Pink Money

EPS 19 - Mortgages Made Simple: FHA, VA, NACA & Beyond

• Jerry Williams • Season 2 • Episode 19

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Buying a home can feel overwhelming, especially for first-time buyers. In this episode of the Pink Money Podcast, Jerry is joined by his husband Dalton for a candid conversation about mortgages—what they are, how they work, and what first-time buyers need to know before jumping in. From FHA and VA loans to credit unions, down payments, interest rates, and hidden costs like PMI, Jerry breaks down the essentials with real-life examples and practical tips. They also explore special programs like NACA that make homeownership more accessible. Whether you’re saving for your first house or just curious about how the process works, this episode will help you understand the path to turning rent payments into equity.

💬 Have a question or comment? Contact Jerry here


SPEAKER_00:

The best things in life are free Your love.

SPEAKER_02:

Hello, hello, and welcome to the Pink Money Podcast, where we talk all about things related to money from a gay perspective. I'm your host, Jerry, and today I have my husband here, Dalton, and we're going to talk a little bit about mortgages. So I think that it's a good topic to go over. There's always people who want to buy houses, and there's a lot of good reasons why I think you should buy a house, but we'll get into it.

SPEAKER_01:

I'm going to interject. What? Yeah, let me say hello. Hi, I'm Dalton. Hello. How are you, hon? I'm doing well.

SPEAKER_02:

Okay. So, I ran into a friend of ours, and this is kind of where this idea came from, because I ran into him and he was talking to me and said that he and his wife were going to consider buying a house. And he was telling me that they were going to wait about a year, maybe two to buy a house because they are trying to improve their credit and they're going to try to save money for a down payment. So all those things are, that's pretty, you know, that's wise to do, right? That sounds good. Wouldn't you think? Yeah. So while I was talking with him about that and he was telling me his plan, There's a couple things that jumped out to me, though, that I thought maybe he wasn't aware of. And I don't know if everybody has that same understanding about housing and when to buy and how to buy a house. So I thought I would just talk a little bit about it because I think it's helpful.

SPEAKER_01:

Yeah, I don't know much about this. So anything is... You know, that's why I let you handle it. I still like to learn.

SPEAKER_02:

Yeah, and it, you know, it doesn't mean, though, that you will never buy a house. And it doesn't mean that, you know, if you have your primary residence that you won't have, you know, multiple houses or an investment property, et cetera. It all depends, you know. We buy and sell houses a lot these days. You know, I remember years ago when, you know, your grandparents, well, my grandparents, you know, they lived in the same house forever, just forever, that I could ever remember. And I think these days that's just not so common anymore. You know, people move around a lot.

SPEAKER_01:

Oh,

SPEAKER_02:

yeah. I mean, you're from a family that moved around a ton.

SPEAKER_01:

Well, you know, being in the military, we moved a lot, a lot. It was like... When my parents actually decided to buy a home, it was like a big deal for them because even though we moved around and we stayed in a lot of homes, they never purchased it.

SPEAKER_02:

You had military housing though, right?

SPEAKER_01:

Sometimes. And sometimes we lived off base, but they normally rented.

SPEAKER_02:

Right. Because when you were overseas, you're not going to buy a place overseas.

SPEAKER_01:

Well, yeah, no. We lived in military housing overseas, but... Um, like in the States, if they wanted to buy a house, you know, and didn't want to live on base or normally they just paid, you know, rent because they're like, they didn't know how long they're going to be. Yeah. Normally it was like three years or something. So they're like, why would we buy a house and sell it? You know?

SPEAKER_02:

Well, that just, there's just so many things that are in that statement about why you should buy a house. And I'll tell you why. Because on one hand, just like you said, if you are unsure about how stable you're going to be, you may want to consider renting. Let's say you could move within a year, right? You may not want to go through all that to buy a house. However, the thing I think about in today's world, especially in today's world, is... The sooner you get into the market, the better. And the reason I say that is because, for the most part, in desirable areas, housing prices are going up so fast, so fast, that the longer you wait, then you could easily be priced out of the market. I'm going to use San Francisco as an example, right? I mean, the average home there goes for$1 million. An apartment in New York City is$2 million. In fact, I was reading about a couple that each were earning$100,000 and still could not afford to buy a house in San Francisco. You

SPEAKER_01:

said$100,000?

SPEAKER_02:

Yeah, each of them. So$200,000 was their annual income, and they could not afford to buy a house. That's just crazy to me.

SPEAKER_01:

Me too. I mean, you think... It blows my mind.

SPEAKER_02:

That sounds like a lot of money. I mean,$200,000.$100,000 of annual income, that's still a really good income.

SPEAKER_01:

It's what most people strive to make is six figures, you know? Yeah. Because they think that that's a comfortable number. Yeah. And

SPEAKER_02:

it should be. You're absolutely right. You're absolutely right. But, you know, when you think about it, you know, if you were spending... If you were spending... just 30% of your income on housing, then what you're talking about is spending$5,000 monthly. Now, I don't really know what apartments go for in San Francisco, but I would assume that an apartment in New York is probably maybe close to that. I don't really know. But anyway, I know it's not cheap. I know that. I mean... I think the average price for a two-bedroom these days is going for over$1,600, and that's here in

SPEAKER_01:

Austin. It reminds me of this meme I saw the other day. It was just like, just paid rent, now I have a place to starve. That is funny. And I was just like, basically,

SPEAKER_02:

right? Well, the old rule of thumb was you should spend no more than 28% of your income on your housing. Now I see it more commonly said at 30. And, I mean, if you're pushing past that, going to, let's say, 50% of your income, that's not sustainable. Then, obviously, everybody needs a roof over their head, but you just can't afford to spend 50% of your income, 40% of your income, even 35% of your income on housing. Now, I mean, what do you do about it then, right? Because you don't have any control over rents. Rents are what they are. Rents are rents. So the best thing you can do, in my opinion, is to buy a house, which is the reason that they were moving. So when you move, you are moving. They are moving because they need to get into an area that's more affordable

SPEAKER_01:

for them. Yeah, and I see that a lot with millennials. You know, I heard... We are the people that are renting instead of buying because everything's so freaking expensive. And also, maybe we don't know how to, you know, me, myself, mortgage, that sounds weird, you know? What do

SPEAKER_02:

you mean?

SPEAKER_01:

I've, you know, I've never had a mortgage, so, like, I know what rent is, but, like, I know mortgage is like rent, but it's...

SPEAKER_02:

We've had a mortgage before.

SPEAKER_01:

Yeah, I know, but I don't know. Why?

SPEAKER_02:

Why? It sounds so adult to have a mortgage.

SPEAKER_01:

Yeah, I guess so. It's just like, it sounds like, oh my God. It's cool that you own a house, but for a lot of millennials, I guess what I was trying to say is like, it's so expensive to buy a house right now.

SPEAKER_02:

So that just is location, location, location. But I get your point. I mean, it's just, I think the average home price in Austin right now is like$435,000. So, again, that's a lot. But that is anything that's relatively close to downtown. The further you go out, obviously, the less you're going to pay. But, you know, that's just the reality. Some people want to live in the suburbs. A lot of people want to live downtown. A lot of people, you know, don't. They want to live out on a farm, whatever. But this kind of goes back to, again, what I think most people should be taking into consideration. So... If you're going to jump into the housing market, you should do it sooner rather than later. And housing prices are not likely to come down very substantially. The last time we saw that was back in 2008 when the housing market went crazy. And the last house I bought was in 2009 when the market went bananas and I got just a screaming deal on my place. But nevertheless...

SPEAKER_01:

What do you recommend for a first-time buyer? Housewives? Well, yeah, like, how to get into it. Like, who do you contact? You know what I mean? Right. Those are the questions that I'm, like, as you're saying that, like, that's what popped up in my head. Like, who do I call? So... You know, do I just call a realtor? And then we go through the bank that I have? You know.

SPEAKER_02:

I guess it really depends. There's no one way. Because to start the process... Let's say you have your eye on a house, a new construction, just say brand new construction. Now, I don't know how it is outside of Texas, but if you walk into the model home where the sales agent is, oftentimes they can just sell you that house right then and there themselves. You don't have to have a realtor. You don't. They

SPEAKER_01:

just usually don't have a house... To show you, right? What do you mean? Like you buy it and then they build it, right? Well, it depends. Is that what you're talking about?

SPEAKER_02:

Well, I think what you're talking about is like spec homes, meaning you go into a neighborhood where all the houses are new and they're all kind of cookie cutter looking, right? Yeah.

SPEAKER_01:

I know my parents bought their house.

SPEAKER_02:

Right.

SPEAKER_01:

And then it was built.

SPEAKER_02:

Well, and that... I know the neighborhood your mom and dad are in is one of those kind that are spec houses. They offer different versions, but they're all... These models are what you have to choose from. A custom home is totally different. That's where you have an architect and a builder, and they design the house for you the way you want it. That's totally different. Totally different. But it's similar. But I'm just going to stay with, let's say, whether you buy an established property... you were just running down the neighborhood and you see a house that you like and you're interested in it and you want to put a bid in for it, perfect. Find yourself a realtor and the realtor will help you do that. So don't be afraid to use a realtor. The number one reason why is because you don't pay for it, okay? The way the realtors get paid, they get paid by the seller. And that includes the person who represents you, the buyer, and the person who represents the people who own the house, the seller. So even though that person who you've hired to help you find a house, they really get paid by the seller. So the average commission is about 6%, and then at closing they split that. Your realtor gets three, their realtor gets three, and that's how they get paid. So it's not very common to have one realtor represent both of you. It's kind of unethical, really, right? Because they have their hand in your pocket. They're biased. Yeah. So what's supposed to happen is even though that realtor is representing you, they really are representing the seller, believe it or not. because it's in the best interest of the seller to get the highest price possible on the house, because then the realtors

SPEAKER_01:

make

SPEAKER_02:

money. The more higher the price of the house, then the more money they pocket.

SPEAKER_01:

That makes sense.

SPEAKER_02:

Unless you get like a buyer's agent, and that's when they actually sign a contract with you, and they agree that they're going to represent you solely, and they still will get paid by the seller, but they're contractually obligated and have a fiduciary responsibility to you. So that's just one thing I would look for. It doesn't preclude you from walking into that sales office and speaking to the sales agent and going ahead and buying a house that way. But regardless, you can still have a real estate agent look out for you if you want. It's totally up to you. So that aside, then what you really want to do with that realtor is find the markets and they should really know What are the hot markets that you should be considering buying in based on how much house that you can afford? Now, if you don't know how much house you can afford based on your income, you, your wife, your husband, what have you, whether you're buying it by yourself or together or whatever, then you want to work with your bank. Now, as I say that, I am, there's your local bank, right? Your Chase, your, JP Morgan, Bank of America, whatever, right? And then there are credit unions. So I recommend credit unions. The reason why is because the rates are generally more favorable for you because they're smaller organizations in the grand scheme of things. And so they're better rates generally. And I think it's easier for them to get to know you as well because they don't usually have like a billion people Yeah,

SPEAKER_01:

I've always loved credit unions.

SPEAKER_02:

Yeah, they're easy to work with for the most part. I've always found them pretty easy to work with.

SPEAKER_01:

And I guess, correct me if I'm wrong, I was always told this, that basically credit unions and banks differ in a lot of ways. But one way is like basically a credit union is the money of the people who's in there.

SPEAKER_02:

That's right.

SPEAKER_01:

And a bank is like, you know. they don't have that money necessarily. Like it's just, it's different.

SPEAKER_02:

Well,

SPEAKER_01:

I don't, I don't know how to explain it. I know what you're trying to say. Yeah.

SPEAKER_02:

But yeah, what a bank does is they take depositors money and they invest it in anybody who wants a loan for a car or for a house or they want to, you know, for their business, et cetera, et cetera. So, you know, the depositors put their money on, on deposit with the bank, and the bank pays them whatever interest they're paying. In fact, right now, saving rates are pretty good. I think you could buy a CD right now for 5%, which is an amazing rate. I haven't seen that for years and years and years.

SPEAKER_01:

I don't need a CD. I have everything digital. I have everything digital. I don't need a CD. That was my lame attempt at a joke.

SPEAKER_02:

Oh, yeah. Oh, music CD. I'm like, what? A certificate of deposit?

SPEAKER_01:

Yeah. Me not knowing what that means. I was just like, I don't need a CD. Do you

SPEAKER_02:

know what a CD is? Yeah. Okay. All right. Okay. That went over my head. I didn't grasp that right away. Yeah,

SPEAKER_01:

your eyes went wide. It was pretty funny.

SPEAKER_02:

Well, anyway, rates are pretty good is all I was trying to say. In terms of your credit union, again, they have members money that they work with, but it's kind of the same way in a sense that they typically don't cater to businesses. They just typically cater to individuals. So that's one of the main differences where like bank of America works with anybody and everybody, small business, large business, whatever. So, and you have to be a member of the credit union versus anybody can walk into, you know, bank of America and, Get a bank loan. So nevertheless.

SPEAKER_01:

So they're easier to rob. Is that what you're telling me? I wouldn't think so. I'm just kidding. No, I don't think

SPEAKER_02:

either. No,

SPEAKER_01:

but yeah, I've always heard credit unions are the way to go.

SPEAKER_02:

Yeah. So they're going to help you get pre-qualified. And that just like if you're going to buy a car, you need to know how much car you can afford. So they're going to help you determine how much house you can afford. Okay. So that's one of the many steps. I'll just take you through that general process where as they are determining how much house you can afford, you're going to fill out an application, they're going to run your credit, and they're going to see what your credit scores are like. And the better credit scores you have, the more likely you're going to get the loan, and the more favorable the interest rate is going to be for you to take out the loan to buy the house.

SPEAKER_01:

And I will qualify for a Neiman Marcus credit.

SPEAKER_02:

Well, you wouldn't want to do that. No. You wouldn't want to do that. Number one reason why is if you're trying to buy a house, the last thing you want to do is change your credit score by doing just that. Opening a credit card, taking out a car loan. You don't want to do anything. Nothing that involves your credit, let's say, or spending large chunks of your money, which you're going to need. So... When you apply for that loan and they check your credit, then, again, they're going to send you shopping for the house. And then when you find the house, you're going to put a bid on the house. And then that's, you know, let's just say they accept it, and now you're ready to buy. So at this point, the bank will make you the loan, and you'll go through the closing process. You'll be required on a conventional loan– to put down 20%. So that just is cash directly out of your pocket. So let's just say for my example that we're buying a$325,000 home. If we're putting 20% down, we got put$65,000 down. So on one hand, that just reduces the amount of the house we were going to buy, right? So because you're putting$65,000 down, right?

SPEAKER_01:

Yeah, I mean, you're already... a little bit of it right

SPEAKER_02:

right so now we're only going to take out a loan for 260 which is nice right so that means essentially you got 60 grand in equity in your house in a way but never the the thing though that i don't like is i don't like that you have to pony up 20 and put that money into your house because that's just 60 grand that's sitting in your house that You can't touch. Now, you could touch it, you know, with a home equity loan at some point. That just depends. You know, usually you're not going to get a loan for$60,000 the day after you just bought a house. That's not going to happen. Because they're going to want to see, and there's different rules that banks have, you know, that before you even go down that path. But that's kind of off topic. But, in fact, I'll probably... talk about home equity loans and lines of credit, but I'm not going to do that today.

SPEAKER_01:

I mean, the gist of what you're trying to tell me, I think, is that if you do the right things and you qualify for the right house that you can afford within your budget and you continue to make payments and be in good standings, that you don't necessarily have to be rich to be able to afford certain things. You just have to be... you know, trusted, but I mean, within your means, you know what I mean?

SPEAKER_02:

Well, sure. I mean, that's kind of what caused the housing crisis to begin with years and years ago, because they were getting these, I can't think of what the name was, but these loans where they didn't have to prove their, they didn't have to show any documentation and prove their income. And they were getting homes that, like a million-dollar home for a couple that probably could only afford a$300,000 home, let's say. So that's a big difference, right? And so because then people started defaulting on all these mortgages, there was tons of foreclosures, and then we just spiraled downward from there. And that was a huge, huge problem, all of which I think is corrected because now, these days, I think you have to, which you always should, I've always done is, you know, they've always asked you for proof of your income, et cetera. So I've never heard of those kind of loans these days anyway. But hopefully those days won't come back. It's not that big a deal because if you don't have income, then you're not going to be buying a house unless you just are gifted that money from somebody. And that really goes to my next point. So, you know, the friend of ours. Mm-hmm. was saying that his father-in-law was gifting them$25,000 that he had saved up for her wedding. And since they got married in a small ceremony, they didn't need that money. So he said that the dad was withholding the$25,000, though, because he was worried about the tax consequence on it. And that was just strange for me to hear because, number one, there is no tax consequence on that. Because you can gift$15,000 to anybody at any time. And that doesn't cause any kind of tax consequence at all. So you could go out and give$15,000 to your mom, your dad, your neighbor, whoever you want. Whatever. Again, zero tax consequence. Because there's a difference between income tax and gift tax. So income tax is just what it says is a tax on your income. So if someone gives you$25,000, you didn't work for that money, right? You didn't get paid by your employer$25,000. And when you do get paid by your employer$25,000, They've already withheld taxes for you, right? So then when that money goes into your checking account, that's after-tax money. So it causes no tax consequence for their father-in-law to give them that money. He can give it to them at any time. And it won't cause a taxable event for him either because, again, he's already paid taxes on that money. So there would be no reason for him to... withhold that money unless he has another reason not to give it to him

SPEAKER_01:

i'd be like well then just put it down on the house

SPEAKER_02:

well that just goes back to the whole sixty thousand dollars right

SPEAKER_01:

yeah well i'm just that's my thing because i don't know money like yeah

SPEAKER_02:

well and this is the whole reason right the more you know the better you're going to be the better off you're going to be um Because, okay, so I said you can gift$15,000 to anybody. So if, let's say, that you're concerned about...

SPEAKER_01:

$15,000, that's a year or a period? It's a year, right? Yeah, every single year. Every single year. Okay, I just wanted to

SPEAKER_02:

clarify. So if, let's say, you won the lottery and you decided to gift to... your family,$50,000 each, then that's above that$15,000, right? So in that case, that$35,000, that's above the$15,000, then that is going to possibly cause a gift tax at some point. And that's... And that is only really if you're giving away millions of dollars. Because in your lifetime, you're not going to be taxed on your gifts until$11.5 million is given away. So that's not going to be a problem for most people. If you're in the 1% world, maybe that's a problem.

SPEAKER_01:

They've found ways. I'm sure people that have a lot of money have found ways to give money without giving money. Well,

SPEAKER_02:

you can inherit money.

SPEAKER_01:

Yeah. Or, like, buy something and give it to them and have them sell it. Or, you know, whatever.

SPEAKER_02:

Well... I'm just...

SPEAKER_01:

Never mind.

SPEAKER_02:

Yeah, gifting is a whole other world, but... And, again, let's just stick with housing right now because... There's no reason for the dad not to give them the 25. Bottom line. He should give them it, and then he records it in the IRS tax form 709 if he thinks he wants to keep track of it. If he's going to be giving away money on a regular basis, then you want to track it. And ultimately, all the IRS then does is they have a record of how much money you've essentially given away to see what level you're at and whether or not it's ultimately going to be taxable. But again, unless you're really giving away substantial amounts of money, There is no tax consequence on it. So that aside.

SPEAKER_01:

He wants a new boat. Let's just be honest.

SPEAKER_02:

Who, the dad?

SPEAKER_01:

Yeah.

SPEAKER_02:

Well, yeah. I'm just kidding. If you don't want to give him the 25, then just say that. Yeah, I need a new boat. Forget that.

SPEAKER_01:

It was for the wedding. Now it's for the boat. Sorry.

SPEAKER_02:

So you can come ride in it, you know, and then when I die, you can have the boat, which that's not a good deal for anybody. I wouldn't take that boat. No way. So anyway. Yeah. Back to housing. So when you're talking about housing, again, and the type of mortgage, you can get a conventional mortgage, but if you don't want to put that kind of money down, then you can get like an FHA loan. So if you go down the path of getting an FHA loan, the Federal Housing Authority, then they only require a 3% down payment. So if we're still talking about that$325,000 home, if we're only required to put 3% down, That's$9,750. And generally, the closing costs are somewhere around the same amount, 3%. So then your total closing costs would be less than$20,000. Now, let's say that you don't want to put or you don't have the 3%. So it's possible, however, that you could still qualify for a mortgage. That sounds strange, right? How? Yeah, exactly how. So in the case of our friend, then he was in the military. So you can get what's called a VA loan.

SPEAKER_01:

Yeah, my dad was in the military. I've heard of those.

SPEAKER_02:

Right. So that's a benefit that military members who served honorably and they were honorably discharged that they can take advantage of. And the main advantage of a VA loan is that you don't have to put a down payment on it. So that can be hugely beneficial, right? So that's a huge chunk of money that you don't have to worry about putting down.

SPEAKER_01:

And now that I think of it, you only get it, though, after you retire, right? No. If you're active duty, you can get it. My dad probably used that. I never talked finances with my parents.

SPEAKER_02:

How come? You weren't interested?

SPEAKER_01:

yeah no i mean i'm like can i have 20 bucks and if they said no i'm like why but other than that like i even in high school i wasn't interested they don't teach this stuff you know

SPEAKER_02:

yeah i guess so i you know i guess it was different in my house because my mom and dad were both realtors so we always talked about um things like this it was just common And because they were talking about the deals they were working on, et cetera, it was just something I heard regularly. And then my mom went to go work for the Department of Housing and Urban Development, and I just learned even more. So I think the benefit you have is that the more you know, the better off you're going to be, really. And if you're curious, then it's going to be helpful. If you're not curious... then you can end up going through kind of the school of hard knocks.

SPEAKER_01:

Well, I guess I didn't know to be curious because it wasn't something that I was ever taught to know about or think about. Like, were finances, because it wasn't really ever talked about. I mean, my parents did it behind closed doors. But, I mean, my dad was a mechanic, so, I mean, I know how to fix things. We talked about that kind of stuff. But, you know, you coming from, like... I guess a different upbringing when it comes to money were things that I've had to learn through you and just, you know, becoming an adult.

SPEAKER_02:

Yeah. Yeah, I agree. I mean, there's a lot of things I don't know that I've had to learn. And it's not impossible to learn it. You just need to, you know, have interest in it. Exactly. I

SPEAKER_01:

mean, you can learn anything on YouTube.

SPEAKER_02:

Yeah. Whether or not it's true, I don't know. But I guess you can take all that with a grain

SPEAKER_01:

of

SPEAKER_02:

salt. But back to my point is, if you don't qualify even for, let's say, a VA loan, that still doesn't mean that you're SOL. Because believe it or not, there's still programs out there that you can get into that that you could still qualify to get a mortgage with an exceptionally low interest rate. Now, a lot of these are nonprofit organizations like NACA. NACA is one. And I don't know how many people have heard of this organization, but what NACA is is a nonprofit organization, and they're specifically– Their specific purpose is to help people get into the housing market with the best mortgage possible.

SPEAKER_01:

That's super cool.

SPEAKER_02:

Exactly. And not only is getting a house with a low interest rate one of the primary reasons to go through them, one of the other reasons is that they take you through an entire process of what it takes to buy a house, own a house, and keep a house. Because many times, especially with first-time homeowners, they can be considered a more risky borrower because they've never owned a home before. And maybe they didn't even have a long history of renting. So all of that doesn't work out in your favor, and what ends up happening is you hear sometimes no more than yes, and sometimes the interest rates are a lot higher. So that doesn't mean, though, that everybody is like that, but, you know, oftentimes you just get lumped into the same, you know, group with... You get all lumped together in the same group regardless of what your situation's

SPEAKER_01:

like. And that's just kind of unfair. Yeah, it is. It's unfortunate. That's what I was going to say. It's just like, okay, these people don't pay their bills. Why do you think I wouldn't pay my bills, you know? Right. Just because young people tend to not, you know. But, I mean, younger people tend to not have as much money. So, I guess it's priorities and, you know.

SPEAKER_02:

Right, right. So... What I'm saying is this is the type of organization you want to work with, a nonprofit, because they specifically help you get into the housing market. Now, as I'm saying all this, interest rates are really high, like I said earlier, but there's a huge difference between, let's say, a 7% interest rate and a 5% interest rate. I mean, does that sound like a big difference to you?

SPEAKER_01:

Not when you talk about like 20 bucks, but when you talk about like a half a million dollar home, yeah. Right. That math makes sense to me. I'm like, ooh, that's a lot of money.

SPEAKER_02:

Exactly. So let's go back to my$325,000 home, for example. Now, if I was getting a 7% interest rate over 30 years... then the total interest I'm paying on my$325,000 home is over$453,000 of interest. And what happens when you get an interest, what happens when you get an interest? What happens when you get a mortgage is when you start making your mortgage payment, then all you do for the bulk of the first half of the loan is you're paying all interest. and very, very little principal. And then gradually, it will shift, and by the end of the loan, you're paying all principal and very, very little interest. And that's, again, if you keep the house for the entire timeframe. So the other thing you wanna look at, just as I said, is how do I get the lowest interest rate possible? So just because the bank is offering you a loan, at 7%, should I take that loan? And the answer would be no. So let's say, for example, that you go through my friends at NACA, and I believe their interest rate right now is, I think it's 5.1. So I'd have to look that up to be sure. But nevertheless, let's just go with 5.1. So at 5.1... And we're talking, oh, somewhere in the vicinity of a little over$300,000 of interest in the same 30 years, the same$325,000 home.

SPEAKER_01:

You saying that makes my eyes glaze over because I don't want to hear

SPEAKER_02:

that.

SPEAKER_01:

Paying that much interest, right? Yeah. Yeah. Like, it's like, I just bought another house. Like, you know.

SPEAKER_02:

Yeah.

SPEAKER_01:

It's unfortunate. That's the world we live in, but, you know.

SPEAKER_02:

Well, the best thing you can do is if you're going to... Get a low interest. Yeah, but did you know you could also get maybe a 15-year loan?

SPEAKER_01:

I've heard.

SPEAKER_02:

Yeah.

SPEAKER_01:

Always refinancing, right? Isn't that something that you can do if rates go lower?

SPEAKER_02:

You can, uh-huh. But from the get-go, you can structure your loan and... And instead of doing the 30-year loan, you could do a 15-year loan.

SPEAKER_01:

But does that raise your payments each month?

SPEAKER_02:

Oh, sure, sure. But I guess it really depends on you and what you want to do and how quickly you want to get out from underneath this mortgage. Oh,

SPEAKER_01:

if you're trying to flip the house or something, you mean?

SPEAKER_02:

Well, not so much that, but... What I'm saying is if you intend to be in this house for the 30 years, do you want to be paying on that mortgage for the entire 30 years and paying that much in interest? Or would you rather pay for that house and pay it off sooner rather than later and pay less interest?

SPEAKER_01:

The second one.

SPEAKER_02:

Right.

SPEAKER_01:

Okay.

SPEAKER_02:

So... Let's just go with it. So again, if we're going with my$325,000 home, and let me do some math here. And we're doing our 30 years at, let's just go with 6%. And we're looking at a payment... change my number I wanted 325 30 years 6% so

SPEAKER_01:

total

SPEAKER_02:

interest would be 376 474 your monthly payment would be a little under$2,000$1,949 so keep that number in your head let's just say 1950. Easy math. And let's change our terms. Instead of a 30-year loan, let's go to a 15-year loan on my$325,000 home. And my new monthly payment is going to be... Oh, I had 6%. That's right. That's what I was using, 6%, right?

SPEAKER_01:

Yeah.

SPEAKER_02:

So change my terms here. I don't know.

SPEAKER_01:

This is why I married you. To do things like this.

SPEAKER_02:

Only because this makes more sense for us. Okay, 6%, 15 years, 325. Total interest,$1,000,000.$168,656. Your monthly payment is$2,743. So we were paying$1,950, right? So if we could afford it, we would go up to$2,743. Yeah,

SPEAKER_01:

roughly about like$600,$700. That's my math skills.

SPEAKER_02:

Almost$800.$800. So let's take that and divide it by 30 days. You're talking$26 a day more. So the whole point here is you're gonna get this paid off in half the time and save a whole bunch of money by just doing 15 years. You're making a sacrifice and putting more money down But if you were buying a house that was only maybe 28% of your budget, your income, then you might be able to put more down. It's kind of a double-edged sword, right? You're paying your mortgage off early, and you're saving a bunch of money, but you're pumping all your money into your home, putting all your eggs in one basket, which is never a good idea. But it's a good idea if... This is important to you that you get the house paid off as soon as possible and that you want to own your home free and clear. Or if that's important to you, then do it, no matter what the market is like. Because the sooner you get in, the better off you're going to be. Now, the other thing I was going to say is... Now, like FHA and Freddie Mac, these are just government-backed organizations that are really out there to help you, help us, you know, the general public. And they offer different programs to help first-time homebuyers or just homebuyers in general get into the market. And there are flexible ways that, for example, like Freddie Mac, they also... give you the ability to put a 3% down payment. And that you, part of their requirement is you can't spend more than 30% of your income. And that oftentimes the closing costs are covered by the bank as well.

SPEAKER_01:

So where do you recommend people going to find this information? Like just the websites of the places you've said or?

SPEAKER_02:

Well, sure, yeah, yeah,

SPEAKER_01:

yeah. If they want to do some due diligence themselves.

SPEAKER_02:

Yeah, you can look up Freddie Mac, and you can look up Fannie Mae, and you can look up NACA, and you can take a look at, you know, all kinds of calculators exist out there. And another organization that I know through the– through– Freddie Mac, I believe it's called, let me see what it's called. Borrowersuccess.org. Borrowersuccess.org. learning about mortgages and learning about how to buy a house. And they take you through, you know, your very first mortgage payment all the way through, you know, eventually buying the house completely.

SPEAKER_01:

So do you think that like people, millennials, let's say, because those are the people right now kind of buying houses, I think. Yeah. get duped by not knowing this information. Sure.

SPEAKER_02:

Yeah. Yeah.

SPEAKER_01:

So taken advantage of, I guess, by like realtors and banks.

SPEAKER_02:

Well, you know, a bank is a bank, right? They're there to make money. They don't, often banks don't keep that mortgage on their books. They will sell it in the secondary market. That just depends.

SPEAKER_01:

Yeah.

SPEAKER_02:

No, most likely your mortgage will change during the life that you own it. Now, with your credit union, no, it'll probably stay with your credit union. It's not going to get sold. With a commercial loan, yeah, it's going to get sold. Now, if let's just going back to borrow success, they give you, it says if you receive a$10,000 down payment under their program and you make 36 consecutive on-time payments, to the FHA, your first mortgage, and you provide evidence of these payments in the form of payment history, so you're making your payments on time, every time, every month, then 36 months, three years, that$10,000 is forgiven.

SPEAKER_01:

That's nice.

SPEAKER_02:

Yeah, that's huge, right?

SPEAKER_01:

Yeah.

SPEAKER_02:

So all you had to do is go through the whole program. So my whole point in all of this is, is just like I was describing to our friend, that what you know is only what you know, and the more you know, the better off you're going to be. So in his case, the best thing you can do is go ahead and work with a mortgage lender who does VA loans, number one, work through a credit union, number two, pull your credit report, number three, and take a look at it, see where you're at and make adjustments if necessary. But the bank is also going to tell you where you're at. Now, should you be told that you need to clean up your credit report or, you know, there's something you have to clean up? Okay, fine, do it. If it's going to fall off within 30 days or so, yeah, do it. If it's going to take seven years to fall off, then, you know, what's the point of waiting seven years to get into the market? You know, you're going to miss this window of opportunity. You need to get in. So that would mean to me that you should go through like NACA because in their program, they don't take into account your credit scores. That's a huge thing. So their program allows you to, again, get a mortgage through them and it doesn't have anything to do with what your credit score is. So I don't really know of any other entity that does that. and will give you a mortgage at such a fantastic rate. In fact, let's see. NACA.com, their interest rate is 5.75, 30-year fixed. They go 5.25 for a 20-year fixed. And 5.125 for 15-year fixed. No down payment, no closing costs, no mortgage insurance. Do you know mortgage insurances? I do not. So if you put less than 20% down on a home, you have to pay PMI, private mortgage insurance, which is what the lenders get if you default on the loan. So it's a little insurance policy that you're paying. So it comes out of your pocket. So VA also has a charge to it as well. It's much lower than PMI, but you still pay it. And I'm not saying that's a bad thing, but I'm just saying you will. Even if you get that FHA loan where you put 3% down and you got to pay 3% in closing costs, and until you've reached that 20% level, you're going to also pay PMI. So all of... these mortgages, you can see how they're different, right?

SPEAKER_01:

Yeah.

SPEAKER_02:

I mean, it kind of makes you blurry-eyed, right?

SPEAKER_01:

A little bit. I mean, my brain kind of went sideways for a second. But, you know, I'm learning. Well,

SPEAKER_02:

that's good.

SPEAKER_01:

Yeah. It might not just be, like, a one thing, but, you know, thankfully I have people in my life like you, and, you know, there are other people that do this for a living to help you through these processes, which is good.

SPEAKER_02:

But even if, let's say, you, at some point I wasn't around, and you went to go get a mortgage on your own, do you feel like you would know more now about what to ask for?

SPEAKER_01:

The manager. No, yeah, I do. I mean... I definitely know more than I did even 10 minutes ago. Right. I know a lot more than I did in my early 20s. I was like, oh, you go pay rent at an apartment and that's what you do. Right. Because it's way easier than, you know. But it's nice to have a place that you, you know, like an apartment, you're Say you live in an apartment for like five years. You could have spent all that money towards a house. Yeah. I always think of it that way. At least you're investing into yourself. Real estate is always an investment.

SPEAKER_02:

Well, it's always for the most part gone up. And for the average person, the majority of their wealth is in their home.

SPEAKER_01:

Yeah.

SPEAKER_02:

And like I said, what concerns me about... millennials, Gen X, is them being priced out of the housing market. That's what really concerns me.

SPEAKER_01:

And it is an issue. I hear more of my friends moving back home or having to leave their apartments or move to a smaller city because they can't afford to... We live in Austin. They can't afford to live downtown anymore or near it because... It's just astronomical.

SPEAKER_02:

Yeah. Now, I mean, when I moved here 20 years ago, it wasn't like that.

SPEAKER_01:

Yeah, it's crazy. And

SPEAKER_02:

you think about it now, 20 years from now, you know, a$325,000,$400,000 home will seem cheap. If housing keeps going up at the rate that it is, we will be in the San Francisco million-dollar realm. And then that's a whole different animal. I've heard of people taking out 50-year mortgages. And they've got to live with four or five people in the house. It's

SPEAKER_01:

crazy. I wonder how much my Ikea cardboard box will be worth. Right? That's what I'll be living in.

SPEAKER_02:

It's just, you know, the best thing you could do, honestly, is inherit someone's house. Honestly, that would be one of the best things. So I

SPEAKER_01:

should start texting them.

SPEAKER_02:

Well, you know. I'm just kidding. Tell your mom and dad, hey, you know.

SPEAKER_01:

Give me a little chunk of that change, please.

SPEAKER_02:

Just mark everybody else off the will in that house but me. Yeah. But the whole point here really is that the more you know, the better off you're going to be. And don't let your financial circumstances get in the way of you buying a house. Where there's a will, there's a way, and there are programs out there. that you can find that are real, that exist, that can put you in a home in a very short period of time. Now, if your debt is out of control and you can barely eat because you're paying on your debt, now that's a whole different realm and that requires another conversation. One that I won't get into right now, but I'm saying for the average person where you have a normal amount of debt, That's not a crazy amount of debt. And you're able to manage that debt. And you're in a job that's, you know, pretty steady. You're not worried about losing your job. You've been there for a couple years at least. You, your spouse, or, you know, then all those are good things. Then, as I said, I think you should try to get into the market as soon as possible, the housing market.

SPEAKER_01:

I've decided I'm buying Grey Gardens. It's too late. I know.

SPEAKER_02:

Someone already owns it. I know. And they did a fantastic job renovating

SPEAKER_01:

it. I know they did. It looks really, really nice. Made me think that. I'm like, okay, I can do it.

SPEAKER_02:

Right?

SPEAKER_01:

I don't even know

SPEAKER_02:

how much they had to spend on Grey Gardens to redo it. It was worth it. Oh, man. The amount of money they had to put into that rat-infested nest is just beyond me. The feral cats and everything they had in there. It's disgusting.

UNKNOWN:

Mm-hmm.

SPEAKER_01:

Well, thanks for having me, honey. I always love guesting. I don't know what you call it. Guesting. Guesting. Guesting. Guest starring. Guesting on your show.

SPEAKER_02:

Well, I'm glad you're here. I hope it helped. I did. I learned. A lot more than you before.

SPEAKER_01:

Yeah, but you'll teach me more, I'm sure.

SPEAKER_02:

Yeah, listen to the podcast. All right, guys. We're out. We'll be talking to you next time, and thanks for listening.

SPEAKER_01:

Toodle-oo.

SPEAKER_03:

I'm a sensation You'll try me once, you'll beg for more

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Jerry Williams, MS-PFP

Host