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Home Buying Part 2: Home Loan Types with Kyle Seagraves
Episode 3218th July 2022 • Wealth Witches • Katelyn Magnuson
00:00:00 00:48:06

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Today we’re going to get into the nitty gritty of the different types of home loans available, what credit scores are required to qualify, and we’re going to debunk some myths.

Kyle and I will cover:

  • Conventional loans
  • Mortgage insurance and PMI
  • FHA loans
  • VA loans for veterans
  • USDA loans for rural areas
  • Jumbo loans and loan limits
  • Bank statement loans and down payment assistance
  • Finding the right loan officer for you

Connect with Kyle:

Purchase Price Calculator: https://www.winthehouseyoulove.com/max-purchase-price-calculator

LoanClarity Advisor: https://www.winthehouseyoulove.com/advisor

On YouTube: https://www.youtube.com/c/WinTheHouseYouLove

Online: https://www.winthehouseyoulove.com/


We cover ALL of this in the “Get Your Finance Sh*t Together” self-study course at confidentmoneypodcast.com!

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FTC/Affiliate Disclaimer: By using some of these links, at no extra cost to you, I may earn a small commission or referral fee, which helps me continue to produce content like this, support my business, and my team.

DISCLAIMER: I am not a financial advisor and this is not financial advice. My podcast is for educational purposes and is my personal opinion only. To make the best financial decision for your situation, please do your own research and if needed, seek the advice of a fee-based, fiduciary.

Music credit: Neon Fairies by Wolves 

A Podcast Launch Bestie production

Transcripts

Katelyn Magnuson:

Hey, welcome back to the podcast.

Katelyn Magnuson:

As a quick reminder, this is a mini season with guest Kyle Seagraves.

Katelyn Magnuson:

Kyle Seagraves is a certified mortgage advisor, licensed loan originator,

Katelyn Magnuson:

and the owner of win the house.

Katelyn Magnuson:

You love a YouTube channel with over a hundred thousand subscribers.

Katelyn Magnuson:

Kyle, welcome back.

Katelyn Magnuson:

Pleasure to have you here.

Katelyn Magnuson:

And today we're gonna be covering.

Katelyn Magnuson:

All things loans for home mortgages.

Katelyn Magnuson:

So I'm gonna let you just kick off from here.

Kyle Seagraves:

Cool.

Kyle Seagraves:

So there's several different types of loans and I think

Kyle Seagraves:

this can confuse people a lot.

Kyle Seagraves:

Um, but there's a couple main categories of loans, actually

Kyle Seagraves:

four main types of loans that most lenders throughout the us can offer.

Kyle Seagraves:

So each lender doesn't really offer their own specific type of loan.

Kyle Seagraves:

There's kind of a couple main categories.

Kyle Seagraves:

And once we learn those main categories, we can see where we fit into them

Kyle Seagraves:

and begin deciding, is this the right one for me or not in choosing

Kyle Seagraves:

the right loan can help you save.

Kyle Seagraves:

Tens of thousands of dollars by choosing the right one, the one that's the best for

Kyle Seagraves:

your situation and different loan types can benefit people in different ways.

Kyle Seagraves:

For instance, veterans have loans that can save the money on the down payment.

Kyle Seagraves:

Um, whereas people with lower credit scores can qualify for a

Kyle Seagraves:

loan and get into a home before they've built up their credit score.

Kyle Seagraves:

So.

Kyle Seagraves:

Four main types of loans.

Kyle Seagraves:

Um, there is one loan that's called a conventional loan, and then

Kyle Seagraves:

there are three government loans.

Kyle Seagraves:

So these are actually sponsored by and funded by the government.

Kyle Seagraves:

F.

Kyle Seagraves:

VA and U S D a and I'll run through these very quickly.

Kyle Seagraves:

And then there's a couple other, lesser used loans, but still can be

Kyle Seagraves:

really helpful in certain situations that will cover right after this.

Kyle Seagraves:

So first is a conventional loan and Caitlin, please interrupt me.

Kyle Seagraves:

And if I miss like any detail, or if you have question about it, conventional

Kyle Seagraves:

starts at a six 20 credit score.

Kyle Seagraves:

So we need that as a minimum to begin qualifying conventional's,

Kyle Seagraves:

uh, the most common type of loan.

Kyle Seagraves:

It's what most people are gonna use to get a mortgage.

Kyle Seagraves:

It's usually for 30 years, but you can go down to 10 years, 15, 20, 25.

Kyle Seagraves:

If you want to, most people take a 30 year conventional loan.

Kyle Seagraves:

It's gonna have the best options in terms of its interest rate and the mortgage

Kyle Seagraves:

insurance that's required with this.

Kyle Seagraves:

So the minimum down payment for first time buyer is 3%.

Kyle Seagraves:

Which a lot of people think it's 20 it's only three.

Kyle Seagraves:

So for instance, if you're looking at a $400,000 house, um, then

Kyle Seagraves:

you're gonna be looking at, $12,000 is the minimum of down payment.

Kyle Seagraves:

Um, on top of that, you do have closing costs with all types

Kyle Seagraves:

of loans that we'll cover.

Kyle Seagraves:

Uh, eventually.

Kyle Seagraves:

So 3% is the minimum.

Kyle Seagraves:

Um, however, if you have less than a 20% down payment on a conventional loan, you

Kyle Seagraves:

will be paying what's called mortgage insurance or PMI on a conventional loan.

Kyle Seagraves:

Specifically.

Kyle Seagraves:

This is private mortgage insurance.

Kyle Seagraves:

All this does is it protects the lender.

Kyle Seagraves:

In the event that you foreclose on the home.

Kyle Seagraves:

So if you don't make payments for a long time and the lender comes in and says, we

Kyle Seagraves:

need the home back, we need to sell it.

Kyle Seagraves:

They have that insurance that you're paying monthly to them, until you

Kyle Seagraves:

reach that 20% equity in your home, to protect them in that instance,

Katelyn Magnuson:

This is to protect the lender, should the value of the home

Katelyn Magnuson:

potentially fluctuate during that time or drop below, you know, cause there

Katelyn Magnuson:

there's expected fluctuations in the market, but because you're a little bit

Katelyn Magnuson:

riskier borrower, potentially you are paying that insurance to them until you.

Katelyn Magnuson:

Get that certain amount of the house paid down and have equity established.

Katelyn Magnuson:

Correct.

Kyle Seagraves:

Absolutely.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

And PMI is so much cheaper than a lot of people realize.

Kyle Seagraves:

Um, usually a good estimate for people is to look at 0.5% of

Kyle Seagraves:

the loan amount paid annual.

Kyle Seagraves:

So for instance, let's say we had a $400,000 house, uh, and we put 3% down.

Kyle Seagraves:

So we're taking out a loan for, uh, $380,000 doing this math.

Kyle Seagraves:

right here.

Kyle Seagraves:

I'm gonna tell you $388,000.

Kyle Seagraves:

If we looked at, uh, 0.5% mortgage insurance annually, that would be

Kyle Seagraves:

about $2,000 per year or $161 per.

Kyle Seagraves:

Obviously that adds onto the expense, but compared to the actual monthly cost

Kyle Seagraves:

of that loan is fairly insignificant, especially considering how long it

Kyle Seagraves:

might take you to save 20% down on something like a $400,000 house.

Kyle Seagraves:

Usually what ends up happening is the home is going to appreciate quicker.

Kyle Seagraves:

Uh, then you can save money for, because as the home continues to go open value

Kyle Seagraves:

each year, you're that down, payment's gonna become higher and higher and

Katelyn Magnuson:

Right.

Katelyn Magnuson:

And in the meantime, if you're owning the home, you're now building

Katelyn Magnuson:

equity as that value is increasing.

Kyle Seagraves:

Yes, absolutely.

Kyle Seagraves:

And for those who are more like investment minded, think of it in the same way that

Kyle Seagraves:

if you are going to, uh, buy stocks on a margin account, it works the same.

Kyle Seagraves:

You're expecting a higher return on your stock than you are

Kyle Seagraves:

paying interest on the loan.

Kyle Seagraves:

For that stock, so works the same way.

Kyle Seagraves:

Um, so you have the PMI six 20 is the minimum credit score.

Kyle Seagraves:

Ideally six 80 is gonna get you better interest rates.

Kyle Seagraves:

The top is gonna be seven 20.

Kyle Seagraves:

So you're not gonna get any better terms by having a 800 than if you had a seven

Kyle Seagraves:

20, they're gonna be the same thing there.

Kyle Seagraves:

Um, with the.

Kyle Seagraves:

With all loans, you're gonna have an appraisal.

Kyle Seagraves:

And appraisal is just where the lender says, okay, great.

Kyle Seagraves:

You wrote an offer to buy this home for $400,000.

Kyle Seagraves:

We need to make sure it's actually worth that.

Kyle Seagraves:

You can't go and get a loan for this much money and your home only be worth 200,000.

Kyle Seagraves:

So they're usually gonna send somebody out to the home or now with

Kyle Seagraves:

COVID there's a lot of, uh, what are called desk appraisals, where

Kyle Seagraves:

an appraiser doesn't even have to go to the home to find the value.

Kyle Seagraves:

But they're gonna figure out how much that home is worth.

Kyle Seagraves:

Conventional loans are the most lenient, compared to these other government loans.

Kyle Seagraves:

So they're not going to care as much, about, things like

Kyle Seagraves:

chipping paint or broken glass, where government loans would.

Kyle Seagraves:

So for instance, conventional loans are gonna be better for, uh,

Kyle Seagraves:

something like a foreclosed home than these other government loan types.

Kyle Seagraves:

Um, before we move on to like the government loans, uh, do you have

Kyle Seagraves:

any questions about the convent?

Katelyn Magnuson:

No.

Katelyn Magnuson:

I, I think that was a, I, we did a conventional on this last

Katelyn Magnuson:

home purchase, so I'm much more familiar with that now than I was.

Katelyn Magnuson:

And I found the process significantly easier compared to the FHA purchase

Katelyn Magnuson:

I had initially made when I was 1920.

Katelyn Magnuson:

So yeah, definitely love conventional, but for us it was a lot easier because

Katelyn Magnuson:

we'd, we had built up the equity at that time to use for our down payment.

Katelyn Magnuson:

We were able to get to 10% and I.

Katelyn Magnuson:

I think that it's a really common misconception that you have to have 20%,

Katelyn Magnuson:

cuz I know I've heard that float around a lot from our clients and especially

Katelyn Magnuson:

with the constantly appreciating home market can look like a lot of money

Katelyn Magnuson:

and it can feel very cost prohibitive to even dip your toe on the market.

Katelyn Magnuson:

And so I think that I know for us, our PMI was $138 a month,

Katelyn Magnuson:

which was just mean nothing.

Katelyn Magnuson:

We can blow 130, $8 relatively easily.

Katelyn Magnuson:

And so to make a home purchase accessible to us when our

Katelyn Magnuson:

home is now doubled in value.

Katelyn Magnuson:

Was well worth it for the two years that we paid it.

Katelyn Magnuson:

I

Kyle Seagraves:

Yeah.

Kyle Seagraves:

And we can add this in the show notes.

Kyle Seagraves:

I have a Google sheet calculator that does this and it's free.

Kyle Seagraves:

So you put in with the home, you're looking at buying and a couple

Kyle Seagraves:

other things, and it will show you how paying PMI is actually better.

Kyle Seagraves:

For you, because it'll show you how much appreciation you gain on that

Kyle Seagraves:

compared to the cost of, uh, the PMI.

Kyle Seagraves:

And it's gonna show you how it's actually a better strategy than saving up the

Kyle Seagraves:

money long term for the 20% down.

Katelyn Magnuson:

Right.

Katelyn Magnuson:

You know, taking three years

Kyle Seagraves:

yeah, so conventional is, uh, kind of the gold standard

Kyle Seagraves:

loan that we're going to be using.

Kyle Seagraves:

And most lenders in the us can offer a conventional loan.

Kyle Seagraves:

You don't need one specific lender for these loans.

Kyle Seagraves:

All these loans, most lenders can do.

Kyle Seagraves:

So, if you can't qualify for conventional usually because your,

Kyle Seagraves:

credit score is lower or you have a high debt to income ratio, this

Kyle Seagraves:

is the amount of debt that you have monthly compared to your gross income.

Kyle Seagraves:

Then people look at often a FHA loan and an FHA loan, uh, stands for

Kyle Seagraves:

the federal housing administration.

Kyle Seagraves:

And this is a program set up by HUD, uh, back in.

Kyle Seagraves:

It's like the sixties or seventies, um, to promote home ownership.

Kyle Seagraves:

And so a lot of people have this myth that it's a first time buyer loan because

Kyle Seagraves:

conventional loans used to be 20% minimum.

Kyle Seagraves:

That's why FHA was pushed as more of this first time home buyer.

Kyle Seagraves:

It's not like that anymore.

Kyle Seagraves:

FHA now is not geared towards first time home buyers.

Kyle Seagraves:

It's really geared towards people who have, uh, low credit score.

Kyle Seagraves:

Or really high debt income ratios.

Kyle Seagraves:

So FHA allows down to a 500 credit score, which is crazy low.

Kyle Seagraves:

Uh, but you need to put 10% down if you have anywhere between a 500 credit score

Kyle Seagraves:

and a 5 79 credit score, the minute you hit five 80 in your credit score, you

Kyle Seagraves:

can do three and a half percent down.

Kyle Seagraves:

Okay.

Kyle Seagraves:

So obviously the higher credit score that we have.

Kyle Seagraves:

The better, the interest rate is gonna be on an FHA loan.

Kyle Seagraves:

Um, ideally for an FHA loan, you wanna be at a six 40 credit score.

Kyle Seagraves:

Uh, that's gonna get you some better interest rate, uh, in terms there,

Kyle Seagraves:

but you can go down to a 500, um, FHA is more lenient in, uh, the time

Kyle Seagraves:

between something like a bankruptcy, uh, whether it be chapter seven

Kyle Seagraves:

or 13, um, or any late payments.

Kyle Seagraves:

Really, if you have issues with credit, FHA is gonna be the place to go.

Kyle Seagraves:

What people will often do is get that loan to get a house, and then

Kyle Seagraves:

they'll spend the next two to three years to work on their credit and

Kyle Seagraves:

refinance into a conventional loan.

Kyle Seagraves:

And the reason why is because FHAs big killer is its mortgage insurance.

Kyle Seagraves:

So FHA actually has two mortgage insurance types.

Kyle Seagraves:

Uh, there's an upfront mortgage insurance that usually is wrapped

Kyle Seagraves:

into your loan and then also a monthly mortgage insurance as well.

Kyle Seagraves:

Uh, so we already talk about conventional's PMI.

Kyle Seagraves:

FHA has mortgage insurance, and instead of PMI, they call, I P I don't know,

Kyle Seagraves:

to be more confusing, it's called a mortgage insurance premium instead

Kyle Seagraves:

of private mortgage insurance, but it's 0.8, 5% of the loan amount.

Kyle Seagraves:

So this is substantially higher than conventional.

Kyle Seagraves:

PMI, not only that, but conventional's PMI falls off or we can get it removed

Kyle Seagraves:

after 20% equity is built in your home FHAs mortgage insurance will

Kyle Seagraves:

never fall off unless you put 10% down.

Kyle Seagraves:

Then it falls off after 11 years confusing caveat there.

Kyle Seagraves:

But for most people.

Kyle Seagraves:

It will never fall off.

Kyle Seagraves:

And you do not wanna be paying that mortgage insurance for 30 years.

Kyle Seagraves:

Not only that there's also an upfront mortgage insurance cost, and

Kyle Seagraves:

this is 1.7, 5% of the loan amount usually added to the loan amount.

Kyle Seagraves:

So for instance, um, if we were looking at something like, let's say we're getting

Kyle Seagraves:

a $400,000 loan, um, we would be adding.

Kyle Seagraves:

Additional, uh, 1.7, 5% to the loan amount, which would be $7,000.

Kyle Seagraves:

So instead of taking a $400,000 loan, we get a $407,000 loan.

Kyle Seagraves:

Now for most people, they're like, oh, well, it's in the loan amount.

Kyle Seagraves:

I don't really care about it, but when it comes time to sell that's $7,000 that

Kyle Seagraves:

won't be in your pocket anymore, that gets, that eats away at your equity.

Kyle Seagraves:

Um, now on the flip.

Kyle Seagraves:

FHA allows a lot of people to get into homes who wouldn't be able to qualify.

Kyle Seagraves:

Otherwise.

Kyle Seagraves:

It was something like conventional loan.

Kyle Seagraves:

Um, also they allow higher debt income ratios.

Kyle Seagraves:

So if you have, uh, a lot of debt, maybe we need to look at some other

Kyle Seagraves:

things on the personal finance side, but it does allow you to get into an

Kyle Seagraves:

FHA loan, whereas you might not be able to, and this, this is helpful.

Kyle Seagraves:

When you're applying for a loan, you apply for, isn't always your full

Kyle Seagraves:

picture, the full picture of your financial situations, just a snapshot.

Kyle Seagraves:

You might be applying on your own, but you might also have a spouse who

Kyle Seagraves:

brings in the same amount of money as you or someone else in your household

Kyle Seagraves:

that brings in a lot of money.

Kyle Seagraves:

And it's not the full picture of your financial situation.

Kyle Seagraves:

It's only a snapshot of what you're showing the.

Kyle Seagraves:

So that's why I'm always very careful when you know, saying like, it's not just cuz

Kyle Seagraves:

you have high debt income ratio doesn't mean it's a bad thing just to the lender.

Kyle Seagraves:

It looks more,

Kyle Seagraves:

uh,

Katelyn Magnuson:

risky.

Katelyn Magnuson:

Cool.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

Um, FHA on the appraisals are gonna be more strict about

Kyle Seagraves:

the, Quality of the home.

Kyle Seagraves:

They're really concerned about things like peeling, paint, uh, broken glass,

Kyle Seagraves:

um, anything, health and safety, as you know, as minimal as like, Hey,

Kyle Seagraves:

there, isn't a handrail on these three steps leading up to the house.

Kyle Seagraves:

I need you to put a handrail out there.

Kyle Seagraves:

I can't tell you the amount of times I've seen a real estate agent go out to a home

Kyle Seagraves:

with like, they just got back from Lowe's and they're like putting up one piece of

Kyle Seagraves:

two by four and nailing it into something.

Kyle Seagraves:

Um, They are more concerned with things like that.

Kyle Seagraves:

Um, before we jump over to VA and U S D a, uh, anything you

Kyle Seagraves:

wanted to touch on with FHA loans?

Katelyn Magnuson:

You, you just hit a nerve.

Katelyn Magnuson:

The first, like I said, the first one that I bought was with an FHA and it

Katelyn Magnuson:

was a foreclosed or bank bank on tongue.

Katelyn Magnuson:

Um,

Kyle Seagraves:

yeah.

Katelyn Magnuson:

And it was, it was wild, the things that they wanted to have.

Katelyn Magnuson:

And I'm, I don't know if this has changed in the meantime, but they

Katelyn Magnuson:

wanted to have a working dishwasher.

Katelyn Magnuson:

And to me that made no sense because you can hand wash dishes.

Katelyn Magnuson:

If I'm looking to buy a starter home, that's not a make or break,

Katelyn Magnuson:

but we had a, the deck was rotted.

Katelyn Magnuson:

And so they were like, well, there needs to be a rail and there's dry out here.

Katelyn Magnuson:

And just the differences in the inspections between that home

Katelyn Magnuson:

and that loan and our most recent one were like night and day.

Katelyn Magnuson:

Like they still pointed out everything that was, you know, of concern, but it.

Katelyn Magnuson:

It was a much less stressful process to not go the FHA route, but FHA

Katelyn Magnuson:

made it accessible for me at the time, which then made this purchase

Katelyn Magnuson:

accessible so grateful for it, but definitely loved the conventional more.

Kyle Seagraves:

FHA is more headache.

Kyle Seagraves:

Absolutely.

Kyle Seagraves:

And one of the big cons of going with something that's not a conventional

Kyle Seagraves:

loan is it can scare sellers.

Kyle Seagraves:

In a market where we're at right now, we're in a seller's market.

Kyle Seagraves:

Um, which means kind of the sellers have the control.

Kyle Seagraves:

So they get to be a little kind of picky and choosy about stuff because they're

Kyle Seagraves:

getting multiple offers on their home.

Kyle Seagraves:

Uh, there's likely gonna be a cash offer in there.

Kyle Seagraves:

There's likely gonna be a conventional offer in there.

Kyle Seagraves:

And when you come in with FHA, even though it's not a bad loan, there's

Kyle Seagraves:

nothing moral about these loans.

Kyle Seagraves:

They're not good or bad that they're just decisions that we're making

Kyle Seagraves:

about the financing that we're using.

Kyle Seagraves:

Sellers can perceive FHA as being bad and as being there might be issues, there

Kyle Seagraves:

might be problems with the appraisal.

Kyle Seagraves:

And unfortunately, a lot of sellers think that FHA loans

Kyle Seagraves:

mean that it's a bad borrower.

Kyle Seagraves:

That's oh, they don't handle money.

Kyle Seagraves:

Well, because they need FHA loan.

Kyle Seagraves:

When in reality, it's actually easier to get an FHA loan approved than a

Kyle Seagraves:

conventional like, it's a way like with, with FHA, you have way more leniency.

Kyle Seagraves:

If there's small differences in things, then conventional can be really.

Kyle Seagraves:

Um, so unfortunately that exists.

Kyle Seagraves:

It's something to keep in mind though, especially in a market like this.

Kyle Seagraves:

Um, so after FHA, you know, conventional is kind of the gold standard, uh, FHA is,

Kyle Seagraves:

Hey, we couldn't qualify for conventional.

Kyle Seagraves:

Then there's two other types of government loans and these have

Kyle Seagraves:

more specific use cases with them.

Kyle Seagraves:

Um, so you have a VA loan, uh, veterans administration.

Kyle Seagraves:

So this is only for, uh, veteran.

Kyle Seagraves:

So you can actually find your certificate of eligibility through the VA's website.

Kyle Seagraves:

And this is gonna tell you if you can qualify for home.

Kyle Seagraves:

Um, if it says $36,000 on there, that's the full amount of approval.

Kyle Seagraves:

It doesn't mean that you can only buy a $36,000 house.

Kyle Seagraves:

Uh, unfortunately VA has a very confusing things with

Kyle Seagraves:

entitlement that you can ignore.

Kyle Seagraves:

Um, ultimately with VA loans, there is no loan limit that got

Kyle Seagraves:

removed, uh, a year or two ago.

Katelyn Magnuson:

Oh, wow.

Kyle Seagraves:

can buy a home, you know, million dollars if you want to with a VA.

Kyle Seagraves:

Flood conventional and FHA.

Kyle Seagraves:

They do have loan limits set by county that we have to keep in mind.

Kyle Seagraves:

Uh, VA no loan limit, 0% down.

Kyle Seagraves:

It does have, uh, upfront mortgage insurance that they call a funding fee.

Kyle Seagraves:

Um, for most, uh, first time buyers with VA loans.

Kyle Seagraves:

It's 2.3% of the loan amount added to the loan amount.

Kyle Seagraves:

Uh, there is no monthly market insurance.

Katelyn Magnuson:

Okay.

Kyle Seagraves:

We can see already these things, these things start to

Kyle Seagraves:

get really a little confusing, but

Katelyn Magnuson:

the mortgage.

Katelyn Magnuson:

Insurance has different names though, for each of them.

Katelyn Magnuson:

That's really wonder.

Kyle Seagraves:

it's, it's awful.

Kyle Seagraves:

And you know, what's funny on YouTube is I see a lot of, a lot of people

Kyle Seagraves:

making YouTube videos are real estate agents, and they'll be like, FHA is PMI.

Kyle Seagraves:

And I'm like, you have no, you don't know what you're talking about IP.

Kyle Seagraves:

So stay in your lane.

Kyle Seagraves:

Um, VA has the funding fee.

Kyle Seagraves:

This is based on, uh, how many times you've used it, your down

Kyle Seagraves:

payment and also your service.

Kyle Seagraves:

Uh, now what's really nice about VA loans is if you have 10% or more

Kyle Seagraves:

service connected disability, uh, you do not have to pay the funding

Kyle Seagraves:

fee, which is a lot of money saved.

Kyle Seagraves:

If that's the instance, VA loan is insanely great.

Kyle Seagraves:

0% down, no monthly mortgage insurance and no funding fee,

Kyle Seagraves:

no upfront mortgage insurance.

Kyle Seagraves:

If you have a service connected dis.

Kyle Seagraves:

Also VA loans have usually historically lower rates compared

Kyle Seagraves:

to all the other types of loans.

Kyle Seagraves:

Um, this is just because the, the VA has just been so, uh, great at negotiating

Kyle Seagraves:

benefits on behalf of veterans.

Kyle Seagraves:

Um, now everything else with the appraisal on all the government

Kyle Seagraves:

loans are very similar.

Kyle Seagraves:

FHA VA, U S D a very similar appraisals there.

Kyle Seagraves:

Um, U S D.

Kyle Seagraves:

Also has a very specific use case.

Kyle Seagraves:

Um, U S D a is only for rural areas.

Kyle Seagraves:

Now this doesn't mean farmland doesn't have to be a farm.

Kyle Seagraves:

Um, and in fact it actually can't be a working farm.

Kyle Seagraves:

Uh, it's a specific population requirement and you can actually

Kyle Seagraves:

just Google U S D a property eligibility, and you can look at a map.

Kyle Seagraves:

For most people, if you extend your commute by around 15 minutes,

Kyle Seagraves:

you'll be in a S D a eligible area.

Kyle Seagraves:

Um, so USC is great.

Kyle Seagraves:

Goes all the way down to a 500 credit score.

Kyle Seagraves:

However, it's best to have a six 40 and above.

Kyle Seagraves:

If we have a six 40 on a credit, six 40 on U S D alone, we can use the automated

Kyle Seagraves:

underwriting software, um, which we talked about in the credit episode.

Kyle Seagraves:

Uh, the automated computer system for approving loans is a lot easier than

Kyle Seagraves:

if someone has to manually review.

Kyle Seagraves:

Five hundred's a minimum six 40 is gonna be a lot better, but 0% down, no matter

Kyle Seagraves:

what credit score we have, U S D a does have an upfront mortgage insurance.

Kyle Seagraves:

They call a guarantee fee.

Kyle Seagraves:

Everyone calls things differently.

Kyle Seagraves:

Um, this is often 1% of the loan amount added to the loan amount, and then

Kyle Seagraves:

also monthly mortgage insurance for the life of the loan that will never

Kyle Seagraves:

come off of 0.3, 5% of the loan amount.

Kyle Seagraves:

This is usually, uh, On par or cheaper than conventional's PMI, but we are paying

Kyle Seagraves:

it for the life of the loan as well.

Kyle Seagraves:

Um, so U S D a node loan limit just like a VA loan, but it does have an income limit.

Kyle Seagraves:

Not only is it an income limit, it's actually a household income limit.

Kyle Seagraves:

So even if someone is not on the loan with you, if they're in the home, what

Kyle Seagraves:

trips up a lot of people is if they have a parent living with them and that parent.

Kyle Seagraves:

Earns disability or whatever income they have that actually has to be

Kyle Seagraves:

counted on the loan, uh, in the loan limit, even if they're not on the loan.

Kyle Seagraves:

So anybody above 18 who's earning income will be counted in that loan limit.

Kyle Seagraves:

And that loan limit usually, uh, is fairly.

Kyle Seagraves:

Restrictive for a lot of people.

Kyle Seagraves:

It depends on the county, but it's often around $80,000 and for a household, uh,

Kyle Seagraves:

that can be tough because anybody above 18, who is earning, uh, money there.

Kyle Seagraves:

So those are the four and it can be really confusing cuz it's

Kyle Seagraves:

like, oh my gosh, there's so much.

Kyle Seagraves:

And there's all these different things, but it's actually really easy to begin

Kyle Seagraves:

seeing from the high level view of would I even do qualify in general, U

Kyle Seagraves:

S D a am I gonna buy in a rural area?

Kyle Seagraves:

You need to look up that map to see first.

Kyle Seagraves:

If no cool.

Kyle Seagraves:

Well, I don't even have to consider it.

Kyle Seagraves:

VA, are you a veteran?

Kyle Seagraves:

No, I'm not.

Kyle Seagraves:

Okay.

Kyle Seagraves:

Well, we can't even consider it.

Kyle Seagraves:

We don't have to worry about it.

Kyle Seagraves:

Then we look at conventional or an FHA.

Kyle Seagraves:

Do I have a credit score?

Kyle Seagraves:

That is six 80 and above conventional is gonna be my first choice.

Kyle Seagraves:

If I have a credit score that's below six 80, I'm then gonna explore FHA.

Kyle Seagraves:

So those are the four main types.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

The four main types that most lenders have.

Kyle Seagraves:

Um, and it, I know it does get confusing.

Kyle Seagraves:

You don't have to go into the nuances until you're like, these

Kyle Seagraves:

are the two that I'm looking at.

Kyle Seagraves:

Um, on top of that, there are couple different other more creative options.

Kyle Seagraves:

Uh, you have things like jumbo loans.

Kyle Seagraves:

So for instance, conventional loans do have a loan limit and

Kyle Seagraves:

this is gonna change by the county.

Kyle Seagraves:

Um, so for instance, like a home in Nashville is gonna have a higher

Kyle Seagraves:

loan limit than in Dayton, Ohio.

Kyle Seagraves:

Um, So if you're going above the loan limit, if you're looking at a house that

Kyle Seagraves:

is, let's say $900,000, likely gonna need something called a jumbo alone.

Kyle Seagraves:

Jumbo loans usually require larger down payments.

Kyle Seagraves:

Um, what's frustrating about jumbo loans is that there

Kyle Seagraves:

isn't a standard set of rules.

Kyle Seagraves:

So conventional loans, FHA VA, U S D a all have literally a rule

Kyle Seagraves:

book called a handbook, usually several thousand pages each.

Kyle Seagraves:

Jumbo loans.

Kyle Seagraves:

Every lender is gonna have different rules for their jumbo loans.

Kyle Seagraves:

There's not one national set of guidelines, so all the rules can change.

Kyle Seagraves:

Um, jumbo loans usually start around 10% down, sometimes 20% and often

Kyle Seagraves:

want a really high credit score.

Kyle Seagraves:

Six 80, sometimes seven 20 to get a jumbo loan and jumbo loans are

Kyle Seagraves:

gonna be a lot more restrictive on the income that you can have and the

Kyle Seagraves:

amount of debt that you can have as.

Katelyn Magnuson:

Are we seeing more jumbo loans or the necessity for

Katelyn Magnuson:

more jumbo loans as house prices have been increasing, because

Katelyn Magnuson:

while you were just talking, I looked it up for where we live and.

Katelyn Magnuson:

it is shockingly low for our county.

Katelyn Magnuson:

We are not that far from hitting jumbo loan category and we are not one of

Katelyn Magnuson:

the most expensive houses in the area.

Katelyn Magnuson:

So it just kind of got me thinking, have we seen a surge

Katelyn Magnuson:

in jumbo loans because of that?

Kyle Seagraves:

Yeah.

Kyle Seagraves:

Uh, not from any data that I've seen.

Kyle Seagraves:

And the main reason why is because the conventional loan limits

Kyle Seagraves:

increase, uh, usually every year.

Kyle Seagraves:

So between this year and last year, it actually increased 18%, uh, which

Kyle Seagraves:

is pretty on track with what around home values have been appreciating.

Kyle Seagraves:

So now it's 647,200 is for most of the.

Kyle Seagraves:

Then there are what are called high balance areas where that

Kyle Seagraves:

loan limit is actually raised to accommodate some of these more,

Katelyn Magnuson:

Right.

Katelyn Magnuson:

Like San Francisco, LA New

Kyle Seagraves:

Yep.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

And some of those go up to 900,000, uh, for a single family home.

Kyle Seagraves:

So, um, I haven't seen jumbos increas demand because the conforming conventional

Kyle Seagraves:

loan limit has been increasing with it as.

Kyle Seagraves:

So you have jumbo loans.

Kyle Seagraves:

you also have bank statement, loans, bank statement loans are a little

Kyle Seagraves:

bit newer, uh, on the scene recently.

Kyle Seagraves:

Um, or at least in popularity and bank statement, loans are for primarily

Kyle Seagraves:

self-employed borrowers and self-employed people usually right off a lot.

Kyle Seagraves:

Um, and they, their income.

Kyle Seagraves:

Their personal income on their personal tax return.

Kyle Seagraves:

Usually isn't the best indication of the actual money coming into the company.

Kyle Seagraves:

I know for myself, obviously I have a business account and a personal account.

Kyle Seagraves:

And even though money is always going from my business to personal,

Kyle Seagraves:

to being spent, it doesn't, I don't always just throw money into my

Kyle Seagraves:

personal account immediate immediately when it comes into the business

Katelyn Magnuson:

Mm-hmm

Kyle Seagraves:

but it's the same money but lenders don't view it that.

Kyle Seagraves:

So if you are self-employed and you have a smaller company where you

Kyle Seagraves:

have a lot of control, your finances, usually your writing off a lot, and

Kyle Seagraves:

your personal in income might not be a good indication of how much

Kyle Seagraves:

money you actually do have access to.

Kyle Seagraves:

Um, and so for a lot of self-employed people, I shouldn't say a lot for a

Kyle Seagraves:

good amount of self-employed people.

Kyle Seagraves:

They run into an issue where they can't qualify for a loan because

Kyle Seagraves:

their personal income, uh, is too low to qualify for a mortgage.

Kyle Seagraves:

Even though their actual income that they see every day can

Kyle Seagraves:

absolutely qualify for a loan.

Kyle Seagraves:

In that instance, we can't use tax returns, uh, to qualify for a

Kyle Seagraves:

mortgage cuz the income would be too low to support the mortgage payment.

Kyle Seagraves:

Um, so there is a program called bank statement loans where a lender will

Kyle Seagraves:

look at 12 to 24 months of either personal or business bank statements

Kyle Seagraves:

and average the deposits into your.

Kyle Seagraves:

Then, what they'll usually do is they'll use an expense ratio depending

Kyle Seagraves:

on what type of industry you're in.

Kyle Seagraves:

So for instance, if you're a real estate agent, they might look at 12 months of

Kyle Seagraves:

your business bank statements, average.

Kyle Seagraves:

Those let's say the average comes out as $200,000 of all your deposits.

Kyle Seagraves:

Um, they're gonna look at those monthly.

Kyle Seagraves:

So that would be your, uh, 200,000 divided by 12, um, would be $16,600 per.

Kyle Seagraves:

For real estate agents, they're usually using a ratio around 90%.

Kyle Seagraves:

So they'd act like you have 10% expenses per month.

Kyle Seagraves:

So they would say that you could then qualify using $15,000

Kyle Seagraves:

per month as your income.

Kyle Seagraves:

Um, for other industries that might be 50%, uh, anything below 50%, they

Kyle Seagraves:

would usually ask for, um, something like a profit and loss statement to.

Kyle Seagraves:

Figure out what your actual expenses are.

Kyle Seagraves:

So ultimately though, if you can't qualify as a self-employed person with

Kyle Seagraves:

a normal commercial loan or FHA or anything like that, you can look at

Kyle Seagraves:

bank statement where they would treat your income a little bit differently.

Kyle Seagraves:

And this is nice because there's no write offs on a bank statement.

Kyle Seagraves:

Uh, they're only looking the gross income and then some expense ratio.

Kyle Seagraves:

Uh, then there's also another program.

Kyle Seagraves:

Uh, it's U it's not really a separate program.

Kyle Seagraves:

It's kind of think of it like an add-on to a loan called down payment as.

Kyle Seagraves:

Same thing with like with jumbo, there isn't one big rule book and one

Kyle Seagraves:

program about down payment assistance.

Kyle Seagraves:

It's usually all given on like a local level.

Kyle Seagraves:

So usually counties or states have, uh, down payment assistance programs and down

Kyle Seagraves:

payment assistance programs are basically any program that helps pay all or some

Kyle Seagraves:

of your down payment are closing costs.

Kyle Seagraves:

So usually there's some limits in there.

Kyle Seagraves:

And then often there is an income limit as well.

Kyle Seagraves:

Most of the time programs are designed where, uh, there might be a county

Kyle Seagraves:

program that says we wanna help out, uh, lower income individuals qualify

Kyle Seagraves:

for a home, um, without having to pull all the money outta their pocket.

Kyle Seagraves:

Um, however, they're gonna put a limit on that.

Kyle Seagraves:

So somebody making 200,000, can't just be like free money.

Kyle Seagraves:

Thank you.

Kyle Seagraves:

uh, down payment assistance though.

Kyle Seagraves:

Um, what we have to keep in mind is there often are some.

Kyle Seagraves:

Strings attached to it.

Kyle Seagraves:

It usually isn't just free money, have fun with it.

Kyle Seagraves:

So these are all dependent on the program.

Kyle Seagraves:

It's best to talk with a loan officer and say, Hey, do you have

Kyle Seagraves:

access to down payment assistance programs that you can tell me about?

Kyle Seagraves:

Um, that's gonna be the easiest access to finding these programs, uh, rather

Kyle Seagraves:

than just kind of a Google search.

Kyle Seagraves:

That's not gonna send us in a very solid direction.

Kyle Seagraves:

So with these programs, you can have things like higher interest rate.

Kyle Seagraves:

Um, there could also be a potential of you have to be in

Kyle Seagraves:

home for a certain period of time.

Kyle Seagraves:

Um, there are some down payment assistance programs that say, uh, let's

Kyle Seagraves:

say it says you have to be in there for five years and then it's fully forgiv.

Kyle Seagraves:

But if you sell within three years, you have to pay back the full amount.

Kyle Seagraves:

Some say you only have to pay back partial amount.

Kyle Seagraves:

Um, so there can be all these little things that happen.

Kyle Seagraves:

There are even some programs that are really intense, and this is the

Kyle Seagraves:

minority that actually can require things like community service along

Kyle Seagraves:

with, uh, receiving the assistance.

Kyle Seagraves:

So that's all across the board on what happens with down payment assistance.

Kyle Seagraves:

Just know that it does exist.

Kyle Seagraves:

Often down payment assistance is used with an FHA.

Kyle Seagraves:

There are very few down payment assistance programs that

Kyle Seagraves:

work with conventional loans.

Kyle Seagraves:

So just something to keep in mind.

Kyle Seagraves:

Um, so if we're looking at FHA, that is an option I personally would not

Kyle Seagraves:

use a down payment assistance program.

Kyle Seagraves:

If I can afford the 3% down conventional, because I don't wanna hire interest

Kyle Seagraves:

rate if I can afford the down payment.

Kyle Seagraves:

So I have not found a lot of down payment assistance programs to be beneficial long.

Kyle Seagraves:

Because of some of the strings attached with them, there are programs

Kyle Seagraves:

out there that can be really good.

Kyle Seagraves:

But there are a lot more programs that I think are gonna cost you

Kyle Seagraves:

a lot more money than are gonna save you money in the long run.

Katelyn Magnuson:

Right.

Katelyn Magnuson:

That makes total sense.

Katelyn Magnuson:

And also I think the popularity of bank statement loans are, I'm

Katelyn Magnuson:

gonna say due to TikTok cause.

Katelyn Magnuson:

I've seen them pop up all over my TikTok.

Katelyn Magnuson:

Yes.

Katelyn Magnuson:

Um, it's been really interesting.

Katelyn Magnuson:

I didn't even know that they existed.

Katelyn Magnuson:

Intel TikTok kept talking about them about six months ago.

Katelyn Magnuson:

So

Kyle Seagraves:

Unfortunately, the, the strategy of like real estate agents and

Kyle Seagraves:

lenders is always just like, did you know, it's always sited around, like we

Kyle Seagraves:

can get you in a home immediately, no matter, like, it's always like, did you

Kyle Seagraves:

know, we can do that and we can do this.

Kyle Seagraves:

And we can do that.

Kyle Seagraves:

It's like very car sales kit, salesy, like, yeah, these

Katelyn Magnuson:

we can do all these obscure things and, but are

Katelyn Magnuson:

they actually the right fit for you?

Katelyn Magnuson:

Yeah.

Kyle Seagraves:

all . Yeah.

Kyle Seagraves:

These all like not a problem.

Kyle Seagraves:

Not we can do that, not a problem.

Kyle Seagraves:

It's like, ah, that's not

Katelyn Magnuson:

No credit, low credit.

Katelyn Magnuson:

You have the, yeah, it just sounds, yeah.

Katelyn Magnuson:

Like one of those salesy things,

Kyle Seagraves:

will say, and I wasn't sure if we should include this in

Kyle Seagraves:

the credit episode or this, uh, if you don't have a credit score, you

Kyle Seagraves:

still can qualify for all these loans.

Kyle Seagraves:

And you might wanna jump back to the credit episode where we talked

Kyle Seagraves:

about, uh, the adding trade lines.

Kyle Seagraves:

Um, you can, but no credit and, and bad credit are not the same thing.

Kyle Seagraves:

Bad credit.

Kyle Seagraves:

You still have a credit score.

Kyle Seagraves:

You can't get rid of it.

Kyle Seagraves:

No credit.

Kyle Seagraves:

Like absolutely no credit at all is very different.

Kyle Seagraves:

And you still can get something like a conventional loan with no credit.

Katelyn Magnuson:

no, I think that's great to add in there.

Katelyn Magnuson:

Um, so a couple of questions for you that I know I've heard tossed around a lot

Katelyn Magnuson:

when, and this might go into our timing a little bit here on our next episode.

Katelyn Magnuson:

When should someone, or should someone we're gonna say, should shop around

Katelyn Magnuson:

for loans or shop around for, you know, people to work with and how

Katelyn Magnuson:

do they know when they found the right person or the right company?

Kyle Seagraves:

Yes, shop around way sooner than you expect.

Kyle Seagraves:

or at least begin the applying If you're even remotely considering buying a house,

Kyle Seagraves:

do it now, because what most of the time happens is people are like, oh, I'll do it

Kyle Seagraves:

a week before I'm ready to start buying.

Kyle Seagraves:

But then they like that day.

Kyle Seagraves:

They're like we found the house.

Kyle Seagraves:

Once you're in that mindset, you're in that mindset, you

Kyle Seagraves:

can't really get out of it.

Kyle Seagraves:

You're not gonna slow yourself down.

Kyle Seagraves:

Most people can't.

Kyle Seagraves:

So if you're looking at buying, let's begin the, the mortgage

Kyle Seagraves:

conversation way earlier.

Kyle Seagraves:

because we can always update the approval.

Kyle Seagraves:

Right.

Kyle Seagraves:

there's zero risk in applying with a mortgage lender.

Kyle Seagraves:

So at least apply and just begin seeing what do the numbers look like?

Kyle Seagraves:

How does it feel when we look at the monthly payment and everything added with

Kyle Seagraves:

it, like taxes and insurance and, um, PMI, you know, any mortgage insurance,

Kyle Seagraves:

what do the upfront costs feel like?

Kyle Seagraves:

So I would at least begin that as really, as early as you were like,

Kyle Seagraves:

I think I want to buy a house.

Kyle Seagraves:

Begin that conversation, um, when you're shopping, uh, I think a lot of people

Kyle Seagraves:

don't really understand why they would shop, uh, we're doing it for two reasons.

Kyle Seagraves:

Um, one is to make sure that we have, uh, approvals with several

Kyle Seagraves:

people that way we kind of weed out.

Kyle Seagraves:

Maybe those lenders who are like, yeah, we can do it.

Kyle Seagraves:

No problem.

Kyle Seagraves:

Cuz there's a lot of people who just go with the first lender and then

Kyle Seagraves:

they get under contract and that loan actually can't go through cuz the

Kyle Seagraves:

loan officer didn't check something.

Kyle Seagraves:

We wanna have a backup plan with a couple different lenders.

Kyle Seagraves:

To make sure we actually can get approved with several people, not

Kyle Seagraves:

just one guy who was like you.

Kyle Seagraves:

We can absolutely do it.

Kyle Seagraves:

No problem at all.

Kyle Seagraves:

The other big thing is we can save money by seeing what terms

Kyle Seagraves:

a lender would give to us.

Kyle Seagraves:

Different lenders are gonna have different interest rates, uh,

Kyle Seagraves:

different mortgage insurance that they might offer on a conventional loan.

Kyle Seagraves:

One might offer, you know, $160 per month.

Kyle Seagraves:

Another might be, a hundred.

Kyle Seagraves:

So it's gonna be cheaper.

Kyle Seagraves:

Monthly, uh, might have different interest rates.

Kyle Seagraves:

Um, some might have smaller, different programs or different nuances.

Kyle Seagraves:

And we also might run into a level of service.

Kyle Seagraves:

That's different.

Kyle Seagraves:

One loan officer might be really quick and responsive and helpful, and another

Kyle Seagraves:

one might never reply to my email.

Kyle Seagraves:

And when you're under contract, you have a certain amount of days

Kyle Seagraves:

that you said you're gonna close your home in for a lot of people.

Kyle Seagraves:

It's 30 days in really competitive markets that might be 20.

Kyle Seagraves:

It's not just a preference, it's a legal requirement that you signed.

Kyle Seagraves:

And so if we work with a lender, even if they have a really low rate, but they're

Kyle Seagraves:

not responsive and they're really slow and disorganized and they don't close the

Kyle Seagraves:

home within, let's say 30 days that we put on our contract, the seller can cancel

Kyle Seagraves:

the deal and you won't get the home.

Kyle Seagraves:

Now we can ask for an extension that's AB absolutely happens,

Kyle Seagraves:

but we have to keep that in mind.

Kyle Seagraves:

A lender can change.

Kyle Seagraves:

They can kill the deal if they don't help us close on time.

Kyle Seagraves:

And so that can be really frustrating for home buyers because it's

Kyle Seagraves:

not just the bottom line number who has a lowest interest rate.

Kyle Seagraves:

We're also looking at who can help us actually close this whole thing,

Kyle Seagraves:

answer our questions, help us navigate something that can be very confusing.

Kyle Seagraves:

It helps overcome problems if they come up.

Kyle Seagraves:

Um, and so.

Kyle Seagraves:

That's a really hard thing to sum up into one quality or into

Kyle Seagraves:

like, what's a good role of thumb.

Kyle Seagraves:

And I've always relied on, on the thought of who has the heart of a teacher.

Kyle Seagraves:

If you're working with a loan officer, who's willing to explain things to you

Kyle Seagraves:

and they're patient and they, uh, don't get mad that you're asking questions.

Kyle Seagraves:

That usually is gonna be a really good person to work with.

Kyle Seagraves:

And a quick way to figure out who that is, is just ask questions.

Kyle Seagraves:

The person who has the heart of a teacher will answer those patiently and kindly the

Kyle Seagraves:

person who doesn't is going to try to push you into more of a sales conversation.

Kyle Seagraves:

And really it is kind of a gut feeling.

Kyle Seagraves:

I know in finance, a lot of people don't want to feel things for some reason, but

Kyle Seagraves:

like your body is good at understanding risk and understanding what is good.

Kyle Seagraves:

And what's not, even if you don't fully understand the situation, if

Kyle Seagraves:

somebody that I'm talking to rings some alarm bells in me, and I'm like,

Kyle Seagraves:

I don't have a good gut feeling about this, then let's listen to that.

Kyle Seagraves:

the right person to work with you're gonna have a good feeling about.

Kyle Seagraves:

Now from the numbers perspective, comparing these different loans

Kyle Seagraves:

can be really frustrating.

Kyle Seagraves:

And unfortunately, there usually isn't a really good way to analyze these

Kyle Seagraves:

numbers side by side because no lender wants to be like, that lender over

Kyle Seagraves:

there, they do have cheaper rates.

Kyle Seagraves:

no, one's gonna tell you that.

Kyle Seagraves:

Um, so I, I was running into an issue where a lot of home buyers that I was

Kyle Seagraves:

talking to who comment on my channel.

Kyle Seagraves:

Who are running into these issues of like lender a gave me this

Kyle Seagraves:

and lender B gave me this, but I can't tell which one is better.

Kyle Seagraves:

Cuz one has a lower interest rate, but higher cost and the other one has

Kyle Seagraves:

higher interest rate, but lower cost.

Kyle Seagraves:

Which one do I choose?

Kyle Seagraves:

Um, so actually made a software that called the loan clarity advisor.

Kyle Seagraves:

You just put in what a lender tells you, what interest rate the down payment, the

Kyle Seagraves:

amount closing costs, things like that.

Kyle Seagraves:

Um, and it will tell.

Kyle Seagraves:

Which year, which loan is the cheapest.

Kyle Seagraves:

So might say in year five, lender a is the cheapest and then year

Kyle Seagraves:

10 lender B is the cheapest.

Kyle Seagraves:

So if I know I'm gonna be in the home for 10 years or more,

Kyle Seagraves:

I'm gonna go with lender B.

Kyle Seagraves:

And if I'm gonna be here for a short amount of time, I'll go with lender.

Kyle Seagraves:

A, and so that's something you can use to compare those.

Kyle Seagraves:

What I would recommend for people is looking at a software like that.

Kyle Seagraves:

Compare the numbers.

Kyle Seagraves:

And then once you take a look at the numbers in a really transparent way

Kyle Seagraves:

and say, this, here's what the data is actually showing me the actual raw

Kyle Seagraves:

data of this is financially the best option when I'm comparing these, if

Kyle Seagraves:

maybe lender a and lender B over 10 years are only a $2,000 difference.

Kyle Seagraves:

Am I then willing to go with the lender who has the higher,

Kyle Seagraves:

slightly higher interest rate?

Kyle Seagraves:

Because I'm more confident in them

Kyle Seagraves:

closing the.

Kyle Seagraves:

I'll do that all day long, $2,000 over 10 years absolutely will pay that to

Kyle Seagraves:

make sure that I actually get this home

Katelyn Magnuson:

Right,

Kyle Seagraves:

a lot of people will just go online and try to

Kyle Seagraves:

find the cheapest advertisement.

Kyle Seagraves:

You know, those like really, I don't even know how they're legal, but you'll see

Kyle Seagraves:

those advertisements are like 1% interest.

Kyle Seagraves:

Like no one's offering that but then you, you know, you apply and it's,

Kyle Seagraves:

you work with somebody who maybe ISN inexperienced and you're not able

Kyle Seagraves:

to close loan and you could miss.

Kyle Seagraves:

On buying the

Katelyn Magnuson:

That 1% potential has now potentially cost you.

Katelyn Magnuson:

a home.

Kyle Seagraves:

It cost you the entire, that entire home.

Kyle Seagraves:

Now you have to go find something else and you potentially already paid $500

Kyle Seagraves:

for an appraisal $500 for an inspection.

Kyle Seagraves:

Maybe more not to mention all the time that you spent looking for homes.

Kyle Seagraves:

So those are the two things that I would look at.

Kyle Seagraves:

Let's look at the raw finances, uh, and you can use that software to compare

Kyle Seagraves:

those instead of having to do all the math

Katelyn Magnuson:

Yeah.

Katelyn Magnuson:

Which will link in the notes.

Katelyn Magnuson:

Yeah.

Kyle Seagraves:

takes forever.

Kyle Seagraves:

And most people don't do it correctly.

Kyle Seagraves:

And then coupling that with which one of these lenders has the heart

Kyle Seagraves:

of a teacher from there, you'll be able to make a really good decision.

Kyle Seagraves:

Usually what ends up happening is the most helpful person often has, uh,

Kyle Seagraves:

usually the middle ground offering.

Kyle Seagraves:

If you're looking at three people, usually they're the

Kyle Seagraves:

second person, second best option.

Kyle Seagraves:

And I'll go with them all day long over the cheapest option

Kyle Seagraves:

that I don't have confidence.

Katelyn Magnuson:

Absolutely.

Katelyn Magnuson:

You know, I couldn't agree more.

Katelyn Magnuson:

I think that that's great advice when looking to qualify for a home mortgage.

Katelyn Magnuson:

I think that both with home loans and with auto loans, uh, it's a really

Katelyn Magnuson:

common misconception that if you are married or partnered that both

Katelyn Magnuson:

of you, it kind of comes across.

Katelyn Magnuson:

And I was actually under this belief until several years ago that like,

Katelyn Magnuson:

why wouldn't you both be on a loan?

Katelyn Magnuson:

You know, you're both contributing to the household.

Katelyn Magnuson:

Finances.

Katelyn Magnuson:

You're both purchasing this, but I, I wanna talk about,

Katelyn Magnuson:

do both people need to be.

Katelyn Magnuson:

on the loan and kind of, and this may come back in and our strategy that we

Katelyn Magnuson:

chat about later, but do both people need to be on the loan when looking

Katelyn Magnuson:

to purchase a home mortgage or a home.

Kyle Seagraves:

best strategy is put the minimum amount of people

Kyle Seagraves:

on the mortgage as possible.

Kyle Seagraves:

If you can qualify with just one person do that.

Kyle Seagraves:

Um, because it really just adds a layer of protect.

Kyle Seagraves:

Your spouse can always be added onto the deed and not on the mortgage.

Kyle Seagraves:

So if you can qualify with just one person, you can do that.

Kyle Seagraves:

You both have ownership of the home, but there's only one person who

Kyle Seagraves:

has responsibility for the debt.

Kyle Seagraves:

And why I would do this is because worst case scenario, okay.

Kyle Seagraves:

Things like COVID happen.

Kyle Seagraves:

You lose your job.

Kyle Seagraves:

You get even just missing a mortgage payment.

Kyle Seagraves:

Can derail credit for years.

Kyle Seagraves:

I'd rather not that happen to two people.

Kyle Seagraves:

Let's just have it happen to one person.

Kyle Seagraves:

Now we have the other person's credit saved there.

Kyle Seagraves:

Um, not only that, but what I run into with a lot of people is they're like my

Kyle Seagraves:

credit score is great, but my income's low and another person's like my credit

Kyle Seagraves:

score sucks, but my income's great.

Kyle Seagraves:

Like, okay, well, when we're applying together, the lender is going

Kyle Seagraves:

to use the lower credit score to qualify you for which loan you can

Kyle Seagraves:

use and the interest rate as well.

Kyle Seagraves:

Um, so if we can just use one person.

Kyle Seagraves:

Preferably with the higher credit score and get away with the lower income.

Kyle Seagraves:

That's the best strategy.

Kyle Seagraves:

If we have to add, you know, if there's not enough income and you need to add

Kyle Seagraves:

that person on, that's fine, but we do have to use the lower credit score.

Kyle Seagraves:

So ultimately it's better to do the minimum amount of people possible.

Kyle Seagraves:

Um, it's just less, not only is it easier, but it adds that safety net, if you need.

Katelyn Magnuson:

Absolutely mitigates the risk to the household as a whole.

Katelyn Magnuson:

And I don't know if you wanna chat about this at all, but I know that I

Katelyn Magnuson:

had, um, Kinda become aware that if one of us, if you know, I was going

Katelyn Magnuson:

to be the primary person purchasing our homes, going forward, there might

Katelyn Magnuson:

be a strategy to putting, let's say our auto loans under my spouse's name.

Katelyn Magnuson:

And, you know, having that so that the debt is showing up on his and not

Katelyn Magnuson:

showing up on mine rather than if, you know, we're both on the auto loan

Katelyn Magnuson:

shocker, because this is before I knew.

Katelyn Magnuson:

And so even if I was qualifying for the house on my own, that auto loan

Katelyn Magnuson:

in both of our names would show.

Katelyn Magnuson:

under my debt to income.

Katelyn Magnuson:

Whereas if it was on his, it wouldn't have shown up.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

The amount of times I've had clients refinance an auto loan into somebody

Kyle Seagraves:

else's name is like too many to count, uh, cuz it is very common, uh, especially

Kyle Seagraves:

when it's a joint account and it's like, oh we just five years ago we needed that.

Kyle Seagraves:

Or, you know, three years ago, they needed to do that, but their credit's

Kyle Seagraves:

not the point where they need to do that anymore and refinancing it off

Kyle Seagraves:

of their credit report immediately removes it from a debt on the mortgage,

Kyle Seagraves:

uh, to then be able to qualify.

Kyle Seagraves:

Um, because we're all we're looking at here.

Kyle Seagraves:

What's called the debt income ratio and it is your, uh, monthly debts.

Kyle Seagraves:

Plus your future mortgage payment divided by your gross monthly income.

Kyle Seagraves:

Um, and so.

Kyle Seagraves:

This waivers, depending on the loan type, but usually around 45% is gonna be a

Kyle Seagraves:

maximum that you're gonna be looking at.

Kyle Seagraves:

So you can take your, your gross monthly income and multiply at

Kyle Seagraves:

times 0.45 and find the maximum amount of debt that you can have.

Kyle Seagraves:

And so if you're over that limit, that's when you wanna start looking

Kyle Seagraves:

at, okay, could we take a cart out of my name and put it into my spouses?

Kyle Seagraves:

If I'm just on the loan to remove that debt from.

Katelyn Magnuson:

Or is there a student loan payment or loan that's almost,

Katelyn Magnuson:

you know, so close to being paid off.

Katelyn Magnuson:

Could we have that?

Katelyn Magnuson:

Is there like, what is the lowest barrier here to, especially when you're

Katelyn Magnuson:

on the cusp to get that out of your, you know, debt to income calculations.

Katelyn Magnuson:

And I think that people don't, I think people just look at paying debt off

Katelyn Magnuson:

as like a blanket thing when you don't have to pay that off and you like,

Kyle Seagraves:

mm-hmm

Katelyn Magnuson:

why do it right now?

Katelyn Magnuson:

But there's a

Kyle Seagraves:

And don't don't do any of this without talking to a

Kyle Seagraves:

loan officer first, because a lot of people, I think they, they don't

Kyle Seagraves:

realize, qualifying for a loan.

Kyle Seagraves:

Actually, isn't a problem for them in their mind.

Kyle Seagraves:

They're like, there's no way I'll be able to qualify a lot

Kyle Seagraves:

of self-employed people do this.

Kyle Seagraves:

No way.

Kyle Seagraves:

I'll be able to qualify after go to the bank statement loan.

Kyle Seagraves:

Did you even try getting approval with a conventional, because I've worked with a

Kyle Seagraves:

lot of self-employed people who they can qualify for conventional all day long.

Kyle Seagraves:

It's only after you talk with a loan officer and things.

Kyle Seagraves:

uh, maybe there's some work that needs to be done or a different

Kyle Seagraves:

strategy that needs to happen that then we wanna consider don't do all

Kyle Seagraves:

this work before you even got a no to

Kyle Seagraves:

begin with.

Katelyn Magnuson:

Yeah, no, I couldn't agree more.

Katelyn Magnuson:

I think again, seeking that.

Katelyn Magnuson:

Educated information and the empowered information lets you then make

Katelyn Magnuson:

decisions without just spinning out.

Katelyn Magnuson:

Because I think a lot of people have a tendency when it comes to money,

Katelyn Magnuson:

debt, loans, any of this to just kind.

Katelyn Magnuson:

Spin outta control a little bit.

Katelyn Magnuson:

Oh, I'm gonna, you know, try and do all of these things.

Katelyn Magnuson:

Or they've taken all this outside information in that may not apply

Katelyn Magnuson:

at all in their situation where you could sit down and have, you

Katelyn Magnuson:

know, a 15, 20 minute conversation have submitted your information

Katelyn Magnuson:

and then have a clear action path.

Katelyn Magnuson:

Maybe you don't have to do anything.

Katelyn Magnuson:

Maybe you're good to go as is.

Katelyn Magnuson:

And you just didn't know.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

Mm-hmm . . Yeah.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

That happens for a lot of people with student loans too, where

Kyle Seagraves:

they're like, there's no way I'll be able to qualify with this.

Kyle Seagraves:

And they're like, and they're like, oh, did you see my student loans?

Kyle Seagraves:

Yeah, they're fine.

Kyle Seagraves:

Not a problem at all.

Kyle Seagraves:

You're good.

Kyle Seagraves:

like,

Katelyn Magnuson:

like, oh, okay.

Katelyn Magnuson:

I've just been making all these stories in my head.

Katelyn Magnuson:

Cool.

Katelyn Magnuson:

Cool.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

Yeah.

Kyle Seagraves:

For most

Katelyn Magnuson:

Love this.

Katelyn Magnuson:

Okay.

Kyle Seagraves:

thing I'll say about loan shopping is.

Kyle Seagraves:

Please shop for your loan.

Kyle Seagraves:

Like, going back to our, our first episode on credit, um, a lot of people

Kyle Seagraves:

get really scared about inquiries.

Kyle Seagraves:

You're one inquiry only if fixture score is zero to five points and you

Kyle Seagraves:

are legally allowed to shop for 45 days, multiple mortgage inquiries.

Kyle Seagraves:

It will only count as one.

Kyle Seagraves:

So let's say I get one inquiry.

Kyle Seagraves:

I have 45 days to shop.

Kyle Seagraves:

10 15, 20, 30 lenders.

Kyle Seagraves:

That would be a lot of work, but you can shop with as many lenders

Kyle Seagraves:

as you want within 45 days.

Kyle Seagraves:

And it will only count as one inquiry.

Kyle Seagraves:

The inquiries will still show up under credit report, but it will only impact

Kyle Seagraves:

you as if it was just one inquiry.

Kyle Seagraves:

So the system works in your favor to shop around for the best terms.

Kyle Seagraves:

Uh, after 2008, that was became, one of the requirements is making

Kyle Seagraves:

sure that people are able to.

Kyle Seagraves:

Have the opportunity to shop for a mortgage that works for them and not

Kyle Seagraves:

just get trapped into one lender because they're afraid of another inquiry.

Katelyn Magnuson:

Right.

Katelyn Magnuson:

No, I think that's really important because, and I think a lot of people

Katelyn Magnuson:

still think that those inquiries are.

Katelyn Magnuson:

Credit impacting when having them count as one is just really, I'm gonna say a

Katelyn Magnuson:

breath of fresh air, which is, hilarious to think about when you're thinking of

Katelyn Magnuson:

credit, but still, and with that being said, let's say that maybe you go shop

Katelyn Magnuson:

for a mortgage now and you don't end up actually moving forward with it.

Katelyn Magnuson:

How long does that take for those inquiries to roll off or for the,

Katelyn Magnuson:

you know, one inquiry to roll?

Kyle Seagraves:

Yeah, uh, they're gonna stay on.

Kyle Seagraves:

Usually they're gonna have like an impact for around 180 ish days.

Kyle Seagraves:

Uh, and they're gonna fall off over time and usually stay

Kyle Seagraves:

on your report for a year.

Kyle Seagraves:

Um, so.

Kyle Seagraves:

But again, the impact initially is so minimal that it doesn't really matter.

Kyle Seagraves:

I will say what, what happens for a lot of people is they get an inquiry.

Kyle Seagraves:

And since they're there may, they might be subscribed to several

Kyle Seagraves:

different credit reporting sites.

Kyle Seagraves:

And all of a sudden they get this barrage of emails.

Kyle Seagraves:

Like, did you, did you know someone checked your credit?

Kyle Seagraves:

Did you know that, uh, and they act like the sky is falling and

Kyle Seagraves:

then they log into this account.

Kyle Seagraves:

And remember that was a soft score model that they're using.

Kyle Seagraves:

That's different than the actual mortgage FICO credit score.

Kyle Seagraves:

And so their vantage score might fall more than the zero to five points.

Kyle Seagraves:

And what ends up happening?

Kyle Seagraves:

This is me with my somewhat dark theory.

Kyle Seagraves:

What it seems like happens is they're like, Hey, the world's falling

Kyle Seagraves:

apart because you got this inquiry.

Kyle Seagraves:

That's so awful.

Kyle Seagraves:

Hey, by the way, You should work with one of our lenders.

Katelyn Magnuson:

Mm,

Kyle Seagraves:

It's this big like fear, Hey, fear,

Katelyn Magnuson:

fear mongering.

Katelyn Magnuson:

Yeah.

Katelyn Magnuson:

Right.

Kyle Seagraves:

but direct your attention to one, like one of our lenders who is

Kyle Seagraves:

also gonna need to get an inquiry but there, it really is like, They're always

Kyle Seagraves:

like, Hey, this wasn't it so bad that you got an inquiry, um, by the way, here's

Kyle Seagraves:

one of the lenders that you should work with that pays us to recommend them.

Kyle Seagraves:

like, well, was this whole thing, just an advertising pitch to

Kyle Seagraves:

get me to work with your lender

Katelyn Magnuson:

I mean, I, I wouldn't say that's dark so

Katelyn Magnuson:

much is probably realistic.

Kyle Seagraves:

Yeah.

Katelyn Magnuson:

no, I think that's great.

Katelyn Magnuson:

So four main types of loans, conventional FHA, VA, and U S D a.

Katelyn Magnuson:

And then you also covered bank statement and jumbo and down payment assistance.

Kyle Seagraves:

assistance.

Katelyn Magnuson:

So, and the calculator that you mentioned, check the notes.

Katelyn Magnuson:

If you're listening and you wanna go give it a try.

Katelyn Magnuson:

Um, that will be linked in here along with the show notes.

Katelyn Magnuson:

And in our next episode, we're gonna talk all about timing and how the

Katelyn Magnuson:

actual process works, the approval process, you know, how to get started.

Katelyn Magnuson:

How do you get preapproved?

Katelyn Magnuson:

What do you need to be doing next?

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