That Time We Talked About Mortgage Acronyms

This is episode number 79 of The Homeowner Show. Whether you're DIY or looking to hire, we're here to help you find the best information and options for you and your home. My name is Kevin Hackett, and here with me is Craig Williams.

Hello, hello, hello, and welcome to The Homeowner Show. We're glad that you could join us for the homeowner's bonanza.

I thought you were gonna say banana.

Banana. That is, that is my 4-year-old's new favorite word right now.

Oh, good.

Yeah. Have you, have you read that, uh, the book with no pictures?

No.

Dude, you gotta, you gotta get in the, into the culture, man. DJ Novak wrote this book. It is incredible.

Oh, okay. Is it, is it just like a, a, a, a book with white pages?

Like, like, kind of.

And is, I mean, that's what I typically call like a novel.

Yeah. Okay. So like, look, everyone needs to like go to YouTube and find, there's actually a video of BJ Novak. If, if you guys don't know who BJ Novak is, BJ Novak was, uh, Um, what's his face on The Office? He was Michael's favorite guy on the—

uh, Ryan.

Ryan on The Office. Um, and so he wrote this book called The Book with No Pictures, and there's a video of him reading it to a group of children. It's hilarious.

Okay.

It's one of my favorite books of all time now, and because it only takes me like 5 minutes to read it, so.

Oh.

Yeah.

Well, and, and that's something that you actually know how to read, probably.

And the word banana is in the book, which is why that's how we got here. Okay. In the conversation.

All right, got it.

So speaking of my kids, man, so like, and we both have kids.

Yes.

And like, there are moments when I believe that my children are brilliant.

Moments.

And then there are other moments.

Yes.

That I don't believe that.

And it's the opposite of that.

Yes. And I had one of those moments this week.

Which one?

My middle, my middle child. I'm not gonna, I'm not gonna name them.

Oh, I just meant which moment.

Which moment. Okay. So this, this is my son. And like, I have to say it's my son because my girls would never do this. In fact, my younger one was actually egging him on in this. Um, anyway, I was in the— again, my house is weird, so the kitchen's on the second and a half floor and my son's bedroom's on the third floor, and I can see into his bedroom from the kitchen.

Sure.

That makes sense.

Well, it does to me because I've seen your house.

Because you've seen my house.

Right.

But for those of you listening, just try and follow along. I can see into my son's bedroom from the kitchen. That's all you really need to know. And from where— from the angle I was standing— and I actually haven't told you this story before because I wanted to get your reaction on the show.

Okay.

And also, Haley Thayer is on the show today. And Haley, I wanted to get your reaction to this story because I'm just in— I'm dripping with anticipation to tell you guys this story. It was, it was the craziest thing. So I'm making dinner and my 2 kids and my nephew are up in the loft in my son's bedroom playing Legos. No big deal. All of a sudden I hear my son screaming.

Okay.

Help, help, help, help.

All right.

And I look up into his room and I see him and he's lying on the floor and I'm like, what's going on? And my nephew yells down to me and goes, Gachel's stuck.

Okay.

And I said, okay, well, can you help him? He goes, no. I said, all right, I'll be right there. So I go down the stairs, go around the corner and go up the stairs to get into the bedroom. And as I come up the stairs, I see my son. And from the kitchen, it looked like he was lying on the floor.

Right.

He wasn't lying on the floor. He was in the floor.

Oh, what? Oh.

Up to his torso.

Oh no.

Stuck in the floor.

Oh no.

And he's got one arm up in the air and the other arm's down and he's just wedged in the floor.

Oh.

And I've now realized that what had happened Is he pulled the air conditioning vent off the floor and decided to see if he could fit.

And he almost—

And he got stuck. He almost made it.

He almost can.

He almost can.

Oh my goodness.

And he turned around and looked at me, he goes, I'm stuck. And I said, you think? So, I grabbed him. And I pulled him out. And then I examined him to make sure that like all of him was still there.

Yeah.

And it was.

Oh man.

It was one of those moments where like, you're so happy he's okay, but I wanna kill you.

Yes.

Yes.

Yes. So, so now I know which moment it was. It was the not brilliant moment.

It was the not brilliant moment.

I'm having flashbacks to baby Jessica. You remember baby Jessica in the well?

Yes.

Oh, I'm having flashbacks.

Here's what happened. There's air conditioning vents on the floor in his room. They were playing Legos.

Okay.

Some Legos went down the vent.

Ah, as they do.

So rather than ask for help, he goes, aha, I can get them myself.

With my toes.

With my toes.

Oh no!

So the saving grace was that had he actually gotten through, He'd have gone all the way through to the second floor.

Oh, man.

Oh my gosh.

So, so he would have, he would have actually wound up like in your bed?

Well, no, he would have ended up in the, the sitting room or whatever.

Oh, okay, so the couch.

He would end up on the couch.

On the, on the— okay, I got you.

My house is weird, y'all. It's hard to describe where places are.

There's like 14 different levels to your house, and none of them are like regular levels. They're half and third levels.

So, and I, I'm actually genuinely concerned that like J-Hugh and JoJo are listening to this show right now going, that kid could have destroyed that ductwork I put in that guy's house.

That's what they're most concerned about.

That's right.

Wow.

So shout out to, uh, Affordable over there. The, the ductwork held up.

Yeah. So they obviously strapped their stuff together well.

Very well.

Yeah.

They can withstand a 7-year-old.

Oh man.

Wow. All I can think about is Christmas Vacation right now when Clark falls Pulled through the ceiling or the attic.

He's still alive, by the way.

But, but only because you decided not to kill him.

Or just leave him there.

Oh, that would have been fun.

That might have been the better lesson, is you get yourself out of there. Yeah.

I mean, I, I have a, I have a feeling mom wouldn't have appreciated that.

Well, he'd have had a good 2 hours to figure it out, at least.

Wow, that, that might have been, that might have been enough.

It might have been.

Yeah, who knows?

So anyway, thank you guys so much for joining us on the show today. We've got a really cool episode. We've got, you know, fan favorite Hailey Thayer. She's not in the studio. She's, you know, skulking around in the Pacific Northwest.

Yes.

Is it raining there right now?

No, guys, the sun came out. It's incredible.

Okay.

All right. So, but anyway, we've got a really cool show. Last, uh, last time we did a, uh, an interview with Hailey, one of the things that kept coming up Were all the acronyms.

Man, and it seems like there's a bunch.

Yes.

You know?

And well, it's mostly because we don't know any of them.

Oh no, I don't.

Yeah.

I mean, just, I mean, I hear, I hear people talking about these things and my mind is like, oh yeah, like the AARP, you know, that thing, you know.

That's what I feel like when people use acronyms around me.

Right.

I feel like I should be in the AARP.

Yeah.

Yeah. And, and And the problem is, the problem is that people, they throw these acronyms out as if you know exactly what they're talking about.

Right.

Like you are fully immersed in their world, and the reality of it is few people actually live in that world. Or at least people that I know don't live in that world.

This is when most people just learn to nod and act like they know what's going on.

Oh yeah.

Yeah, it's the best form of just kinda, Making your way through a conversation, at the end people walk away and you go, I have no idea what just happened.

Yeah.

Yeah.

So, uh, we, we have, we have worked with Haley here and, and by we, we mean mostly her, um, to compile a list of the, the most used acronyms in, in, in real estate transactions.

Yeah.

Um, and is, is that, is that, is that fair, Haley? Is that accurate?

Yes.

Okay.

Yes.

So I figured what we can do is we can— Kevin and I can take turns. We're gonna, we're gonna throw some acronyms at you, and, and then we're just gonna turn you loose on the, uh, the, the podosphere.

The what?

Yeah.

Is that—

is that the podosphere?

Podosphere.

Podosphere.

Yeah. Okay.

Vowels count.

When you said that, I was thinking like P-O-T.

Oh.

A sphere.

Like the potty sphere?

No, I, I had more like, you know, like a plant in my mind.

Potted?

No, no, like pot. You know what pot is?

No. We don't live in the Pacific Northwest like Haley.

Hey, I know what it is.

You should go down to the corner store.

That's right.

That's right.

Oh, I, I have to tell you a funny story before we get into— based on that. So I was in Colorado.

Okay.

Famously, right? Um, so I was in Colorado And I had a bunch of teenagers with me.

OK, that took a left turn. I didn't think you were going that way.

Yeah, I know.

A bunch of teenagers.

I had a bunch of teenagers with me, and we were, uh, we were gonna go hike up a mountain.

OK.

OK? And, uh, we stopped. One of the teenagers was like, I gotta go to the bathroom. I was like, of course you do. So we stopped off at this little place. It's this Nowheresville, um, right on the Arkansas River. And, uh, when we walk in, And it's like this, it's the most amazing place ever. It's a convenience store, it's a gas station, it's a hardware store, it is a fishing, like, tackle store, right? It is a grocery store.

Okay.

It is all of these things in one. And so we're just kind of mulling around because it's like the most amazing place we've ever seen because it's all of about 400 square feet. Okay. It's, it's small.

Limited inventory.

Exactly. Um, but they had all the essentials, right? And so this, this little old lady walks out from behind the counter and she walks up to me and she says, we have brownies.

No.

And I said— That is out of a story. Oh, okay. Yeah, exactly. And I said, oh, okay. And she goes, they're homemade. And, and, and I'm— my, my actual voice right now Imagine what she looked like as she was saying this, right? And, and, um, I said, I, I think we're good. I don't think we need any brownies on this, this trip. And she goes, okay, just let me know.

And that was it.

And then did she hide back in the dark corner? Exactly. And then she, like, rather than turning around and walking back around the corner, she, like, starts backing up slowly and, like, moving herself around the corner.

Been even creepier if she'd been like on a hoverboard.

It, it was plenty creepy as it was. Uh, but anyway, that's the podosphere that I was thinking about.

Whatever, like that story immediately went to Colorado.

That's exactly right. Anyway, that's—

I don't know what to call the podscape landscape.

Um, that, that's it right there.

The, the podscape landscape.

Yes, on the home shoner, uh, home shoner. The home owner, the homeowner's show. That's exactly what it is. The podcast landscape. All right, Haley, please rescue us. Please let somebody else talk.

I love these stories. They just should keep going real quick.

Um, just like when I, so I did a trip one time and, uh, I discovered why weed is called weed.

Okay.

It actually is a weed in Hungary.

Oh.

Like it grows everywhere.

Okay.

Like I was helping this guy clean his yard and we're like, you know, trimming the hedges.

Yeah.

And, you know, and we're, and we, I didn't know what it looked like. I was like 18 years old.

Yeah.

And I'm like picking it up and throwing it in the fire. And he goes, huh, you burning the cannabis there? And I was like, what are you talking about? And he's like, yeah, that's the— it was like all over his yard. Everywhere.

Okay.

And I was like, I was like, what do you— what's wrong with you guys? And he's like, it's legal here. What? It's like, it's a weed. It just— you can't stop it.

Oh, interesting.

So like in Budapest, it's like, it's just everywhere.

Wow.

So I don't know why, but apparently that's, that's the place.

I would prefer that over dollar weed, which is what I got all over my yard.

Yeah. Something useful.

Yeah, exactly.

Yeah. Anyway. All right.

Okay.

Do we, do we have an acronym to segue?

Okay.

Here's the deal.

IDK. IDK. Perfect. Perfect. Okay, Hailey. So let's, let's kind of kick things off here. Some of our listeners on today's show may possibly not know who you are.

Whoa.

I know it's a little crazy to think about. So tell us a little bit about who you are, what you do, and let's get into this.

Of course. Well, it's kind of rude if you don't know me, but hi guys.

Just ostracize all the newcomers right off the bat.

Well, this sucks. Yeah, I, uh, hey guys, I'm Haley Thayer. I'm a personal mortgage consultant, and what I do is I open doors every day for people who are looking to own a home but don't think that they can. So I specialize in educating especially first-time homebuyers, but also move-up buyers and people who want to invest in real estate. And I'm out of Seattle and the PNW. So that's why I'm not in Texas hanging out with these cool guys.

She's all with the— she's full of the acronyms today. She's got it. She's rapid fire.

Here we go.

Yeah.

I prepared.

Not everybody can live in the TX and be awesome like us. All right. Well, so, um, what, what I understand it is last time whenever we talked to you and of course—

What's this we business?

Craig talked to you. I was talking to you in my brain. Uh, Listening to the podcast going, I probably would've interjected there. Uh, but anyway, I wasn't, I wasn't on the episode that, that we interviewed you, and then you filled in for me multiple times, which is, I, I know everybody likes you better than me. It's fine. Whatever. Um, but, uh, let's just start talking through some of these acronyms. Um, because when, when people go to, to buy a home, um, they're looking, they're looking at their mortgage, um, person, they're looking at their realtor and they start throwing out these acronyms. Um, yeah. Kind of walk Take us through some of these.

Yeah, of course. So, so a lot of acronyms come up really early on, and it gets— because we have so many different names for so many different things, we think that it's easier. But of course, for the average person who's never done this or does it once every 7 to 10 years, they're like, okay, can you just speak plain English, please? This is ridiculous. So One of the biggest things though that comes up really early on is the debt-to-income ratio, and that's DTI. And you'll see that on everything from emails from mortgage professionals to advertisements, anything like that. And I would say that that's the most important one. If you get anything out of this podcast, this is the one that you should know because this will actually help you on your own figure

out how much you can afford.

Hmm.

Let me just give you the definition of it, and then I'll explain it in numbers terms. So the debt-to-income ratio, or DTI, is the percentage of your monthly income that goes towards your monthly debt payments. So what that means is, this is what we do on a day-to-day basis whenever someone calls us up. So they're like, hey, I wanna get a mortgage, but I'm not sure if I can afford it. So what we do is we talk to them about their income, their assets, their liabilities, so anything from credit card loan debt to car loans or anything like that. And then we talk to them about their credit as well. And what we do is we take those

numbers, so we take everything as a monthly thing. So if you make $100 grand a year, we'll take your monthly salary. And then what we do is we take what your So another acronym in this is PITI, and I'll get to that right after this.

All right.

But we take the full payment that you would have on a mortgage, and then we add that up with your current debts that you pay off monthly. So like I said, car loans, student loans, credit card debt. We add those up, and then we divide that by your monthly income. Percentage that we're looking to get out of that is 43% or below. And that means, let's say that you want to buy a $500 grand home, you want to put $100 grand down on it. We have that number all set, ready to go, what that monthly mortgage payment would be for you, plus all your debts. And we can say, hey, you can afford this, or you're a little bit

higher than 43%. So do you have a co-borrower? Do you have someone that could give you a little bit more money for the down payment? Anything like that. So we can kind of be creative in our conversation.

Right. It's just, at that point, you're looking, you're going to be looking for more options.

Exactly. Yes. And so we have to go a little bit lower on price point or get a higher down payment, whatever that looks like, or maybe pay off debts earlier than getting a mortgage.

Right.

So that is something that everyone can take away and know, Okay, this is kind of what I'm comfortable with paying every month on a mortgage payment. These are my current debts. And then divide that by your monthly income and you can see, hey, this is actually doable for me.

Yeah. And I imagine because everything's going kind of into the financial crockpot there, that it's, it's, it's really important to be as transparent as possible with your financial situation, because I would imagine some people might feel the need to like withhold some information in order to try and make their numbers look a little better.

Of course, yeah. And I get that hesitation. I mean, you're talking to someone, most likely a mortgage professional is going to contact you right away over email or, or a phone call. And that is something you are literally explaining your entire financial history to them. And people either forget stuff, or they're just kind of a little bit nervous, and they feel maybe embarrassed.

Right.

But the wonderful thing is just starting that conversation, and you're more than likely better off than what you know. And it's just all about that education.

Yeah.

Well, I think, I think part of what makes that difficult is that a lot of people look at their life and go, oh my goodness, like, I'm living paycheck to paycheck, or I'm, you know, I'm living beyond my means actually. There's no way that I could possibly buy a house. And yet there's probably something somewhere that goes, Okay, your debt-to-income's still less than 43%. You're just not budgeting very well, right?

Exactly, yes. And we run into that really, really often, actually. And what we do is we can also educate someone. Okay, you might be a little bit, you might be at 44% or 45%. Here's what you need to do to be able to get to that price point. And we have financial planners that we've teamed up with as well that can outline for you what this looks like. And it's all for free. It's all just a conversation and getting that started. And if you are going over your monthly budget, that's okay. Most of us have done that in the past or are doing it currently. But how, how can you offset that? And where can you cut some things out of your life that would benefit you in the

future.

Yeah, that makes a lot of sense.

All right, so you mentioned one in there that you said we were gonna come back to. Is it PITI?

Yes, yeah, so that's another one that comes up really soon right after the debt-to-income. I obviously said it right away. So didn't really leave any time for that. So the PITI is your full monthly mortgage payment. So what you would see on a loan estimate, Or if you are on Redfin or Zillow and you're looking at their different numbers or you're doing a mortgage calculator online, what you're going to see is just the P&I.

Right.

Which is the principal and interest. And so that's just your basic monthly payment. But how we calculate it on our end, so we make sure that you can afford everything, is we have to also look into the taxes and insurance. The P is principal, the I is interest, the T is taxes, and the I is insurance. And what this means is we pull it all together. So we base off your property taxes on— in Washington, for example, it's by county.

Mm-hmm.

So in King County, it's based off of your value of your home and a percentage off of that home. In California, it's a little bit different. And so we base those taxes off of that, and then insurance, we always kind of go So around $80 a month. And so what you can do is, if you don't know, if you just see that mortgage calculator online and you're just getting the principal and interest, you can go online and say, hey, what would be my property taxes at this zip code? And more than likely, you will be able to find something in the range. And then just use— For your homeowner's insurance around $80 a month. That's pretty much the average standard. That's a little bit higher. And we always go a little bit more

conservative because you never know what's going to come up or what you need coverage on.

Yeah. And I imagine that the whole taxes situation varies greatly between state to state.

Exactly. Yes. I mean, definitely.

Yeah. I mean, because— but that— is that just the state side of the taxes on the property taxes?

Yes, just stateside.

All right, so, uh, at this point, I mean, we, we've heard a little bit about, uh, those 2. Uh, what, what do you feel like is, is maybe the next phase of, of the mortgage process that we're— that we might get into?

So the next phase would probably be the loan-to-value, the LTV. Um, and that's another one. So DTI and LTV are 2 that you'll see on on a bunch of advertising, a lot of radio ads and things like that. So the LTV is the loan-to-value, and that divides the amount of money borrowed by the appraised value of the home. And so this pretty much just shows you what you're gonna owe on the home. And so your loan-to-value really depends on how much money you're putting down at the beginning. So this correlates directly with your down payment. So if you're putting 3%, Then your loan-to-value is 97% on the property. If you are putting 20%, then your loan-to-value is 80%. So that is something that's a good number, or

that's a good acronym to know, because this is something that's gonna come up really early on in conversation, especially when you start talking about down payment and what you can afford and what you can't.

Sure. So you mentioned something just there that is something that I think you might want to flesh out just a little bit more. And you mentioned the word appraisal. So it was— oh yeah, what is, what is an appraisal for those people that may not know what that is?

Of course. So an appraisal is the value of your property. So what happens is an appraiser comes to the property that you are under contract And they take, they look at the square footage of your home, how many bedrooms, how many baths. They're not looking at your furniture or anything, even though people love to think like, hey, I need to clean up my house for the appraiser.

Mm-hmm.

It's more about showing the amount of space that you have, and then also the neighborhood that you live in. So the appraiser comes to your place, and then he looks at comparables in the area, and he's able to look at your property compared to other properties that are on the market currently, are just sold in the past 6 months. And he comes up with a value for your property. So this appraiser, this appraisal goes 2 ways. So let's say that you're putting your house on the market. An appraisal is used to be able to put your house on the market at the right price. Everyone thinks that their house is better than what it is.

So they're saying, wait, I can't sell this for $1 million? What's going on? But the appraiser will definitely know better. You can always fight an appraisal as well. You can always say, hey, I really think that our house can be sold for $50 grand more. And you can fight that with your real estate agent. So that's one part of the appraisal. Another part is, let's say you get under contract on a home. So you are the borrower in this position, and you're trying to buy this home. And you You are in the process of getting a mortgage. An appraisal is needed for a mortgage so we can know the, the amount of money that we can loan up

to you. So let's say that you are— you put in a contract for a $500 grand home and the appraisal comes back at $550. That's actually a really great thing for you because you're walking into equity and you're the only one seeing this appraisal. No one else on the buying or selling side is seeing this unless you allow your real estate agent to see it. So that's really good. Let's say that you are, it's the same $500 grand home, but the appraisal comes back $100 grand lower, so $400 grand. That means that we can only loan you up to that value of the home. So let's say that you are putting 20% down on the $500 grand home, Well, it actually changes to 20% down on a

$400 grand home. So an appraisal is a really important aspect. But if you live in a hot market like Seattle or like where you guys are living, where homes are coming on the market and people wanna buy them, Texas is a huge market for a lot of investors, a lot of people moving in.

Oh yeah.

And so your appraisal is definitely gonna come in Probably at the loan amount. I mean, at the, at the purchase price amount, or a little bit higher. So that's— it's also good to realize what kind of market you're in. So you're not worried about the appraisal.

So you mentioned something back a little bit that you may not choose to show that appraisal to your real estate agent. Was there any reason that you, you might want to or not want to do that?

Yeah, that's a good question. It's completely up to you. So if you have questions about it and you want to fight the appraisal on the— if you're the borrower in this situation, Mm-hmm. then you can show your appraisal to the real estate agent you're working with. And you can say, hey, I really want to fight this. I've been seeing other comparables in the marketplace and I see homes going for more and they have one less bathroom than ours. So I'm not really sure why they did it so low. So they— so you can fight it on the borrower side as well. And that's when the real estate agent can come in because they know the

market and they know the area really well and can pull comparables for you.

Yeah. I mean, we ran into a similar situation with this place where they were— the appraiser actually came back and said, I can't do comps on the property you want to buy.

Oh, wow.

Which, I mean, like, you know, at that point, the bank kind of goes, well, then we can't lend money because there's no other properties like that property. And we're not willing to risk, you know, so then you get into like that whole situation, which was fun.

Yeah. Yeah. Which is, hey, but I just want to buy this house. Yeah.

You got the money. I want to use the money.

Come on. Yeah.

So let me ask you this, because I'm One of the things that you said is, let's say the appraisal comes in a lot lower than what you have put on, you know, as, as far as, um, you've bid on this house, so to speak, and you put in an offer. At this point, the offer may have already even been accepted, right? And most of the time, you're not going to get an appraisal without an accepted offer. So you've got an accepted offer, and it's a $500,000 house, and the appraiser is coming in at $400,000.

Mm-hmm.

Does that mean that I should walk away from that Or is there some thought process behind, well, it may be that that house is still worth buying at that point?

Yeah, so this actually gives you a lot of buying power. So what you should do is you can fight that appraisal, like I said before, but also you can go to the seller and say, hey, the appraisal only came in at $400,000. You've overpriced this home. I'm only willing to give you $400,000 for this home. So are you willing to go down $100,000 in your value, in your purchase price? And the conversation then comes, and that's directly correlated with your real estate agent and the selling agent or listing agent in the situation. So they— so you, you are corresponding just with your real estate agent and they fight for you in that situation. If you did, what I suggest to everyone is, apart with the appraisal,

another upfront fee in a mortgage is the inspection. And I always suggest never ever buy a home without doing an inspection, 'cause you wanna know what you're fully buying and what you're getting into. So let's say this $400 grand home, or the $500 grand purchase price is coming in at $400 grand on the appraisal, and you knew in the inspection that you might have to get a new roof, Then you could use that as buying power. Say, hey, I need $10,000, $20,000 for the roof, and that will go into our loan amount. And so there are different ways, but if it comes in really that low and you were already kind of on the fence, then you can back out of that contract and get your full earnest money back.

Yeah. So, you know, it's not to say that you can't still buy that house. It may not be prudent to do so because obviously you're paying so much more more than what someone's saying it's worth, and you're going to instantly— you're instantly going to be in greater debt because now you can't offload that house if you need to.

Exactly.

For what you paid for it. So there's that. But the other thing I heard you say is that it also— you're not stuck just because you've made this offer. I guess it's your protection for you to be able to say, listen, I'm over my head, you're over your head. You know, we're no longer— you're not bound to that offer at that point.

Not at all. No. And so the magic number is $50 grand. So if it came— if the appraisal came in at $450,000, then we can still lend up to the value that we had on the purchase price. Anything below $450,000. So if it came in at $449,000, then we would not be able to loan. We would only be able to loan up to the $449,000. So there are some stipulations to that. So if your appraisal comes in lower, which for most people right now in a market like this, no matter where you're living, your appraisal will not come in lower. So it's not, it's definitely not something that anyone should be worried about, but it's definitely something that you should be educated on and know going forward, hey, if the appraisal

comes in lower, this is what you need to do.

Hmm, okay.

It's good stuff. But let's, let's, let's go to the top of the list here and, and look at, uh, at APR. Yeah, uh, so this is one you're, uh, you're talking about quite a bit these days.

Yeah, yeah. So, uh, APR is the annual percentage rate, um, and it's your interest stated as a yearly rate. So let's say that you are locked in at 3.625, then your APR, it depends on the fees associated with your mortgage. So this is, this is kind of where it gets a little bit tricky, but I will just use a real-life example of what I did today. So today I locked in a client at 3.625. Their APR came back at 3.675, and So that's their yearly interest rate. That does not mean that their rate is at that point. That just means that because of the fees associated with it— so their fees were really minimal because they're doing a refinance.

Okay.

So their fees are just the underwriting and processing fee on our end, and then the recording and the title and escrow fees. So because their APR is so low, it means that their fees are low on that mortgage.

Okay.

Let's say it's a different situation, and let's say that they did 3.625% and they paid for that rate. They paid a percentage of the loan amount for that rate. Their APR could be closer to— I'm kind of spitballing here— but 3.82% roughly. And that just means that they paid for a rate and it was a little bit of a higher fee upfront.

Now, is that, is that just over the course of one year, or is that what it's going to be every year?

If you are in a fixed rate, that is what it's going to be every single year. Okay.

So what are, what are the— so you, you meant it, you mentioned just there a fixed rate. So there's variable rates and there's fixed rates. What are the differences and what are the advantages or disadvantages?

So the fixed rate mortgage is Very much your typical mortgage. So this is someone who's a first-time home buyer or a move-up buyer, and they kind of see themselves in a home for at least 5 to 10 years. And the fixed-rate mortgage is just a stated term of your rate is not gonna change for your term of the mortgage. So a typical term is 15 years or 30 years. We can do all, everything in between that as well. Just depends on your situation and what you're comfortable paying. 15-year obviously is gonna have a higher monthly payment. A 30-year fixed is typical for people because it's the lowest possible payment. And on the other end, it's called an ARM, or

adjustable rate mortgage. And this is something where your interest rates will change over time. So there's a couple different ARM programs. There's a 5-to-1 ARM, 7-to-1 ARM, and 10-to-1 ARM. What that means is your interest rate is fixed for 5 years, 7 years, or 10 years.

Okay.

And then after that, your interest rate changes with the current market. So I actually have an ARM on my current property that I own, and it is a 7-to-1 ARM. And I did that because my interest rate was really, really low at that current time in the market, and it allowed me to have a really low monthly mortgage payment, but I also didn't see myself living here forever. So I thought, okay, I can always refinance when the rates go low and I can go back to a 7/1 ARM, but that just kind of starts it over.

Right.

Or I can go to a 30-year fixed rate if the rates are better. It gave me a little bit of flexibility in my, in my monthly payment.

Right. And so, but with that, you're going to have the— when the market kicks in, I mean, because like right now, I mean, from what I understand, rates are like really, really low.

Yes.

And so you're probably looking down the road in 7 years going, it's probably not going to be this low in 7 years, right?

It's really hard to tell.

You can't predict, obviously, but like Yeah.

Yeah, but like you could predict at the end of this year, for example. So right now it would be really conducive to everyone to look into refinancing if you have a rate in the high 4s or high 3s, because the rate, the average rate is, it just came out today, it's 3.45%. And that's average. So people are getting below that, people are getting a little bit above that, and that's— and it's really just a wonderful place to be. And just to give you an example, last year the rate at this time was 4.25%.

Yeah.

So it is significantly lower. But as we know, there is an election at the end of this year. The coronavirus continues to wreak havoc across the nation and the world and the markets. And so You, you could kind of look at it like, okay, right now mortgage rates might fall, but once the, once the election comes, it's, it's pretty historically accurate that every time there's an election, mortgage rates go up. Yeah. And so you just kind of know that, okay, so I know that that's coming up, maybe I lock in a rate right now.

Yeah, I mean, from what I understand, that it's especially true if you end up with like a second-term person. who's, you know, you like— yes, yeah, because they, they kind of know what's going to happen so that they know that their, their money's kind of safe so they can start charging more for, for that money.

Um, exactly.

So yeah, and like the— I mean, like, just so everybody knows that, like, while we're recording this, I mean, like, the market's been shellacked. Uh, right, I think it's like dropped 10% this week.

Yeah.

I mean, and, and so I, I mean, I don't know, like, historically what uh, what the Fed has done. But I would imagine when, when the market takes it— I mean, like, from what I understand, when markets take a dive, they tend to lower rates in order to incentivize investment. But they don't really have much more room to go unless we want to start getting in like Japan territory, right?

Well, and it's, it's a little bit bizarre because, I mean, you think about like when, when our parents were our age looking to buy a house When the rates were in the teens.

Yes. Back then. Yeah.

I mean, and so, I mean, you're, you're looking at some of your, your parents going, why didn't you buy a house back then? You know, all you did was rent or you lived in an apartment or whatever. And, and you, how did they possibly afford houses back then? I mean, I, I realized that, that, you know, money was different as far as, you know, inflation, all those sorts of things, but things were relative. Yeah. I mean, money was relative at the same time, you know?

Well, and not, not to be like not to turn this into a financial show, I mean, but I'm sure there's, there's a big aspect to that. Um, you know, as you are paying interest, you are also, you know, typically earning interest, you know.

Right.

And so the, the rate at which you borrow is also the rate at which you can save.

Sure.

And so, you know, that was also when you— most people really encouraged everyone to have a savings account because you could earn 13% on that account, or and you know, and that's that's when we get started getting a lot of these averages on the market where people like oh if you invest in your 401k you can get a guarantee of 10% return and da da da da da. And but and a lot of people still operate on that information that's just not actually accurate anymore.

Right.

Right.

But so so yeah so it's it's it's it's a two-way street honestly.

Yeah it is but I guess I guess my point in that and and Haley you can probably speak to this a little bit. is just that these rates are unprecedented on some level. I mean, I remember, um, back in 2009 when I bought my first house, I mean, the market had just crashed and rates were really low, and we were really pumped because our rate was at 4.99%, uh, in 2009. And when we moved here in '17 and bought a house, it's at 3.99%. Pretty pumped about that because there's a whole point less than what it was, uh, in our previous home. And now you're telling us it's another half point lower than It's just incredible.

Yeah, I mean, that's $200 savings every month. That's huge.

Yeah, yeah, yeah, absolutely.

I'm gonna call you later.

Yeah, yeah, you should. I mean, seriously, it's, uh, it is an absolutely incredible market right now. And, uh, you know, we've been saying this for a while though. I shoot a lot of videos and I've been saying, hey, it's a really great time to refinance. I've been saying that for the past 8 months and it's actually really true because rates just keep falling. So it's like, okay, my initial conversation was like, hey, if you're in the high 4s or the low 5s, you have to refinance because mortgage rates are at 4.125 right now, or whatever it was. And now it's just a whole different conversation. Guys, you can still save money. And the beauty of it, this is one thing that I don't

have on the on the list to talk about, but always ask your mortgage broker if they can do a no-cost, no-point loan. So if you are looking to refinance, we can do this on our end at no cost to you. So we cover all the costs for you. You don't have to pay for a rate unless you really want a rate that you're looking at and you're like, that's what I want my monthly mortgage payment to be at. But we can cover those costs for you. And it opens the door to a whole nother conversation, 'cause you pretty much just have to send us your documents and you're good to go. No money at closing.

And so what is no points then?

So no points means that you're paying for a rate. So a point is a loan origination point. And that's essentially kind of, you could see it as commission for me as a mortgage broker. So what I do typically is I say, hey, you can get a 3.625% for no points. So you're not paying for this rate. This is just something that's in with our lenders and we are able to pay this on our own and you guys don't have to pay for this. And then I go down the list. I go, okay, but if you did want to pay for a rate, you could do, let's say, 3.45% and you have to pay half a point.

So that's 0.5% of the loan amount.

Okay.

And then I typically go down to about 1% depending depending on the person and the conversation I have, just to show them that that's an option, but definitely that they don't need to do that. It takes about— it depends on your situation, but it takes about 2 to 3 years to offset the cost of paying for a mortgage rate upfront.

All right. Well, Haley, real quick, we need to take a second to recognize this episode's sponsor, Paul the Plumber. Paul the Plumber has gotten to be a good friend of this show.

Yeah.

Because he does incredible work.

Yes, he does.

I think I showed you that picture a while back of one of his guys down in the ditch at night getting everything fixed up for that homeowner because they didn't have water in their house.

I mean, you gotta do what you gotta do. I mean, when you don't have water, it's one of the worst things in the world, right?

Yeah.

I mean, and okay, first world problems. Right? However, however, I mean, we're, we live in a world where that's normal. So, uh, you know, he can help you.

Absolutely. Leaks, fixing, putting in new faucets and fixtures and fixing the toilet and drains not draining. Get it all fixed.

Oh yeah.

Paul is the man.

All right.

So if you guys need Paul, which I know you all do, cause you all, if you're listening to a podcast, I guarantee you have plumbing in your house.

I hope so.

If you need to get a hold of Paul the Plumber, you can reach Deborah in the office at 832-521-3252, or you can email her at deborah@paultheplumberllc.com. And you don't need to know how to spell that because it's in the show notes. And you can also schedule them online by going to paultheplumberllc.com. Thank you, Paul.

Yep. And back to the show.

All right, Haley, real quick. Not— well, probably not real quick. Um, so I was telling my wife that we were, we were having you back on the, uh, back on the show, and she said you need to talk to her because I want to, I want to refinance the house. And she wants to do a 10-year. Yeah.

Right.

So my question then is, is there any advantage or disadvantage between the 30, the 15, the 10 interest rate-wise, or, you know, all these different options that we have now? Because I think you mentioned that the ARM actually has a 10-year option.

Yes, it does. So, okay, was she talking about a 10-to-1 ARM, or was she talking about just a 10-year mortgage?

10-year mortgage.

Okay, so a 10-year mortgage, that is definitely doable. You guys just have to be prepared for a higher mortgage monthly payment, right, every month. So what it, what it can do is you could literally say, hey, with this monthly mortgage payment, we are going to be mortgage-free in 10 years.

Right.

So that's the benefit, and I think it's definitely something to look into. As far as mortgage rates, the 15-year and 10-year typically have lower mortgage rates.

Okay.

Because, because the numbers are so much higher and the monthly mortgage payments are so much higher. So that's definitely something that you should look into just to see the numbers and compare it to a 10, 15, and 30-year.

Okay.

So one of the questions that I had that just popped up in my brain then is why wouldn't you go with a 15-year and just pay as if you were paying on a 10-year?

Yeah, you can do that. It depends on where you live. So you want to look into the prepayment penalties. And this is something that you have to ask your mortgage broker that you're working with on because in Washington State, you could get a 30-year fixed-rate mortgage tomorrow, and then next week pay it all back. There's no prepayment penalty on that. In California, there are prepayment penalties for the first couple of years of owning a mortgage. Yeah. So I don't know how Texas is, but it's— yes.

That's honestly— sorry, Haley, to cut you off. That's really what I thought you were going to tell me about your son's story earlier off the second and a half. Floor is— it was gonna be a PPP story.

No, it was not. No, not this time.

Okay. All right.

Sorry.

Sorry, Haley. Back to you, please.

Yeah. So just look into prepayment penalties because you can really— in Washington State, you can pay back your mortgage whenever you want.

Oh, that's cool.

Yeah.

Why not? Fall and get a windfall of cash, just unload the house.

Yeah.

Yeah. But at that point, I mean, you're, you're getting a lower rate in case some crazy thing happened, you know, one month or whatever, but then you're paying it down quicker because you're paying all the principal, right?

Exactly, yes.

I don't know much, but I know that was a smart idea, Kevin.

Wow, amazing. You must be a mortgage broker.

That's incredible. Maybe in another life.

You get one a year, buddy.

I'll take what I get.

All right, so we've done the APR, we've done the ARM. What was the other one?

The FRM. FRM, the fixed-rate mortgage. We talked about that.

All right, what's next? What do we got, Kev?

Uh, the next thing on the list, um, is PMI. Oh man, I hate PMI. It's like my, my worst enemy.

It's the devil.

Yeah, for some people, yeah. Yes, but it's actually historically low right now. So—

From what I understand, I mean, like, PMI is like why we have access to so much money, right?

Yeah, exactly.

I know a little, little something.

Yeah, you know a lot. So PMI is private mortgage insurance. And this is something, this is a conversation you'll have if you plan on putting less than 20% down on a home that you're purchasing. So this means that you will have an added fee on top of your monthly PITI that we talked about earlier. So right now—

And if you wanna know what that is, just rewind the show.

Yeah, 'cause we're not going through it again.

No, we are not.

That'd be the worst. So yeah, so that just, that is typically what first-time homebuyers look at. Obviously, the more you put down, if it's still less than 20%, if you put 18% down, your PMI is gonna be a lot lower. But as I said just a second ago, it is historically low. It used to be in the 250s to 300s just a couple years ago, and now it's anywhere between 100 to 175. Depending on the area and obviously your situation.

Okay, so, um, maybe I'm just— I just blanked for a minute, but, um, as you're sitting there talking, I mean, the thing that makes me frustrated is because, like, it seems to me as if, uh, PMI is insurance. I mean, it's basically saying If you default on your loan, then PMI is going to kick in and make sure that the bank doesn't lose their money, basically. Is that right?

Kind of, yes. So it's definitely— so putting less than 20% down on a home makes it more of a risk for a lender. So that's why it's an added fee on top. So in some ways, yes, you're correct. It is insurance that protects the lenders. And what you can do though is, so what I'm seeing a lot in this market is people will come in, first-time homebuyer or just second time, third time, and they don't have the 20%, but they put in, let's say they put in 15%. What can happen is you put 15% in, you get that PMI, But in a market like Seattle, because your appreciation of your home will probably go up very quickly,

you can refinance and get that PMI off pretty soon, within 6 months to a year.

So just based off the value increase that you create?

Exactly.

Okay.

Yes. And so I always say, I always tell people, in a market like this, your appreciation is gonna go up because there's not enough inventory on the market. So people are gonna look for homes, and that just means that they're willing to pay for homes. And so that means values are gonna go up and home prices are gonna go up, which is not great for homebuyers at all, but it's great for people who are, who are owning a home right now.

Right.

And want to get PMI off, for example.

Yeah, so unfortunately, my next-door neighbor is moving. Their house went on the market today. I'm not very happy about it.

Is this the deer guy?

No, no, this is actually the guy on the other side. We like them a lot. It's crazy. They got a really good deal on their home.

They already sold it?

No, when they bought it. They got a really good deal on their home. But they've lived there for 6 years and they are listing it for $119,000 more than they bought it for.

Wow.

And, and really the amount of money that they've put into it has been, has been negligible, um, in comparison to that amount. And so, you know, I, I'm looking at that going, all right, that's, yeah, that's good news for me.

Yeah.

Because I live next door.

Yeah. You just need to sell for that now.

Exactly. Exactly. So I, you know, I, I know that, I know that, that it's one of those deals where you look at it and go, oh my goodness, this is an, an extra fee that I'm having to pay every month. And I'm, I'm responsible. I'm gonna pay my mortgage every month. But, but the bank doesn't know that. The bank doesn't know whether or not you're, you've got any type of job security or whether or not, you know, the bottom's gonna fall outta the market or whatever is gonna happen. And all of a sudden, You're, you're in a really difficult place. But to your point, it sounds like, you know, if your, if your home is appreciating, you're paying your mortgage every year, every month,

and eventually everything's going to even out and you're going to wind up getting all that money back anyway.

Exactly. And also, this is just a good transition actually into a HELOC and that kind of conversation Owning property allows you to build equity and build your wealth over time. And I think that is the safety net of owning real estate as opposed to putting your money into the stock market. Obviously everyone is really hurting right now, but the stock market goes up and down all the time. In terms of owning property, owning property is never gonna be a bad investment. Because it's in high demand and people need it, especially in high-income areas, especially in high population, like high-density areas.

Yeah.

Because there's not any more land to build on and it's really expensive to build. So if you own property, this is a really good thing. And so what I was talking about on a HELOC, that's another of these acronyms, it's a home equity line of credit. So say that you get underwater, you lose your job, or you are just in too much debt and things are happening. What you can do is tap into the equity in your home and have a line of credit that allows you to pull. It's kind of like your own savings account, but you can actually pull the money out and use it. As opposed to, you can look at your home as a savings account,

but it's all, it's not liquid cash.

Right.

A HELOC is liquid cash that you can use to kind of be your safety net. And you can pull out a HELOC at any time. If you have worries, or if you are just like, you know what, I want to have that safety net, and I want to use that equity in my home, you could have a HELOC right now and let it sit and you don't ever have to draw from it. But the moment you draw from it is when you get charged interest.

Okay.

Okay.

And is that, is that a most— do HELOCs operate like on a variable interest? Or how does that work?

No. So it's, it's typically a fixed Fixed rate on the HELOC.

So this, this makes me think of something, and again, this is my ignorance playing out here, but so, so we've talked about refinancing and we've talked about a HELOC, and I hear people talk about, oh well, I took out a second and a third mortgage on my house, so I'm, I'm in this place right now. What does that even mean?

Yeah, so a second or third mortgage, they wanted to pull the equity out for either to use to get cash to, you know, renovate their property or pay off some debts or things like that. And I never suggest to anyone to add another mortgage onto a property. I always say look into a HELOC first or a cash-out refinance, which is essentially the same thing. But a cash-out refinance is typically a little bit better of a way to go because you're not charged interest on it. You're just given that cash, um, and at closing. So it's— it is definitely a conversation to have. Um, and these second and third mortgages on properties, I typically see them with people who are investing in real estate, um, and hopefully

using that money for good.

Yeah, because, because I, I mean, I think a lot of people that wind up doing that is because they are in a financial Right. So, they're needing some money. But it sounds to me like a lot of this goes into the length of homeownership. I think that the earlier you can own a home, it really sets you up for not having to— even if you get into a financial bind, the earlier in life you have a home, the more equity you're going to have into it, because you can pour that equity into your next home and your next home and your next home. And eventually, if you wind up in a financial bind, then a HELOC really, really makes sense.

Right, exactly.

All right, well, let's, let's talk about one that we haven't talked about yet, and that is the UPB.

Yeah, so the UPB is, it's one of the ones that you should know, but it's definitely not gonna come up a ton. We'll just kind of say it, it's Unpaid Sorry, unpaid principal balance. And the unpaid principal balance, the definition is the amount of principal still owed on a loan. So on a typical monthly mortgage payment, a portion of your payment is applied to the interest and a portion is applied to the principal. And the following month's interest is based off of your unpaid principal balance. So you have a fixed mortgage rate. And you pay, typically, the principal is way less than the interest that you're paying on your monthly mortgage payments. And so that's

what the unpaid balance is.

Okay, all right.

Why would that come up?

It would come up just if you wanted to understand your amortization schedule and kind of where your monthly payments are gonna go over the life of the loan. Okay.

All right, cool. Well, let's keep moving forward here. So the next one I see on your list is FSBO.

Yes. So FSBO is for sale by owner. So you'll see this on Zillow, you'll see this on Redfin. And this is definitely a situation where maybe the person is really confident in themselves or Or they're real estate agents and they just kind of know the market and they're like, hey, I'm not gonna spend any fees. This actually is a lot— is really affordable for both parties because you are taking half of that commission out of the picture. So it's definitely something you should look for, especially if you're looking for a good deal on a home.

Okay.

Is there, is there any reason I should be wary or leery about an FSBO?

Um, you just have to make sure that all, uh, the entire sale works with federal, state, and local regulations because things are— there are a lot of things that need to happen for title to be transferred into your name. And so you need to I would always suggest to people to work with a real estate agent so they make sure that the sale goes through correctly.

Yeah, because, so, I mean, typically a real estate agent is going to make 6% right now on the sale of a home. Is that about right?

Really depends. Yes, but it's typically around 3 to 6%.

Yeah, so, you know, part of that is half and half. So you're never really paying, I mean, Depending on how it's all set up, sometimes the seller pays all of that. Sometimes the buyer pays some of it, I guess. But at the end of the day, when you don't have an agent fee, then you're paying less for the overall value of that home. FSBO seems like a good choice if it's an option.

It is.

So, all right, cool. Anything there, Craig?

No, I'm— yeah, I'm scared of selling my house by myself. Yeah, well, I would be a big job.

I would too if I lived in your house.

As if I didn't feel incompetent enough already.

Well, I mean, I mean, I guess that's part of the deal though, right? Is like, I mean, selling or buying a house is probably the most major expense you will ever have, right?

Yeah.

And, and it— in— because of that, I mean, we're talking not about thousands of dollars or even tens of thousands of dollars. Typically it's hundreds of thousands of dollars. And, um, when that's the case, I mean, you really need someone who's on their game, knows more than you do. And we, we pay for things all the time. We, we just ran an ad for our friend Paul the There's a reason you don't do your own plumbing. It's because you're gonna screw something up and pay for it in the end, right? Um, no pun intended with the plumber. Um, but you know, I mean, I think that, uh, this is kind of one of those deals where it's like, you know, you get what you pay for in a lot of, in a lot of ways. The ease, uh, that you're going through, let, let other people do

the work for you. So, right.

Um, the next thing we got on the list, uh, here is the GFE Yeah, so this is one of the documents you're gonna get when you are under contract for your home. So one of the steps is the disclosures that we have to send you as mortgage brokers, and this just kind of outlines for you what you're paying for, what your mortgage term is gonna look like, and that we are fully compliant with you and you are able to afford this home. So the GFE It's the good faith estimate. And I will just tell you what the definition is. It's a document that tells the borrowers the approximate cost they'll pay at or before closing based on common local real estate practices. So it's just, we

say, hey, this is your good faith estimate. This is what the rate is that you're paying. how your loan will amortize over time. And if you see anything that doesn't make sense, then that's your opportunity to say, hey, we need to change this, what is this number? And it's really just giving you an overview of your mortgage.

Yeah, so it's basically saying, hey, we think this is about what it's gonna cost in order to make this deal go through, right?

Exactly, yes.

When does this particular piece of paper hit the table for the buyer or seller?

So it's 3 days after we lock your loan. So within 3 days of locking your loan. So there are time limits on our end of when we have to disclose everything to the borrower. So once you're locked in, we have 3 days to get you all these disclosures, and the GFE is part of that.

Okay. But you can, you can, excuse me, you can sign those digitally, right? I mean, Yes.

Oh, DocuSign is my best friend. Yes. Okay.

Oh yeah, I mean, DocuSign's awesome.

Yeah, it is incredible. I love it.

So, okay, what's DocuSign? Since we went there, what is it?

It's a— it's an— I guess it's just a web application that allows us to send you documents that need to be e-signed and dated by you. So it It's pretty incredible. We do have some lenders that prefer a wet signature, like on a 4506-T, which is your tax returns. But everything else can be e-signed. And so it makes it really easy for the borrower. And DocuSign, you'll love it because it's the best.

Yeah. And one of the things that's great about whenever we bought our house just a couple of years ago is that, you know, my wife and I were buying this house together, right? I mean, it's in both of our names, not just one of our names.

I'm glad to hear that. Yeah.

Yeah.

Yeah.

I hear you guys patch things up.

Yeah, I am too. It warms my heart and gives me more buying power. So, um, uh, so, you know, the, the thing that's great is, you know, we didn't have to be in the same place because it just emails you whenever it's your turn to sign the document. And, um, you don't have to be in the same place at the same time. It just, it makes life so much more, uh, easy whenever it comes to signing documents.

Yes, I completely agree.

All right.

I think I should just start randomly sending documents to people to DocuSign.

Okay, good luck.

Just like, you know, like little, like, I don't know, just documents. Philosophical statements that people should agree with.

Philosophical. Okay, there's a couple of assumptions here. One of them is that you have anything philosophical to say, right? Right.

Okay.

And secondly, that anyone would agree with them.

Right.

Okay.

All right.

All right. But if I can get them to, I want to have that— I want to have that digital reference. You know, maybe I could like start sending them to like randomly to like celebrities just to see that I have some clout. Just sign this and say that you agree.

Okay. Hayley is probably the closest thing to a celebrity that you know other than Pyrocynical.

All right. Well, I'll send it to both of them.

I have like 2 friends, you guys.

Okay. Well, we know that's not true.

So, okay.

We'll just keep on talking here.

here. All right, the next thing on our list is the ECOA.

Yes, this one's super quick. This is just something so you should know. The ECOA is the Equal Credit Opportunity Act, and it is a federal law that requires all lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, Age, sex, marital status, and receipt of income from public assistance programs. Um, this is just something that we're, we're not going to discriminate against you. This is all based off of the numbers and your equity.

Well, okay, it's just saying that that's all they can go off of.

Yes, exactly.

It's a protection.

It is.

Yeah, that's what it is. I mean, it's, it's saying, listen, And we don't care who you are, where you came from, what you look like. Everybody should be available to get a loan and none of that's gonna matter to us.

Right, exactly.

Cool. America.

America. America.

Yeah.

Well, if it—

amazing.

If it was only that easy, right? If it was only that easy.

All right.

Um, the next one on the list, and, and this is gonna complete and round out our, um, our acronyms, and that is the FHA.

Yes, the FHA, it is the Department of Housing and Urban Development, and it's part of that federal agency. And the FHA is something that you'll see if you are a first-time homebuyer, but it can also be applied to someone who's already owned a home but doesn't currently anymore. And so the FHA just allows you to come in with a lower down payment, so 3.5%, And they're a little bit more lax on your credit history, 'cause first-time homebuyers, they're typically, they don't have enough credit to really build up and have a good credit score. And also based off of, they're a little bit more lax on your assets and the liabilities. So it just kinda gives first-time homebuyers a break. And it's called an FHA

loan, and it opens up the doors for people could otherwise not be able to afford it based off of their credit.

Yeah, and really the, the 2 biggies there are your credit score and the amount that you have to put down.

Exactly. Yeah.

So I mean, like, if it's not an FHA loan, like you're getting like a standard home loan, what— how much do you typically have to have together to put down?

So it depends on who you're working with. We have programs that are as low as 3% down, and then in Washington State we have We have programs that are first-time homebuyer assistance programs, and you can put as little as 1% down.

Whoa!

But you have to do— yeah, it's really actually pretty great for people that don't have a lot of income, but they have to do a lot of classes, and they have to kind of— they have to really fit into a specific box to be able to afford that.

Still, that's pretty incredible.

Yeah, yeah, it is really cool.

And that's a state-sponsored program, right?

That is a state-sponsored program. Yeah.

Okay, very cool. Well, and so I guess that, that is a natural point for us to talk about conventional loans then. We've talked about FHA. Let's talk about conventional loans for a minute.

Yes. So a conventional loan is— the definition is a loan that's not guaranteed or insured by a government agency. So this is It's just a typical loan that someone's gonna get on a mortgage, and we have lender partners that are not a government agency that can lend us the money to allow you to own that home.

Okay.

All right.

And I guess a lot of times people that have owned a home before and have some equity in a home that you're gonna hopefully put into another home, That's the type of person who's probably more inclined to go with a conventional loan rather than a first-time homebuyer, for example.

Exactly. Conventional loans also have the best rate options. So what we were talking about earlier with the fixed rate and the ARM loans, those are typically conventional loans. They can also be FHA, but typically conventional, and those are the best rates available on the market. Okay.

Have you, uh, have you originated any loans for tiny houses?

For tiny houses? No, but there's like a whole community right near where I live.

Is there really?

A tiny home community.

Are they on wheels or are they permanent fixtures?

They are on wheels in that particular one, but there are permanent fixtures in and around Seattle.

Okay. Could you though?

Could I do a loan on tiny homes? Yeah, heck yeah! It's mini, it's tiny.

They're awesome.

They are.

There's actually— hey, there's a tiny home dealership not far from here, and like, they— that you can go like tour their models. And I think there's like actually 2 or 3 different—

I was gonna say, there's, there's a couple of them. There's one down on 45, and there's one here on 105.

They're getting more and more popular.

Yes, they are. Yes, they are. Uh, what's interesting though is the one over here that's kind of close to where we live. Some of those homes are not so tiny. Yeah, no, they're like— those are, those are like midsize.

Midsize. Middies.

They're middies.

Middies.

Middies. Mini.

Yes, a middie. Oh man, I hadn't— man, middies, it's a whole different type of thing, right? Okay, we're starting to get into other acronyms.

That is right.

MP3, CD, all these geek computer talk. Exactly. All right, so we do have a couple that we want to, want to get through before we're done here with you. Let's talk about amortization. We talked about this a moment ago, you were talking about it, but help us understand what amortization means.

Yeah, so it is the process of how you pay off the loan. So amortization is just the schedule of your monthly mortgage payments. So as your principal balance goes down, your monthly mortgage payments are going to change. If you are on a fixed rate, then your rate is obviously not going to change. If you're on an ARM, that's kind of where it gets to, okay, how is my— if you're on a 7-to-1 ARM, how are my monthly mortgage payments going to look when I get to that 8th year and I'm out of that fixed-rate time?

Mm-hmm.

So it's really just a schedule of what your monthly mortgage payments are going to look like over the life of the loan, and it gives you a good idea of, okay, You know, I kind of— I feel like I'm gonna get a raise in a couple years at my job, or I'm gonna make a move and I'm gonna start my own company. And there, it gives you a really good look of the life of your mortgage and helps you understand and map out your future a little bit.

Yeah, okay. And, and this is, this is true of any loan, not just a home loan. This is true of an auto loan.

Yeah.

Those sorts of things, correct?

Yes, of course. You should always see your amortization schedule.

And there's an app for that.

Yes, there is.

There's an app for everything.

Yeah, yeah, absolutely. Uh, so the next word that we're going to discuss is fun for me because I think when we talk about this in, in terms of, uh, mortgages and homeownership, that kind of thing, uh, the word is, is default, like we default on a loan, right? But yeah, and so we're going to talk about that. But I, but I'm from, I'm from the South, Haley, and most of the time we say default.

Default.

Like my, my default position is, you know, like relaxed or whatever, right? But, but I, because I normally wouldn't say my default position, that's how I, because I'm from the South. But, uh, I, anytime I've heard this in, in conversation on a loan, it's always default. They defaulted on the loan, not they defaulted on the loan. So anyway, what do you think, Craig?

I've had family say it that way.

Okay.

You have it.

Well, we're not, we're not gonna get into that. I was about to say something. I was about to say something that I might regret.

To, to me, the real test is pecan.

Oh, pecan.

No. Oh, you can't say it like that.

No, I can't. I never have. How do you say it, Haley?

Pecan. Pecan. Oh, I don't know.

Hang on, a pecan.

I regret everything.

I don't know. Do I even eat pecans? Pecans?

No, there's— she just did it. She said pecan.

Pecan is what she said. Yeah, it's, it's a pecan. Okay. And, and so So we, I mean, we're from Texas.

Judgy pants over here.

Well, we're from Texas, right? Craig, what is our state tree?

Our state? I have no idea.

It's a pecan tree.

Is it?

Absolutely it is.

I thought it was mesquite.

Oh my goodness. Come on, Craig.

No, Craig. Okay, we're not gonna get into how dumb Craig is here. So, um, do you even know what the state bird is?

Mm, mockingjay.

Nice, dude. I want to rewatch that movie.

Wait, this isn't The Hunger Games.

It should be.

Uh, it's a mockingbird. Okay, all right. Or like, we don't have to, you know, like, we don't have to burn him at the stake or anything.

Uh, yeah, really just seeing if you would notice.

Oh man, I noticed. It's a good thing I backed away from the microphone because I was laughing quite loudly. Oh man, that's good stuff. All right, Haley, we've derailed long enough.

This turned into my quiz on Texas facts and history.

You failed, by the way. All right, Haley, default.

Yes. Okay.

Default.

So I kind of want to throw this in with a couple of the other ones we have. So default is just a failure of you to make your mortgage payments on a timely basis. So it depends on how often you're missing your payments and how consecutively, but it is a really severe severe thing that happens if you don't pay your monthly mortgage payment. And this also falls in line with delinquency. It's a little— delinquency is a little less severe than default. And then really what happens is it's kind of like delinquency, they're not making their payments, and then default is when it's like a consecutive amount of time that you're not making your monthly mortgage payments. And then after default comes foreclosure, which we kind of all know about because of

And that is just a really hard time for people. What's great is if you can find a private money lender around your area and you are facing foreclosure, they might be able to help you not be foreclosed on because a foreclosure on your credit report lasts for 10 years.

Mm-hmm.

And it's a major hit on your credit. So it's something that you really want to avoid at all costs. But if you have to go into foreclosure and it is going to help you in the end, then go through with that. But private money lenders, they typically have a pool of money and they can come in and bail you out, essentially.

Okay. Excellent.

So real quick, you said the foreclosure sticks with you for 7 years?

Yes, on your credit report.

Yeah. Is that also true with the bankruptcy?

Yeah, bankruptcy is 10 years.

10 years, okay.

All right.

I knew there was, and both of them are like severe credit hits as far as like on your credit score.

Yes.

Okay.

All right, well, the next thing we've got on our list here is discount point.

Yes, so this is just another fancy way of saying a loan origination fee. So what I was talking about earlier, if you wanna pay for a rate, then you do a discount point.

Okay.

All right. So we've already kind of covered that a little bit.

Yeah.

So, so the only last 2 things we've got here are pre-approval and pre-qualification.

Yes. And I feel like Craig and I talked about this last time. It is such a misnomer and it's so confusing. Even so, uh, yeah, Kevin, if you just listen to the show.

Oh, I'm listening.

Come on. Uh, my— so I'm training my brother right now actually up here in Washington. And he is getting so confused with the prequalification and preapproval, and he's literally training to become a mortgage broker. So, so a prequalification is not— is it's informal, and that's the easiest way to say that. A prequalification is something like Craig calls me up and says, hey Haley, I want to do a refinance. These are kind of the numbers. This is the value of my home. This is kind of where my assets are. This is where my liabilities are. This is where I think my credit it is. And it's all just like estimates because we all don't know what we

have exactly in the bank right now. If you do, you're amazing, tell me how. Or we don't know our current credit because no one gets their credit pulled for just any reason. And we just kind of know estimates. And so that's just the conversation to see, okay, based off of our conversation, you definitely can qualify for a mortgage, but I have to make sure. So what you really want and what all of your real estate agents, whoever you work with, will want is a pre-approval. And this is where I come to you and I'm saying, okay, we've had that initial conversation, but I need 2 years' tax returns, 2 years' W-2s, your last 2 pay stubs, your last 2 bank statements, any mortgages, anything that— or your landlord

information and your lease, anything that you're paying monthly so we can see this is your full picture. We pull your credit, we look at your liabilities, and we know, okay, he can for sure be approved for a mortgage, and we have documentation to back that up. So the pre-approval is really the most important aspect, and that's what you should always ask for moving forward in the mortgage process. And what happens is after you send your documentation to a mortgage broker or mortgage banker, They look through all the documentation and they issue you a preapproval letter based off of your loan amount and your purchase price and a rough estimate of where rates are that day. And then you get to go shopping for homes. So you want that

preapproval letter and then you get to go do the fun part.

Okay. So, so basically, uh, pre-qualifications is me just calling you up and saying, hey, do you think I can get a loan? And you're gonna, and you're gonna tell me, yeah, I think you can get a loan. Now, in order for that to actually be true, we're gonna have to go through a pre-approval process. And that is going to be the thing that your real estate agent really needs so that they can have an idea. I mean, you're saying, hey, I want to live in this neighborhood, and they're going, uh, great, you're really gonna need to show me a pre-approval because that is a really nice neighborhood. But if you have that letter, then it's, it's really easy. They,

they know know, um, what you can afford and what you can't afford. Um, and the prequalification is just kind of a me and you chatting, saying, hey, can this happen? Yeah, it can happen.

Well, that's what buyers ask for all the time too. They want to see your preapproval.

Yeah. You know, they want to know that they want to— because, and this has happened, I mean, over and over and over, and it's happened to us where, uh, we get into a situation and the buyer's been burned. They've been burned by someone who comes in and said, we're gonna buy your house. And they get through the loan process and somewhere the loan falls apart because they didn't actually have what they said they had, and the buyer's taking the house off the market, and they've lost weeks or months— hopefully not months, but, you know, definitely weeks worth of, you know, people coming to look for their, for their house. It's been on the market. It's just a— it's a mess, right?

Right, exactly.

Yeah.

And you always want— it's not, it's not a fun process because we have to really dive deep into your financial history and where you currently are. But if you can go in with that knowledge and power moving forward, you're gonna make the best decision for your future. Because buying a home is a really fun, stressful, overwhelming situation. But if you can go in really well-educated, like, this is what I can afford, and over, you know, the 30 years of the loan or 10 years or whatever, I'm gonna be able to pay this off and I'm gonna be okay. Because if you go in there and you just start looking at million-dollar homes and you're like, well,

this looks nice, sign me up. Sure.

And I think there's another part of that, Haley, and that's like, like there's people out there that are, they're living in an apartment, they're paying $1,200, $1,300 a month, and someone's telling them, listen, I pay less than that on a mortgage. There's no way. I mean, there's no reason for you to be living in an apartment because you're throwing that money away every month. It's not going to any equity. I'm building equity over here. But just because you're paying $1,200, $1,300 a month on an apartment doesn't mean that you can qualify for a loan, correct?

Right. Yeah, exactly.

And so I think, I think people need to be, need to be aware of that. Like, people that are out there living in apartments, they're, they're not necessarily, you know, just trying to throw their money away. They— there's something else going on in their life. It could be a mass amount debt that's just looming over them that they can't get into something different. Yeah, they can afford to live in the apartment, but it's not affordability sometimes. It's whether or not someone's going to take the risk and give you a mortgage.

Exactly.

I'm actually wondering if anyone in your neck of the woods, Haley, is paying $1,300 a month for anything.

No. That would be literally a dream.

Yeah, I know. I realize that that's very location-based, isn't it?

I mean, like, and that's actually pretty high for here too. I mean, like, oh yeah, there's, there's, I mean, like there's some apartment complexes around here where you're paying sub-$1,000 a month.

Absolutely.

And they're not great, but I mean, like you can, you can live there.

Yeah. More than one bedroom even. Yeah. Yep.

How about that?

Wow. Whoa.

Yeah.

I mean, I can't, I can't top it.

Yeah. I mean, we, we literally, uh, I, I know someone who's in a 4-bedroom apartment, uh, they're paying roughly $1,400, $1,500 a month. for that 4-bedroom. So it's like 2,200 square feet. Yeah. Which is incredible.

That's all they're building here right now. Oh yeah. Nothing but apartments.

Yeah.

Yeah. It's—

yeah, they're going up.

Well, everyone's moving to Texas. Well, move on over.

Which is— I mean, like, that's good and bad, right? But like, it's kind of weird because there's gonna be— you have to imagine there's gonna be a glut in all of this. And we're gonna end up with some like really shabby properties that aren't gonna be well taken care of 'cause they're not gonna be able to keep them full.

Right.

Right. So it's, you know, I'm just kind of waiting for like that other shoe to drop. You know, it's like, when is this too many?

Yeah. Right.

Well, that's when affordable housing needs to come into play. But that is a whole nother issue that Seattle's facing right now. We've also seen that they just kept building and building these massive, gorgeous apartments. all across downtown and all of them are vacant. Like they do not have a full vacancy, I mean a full tenant on it and it's all over and they continue to build but no one can afford it. And so it just keeps going and we're just circling around and now Amazon's expanding into the Bellevue area, which is kind of on the east side of the Seattle metro area.

Okay.

and they're gonna do the same thing over there, and it's even more expensive there.

Well, yeah, especially now that they know that they're going there, right?

So, well, Haley, listen, this has been, you know, I'm sure there are people that are still with us that are going, man, that was, that was a lot.

I mean, it was a lot.

But I do, I do know that we have given out a lot of information today, and the cool thing is they didn't pay a dime for it.

That's right.

Yeah.

Which is pretty awesome. I mean, it's a lot of information. It's a lot to wade through. I'm sure some people turned this off and came back to it, but thanks for sticking with us. We, Hailey, we've already gone through the final 4 with you, so I don't think it's important to do that again unless any of your answers have changed.

No, I don't think they have. I think it's pretty much the same.

Well, but we can bring to the audience that you've had some pretty big life events happened since last time when you were on the show.

Yes, I have.

Yeah, what— give it— so tell it— tell us what— tell everyone what happened.

Yeah, uh, I am newly engaged.

All right.

Yeah, so I've been with my— well, now fiancé— for 3 years, and it was kind of— it's been a relationship where we knew from the start, so it's been easy and fun and He lives with me. He owns this house with me, and we have a lot of fun together.

That's awesome.

So our life is pretty incredible. Yeah, I'm very lucky.

Congratulations. We're excited for you. You have the full blessing of the Homeowner Show.

Yes, I know that that's, you know, he didn't, he didn't call us and ask us permission.

And I, I—

Which is just rude.

Well, I know.

That's why I'm saying, I mean, I feel like—

Postcard even.

I'm fine if he still does that even, and we can give him like some, you know, post-engagement, you know, advice even. I don't know, uh, just, you know, some 20 questions would be good.

Perfect. He would love that.

Yeah. So, uh, well, well, Haley, listen, thank you so very much. We always love having you on the show. Thank you for taking the time to walk us through all these things. And, and I promise, uh, people, uh, this is not the last time you will hear her wonderful voice on our podcast because she is a huge supporter of what we do here, and we, we love you and we thank you for that. And, um, is there, is there anything we, we missed?

No, not at all. But I love you guys too, and it's been so wonderful, and thank you so much for having me on.

Thank you, Haley. Guys, if you have not yet, please go leave us a review. Tell us how awesome the episode was today. Or, you know, maybe not. Maybe you're like that, that one guy out there that just likes giving the 1 star. That's fine too. There's There's, there's room in the, in the podosphere, the, the podcast landscape for you too.

That's right.

That's right.

So, but yeah, if you guys could, you know, send all the likes and the, and the love and the reviews, uh, it really helps the show out, helps get the name out there, share the episodes. And, uh, I think, I think that's it, Kev.

Yeah.

Yeah. Thanks for, thanks for subscribing. If you haven't already, go ahead and do it. Leave us us a review, do all that kind of stuff. And, uh, you know, we're here every Tuesday, so thanks for sticking with us. Until then, we'll see you next time.

See ya.