2. How Much Home?

Hello, and welcome to this module, How Much Home. So now that you’ve decided to purchase the house, you understand the process. Now let’s get into the nitty gritty in terms of how much home you will be best suited for purchasing. So here is what we’re going to cover. So I’m going to get into thinking about your financial goals, because we still have to take into account everything else that we have going on financially. Although we do want to purchase this home for the long-term. We also want to think about down payments and then also consider something called PMI. I’m going to get into getting the pre-approval and why this is important. Why this process is important. I’m going to break down the home buying ratio and really, really walk you through using a calculator interactively. I’m going to get into understanding your DTI again. I know we covered this before, but I’m going to cover it one more time because it’s really, really relevant.

And I’m just going to show you and show you what the home buying ratio. Then we’re going to make now finding an awesome agent, because this is important. And then lastly finding the right loan officer. So your, your two top, two team members that you need now let’s go and hop on. So these are the things we want to think about guys. So the first thing, when it comes to purchasing a home is I have to think about my cashflow in my lifestyle. So if you’re already renting right now and you already have a good feel for your DTI and your home buying ratio and all this good stuff, then you want to be able to consider, Hey, look, if I’m going to purchase this home while I have the ability to afford this for the longterm and or is this the right decision for me right now?

And typically it is because it’s going to be an investment, but you want to think about how this is going to impact your overall financial situation. And then really start putting yourself in position to have legacy, legacy wealth for your family. Then you want to think about spending your money wisely. So at this point you already have a cashflow control system. You’re already putting that you already have that in place, but also you want to continue saving money in your future bucket. So you don’t want this home purchase to interrupt your ability to put money away for an emergency fund or put money away for your, your day where you, you retire in, or you walk away from your job or whatever your, your number one financial goal is. The other thing we want to consider is managing our debt. We already understand, and the importance of making sure we manage our revolving credit and making sure we don’t go into too much debt unnecessarily without having an income or income source to satisfy that debt or some type of side hustle.

But these are the things we want to think about when going into this home, we don’t want to, we don’t want to put ourselves in position to where we buy too much home. And then we’re miserable every 30 days when we have the mortgage payment, like we can’t do anything because the mortgage is the mortgage that the PMI, the taxes, all this stuff is just so expensive for you. It’s so heavy on you that you don’t, you don’t have the ability to enjoy it because you’re always working to pay the mortgage. So we want to make sure that when we’re going through this particular situation, again, the lenders don’t necessarily care about you. Now they’re going to do their due diligence, for sure, to help you get approved for as much home that you can get approved for. However we want to, we want to think about the longterm and everything else we have going on financially.

Then obviously having good credit is just essential. You have already gone through this process. You understand how to obtain a 700 credit score. Why having that score is the biggest part of this process, along with your cashflow, because I’m going to show you literally how having a lower credit score will take away the amount of home that you qualify for. So down payments in PMI. So typically buyers put down between five to 20% of the purchase price, but they can put as little down as 3%. So no matter what, there are different programs and scenarios in which you can put money down. However, if this is something that’s a huge goal for you, then you would have already started to put together that cash flow control system, or you put a good cash flow control system. And now you’re just saving towards that, that goal of purchasing, purchasing the home.

If you’re at a place where you want to start buying another home, and maybe you’re looking at this as an investment property, then you already understand, obviously, this isn’t a real estate course. This is more so about how you can really maximize your credit, but you need to understand that that’s going to be the down payment that you have now. Here’s the, here’s the other thing. If you put down less than 20%, then you are going to be required by the mortgage company to have what’s called PMI or private mortgage insurance. And you’re going to have to pay that monthly until you build up at least 20% equity in the house. And the reason why this is, is because the mortgage company wants to make sure if something happens to you because banks don’t lose money. Remember I told you that’s one of their, that’s one of their key principles. They loan money out on assets that they know they can get their money back. So if something happens, PMI is in place to be able to cover that worst case scenario. And that is going to be included

In your, in your

Mortgage. So that’s like one of those judgment calls, well, do I want to pay PMI? Do I not want to pay PMI? You can look at the numbers and make that sound decision. Maybe it makes sense to do PMI until you have 20% equity. Maybe it just makes sense just to get the amount of home that you have, and then put that 20% down on your house because you would all automatically have 20% equity. Although that equity wouldn’t be liquid, you would have that equity in the home. So to speak. The other thing you have to think about is you want to look at your entire financial situation and make sure when you’re talking with the lender and the broker, and I want to show you how to go about finding these particular individuals that you get a really, really good understanding of how much down payment you should be considering.

And then you also talk with like, uh, you, you just put together a scenario because the other thing too is you want to take into account all of the financial things that you have going on, right? So if you only have $20,000 in your down payment is $20,000 and you don’t have an emergency fund and you want to kind of do you want to make a judgment call? You want to make the best decision for you. Sometimes it might make sense to do the PMI. However, you just need to know that this is going to be included in that process. Now this is by far the biggest part of the process before you start shopping is getting pre-approved. So the pre-approval process is really going to require you to submit some documents. So that way, you know, based off where you are financially. So if you’re at a place where you’re trying to get pre-approved and your credit, isn’t where it needs to be.

You can go through the process. Now, however, they’re going to say, Hey, look, we need you to do this, this, this, and this in order for you to get approved for the mortgage. Now, my suggestion is, before you even try to do the pre-approval, you get your credit to where it needs to be. Period. Now, everything you’re going to need for this pre-approval is all your financial documents. So we’re talking 1099’s. If you’re self-employed or if you have a side business, we’re talking about W2, wage statements, recent pay stubs, I should have included bank statements, 401k, IRAs. I did have bank statements, so everything they’re going to need all of these statements. So when you go to submit your application, my suggestion is you have all these documents in order, and you have your score at the highest place it needs to be.

So that way you can get qualified for the most pre pre-approved loan that you can. And this is almost like you want to get the pre-approval first, because there’s a difference between being pre-approved and pre-qualified pre-approved means that you actually submitted documentation and the lender has a really good feel for your credit cash flow, your, your overall financial situation, and based off everything that they looked at, including your DTI and everything you have going on, they’re saying, Hey, look, you are pre-approved for $500,000, or you’re pre-approved for 250,000 or whatever the number is based off your income and or you and your spouse’s income. So it is imperative that when you go to get the period, pre-approval that you do this first, because majority of realtors, aren’t going to necessarily want to start showing you homes, unless you have a pre-approval and you don’t want to, and you want to be serious about this too.

So you, this, this is where the important pre-qualify versus pre-approval. Pre-qualified this means, Hey, look, where, where you’re looking. You may, you may, you may be logged into like a website, like Credit Karma or some, some website. And it they’re thinking that you’re pre pre-qualified based off what you entered in, but they didn’t really.. That the lender, that particular lender didn’t necessarily do a deep dive on your financial situation. So you want to be moving forward with pre-approvals before you start the shopping process and not necessarily pre-qualified now the home buying calculator. So there’s going to be four things. I’m going to include the link right below this video, but this four things you want to be able to just look through and it’s, it’s, again, it’s just a rough estimate, but it’s going to be your zip code that you’re considering living in. That’s why it’s so important for you to really look at where you want to live and why location is the biggest part of this.

So what I’m going to do is get out of this particular slide and I have it pulled up. I’m going to include this calculator right below this video. So you can go through, but I’m going to go through it, just showing you. So let me get out of this. So let’s just say I wanted to live in this zip code right here, actually 30035, um, indicator, Georgia, right? Uh, which I probably wouldn’t want to do. And this is say, if you put your household income, whatever your household income is, I’m just going to make this up. Let’s say your household income was 175,000. And let’s say you wanted to put down $20,000 as your down payment, right? And then your current, monthly obligations. Let’s just say your current monthly obligations are, and this is more so rent, car payment, student loans, insurance payments, essentially your fixed bucket expenses. So let’s just say your fixed bucket expenses are 2,900 a month.

And let’s say you are wise and you’ve gone through this process and you have excellent credit. But when we was going to tell you right out the gate, how much money you are approved for based off this calculator, again, this is a rough estimate based off Decatur, Georgia. But if I, but I want to show you this. So this is excellent credit, and this is the likely rate, but look actually did this. They just refreshed it based off my income. So if I have poor credit, I can see that from a, from a, from a stress perspective is telling me, Hey, look, here’s my debt. Your debt to income ratio is that 36%. If I’m really stretching, if I want to do a little bit less, it make my DTI 30%. And it’s telling me based off what I just put it. This is how much home I would qualify for.

If I had poor credit, really, basically that barely making a 620, as opposed to if I have excellent credit, I literally more than double. It seems like the amount of house I would qualify for it just by having excellent credit. This is poor credit, excellent credit. So almost a hundred thousand dollars after I did this because it was making, it was putting me to that stress zone. So again, it’s saying that, Hey, look, your debt to income ratio will be 36% in this particular scenario. And this is a 30 year mortgage. And it’s giving me a rough estimate of the property taxes, annually, homeowners insurance. And then it doesn’t know if there’s going to be any homeowners association fee, because it doesn’t know. But if I want to change these, these, uh, criteria, I can just simply, you know, change it just like this.

I can just put wherever I wanted to live. So if I want to do Atlanta is still telling me.. Because it’s in the same area, would, it will tell me where I will be. So again, this is an awesome calculator to start playing around with to see what you would be potentially pre-approved for, or how much, really, how much home you can qualify for, or how much home would be a good amount for you to be thinking about. So if you’re saying, Hey, look, I’m already paying $2,300 a month in rent. Then that’s how much home that would purchase you, assuming you bought it right. If you went out and purchase that home, now let’s go ahead and get into the nitty gritty. So I’ll cover this before, but we’re going to talk about debt to income ratio. You already saw that the, the, the magic number is 36% in terms of a debt to income ratio.

That’s where you want to be. So your debt to income ratio is all of your monthly debts divided by your gross monthly income. And this is the number that lenders were used to measure your ability to make your monthly payments and repay any money that you borrow i.e. a mortgage. So in this is not going to use access to unsecured, revolving lines of credit. So this isn’t going to impact your DTI. So what does this mean? This means if I have $50,000 in lines of credit, but I’m showing that I’m using zero or 500 bucks of it, that’s not going to impact my DTI. However, because we understand credit. If I have $50,000 in revolving credit, and I’m using $50,000 that are reporting on a monthly basis, then I’m not going to have any of those points. And my score is going to be way low. So that will, um, revolve any accounts with existing balances will affect your DTI.

So my suggestion have your DTI, I mean, have your, your revolving account, just say down to 1 to 7% utilization, because you’re gonna maximize all your points and it’s not going to count towards your DTI. Now, this is how you calculate your, your DTI. So step one, you want to add up all of your debt. So if you’re looking to purchase a home, you wouldn’t have a mortgage. So you would add up your rent, your auto student, personal credit card, payments, child support, how many, all of those things. And then what you’re going to do is divide that number by your gross monthly income of your GMI. So for example, let’s just say your monthly debt equals 2,500 and your gross monthly income is 7,500. That means that your DTI currently based off the mortgage that you’re paying or based off all of the expenses that you’re paying is 33%, right?

So that is your current DTI ratio. So you may have another 3% in this scenario that you can stretch to in order to get approved. Now there’s some lenders that will go up to 43%, but that’s going to be a little bit risky. My suggestion is keep that you want to have your home between 33 and 36% of your overall DTI. And obviously you want to have your income at a good place. So typically this is why, you know, we covered like the home buying, I mean, the auto financing blueprint and why it’s important that to get, you know, too much car, I would almost suggest you get the home first. If this is like your goal, then you go out and get the car because the car payment is going to be included in your DTI ratio. So if you’re looking at, Hey, look, do I purchase the car first?

Or do I purchase the home first? And you know, you want to purchase a home. I would say, get the home first because you’ll be able to get qualified for more home, as opposed to having a car. That’s not going to affect your DTI. Now, now that we understand that let’s break down the importance in how to find an awesome agent, because the agent is going to be the catalyst in terms of getting a okay home in an excellent home and not dimension this entire home buying transaction happening flawlessly. You have some agents that are lazy and they’re not necessarily as proactive, they’re new. They don’t know what questions to ask. You don’t want to work with that agent. You want to work with an agent that knows exactly how to get the job done and how to get the deal closed, because they are literally working for you.

Now, you want to make sure it goes without saying, and I’ve already said this, you select the best person for the job just because of your friend or, or your family member doesn’t necessarily mean that they should be your agent, unless they are a competent professional that has demonstrated based off past transactions that they can help. One of the places I would say start is if you know, people who have purchased homes before and you liked their home, ask them, Hey, look who, who’s your realtor? You know, I like the way your realtor handled this particular transaction. And then they’re either going to say, Hey, look, my realtor was good or not. My realtor was okay. Some generally speaking people won’t talk bad about people, but if they’re not talking awesome about that individual, then that’s a tell tale sign that, Hey, look, man, maybe I shouldn’t go through there, but that’s a really good place to start.

The other place is once you have identified the type of realtor or you looking for a realtor, you want to make sure you find a realtor that specializes in a particular type of property that you’re looking for. So if you’re looking for townhomes or, or high-end condos or mansions or whatever, or, or single family homes, you want to work with a realtor that specializes in that type of home, because they’re going to have a little bit more edge and knowledge base in terms of how to get that transaction pushed through and where to find that transaction. So that way it’s going to be a really good buying decision for you. Once you’ve identified the realtor, look at their social media presence, typically realtors work for themselves. They’re self-employed. So if you look at their, you look at their social media and it doesn’t look like they do real estate.

You know, um, um, I’m not saying that they have to have real estate on their social media, but what I’m saying is look at their social media because that’d be a good telltale sign. And to tell you if this is a, a serious individual, or if they’re just toying around with this, you know, you could get a good, a good feel for their personality just by looking into social media. Now that they have some sprinkle life in real estate transactions, where they have a separate real estate page only dedicated to real estate, then that’s good. But look at their social media presence. Here’s a bonus as well. If a, if a real estate agent refers to themselves, himself or herself as a realtor with a capital R, then this means he is an official member of the national association of realtors. And they consider themselves a tear up.

Then it just a realistic, just an agent, let’s say, Hey, I’m a realtor. Like, this is what I do. And they’re part of this national association of realtors, which is a really, really great, great thing to be a part of. So that’s another thing you want to be looking for. Is this person carrying themselves as an agent or realtor, right. It’s just a different distinction. Am I a, uh, insurance agent or I’m a financial planner, right? Just, just almost like, am I just, uh, uh, a legal counselor or, or am I an attorney? So it was just, you just want to make sure you go with the person that’s going to have, you have the, uh, the, the more professionalism and that the attention to detail in order to get the transaction done. Now, once we found an awesome agent, the next thing we want to do is find the right loan officer.

And because once we find the house and we do get the pre-approval again, we can still shop and try to find a good, a good loan, or we can just find a loan officer. Who’s going to help us find the great pre-approval. We want to make sure our lender has good credentials, and they have a really good track worker in excellent ethics. So you can look at their license and you can see their history. You can, you can look at some of the, you can ask them for references of past clients, um, you know, and don’t fall for any of your fancy titles. Like, Oh, I’m a senior loan officer. I’m the vice-president of home loans. I’m a loan advisor, chief loan officer, all of this stuff means the same thing. Okay. So just because they say all of these things, it’s just an elaborate title just to make you feel good.

But at the end of the day, what you’re most concerned with, isn’t their title, what you’re concerned with, can they deliver on the transaction and go to bat for you because they are getting paid a commission at the end of the day, in order for this real estate loan to get through. So you want them to go above and beyond so to speak and be really professional in terms of their particular area of expertise. And you always want to ask for GFE’s, which stands for a Good Faith Estimate and also the truth in lending statements as well. So that way, you know exactly where you stand and you’re not going to be a part of any predatory lending. So generally speaking, if you can approach a, a loan officer that is more of a broker, my suggestion would be going with a broker only because that broker would have access to multiple banks in offers based off the particular dynamic of your situation, as opposed to, if you go to just like your traditional bank.

Now, I’m not saying not to go to your bank. You may already have a good relationship with them, that loan officer at the bank and only represent the bank versus a mortgage broker and loan officer can represent multiple lenders and find based off the underwriting criteria that you give them on the front end, the best lender for the transaction, in order for you to get the best rate, based off your income, your expenses, your DTI, your home-buying ratio, everything you look into, looking to get approved for. So that way you can get that pre-approval and start the whole process. Okay. So this is the next step for you. So take action. And I will see you in the next module.