Trey Garcia- Mortgage Broken Down

Trey Garcia is a mortgage professional who has been in the business for roughly 7 years.  Trey have a background in Mathematics and loves to educate new homeowners about their options and what fits into their budget.

Connect with Trey:

 https://www.facebook.com/Trey-Garcia-Union-Home-Mortgage-110153978219517

https://www.uhm.com/tgarcia/

Your hosts: Colton Cockerell & Trisha Stetzel
Click for more about your hosts:
Colton Cockerell
Trisha Stetzel

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Transcript

Colton Cockerell: 0:04

Hello and welcome to a another exciting episode of Bridge the Gap where we're balancing life through health, wealth, business and relationships. Hello and welcome to the show my name is Colton Cockerell. And with me, I have my co host who's always on my ride or I guess left depending on what the screener in day by day, versus that's what's going on.

Trisha Stetzel: 0:27

Yeah. Hey, actually, Colton, I'm above you in the Brady Bunch squares today, just so that you know. Hey, everyone, welcome to the show. So glad to have you listening with us. Just as a reminder, this month on the show, we are hyper focused on financial wellness. So today we're going to be talking about loan originating and who better to come and talk with us about home financing. Then Trey Garcia with Union home mortgage Trey, welcome to the show.

Trey Garcia: 0:58

Thank you guys for having me on the show. Hopefully I can provide some insight. I hope

Colton Cockerell: 1:03

you will. So before we jump in, though, I do want to give a shout out to our sponsor of this show Trey you're very familiar with them. And that is Sharer McKinley Group, LLC. Great company. Let's go ahead and jump in so phrase on the show because not only is he been doing this forever, you know, writing loans, but he's also has a master's in mathematics. So let me start with this. Whenever people are actually applying for loan, you usually hear two different types then those more but the main two are FHA and conventional. Can you kind of briefly explain the difference between the two?

Trey Garcia: 1:34

Sure. On a conventional mortgage, people have the misconception that this is not for first time homebuyers. Typically you associate FHA loans with first time homebuyers. Anybody can get a conventional mortgage, it just has a little bit higher requirement for a FICO or credit score, versus an FHA will a lot for a little bit lower credit score while having a higher debt to income ratio. There are advantages and disadvantages to both programs. Typically, an FHA is going to have a lower interest rate than a conventional mortgage. But a conventional mortgage with a higher FICO customer will have an overall lower payment, despite the higher interest rate on the loan. Not to worry,

Colton Cockerell: 2:18

I want to be right there. Because I think that's so important because a lot of people they focus on why should I get the lowest interest rate and put the least amount down. But what you just said right there. FHA, just because you have a lower interest rate doesn't mean you're actually having a lower monthly payment. And I'm assuming you're going to PMI and mortgage insurance.

Trey Garcia: 2:36

That is correct. So on an FHA loan, it is flat across the board, not flat as in$1 amount, but flat is in a percentage for everybody, regardless of your credit score, and that is .85% times your loan amount. Unless of course you put 5% down it drops .8% versus a conventional conventional, it's private mortgage insurance, meaning it's held through a private company, it could be Essent, Genworth radian, any number of companies, and that is solely based off of credit score and DTI.

Colton Cockerell: 3:10

And that is, I think that's interesting, because a lot of people whenever they think of, oh, you know, PMI mortgage insurance can once I hit 20%, I'm done. So can you squash the myth? If you have an FHA loan? Does your mortgage insurance stop after 20%? debt to equity in the house?

Trey Garcia: 3:27

So that's a trick question. Of course, like always with mortgages, but it does come off after this is important, not a dollar amount, but 11 years on an FHA mortgage, but only if you put 10% down on the home. Otherwise conventional, yes, once you hit that 20% equity portion, you can petition for it to be removed, it will get removed automatically. I believe it's at 22%. So technically, 78%, LTV, if you don't ever send a note into your mortgage company, once you've reached that point. It's just it's kind of tough, because 11 years is a long time to have mortgage insurance, even if you have 10% down on a home. And the other thing is you're not getting true equity on an FHA mortgage, because there's a financed portion of your mortgage insurance, which is 1.75% that gets tacked on. So brief example, if you put one if you put three and a half percent down on an FHA, you're actually only getting 1.75% equity in the property at the time of purchase, because the rest of that is financed. Thanks. That's interesting.

Trisha Stetzel: 4:34

So, you know, I'm just sitting here listening to you guys talk all these numbers, and it's so interesting. Anyway, Trey, I'm so glad that you're on the show. Because, you know, there are so many people in your industry that don't really know or can explain the nuts and bolts behind it right to a lay person and I appreciate the way that you're the way that you're able to do that. I am sure this question comes up all the time right now what are the interest rates look like? It's the spring of 2020, by the way for our listeners,

Colton Cockerell: 5:08

and where are they had 22?

Trey Garcia: 5:11

Well, so the best thing I can tell you is right now they're heading upwards. And if you want to get a good indication of where those rates are going to go, I would recommend looking at the 10 year Treasury yield on the bond market, just pull up Yahoo Finance, pull up that little graph, and you'll be able to see where rates were and where they're heading. Right now, there's a slight dip in basis points, I do imagine that's going to turn back around and go right back up to where it was. Currently, it's tough to say an exact rate, because again, with all the different factors that go into an interest rate, credit score, and all the other kind of stuff. I wouldn't be surprised if you saw rates between four and 5% come in the spring, and then maybe a little bit higher than that come later in the year.

Colton Cockerell: 6:04

And now I want to I don't want to get to try so hard for the people who aren't like huge into numbers like Trey and I are like nuts. But I want you to explain you and I were we kind of you were talking about a strategy about paying your house off quickly, might have a slightly higher interest rate. However, just making instead of putting a larger downpayment down, you can actually save a bunch of time on the back end and a bunch of interest payments, can you go into more detail what that looks like?

Trey Garcia: 6:33

Sure. Um, so a prime example is somebody First, there's always a misconception. Conventional Loan, I gotta have 20% down. That's not the case, bare minimum on first time, homebuyers, 3%. And then 5% is pretty industry standard on that purchase of a primary residence. But let's say I did have my 20%. And let's use the scenario of a$200,000 purchase. And I had 20% to put down. But I qualified with putting just 5% of that you can actually save, I think when we did our numbers, it was about eight years on the mortgage by just putting 5% down and applying the extra 15% direct towards principal over the first couple years, the amount of interest you saved, or would save in that scenario that we did, I believe was 70 plus$1,000. Of interest.

Colton Cockerell: 7:27

That's a large amount and explain why that is because I think a lot of meets a lot of people, people who probably bought a house don't understand that it's not a level interest rate. So can you own that

Trey Garcia: 7:38

sure interest on a mortgage is going to be front loaded, meaning like as I make my payments for the first year, majority of my principal and interest payment is going towards interest. However, if I make an extra payment, I skipped down on the amortization schedule. So basically your amortization schedule you should get from your mortgage company, your loan officer should be able to provide it to you. And what you're going to do is you're going to take however much you plan on putting and subtract it from the principal balance, and you'll see that you skip a number of lines. And you go to Line, you know, from one to 10. Well, the nine lines in between or eight lines in between is all interest that I've skipped. That's money that I never pay to the mortgage company, or to the loan servicer or anything like that. It's just if I make an investment of $8,000, but I skipped $24,000 of interest that I've you know, basically essentially, I've made money on my money by doing that. Yeah,

Colton Cockerell: 8:33

breaking it down. Like you said, you have 360 mortgage payments right over the years multiplied by 12. Right. So you have beginning starting off, you're going to have a heavier like 70 80% interest 20% principal, so you're staying in just a scenario, hey, I have a $2,000 monthly payment. Let's say 16% of that's going or 1,600s going to interest only 400 is going to principal you're saying if you extra, no 4000 down, you just jumped 10 payments, you actually almost paid it off pay skipped a year of payments that I'm hearing.

Trey Garcia: 9:07

Yeah, it's pretty close to that. I mean, in in that scenario where you cut off eight years of your mortgage, that's pretty significant. With just in the first year now. Now I'm down to 22 years remaining, versus if I put the 20% down. The bad thing is I'm still I'm still at a 30 year mortgage, I didn't cut any time off now my payment is lower. So there are other factors to consider like, is monthly payment more important, or is it more important that I save money in the long run? To me, I like people to have money in reserves. I would prefer that people keep their money wherever it best suits them, which is usually not with a bank. Usually not with a mortgage company. You'd like to get rid of that note is as quickly as possible. And also have some spare cash in case you know incidences do occur where you need that money to if I just spent all my savings 20% down on a house and I think Get in the, you know, hot water heater starts leaking. And now I've got to come out five grand for repair. Now I've got to go and jump in and get a loan or something else versus 5%. And now I've got my money for the repair in case I need it.

Colton Cockerell: 10:14

Yeah, or you already have a nice savings built up and you want to invest the money. Colton Cockerell with Sharer McKinley Group I mean, there's some abs.

Trey Garcia: 10:20

Absolutely. Absolutely. I think that's a great option to

Trisha Stetzel: 10:25

say our sponsor was today, Colton. Oh, yeah. It's okay. So, Trey, I'm really curious, you know, with the housing industry, the way that it's been over the last many months where people are paying above asking and sent in some cases way above asking, they're really dipping into that pile of cash, right, that they would like to put away to pay for the house. What are you seeing on your side? Like, what is that? How is that changing the way mortgages are happening.

Trey Garcia: 10:55

So what we're seeing happen, obviously, is people paying over list price. And typically over appraised value, I won't say typically, but normally the appraisers adjust based off of the market, but not always, in some cases, people are, you know, biting the bullet and paying over whatever that appraised value was in case of a low value. Unfortunately, I don't know that home prices are going to come back down, it looks like anytime soon, because we've almost got to this point in the market. And now with homes having sold at that value. It's hard to make a downturn because now that's the new norm, right? Where a home was 200,000. Now it's 300,000. And the neighborhood supports a$300,000. Sale, there may be some pushback on you, if interest rates continue to rise, there may be some pushback on the, from the buyers on getting those values back down. But we may not see a sharp decline, like I believe it was about two years ago, all of a sudden houses went through the roof. I mean, everybody's value went up. Because people were sitting at home due to COVID. And they're like, I would love a pool. I would love you know, a bigger house, I found that I can make more money. No,

Colton Cockerell: 12:13

no, completely. And I mean, the interest rates going up. Sounds like I mean, logically, I would think that that would kind of help reduce prices for housing, but at the same time, I mean, if there's still a such a high demand for people wanting to buy houses, you're gonna still see prices until demand kind of levels out. People are like, Okay, I don't want to pay this for, you know, a three bedroom, two bathroom, I mean, it's still sky's the limit. And it doesn't look like it's stopping anytime soon. So let me let me ask you this. I think a lot of people, they get caught up, especially if they're buying a new house or something like that. I mean, anybody, whenever you're buying a house, can you explain what premium pricing is I think people don't think that they can actually get all their closing costs covered by the mortgage company at the expense of a higher interest rate.

Trey Garcia: 13:01

Sure. So a lot of people, typically what you hear, if somebody says I financed my closing cost, it could mean a couple of things. Either one, they refinanced, in which case, they truly lumped it into a loan amount, or two, well, I guess there's three, so two, they would have got premium pricing, meaning they took a slightly higher interest rate to get a credit back on the loan, or the sales price was increased slightly in order for the seller to give an additional credit. So you have those few scenarios, the premium pricing isn't a bad option. For some folks, if you're short on cash, and you need it to help with closing costs, maybe you take a rate of So let's say that your interest rate was four and a half percent. And instead you took a rate of 5%, you still qualify for the mortgage, everything else still remains the same. But you get a point in credit. Now point is not the same as an interest rate, it just, it's a basis point on a loan, which is 1% of your loan amount. So in the case of a $200,000 home, you're going to get $2,000 towards closing costs due to that rate increase. It works as long as you're going to stay in the house within a set time period, because at some point that increase in the interest rate is going to cost you more than the credit that you got. And that's where I think there's a little bit deterrent to premium pricing. But if you know you're gonna stay in the house, and again, you could talk with us about your wonderful financial advisor, you would consult them on this sort of thing. You want to make sure that that is financially responsible and financially, you know, works for you. Because if I know my plan is I'm staying in the house for seven years. And I've got $2,000 and the difference in my payment was $25 a month, then yeah, I'm probably gonna take that that credit because I'm not going to see that 7000 Or I'm not going to see that extra cost because I'm selling the home in seven years.

Colton Cockerell: 15:00

So really, if you ever find somebody that says, hey, if you use my loan officer or my company, you'll get we'll give you X percent towards us, which in reality, premium pricing, you know, wink wink, hybrid, you're getting the 3%, even though someone can do better. So this is why it's so important to talk to a loan officer because a good one because there's so many options that you probably don't know are available, you will sit down, and you talk about them. So in closing today, Trey, thank you so much for coming out. And I just want all of our guests to know even though Trey did not give his information out, it is going to be on Facebook, it's going to be in the show notes, wherever you're listening to the podcast. So he will have all that out there if you have any questions. So make sure you tune in next week for another exciting episode of Bridging the Gap will be focused on financial independence for the month, and we're gonna be talking to a special guest so make sure you tune in then. Thanks. Thanks again for tuning into this week's podcast. Don't forget to subscribe and share this podcast with the most important people in your life. Colton Cockerell with Sharer McKinley Group, LLC is located at 820 South Friendswood Drive Suite 207 Friendswood, Texas 77546 phone number to 281-992-5698. Securities and investment advisory services offered through NEXT Financial Group, Inc. member FINRA/SIPC Sharer McKinley Group is not an affiliate of NEXT Financial Group, Inc.