Building wealth takes discipline and sacrifice, but sometimes a little creativity goes a long way. As a mortgage broker, I am frequently asked if I have any tricks up my sleeve to help bring down the cost of a mortgage.
Here is one way to buy a condo (or house) for up to a $475,000 purchase price with $25,000 down and pay $1,950 per month! That payment includes utilities, Internet and cable TV, applicable tax deductions and taking a roommate
Here are the basic requirements:
- A minimum $85,000 income.
If you do not make $85,000 per year, you will need more income to qualify. One solution is a co-signer. A family member, for example, with good income and low debt can help you qualify for the loan.
- You must be debt free.
If you have credit card debt, reduce your spending and start paying off those cards asap.
If you have a car payment, sell the car or return a leased car back to the dealer asap.
Take whatever money you have available and buy a car for cash. My financial advisor has reminded me over the years: If you need to finance a car, you can’t afford that car. I’m not saying we can always avoid going into debt but it’s a good point. Drive a clunker for a few years while save you tons of money.
Here’s my personal story on this topic: Many years ago, I too needed to get my finances in order. I was overspending and it needed to stop. For a 2-month period I (painfully) wrote down every single penny I spent. The results were rather shocking to me. I had spent $22 on parking in 3 days, for example. To this day after (finally) becoming successful, I would rather park on the street for free 3 blocks away and walk 4 minutes to my destination than to pay a valet to park my car.
Cooking at home replaced the constant eating out. I never realized food is actually fairly inexpensive. Costco sells Japanese Wagyu Boneless Ribeye Roast at $99.00 per pound and chicken, turkey and ground beef under $3.00 per pound. Take your pick.
From there, saving money turned into a fun game – how to find ways to have a great time with spending little to no money.
I sold my car and purchased a used 20-year old Honda Accord for $3,500 cash. Honestly, driving that car made me feel semi-embarrassed at first. But soon those feelings were replaced with happiness and the joy of not having a car payment.
Driving that Accord saved me tons of money, never broke down, and I sold the car for $3,500 2 years later! True story. Next, I bought a used Ford F150 for $10k cash. Gas prices went up that year so after filling up for $100 on a Monday (and again on a Wednesday!), I sold the truck bought a used Toyota Camry for $11,500. Five years later someone hit my car and totaled the Camry. The insurance company cut me a check for… take a guess… yes, $11,000! I had driven that car for 5 years for $500. Yes, I got very lucky. But it all started with my decision to live within my means and pay cash for whatever car I could afford.
- Find a 2-bedroom condo for sale.
As of my writing this article there are 2-bedroom condos for sale for $475k or less in Studio City, Santa Clarita, Burbank, Glendale, Koreatown, Sherman Oaks, Long Beach, Reseda, Stevenson Ranch, Torrance…etc.
- Find a roommate who will pay you $1,250 per month rent.
- Educate yourself about the tax benefits that come with owning a property.
You can deduct the property taxes and mortgage interest, which literally puts money back in your pocket. So let’s count those savings when calculating the monthly payment.
Let’s take a look at the numbers:
Purchase price: $475,000
Down payment: $23,750 aka 5% down
Closing cost: Negotiate seller to pay in full.
Principal & interest: $2,400
Property taxes: $495
Homeowner association fee: $300
HO6 insurance: $25
Mortgage insurance: $0
Utilities, Internet and TV: $300
Estimated Tax break: $4,800 per year
Payment calculation: $3,200 mortgage payment + $300 utilities, Internet and TV – $1,250 roommate – $400 tax break = $1,950 per month.
Disclaimer: I am not a CPA. Please consult your CPA for current tax laws and your specific tax savings. Principal & interest payment are based on current rates for qualified buyers only. HOA payments will vary. Utilities, Internet and TV costs will vary. HOA insurance cost will vary. Property taxes may vary. Roommate figures may change. All numbers mentioned are subject to change. All loan programs are for qualified buyers only.
Here’s one thing I know. Many financially successful spend way below their means. What feels cool to them is saving money, not spending money and always owning and never renting. When I bought my $3,500 Honda Accord, my successful friends praised and validated me while my financially challenged friends pitied and felt sorry for me – which is hilarious. And those same financially challenged friends are still financially challenged 10 years later – which is less hilarious.
Real estate has been a great investment over the past 50 years. Let’s figure out a plan how to get YOU into a property whenever the time is right for you. Feel free to contact me anytime with questions at [email protected].
Residential solar is becoming more and more popular with peoples desires for independence from the grid and a greener lifestyle. Local and state governments are still offering incentives to install solar panels. Many new home construction builders include solar panels as an energy saving option. Solar may or may not become a major player in generating cheaper energy – only time will tell. What is the impact of Here are a few things to consider when looking at the property value impact of solar panels.
- Government incentives will not last forever.
- Solar panels can cost upwards of $20,000 and may be financed.
- Selling your property with financed solar panels? Financing agreement can be transferred to the new homebuyer or must be paid in full before or at the time of closing escrow. The best-case scenario is the new homebuyer loves solar panels and is willing to take over the financing agreement. Worse case scenario, the new homebuyer hate solar panels and wants the panels removed entirely before purchasing the property.
- What is the life expectancy of a solar panel?
- How much are maintenance costs?
- How much value do panels add to the value of the property?
Solar has a cool factor in my opinion but the cost is still fairly expensive. The government is betting big on solar panels, hoping solar panel technology will become more effective and cheaper in the future. With Porsche just announcing 50% of its production to be electric by 2023, it would appear our appetite for low-cost electricity is not going anywhere anytime soon.
What does “impounding” mean?
Impounding: Including your property taxes and insurance payment along with your monthly mortgage payment. Not impounding: Paying the property taxes and insurance once a year on your own.
What should YOU do? The answer more or less depends on your personality: Are you the type of person who does not want to think about paying your property taxes and insurance at the end of the year? Would you rather it be billed monthly so it’s done and over with? If so, you may want to impound. Keep in mind that impounding requires a little more money out of pocket at the close of escrow. Specifically, you will need to pay a one-time cost of approximately 6 months of property taxes and 2 months of your insurance as part of your closing costs.
Would you rather pay your property taxes and insurance on your own and keep that money in the bank until the payment is due? Do you have plenty of funds and are not concerned with a bill at the end of the year? If so, you may enjoy not impounding. No impound deposit is required.
Good News! There is no wrong answer. Talk it over with your loan officer and think about which option works best for you.
If you are interested in purchasing a home and qualifying for a mortgage, it’s always a good idea to get pre-approved before shopping for a property. Here are the pre-approval documentation essentials to complete a pre-approval:
- Completed loan application
- Last two years’ personal federal tax returns, complete with all schedules attached
- Last two years’ W2’s and 1099’s (if applicable)
- Last 30 days’ consecutive paystubs
- Two consecutive months’ bank, savings, checking, money market, stock, pension, and IRA accounts – include all numbered pages. Documents must be copies of your paper statements or downloaded as PDFs from your bank’s website (there is usually a link to download your statements). Webpage printouts are not acceptable
- For retirement accounts, your most recent quarterly statements
Self-Employed Borrower’s need to provide these additional documents:
- Last two years’ K1’s (if in a partnership)
- Last two years’ corporate federal tax returns, including all schedules
Home Owners need to provide these additional documents:
- Copy of current mortgage statement
- Copy of current insurance statement (declaration page which shows premiums)
- Copy of property tax statement
- Copy of HOA statement (if applicable)
Tip! During the loan process, you will be required to print, sign, and provide many documents to your loan officer. Instead of faxing them, scan them. Scanned documents provide the clearest copy and allow you to keep better track of all documents you provided. Even if you have to buy a $60 scanner for this purpose, it will be some of the smartest money you’ve ever spent!
If you don’t know the difference between pre-approval vs. pre-qualification, don’t feel bad. Many loan officers and realtors don’t know the difference either. Technically there is a difference, although most of the time it’s just semantics.
What is Pre-Approval?
Your loan officer received and reviewed all income and asset documentation. A loan application was input in the system, a credit report ran, and a thorough review completed. A determination was made by your loan officer with little uncertainty as to whether you will or will not qualify for a mortgage.
What is Pre-Qualification?
You provided verbal information only regarding your income and assets. No loan application was received, and no credit report was necessarily pulled. The loan officer determined (with more or less uncertainty) whether you will or will not qualify for a mortgage.
A verbal pre-qualification is essentially worthless. Instead, work with an experienced loan officer, provide all requested documentation, and complete a true pre-approval.
It is best always to get pre-approved first. Then go shopping for a home.
Coming up with the down payment and closing costs can be challenging enough, but did you know that not all of the money you plan on using to buy a property can necessarily be used? Here are the top 5 non-allowable funds (with few exceptions) when financing a property:
• Funds coming out of a business bank account
• Credit card cash withdrawals
• Non-payroll checks
• Sale from jewelry or random items
Keep in mind that your lender will review every single deposit you have made on every single bank statement. All instances of non-allowable funds will be “backed out” of your total account balance.
Tip! Move ALL funds used to purchase a property into one bank account for two months and make NO deposits or transfers in and out of the account before buying a property.
Home buyers interested in purchasing a condo or townhouse must be aware that not all condo or townhouse projects qualify for financing. The project must meet certain minimum standards to qualify for financing. If you are interested in purchasing a condo or townhouse, here are the top 4 things you need to know about ANY condo or townhouse project:
#1 – Are There Any Pending Lawsuits?
Is there litigation on the property? Condo projects are being sued all the time. Depending on the type of law suits pending, a condo may or may not qualify for financing. If there is litigation, request a letter from the attorney “summarizing the complaint” and give it to your loan officer to see if financing is an option for this condo project.
# 2 – Are There Any HOA Delinquencies?
You would be surprised how many home owners pay their HOA fees late. If more than 15% of the condo owners are delinquent on their HOA dues, banks will most likely not lend on that condo project.
#3 – Is More Than 10% Owned by Just One Entity?
If one person or one entity owns more than 10% of the total units in any given condo project, most banks will not lend on that condo project.
#4 – Reserve Funds in HOA Bank Account
Lenders require 10% of the yearly HOA budget being collected for “reserves” as a line item expense on the actual budget. This is a consistent collection requirement each and every year. If the amount being collected for reserves is less than the 10% minimum requirement, then a reserve study would need to be provided to support the lesser amount being collected. Otherwise, this would likely cause the project not to be eligible for financing.
Fun Fact: A good lender may make exceptions to some of these issues.
Condo projects with more challenging issues may not qualify for conventional financing, but alternative lending options tend to be available for almost any property. A good rule of thumb is the more challenging the issue, the larger the down payment requirement and the higher the interest rate.
When qualifying for a home loan, a high FICO score and a large down payment are commonly considered the most important factors. In fact, many other factors are equally important, but the #1 factor that affects your ability to qualify for a home loan is income. Income is king!
Here are the top 3 things to keep in mind when calculating your income for a home loan:
1. You need to have received any bonus income, commission income, or overtime income over a 2-year period for it to qualify as “income.” And if your bonus, commission, or overtime income declined from one year to the next, it will not be considered income at all when qualifying for a home loan.
2. Self-employed borrowers qualify using their AGI (adjusted gross income), i.e. the income reported after deductions. If your business grossed $1,000,000 but $990,000 was expensed that year, your income that year, as far as the lender is concerned, was only $10,000.
3. Employee expense deductions. According to the IRS, non-self-employed people are allowed to write-off various employee expenses. Those expenses are deducted from your gross income to calculate the income used to qualify for a home loan.
Not all money one earns will necessarily be considered income when qualifying for a home loan. Complete a thorough pre-approval with your lender so you know exactly what your lender considers your income. Always know your true buying power before starting to shop for a home!
Owning a home is part of the American Dream, though renting is not always a bad idea. Renting can be cheaper, require less maintenance, and offer the flexibility to pick up and move with little hassle. Still, eventually, most people want to stop renting and own their home.
Here are the 3 top reasons why renting may no longer make sense for you:
#1 – Stop Paying Your Landlord’s Mortgage: Is your rent payment equal to a mortgage payment? Consider and include the tax benefits when making the “rent vs. own” calculation. Mortgage interest, property taxes, and insurance are tax deductible.
#2 – Historically Low Rates: Locking in a low interest rate for 30 years at a time, as most economists predict substantial inflation in the years to come, is a very good idea.
#3 – Peace of Mind: Never having to move again and being able to fix up the place exactly how you want it.
Owning a home has proven to be a very successful investment over the past 100 years and, for most people, it is the single best investment they will make in their lifetime!
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