
5 Steps to Steal a House đĄ
What are the odds that you know the tricks to save you the most when buying a home? Letâs just say, I have a better chance waging my money on the Cleveland Browns winning a Super Bowl. But, what if I told you you can save hundreds of thousands of dollars just by following these 5 steps, really, only 5. Iâm talkinâ single digits dude! Let's check 'em out!
Step 1: The Credit Score
The 1st thing helping you buy your magic castle is your credit score. Check this, if you have BAD credit, and Iâm not talking Michael Jackson bad, the likelihood of getting denied a mortgage is even greater than the Browns winning a Super Bowl, itâs like the Cincinnati Bengals winning a Super Bowl. But...if you have GOOD credit, youâll be saving soOoOo muUuUuch moOoOoney. Better credit score = less interest. With those savings, you'll be able to afford alligators and a moat with your castle.
Example: 30-Fixed $150,000 Mortgage
Credit Score Interest Rate Monthly Payment Total Interest Paid 760-850 3.408% $666 $89,719
700-759 3.630% $684 $96,420
680-699 3.807% $700 $101,832
660-699 4.021% $718 $108,458
640-659 4.451% $756 $122,040
620-639 4.997% $805 $139,785
<620 Mortgage Denied...maybe
ANNNDDD alakazam! By doing nothing but improving your credit score, you save $50,066 dollars! My commission will be 2%, youâre welcome. Major take-away, you want your interest rate Flo-rida Low. (Learn how to increase your credit score by listening to our podcast episode â5 Steps to Improve your CREDITâ)
Step 2: The Down Payment
Forget The Amazing Race, forget Survivor, and forget Fear Factor (Joe Rogan will be disappointed) we have another BIG challenge ahead of us; the dreaded down payment - wah-wah-waahh.
To buy a home, you need enough money saved up for a down payment. FACT! (Dwight Schrute Voice) You need to have enough money for closing costs. FACT! So, how do we rake in this money? We shake the trees! FALSE! We automate our savings and create a home-savings account? FACT! Here are 2 things you need to do:
Move your money to a high-yield savings account. Find out which bank is paying the highest interest rate and go there! You can earn 15-20x the interest rate at one of these banks! Heck, now you can afford Knights in your castle.
Automate your home-savings account. Link your checking account to your NEW home-savings account and set aside a $$$ amount to be transferred, on a specific day, each month (usually after you get paid). Now, you wonât have to think about saving, youâll turn into David Blaine and it will magically happen, every month.
But Riicchhh, how much do I need to save? 20%. I suggest 20% to AVOID PMI (Private Mortgage Insurance). PMI is an extra fee you pay that insures the lender in case you stop making payments and default on the loan. It doesnât help you, it doesn't go towards your mortgage, itâs what Bobby Bushayâs mom calls âThe Devil!â, so get rid of it! If you canât afford the 20% down payment, you will need to pay PMI until you have 20% equity in the home, then, you will need to apply to have it removed. All of this is assuming you have a conventional loan. If not, there might be other fees included so make sure you check with your lender.
Step 3: The Pre-Qualification
For step 3, 1st things 1st. Iâll 1st start off by telling you 2 things not to do in step 3, got that =)...so, do not:
Search for a home before talking to a lender
Not getting pre-qualified for a mortgage
What does it mean to be pre-qualified? It means a lender will review your financial situation to give you a general, let me say that again, a general idea of how much âhomeâ you can afford. They wonât pull your credit, they wonât ask for payment stubs, and they wonât check to make sure youâre sticking to foods on The Whole 30, none of that, just general info, no proof needed. When allâs said and done, the lender will provide you with an estimate of what you COULD potentially borrow.
SoOoOo how will I know how much I can ACTUALLY borrow? You need to get pre-approved. This is a more in-depth analysis of your finances, time, running the numbers, verification, and yes, theyâll know if you snuck in a bag of chips (THERE ARE NO CHEAT DAYS). Take a look below:
Pre-Qualification
Mortgage Application - No
Application Fee - No
Credit History Check - No
Down Payment Estimate - No
Pre-Approval
Mortgage Application - Yes
Application Fee - Maybe
Credit History Check - Yes
Down Payment Estimate - Yes
Whatâs so important about being prequalified or pre-approved before looking at homes? Itâs sort of like going to a Justin Bieber concert only to find out Justin called off sick and instead, a Nickelback cover band took his place. Now donât get me wrong, both are great, but had I known, I wouldnât have wasted my time. This is similar to NOT being pre-qualified! You can spend your time inconveniencing Real Estate Agents to look at homes, but if youâre looking out of your price range, youâre just at a Nickelback cover band concert, wasting time.
Step 4: The Multiple Lender Game
Take time to compare multiple lenders, on the same day. You want the best rate right! Home buying can be a 15-30 year process, remember, even saving 1-2% on interest can save you hundreds of thousands of dollars, weâre talking cannons for our castle! But Wait! Compare lenders equally, apples-to-apples, pears-to-pears, figs-to-figs, becaaauseâŚ...some lenders trick you without even giving you candy! If they do, itâs probably Good & Plenty's, gross!
Like 06â Kobe dropping 81, itâs all about the points!
There are these things called âpointsâ. Lenders will charge you âpointsâ to lower your interest rate; pretty cool right? Maybe! Funny thing is, you pay for them! 1 point = 1%, 2 points = 2%, 3 points = 3%, etc.
Example: Your loan amount is $100,000 and your interest rate is 2%. This means, you will pay roughly $2,000 a year in interest. Theoretically, a lender might say they can get you a lower rate, instead of 2%, theyâll get you 1%. But, in order to do so, theyâll have to charge you 1 point (1% of the total loan = $1,000). This may look like a good deal but do the math on your TI-83 to make sure. Also, the lender charges you the point ($1,000) up front, you have to pay the same day in exchange for the lower interest rate. If you take this option, youâll have a 1% rate on the loan and will pay roughly $1,000 a year instead of $2,000 but it costs you $1,000 up front to do so.
Just make sure lenders are all telling you the same information, using the same points, to get you the rate. It would suck if one lender said they can offer 1% but charged 3 points (3%) to do so while another lender said they can offer 1.5% charging no points. Think McFly, think! One way to make it easier, get ALL your quotes WITHOUT points!
Step 5: Improve Your Odds of Getting a Mortgage and Get Approved
And whatâs better than all the rest? Well of course, Tina Turner, but Iâm talkinâ about Hulk smashing credit card debt! When you pay down credit card debt, you free up your finances, improve your credit score, and improve your chances of getting approved for a mortgage.
Iâm not going into detail about eliminating this debt here, but, I encourage you to take a look at my top 2 methods of paying down credit card debt and see which one works for you!
Snowball Method
Avalanche Method
Remember, the best way to improve your odds of getting a mortgage and getting approved is to reduce your debt! Now go pay off some debt and get that credit score higher than Snoop Dog standing on Mount Everest!
Step 6: Tricked Ya! There is No Step 6, Youâre Done!
Cowabunga, you did it! Now itâs time to shop for your DREAM HOME! Start by shopping online or talking to a Real Estate Agent, I would!
May the odds be in your favor,
Rich
Source: https://secure.money.com/challenge/homebuyer
