Homebuying 101

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Amber Posthauer: Hello, everyone! Thank you for joining us today. We're gonna get started here in 60 seconds to allow for everyone to get connected. We'll get started shortly.

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Amber Posthauer: Welcome, everyone, to Home Buying 101, The Hidden Costs of Home Ownership. Thank you all so much for joining us.

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Amber Posthauer: Please send questions through the Q&A located on your Zoom menu bar. We'll try our best to answer all of your questions today, but if for whatever reason we're unable to get to your question, please email LearningAirNFP, learning at nfp.com, or Joey Delaney, our speaker, who will be sharing his contact information at the end of the presentation.

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Amber Posthauer: Today's presentation is being recorded. We'll be sharing the recording in the coming days.

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Amber Posthauer: At this time, I'd like to hand over the call to our speaker. Joey, the floor is yours.

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Joseph Delaney: Fantastic. Thank you, Amber. Good afternoon, everybody. I appreciate you all joining the seminar today. I'm going to be talking through the 101 on home buying. You see it in the name, The Hidden Cost of Home Ownership, which I'll go through, and…

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Joseph Delaney: Really, what I'm gonna try and do for everybody today is give some real-life stories and some real-life advice, because whether it's the internet, it's a mortgage broker, it's a real estate agent, there's a lot of advice out there. My full-time job, I'm a financial advisor, so day by day, I'm giving people advice on how to deal with these sorts of, you know, planning aspects, you know, buying a home, what does that look like from a personal financial standpoint?

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Joseph Delaney: So my goal is to give you some real-life advice today, and make it a very relatable

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Joseph Delaney: story. Because it's, it's a technical process.

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Joseph Delaney: Whether you're looking to buy your first home, and whether that's gonna happen tomorrow or in a couple years from now as you get prepared for it, or if you already own a home and you're planning to sell it and buy another one, I think you might get some, some good information out of today, and like Amber said, my contact info will be at the end. You are welcome to send any questions to me as follow-up. Hopefully we capture everything in the Q&A today, though, as well.

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Joseph Delaney: So, with that… the agenda.

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Joseph Delaney: We're gonna talk through, these 6 bullet points here, the process for purchasing a home, what impacts my credit score, because credit score is an important part of the equation when buying a home, how much home can I afford, how to start the process, types of mortgages, and then finally we'll wrap things up with myth-busting about buying a home.

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Joseph Delaney: So the home buying process,

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Joseph Delaney: here's… here's how we think about it. I mean, the good news is the first part of the process, doesn't cost any money. So if you're kind of dipping your toe into this for the first time ever, you're thinking about buying a home, you feel like you might be ready here in the next year or two.

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Joseph Delaney: never hurts to start the process early. So the first step in the process is meeting with a mortgage broker. That can be your local bank, it can be an independent national mortgage broker, whoever that is, to get pre-approved for a mortgage.

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Joseph Delaney: What's required to get pre-approved for a mortgage is gonna be everything about your financial picture. This may be information that you've really never touched before, or spent much time looking at, but you're gonna need pay stubs, W-2s, bank statements, anything that you've got about personal debt, whether it's credit cards, student loans, car loans.

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Joseph Delaney: You need your entire financial picture backed up in formal documents to provide to the lender. From there, they're going to take you through the process. I'm going to talk about each of these steps in more depth.

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Joseph Delaney: But once you get through the pre-approval stage of being approved for a mortgage, the next step is finding a real estate agent. And when it comes to meeting that real estate agent.

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Joseph Delaney: Really, the step one is sitting down with them, explaining what you qualify for in buying a home, what kind of home you're trying to buy, and then that real estate agent uses their technology to scour the internet and scour the local listings to find the home that meets your criteria in the area that you want to be, along with

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Joseph Delaney: homes that are close to meeting that criteria. And to make this super relatable, I just went through this last year. I bought my first home in November with my wife.

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Joseph Delaney: And basically, every day up until we identified the property, we were getting an email from a real estate agent of all the properties that were on the market that met our criteria, or were close to meeting our criteria. So that's the searching for homes section, once you've identified your real estate professional.

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Joseph Delaney: Once you identify the property, you make that offer. And the next piece is negotiating with the seller. For those who work with real estate agents, which generally we'd recommend always working with an agent.

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Joseph Delaney: Really, the negotiation happens through both the sellers and your agent. This is where your agents go back and forth. You're gonna get a lot of good recommendations from your agent on what's a fair contract and what's a good negotiation for the property you're trying to buy, so really lean on those professionals.

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Joseph Delaney: Once the, the offer's been approved.

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Joseph Delaney: now you're in escrow. This is where, in most cases, you have to put down a little cash to make the offer legitimate, and you can think of, now the home is effectively held for you until closing.

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Joseph Delaney: And then, there's a couple final pieces there that I'm going to talk more about. You do the appraisal, the inspection, and finally the closing date. That's where money changes hands, and the title transfers over, and you're a homeowner.

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Joseph Delaney: So now let's start digging into those pieces.

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Joseph Delaney: As you start this journey, there's some important questions to ask not only yourself, but your spouse, and also, your real estate agent and your lender. First off, what am I trying to accomplish with this housing situation?

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Joseph Delaney: I think it's a really key question to ask that not a lot of people ask themselves, because I think, you know, for all of us, we hear, oh, owning a home is a good thing to do, you should always try and own a home.

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Joseph Delaney: That's, you know, generally it's true, but there are instances where maybe that isn't the best advice, so it's important to ask yourself, you know, what does my picture look like over the next 3, 5, 10 years? Are you, you know, in a position where it's a good shot you're going to be moving to a new city in the next 2 years?

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Joseph Delaney: Well, then that might cause for pause. Do I need to buy a home right now if I'm going to be moving here in a couple years? Because, you know, we all probably know this intuitively. If you own a home, that makes the prospect of moving a little trickier.

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Joseph Delaney: On the flip side of that, let's say you're, you know, kind of on the path of growing your family. Maybe you got a kid, and you got another one on the way, that sort of thing.

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Joseph Delaney: Does the house you can afford today make sense versus the house you might need with a growing family? So these are all questions to ask yourself, and try and do that projection of the classic interview question, where do you see yourself in 5 years? Where do you see yourself in 10 years?

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Joseph Delaney: But really try and, try and, you know, formalize what the goal is with your housing situation. Why is it better to buy a home right now versus renting a home?

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Joseph Delaney: This really gets into that story of…

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Joseph Delaney: you know, say you are kind of, you know, digging your heels in the ground, you know, my wife and I, for example, we live in the Twin Cities, and we knew this is going to be the place that we want to be long-term.

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Joseph Delaney: So the argument is, you know, looking at buying a home when you're ready is probably the right path, because one of the big items versus renting

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Joseph Delaney: is you can actually fix your housing costs, right? So if you get a mortgage, there are things that ebb and flow, like insurance and taxes, but for the most part, you can fix that cost of living every month, and it's going to be reliable for the next, you know.

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Joseph Delaney: in some cases, 30 years.

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Joseph Delaney: Versus renting, where it's a little out of your control. You just don't know exactly what's gonna happen to your rent over the next year, 2 years, 3 years, 4 years, 5 years. So,

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Joseph Delaney: you know, that can be one of the arguments for why buying a home sooner than later can be beneficial, but one of the messages… I'm going to pause for a moment. One of the messages I want to give to everybody on the call today is it's all going to be context contingent. It's going to be specific to your current stage of life.

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Joseph Delaney: and where you're going in life, and where you want to go in life. So, for some people, it's gonna make sense to buy a home sooner than later. For some people, that might not be a true story.

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Joseph Delaney: How can I make sure that this fits into my short-term and long-term budget?

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Joseph Delaney: That is the key. The real key is, does it make some financial sense? It's a question you ask yourself. I'm gonna get into that concept of budgeting here later in the presentation, but that, I mean.

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Joseph Delaney: I would assume there's a reason a lot of you joined the call today, is part of the equation is, how does this financially make sense? You know, ignoring all the ins and outs of how to actually accomplish it. Then the next question, how will this financial decision impact other areas of my life? Marriage, children's college fund, care for elderly parents?

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Joseph Delaney: I'll expand on that. Buying a new car, investing for retirement. There's a lot of variables that can be impacted, you know, in different ways by buying a home. And then what mortgage and home buying strategy will result in less overall financial risk?

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Joseph Delaney: I'll give you all a couple of ideas today that either increase the financial risk or decrease it, but just since we're on that question, I'll give you a quick example.

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Joseph Delaney: Right now, interest rates are a bit high, compared to the last decade. Right now, mortgage rates are sitting between 6% and 7%.

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Joseph Delaney: If you get a 30-year fixed mortgage, you might expect that interest rate to be 6.5% to 7%, and your lender might say, hey, well, if you do a variable rate mortgage, you can actually get the interest rate at 5.5% today. Without knowing much else, you might say, well, I'd rather take the 5.5% loan instead of the 6.5% fixed.

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Joseph Delaney: it's important to dive deeper into the potential impacts of that decision. So, a variable rate loan

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Joseph Delaney: is going to move based on interest rates in the U.S. economy. So, imagine a scenario where interest rates go up dramatically over the next 5 years. If you take the fixed rate at 6.5%, 5 years from now, you might look really good, because there's, I mean.

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Joseph Delaney: we never know how likely or unlikely any of this is, but, you know, if the world happened where mortgage rates went to 10%, your 6.5 is looking really attractive. Meanwhile, the individual who takes a variable rate loan, they're feeling the pain of those increasing interest rates. So that's one way we'd argue that you might reduce your financial risk, is by getting a fixed rate loan. But…

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Joseph Delaney: there are certain contexts where it makes sense to do a variable rate.

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Joseph Delaney: So let's talk through the advantages and disadvantages of ownership. I think a lot of people might recognize this on their own, but I think it's good to say out loud. Advantages. The first one, tax benefits. There can be tax benefits for buying a home. That mortgage interest is deductible against your tax return on an annual basis, subject to the right conditions.

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Joseph Delaney: there's greater stability. That goes back to fixing your cost of housing. Housing is going to be, for most people, the most expensive thing in your life for the rest of your life. Being able to fix that cost early in life can be really beneficial down the road. Meanwhile, if you look at rents, it depends what city you live in, but if your rent increases at 4-5% every year, and your average cost of living adjustment on your income is only 3% a year.

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Joseph Delaney: well, that rent is going to become a bigger and bigger portion of your income every year. Meanwhile, if you buy a house, you get a fixed cost on that house, and you get that same cost of living adjustment on your income every year of 3%,

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Joseph Delaney: the percentage of your income going to housing is actually going to reduce every year. So, there is a good argument that you have greater stability in purchasing a home versus renting. It can be a great investment, your equity can build, so that's the whole concept of

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Joseph Delaney: Part of your mortgage payment every month is actually going into the home yourself. You're building that equity. You can actually think of it in some sense as another version of savings. Then the next one, first home may lead to a better home.

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Joseph Delaney: I'll say this right off the bat, for all of those on the call today, whether you're looking at buying a home tomorrow, or you're just having the conversation for the first time, and it might be 5 or 10 years away before you buy your first home.

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Joseph Delaney: In 99% of cases, buying your first home is the hardest. It's really… it's an uphill battle to get your ducks in a row and get ready for that first home purchase, but once you've accomplished that, the next home generally becomes a lot more feasible. And then the final point is the pride in ownership, having a property that is yours.

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Joseph Delaney: Disadvantages, you're responsible for property taxes, maintenance, and repairs.

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Joseph Delaney: Monthly housing costs could be more than renting.

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Joseph Delaney: That part is… Case contingent,

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Joseph Delaney: I'll say for my wife and I, the house that we bought, there were a couple key things that had to be done the first couple months that we owned the house.

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Joseph Delaney: And if I look back on it.

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Joseph Delaney: you know, we spent more money in the first couple months owning our house than we would have renting. So there are times when it's more expensive, there are times when it's less expensive. It's all kind of specific to your situation. It's true to say that your cash is tied up, homes are not, you know, super liquid. You can't sell a brick of it tomorrow to get 100 bucks out of it.

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Joseph Delaney: You can't always sell the home quickly. Less mobility in renting. So, to make this relatable again.

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Joseph Delaney: Five years ago, I wasn't in a position to buy a home. I was not financially ready. But let's say that I was. Well, at that time, 5 years ago, I had it in my head that there was a good shot I was gonna move to a new city and take a new job.

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Joseph Delaney: So, even if I had the means to purchase a home 5 years ago, it probably wouldn't… there wouldn't have been a very good argument to purchase a home

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Joseph Delaney: Because it really starts to reduce that flexibility, that ability to move,

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Joseph Delaney: Now, I don't want to come across this way. If you're nervous about buying a house because there's a chance you're going to move in the future, and it could be 2 years from now, it could be 10 years from now.

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Joseph Delaney: I think it's worth having the conversation, and I just recommend you reach out to me, and we can talk more about it. Again, it's going to be situation contingent, but, you know, I think it's fair to say we all recognize on this call, if you knew for sure you're moving in 6 months, you're not gonna buy a house today. That's a given.

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Joseph Delaney: Those in-between years, though, the next 2, 3, 4, 5 years is where it starts to be a debate of whether buying a home or renting makes more sense.

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Joseph Delaney: And then that final piece, equity can drop. I'll talk more about that. That just has to do with the amount that you own in your home. If home values go down, it's true, you can lose money in the short term.

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Joseph Delaney: So let's talk about the pre-approval process. What are the important factors to be aware of? So first off, having a, you know, a strong credit score is really going to help your case. Scores above 720 will help you get the best rate and make it easier to qualify for your desired loan.

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Joseph Delaney: But I want to pause here. You do not have to have a perfect credit score to be able to buy a home. We're going to get into certain loan types here in a moment that are going to show you that even without perfect credit, you can still qualify to purchase a home. Scores below 720 can still qualify. The rate you qualify for is what gets impacted, so you might get offered a little bit higher interest rate.

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Joseph Delaney: This one, this is an important point. Adverse credit in your past can have implications on your loan qualifications. The key is to have a very open and honest conversation with your mortgage broker. Just let them know what your past looks like, they're going to be able to see it on your credit report, and have that conversation with them. How much home can you afford?

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Joseph Delaney: How much home you can afford depends on multiple factors. Current debt amounts, your down payment, your monthly income.

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Joseph Delaney: I'm gonna say this right off the bat, as a financial advisor.

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Joseph Delaney: Most of the time.

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Joseph Delaney: Lenders are going to approve you for more mortgage than we would generally recommend as financial advisors.

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Joseph Delaney: It's fair to say you can't always control for it,

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Joseph Delaney: you know, homes in the U.S. are as expensive as they've ever been. If you qualify for the home, it's true, as long as you're qualified, you can get the home. But generally speaking, we err on the side of lenders give you more access to a loan than we would generally recommend, and I'll get into how to think about that in a moment.

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Joseph Delaney: It's important to review your personal financial picture, and what type of payment will comfortably fit your monthly budget.

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Joseph Delaney: I've got a quick story on that topic. I met with…

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Joseph Delaney: A young couple, this would have been a couple years ago.

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Joseph Delaney: they called me out of the blue, they had gotten my contact information, and they said, Joey,

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Joseph Delaney: we're making an offer on a home today, we're really excited, we already got pre-approved for the mortgage, and our real estate agent told us that we're going to need, money to put down right away. And we want to know how to get that money. And my first question in the back of my head was.

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Joseph Delaney: I'm confused how you got pre-approved for a mortgage if you don't have any cash to put down because of the offer.

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Joseph Delaney: And it turns out they got pre-approved for their mortgage under the assumption that they were gonna cash out an old 401K to put money down on the house.

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Joseph Delaney: Look, it can be done. The unintended consequences that they hadn't thought through was…

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Joseph Delaney: that 401K, by cashing it out, they were gonna have to pay taxes and a penalty on it. We ran the math, and the amount they had in that old 401K was gonna get cut down by about 40% if they pulled the money out for this down payment.

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Joseph Delaney: Ultimately, they never shared with me what their plan was, but it was, you know, I'm glad they at least took time to reach out, because I explained to them, hey, there's more to this picture than you might think there is. They just thought their 401K had $50,000 in it, and they could take that money out.

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Joseph Delaney: And I'm not picking on them for using the 401K as a down payment. It is a thing that many, many people have done in the past, but it's important to be aware of the unintended consequences in your personal financial picture. You know, in an ideal world, if it was possible, I would have rather seen them, save up money outside of a 401K to put down in the house.

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Joseph Delaney: One other part of their situation that I…

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Joseph Delaney: you know, kind of sat down with them and said, hey, I want you to think about this.

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Joseph Delaney: They got approved for a mortgage that was gonna cost about $2,500 a month.

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Joseph Delaney: Their current rent was only $1,600 a month.

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Joseph Delaney: So they said to me, well, we've been approved for $2,500 a month, so we can afford it. That's what the lender told us.

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Joseph Delaney: And I said, yeah, but if we look at your personal budget, it seems that you haven't been able to save any money on a $1,600 rent amount every month, so I immediately was concerned on their ability to spend $2,500 a month on housing, even though the lender said they could do it.

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Joseph Delaney: In practice, I think there was other things going on in their life that was eating up their budget. So it's really important to understand your personal picture, what kind of payment is comfortable for you. And then how much is your down payment? The minimum down payment is going to be different depending on the loan type.

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Joseph Delaney: Factors like credit score and type of residence will impact your minimum down payment. For example, if you wanted to buy a duplex, it's got 2 units in it, your plan is to live in one of them and rent out the other.

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Joseph Delaney: That is a quasi-rental property. You're gonna have to have more money down to purchase a place like that than a single-family residence.

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Joseph Delaney: And then the other part, a gift from a family member may be acceptable as a source of funds for a down payment.

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Joseph Delaney: Based on the loan program you use, and making sure you follow the criteria. So again, it's just important to talk with your loan officer. Hey, my parents want to give me a gift of $5,000 for this down payment. Is it okay if I use that money? Just check in with your loan officer on that fact.

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Joseph Delaney: So, a little bit more about credit scores. We'll focus some time here. You can see on the left-hand side, that's the, those are the excellent, very good categories. 800 to 850 is excellent. 750 to 799 is very good. You're gonna get the lowest possible interest rate in the best terms.

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Joseph Delaney: That middle part, the good and fair, so anywhere from about $650 to $750, you're eligible for most loans with pretty good rates. And then the lower end of the credit spectrum, those are going to be very specific loans, that you'd need to qualify for to be able to do that.

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Joseph Delaney: Don't be overwhelmed if you fall on that lower side of the credit spectrum. We're going to talk about what impacts your credit and things that you can be doing today to improve it.

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Joseph Delaney: So let's talk about what breaks out, you know, how your credit score breaks down. So the first one is payment history. 35% of the weight in your credit score comes from on-time versus late payments, length of positive credit history, and severity or quantity of delinquencies. So the way to think about this is.

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Joseph Delaney: If you have a history of missed payments on your credit cards, I'd say step one today is start creating a plan to try and get those credit card payments on time, and just create a challenge for yourself. We don't need to move mountains today. I would say your first challenge is.

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Joseph Delaney: How can I make sure I pay my credit card on time for the next 3 months? That's gonna be my goal, to start moving the needle on that credit score.

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Joseph Delaney: The amount owed, 30% of the weight goes there, so, you know, basically.

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Joseph Delaney: the credit score agencies look at you and say, hey, do you have a ton of outstanding debt, or not a ton of outstanding debt? And that does impact your credit score quite a bit. And then the length of the credit history, the longer the history, the better. So for those just starting out, you maybe have gotten advice from your parents, your friends, your grandparents, whatever it is.

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Joseph Delaney: That you should get a car loan right out of college, or you should get a credit card right out of college to start building that credit history. There is some truth to that statement, that the longer you have credit history, the better your score is.

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Joseph Delaney: So it has to do with how long the credit accounts have been opened for, and then how long it has been since you used certain credit accounts. So if you open a single credit card to start building that credit, it's a good thing maybe you just put groceries on that every month to start getting in that habit of paying it off every month and building that length of credit history.

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Joseph Delaney: And then the types of credit, is also an important factor, and the new credit… well, I'll go above that. New credit.

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Joseph Delaney: Research shows that opening several credit accounts in a short period of time represents greater risk. Basically, the message here is if you go up, open up 3 credit cards over the next couple of months, that's gonna negatively impact your credit score. The logic from the credit rating agencies is if you're opening a bunch of credit cards.

00:22:36.840 - 00:22:52.749
Joseph Delaney: you clearly are in need of some extra loans, that's kind of their logic, so you're maybe not doing great financially. So it's important to know that opening up a lot of lines of credit, or, you know, buying a new car and opening a new credit card at the same time and having a car loan, that can have that same sort of impact.

00:22:52.750 - 00:23:08.419
Joseph Delaney: And then the type of credit used is, important too. So, for example, an ideal credit mix could be 2 installment loans and 3 revolving accounts with balances. So the idea there is, let's say you have a student loan that you pay the monthly on, and you have a car loan that you pay the monthly on, and then you have 3 credit cards.

00:23:08.420 - 00:23:18.069
Joseph Delaney: What credit agencies don't want to see is 15 credit cards that all have rolling balances. That can negatively impact it.

00:23:18.360 - 00:23:25.509
Joseph Delaney: And then the big ones at the bottom, you know, ideally you have no collection accounts, no public records, no foreclosures on your records, and no late payments.

00:23:26.040 - 00:23:36.479
Joseph Delaney: But life's not perfect. If you have any of those things on your records, it does not mean buying a home is out of the question, at all. It just means we gotta put a plan together to account for whatever's going on in your life.

00:23:37.060 - 00:23:41.440
Joseph Delaney: I like this slide.

00:23:41.610 - 00:23:44.290
Joseph Delaney: It starts to illustrate, can I afford a home?

00:23:44.420 - 00:23:49.610
Joseph Delaney: Now this does assume a traditional 30-year fixed mortgage with 20% down.

00:23:50.090 - 00:24:08.719
Joseph Delaney: But this shows you if your rent is currently at $1,050 a month, you may be able to buy a $155,000 home. That's just the rough math on what your mortgage payment would be if you put 20% down on a $155,000 loan. And you can go through this, you can see, so if your rent is at $1,900 and you've successfully paid that for the last couple of years.

00:24:08.940 - 00:24:27.890
Joseph Delaney: then you could probably afford a $280,000 home, assuming that down payment and a fixed interest rate for 30 years. So it's a nice little chart to show you a barometer of where's my rent today versus what might I be able to afford in a house. And again, it's going to be context-contingent. The amount you have to put down is going to impact these values a lot.

00:24:30.000 - 00:24:44.270
Joseph Delaney: Qualifying for a mortgage. So, these are the 6 major factors that you need to have ready when it comes time to meet with the lender. You need to have income and statements that prove your income. So, that would be your, W-2s, recent pay stubs.

00:24:44.530 - 00:24:55.390
Joseph Delaney: Debts, so any current debt you have outstanding, credit history, employment history, property, and then down payment, closing costs, prepaids, and cash reserves.

00:24:55.510 - 00:25:06.000
Joseph Delaney: I am seeing a couple of comments here on the price of housing, and those are all very valid. I'm gonna pause for a moment, because I see a couple questions in here.

00:25:07.490 - 00:25:26.929
Joseph Delaney: How long does it take for pre-approval with, or hard credit good for? And if I can't find a home on that time frame, my score reduced, how many points if I need to extend it? Oh, so if you qualify for a mortgage, you get pre-approved, they do a hard check on your credit, your credit score is reduced,

00:25:27.500 - 00:25:35.570
Joseph Delaney: That's a great question. So, say you go through the pre-approval process, how long is it valid for? And then, if it goes further than that, what do you do?

00:25:35.850 - 00:25:50.860
Joseph Delaney: So, on that question, it's gonna be contingent with the lender you meet with. I'll just make it super real for a moment. The lender I met with last year, our mortgage application, or our pre-approval application, was valid for 3 months at the time we did it.

00:25:50.870 - 00:26:01.880
Joseph Delaney: They may do another credit check right before you buy the house. It's gonna be contingent on the lender that you work with. And then the hard credit pull, how many points are reduced.

00:26:02.370 - 00:26:10.819
Joseph Delaney: Honestly, I don't have a good number there. I can… if you shoot me an email at the end of this, I'll find some data to give you a specific answer there.

00:26:11.120 - 00:26:20.520
Joseph Delaney: And then I'm seeing the comments on where do those home prices exist? That's fair, I'll just focus on that for a moment. U.s. housing prices are as high as they've ever been.

00:26:21.130 - 00:26:29.279
Joseph Delaney: the average age of a first-time homebuyer is now at 40 years old. Whether you're younger or older than that, and you're looking at buying your first home,

00:26:29.790 - 00:26:31.830
Joseph Delaney: We all do this at our own pace.

00:26:33.230 - 00:26:36.100
Joseph Delaney: Real estate prices are really, really expensive.

00:26:36.380 - 00:26:39.160
Joseph Delaney: The best advice we can give right now, because…

00:26:39.560 - 00:26:42.279
Joseph Delaney: Here's something I can't say to everybody in the call.

00:26:42.510 - 00:27:02.250
Joseph Delaney: Don't try and plan for real estate prices to crash, because in reality, it's hard to plan for that. We just don't know, we don't have that crystal ball. So the best advice we can give is controlling what you can control, and in this world, it's really hard, because things are really expensive right now, and incomes have not kept up across the board for everybody.

00:27:02.250 - 00:27:14.029
Joseph Delaney: This is where you get into old-school budgeting and doing as much as you possibly can to fight for building up that down payment, and really cleaning up whatever personal debts you have at the moment.

00:27:14.300 - 00:27:25.419
Joseph Delaney: For example, if you can get yourself in the next 3 to 5 years of having no debt whatsoever, which, you know, for some people that's achievable, for some it's not, maybe it takes 5 to 10 years, whatever it is.

00:27:25.730 - 00:27:38.030
Joseph Delaney: your ability to qualify for a bigger mortgage is going to go up dramatically. You know, the person with no debt whatsoever is going to look a lot better for that mortgage compared to the person who might have, you know, a credit card, a car loan, and student loans.

00:27:38.090 - 00:27:49.709
Joseph Delaney: So that can be controlling what you can control. Maybe your first step right now with housing prices being where they're at is really focusing on getting yourself debt-free, which is… it's a mountain of effort. It really, really is.

00:27:50.290 - 00:28:00.749
Joseph Delaney: So, in any case, yes, home prices are really expensive. Going back on that page I showed everybody, you can extrapolate those factors out on the rent versus the property.

00:28:01.130 - 00:28:05.949
Joseph Delaney: So, moving on to the next one, let's see if there are any other questions in here.

00:28:06.920 - 00:28:12.749
Joseph Delaney: Yes, it is all calling out the fact that home prices are very expensive, which is all very true.

00:28:14.160 - 00:28:22.989
Joseph Delaney: Let's talk about the types of mortgages for a moment. So conventional loans, for purchasing or refinancing a home, with or without private mortgage insurance,

00:28:23.290 - 00:28:38.169
Joseph Delaney: So, fixed or adjustable rates are options. 3% down is the minimum in most all cases. Credit scores are approved as low as 620, debt-to-income ratios as high as 50%, and then the maximum loan amount of $726,000.

00:28:38.330 - 00:28:50.300
Joseph Delaney: Jumbo loans, again, fixed or adjustable rate mortgages are available. 5% down payment is the minimum on these. Oftentimes, it's higher based on which lender you use for a jumbo loan.

00:28:50.300 - 00:28:58.760
Joseph Delaney: Credit scores as low as 640, debt-to-income ratios as high as 45%, and then loans are available from $720,000 to $3 million.

00:28:58.760 - 00:29:19.410
Joseph Delaney: Couple programs on here worth calling out. First-time homebuyer programs, we threw in there, I'm based in Minnesota, so Minnesota has a housing program. Then there's the National Fannie Home Ready Program and the Freddie Home Possible program. The reason we put the Minnesota one on there is I encourage you each, depending on what state you live in, to look at what state programs are available.

00:29:19.480 - 00:29:22.580
Joseph Delaney: Moving on, FHA loans at the bottom left.

00:29:24.290 - 00:29:27.109
Joseph Delaney: These require about a 3.5% down payment.

00:29:27.250 - 00:29:43.590
Joseph Delaney: Available for people with credit scores as low as 580. Debt-to-income ratio is higher at 55%. And max loan amount is about $500,000. VA loans, those are available with no down payment. Credit scores as low as 580. Debt-to-income ratio is as high as 55%.

00:29:43.700 - 00:29:52.049
Joseph Delaney: No max loans. And then there's USDA loans. No down payment, credit scores as low as 640, debt-to-income ratios as high as 43%.

00:29:53.400 - 00:30:12.579
Joseph Delaney: The takeaway for this page is to show you that there is a lot of different types of loans available out there for mortgages. One of the things we don't call out on this slide is that there's also different durations of mortgages. Some people go 15 years, 20 years, 30 years. In most cases, the average mortgage that people take is a fixed 30 year.

00:30:14.830 - 00:30:24.510
Joseph Delaney: Your mortgage payment every month is gonna include 4 main components. Principal, interest, taxes, and insurance. So principal's the amount that's going into the actual loan balance.

00:30:24.580 - 00:30:39.620
Joseph Delaney: For people who buy their first home, if you look at your first mortgage payment, a lot of people kind of fall out of their chair when they realize just how little goes to that principal. Mortgages are front-loaded for the interest, so most of your payments at the beginning are all interest. Then you've got taxes and insurance that are escrowed on top of that.

00:30:39.730 - 00:30:44.400
Joseph Delaney: I'm gonna pause for a moment, see if we have any more questions.

00:30:50.610 - 00:30:59.460
Joseph Delaney: Oh, alright, so is an NACA… is NACA a good program for first-time homebuyers in Maryland, Virginia, DC?

00:31:00.440 - 00:31:10.649
Joseph Delaney: That's state-specific. I know we have data on it. Unfortunately, I'm not based out of that neighborhood, so I cannot give an accurate answer today, but I will take that as follow-up.

00:31:10.910 - 00:31:15.689
Joseph Delaney: And then, can you combine VA loans and first-time homebuyer loans?

00:31:16.640 - 00:31:28.509
Joseph Delaney: There… there are worlds where you can combine different types of debt instruments to purchase properties. I don't know specifically if you can combine a VA loan with a first-time homebuyer loan.

00:31:28.700 - 00:31:48.010
Joseph Delaney: The key with combining… so, for example, a classic combination of debt that people use is they take a loan from their 401K and then they get a mortgage on top of it. You have to disclose that to your lender. It doesn't mean that they're going to deny you for doing it, but again, it's just about having that honest conversation with the lender about how you're going to pull this off.

00:31:48.420 - 00:31:58.989
Joseph Delaney: So, in any case, it's gonna be… I don't specifically know on those two loans. If you get my email address at the end, send it to me, I'll get you an answer. And now I'm just bouncing to the Q&A.

00:31:59.180 - 00:32:01.909
Joseph Delaney: Fiance and I are not officially married yet.

00:32:02.460 - 00:32:08.040
Joseph Delaney: When we start looking to buy a home, will they take a look at both of our credit scores?

00:32:08.520 - 00:32:12.540
Joseph Delaney: So on that question, you can go either way,

00:32:13.530 - 00:32:25.850
Joseph Delaney: you can look at it, if you're both using your income to purchase this home, you're gonna need to look at both credit scores. On this question, one piece of advice I have for everybody is.

00:32:26.690 - 00:32:33.069
Joseph Delaney: Generally, do not buy a home with somebody until you're legally married. The whole reason behind that is…

00:32:33.380 - 00:32:38.160
Joseph Delaney: And generally, of course, there are people who do it before they're married and never get married, and it works just fine.

00:32:38.620 - 00:32:51.309
Joseph Delaney: When you're legally married, if something happens to the relationship and you guys get divorced, the courts have a process for how to deal with the house. If you buy a home with somebody you're not legally married to, and you separate.

00:32:51.310 - 00:32:59.029
Joseph Delaney: it becomes a bit more complicated on how that house gets split up between the two parties. So that's just a piece of advice on, you know, making… and…

00:32:59.030 - 00:33:15.549
Joseph Delaney: God forbid any of us ever separate from our spouses. To the person who asked that question, I'm not picking on you at all. But just a piece of advice, wait until you're legally married in most cases. But yes, it's… you can have them look at just your credit score and just your income, but if you want them to look at both incomes, they're gonna look at both credit scores.

00:33:16.810 - 00:33:31.929
Joseph Delaney: How can we reach out for additional information after this presentation? Have to leave early. If you send an email to the general email that Amber presented at the beginning, you can get in touch with us. Amber, I don't know if you can jump in, what is that general email?

00:33:31.930 - 00:33:34.580
Amber Posthauer: Yes, it's learning at nfp.com.

00:33:34.940 - 00:33:49.110
Joseph Delaney: Perfect, thank you for that. And then, if you're married, does the mortgage qualification pull everything from both spouses, or you pick one person? Great question. Depends on how you want to do it. If you're married and you're a single-income household.

00:33:49.110 - 00:34:06.750
Joseph Delaney: They are… well, they're only going to look at one income and really only one credit score in that case. However, if the other spouse has debts, they're going to want to know about it. Again, it comes down to that individual, you know, having the conversation with your lender on the situation that you have specifically at hand.

00:34:06.750 - 00:34:12.820
Joseph Delaney: But there can be a world where just one person purchases the home using their personal financial picture.

00:34:13.670 - 00:34:16.009
Joseph Delaney: I appreciate all these questions from everybody.

00:34:17.040 - 00:34:34.140
Joseph Delaney: So, do's and don'ts when applying for a mortgage. This is a big one. If the year… let's say this is the year that you're getting serious about buying a house, and you're gonna go get pre-qualified for a mortgage, or maybe you already are and you're getting ready. Do not close or open any asset accounts or transfer funds between accounts without talking to your loan officer.

00:34:34.139 - 00:34:54.069
Joseph Delaney: Don't deposit any monies outside of your automated payroll deposits, particularly the cash or sale of personal property, without notifying your loan officer. For example, if your parents give you a loan of, you know, $5,000 or whatever to buy this house, and that just shows up in your bank account, your loan officer's going to want to know what that's about, and they're going to want to make sure you're following the criteria for the gift.

00:34:54.070 - 00:35:06.559
Joseph Delaney: Don't change jobs or employers without inquiring about the impact that this might have on the loan. Obviously, that point is not always in our control, so again, just have the conversation with your loan officer.

00:35:06.580 - 00:35:22.979
Joseph Delaney: Don't make any major purchases during the contract. I think for most people, they know this, but life happens. Sometimes you need a new car because your car, you know, broke down or whatever, but really try and avoid those big-ticket items that might incur some extra debt on top of it. New car, furniture, appliances, etc.

00:35:22.980 - 00:35:34.310
Joseph Delaney: Don't open or increase any liabilities, including credit cards, student loans, or other lines of credit. So, during the process of pre-approval to buying the house, and sometimes it's even for the first year after you purchase the house.

00:35:34.350 - 00:35:39.360
Joseph Delaney: Really do the best that you can to avoid any increases in debt beyond the mortgage.

00:35:39.480 - 00:35:57.770
Joseph Delaney: Keep originals or be able to access… so this is… now we're on the right-hand side, the dues, what you should be doing. Keep originals or be able to access your employer and bank websites for all your paystubs, bank statements, all the important financial documents we talked about earlier. Provide your earnest money for the deposit. So…

00:35:57.950 - 00:36:08.890
Joseph Delaney: I'll, I'm gonna make fun of myself here for a moment. When we made our offer on our house back in November, it got accepted, and we had, you know, some money saved for the down payment. I knew that earnest money was gonna be a thing.

00:36:08.890 - 00:36:24.610
Joseph Delaney: But the part that shocked me is, like, literally the day after they accepted our offer, they asked for their earnest money. I'm like, wow, that's quick. Like, I already… the money's gotta go out the door. So that's, you know, I'm naive, obviously, but it does… once an offer gets accepted, the ball starts rolling pretty fast.

00:36:24.660 - 00:36:33.109
Joseph Delaney: Notify your loan officer, if you plan to receive a gift, prior to closing. Again, just very important to disclose gifts.

00:36:33.260 - 00:36:43.900
Joseph Delaney: Notify your loan officer of any employment changes, such as recent raise, promotion, transfer, change of pay status. That's a big one. If you get changed from salary to commission, or vice versa, it's important to note that as well.

00:36:44.070 - 00:36:54.450
Joseph Delaney: And be aware that a new credit report could be pulled just prior to closing, so that speaks to not increasing any liabilities if you control for that right before, you purchase the home.

00:36:56.730 - 00:36:58.789
Joseph Delaney: Let's see,

00:37:01.410 - 00:37:07.810
Joseph Delaney: Looks like we just had another question show up. When we buy a house, if we buy the house, my husband…

00:37:08.240 - 00:37:09.399
Joseph Delaney: property deed.

00:37:13.780 - 00:37:21.040
Joseph Delaney: If my husband and wife Oh, so I think the question I just got is.

00:37:21.210 - 00:37:24.469
Joseph Delaney: If a married couple purchases a home.

00:37:25.900 - 00:37:42.879
Joseph Delaney: And one party, so it goes… I think I'm understanding this correctly, the house that you buy goes under the husband, and then would the wife qualify as a first-time home buyer on a second property to basically qualify for those loans again with those low-down payments?

00:37:42.890 - 00:37:59.439
Joseph Delaney: Generally, no, this is going to be state-specific, but basically the way it works is, as a married couple, you have to have a primary residence. Any secondary residence you purchase, when it comes to mortgage details, any secondary residence you purchase is going to be counted as an investment property or a secondary residence.

00:37:59.440 - 00:38:04.180
Joseph Delaney: Either of those two clauses are gonna negate first-time homebuyer qualifications.

00:38:04.910 - 00:38:20.210
Joseph Delaney: So this gets… somebody asked the question about timing of everything. So the loan process and underwriting typically takes 1 to 3 weeks. The home appraisal is 1-2 weeks, the title search and insurance is 1-2 weeks, and then the final walkthrough and closing day is 1-2 days.

00:38:20.410 - 00:38:25.300
Joseph Delaney: So, let's say you get the pre-approval, you find the property, and

00:38:26.110 - 00:38:38.519
Joseph Delaney: the offer is accepted. You put the earnest money down, and then each of these steps starts going. So a typical closing is 4 to 8 weeks after agreeing to a purchase, and that can be…

00:38:39.080 - 00:38:54.779
Joseph Delaney: kind of nebulous. It's part of the agreement you do with the seller. So, I'll give a, you know, quick tidbit to first-time homebuyers here. Let's say that you are in a situation where you're month-to-month on a lease, and you're gonna keep living in that lease until you purchase a home.

00:38:55.240 - 00:38:59.020
Joseph Delaney: This is where you can sometimes make your offer more attractive.

00:38:59.190 - 00:39:14.880
Joseph Delaney: than having to kick more money in. So, for example, some sellers really don't want to close for 3 months, and some sellers want to close, like, tomorrow. If you have flexibility in your own personal timing, subject to meeting each of these criteria here on the screen.

00:39:15.050 - 00:39:21.849
Joseph Delaney: That can be a way to make your offer more attractive to sellers. And that's the kind of stuff that your real estate agent's gonna be there to recommend.

00:39:22.440 - 00:39:38.829
Joseph Delaney: Anyways, as you prepare for closing, that's when the final due diligence is done. The appraisal and the inspection are ordered and completed, and then you review the final details of the mortgage. At closing, funds in the title are transferred. A title company or an attorney will typically act as the independent third party to facilitate the closing.

00:39:39.100 - 00:39:48.829
Joseph Delaney: All of this, like the third-party title company to bring in, is going to be recommended by your real estate agent and or your lender. Those two parties are going to make sure that you do this appropriately.

00:39:50.160 - 00:40:06.529
Joseph Delaney: Let's talk about some of the myths that prevent people from buying a home. One, I need perfect credit. We saw today, that's not true. I need to have a 20% down payment. That's also not true. It can be done as low as 0% on certain VA loans and 3% on more conventional loans.

00:40:06.570 - 00:40:10.679
Joseph Delaney: One note, about 20%, why that's the magic number for everybody.

00:40:10.910 - 00:40:25.539
Joseph Delaney: If you don't have 20% to put down, which I'll start with this, most of the world does not have 20% to put down on a house. Don't feel like you're behind if you don't have 20% to put down on a, you know… If you did a $500,000 property, that's 100 grand.

00:40:25.870 - 00:40:39.049
Joseph Delaney: If you are in a position where you can put 20% down, we do recommend it, because you avoid an extra monthly cost called private mortgage insurance. Generally, the way it works is if you put less than 20% down.

00:40:39.070 - 00:40:54.099
Joseph Delaney: For every $100,000 you borrow, you have to pay about $75 a month, give or take, for private mortgage insurance. That's to protect the bank. That's to protect if you default on the loan. It's basically an insurance policy there.

00:40:54.260 - 00:41:10.000
Joseph Delaney: Another myth, it's cheaper to rent than own. That's not always true, in certain cities, for those who I think… I think Austin, Texas, rent has increased by 5 or 10% a year for the last decade. I'm just picking on that city, it's a fast-growing city, so that's what's going on down there.

00:41:10.000 - 00:41:18.950
Joseph Delaney: Interest rates are on the rise. It is true to say that interest rates are higher than they have been the last decade, and that is certainly a barrier for young first-time homebuyers.

00:41:20.780 - 00:41:39.090
Joseph Delaney: I keep looking at what our mortgage… my wife and I's mortgage payment would be last November if interest rates were back at historical norms around 4 or 5 compared to 6.5, and I just… you can't look at it, because it'll drive you nuts. One of the quotes that I love is, marry the house and date the rate. You can refinance a property.

00:41:39.090 - 00:41:51.269
Joseph Delaney: Right now, we believe interest rates are higher than they are normally because of what the Federal Reserve had to do to fight inflation coming out of 2022. That's a bit of history of where we're at.

00:41:51.530 - 00:42:11.419
Joseph Delaney: We do believe interest rates are gonna normalize. The question is when. Are they gonna normalize at the back half of this year, or is it going to take 5 years? So that's where we recommend marry the house, date the rate. You can always refinance the house in the future. Another myth, I have to pay off my student loans, or any of my other debt, for that matter. Some people believe you have to be debt-free to buy a house. That's also not true.

00:42:11.420 - 00:42:23.909
Joseph Delaney: I won't qualify to purchase a home. That's not true. We saw today, you can have a lower credit score, not much money down, you can still have debt, and you can still qualify. Fall and winters are bad times to buy.

00:42:24.470 - 00:42:27.929
Joseph Delaney: I wouldn't put too much weight on that,

00:42:28.440 - 00:42:39.779
Joseph Delaney: you know, if you talk to a real estate agent, they're always going to tell you now's a great time to buy. They are biased, and I think that this is the other side of that, where fall and winter are bad times to buy. That's also not true.

00:42:39.780 - 00:42:51.139
Joseph Delaney: I think the key for everybody, for those, you know, who have kicked cans on buying a house before, just download the Zillow app. It's free. You can at least start as simply as looking at what's in your neighborhood to kind of…

00:42:51.140 - 00:43:06.149
Joseph Delaney: Reel in good expectations for what you might want to buy. And then the final point, all lenders are the same. That's not true. Lenders are different. For example, on the question I got earlier on how long is your pre-approval valid for, my understanding is that's different lender by lender and loan type by loan type.

00:43:08.860 - 00:43:20.600
Joseph Delaney: Okay, I kinda answered questions throughout today, but I'm gonna pause here and see what else we have. Looks like some more questions came in. Going back to avoiding extra debt after a mortgage application.

00:43:20.600 - 00:43:29.500
Joseph Delaney: What if the debt is student debt and can be anticipated at the time of mortgage application? Does that change the general advice? It's a fantastic question.

00:43:29.600 - 00:43:40.809
Joseph Delaney: the general… so what if the debt is student debt and can be anticipated at the time of the mortgage application? That is just something you show the lender. If it's not valid right now, today, but it is going to be

00:43:41.060 - 00:43:56.280
Joseph Delaney: very valid at some point in the future, you just show that to the lender. They're gonna give you feedback on that topic. The message for everybody today is just… I know nobody would do this intentionally, just don't hide anything from your lender. It's gonna make the process a lot easier.

00:43:56.740 - 00:44:02.210
Joseph Delaney: Can you talk about how much should be saved besides your down payment and closing costs, and real estate fees?

00:44:02.870 - 00:44:11.180
Joseph Delaney: That is a fantastic question, and I appreciate whoever asked it. So…

00:44:11.520 - 00:44:22.260
Joseph Delaney: There are a lot of people who buy their first-time homes with no money down. For example, people will take a loan from their 401K, they've got nothing in the bank account.

00:44:22.260 - 00:44:32.639
Joseph Delaney: and they go buy the home, and their down payment is the loan from the 401K, and now they get the mortgage. I am passing no judgment on that. You know, owning a home's exciting, and it's really hard for your first time.

00:44:32.890 - 00:44:43.740
Joseph Delaney: Obviously, the more cash you have saved up, the, you know, less risky that endeavor is.

00:44:44.220 - 00:44:59.919
Joseph Delaney: General rule of thumb, in an absolutely perfect world, would be save 10-20% for your down payment, ideally 20, because we talked about the private mortgage insurance, but look, that's a huge lift. Next step is beyond the cash you have saved.

00:45:00.040 - 00:45:10.959
Joseph Delaney: we still recommend having 3 to 6 months of emergency cash on hand for emergencies. So, what that looks like is if you are a dual-income household, we recommend having at least

00:45:11.080 - 00:45:26.120
Joseph Delaney: 3 months of expenses set aside beyond what you're gonna do to buy this house. So what that could look like is for a family that spends 10 grand a month, well, we'd recommend, if you're a dual-income household, having $30,000 set aside beyond the down payment on the mortgage.

00:45:27.350 - 00:45:40.429
Joseph Delaney: I'm kind of living and breathing the situation right now. My wife and I bought our house in November, and of course, over this first, you know, 5-6 months, we've had some things with the house that needed to be dealt with.

00:45:40.800 - 00:46:00.390
Joseph Delaney: Now, in some sense, you can't do everything up front. You know, it'd be nice for us to get a new driveway today that's not in the cards. We basically spent all our money on the down payment, but having some extra cash on hand for, you know, who knows, maybe the appliances are older and need to be replaced, maybe the AC is older, needs to be replaced, you name it, there's things that come up with the house.

00:46:00.780 - 00:46:17.839
Joseph Delaney: So it is a great question. We definitely recommend having some cash on the side. If you're a single-income household, we recommend that it's about 6 months of emergency cash on hand. The whole idea is if you're dual income, at least one person's probably gonna still have a job if the other one loses it, and that does put a nice cushion in there.

00:46:18.610 - 00:46:32.939
Joseph Delaney: But there are things that come up with home ownership. For those who've rented, I've rented basically my whole life. Yeah, I have rented my whole life until we bought the house. I'm learning quickly, as every homeowner does, that things come up that cost money along the way.

00:46:33.170 - 00:46:48.149
Joseph Delaney: The recommendation I have there is, on the onset, try and do your best to quantify it if you can. You know, if you're looking at a home that's built in 1975, and the AC and the furnace are original to the house.

00:46:48.230 - 00:47:00.529
Joseph Delaney: I'd immediately start planning for having to replace those at some point in the near future. So that's, like, a good example of how can I quantify how much cash I should have saved on the home, you know, on the side beyond my down payment.

00:47:00.720 - 00:47:09.620
Joseph Delaney: And that could be a good barometer for, hey, maybe this house doesn't make sense for me, because it looks like it's going to need a heck of a lot of updates right off the bat.

00:47:10.190 - 00:47:23.159
Joseph Delaney: So, I appreciate the question. It's going to be context contingent. If you live by that 3 to 6 months of emergency cash on hand, it's a good barometer, because for most people, you'll at least be able to navigate that first year.

00:47:24.350 - 00:47:31.370
Joseph Delaney: So, let's see, we got some more questions. I appreciate this, everybody, it's an active group. I hope I can get through all of them.

00:47:33.050 - 00:47:40.819
Joseph Delaney: We have a home that we received for a dollar, but we were considered to be first-time homebuyers. Did that kick us out of that option?

00:47:41.340 - 00:47:52.319
Joseph Delaney: So I believe somebody is referring to they have a house that was gifted to them, possibly. Are we still considered first-time homebuyers, or did that kick us out of that option?

00:47:53.870 - 00:47:56.440
Joseph Delaney: But you purchased it for a dollar.

00:47:56.630 - 00:48:02.479
Joseph Delaney: I think technically that disqualifies you for being a first-time homebuyer, but I could be wrong.

00:48:02.900 - 00:48:05.570
Joseph Delaney: Because the first-time homebuyer clauses…

00:48:06.340 - 00:48:12.640
Joseph Delaney: might just have to do with the mortgage. On an FHA loan, do you still get hit with that?

00:48:14.830 - 00:48:29.730
Joseph Delaney: I'm assuming that question is referring to private mortgage insurance. On FHA loans, you still do, it's all about the money you put down. What's the best way to buy another home contingent on the sale of your home that you are in with the plan to purchase another in another state?

00:48:29.860 - 00:48:44.699
Joseph Delaney: Okay, so this is a good one. If you already own a home, and you're gonna buy another home, but it's contingent on the sale of your current property, first off, you're gonna make the offer that way. You're gonna tell the seller, hey, here's the price I'm willing to offer you, but that is contingent on selling my current property.

00:48:45.270 - 00:48:52.820
Joseph Delaney: In some cases, the seller might say, well, I… nope, I'm not interested, because I don't know if your current home is going to sell or not.

00:48:53.030 - 00:49:04.059
Joseph Delaney: The best advice I can give you there is your current home. If you're contingent on selling your current home to buy the new one, and you really want to get this new home because you're moving to another state.

00:49:04.170 - 00:49:24.009
Joseph Delaney: That's where you talk with your real estate agent and maybe consider pricing your current home at a little bit below market value. So, if the real estate agent thinks your current home's worth $400,000, maybe you put it on the market at high $480s to attract some buyers and try and get that moving quickly. That is a big recommendation there, is you may

00:49:24.010 - 00:49:27.569
Joseph Delaney: And your real estate agent's gonna be better than me at this, depending on where you live.

00:49:27.570 - 00:49:35.230
Joseph Delaney: But there may be an argument for speed of transaction to price your current home a little bit below market value to make sure it gets sold.

00:49:36.020 - 00:49:39.899
Joseph Delaney: Can you speak on the opportunity of rate buy-downs?

00:49:40.410 - 00:49:52.920
Joseph Delaney: So, rate buy-downs have to do with… this is really frequent in new builds. The whole concept is you put some extra money up front to buy down the interest rate that you have on your home.

00:49:53.820 - 00:50:00.650
Joseph Delaney: it can make sense in certain circumstances to buy down the interest rate you have on your home.

00:50:01.160 - 00:50:08.220
Joseph Delaney: It's based on where we think interest rates are going in the future. Again, if interest rates normalize.

00:50:08.420 - 00:50:16.100
Joseph Delaney: It's a question of, does refinancing cost less than buying down the interest rate? Now, if you're talking about a new-build home,

00:50:16.140 - 00:50:29.820
Joseph Delaney: Those interest rates can be quite attractive compared to… because the… basically, the builders of these mass-built homes can do deals on financing, and let you buy down the rates easier than traditional mortgages. Might always, because you're working through the builder's preferred lender.

00:50:30.490 - 00:50:50.259
Joseph Delaney: The question to ask yourself is the cost of buying down the rate more or less than refinancing in the future on the home that you're buying? That's the calculus that's worth doing in that question, and sometimes buying down the rate is not as expensive as refinancing. For those out there, the average refinancing cost is between $5,000 and $10,000.

00:50:50.360 - 00:50:58.900
Joseph Delaney: Let's see, if I put 20% down, can pay the escrow.

00:50:59.700 - 00:51:03.019
Joseph Delaney: Myself, not included them on the loan.

00:51:05.380 - 00:51:14.250
Joseph Delaney: If someone has enough cash to buy a home without a loan, is it better to still get the loan anyways, or put down 20% and invest the rest, or just buy the home outright?

00:51:14.510 - 00:51:17.620
Joseph Delaney: Okay, I love that question,

00:51:18.100 - 00:51:27.709
Joseph Delaney: I'm a financial advisor, all I do all day is help people invest their money, like, that's… that's my job. So, a lot of financial advisors who sit in my seat would say, put 20% down on the home and invest the rest.

00:51:28.130 - 00:51:29.280
Joseph Delaney: I…

00:51:30.020 - 00:51:49.159
Joseph Delaney: I philosophically disagree with that. Even if mortgage rates went back to 3%, let's say you could get a mortgage at 3%, so you could borrow the money, you have a really low interest rate, and you can invest your money at 10% in the stock market, which, that 10% is by no means guaranteed, but let's say you can do it. Okay, great, you're earning a spread of 7% on your borrowed money.

00:51:49.630 - 00:51:56.619
Joseph Delaney: My counterargument to that is, to what end? The security you have for owning a home outright

00:51:56.730 - 00:52:14.969
Joseph Delaney: in some sense, is more valuable than some extra dollars and wealth. The other point to it is if you don't have a mortgage payment, you're gonna start funneling so much money into investments because you have extra cash flow every month. That's a huge win. And my final point, this is a quote I'm gonna steal from Dave Ramsey, if you have a house that's paid off in cash.

00:52:15.460 - 00:52:20.759
Joseph Delaney: Let's… let's say that happens. Let's say somebody gifts you a house. You inherit a house that's fully paid off.

00:52:22.770 - 00:52:47.689
Joseph Delaney: If you inherit a house fully paid off, the odds of you taking a loan against that house to go invest the money, most people would never do that. So if you're not going to take a loan against your paid-off house to go invest the money, then our recommendation would be why not just buy the house outright for cash if you're in that position? And the final point to all this, mortgage rates are sitting between 6% and 7%. The thought of investing your money and out, earning that 6% or 7%

00:52:47.690 - 00:52:52.399
Joseph Delaney: mortgage rate reliably is a really hard argument right now.

00:52:52.400 - 00:52:58.149
Joseph Delaney: So, general advice, if you have cash to buy a house, philosophically, I say pay cash.

00:52:58.380 - 00:53:04.999
Joseph Delaney: Will we have access to the slides and recording after the call? Yes, there will be access to slides in this recording after the call.

00:53:05.440 - 00:53:21.119
Joseph Delaney: As a first-time homebuyer, we found a home that is owned and being sold by a real estate agent. While seeing the home, they mentioned that if we were considering and making an offer to possibly negotiate with them directly and not acquire an agent for ourselves.

00:53:21.120 - 00:53:25.679
Joseph Delaney: So that they don't have to pay the commission on the agent. Would that be wise?

00:53:26.180 - 00:53:32.999
Joseph Delaney: Okay, so, talking about… Let me see if I understand this. So either the question is asking.

00:53:33.280 - 00:53:41.370
Joseph Delaney: Basically, the person who's selling the home wants to work directly with you, the potential buyer, or they want you to work with their real estate agent.

00:53:41.510 - 00:53:46.779
Joseph Delaney: So there can be a world where the real estate agent works with the buyer and the seller.

00:53:46.830 - 00:54:02.729
Joseph Delaney: So if you're working with the same mutual real estate agent as the seller's real estate agent, the risk there is that that real estate agent maybe has a conflict of interest, depending which party they favor, which they're not supposed to, but if you're representing the seller and the buyer, that can have risk.

00:54:02.730 - 00:54:07.369
Joseph Delaney: If you're considering negotiating direct with the homeowner.

00:54:09.390 - 00:54:16.129
Joseph Delaney: To be honest, I don't recommend it. My real estate agent was able…

00:54:16.180 - 00:54:31.020
Joseph Delaney: to ask questions of the seller's real estate agent that I never in a million years would have thought of, because I just don't have the experience in the field. And they actually got us some money back at closing time, because there were some issues with the house that needed to be paid for.

00:54:31.020 - 00:54:38.299
Joseph Delaney: I, at the time, naively thought we were getting a half-decent price on the house, whatever that means in the context of how expensive homes are. But…

00:54:39.220 - 00:54:50.740
Joseph Delaney: at the time, I would have never thought to ask to have this money kicked back at closing, because there were things that needed to be done with the house, so I really would recommend, at least to first-time homebuyers, to work with your own independent real estate agent.

00:54:51.070 - 00:54:56.749
Joseph Delaney: And what are the pros and cons on renting to own a property?

00:54:57.290 - 00:54:58.340
Joseph Delaney: Oh.

00:54:58.660 - 00:55:10.189
Joseph Delaney: So, like, doing a… private deal, I would assume, a rent-to-own, like, say you rent it from a, you know, family member or somebody you know to someday own the property.

00:55:12.600 - 00:55:32.210
Joseph Delaney: The biggest con there is it's more of a custom arrangement you're doing with whatever owner there is, and the argument is, if that arrangement isn't favorable, or the owner of the property, you know, changes, pivots in the future, there's contractual questions there, where if you just purchase a home outright with a traditional mortgage through a traditional bank.

00:55:32.210 - 00:55:49.809
Joseph Delaney: there's a lot of systems in place to keep you as a borrower safe, and make sure that the terms that you agreed to are followed. So that would be the cons of doing it. The pros are you might be able to have a chance to buy a house for maybe cheaper or lower down payment, or no down payment in a rent-to-own strategy. So that one's a…

00:55:49.810 - 00:55:55.689
Joseph Delaney: It's an interesting question, you know, if you're doing it with family, and you have a really close relationship with family, and, you know.

00:55:55.700 - 00:56:05.040
Joseph Delaney: It's not gonna create any animosity. I've seen people go into deals with family, custom deals with family. In some cases it goes well, some cases it goes horribly.

00:56:06.870 - 00:56:23.429
Joseph Delaney: Man, it looks like somebody kind of responded to that question for me. MediaCon is unless you personally know all the paperwork has been set up correctly, you could be swindled in by the other person. Yeah, yep, that's… that is a great point. You want to work with independent professionals in this space to make sure things get done correctly.

00:56:23.950 - 00:56:37.250
Joseph Delaney: When moving, is it better to sell your house and then start looking to purchase a home, or can you buy a home while waiting for yours to sell? Also love this question. I'm loving all the questions, thank you guys for the engagement.

00:56:38.380 - 00:56:39.690
Joseph Delaney: So…

00:56:40.350 - 00:56:55.489
Joseph Delaney: When you own a property, and you make an offer on a new home, 9 times out of 10, the offer on that new home is going to be contingent on selling your original property, because most people, you know, 99% of the world does not have the capital to own two homes at once. Makes total sense, it happens all the time.

00:56:57.500 - 00:57:09.869
Joseph Delaney: The argument for that case is that if your offer is contingent on selling your current home, your offer is less attractive than somebody who is not contingent on selling their current home.

00:57:10.890 - 00:57:35.879
Joseph Delaney: So, there is an argument that the seller, all else equal, might not take your offer and prefer the other person, because they just know the other person doesn't have the contingency of selling their current home. Okay, sure, that's… that is true. Most home purchasers do write offers contingent on selling their current property. So, honestly, if that's the offer that you make, you're gonna be in the masses. That's what most people have to do, is they make it contingent on selling their

00:57:35.880 - 00:57:36.720
Joseph Delaney: current home.

00:57:37.100 - 00:57:42.200
Joseph Delaney: You do bring up an interesting one, though, where I actually made this recommendation earlier this year.

00:57:43.210 - 00:57:55.160
Joseph Delaney: An individual that I was working with lives in Wisconsin, they're planning to move to Minnesota. They own a home in Wisconsin, they want to buy a home in Minnesota, but it's going to be a contingency case. They can't afford to buy a new one before they sell the old one.

00:57:55.630 - 00:58:06.159
Joseph Delaney: For them, they have family that lives in Minnesota, so it's a very unique situation. One of their family members has a rental apartment in their basement, basically.

00:58:07.030 - 00:58:13.960
Joseph Delaney: They asked if it made sense to sell their current place, and then move into this rental arrangement with family.

00:58:13.990 - 00:58:30.969
Joseph Delaney: that's not on a fixed lease, so the family member's gonna live… let them live there month to month. Now, very unique circumstances here, but it paints a picture where it's gonna make sense. I told them there'd be a good argument for selling their current house and moving in as long as they could stomach living, you know, having their family member as a landlord.

00:58:30.970 - 00:58:39.280
Joseph Delaney: Because it does give them the option to make their offer more attractive without having to kick in more money, because now, all of a sudden, their offer doesn't need to be contingent.

00:58:39.280 - 00:58:59.140
Joseph Delaney: So I really like the question. In a perfect world, if you didn't have to be contingent on selling your current home, you would have a more attractive offer. But, subject to circumstances, I would not recommend selling your current home, then getting into a 12-month lease somewhere, potentially eating up some of your down payment because an emergency happened, and now all of a sudden you're kind of back to building up the ability to buy this next home.

00:59:03.590 - 00:59:07.990
Joseph Delaney: Explain more on how a real estate agent works. That is a great question.

00:59:08.290 - 00:59:12.550
Joseph Delaney: So, real estate agent, you meet with them, you make sure that they're the right person for you.

00:59:12.920 - 00:59:19.350
Joseph Delaney: So you sit down with them, make sure they understand the area, they understand what kind of home you're looking for, maybe, you know.

00:59:19.890 - 00:59:25.339
Joseph Delaney: Get a little backfill on their team, just have them kind of propose to you who they are as a real estate agent.

00:59:25.770 - 00:59:39.790
Joseph Delaney: There is not an upfront cost of working with a real estate agent. They're not gonna give you a bill for signing a purchase… an agreement to work with them, but once you sign that agreement to work with them, you can't work with other real estate agents,

00:59:40.270 - 00:59:44.930
Joseph Delaney: And then you do that, and then the way the real estate agent is paid…

00:59:45.000 - 01:00:03.219
Joseph Delaney: is at closing. There is a law change that just happened about how these real estate agents are paid, but in general terms, they are paid off the top by the seller side. So if the seller is selling a house for $500,000 and total real estate fees between the two brokers are…

01:00:03.220 - 01:00:06.399
Joseph Delaney: You know, 5%. Then,

01:00:08.240 - 01:00:14.619
Joseph Delaney: Let me do that math, but if you sell the place for $500,000, and they each get 5%, then it's…

01:00:14.760 - 01:00:20.800
Joseph Delaney: $25,000 from the sellers, you know, $500,000, so the seller would wind up with $475,000.

01:00:20.880 - 01:00:39.669
Joseph Delaney: There is a law changing on exactly how they get paid in these transactions, and that part I'm less familiar with, but that's generally how it works. If you're buying a home, you're not cutting a check to the real estate agent at the same time. In some sense, you're paying for them by taking out a mortgage, giving it to the seller, and then the seller pays them, but…

01:00:39.720 - 01:00:44.300
Joseph Delaney: Hopefully that answers your question. You're not gonna have to come up with a check above and beyond your down payment.

01:00:48.680 - 01:00:51.180
Joseph Delaney: Alright, let's see…

01:00:51.770 - 01:00:58.149
Joseph Delaney: I want to build a new home and have purchased the land already. Would it be best for me to sell my current home and then use the cash to build?

01:00:58.940 - 01:01:00.600
Joseph Delaney: Interesting here.

01:01:03.310 - 01:01:21.499
Joseph Delaney: If you have cash to build a property, ideally, as a financial advisor, I don't want anybody to take down debt if you can avoid it. So the general theme to answer that question would be sell your current house and then pay cash to build the new one. However, building is a different equation because of the risk of contractors and subcontractors putting liens against your property.

01:01:21.500 - 01:01:25.249
Joseph Delaney: So, I was just working with an individual who's building property in Kentucky.

01:01:25.250 - 01:01:45.160
Joseph Delaney: We recommended to him that he actually finances the build-out of this property, because the risk is, if he pays the general contractor directly, and the contractor has disagreements with subcontractors, and the subcontractors put a lien on your property because they claim they weren't paid, now all of a sudden you can get into a legal battle with these contractors and subcontractors.

01:01:45.160 - 01:01:57.159
Joseph Delaney: What banks do when they finance the building of a new property is they mandate that all contractors and subcontractors validate that they did a good job, so they send inspectors through to make sure that, you know, the plumber did a nice job on the plumbing.

01:01:57.160 - 01:02:07.519
Joseph Delaney: And then they make the contractors and subcontractors sign lien waivers before they release the funds. So the contractors will not get paid until they sign a contract saying they're not going to put a lien on the property.

01:02:07.520 - 01:02:17.380
Joseph Delaney: So, to that question, should you pay cash to build, or should you use a loan? Generally, in most cases, we advise using a loan and then paying it all off once the house is built, and all the lien waivers have been released.

01:02:18.470 - 01:02:32.120
Joseph Delaney: What advice would you have for a single individual who's trying to save enough to build and afford a home sometime in the future? Would it be best to invest your money? Or… yeah, okay, so would you invest any money you're hoping to save for the future home?

01:02:32.780 - 01:02:49.780
Joseph Delaney: Great question. So let's say you're day one, you're saving for a home, you're starting from square zero, or maybe you're starting a little bit, you know, what feels like behind. You're cleaning up some credit card debt, you're, you know, kind of getting on your feet. Wherever you're at in the process, the question is, should you invest some of this money you're saving for the down payment or not?

01:02:50.140 - 01:02:54.510
Joseph Delaney: It comes down to risk appetite. I'll give you a couple of facts.

01:02:56.350 - 01:03:10.489
Joseph Delaney: you can invest your money in a plethora of different investment vehicles at next to no cost these days. And the big contingency is, how much risk do you want? The more risk you take, the more potential reward you have, but it's potential reward, it's not guaranteed.

01:03:10.520 - 01:03:19.129
Joseph Delaney: For example, if you put your money in a money market, you might get 3.5% today with no risk. You put your money in, stock market, you might get

01:03:19.310 - 01:03:32.389
Joseph Delaney: 8, 10, 12%, whatever, but there's a lot of risk there. It might not happen over your time horizon. So to the individual who asked, should I be investing some of my down payment, here's my advice.

01:03:33.230 - 01:03:39.869
Joseph Delaney: If you are on, you know, a longer trajectory, let's say you do your budget together and you're saving

01:03:40.060 - 01:03:45.219
Joseph Delaney: you know, I'll just pick a round number, $1,000 a month, you're doing great, you're saving $1,000 a month.

01:03:45.430 - 01:03:48.740
Joseph Delaney: And the house you want to buy is going to require $20,000 down.

01:03:49.240 - 01:04:08.810
Joseph Delaney: well, $1,000 a month, 20 months, you know, think a little over a year and a half to save up that $20,000 to put down on a house. A year and a half is too short of a time horizon for me to recommend anybody invest their money and takes risk, because, God forbid you take that $1,000 a month, put it in the stock market, and a year and a half from now, the stock market's down 30%. That would be horrible.

01:04:08.810 - 01:04:22.949
Joseph Delaney: It wouldn't… I wouldn't advise it. However, if you're on the path of, hey, I'm only saving $200 to $300 a month right now, and I'm paying off debt, and I think I'm gonna save more in the future, but I just don't know, let's say your time horizon of buying a house is 5, 6, 7 years.

01:04:23.030 - 01:04:30.989
Joseph Delaney: Well, now the probability of getting a good return in the stock market starts to go up. It's not guaranteed, but it starts to go up by quite a lot.

01:04:30.990 - 01:04:49.120
Joseph Delaney: So if your time horizon's longer, I'd consider maybe not all of the money you're saving for a down payment, but maybe some of it starts going into investment vehicles. That's a great question. I'd encourage you to have the conversation with somebody on our team further for your specific scenario. There are cases where it makes sense to invest that money.

01:04:49.120 - 01:04:57.980
Joseph Delaney: And then we got a specific one here. Saved $15,000, that was enough for a $399,000 loan.

01:04:58.090 - 01:05:03.400
Joseph Delaney: Or a $399,000 house with a loan on it, interest rate 5375.

01:05:04.300 - 01:05:07.040
Joseph Delaney: Part of the closing money I put down.

01:05:07.710 - 01:05:08.820
Joseph Delaney: Okay.

01:05:09.380 - 01:05:24.289
Joseph Delaney: All right, everybody, I, think I got through all the questions. I really apologize if I didn't. For those still hanging out, I'm sorry, I gotta get my contact info here. That is my email address. I really appreciate everybody jumping on the call today. Hope you got a bunch of value out of this.

01:05:24.290 - 01:05:29.520
Joseph Delaney: The final message for all of you is we all do this at our own pace, everyone's situation's gonna be unique.

01:05:29.590 - 01:05:33.259
Joseph Delaney: Feel free to reach out anytime if you want some personalized advice on this stuff.

01:05:35.680 - 01:05:41.880
Amber Posthauer: Alright, well, I'll go ahead and wrap us up. Thank you, Joey, for sharing your valuable time and expertise with us today.

01:05:41.880 - 01:05:57.899
Amber Posthauer: To reiterate, today's presentation was recorded. We'll be sharing the recording in the coming days. At the end of this call, a survey will populate in a new window. Please take a brief moment to complete the survey, as it lets us know what topics are important to our listeners, and helps make our education program as current and relevant as possible.

01:05:58.000 - 01:06:02.789
Amber Posthauer: That concludes our webinar for today. Thank you, everyone, for joining us, and have a great day!