The Truth About "No Money Down" Mortgages (Ep. 260)

0:00Young people are hearing stuff on social media, but they're not hearing is the other side of it. Don't just get wrapped up into, oh, everybody on social media is saying, buy a house, or everybody I follow is buying a house to arbitrage it or to do whatever with it and rent it out. No, it's all going to be glorious. Well, you can't just listen to people blowing smoke up your skirt. You also have to like have the reality of that and punch your numbers and understand your numbers and all that stuff. My advice would be to get a realtor that understands like the income potential of a property or a realtor that actually invests themselves, not just a realtor that's selling a home because there's a difference there. Hello, hello, hello, and welcome back to the podcast. Thank you very much for being here. Today we've got Teresa back outside of the studio. So this is exciting, we haven't gotten to do a podcast together in a while. I know, I'm excited, it feels good, but a good way to start the year off.

1:03Yeah. All right, today we're going to talk about something not necessarily infinite banking related, but I'm talking to a few clients that are young, that are trying to get houses and we've got some FYI mortgage advice so that you don't get stuck with a mortgage or a loan mortgage as you may not understand. I guess a loan mortgage is the same thing, oh my gosh. It's Monday morning, people. Mary John, I've all needed some additional go-go juice today. Yeah. We're both on our second cup of coffee. So Teresa, I had some clients that I had two clients and particular, or two potential clients that were in their 20s and they were both ready to go by a home and they didn't have any money. And I said, so where's your down payment? They're like, oh, why don't meet any down payment? And the one of them said, well, the bank actually just called me before I talked to you and said that I've been approved. And I said, for what?

2:03For what? For what? How does the loan work? Do you understand how those loans work? And so you and I talked about it and you actually had one of these loans. I did, yes. So it's down payment assistance, but I didn't fully understand this at the time is that it's a reward assistance, I don't mean to cut you off, but key word assistance. Yeah, key word assistance, yes, I was assisted. I think I only paid like two, this $3,000 in total to get into my home, but I may not have fully understood the, to the extent of what I was doing at the time, but I did have savings, but I was using those savings to start my business. But we got people work out savings over here. Yes. Fix that. Fix that. For tourists and savings. Let's not talk about our savings, because most people don't have savings. And if they do, it's just like $1,000 or $2,000. Well, and I would say that that's definitely a good thing to have if you're thinking about

3:06purchasing a home, because a lot of people don't think about housing repairs, right? Like, even if you're purchasing like a home warranty, that's, that could be like $500 to $1,000 per year, and that doesn't count like the service fees that you have, or when you have someone come to your house, which are usually like $65, $75, but yet I didn't fully understand how that program worked at the time. I don't think I would have done anything differently, still knowing, but it is good to know this information because it might help you make different decisions. So it's essentially recorded as a second leaning against your property that usually gets forgiven over time. So there's different down payment assistance programs. Some of them you have to make monthly installment plans on them in addition to your mortgage. And then some are like payment-free, and then they're forgiven after, I think mine was forgiven after a three years total. And I actually ended up selling my house within, I think, two years of owning it. So I had to pay back that additional, I think it was like $3,000 at the time, which we

4:07were kind of having this conversation. I think it's good for people to know you're like, well, that was a different environment. So can you kind of walk people through like, why that makes a difference in this kind of mortgage environment versus like, in 2019, when things were really great and equity was kind of through the roof? Well, I want to break it down even further though, because people don't even understand what that assistance piece is. Oh, like the lean. So if I'm in $100,000, if I'm going to buy $100, let's just use round numbers. If I'm going to buy $100,000 house, typically for a traditional mortgage, you need 20 percent down. So that means you're coming up with $20,000, okay? If you're going to get into one of these loans where you don't need any money down, and they don't tell you it's an assistant program, right? You just don't need any money down, Trist, so let me get you in a house. And so you put your $2,000 down or you put nothing down. What's happening is the assistant part is they are lending you the $20,000.

5:10And if you sell before five years, you have to pay that all back, okay? So like you were saying, there's maybe a separate, it's like a second lean and it's a separate payment. Is that what you're saying? Some of those are separate. Some of them are separate payments. It depends on what type of program you use. For mine, I didn't have a separate payment. It just was forgiven. A certain portion was forgiven every single month. I lived in the home. Okay. So my son had one of these. So he just made his regular payment. But when it, he wasn't in his home five years either. So now all of a sudden, you don't have that much equity because whatever the equity is minus what you owe them. So let's say that you're only $10,000 into paying them off. So now you sell your home and they're going to take $10,000 of that equity to get themselves paid off. They'd lends you that 20%. So the two people that I talked to knew that they were not staying where they're at for

6:13five years. I'm like, and why are we buying a home? If you're not going to have that mortgage, why are we buying a home? And then that led to the conversation that you and I had about, this isn't 10 years ago. Five years ago, when interest rates were 2% and the housing was just going crazy, right? I feel like we've kind of come stagnant or it's kind of just holding its own. Like maybe we have a little bit, but if we're in a rural area, now all of a sudden, who's living there? Nobody. So now our housing market is not going like this, yes, or maybe we are in a place like you and we're in Phoenix area, let's say. And so we're in Phoenix and maybe the housing market. I just, is the housing market doing this in Phoenix? Or is it just slowly creeping? Not anymore. It's actually, as we all know, love looking at real estate, like I go on redfin just for fun, just to see what the housing prices are.

7:15And there was actually a house across the street from from ours that was on the market for like forever. And I was like, they have this price way too high and they ended up dropping it and this is, yes, I'm nosy, but I looked up what they paid for it. And they had to actually drop it below what they purchased it for just to get out of their mortgage. And I think to your point, it's really good for people to think about if they want to stay somewhere for a certain amount of time because it is actually cheaper to rent than it is to buy. So unless you're like house hacking or you're getting like a duplex or finding some way to kind of mitigate your monthly expenses, it might make more sense to rent if you're not, if you don't see yourself there long-term. Especially if you're in a situation where you don't have savings. Here's the thing, if you don't have savings, when you go to sell the house, if you're selling it for the same as what you purchased it, you don't have the equity to pay them back on this loan. Or you lose money. But in order to get out of it, you're going to have to pay them. Yeah. So you're not going from a house and you're not, you're not going up.

8:16Yes. You're actually either going to go level or you're going to go down. If the market in your area is not going up. So those loans maybe works way back when. But if they continue to give these loans to people that don't understand they're being assisted, I didn't know that was the word, they don't know that they're actually lending them the money. Because on top of that, you're also paying PMI. So you have mortgage insurance that because you don't have 20% equity in your home, the vendor says you're giving us a monthly amount. That's to us. It doesn't go to your principal. It doesn't go to your loan. It just goes to them as insurance that you're going to be good for that or that they can basically take the house. Like I don't really know how it works on the end. Ask your mortgage lender. But at the end of the day, you have to pay PMI. And that's just in addition to your principal and interest payment. Mm-hmm. You're going to pay principal and interest. And then it could be another 250 a month.

9:19That's for PMI. That is gone. That's like paying a lot rent in a trailer park, okay? 250 a month. It's like paying rent in an apartment building. 250 a month gone to the lender. Now some of those loans, I do know as soon as your house reaches, you reach the 20% equity the PMI drops off. Some of them are for a life of the loan. So you really have to pay attention to like an FHA loan years ago. I was told the PMI never drops off. It goes for 40 years. So you really, and the only way to get it to drop off is to refinance that house. And then you have to have another appraisal. You have to have closing costs. You have to have all these things that go along administration fees, whatever. You have to have all these things that go along with it, not closing costs probably, but administration fees. You really have to like do your due diligence and education. We are not mortgage experts. Like any stretch of the image, but you know what?

10:20The socials are full of them. There is one lady that I follow on social media. I don't know what her name is off the top of my head. She's on TikTok. She has really long brown hair. And she is constantly talking about mortgages and she does lending. And then just make sure that you find somebody that truly explains this to you. Because if they're not, then leave. It's like buying life insurance. If they're not going to show you exactly how it works, then go find somebody that will. But you're in this thing. Like they're lending you money to buy a home that's not going to appreciate because you want a home that's silly. You're better off renting in that scenario. Yeah, that's such a good point, especially because it's like, I would say the pitfalls of that situation are, your payment is going to be higher than it would be, comparatively, if you're renting, especially if you don't see yourselves in there for five years or more. I would say if you did, maybe it makes sense. But if you don't then, I don't know. And not to mention, a lot of people don't, like I didn't understand that it was recorded

11:21as a second loan against eye property. You know, nothing is free. And I think people sometimes make the mistake of thinking like, oh, this is, this is a really good deal. And I was like, okay, well, how is it a good deal for the other person? And because of the real estate environment that we're in right now, things are kind of stagnant or are still, you know, it's not like when I purchased my first home in 2019, and it was a new build. So I wasn't super worried about like a lot of housing repairs, but a lot of people are in that same situation. Like if you're purchasing an older home, yeah, there's going to be things that pop up. So I think it's really good for especially young people to ask those questions because I think we're so incentivized by, you know, the American dream of home ownership. Although I don't disagree with that dream, I think it is worthwhile. How you do it is important. And thinking about it long term, just like any real financial decision, you should think about it long term and what you're, what you want to get out of it for yourself so that you don't put yourself in a situation where you're like, oh, dang, like I purchased this property. I need to sell it, but I didn't account for the agent commissions and I'm going to have

12:23to pay out the closing costs. I didn't account for the fact that my home didn't appreciate as fast as it has been over the past couple of years. So now I'm going to have to be like, you know, my neighbors across the street and pay out money out of pocket to even get out of that house because if it rents cheaper than the mortgage payment, yeah, you're going to have a hard time renting that out. So just thinking about those things long term, I think is really good. And I wish that I had listened to a podcast before I was like, oh, this is a great day. And it was for me, but it was because of the real estate environment. I just got lucky. I guess there's probably the better way to put it. And unfortunately, a lot of people, if you're signing up for these loans and this current real estate environment, I don't know if it's going to work out as well for you. And it's really good to ask yourself those questions to make sure you're not putting yourself in a situation where you're going to have to owe money when you sell, you have a higher mortgage payment. You don't have the savings for any house repairs. Like that's going to put you kind of further behind than someone who's renting and saving money, honestly. Well, if you don't have any money for a down payment, like both the people that I talk to, neither one of them had more than $2,000.

13:26And so you don't have more than $2,000. What happens if the fridge goes out or what happens if your furnace goes out or your AC unit or anything, dishwasher, there's a lot of appliances, there's a lot that can go wrong. Okay. And now all of a sudden, you're sticking that on a credit card and your house isn't appreciating. It really can be a recipe for disaster. And so my solution, because we consider and talk about all the problems, but I look at it and like I told both of my potential clients, I'm like, the solution is figure out how to save money. Like are you going to the bar, you know, are you buying a vehicle that's more expensive? And both of mine happened to be blue collar guys. So I'm like, are you doing custom rims and tires and exhaust and like all the red and necky things that may know there are some, hey, I love them. But are they necessary if we want a house? What can we give up or do we need to tighten our strap, our boot straps?

14:28Like the one I asked, they said, so where's all your money going because he was still living at home. Oh. And I said, so where's all your money going? And I said, is it beer? Is it your vehicle? Like, and he's like, well, I just gas station. He's like, I live on gas station food because he traveled a lot, you know. And I said, let's hit the grocery store for some bread, mail, it's a lunch meet, you know. So much on the go. Yeah. Gas station food is super expensive. Like go buy some pop or whatever it is, Walmart and the 12 pack and like, it may sound crazy, but we have, let's cut our expenses or let's watch our money so that when it does come time to get into a house, we have a little bit of equity in there or at least we have some, if you're going to do that mortgage, great, if you're going to be there five years, fantastic, do, if you're going to be there 15 years, great, do the mortgage, but at least still have some money so that you have the ability to fix something if it's

15:29wrong. Or like you said, do some house hacking and have some buddies move in or have some girlfriends move in or whatever and charge them rent. There's wings to do it, but there are you got to be smart about it. You really, truly need to understand it's almost like a predatory loan, if you ask me. When my son did his loan, I said, do not go to that loan officer. You go to this person because I know her. I like her. She's honest. Well, he didn't listen because why would he? And so he went to the other person and guess who I found out all this information from. The person I told him to go to, she's the one that said, oh, this is a kind of loan they gave him. And when he went to sell his house, I said, did you know this? Well, he had no idea till I told him, then they had to call the bank and check into it and, you know, and it worked great and it was fantastic and it got him in a house and their house appreciated. So he was okay, but again, he sold right at the cusp of everything just high interest rates and everything kind of just hit in the wall.

16:30And so we can't like maybe you could buy now and interest rates go down and you're good, but I don't foresee that happening. I don't foresee interest rates coming down at least not probably in the next four years. Like we know economically that all the people that you and I listen to, we know that interest rates should stay at that about 5% for inflation to kind of stay where it needs to be. And they're seeing inflation. We still have inflation at six and seven percent interest. So we can't bring it down to five because we would still have, we would have more inflation than we need. So they're not going to do anything until it really gets under control. Also, I don't know if you knew this. I just learned this the other day that I don't know when this happened. There was some change. I don't even remember what it's called. There was some change that when the feds change their interest rate, it now does not directly affect the mortgage interest. The banks get to decide on their mortgage interest and if they'd lower it or raise it.

17:32Oh, interesting. And in that past, recently, it was like maybe a two years ago or something, I would have to Google it to see, but I don't follow interest rates on mortgages that much. So I just thought, well, isn't that interesting? Because before it was directly if the fed lowered it, it automatically got lowered with everybody else. Well, now the banks have the ability to play games. Right. They're just going to decide their spread. What? They can increase their spread. They're always putting themselves in a position of control. They know what they're doing and I like all the pointers that you lay out for people so that they can consider if it's the right type of a loan product for them. And I will say if you can either mitigate your expense for housing or cash flow or whatever, like I was thinking back to when I went into that loan, I think I at the time I was paying like $500 a month for rent, which is like nothing these days. And so when I got into that home loan, I was also house hacking because I was renting

18:35a room to my brother and then I was also living with my boyfriend at the time who is now my husband, but he was paying me rent. And my monthly rent payment or I guess mortgage payment at that time for me was the same. So it wasn't like I was getting into this payment of like, oh, I want to be a homeowner, but also I'm going to quadruple or triple what I'm paying monthly for housing. It was like, it was a level trade. Yeah. So if that's like a helpful framework for people to think about it, it's like if it doesn't make financial sense, then don't do it. And I wouldn't say that goes for everything. But here's something else to know is some of those loans don't allow you to house hack and rent out rooms. Oh, really? So they were to find out that you were renting something out. That's not going to be okay either. So you really need to make sure that you know what all the rules are. No, I suppose if you're renting to your brother and you don't create an LLC for that and whatever you're probably okay, they're not going to find out, but you should probably

19:35know all your rules before you. That's a good point. I mean, that was like young 20s, Teresa. So she was a little dumber than the version you're getting today. Here's the other thing that I find and you guys probably don't have so much of that problem because you don't have grass down there. But when you buy a house, right, you need a lawn mower and you need sprinklers. And you need houses and you need things to take care of that property. And so you're going to need to have by light bulbs and you're going to need batteries for things and all of those things add up and they're in a budget that you never had before. Scott and I have found that like when we moved from town to two acres, oh my god, all of a sudden we needed a tractor and we needed a snowblower and then we needed a different kind of snowblower because it was too hard to use the manual one. And then because we started with a blade and not didn't push snow, then you needed a snowblower and then we moved to 40 acres. We needed a bigger tractor and then you got your side by sides and all not that you need

20:38those, but we got one. So all these extra things that you add as your property gets bigger when you're in an apartment, you literally need batteries for your remote. You technically don't have to worry about a light bulb in the fridge, a light bulb in the stove. Like minor things like that, you could be like, hey, the light bulb went out and they would have to provide you a new light bulb. And now you would be a horrible tenant if you did that. Okay, let me just clarify. Like nobody would want you as a don't be that person. I fixed everything in my apartment when it went wrong because I just didn't want to have to wait for anybody. But still you have these other things that you would have not anticipated having. Oh, yes, it's great. It's yours, but you're also paying a lot of interest because you're not paying interest on 80% of that mortgage. You're paying interest on 100 plus PMI. So make sure you're smart about it. Make sure you go this morning when I was eating my breakfast.

21:40I was on TikTok and there was a guy doing a TikTok live about credit cards and which is the best one and points and all the things. And I was like, man, this is super beneficial information. And so those people are out there that you can ask questions of. They have like free material on their website, just be super do diligent about making a smart decision and not just listening to somebody in your family that says, oh, you should buy a house if they don't know the housing market and they don't know mortgages, probably not the person to be listened to. Absolutely. I think honestly just taking like a long-term view of what you're wanting to do usually helps mitigate a lot of decisions that are made with more short-term thinking. And I think what is it the statistic that people don't even stay in their house? I think it's less than 10 years or is it seven? But like every five or seven, yeah, people move every five or seven years. And that's another thing I wanted to bring up actually is that when you think about

22:40like your mortgage payment, the most amount of money is going to the interest portion. So it's like, if you don't have any equity in that property and you're making your payments every single month, I mean, it could be like a year later and maybe you paid less than $5,000 for the principle. So again, the bank is in control. They're going to make their money upfront. So those five to seven years are very lucrative for them. You truly aren't building equity. Well, exactly. And that's my point. It's like if you're not in an appreciating environment, your loan made on is going down so slowly that it really does make it hard to, you know, make a profit. Unless you're in like a crazy area where a lot of growth is happening. And like it is appreciating like that. But like we said, well, so the real estate market is pretty kind of slow right now because interest rates are so high. So just don't put yourself in a position where you're over leverage or you can't afford the payment or it doesn't make financial sense. And like ask yourself your five year older self. Does this still make sense? You know, am I still glad that I made this decision? So I think it's a really good podcast to listen to, especially as a young person, because it's like the average age for the homeowner now is like what?

23:4340 for first-time homeowner. So I have a lot of thoughts about that too. But no, not for translate for another one. Yeah, I think the question is how do we make sure that that's not you? But and it's admirable, right? To like be focusing on these things that allow you to add to your your hard assets. I wouldn't discourage that thinking. But I think how that happens is important. And you don't want to appear yourself in a situation where you're stuck. Which is what a lot of a lot of young people are hearing stuff on social media. And so what they're not hearing is the other side of it. So don't just get wrapped up into, oh, everybody on social media is saying, buy a house or everybody I follow is buying a house to arbitrage it or to do whatever with it and rent it out. No, it's all going to be glorious. Well, you can't just listen to people blow and smoke up your skirt. You also have to like have the reality of that and punch your numbers and understand your numbers and all that stuff.

24:44And my advice would be to get a realtor that understands like maybe the income potential of a property, not just a realtor that actually invests themselves, not just a realtor that's selling a home because there's a difference there. And your realtor, I get they're not supposed to give financial advice, but they have seen things, okay? And a realtor that's maybe been in the business for a long period of time. Not somebody that just got in when interest rates were low and they sold all these houses and they don't know what to expect. And if that realtor is new, how long have they been watching real estate? So I think that you should probably be interviewing realtorces as well. And not just taking the first realtor that comes up because they may just be pushing you into something and also not informing you of everything that you should be looking for. Yeah. And I just did a podcast done. I don't know when it's going to air. The farm unit is out the bank podcast.

25:44I just talked about the misery of our condo sale and the entitlement mentality and how awful that was. And so if you guys want more information on how not to be a crappy buyer, go over there and listen to that. But yeah, I think that picking the right people and doing your due diligence and just stop taking everybody's word for everything. Yeah. Like even look up all this stuff that we talked about. Like the more information that we give you and if you just trust us, that's great. Because I know we're trustworthy people, but not everybody is. And eventually you get caught with your pants down and you're like, oh, that was somebody else's fault. They pulled them down. No, you didn't even watch to see who was around you. You got to pay attention. You have to watch your own back. And to your point, I think some good questions ask in addition to making sure you have a good real estate agent is look at it as an investor would look at it.

26:46Like what are the average days on market for a house to sell so that if you did want to sell, you would be like, okay, well, I know I would have to keep this for three months minimum. Average days on market. What's the average rental rate to see when it cash low if I decided to move out? Like I wish I had asked these questions before purchasing property just in general. I was like my primary residence. So those are some helpful things to also look at in addition to making sure your real estate and those that they're talking about. And don't buy a house to save your marriage for the love of Pete. Like he's doing that. Oh, I hear that all the time. Like, oh, no, somebody is not happy because they want a bigger property. Well, when you get to the new property that doesn't mean your marriage isn't going to end, and now you have no equity and you didn't put it down, pay it down, and you have to sell. So you probably have to pay money out of pocket to do that because eventually that's not going to make a difference, right? I know a couple you locally that built a house and then they were stuck in their marriage because they built the house together. Well, a lot of other things happen

27:46in the meantime. But the moral of the story is is if you're not going to be there and things aren't going well now, a lot of houses have to sell and you're going to take a loss on them because of a divorce. Like if I buy a property, I'm as nosy as you are. So if I buy a property, I'm googling, man, I want to know like what's happening with those people? Are we in a divorce because if it's a divorce situation, then I know that they're going to have to sell. And if it's already been on the market three months, I can already say too. Well, they've probably had some smaller offers, but one of them's being difficult and the other one wants to leave. And I may not even want to be in that purchase because I don't need to be in their drama and there's going to be drama in that situation. So like your neighbors, I'm not saying they got divorced, but if they were in a divorce situation, now all of a sudden they just can't stand each other to the point where they're going to just pay to get out so they don't have to live together anymore. Just be smart about it. Well, especially because a mortgage is 30 years.

28:49I mean, a kid is 18. So if you think about that math, that's a big bubble of child. Definitely want to think twice about that. You can't just give either one away. All right. Do you have any final thoughts on anything? No, I think this is really good. I think I have a list of questions that you want to ask other people to make sure you're doing your due diligence and make sure it's a sound financial decision for you. Okay. That's all I got. You guys know the routine. Go to email, trissa or myself at withoutthebank.com. You can go to withoutthebank.com, grab your book, get your education, schedule an appointment with us so that we can help you and we'll go from there. You guys have a fantastic rest of your day.