Create the Perfect Bill Making Format for Mortgage Effortlessly

Bill making format for Mortgage

if you went out and you asked a 100 different people what is your biggest monthly expense 90 of them are going to say it's their housing payment your mortgage or your rent but did you know there's a little loophole out there that you can use which lets you own your own home but you don't actually have to make a housing payment out of your pocket watch this video till the end to find out how what's up everybody I am just B Singh from the minority mindset.com and welcome to the minority mindset most people's biggest expense is their house because every month you got to pay this rent check or this mortgage check but what if there was a way for you to live without without a housing payment and without having to wait 30 years to pay off your mortgage yes it is possible and I'm going to be talking about it in this video but before I get into that I need you to do me a quick favor and smash that Thumbs Up Button below because the way the YouTube algorithm works if you do not smash that Thumbs Up Button then uh YouTube is much less likely to show you and other people our financial news and education videos to do this kind of house hacking you have to find a loophole in the system what's considered a home before you give me a Sentimental answer like home is where the heart is we're talking strictly Financial right now okay when most people think of a home here's what they're thinking they're thinking of this building with a roof on it with a door with a couple Windows actually maybe more windows and then a driveway this is what most people think of when they think of a home but technically speaking that's not the only definition of a home I mean you can own a condo which is one unit which is attached to a lot of different units your home can be an apartment but now you're renting this one unit inside of a building with a bunch of different units your home can also be a mobile home so there's a lot of different types of homes out there and if you wanted to buy a home this takes a lot of cash and most people don't just have a ton of cash sitting in the bank account where they can just go and buy their own home completely with cash so what do you do you go over to the bank and then the bank is going to loan you some money that way you have the cash to buy a home so now the bank gives you this mortgage that way you have the cash to buy this home and then every month for the next 30 years after that you're going to be paying your bank back this mortgage plus a little bit of Interest so this is what people want to avoid they don't want to have this big monthly payment because it is expensive and for the majority people when they think of being this housing payment free they have to wait 30 years until they can pay off their mortgage but there's a little loophole that you can use which will allow you to no longer have this money come out of your personal bank account you could have someone else pay this loan let me show you what I mean so you have this really nice 4unit multif family building on sale for a million dollar and each one of these units rent for $2,000 a piece they're pretty nice units they're spacious they're nice when most people think of buying this four unit multi family building here's what they think I'm going to buy this multif family building for a million dollars but I don't have a million dollar in the bank so now I got to go to the bank and get this commercial real estate loan that way I have the cash to buy this investment property so you go to the bank the bank's going to say hey you want to buy this property great put down $200,000 and then we the bank are going to loan you $800,000 and because it's is the commercial real estate loan we're going to charge you something around 6% a year in interest if you're getting a commercial real estate loan a business loan it's going to cost cost you a whole lot more than a regular mortgage which is why at this time it might be something around 6% interest which means this $800,000 that you're borrowing is going to cost you as the investor $48 a month this is how much money you're going to be paying the bank every single month to own this four unit building that you're renting out at first glance you might think wow that's a great deal you're making $2,000 $2,000 $2,000 $2,000 that's $88,000 a month in rent and you're only paying $4,800 to your bank that's thousands of dollars of margin except you forgot property taxes and property insurance and maintenance fees and management fees and property vacancies those five fees that I just mentioned are probably going to cost you something around $2500 a month this is in addition to your mortgage payment that you have to make every single month your loan payment so when your property is full you'll be making $88,000 a month in revenue and then you have to subtract your cost which 4800 plus 2500 something around 70 $300 a month which leaves you with a few $100 of margin every single month to put in your pocket and this can cover your vacancies that might come up and put some money in your pocket but in this particular situation you don't have a place to live so now you're going to have to go out and find another home to live in yourself and you're going to have to make a rent payment or a mortgage payment and chances are this money that's left over after paying off whatever vacancies come up is not going to be enough to cover your entire mortgage payment and your entire rent payment so now let's reanalyze this deal but this time you're going to do something different this time instead of renting this property out to four different families you're going to rent it out to three different families and you are going to live in this unit right here for yourself remember when I asked you in the beginning of this video what is a home well from a legal perspective as an attorney who is not your attorney I can tell you that your home which is called your primary residence it can be a one unit a two Unit A 3unit or a 4unit property so now if you go out and you buy this 4 unit multi M family building and you don't rent out all four units you live in one of the units and you rent out the other three now this is a 4unit building that you are using as your primary residence your home when you use this house hacking loophole there are four things that happen for you first you get a much cheaper loan because now you're buying a home and you can get a primary Home Mortgage instead of going out and getting a commercial business loan at the time of me recording this video this might only cost you 3% a year in interest compare that to what you would have to pay if you got the commercial loan like I talked about earlier so now if you wanted to buy the same $1 million property and you put down $200,000 now your monthly mortgage payments are going to drop from $4,800 a month to $ 3373 a month that's quite a big drop $3,400 a month might sound steep depending on your income but you have to remember one more thing your neighbors your people attached to your building are all going to be paying you $2,000 a month to live in your your building each all right now check this out so $2,000 $2,000 $2,000 every single month your neighbors are going to be sending you $6,000 a month when your property is full but you got some cost you have to pay right first thing you're going to do is you have to pay your bank you're paying your bank 3373 a month and then you also have your regular building expenses right your property taxes your maintenance your management fees your vacancy cost whatever this is right you have your regular cost to have a building have a home and this is going to cost you from the previous example $2500 a month this leaves you with $127 every single month that you have all your tenants in there after paying your mortgage after paying all of your housing payments your taxes your maintenance everything for your home you still have another $127 in your month because your neighbors are so generous that they decided to pay your mortgage for you you get to live mortgage free cuz you don't have a housing payment anymore your neighbors are paying it for you you're putting an extra $125 in your pocket every single month and your neighbors are helping you build equity in this million property every single month and none of this Equity is being built by you it's being paid for by your neighbors but now what if you don't want to pay that $200,000 down payment or what if you don't have that $200,000 down payment well that brings me to the second advantage of this loophole this is where alternative types of Finance to come into play like FHA Loans if you go the FHA loan route now you might only have to put down 3 and a half% on your loan but the issue with FHA Loans is there's a limit to how big of a home that you can buy but the interesting thing here is if you buy a multi-unit property like a 4 unit home like I talked about because four units count as a home then the FHA limit increases but before I get into that let me also remind you that more debt comes with more risk if you're only putting 3 and half% down you don't have as much skin in the deal and you have bigger mully mortgage payment and so just understand that more debt comes and more risk and if you don't have a big enough equity in your property then you're also going to have to pay PMI but it is an option for some people who want to get into this house hacking game in certain areas you would be allowed to buy this 4unit property with is 3 and half% down with an FHA loan which means you only have to put down $335,000 and now you have this 4unit property that you're renting out to three other people now in this situation your mortgage payments are going to jump to $4,000 a month okay let's through the math 2,000 2,000 2,000 you have $6,000 coming into your pocket every month from your tenants and then the first thing you got to do is you got to pay the bank $4,000 so you pay in the bank $44,000 then you have to pay the additional $2,500 a month to live manage the property you know property taxes and everything else that means every single month out of your pocket you're going to have to pay $500 to live here but you also have a million doll property that you're building equity in each and every month and most of that is being paid by your tenant and in this situation you only had to pay $35,000 down to buy this million doll property the third benefit remember I said there's four the third benefit is that now you can sell this property for a profit and not pay any taxes if I just believe saying the real estate investor come in and I buy this property to rent out so now I'm not living here I'm renting out all four units and I rent it out for a year and a year goes by and I realize ooh I can sell this property for $1.2 million and now I sell this property for $1.2 million hey I made $200,000 in a year which is great but I got to pay taxes on that $200,000 of profits these $200,000 of profits of selling this investment property are called long-term capital gains and so I'm going to have to pay taxes on $200,000 and so I'm only going to keep a fraction of that but when this is your home remember this is your personal residence which means this is your home you can do that if you have four units so if this is your home home you have a special tax exemption which says you can sell your home for a up to $250,000 profit and you don't have to pay any taxes and if you own the home as a married couple then you can sell your home for up to a $500,000 profit which means you could sell this home for 1.5 million doll and then you wouldn't have to pay a penny in profit but sticking with the example if you buy this home and you live here and then you can have your tenants your neighbors pay you rent every single month and now your neighbors are paying for your mortgage they're building you equity in your home and now if you sell this property your home for $1.2 million you lived in this home free you built Equity free thanks to your neighbors and now you can sell this property and walk away with a couple $100,000 cash in your pocket and yes that's taxfree and then the fourth benefit is you can do something that I like to call multi-level house hacking at the time we recording this video most lenders have a rule that you are not allowed to rent out your primary residence unit so if you buy this property you can buy it as a home your own personal residents but you're not allowed to rent out your unit for at least 12 months but after 12 months you typically have the right to turn this unit into a rental unit as well so now you move out and now you just got this new rental unit remember if I bought this property initially as an investment property I'd be paying 6% interest I'd have to put $200,000 down and my monthly payments would be $4,800 a month but if I buy this property at my own home and I live here for a year remember I can get this at a 3% mortgage I can still put down $200,000 but now my monthly payments are going to be something like what was it $3,400 something like that a month and now I can live here for a year not have to pay any housing payments because my neighbors are paying for everything put $100 into my pocket every month and then a year later I can move out and then put an additional $2,000 into my pocket every month because these three tenants are paying the mortgage they're paying all the house housing bills they're paying for everything else this tenant is just profit after I move out so now this new property where I just moved out of can keep paying me that $2,000 a month every single month because now your interest rate doesn't change your bank is going to let you keep this 3% interest rate which you're not allowed to get if you're buying it as an investment property but here's the Dilemma if you move out of this property you still need a place to live right so you lived in this property for a year you didn't have to make any housing payments because your neighbors paid it for you you built equity in this property and then a year and a day later you move out you're bring in a new tenant and so you're putting another couple thousand in your pocket but you need a place to live so here's what you can do now you find another property like this another 4unit property and guess what you start this process all over again let me just finish drawing the windows I drew the door knob before the door all right now you have four new units and now guess what you move here you rent out these three units to your neighbors each of these neighbors are paying you $2,000 a month and you start this process again there's no limit to how many times you do this and every single year you can buy a new property you can let your neighbors pay your mortgage and you can continue building equity in more and more investment properties do this system five times and now you have five different investment properties with very low interest rate debt that are making you a profit every single month that you're building equity on every single month that your neighbors are paying for you to live there for every single month oh and after five of them you also have $10,000 coming into your pocket as profit every single month through passive income I know it's a lot easy to said than done but this process is possible and it's a very accessible way for you to go and get involved in real estate because now you are having your own property where you're living in but you're also building these rental streams and when you're ready you can move out and do it again what's up everybody I am J pit Singh and if you own a home when you're trying to figure out what do I do with my extra cash should I save it should I put my money in the market or should I use my extra cash to pay down the mortgage on my home well in this video what I'm going to do is I'm going to break down what is the best investment for you depending on what your goals are and financially what is the best thing for you to do if you should pay down your home because there are some benefits to paying down your home and there are also some cons to paying down your home so let's dive right into it the first thing that you want to understand is kind of where in the home ownership cycle that you're in because when you go and get a mortgage let's assume that you get a 30-year fixed rate mortgage your mortgages are front-loaded meaning that your payments that you're making in the early part of your mortgage are going primarily into the bank's pockets in terms of interest and their profits and you have a teeny tiny little bit going to pay off your actual principal meaning the home balance on your loan and so what happens is for the first half of your mortgage the first almost 15 years or so you have more of your monthly payment going into your bank's pockets for interest than actual paying down your principal let me actually dive a little bit deeper and show you I'm on banker.com you can try this out for yourself but put a loan amount of half a million do at a 30-year loan term at a 6% interest rate and I'm going to assume that the loan starts on January 2023 that way it's easy for calculations and if you just look at this chart what you'll see is this dark blue line shows the amount of money that you're paying in principle and the light blue line is the interest and if you start the mortgage in 2023 it isn't until where is this October of 2036 until more of your payment is going to urge your principal balance rather than your interest paid now it goes a little bit more interesting if you go into this next tab which is the schedule and what you'll see here is that in 2023 in the 12 months of you paying your mortgage of about $3,000 a month only $5,600 is going to pay down your principal balance while $ 27,36 is going directly into your bank's pocket of Interest meaning you paid over $32,000 over the course of 2023 and only $5,600 went to actually pay down the balance of your home now while this information might not be a determining factor of whether or not you should pay down your home or not it might give you a little bit of a fire under your butt to realize that oh my God a lot of my money is going directly into my banker's pocket and if I do pay down my home faster well then I can help build my equity in my home without just making my banker so rich because if you pay down your home faster you have less interest going into your Banker's pocket but now the question is what happens now if I invest my money instead well yeah maybe I'm still putting my money in my banker's pocket but if I can put more money into my pocket by investing my money myself then it's worth it because if I have to put $10,000 into my banker's pocket in terms of interest but I can make $20,000 from my investing well I can just take 10 grand from my investing profits give it to the bank and still have $10,000 left for myself so you end up a winner so the question is now can you get a better return on your money by not investing your money into paying down your mortgage and investing your money in yourself now the calculation here is relatively straightforward if the interest rate from your home is less than the interest rate from your investment then it makes sense for you to invest your money get a better return and then use your profits to pay down your home mortgage because now you can do it at a profit because now yeah you're paying interest to your Banker but you're making more money from Investments the problem here is that here investing your money also comes with the RW which is risk because while the average stock market return is 10% a year historically and the average real estate return is also right around 10% a year that doesn't mean that the stock market and the real estate market are guaranteed to go up by 10% every single year it's an average meaning some years the markets go down some years they go up higher than 10% a year and if you look at it over the long term you're making 10% a year but if you don't have that sort of investing experience you might not see that same 10% return maybe you get a lower return and this is where that risk factors in because you can also lose your money by investing in money so if you're losing money by investing in money but you could have gotten a guaranteed return by paying off your mortgage well then you're losing because when you pay off your home it is a guaranteed return if you're paying 5% a year on your mortgage or 6% a year or 4% it doesn't really matter what you're paying and you pay off your mortgage one year early well that's a guaranteed return on your money versus here there's no guarantee however here you could potentially get higher returns but it's not guaranteed now the question is how do you find the right answer for you and this is going to depend now more on your financial goals and on your risk tolerance because if your financial goals are I just want to be free I don't want to have to worry about money I don't want to have to stress about money I want to live small I just want to be able to live my life and never have to think about money again well you don't have to take on a whole bunch of risk then because if you can pay off your home quicker well now the biggest expense that you probably have is going to be paid off and now you only have to worry about your property taxes and you don't have to worry about paying a mortgage ever again if on the other side you say you know I don't really care about risk I want to live bigger I want to live large I want to live lavish I want to have all the nice things I want to have all the nice stuff but then you got to be willing to take on more risk and if you want to take on more risk that means maybe it's better for you to invest this difference invest the extra money instead of paying down your mortgage because paying down your mortgage might give you a three to four to five maybe 6% return on your money if you pay it off early but if you invest your money there's a lot more potential return there and now you can try to get better returns try to earn more money that way now you have money to pay down this now now of course is it riskier yes but now you have to understand that the risk needs to match your goals because if you say I want to live large I want to have all the nice things but I don't want to take on any risk well now you're speaking out of both sides of your mouth you want to have the nice stuff but you're not willing to put in the work or take the risk to do that and so you have to understand kind of where it is in your life that you want to be and what your goals are because that's going to dictate what you do next now one thing that I do want to point out here is if you have other sorts of debt things like credit card debt things like your home equity lines of these are higher interest rate debts then it would be more beneficial for you to pay that off instead of just paying off your mortgage because when you're paying off your 16% interest rate credit card well that's a guaranteed 16% return on your money here when you invest your money in stocks or real estate the average return is 10% a year but when you're paying 16% to your credit card company that is a guaranteed 16% return for your credit card company but you're the one that's paying that so it's more beneficial for you to pay off these high interest rate debts instead of investing your money and instead of paying off your home because your home mortgage I'm assuming now is under 16% a year if you have a mortgage that's costing you more than 16% we have a problem and we got to talk about something else here but if you have a normal mortgage rate this is where you have to understand what are the bigger debts and you want to be paying off that credit card debt as fast as possible now the counter argument could potentially be Bas we're talking about the home that I live in if I don't pay off my home will I could risk potentially losing my home if I don't make my home payments for my credit card I could just declare bankruptcy on now if you don't have the money to make the minimum payments on your home or your credit card now this is where you need to get an advisor ASAP that way you can figure out what you need to do whether it's an attorney or an accountant because now you want to make sure that you can take care of your family and your finances and you need to know what your options are ASAP because yeah you don't want to lose your home and you also don't want to get defaulted on by a credit card company so that is a different situation but if we're talking about the General now if you have extra cash you put that money towards your credit card towards your home put that money towards your credit card pay the high interest rate off and now we can talk about home versus an investment and the answer here yeah is the return that you can get but secondly is the lifestyle that you want to live now if you do want to make that decision that you want to pay off your home early because you don't want to ever have to stress about payments again because nobody likes making payments I hate making payments if you don't like the idea of making payments and you want to pay off your home early great now what you have to understand next is that when you make your extra payment to your bank to your lender you want to make sure that the extra money that you're putting towards your mortgage is being applied to your principal balance and it's not being used to pay off your next month or your next payment for your loan balance because these two things are going to give you two completely different results because if you use your extra money if you have an extra five grand for example and you use this money to pay off your next month's balance or your next balances well now what's happening is you're just prepaying your next month's bill and then the next payment you make bank is just going to be going towards the following month which means that this $5,000 that you're paying is going to be going partially into the bank's pocket and partially to pay down the principal balance and instead what you want to have happen is all $5,000 that you're investing back into pay down your home is going towards paying down your principal balance and none of it going into the bank's pocket so if you're going to pay down your home early and you're sending in some extra money to the bank make sure you do it as a separate payment and make sure it is C clear that this money that just giving to the bank to the lender is going to pay down the principal balance entirely and none of it is going to interest so if you're paying it online there should be an option there if you're sending in a check make sure you send it in as a separate check talk to the lender talk to them make a note let them know that you want all of this money going directly towards your principal balance and it's not going to interest I can't emphasize this enough because it will make a big difference and how much money you pay overall and you want to bring down the principal balance as fast as possible possible because as soon as a principal balance starts to go down the amount of interest that you'll be paying will also go down so it'll save you more money over the long run as long as you are paying down your principal balance faster now if your question here is okay I kind of like the idea of both maybe you put some money towards paying down your home faster but you also want to invest your money this is where now the more financially educated you are the better returns that you can get and this is where now you can build real wealth because now you're building Equity You're Building Investments You're Building assets that can pay you and now you own these assets which are not paying for your lifestyle but this requires you to have the right Financial education now if you're looking for an easy way to start learning we have a free guide on passive income that you can read which will go over how do you invest your money even if you don't have a lot of money how can you start generating passive income how do you put your money to work so if you want to read this guide it is completely free and I'll put the link to how you can download this passive income passive investing guide down in the description below but this is where now you have to understand the different ways that you can invest your money and I'm just going to start by talking about me because it might help you understand the different options that you have because there are five places that I invest my money I invest my money into my own business and startups so I have a company called Market briefs and I invest my Capital my cash into this company because I want to build this into a bigger Financial Media Company second I invest my money into real estate I talked about in previous videos how I invest my money into real estate for cash flow right now going buy houses single family homes I buy apartment complexes not for the purpose for me to live in myself but for me to rent out to other people that were now it's providing me consistent cash flow I also invest my money into stocks so now I'm investing my money into individual companies I'm investing my money into ETFs which are funds which will now I buy for appreciation because I believe in the economy I believe in the long-term health I believe in the long-term growth of the economy and I want a piece of that the stock market allows me to do that fourth I invest my money into cryptocurrency I look at cryptocurrency less as a meme opportunity just to try to flip things and make a quick profit I look at it as the future of money the future of property and the future of technology I think there's a lot of value in the blockchain and the things that it can do and I look at it as a software so I invest in it for that purpose and I also invest in physical gold which is the fifth place I invest my money and when I invest in physical gold I'm not really trying to get a return on my money per se I'm investing in physical gold as an alternative to saving money because the physical gold provides a better store of value than my cash does because cash can be printed you can create more inflation which dilutes the value of cash versus gold has to be mined it takes time effort and labor to mine a physical ouns of gold and so I know that this gold isn't producing more value but for me it's a better hedge against inflation and it's kind of like insurance against the worst case scenario so those are the different ways that I invest my money and now this is where you can start to understand there are many different ways for you to invest it's not just putting your money ETFs it's not just putting your money into the market there are a lot of different ways for you to invest and each different investment opportunity can provide different returns depending on which phase of the market cycle that you're in now I'm not a Trader I'm a long-term investor and I understand that some of these asset classes will do better in certain economic Cycles than others but I also understand that it took me a long time to understand how to invest my money it took me a lot of mistakes it took me a lot of years it took me a lot of books it took me a lot of Education I took a lot of courses and this is where if you're just getting started you want to start investing in your own education this could be reading books taking classes but then also the experience because you cannot just ignore this experience that experience is the best teacher making mistakes is one of the best things that you can do because you're going to learn very quickly when you lose your own money and when you lose your own money you're going to want to learn how you never do that again so it's going to put some fire on you to learn how to invest your money better but this is right now understanding the different ways that you can invest your money and start educating yourself whether it's through books YouTube videos podcast classes or actual education by doing it yourself it's by putting in the education and putting in the Reps by learning that way now as you become a better investor it's much easier for you to get better returns because now you're better educated and you can find the opportunities a whole lot easier for most people your home is the biggest purchase you are ever going to make that's why you want to make sure you're getting a mortgage the right way and in this video I'm going to be going over everything you need to know about getting a mortgage the right way buying a home is exciting and it's a big deal but the process isn't always straightforward you got to deal with real estate agents Bank title companies property inspectors and because homes are so expensive if you don't know what you're doing you can end up way overpaying I've seen real estate from a lot of different angles because I used to be a real estate agent I'm a real estate investor and I'm an attorney now I'm not going to go over the steps on how to actually buy a home in this video I already made a video on YouTube where I went over how to do that exactly if you want to watch that video I will link it for you in the description below but in this video I want to go over the things I need to understand about getting a mortgage if you want to buy a $400,000 home chances are you don't got 400 Grand just sitting at the bank that you can use to buy the home so you're going to work at the bank to get a mortgage that way you can actually buy the home but you want to make sure you're not getting taken advantage of by your bank there's five things you want to make sure you understand when you're getting a mortgage and I'm going to go over all five of these things in this video so make sure you watch this video until the end but before I get into that I need you to do me a quick favor and mortgage that Thumbs Up Button below before you go out and actually start looking at homes and making an offer the first thing you want to do is get pre-qualified and get prepared to actually getting a mortgage all getting pre-qualified means is that you've worked with a lender or a banker to get the basic credit process done that way the bank or lender can see if they're willing to give you a loan if you're not pre-qualified you don't look like a serious buyer because I can tell you from personal experience it is a major headache working with somebody who's not pre-qualified because if you fall in love with a home and you put an offer and it gets accepted and now you have to kind of get pre-qualified and get approved to get a mortgage and you can't do that it is a major hassle because now you're wasting your time time you're wasting your real estate agent's time and you're wasting the seller's time I was selling an apartment complex that I was a part owner of and a lady brought an offer to me the problem was she was not pre-qualified but she gave me a pretty good offer now the real estate agent I was working with kept saying oh don't worry just breathe she has a lot of money she's really successful she'll have no problem getting a loan so I thought okay fine I'll let this one go so now we're in contract I take my property off market and a month goes by she couldn't get a proof for a loan two months go by she couldn't get a proof for a loan four months go bu and she could not get approved for a loan at this point we had to cancel the deal and I had taken the property off market for 4 months and it was just a huge waste of time on my part on my real estate agent's part and her part as soon as you get pre-qualified you automatically have an edge over other buyers who are not pre-qualified because if I'm selling a home and I get two offers one is from somebody who's pre-qualified and one is from somebody who's not pre-qualified and you're pre-qualified and your offer is slightly lower than this person's I'm still going to take your offer even though it's less money because it's less headache and less uncertainty because you've already gotten pre-qualified part of the pre-qualification process is you getting prepared to actually get a morgage because well getting a mortgage is kind of a difficult process you're essentially kind of selling yourself to the bank and you want to show the bank why you're a good investment for their money because if you can show the bank that you're a good investment they will reward you with a lower interest rate first you got to show the bank your proof of income so you might need to show your tax returns your W2s your 1099s whatever income that you have at least for two years steadily you need to show this to the bank that way the bank can see that you're making money consistently second you want to show the bank any assets you might have so maybe you own some real estate Investments or stock market Investments or other assets you want to show this to the bank so you can show the bank what you have third the bank is going to want to know what debt you have and how much debt you have your debt to income ratio is literally just a fraction where Banks look at how much debt you're making and they divide it by your income so nowadays Banks typically like to see a debt to income ratio of less than 36% so they want to see that your debt is less than 36% of your income and out of this 36% they typically don't want to see more than 28% for your mortgage so this is how much your mortgage should be Max and the rest of it can be your credit card debt your car loans whatever this is how much Banks ideally want to see but sometimes you'll see Banks stretch this total debt to income ratio from 36% up to 43% so if you have a lot of outstanding debt credit card debt car loans it's going to be harder for you to qualify for a mortgage so you need to work right now to pay down that debt that way you can lower your debt to income ratio the fifth thing your bank or lender is going to look at is your credit score you can get approv for a mortgage with a credit score of 620 or higher but if you have a 620 credit score you're going to have to pay a lot more fees and a lot higher interest rate because the bank's going to look at you like a riskier investment if you want to get the best interest rates and not pay these extra fees you want to have a credit score of at least 760 or above if you're looking for ways to boost your credit score you can use a credit card strategically and you can work to pay your bills on time the second thing you need to understand about mortgages are the different kinds of mortgages out there because not all mortgages are created the same first let's talk about the differences between a fixed rate mortgage and an adjustable rate mortgage an arm so fixed rate mortgages are very straightforward if you go to the bank and tell them you want a loan they might say all right this mortgage is going to cost you 2.8% a year and if you agree to that for the next 30 Years you're going to be paying 2.8% a year in interest on your mortgage and that's it it's not going to change whether interest rates go up or down this is the interest rate you are going to pay and you have a set monthly payment with an adjustable rate mortgage it's not like that with an arm the amount of money you're going to pay on your mortgage is going to change depending on what interest rates are so one type of arm that became very popular during the 2008 crash was the 228 arm what that means is during the first two years of your mortgage you're going to have a very low introductory teaser interest rate so during the first two years your monthly mortgage payments are very low then after that your interest rate is going to change every two years depending on what interest rates are so if interest rates go up then your mortgage payments are going to go up and that's going to change every 2 years for the next 30 Years so you don't know what your mortgage payment is going to look like in 5 years or 10 years because you don't know what interest rates are going to be if interest rates go up your mortgage payments can go up another example of this is the 5 to one arm what this means is during the first 5 years of your mortgage your interest rate is fixed and then every year every one year after that your mortgage rate is going to change depending on what interest rates are and then the five by five arm says that during the first 5 years of your mortgage your interest rate is not going to change but then every 5 years after that your interest rate is going to change depending on what interest rates are arms can be good when you're in an interest rate environment where you think interest rates are going to go down but right now we are in one of the lowest interest rate periods in history it doesn't make sense to get an arm when interest rates are already lower than they've ever been in the future the only way interest rates can go are up unless we go negative interest rates but even then we're already seeing the lowest interest rates in history and we saw what happens if you tie yourself into an arm and then interest rates go up because that's exactly what happened in the 2008 crash everybody was getting into these 228 arms thinking that they were getting this amazing low teaser rate for the first couple years and then real estate prices came down and people couldn't refinance and now everybody's mortgage payments were way higher than they anticipated so people started foreclosing left and right so arms can be good hypothetically when you're in an interest rate environment where interest rates are going down but they come with their own fair share of risk you can mitigate that risk just by getting a low fixed rate mortgage and now you know exactly what your mortgage payments are going to be for the entire length of your mortgage you have two main categories of mortgages you have conventional mortgages and then you have government mortgages government mortgages is money coming from the government and conventional mortgages are not that's the main difference but the way these different types of mortgages play out is a little bit different when it comes to your down payment and how high your interest rate is going to be so you really want to understand the differences so starting with the conventional mortgage you have a couple different kinds you have conforming mortgages and then you have non-conforming mortgages all the difference is is how big your mortgage is Fanny May and Freddy Max set what the limit is for a conforming mortgage and if you get a mortgage that's bigger than that it's called a non-conforming mortgage and then you need something called a jumbo loan so the difference between these two type of mortgages is really just how big your mortgage is in 2021 the limit for a conforming mortgage is right around $550,000 for your mortgage unless you're in a really big city like New York where now your mortgage limit is a little bit higher but if you get a mortgage that's smaller than that you will get a conforming mortgage if you need a mortgage that's bigger than that then you're going to need a non-conforming jumbo loan if you qualify for a conventional conforming mortgage then you can get a home with a down payment as small as 3% now if you put down 3% you're going to have to pay additional fees like PMI which is private mortgage insurance where you're essentially buying insurance for the bank just in case you're foreclose but just understand that you can buy a home with a low down payment however it's going to cost you a little bit more in fees with a non-conforming mortgage so if you're getting a larger loan a jumbo loan then you're not going to typically get a down payment that's the small as 3% you're going to have to pay a larger down payment because the bank is risking more money on you so they're going to want you to put more skin in the game once you have 20% equity in your home or if you put down 20% Equity when you buy the home then you can wipe out PMI so until you have 20% equity in your home you're going to be paying that additional fee called PMI with a conventional mortgage and the ADV manage with the conventional mortgage over government based mortgages is typically you get a lower interest rate here because you have a higher credit score requirement so it's a little bit more difficult to qualify for a conventional mortgage than it is for a government mortgage now moving on to government mortgages the first type of mortgage is the FHA mortgage so FHA is the federal Housing Association and the whole point of these FHA mortgages is to help people qualify for a home and mortgage who don't have the best credit score and who might not be able to put down a lot of money as a down payment so to qualify for an FHA mortgage you need to only have 32% as a down payment and you can qualify for an FHA mortgage in some instances with a credit score lower than 620 now the downfall with this is FHA mortgages come with higher interest rates and higher fees so because lenders will kind of look at you more as a risky investment you're going to have to pay the price and so one thing you're going to have to do is you're going to have to pay an upfront Insurance fee when you get an FHA mortgage and then you're going to have to pay an insurance fee on the back end for the life of your mortgage so it's not PMI like you have to pay here it's a different type of insurance but you have to pay this additional fee in addition to your regular mortgage payments just because you're getting an FHA mortgage the difference between the insurance fee that you have to pay with an FHA mortgage every single month and these PMI that you have to pay here if you don't have 20% in equity in your home is once you have 20% equity in your home with an FHA mortgage you have to keep paying that fee so this fee doesn't go away once you have 20% Equity versus PMI goes away here once you have 20 20% Equity so the whole idea is these government mortgages can help you get a home and then once you can qualify for a conventional mortgage you can refinance out here and get one of these that way you can pay a lower interest rate and pay less in fees second is the USDA United States Department of Agriculture loans these are more for Rural homes this is for people who are lower income or moderate income this allows you to buy a home with 0% down payment in certain instances so you can buy a home with nothing down but again you got to pay higher fees you're going to have to pay another Insurance fee with your mortgage here and that does not go away once you have 20% Equity so once you have 20% Equity it might make sense for you to refinance and get another loan here depending on what interest rates are and third are your VA loans this is for military personnel and people who were in the military so VA loans let you qualify for mortgages with 0% down and these can be typically lower interest rate mortgages however because you're getting a lower interest rate and because you're putting 0% down you have to pay a higher upfront fee here here an insurance fee with the VA mortgage than you see here or here so to qualify for a VA mortgage you have to be a part of the military or have been a part of the military and then you have to pay the additional fee in the beginning but with the VA loan unlike FHA and USDA you don't have the ongoing Insurance fee so these government mortgages can help you qualify for a home but with an FHA and USDA mortgage you might have to pay higher fees during the life of your mortgage so it might make sense for you to then refinance into a conventional mortgage again depending on what interest rates are when you're looking at ref financing because then you can save some money on your interest rate mortgage and you might not have to pay some of these Insurance fees third you got to understand what changes your mortgage rates there are five big factors that affect your interest rates and we've gone over four of them so one of them is whether you're getting a fixed rate or an adjustable rate mortgage second is what interest rates are these are set by the Federal Reserve Bank third is how much your credit score is fourth is how much money you're putting down and fifth is how long your mortgage is to understand this you really got to look at it from the perspective of the bank so banks have all this money and when they loan this money out it is an investment for the bank so the riskier the investment is for the bank the more money they're going to want to see as a return so if you're asking for a risky loan the bank is going to want to charge you more money and one of the ways to qualify a riskier investment is how long you want to borrow the money for the longer the bank has to go without their money the riskier the investment is and so when you compare a 15-year mortgage with a 30-year mortgage a 30-year mortgage is going to seem a little bit riskier for the bank because their money is is going to be with you for 30 years and so the bank is going to charge you a little bit higher in interest with a 15-year mortgage the bank is going to get their money back in 15 years not 30 years and so they can charge you a little bit less in interest because it's less risky for the bank this is where you have to make more of a personal financial decision because when you get a 30-year mortgage you can buy a bigger home and have a smaller monthly payment because your payments are extended over 30 years instead of just over 15 years so if you look at the same mortgage over 30 years or 15 years your 15-year mortgage is going to have a lower interest rate but your monthly payments are going to be higher because you have to pay the mortgage off within 15 years if you extend it over 30 years your monthly payment is naturally going to be smaller so you can qualify for more home one thing that you can also do to help you with a mortgage rate is just shop around it's crazy how many people don't do this they just go to the bank that they normally go to for their mortgage without shopping around some lenders are going to charge you a whole lot less in interest for the exact same mortgage so it is in your best interest to shop around and make sure you're getting the lowest interest rate on your mortgage there's really no excuse not to shop around anymore because you can shop around on the internet for your mortgage and it only takes a few minutes if you want to learn more about how to do that our team put together an amazing guide that walks you through how to get the best interest rate on your mortgage or refinance so if you want to learn more about how to do that I will link the article for you in the description below fourth when it comes to getting your mortgage it is your job to know what you can afford it is not your real estate agent's job and it is not your bank's job your real estate agent's job is in the business of selling you a home your bank is job is in the business of selling you a mortgage it is in both of these parties best interest to give you the best home which is typically the biggest home which is also the home that's going to give these two parties the biggest commission check now your job is to know what you can afford for your wallet just because you can qualify for a million-dollar home doesn't mean that you can afford it and it doesn't mean that you should buy it it's funny every time I say this I get these kind of angry messages from Bankers or real estate people because I'm telling you to buy what you can afford not buy what you can qualify for for and so that's not good news for the real estate agent or the banker but let me show you what I mean when it comes to affording a home there's two things you have to look at you have to look at the down payment and then the monthly payment your real estate agent and your Banker's job is to get you into the home so they're going to do whatever they can and pull whatever strings they can to get you into a home even if you can't necessarily afford it so when it comes to the down payment a lot of times they're going to try to push you into a home with 0 to 5% down that way you just you can get into that home of your dreams now just because you can get into a home with 0% down or 5% down does not mean that you can afford it if you really want to be able to afford your home you want to be putting down 20% now I know that's a lot of money you want to buy a $300,000 home that's $60,000 in cash you got to put down but if you really want to be able to afford a home you need to be putting down 20% when you put down 20% now you don't have to pay the higher fees you don't have to pay the higher interest rates and you have more equity in your home when it comes to your mortgage payment your monthly payment your bank is going to say that they want your monthly pay payment to be something like 28% of your gross take-home pay so this is before taxes so if you take your total take home pay before taxes 28% of that should be your mortgage I don't want you to pay that much money towards your mortgage because then on top of that you got to pay your taxes you got to pay all of your other bills your utility bills your car payments everything else I don't want you to do that so what I want you to do is I want your monthly payment to be 25% of your actual take-home pay so you take the money money you're making you pay your taxes and now out of what's left 1/4 should be the maximum of how much you're paying towards your mortgage when you do that you will leave enough money for your savings and for your Investments that way you can work to build yourself wealth instead of having all of your money going into the bank to make the bank rich I want you to use your money to make yourself rich by paying a maximum of 25% of your take-home pay to your bank and then use it as much as you can to invest and Save in your own wealth now I know this might mean you might have to work a little bit harder to own a home you might have to buy a little bit smaller home and you might have to save more money for your down payment but you are going to sleep a whole lot easier knowing you're not stretching yourself too thin to buy this dream home that you can't even afford now you're using your money the right way that way you can make yourself rich instead of just your Banker richer the fifth thing that you have to understand when it comes to getting a mortgage is you might potentially want to refinance out of your mortgage in the future so I mentioned this a little bit earlier in this video if you get a government mortgage you might have to pay a little bit higher interest rates and you might have to pay additional Insurance on your mortgage now if interest rates come down and you build more equity in your home you can use this as an opportunity to refinance into a lower interest rate mortgage and to get rid of some of these fees that way now you have the home that you're still living in and all you see happen is your monthly payments drop because you have a better mortgage now the thing that I want to remind you here that in order to refinance your mortgage you need to see property value stay the same or go up but real estate prices don't always go up so you want to keep that in mind because people who were buying homes in the early 2000s they were buying homes with these low teaser rates thinking that when interest rates go up they'll just be able to refinance their mortgage and then get these lower interest rates the problem was that home prices dropped so when people went to refinance their mortgages turns out they couldn't qualify for a new refinance because they didn't have any equity in the homes because their home values dropped so yeah refinancing can be a great tool if you can refinance into a lower interest rate mortgage but but you don't want to go into a home thinking yeah you know what I'll make the sacrifice now that way in 5 years I can refinance into a better mortgage you don't want to do that because there's no way to predict what the world or what the real estate market or what the housing market is going to look like in 5 years you don't want to be in that position that people were in back in 2008 and 2009 if you do want to see how to refinance your mortgage and save the most money the article I Linked In the description below walks you through how to do that but what I'm trying to say is this is why it's so important for you to be able to AFF the home that you're buying right now because you don't want to run in a situation where 5 10 years down the road home prices drop or you can't refinance because you thought you were going to be able to and now you're stuck in a home that you cannot afford make sure you can afford the home today and not kind of rely on the Stars to align in the future so you can afford the home why in the world would you pay $2,000 a month to rent a home when you can buy the exact same home and only have to pay $1,300 a month for your mortgage you might have asked yourself a question like this before and in this video I'm going to be breaking down the truth between buying and renting a home the only people that rent are losers and broke people if you want to build wealth you need to buy your home that way you can start building Equity you've probably heard something like that before but if that's so true why is the fastest growing demographic of renters rich people more rich people are going out of their way to rent their homes now than ever before so either all your friends that keep nagging you to buy a home are all millionaires or rich people know something that we don't well I'm going to be going over those secrets in this video I'm going to be going over the real cost of owning a home versus renting a home and then I'm going to be going over what you need to know before you can actually afford a home but before we get into that I need you to do me a quick favor and smash that Thumbs Up Button below because the way the YouTube algorithm works if you do not smash that Thumbs Up Button then YouTube is much less likely to show you and other people our financial news and education videos let's assume that you want to buy this beautiful $400,000 house so I'm going to draw you right here got to give you a nice mustache so you want to buy this $400,000 house and let's assume the interest rates are 3% a year and you get a 30-year fixed rate mortgage if you do that this house is going to cost you $1,300 a month for your mortgage if across the street this exact same home was listed for rent it would be renting for $2500 a month it's going to cost you $1,300 a month to buy this house and $2,500 a month to rent this house if you look at just these numbers alone you would say Obviously it is cheaper to buy this home but it's really not so simple because you forgot to look at five different factors you forgot to look at property taxes maintenance the cost of capital your personal income taxes and what I call your 10-year plan let's start with number one property taxes when you rent your home you're not paying property taxes it's included in your rent when you buy your home property taxes are separate a simple rule of thumb is you can assume that property taxes will be 1% of your total homes value so $4,000 a year which adds up to $333 a month for property taxes just so you know this 1% rule for property taxes is just a rule of thumb it could be more or less depending on where you live but it gives us a good idea for this example second let's take a look at maintenance because when you rent your home and you break your toilet because you ate you can fill in the blank your landlord is the one that has to come and pay the bill to fix your toilet when your roof gets old your landlord has to fix it when your furnace gets old your landlord is the one who has to pay the bill when you own your home you're responsible for all the repairs upgrades and maintenance like every 20 25 years you might have to put on a new roof that might cost you $25,000 every 20 years you might have to put in a $5,000 furnace every 15 years you might have to put in a $4,000 AC plus kitchen remodels plus bathroom repairs plus Windows add that all up and you can add in another $350 a month for maintenance and repairs assuming you're not doing major upgrades to the property now this doesn't mean that every single month you're going to have $350 going out to do maintenance on the property but over the long run owning the home you can kind of estimate about $350 a month for a house this size third you have to look at the opportunity cost or the cost of capital because when you bought this home you had to put 20% down which is $80,000 on a $400,000 home if you don't have $80,000 to buy this home then you're going to be paying PMI I'll get to affordability for homes a little bit later in this video but you put $80,000 down to buy this home and the $80 ,000 is money that you could have put into the stock market it's money you could have invested into a business it's money you could have used to buy an investment property but you use it to buy your dream home so there's an opportunity cost that you have to weigh think of it this way let's assume you have $1,000 in your pocket and there are only two things that you can do with this $1,000 you can go to the store and buy a really nice scarf or you can invest this $1,000 and in 2 years this $11,000 will be worth $2,000 so if you go and buy the scarf not only are you losing the ,000 that you have to spend for the scarf but you're also losing the opportunity to make that extra ,000 so you're actually losing out on $2,000 because it's the cost of the scarf the $1,000 and it's the $1,000 opportunity that you lost it's the same with your home you had $8,000 in your bank account and now that you use it to buy this home you can't use the $80,000 to invest in the stock market and let's assume that you can get a 5% return on your money in the stock market now the average return in the stock market is between 7 and 10% ye