gift funds to use toward the downpayment or closingcosts, what your income limit is, that's a big one.
How many people are going to be on the loan,because a lot of these first-time homebuyer loans, what the big difference is betweenthem and other typical loan products is that there are restrictions.
They don't want to be given 100% financingproducts to people who aren't making a ton of money and things like that so income limits,sales price limits, credit score limits, all that is going to be apart of these programsbut we can dive into some of the more specific.
Let me ask you this, if you are a Veteran,and also a first-time homebuyer, is it a no-brainer that the VA loan program is the best program? Yes.
Alright so obviously if you're a Veteran,first of all THANK YOU, and then go with the VA loan program, there is no competition.
So with that being said, let's just focuson conventional and FHA because with FHA 3.
5% down, compared to Conventional, you can goas low as 5%? Or can you go lower than that? There's actually a new loan program you cango lower.
When we talk loan programs, the first thingyou're going to want to do is get pre-approved to determine what you're qualifications areand what doors are opening or closing to you depending on whether you fit the bill forcertain programs.
100% financing, VA, USDA, and USDA is a ruralhousing loan so if you're looking in and around cities, it really won't be applicable to you.
And VA only if you're a Veteran; are goingto be your best 100% financing products.
Now there are certain loan programs in eachstate that usually have first-time homebuyer 100% financing needs.
In Virginia, VHDA is the one that comes tomind as the most popular.
But most people are going to fall into theumbrella as FHA or conventional loans.
FHA is going to be 3.
5% down and is very friendlyon underwriting guidelines.
Conventional is a little bit more strict,but recently they actually came out with a program that is trying to compete with FHA.
It's called Fannie Mae's Home Ready Programthat allows for a 3% downpayment instead of the typical 5% downpayment.
Yeah a lot of times you're seeing people diveto what's the lowest downpayment I can have? That has to be the best loan, maybe that'sright, maybe not because with FHA you do have the monthly insurance on the loan there'sanother program with the conventional.
And let me ask you this, are people re-financingout of these loans? For instance, I had a client a couple weeksago they went in with a VHDA loan which is Virginia-specific, so if you're not in Virginia,you may not be aware, but they went in with that and I don't know a week later or whateverthe minimum time is that you can re-finance, they said oh yeah, that's what we're goingto do.
Are you seeing this? Or is this kind of a unique situation? No, I've seen a lot of it.
What a typical game plan is for a lot of peopleis, a disclaimer that you can't always bank on re-financing because you never know whererates are headed.
But as long as rates stay solid or at leastin the range that we've seen them right now, or around where you originally purchased yourhome, it's very common for people to bite the bullet and get the VHDA or FHA loan whichcarries with it a little more in fees and mortgag insurance and things like that.
But it allows them to get in the propertywith very little out-of-pocket and then once they get a little equity in the property orsave up a little money, they try to re-finance into a conventional loan to eliminate someof that burden with the mortgage insurance and things like that.
Get themselves a much more healthy and manageablemonthly payment.
Yeah the VHDA loan program is becoming morepopular here in Virginia but sometimes with these loan programs it's really hard to getinto, you have to be making $82k - $85k, be born in a certain ZIP code, and be left handedand live on Main Street or something like that where it's like it shouldn't have tobe that hard.
Quickly go over maybe a broad overview ofwhat it takes to be eligible for a certain grant program like the VHDA.
Well some of these grant programs, most ofthem are all going to have income limits.
So that's the big one.
If you're making $250,000, there's a goodchance you're not going to qualify for the local first-time homebuyer and grant programs.
Income limits, sales price limits, heightenedcredit score minimums.
When they're giving out 100% financing, that'sa high-risk loan so they want to give it to borrowers that are well qualified.
There are a lot of niche things that go alongwith it and the grant program.
VHDA is a little more broad, but county and local grant programseven more, very niche, sometimes you're in a lottery with others.
It's a nice thing to have in your back pocketbut nothing I would recommend anyone bank on.
Good to know.
So we're going to wrap this video up withone final question.
But you know obviously this is more Virginia-centered,there's VHDA loan program, in your own state, there might be other grants available.
So maybe FHA is right for you or maybe talkto your lender and find out the grants available.
Sean my question is, if you were to imagineyour last 100 first-time homebuyers, out of those 100, what's the most popular loan programthat you're seeing for first-time homebuyers? I would say if you had asked me for any yearin the last 8 or 9 years I've been in the business, the answer would be FHA.
I would say since Fannie Mae last year rolledout there Home Ready Program with 3% down, most homebuyers do qualify for it and fallwithin the income limit.
The area median income limit, you can actuallylook it up on Fannie Mae's website.
As long as you fall under that, you qualifyfor, it does give a little more beneficial terms on the mortgage insurance terms, it'sa half percent lower on downpayment, and there's a little more flexibility with some of thethings that you can do down the line with the loan like remove the mortgage insurance.
I would say FHA, historically, Fannie MaeHome Ready Program recently.
Things are changing.
So FHA for the longest time was the best optionout there, it may still be the best option depending on your circumstance, but you mayknow the best option, but your lender will know the best option.
Be sure you're talking with local lendersout there and know all your options because a lot of things are changing in terms of guidelines,what I'll do is link and list a video up here in the corner that talks about recent changesin the market place that may affect which loan program that you being available to getinto and get a loan.
You got it out.
What movie is that from? Billy Madison.
Well on that note Sean, why don't you tellthe people where they can connect with you.
You can email me at sglennon@hstmortgage.
Comor call the office.
Myself or anyone else in The Glennon Groupwill be happy to answer your call and help you with any questions.
And my man Matt will hook it up down loan.
Thank you very much for watching.
Until next time, create a productive day.