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

Hey, welcome back to the podcast.

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

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

and the owner of win the house.

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

Kyle, welcome back.

Pleasure to have you here.

And today we're gonna be covering.

All things loans for home mortgages.

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

Cool.

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

this can confuse people a lot.

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

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

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

There's kind of a couple main categories.

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

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

the right loan can help you save.

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

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

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

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

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

So.

Four main types of loans.

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

there are three government loans.

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

F.

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

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

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

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

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

starts at a six 20 credit score.

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

uh, the most common type of loan.

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

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

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

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

insurance that's required with this.

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

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

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

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

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

of loans that we'll cover.

Uh, eventually.

So 3% is the minimum.

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

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

Specifically.

This is private mortgage insurance.

All this does is it protects the lender.

In the event that you foreclose on the home.

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

need the home back, we need to sell it.

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

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

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

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

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

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

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

Correct.

Absolutely.

Yeah.

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

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

the loan amount paid annual.

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

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

right here.

I'm gonna tell you $388,000.

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

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

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

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

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

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

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

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

Right.

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

equity as that value is increasing.

Yes, absolutely.

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

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

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

paying interest on the loan.

For that stock, so works the same way.

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

Ideally six 80 is gonna get you better interest rates.

The top is gonna be seven 20.

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

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

Um, with the.

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

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

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

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

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

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

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

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

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

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

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

chipping paint or broken glass, where government loans would.

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

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

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

any questions about the convent?

No.

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

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

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

I had initially made when I was 1920.

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

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

We were able to get to 10% and I.

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

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

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

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

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

which was just mean nothing.

We can blow 130, $8 relatively easily.

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

home is now doubled in value.

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

I

Yeah.

And we can add this in the show notes.

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

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

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

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

compared to the cost of, uh, the PMI.

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

money long term for the 20% down.

Right.

You know, taking three years

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

loan that we're going to be using.

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

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

All these loans, most lenders can do.

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

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

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

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

the federal housing administration.

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

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

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

conventional loans used to be 20% minimum.

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

It's not like that anymore.

FHA now is not geared towards first time home buyers.

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

Or really high debt income ratios.

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

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

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

can do three and a half percent down.

Okay.

So obviously the higher credit score that we have.

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

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

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

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

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

or 13, um, or any late payments.

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

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

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

refinance into a conventional loan.

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

So FHA actually has two mortgage insurance types.

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

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

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

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

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

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

So this is substantially higher than conventional.

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

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

never fall off unless you put 10% down.

Then it falls off after 11 years confusing caveat there.

But for most people.

It will never fall off.

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

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

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

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

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

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

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

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

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

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

Um, now on the flip.

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

Otherwise.

It was something like conventional loan.

Um, also they allow higher debt income ratios.

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

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

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

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

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

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

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

that brings in a lot of money.

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

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

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

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

It looks more,

uh,

risky.

Cool.

Yeah.

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

the, Quality of the home.

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

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

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

I need you to put a handrail out there.

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

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

two by four and nailing it into something.

Um, They are more concerned with things like that.

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

wanted to touch on with FHA loans?

You, you just hit a nerve.

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

was a foreclosed or bank bank on tongue.

Um,

yeah.

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

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

wanted to have a working dishwasher.

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

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

but we had a, the deck was rotted.

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

And just the differences in the inspections between that home

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

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

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

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

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

FHA is more headache.

Absolutely.

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

loan is it can scare sellers.

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

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

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

getting multiple offers on their home.

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

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

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

nothing moral about these loans.

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

about the financing that we're using.

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

might be problems with the appraisal.

And unfortunately, a lot of sellers think that FHA loans

mean that it's a bad borrower.

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

Well, because they need FHA loan.

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

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

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

Um, so unfortunately that exists.

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

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

Hey, we couldn't qualify for conventional.

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

more specific use cases with them.

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

So this is only for, uh, veteran.

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

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

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

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

Uh, unfortunately VA has a very confusing things with

entitlement that you can ignore.

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

removed, uh, a year or two ago.

Oh, wow.

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

Flood conventional and FHA.

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

Uh, VA no loan limit, 0% down.

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

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

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

Uh, there is no monthly market insurance.

Okay.

We can see already these things, these things start to

get really a little confusing, but

the mortgage.

Insurance has different names though, for each of them.

That's really wonder.

it's, it's awful.

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

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

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

So stay in your lane.

Um, VA has the funding fee.

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

payment and also your service.

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

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

fee, which is a lot of money saved.

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

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

no upfront mortgage insurance.

If you have a service connected dis.

Also VA loans have usually historically lower rates compared

to all the other types of loans.

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

benefits on behalf of veterans.

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

loans are very similar.

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

Um, U S D.

Also has a very specific use case.

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

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

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

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

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

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

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

Um, so USC is great.

Goes all the way down to a 500 credit score.

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

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

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

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

if someone has to manually review.

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

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

They call a guarantee fee.

Everyone calls things differently.

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

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

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

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

it for the life of the loan as well.

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

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

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

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

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

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

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

And that loan limit usually, uh, is fairly.

Restrictive for a lot of people.

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

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

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

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

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

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

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

You need to look up that map to see first.

If no cool.

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

VA, are you a veteran?

No, I'm not.

Okay.

Well, we can't even consider it.

We don't have to worry about it.

Then we look at conventional or an FHA.

Do I have a credit score?

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

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

So those are the four main types.

Yeah.

The four main types that most lenders have.

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

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

are the two that I'm looking at.

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

Uh, you have things like jumbo loans.

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

this is gonna change by the county.

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

loan limit than in Dayton, Ohio.

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

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

Jumbo loans usually require larger down payments.

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

isn't a standard set of rules.

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

book called a handbook, usually several thousand pages each.

Jumbo loans.

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

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

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

want a really high credit score.

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

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

amount of debt that you can have as.

Are we seeing more jumbo loans or the necessity for

more jumbo loans as house prices have been increasing, because

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

it is shockingly low for our county.

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

the most expensive houses in the area.

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

in jumbo loans because of that?

Yeah.

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

And the main reason why is because the conventional loan limits

increase, uh, usually every year.

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

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

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

Then there are what are called high balance areas where that

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

Right.

Like San Francisco, LA New

Yep.

Yeah.

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

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

loan limit has been increasing with it as.

So you have jumbo loans.

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

bit newer, uh, on the scene recently.

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

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

Um, and they, their income.

Their personal income on their personal tax return.

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

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

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

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

personal account immediate immediately when it comes into the business

Mm-hmm

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

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

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

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

money you actually do have access to.

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

good amount of self-employed people.

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

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

Even though their actual income that they see every day can

absolutely qualify for a loan.

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

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

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

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

and average the deposits into your.

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

on what type of industry you're in.

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

your business bank statements, average.

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

Um, they're gonna look at those monthly.

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

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

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

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

per month as your income.

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

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

Figure out what your actual expenses are.

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

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

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

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

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

Uh, then there's also another program.

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

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

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

program about down payment assistance.

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

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

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

of your down payment are closing costs.

So usually there's some limits in there.

And then often there is an income limit as well.

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

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

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

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

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

Thank you.

uh, down payment assistance though.

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

Strings attached to it.

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

So these are all dependent on the program.

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

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

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

than just kind of a Google search.

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

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

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

home for a certain period of time.

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

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

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

Some say you only have to pay back partial amount.

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

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

minority that actually can require things like community service along

with, uh, receiving the assistance.

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

Just know that it does exist.

Often down payment assistance is used with an FHA.

There are very few down payment assistance programs that

work with conventional loans.

So just something to keep in mind.

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

use a down payment assistance program.

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

rate if I can afford the down payment.

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

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

out there that can be really good.

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

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

Right.

That makes total sense.

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

gonna say due to TikTok cause.

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

Yes.

Um, it's been really interesting.

I didn't even know that they existed.

Intel TikTok kept talking about them about six months ago.

So

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

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

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

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

And we can do that.

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

we can do all these obscure things and, but are

they actually the right fit for you?

Yeah.

all . Yeah.

These all like not a problem.

Not we can do that, not a problem.

It's like, ah, that's not

No credit, low credit.

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

Like one of those salesy things,

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

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

still can qualify for all these loans.

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

about, uh, the adding trade lines.

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

Bad credit.

You still have a credit score.

You can't get rid of it.

No credit.

Like absolutely no credit at all is very different.

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

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

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

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

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

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

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

Yes, shop around way sooner than you expect.

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

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

a week before I'm ready to start buying.

But then they like that day.

They're like we found the house.

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

can't really get out of it.

You're not gonna slow yourself down.

Most people can't.

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

conversation way earlier.

because we can always update the approval.

Right.

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

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

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

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

what do the upfront costs feel like?

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

I think I want to buy a house.

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

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

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

people that way we kind of weed out.

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

No problem.

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

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

loan officer didn't check something.

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

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

just one guy who was like you.

We can absolutely do it.

No problem at all.

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

a lender would give to us.

Different lenders are gonna have different interest rates, uh,

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

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

Another might be, a hundred.

So it's gonna be cheaper.

Monthly, uh, might have different interest rates.

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

And we also might run into a level of service.

That's different.

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

one might never reply to my email.

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

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

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

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

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

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

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

the deal and you won't get the home.

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

but we have to keep that in mind.

A lender can change.

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

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

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

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

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

It helps overcome problems if they come up.

Um, and so.

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

like, what's a good role of thumb.

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

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

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

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

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

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

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

And really it is kind of a gut feeling.

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

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

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

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

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

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

Now from the numbers perspective, comparing these different loans

can be really frustrating.

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

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

there, they do have cheaper rates.

no, one's gonna tell you that.

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

talking to who comment on my channel.

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

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

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

higher interest rate, but lower cost.

Which one do I choose?

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

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

amount closing costs, things like that.

Um, and it will tell.

Which year, which loan is the cheapest.

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

10 lender B is the cheapest.

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

I'm gonna go with lender B.

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

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

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

Compare the numbers.

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

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

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

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

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

slightly higher interest rate?

Because I'm more confident in them

closing the.

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

make sure that I actually get this home

Right,

a lot of people will just go online and try to

find the cheapest advertisement.

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

those advertisements are like 1% interest.

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

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

to close loan and you could miss.

On buying the

That 1% potential has now potentially cost you.

a home.

It cost you the entire, that entire home.

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

for an appraisal $500 for an inspection.

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

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

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

those instead of having to do all the math

Yeah.

Which will link in the notes.

Yeah.

takes forever.

And most people don't do it correctly.

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

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

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

usually the middle ground offering.

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

second person, second best option.

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

that I don't have confidence.

Absolutely.

You know, I couldn't agree more.

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

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

common misconception that if you are married or partnered that both

of you, it kind of comes across.

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

why wouldn't you both be on a loan?

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

Finances.

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

do both people need to be.

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

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

to purchase a home mortgage or a home.

best strategy is put the minimum amount of people

on the mortgage as possible.

If you can qualify with just one person do that.

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

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

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

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

has responsibility for the debt.

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

Things like COVID happen.

You lose your job.

You get even just missing a mortgage payment.

Can derail credit for years.

I'd rather not that happen to two people.

Let's just have it happen to one person.

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

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

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

score sucks, but my income's great.

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

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

use and the interest rate as well.

Um, so if we can just use one person.

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

That's the best strategy.

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

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

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

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

Absolutely mitigates the risk to the household as a whole.

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

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

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

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

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

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

shocker, because this is before I knew.

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

in both of our names would show.

under my debt to income.

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

Yeah.

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

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

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

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

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

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

uh, to then be able to qualify.

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

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

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

Um, and so.

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

maximum that you're gonna be looking at.

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

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

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

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

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

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

you know, so close to being paid off.

Could we have that?

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

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

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

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

mm-hmm

why do it right now?

But there's a

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

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

realize, qualifying for a loan.

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

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

of self-employed people do this.

No way.

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

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

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

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

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

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

this work before you even got a no to

begin with.

Yeah, no, I couldn't agree more.

I think again, seeking that.

Educated information and the empowered information lets you then make

decisions without just spinning out.

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

debt, loans, any of this to just kind.

Spin outta control a little bit.

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

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

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

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

and then have a clear action path.

Maybe you don't have to do anything.

Maybe you're good to go as is.

And you just didn't know.

Yeah.

Mm-hmm . . Yeah.

Yeah.

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

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

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

Yeah, they're fine.

Not a problem at all.

You're good.

like,

like, oh, okay.

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

Cool.

Cool.

Yeah.

Yeah.

For most

Love this.

Okay.

thing I'll say about loan shopping is.

Please shop for your loan.

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

get really scared about inquiries.

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

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

It will only count as one.

So let's say I get one inquiry.

I have 45 days to shop.

10 15, 20, 30 lenders.

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

as you want within 45 days.

And it will only count as one inquiry.

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

you as if it was just one inquiry.

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

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

sure that people are able to.

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

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

Right.

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

still think that those inquiries are.

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

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

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

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

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

you know, one inquiry to roll?

Yeah, uh, they're gonna stay on.

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

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

on your report for a year.

Um, so.

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

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

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

different credit reporting sites.

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

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

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

then they log into this account.

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

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

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

And what ends up happening?

This is me with my somewhat dark theory.

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

apart because you got this inquiry.

That's so awful.

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

Mm,

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

fear mongering.

Yeah.

Right.

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

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

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

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

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

get me to work with your lender

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

much is probably realistic.

Yeah.

no, I think that's great.

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

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

assistance.

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

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

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

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

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

How do you get preapproved?

What do you need to be doing next?