0:04

Hello and

0:04

welcome to a another exciting

0:07

episode of Bridge the Gap where

0:07

we're balancing life through

0:11

health, wealth, business and

0:11

relationships.

0:16

Hello and welcome to the show my

0:16

name is Colton Cockerell. And

0:19

with me, I have my co host who's

0:19

always on my ride or I guess

0:22

left depending on what the

0:22

screener in day by day, versus

0:25

that's what's going on.

0:27

Yeah. Hey,

0:27

actually, Colton, I'm above you

0:30

in the Brady Bunch squares

0:30

today, just so that you know.

0:35

Hey, everyone, welcome to the

0:35

show. So glad to have you

0:39

listening with us. Just as a

0:39

reminder, this month on the

0:42

show, we are hyper focused on

0:42

financial wellness. So today

0:47

we're going to be talking about

0:47

loan originating and who better

0:52

to come and talk with us about

0:52

home financing. Then Trey Garcia

0:55

with Union home mortgage Trey,

0:55

welcome to the show.

0:58

Thank you guys for

0:58

having me on the show. Hopefully

1:01

I can provide some insight. I

1:01

hope

1:03

you will. So

1:03

before we jump in, though, I do

1:05

want to give a shout out to our

1:05

sponsor of this show Trey you're

1:09

very familiar with them. And that is Sharer McKinley Group, LLC. Great company. Let's go

1:11

ahead and jump in so phrase on

1:15

the show because not only is he

1:15

been doing this forever, you

1:19

know, writing loans, but he's

1:19

also has a master's in

1:22

mathematics. So let me start

1:22

with this. Whenever people are

1:26

actually applying for loan, you

1:26

usually hear two different types

1:29

then those more but the main two

1:29

are FHA and conventional. Can

1:32

you kind of briefly explain the

1:32

difference between the two?

1:34

Sure. On a

1:34

conventional mortgage, people

1:37

have the misconception that this

1:37

is not for first time

1:40

homebuyers. Typically you

1:40

associate FHA loans with first

1:44

time homebuyers. Anybody can get

1:44

a conventional mortgage, it just

1:49

has a little bit higher

1:49

requirement for a FICO or credit

1:52

score, versus an FHA will a lot

1:52

for a little bit lower credit

1:55

score while having a higher debt

1:55

to income ratio. There are

1:59

advantages and disadvantages to

1:59

both programs. Typically, an FHA

2:04

is going to have a lower interest rate than a conventional mortgage. But a

2:06

conventional mortgage with a

2:09

higher FICO customer will have

2:09

an overall lower payment,

2:12

despite the higher interest rate

2:12

on the loan. Not to worry,

2:18

I want to be right there. Because I think that's so important because a

2:19

lot of people they focus on why

2:22

should I get the lowest interest

2:22

rate and put the least amount

2:25

down. But what you just said

2:25

right there. FHA, just because

2:29

you have a lower interest rate

2:29

doesn't mean you're actually

2:32

having a lower monthly payment.

2:32

And I'm assuming you're going to

2:34

PMI and mortgage insurance.

2:36

That is correct. So

2:36

on an FHA loan, it is flat

2:41

across the board, not flat as in

2:41

$1 amount, but flat is in a

2:44

percentage for everybody,

2:44

regardless of your credit score,

2:47

and that is .85% times your loan

2:47

amount. Unless of course you put

2:52

5% down it drops .8% versus a

2:52

conventional conventional, it's

2:58

private mortgage insurance,

2:58

meaning it's held through a

3:00

private company, it could be

3:00

Essent, Genworth radian, any

3:04

number of companies, and that is

3:04

solely based off of credit score

3:08

and DTI.

3:10

And that is, I think that's interesting, because a lot of people whenever

3:12

they think of, oh, you know, PMI

3:16

mortgage insurance can once I

3:16

hit 20%, I'm done. So can you

3:19

squash the myth? If you have an

3:19

FHA loan? Does your mortgage

3:23

insurance stop after 20%? debt

3:23

to equity in the house?

3:27

So that's a trick

3:27

question. Of course, like always

3:30

with mortgages, but it does come

3:30

off after this is important, not

3:34

a dollar amount, but 11 years on

3:34

an FHA mortgage, but only if you

3:38

put 10% down on the home.

3:38

Otherwise conventional, yes,

3:43

once you hit that 20% equity

3:43

portion, you can petition for it

3:47

to be removed, it will get

3:47

removed automatically. I believe

3:50

it's at 22%. So technically,

3:50

78%, LTV, if you don't ever send

3:55

a note into your mortgage

3:55

company, once you've reached

3:57

that point. It's just it's kind

3:57

of tough, because 11 years is a

4:04

long time to have mortgage

4:04

insurance, even if you have 10%

4:07

down on a home. And the other

4:07

thing is you're not getting true

4:09

equity on an FHA mortgage,

4:09

because there's a financed

4:12

portion of your mortgage

4:12

insurance, which is 1.75% that

4:17

gets tacked on. So brief

4:17

example, if you put one if you

4:21

put three and a half percent

4:21

down on an FHA, you're actually

4:24

only getting 1.75% equity in the

4:24

property at the time of

4:28

purchase, because the rest of

4:28

that is financed. Thanks. That's

4:32

interesting.

4:34

So, you know,

4:34

I'm just sitting here listening

4:38

to you guys talk all these

4:38

numbers, and it's so

4:41

interesting. Anyway, Trey, I'm

4:41

so glad that you're on the show.

4:46

Because, you know, there are so

4:46

many people in your industry

4:50

that don't really know or can

4:50

explain the nuts and bolts

4:53

behind it right to a lay person

4:53

and I appreciate the way that

4:57

you're the way that you're able

4:57

to do that. I am sure this

5:01

question comes up all the time

5:01

right now what are the interest

5:04

rates look like? It's the spring

5:04

of 2020, by the way for our

5:07

listeners,

5:08

and where are they had 22?

5:11

Well, so the best

5:11

thing I can tell you is right

5:16

now they're heading upwards. And

5:16

if you want to get a good

5:19

indication of where those rates

5:19

are going to go, I would

5:21

recommend looking at the 10 year

5:21

Treasury yield on the bond

5:24

market, just pull up Yahoo

5:24

Finance, pull up that little

5:27

graph, and you'll be able to see

5:27

where rates were and where

5:31

they're heading. Right now,

5:31

there's a slight dip in basis

5:34

points, I do imagine that's

5:34

going to turn back around and go

5:39

right back up to where it was.

5:39

Currently, it's tough to say an

5:43

exact rate, because again, with

5:43

all the different factors that

5:47

go into an interest rate, credit

5:47

score, and all the other kind of

5:50

stuff. I wouldn't be surprised

5:50

if you saw rates between four

5:55

and 5% come in the spring, and

5:55

then maybe a little bit higher

6:00

than that come later in the year.

6:04

And now I want

6:04

to I don't want to get to try so

6:08

hard for the people who aren't

6:08

like huge into numbers like Trey

6:10

and I are like nuts. But I want

6:10

you to explain you and I were we

6:15

kind of you were talking about a

6:15

strategy about paying your house

6:19

off quickly, might have a

6:19

slightly higher interest rate.

6:23

However, just making instead of

6:23

putting a larger downpayment

6:27

down, you can actually save a

6:27

bunch of time on the back end

6:29

and a bunch of interest

6:29

payments, can you go into more

6:31

detail what that looks like?

6:33

Sure. Um, so a

6:33

prime example is somebody First,

6:37

there's always a misconception.

6:37

Conventional Loan, I gotta have

6:39

20% down. That's not the case,

6:39

bare minimum on first time,

6:43

homebuyers, 3%. And then 5% is

6:43

pretty industry standard on that

6:49

purchase of a primary residence.

6:49

But let's say I did have my 20%.

6:53

And let's use the scenario of a

6:53

$200,000 purchase. And I had 20%

7:00

to put down. But I qualified

7:00

with putting just 5% of that you

7:05

can actually save, I think when

7:05

we did our numbers, it was about

7:09

eight years on the mortgage by

7:09

just putting 5% down and

7:13

applying the extra 15% direct

7:13

towards principal over the first

7:17

couple years, the amount of

7:17

interest you saved, or would

7:21

save in that scenario that we

7:21

did, I believe was 70 plus

7:24

$1,000. Of interest.

7:27

That's a large

7:27

amount and explain why that is

7:30

because I think a lot of meets a

7:30

lot of people, people who

7:32

probably bought a house don't

7:32

understand that it's not a level

7:35

interest rate. So can you own

7:35

that

7:38

sure interest on a

7:38

mortgage is going to be front

7:40

loaded, meaning like as I make

7:40

my payments for the first year,

7:43

majority of my principal and

7:43

interest payment is going

7:46

towards interest. However, if I

7:46

make an extra payment, I skipped

7:51

down on the amortization

7:51

schedule. So basically your

7:54

amortization schedule you should

7:54

get from your mortgage company,

7:57

your loan officer should be able

7:57

to provide it to you. And what

8:00

you're going to do is you're going to take however much you plan on putting and subtract it

8:02

from the principal balance, and

8:06

you'll see that you skip a

8:06

number of lines. And you go to

8:09

Line, you know, from one to 10.

8:09

Well, the nine lines in between

8:13

or eight lines in between is all

8:13

interest that I've skipped.

8:17

That's money that I never pay to

8:17

the mortgage company, or to the

8:20

loan servicer or anything like

8:20

that. It's just if I make an

8:23

investment of $8,000, but I

8:23

skipped $24,000 of interest that

8:27

I've you know, basically

8:27

essentially, I've made money on

8:30

my money by doing that. Yeah,

8:33

breaking it

8:33

down. Like you said, you have

8:35

360 mortgage payments right over

8:35

the years multiplied by 12.

8:39

Right. So you have beginning

8:39

starting off, you're going to

8:43

have a heavier like 70 80%

8:43

interest 20% principal, so

8:46

you're staying in just a

8:46

scenario, hey, I have a $2,000

8:50

monthly payment. Let's say 16%

8:50

of that's going or 1,600s going

8:55

to interest only 400 is going to

8:55

principal you're saying if you

8:59

extra, no 4000 down, you just

8:59

jumped 10 payments, you actually

9:03

almost paid it off pay skipped a

9:03

year of payments that I'm

9:06

hearing.

9:07

Yeah, it's pretty

9:07

close to that. I mean, in in

9:09

that scenario where you cut off

9:09

eight years of your mortgage,

9:13

that's pretty significant. With

9:13

just in the first year now. Now

9:16

I'm down to 22 years remaining,

9:16

versus if I put the 20% down.

9:20

The bad thing is I'm still I'm

9:20

still at a 30 year mortgage, I

9:25

didn't cut any time off now my

9:25

payment is lower. So there are

9:28

other factors to consider like,

9:28

is monthly payment more

9:31

important, or is it more

9:31

important that I save money in

9:33

the long run? To me, I like

9:33

people to have money in

9:37

reserves. I would prefer that

9:37

people keep their money wherever

9:40

it best suits them, which is

9:40

usually not with a bank. Usually

9:44

not with a mortgage company.

9:44

You'd like to get rid of that

9:48

note is as quickly as possible.

9:48

And also have some spare cash in

9:52

case you know incidences do

9:52

occur where you need that money

9:56

to if I just spent all my

9:56

savings 20% down on a house and

9:59

I think Get in the, you know,

9:59

hot water heater starts leaking.

10:04

And now I've got to come out

10:04

five grand for repair. Now I've

10:07

got to go and jump in and get a

10:07

loan or something else versus

10:11

5%. And now I've got my money

10:11

for the repair in case I need

10:14

it.

10:14

Yeah, or you already have a nice savings built up and you want to invest

10:16

the money. Colton Cockerell with

10:18

Sharer McKinley Group I mean, there's some abs.

10:20

Absolutely.

10:20

Absolutely. I think that's a

10:23

great option to

10:25

say our sponsor

10:25

was today, Colton. Oh, yeah.

10:30

It's okay. So, Trey, I'm really

10:30

curious, you know, with the

10:34

housing industry, the way that

10:34

it's been over the last many

10:37

months where people are paying

10:37

above asking and sent in some

10:41

cases way above asking, they're

10:41

really dipping into that pile of

10:46

cash, right, that they would

10:46

like to put away to pay for the

10:48

house. What are you seeing on

10:48

your side? Like, what is that?

10:50

How is that changing the way

10:50

mortgages are happening.

10:55

So what we're

10:55

seeing happen, obviously, is

10:58

people paying over list price.

10:58

And typically over appraised

11:01

value, I won't say typically,

11:01

but normally the appraisers

11:03

adjust based off of the market,

11:03

but not always, in some cases,

11:07

people are, you know, biting the

11:07

bullet and paying over whatever

11:11

that appraised value was in case

11:11

of a low value. Unfortunately, I

11:17

don't know that home prices are

11:17

going to come back down, it

11:21

looks like anytime soon, because

11:21

we've almost got to this point

11:25

in the market. And now with

11:25

homes having sold at that value.

11:29

It's hard to make a downturn

11:29

because now that's the new norm,

11:32

right? Where a home was 200,000.

11:32

Now it's 300,000. And the

11:37

neighborhood supports a

11:37

$300,000. Sale, there may be

11:42

some pushback on you, if

11:42

interest rates continue to rise,

11:45

there may be some pushback on

11:45

the, from the buyers on getting

11:49

those values back down. But we

11:49

may not see a sharp decline,

11:54

like I believe it was about two

11:54

years ago, all of a sudden

11:57

houses went through the roof. I

11:57

mean, everybody's value went up.

12:02

Because people were sitting at

12:02

home due to COVID. And they're

12:04

like, I would love a pool. I

12:04

would love you know, a bigger

12:08

house, I found that I can make

12:08

more money. No,

12:13

no, completely. And I mean, the interest rates going up. Sounds

12:14

like I mean, logically, I would

12:18

think that that would kind of

12:18

help reduce prices for housing,

12:23

but at the same time, I mean, if

12:23

there's still a such a high

12:26

demand for people wanting to buy

12:26

houses, you're gonna still see

12:29

prices until demand kind of

12:29

levels out. People are like,

12:32

Okay, I don't want to pay this

12:32

for, you know, a three bedroom,

12:35

two bathroom, I mean, it's still

12:35

sky's the limit. And it doesn't

12:38

look like it's stopping anytime

12:38

soon. So let me let me ask you

12:41

this. I think a lot of people,

12:41

they get caught up, especially

12:46

if they're buying a new house or

12:46

something like that. I mean,

12:49

anybody, whenever you're buying

12:49

a house, can you explain what

12:53

premium pricing is I think

12:53

people don't think that they can

12:56

actually get all their closing

12:56

costs covered by the mortgage

12:58

company at the expense of a

12:58

higher interest rate.

13:01

Sure. So a lot of

13:01

people, typically what you hear,

13:06

if somebody says I financed my

13:06

closing cost, it could mean a

13:09

couple of things. Either one,

13:09

they refinanced, in which case,

13:13

they truly lumped it into a loan

13:13

amount, or two, well, I guess

13:17

there's three, so two, they

13:17

would have got premium pricing,

13:19

meaning they took a slightly

13:19

higher interest rate to get a

13:21

credit back on the loan, or the

13:21

sales price was increased

13:26

slightly in order for the seller

13:26

to give an additional credit. So

13:30

you have those few scenarios,

13:30

the premium pricing isn't a bad

13:35

option. For some folks, if

13:35

you're short on cash, and you

13:38

need it to help with closing

13:38

costs, maybe you take a rate of

13:42

So let's say that your interest

13:42

rate was four and a half

13:46

percent. And instead you took a

13:46

rate of 5%, you still qualify

13:51

for the mortgage, everything

13:51

else still remains the same. But

13:54

you get a point in credit. Now

13:54

point is not the same as an

13:59

interest rate, it just, it's a

13:59

basis point on a loan, which is

14:03

1% of your loan amount. So in

14:03

the case of a $200,000 home,

14:07

you're going to get $2,000

14:07

towards closing costs due to

14:10

that rate increase. It works as

14:10

long as you're going to stay in

14:15

the house within a set time

14:15

period, because at some point

14:19

that increase in the interest

14:19

rate is going to cost you more

14:22

than the credit that you got.

14:22

And that's where I think there's

14:24

a little bit deterrent to

14:24

premium pricing. But if you know

14:28

you're gonna stay in the house,

14:28

and again, you could talk with

14:31

us about your wonderful

14:31

financial advisor, you would

14:34

consult them on this sort of

14:34

thing. You want to make sure

14:38

that that is financially

14:38

responsible and financially, you

14:41

know, works for you. Because if

14:41

I know my plan is I'm staying in

14:43

the house for seven years. And

14:43

I've got $2,000 and the

14:47

difference in my payment was $25

14:47

a month, then yeah, I'm probably

14:51

gonna take that that credit

14:51

because I'm not going to see

14:55

that 7000 Or I'm not going to

14:55

see that extra cost because I'm

14:58

selling the home in seven years.

15:00

So really, if you ever find somebody that says, hey, if you use my loan

15:02

officer or my company, you'll

15:06

get we'll give you X percent

15:06

towards us, which in reality,

15:11

premium pricing, you know, wink

15:11

wink, hybrid, you're getting the

15:15

3%, even though someone can do

15:15

better. So this is why it's so

15:18

important to talk to a loan

15:18

officer because a good one

15:21

because there's so many options

15:21

that you probably don't know are

15:25

available, you will sit down,

15:25

and you talk about them. So in

15:29

closing today, Trey, thank you

15:29

so much for coming out. And I

15:32

just want all of our guests to

15:32

know even though Trey did not

15:35

give his information out, it is

15:35

going to be on Facebook, it's

15:37

going to be in the show notes,

15:37

wherever you're listening to the

15:39

podcast. So he will have all

15:39

that out there if you have any

15:42

questions. So make sure you tune

15:42

in next week for another

15:44

exciting episode of Bridging the

15:44

Gap will be focused on financial

15:48

independence for the month, and

15:48

we're gonna be talking to a

15:50

special guest so make sure you

15:50

tune in then. Thanks.

15:54

Thanks again for tuning into

15:54

this week's podcast. Don't

15:56

forget to subscribe and share

15:56

this podcast with the most

15:59

important people in your life.

15:59

Colton Cockerell with Sharer

16:02

McKinley Group, LLC is located

16:02

at 820 South Friendswood Drive

16:05

Suite 207 Friendswood, Texas

16:05

77546 phone number to

16:08

281-992-5698. Securities and

16:08

investment advisory services

16:11

offered through NEXT Financial

16:11

Group, Inc. member FINRA/SIPC

16:13

Sharer McKinley Group is not an affiliate of NEXT Financial Group, Inc.