Money Matters
Money Matters
House Rich or Cash Poor? The Truth About Mortgage Readiness
Our mortgage experts and real estate professional break down what financial readiness truly means for first-time homebuyers and why qualifying for a mortgage doesn't always mean you can afford homeownership.
• Understanding the difference between what you can qualify for versus what you can truly afford
• Warning signs that indicate you may not be ready to buy a home yet
• The importance of budgeting for more than just your mortgage payment
• How credit scores, income stability, and available assets impact your mortgage eligibility
• Common mistakes people make during the pre-approval and mortgage application process
• Different down payment options from 3% to 20%, and when "no money down" loans might be appropriate
• Why you still need cash reserves even with 100% financing options
• The reality of closing costs and what expenses to expect beyond just the down payment
• How to create a sustainable path to homeownership when you have good income but poor credit (or vice versa)
• Why being informed is the best way to avoid expensive mistakes in the homebuying journey
Check your credit score early, get pre-approved before shopping, save for more than just the down payment, and know your real budget by factoring in taxes, insurance and maintenance to avoid becoming house poor.
Visit our guests:
Denetria Burris, Realtor ® Notary Public
Licensed in Louisiana & Mississippi| LPT Realty LLC
Cell: 225-223-0499 | Office: 877-366-2213
Email: denetria@dbclosers.com
Matthew Cloy
Mortgage Loan Originator @ Neighbors FCU
Cell: 225-953-5076
Email: mcloy@neighborsfcu.org
Bridgette White
Vice President of Mortgage @ Neighbors FCU
Email: bwhite@neighborsfcu.org
Have an idea for a show or a question for Kim? Send us a text message
Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want – brought to you by Neighbors Federal Credit Union.
The information, opinions, and recommendations presented in this Podcast are for general information only and any reliance on the information provided in this Podcast is done at your own risk. This Podcast should not be considered professional advice.
Welcome to Money Matters, the podcast that focuses on how to use the money you have, make the money you need and save the money you want. Now here is your host, ms Kim.
Speaker 2:Chapman. Well, welcome to another edition of Money Matters. I'm your host, kim Chapman, and we're going to be talking about home buying because, of course, june is National Home Buying Month, and so I have some returning guests with me. Of course, our National Home Buying Month, and so I have some returning guests with me. Of course, our VP of Mortgage, ms Bridget White, and, of course, matthew Coy Relax, matthew, I need you to take that deep breath, matthew our loan originator. And then, of course, we have a guest with us today, ms Denetria Burris, a realtor, and so we're going to talk about all the ins and outs of what you need to know if you're ready to make that first time purchase or if you just want to get some information so you can figure out what are those next steps. So welcome everybody.
Speaker 2:Thank you for having us so before we get started, just for any guests that may not be familiar with Bridget and Matthew, I'll let you tell a little bit about what each of you do, and then, of course, we'll definitely have Ms Denetria talk a little bit about her background.
Speaker 4:Okay, I'm the VP of Mortgage Lending. I've been with neighbors for about 23 years now and I oversee our mortgage department.
Speaker 3:I'm our mortgage loan originator. I've been here for six years and I'm basically the front-facing person that borrowers deal with when looking to get a mortgage.
Speaker 5:And I am Denetria. I'm a Louisiana, mississippi, licensed realtor. I'm also a Louisiana licensed real estate title agent. I co-own a local title company and have been around the real estate industry most of my life.
Speaker 2:All right, so we're ready to dive in, yes, and so of course you know some of these questions I might direct to a person, but anybody can really chime in, because I know you have a lot of experience and some of the different answers may really help reach somebody and give them the exact information they need. So when someone says I think I'm ready to buy a house and we hear that a lot what's the very first thing they should do financially house and we hear that a lot.
Speaker 5:What's the very first thing they should do financially? So I'll be glad to take that one. So I think that the first thing is a financial check and I think that most people's first call is to a realtor, and that's a great thing, but I think that most realtors or at least everyone on my team and who I work with our very next phone call is to a lender to get them pre-qualified so we know that they're buying power. Okay, Richard or Matt, you want to?
Speaker 2:chime in.
Speaker 3:Yeah, a lot of people are kind of clueless if they've never done that before as to the steps that need to be taken. But if you reach out to a loan originator they can run an application on you. And you know, some people come to me and they just say, oh, I really just put a number here, but I'm looking to see what the max I could qualify for would be. And you know, we can kind of work backwards and see what we can get them pre qualified for.
Speaker 5:And I think that a lot of people do start there. What's the mix that I can qualify for? I think a better question that I don't see people reverse into is what is the amount that I can actually afford to?
Speaker 5:pay there you go and I think that that's that's a real big, a bigger, more important number than just what you qualify for. Because you may qualify for a million dollar house hypothetically speaking, but when you factor in the lifestyle and all of your other expenses, can you afford the mortgage continuously on that particular house if something unexpected happened? Yeah, because just because you can does not mean you should on that particular house if something unexpected happened.
Speaker 4:Yeah, because just because you can does not mean you should, that's right, yeah.
Speaker 2:And so of course I'm sure we all pick up the phone at some point in time and somebody says, hey, I'm ready to make that purchase, I want to be a first-time homebuyer. But what are some red flags that each of you initially see? Maybe right off the bat that says that this individual or this couple is not quite ready to make that leap yet.
Speaker 4:Poor credit, like if they call in and they're getting pre-qualified and we see the credit and it's poor. Then we have to coach them on what they need to do to get their credit up. But other than that, one of the first questions is okay, well, you pay rent. Do you pay rent right now and are you comfortable with the rent that you're paying? Do you struggle to feed your family each month or to buy your groceries? Do you struggle to pay your bills?
Speaker 4:If something were to happen and one of you lost a job, would y'all go under? Do you have any savings to back you up? Because if you're having problems paying your monthly rent, you're going to have problems paying your monthly mortgage and you're not ready yet. You haven't set yourself up to be prepared, or you may just be paying too high of a rent and you need to look for a home that has a lesser payment than that, because Denetra made a very good point. You need to be able to afford it, not technically. Find out what you can qualify for. Find out what you can afford.
Speaker 2:And I think that's the key point, because sometimes, like you mentioned, they're struggling to pay rent and they have to realize that it shouldn't be a struggle and that you know it's not something. Oh, if I'm struggling paying rent, I'll be fine struggling to pay in a mortgage. You don't want that particular scenario. But let me allow Matt and Denetra to chime in.
Speaker 3:Yeah, I mean when I said the max, I just get people that call me that say that. But I always get nervous qualifying people at the line because especially things like insurance now in Louisiana can be all over the place. So I estimate what I think those costs will be up front. But if we qualify someone right at the max and there's some variations there it can throw a wrench in things, especially when we have things like terrorists always flying around in the news.
Speaker 5:Yes, and it's not we. I think that in life there's only so much you can plan for. You know what I mean. It's not the things that we've planned for. That normally comes back to haunt us. It's the things that we haven't considered.
Speaker 5:So I think that oftentimes when you say, like what are the things that kind of can say a person is not quite ready, someone that just is not, I would say, just, you haven't even taken the time to really look at or putting a budget together. And even though you may not, there are some type A people that have a budget that they know every dollar that they spend. We're not necessarily saying that you have to be that detailed per se. It really is at least having a baseline understanding, like where you can just bucket in your head like, okay, I know, I have a car note, I have car insurance, I have like considering those other inputs. Do I have daycare? Do I have a summer school is coming, or summer is coming, will my kid have to go to summer school? Um, or will I need to put them in a camp? And things that we may not think about, that come down later on, that are not here, especially if I'm buying per se, like in the fall or what have you, when those dates are kind of further down, further away from from being top of mind.
Speaker 5:I think that just having those kind of conversations and some people are like, well, I don't want to do that, and that's a red flag to me that I'm like I don't think that just having those kind of conversations and some people are like, well, I don't want to do that, and that's a red flag to me.
Speaker 5:They're like I don't think that you, you may not be quite ready if you're still wanting to just spend in that way, because this is a big commitment, it's the biggest investment for most people that they are, ever, that they will ever make. And we do see. I mean, y'all can probably speak to the numbers of foreclosures, right? I don't consider that a success. I think that most times, from a real estate standpoint, we look at just the number of people that we close. But I'm like let's go back and look at those numbers and see how many of them are still housed. And I think that that's a better reflection of how good of a job we're doing in terms of helping the clients navigate that purchase process to keep the total peace in mind and not just can I sign on these lines at this particular point point, because on a loan application we're not going to be considering those types of expenses.
Speaker 3:So that's something you sort of need to think about on your own, because I'm only going to see things that report on credit, child support, things like that. But you know, life's expenses get in the way as well.
Speaker 2:Yeah, I agree with Denetra. I think often, far too often, they look at how can I get to that finish line, how can I get the house? But they don't think beyond that. What does it take to actually sustain being in a house? And like you said, and so there's a difference between being able to qualify and sign on a dotted line no-transcript a house.
Speaker 4:That's not how you do it.
Speaker 2:And I'll use myself as the poster child in terms of being flexible, because I know, when my husband and I built our house, we had our fiveyear plan and two weeks before we signed on the dotted line to close well, I found out I was expecting my first child. That wasn't in the plan. The day after we closed on the house, I totaled my car.
Speaker 2:So that wasn't in the plan and I know from the outside, looking in, it's like, oh, they got a new house, they got a new baby, got a new car, but we got a whole lot of whole new debt that was thrown at us all at once. And so, while, yes, you know, we had a five year plan, but it didn't include that new car, it didn't include that new baby at that particular time. So, definitely having that flexibility and, like Matt said, not necessarily getting right to your maximum amount, because you don't know what tomorrow will bring yeah, and that's kind of like one of the tags that I use.
Speaker 5:My saying is I want to help you close confidently, right. And so I think that that piece is having the confidence and knowing that the way that you get to that is through your numbers. You know, finding a particular property, most any realtor, that's. That's our number one job to do those things, but to understand those numbers and to pull out the right questions. It's not our job to tell you what to do, but it is my job to help ask the right questions, to help you come to those conclusions and guide yourself in a way that makes sense for your family. And that's really my always my response when people say what's a good house? Is it a good thing to like? Is it a good time to get into a market? The good time is when you're ready. We can always take liabilities and turn those things into leverage if we understand our financial position of where we are and where we're trying to go.
Speaker 2:So when you talk about when you're ready, I guess the million dollar question is how far in advance should someone or a couple plan for homeownership? Because far too often I'll get that call where somebody wants to come in and sit down and do some housing consultation, and so I ask them what their time frame is. And it's always by the end of the year consultation and so I ask them what their time frame is, and it's always by the end of the year, whether that's January or whether that's December, it's always by the end of the year. And so what's a good time frame? How far in advance should someone start planning if they're ready to buy their first home or even their next home?
Speaker 3:I think it depends on the individual what your savings look like, what your credit looks like, what what your credit looks like, what your employment history looks like. We want to see stability and that's generally a good sign that this is going to work out. But you know, sometimes people come to me and they're not ready and I will coach them, and I've had people that I've worked with for over a year that you know take my advice A lot of times. You help out with that as well. For over a year that you know take my advice A lot of times. You help out with that as well. If they're willing to listen and take the advice.
Speaker 4:sometimes it takes a little longer. Some people are ready the day they walk in. It's different for everyone. Yeah, it's all dependent on where they're at at this point in time in their life and as to what Denetra said, and if they're willing to understand what a budget is and work with that.
Speaker 2:So definitely not a situation where you want instant gratification. You definitely need to walk into that process with some patience, and so we've talked a little bit about individuals not being really financially prepared, not seeing the whole scope of it. So can you talk to us about the difference between what it really means being house poor versus being ready for home ownership?
Speaker 4:Yeah, house poor is where you or paying way more than what you should of your income towards your home. Technically, I wouldn't suggest that anyone have more than 25% of their net income going toward their house payment, because you have to have a budget for other things. You're going to have to have maintenance on the house. You may have HOA dues on the house. If you're in a condo, you'll have a larger HOA due. You're going to have to feed your household. You're going to have to clothe your household.
Speaker 4:There's just many things in life that you're going to have to deal with and, depending on your lifestyle, if you want to continue that same lifestyle, you'll need to make sure that you have a budget that says, okay, this 25%, that's it. That's all I'm putting on the the house. If you go above that a little bit, not so bad. It's really dependent on your overall income, your stability, your assets that you have saved up. Do you have three months saved up in case something were to happen and you get laid off and you have to get another job? Are you ready there?
Speaker 4:Or are you 50 of your income going to 40% of I shouldn't say 50 because I don't think you can get qualified for that, but 40% of your income going completely to your house, that's way too much, because you have the variables in life that you're not prepared for, and if you don't have a savings, then you're going to go behind on your house note and you're going to go into foreclosure and you're going to lose your house, and then you're going to have bad credit and you're going to be trying to get into a apartment and you can't get in there. So let's not go trying to keep up with the Joneses. You get what is good for you. Don't get what you want to portray as your life.
Speaker 5:So if I could just add in into that I think that that's a big thing to consider lifestyle right Someone who doesn't have responsibilities. You don't have kids now, but I've always wanted them and I want five children. I only have one, or maybe two now, but I know that that is the lifestyle that I am curating for myself. Those kind of inputs are things that I think should be play or way, a bigger have, a bigger weighty, I guess, component to the decision of how or when you're going to buy. But also timing Right.
Speaker 5:This doesn't have to be your forever home, so can we leverage the liability here to turn it into an asset by saying I'm going to start off smaller until I grow, so maybe I'll get a smaller house as a start, a home that could then be turned into an investment for me later.
Speaker 5:That's important to kind of keep those things in mind, because the price at which we buy that house you don't make money when you sell property. You make money when you buy the property, and that's so important buying at the right price. And so if we have those things in mind, then you kind of can take those into consideration. What is the school district? Where am I doing this? What is the rental income in this particular area? That's not something that y'all may particularly look at, but that is something that is going to be factored into your appraisal process, and so, once we're looking at those things, can I then use this as a start a home, put a couple of updates into it that really balloons the equity that I have here, so that, as I'm putting that five, 10 year plan together, that I can grow into my forever home and I've gotten a good head start.
Speaker 2:Yeah, I think a very, very valid point. Sometimes people go into the mindset that this is it, that one and done purchase, and so I've got to get the mansion, I've got to get it right the first time. So how often would you even think that when you meet clients, that you do have to kind of have that reality check and that that Megan Dollar home may have to wait just a little bit longer?
Speaker 5:I think that that's part of the consultation process for us. We kind of start doing a really deep dive in the beginning to understand clients. It's more than just a sale, right? I think that, as far as myself, I'm not very active on social media, I'm not really big on advertising, because when you do good work, people will refer to you. I think word of mouth is better than any other in terms of conversion, right, it's not that you don't people don don't get are able to convert from marketing. I just think that most, if you look at even your own numbers, that the most of your, their repeats and or referrals from people that you've closed successfully, I think that that that's a big piece of slowing down in order to speed up, right. And so I think that taking that time to again ask the right questions because a person it just may be that they that was never presented to them as an opportunity or an idea, so it wasn't top of mind but asking those questions and saying, okay, let's see where you want to be versus where do we qualify for. That's why, on my side, it's important to partner with people like Matt Matt is my buddy Because we want to know that before we start showing properties.
Speaker 5:If you go see a $500,000 house or a million dollar house, there's very few 150, 180, $200,000 houses that are going to give you that same wow factor.
Speaker 5:But it's not that you can't find a 2,000 or 2,500 square foot house. That doesn't give or have that. It's just it's a harder thing to build up to because you're looking at fixtures, not necessarily that the house is really worth that. Much more than those things is really probably location and the finishings and fixtures that are here, the types of floors, the marble do you really need that? Yeah, right, it looks pretty, but if I have kids three, I'm like I do not want white marble floors and furniture because I think I'd be having anxiety attacks pretty often just from again it being destroyed. And so again pointing those things out, because I think that social media life I think you mentioned Bridget keeping up with the Joneses I think that we live in a society now that is very, very in your face about what everyone else is doing and that making you feel a piece of guilt for not necessarily being where someone else is, and I think that that makes us run other people's races and not ours, right.
Speaker 5:I was a sprinter but I am not a long, um a long, uh. Okay, I can't do a long distance, not a mile, uh-uh not, not even now, not even walking. It's not my thing, um, but I think that just knowing that that's just not your race and that's not a bad thing, it doesn't make you a loser either. It just says it's just not for you it's just different, different, and that's okay All right.
Speaker 2:So, bridget and Matt, I want to talk a little bit about the nuts and bolts. What would you consider, like the top three or four things that lenders are looking for in terms of that pre-approval for somebody to be ready for a home?
Speaker 4:You're looking at credit, income slash, employment history and your assets, because that's your top three factors there. We've got to know that you have stable employment. We're looking typically for a two-year history or you know, even so, someone coming out of college or a technical school or any type of school going into their field. So we consider the time that they put into their schooling as part of their overall job history, because they're going into their actual field. So you know, we want to see that there's some stability there. We want to look at credit. Make sure everything is good there. You have established credit and that is at the score that you need it to be. You don't necessarily have to have the best score to get into a home, but you want your score to be as high as it can be to get the better rate, and so you maybe can afford more, because then your payment would be a little less.
Speaker 4:Then you're looking at the assets. You need to understand that you're going to have closing costs and your sellers. On a typical conventional loan, if you're only putting 5% down, your sellers are allowed to pay 3% of the purchase price toward your closing costs. So some people will come in and they'll say, oh, I'll just get the seller to pay everything. Well, no, that's not the case. It depends on what's allowed for the seller to place into the transaction. So you're going to have some money that you have to come out of pocket. You need to anticipate this and have your down payment saved up, your closing costs saved up and, yes, there are other products that you can get into that you do not require a down payment. But overall, you do have to have some funds saved up.
Speaker 2:So, credit wise, what are the biggest, I guess, roadblock or barriers that you find on credit reports that really get in the way of somebody becoming a homeowner?
Speaker 3:Bankruptcy. For sure, there's timeframes from completion of bankruptcy to being able to qualify for a loan. Definitely don't want to see recent delinquent payments which is considered anything over 30 days late. Those things ding your score which, like Bridget said, will affect your rate. We want to see an established, varied credit history. You know, have you paid off a couple of car loans? Or you know, sometimes if someone's just starting out, maybe they only have like a secured credit card with a small limit. So we want to see a varied, established credit history.
Speaker 2:So and I know, besides credit, there's so many different things that you're looking at Can either of you talk a little bit about debt to income ratio?
Speaker 3:Yep. So debt to income ratio is a percentage that shows your gross monthly income versus your total monthly obligations, which would, in the case of a home purchase, include the proposed payment for what you're trying to do On a conventional loan. That needs to be below 43%. We have an in-house product that's 100% financing purchase power, with no PMI. That one is 40. We also do a lot of land loans. It's 38 on that. So some people can do that work on their own without putting in an application. Just take what you're expecting your new mortgage payment to be. Add in all your existing liabilities, which means items that would appear on your credit report, the minimum payment, and then things like alimony and child support we would consider as well.
Speaker 5:And Kim, can I chime in Because I'm like I know this is probably going to make you guys laugh when you're mentioning that. Probably going to make you guys laugh when you're mentioning that another big piece for us is don't go get new credit.
Speaker 4:Wow, yes, you're in this process. Oh yeah, a deal can fall apart at the last minute and we do have a form and we tell them please don't change anything on your credit, don't charge up. Don't go buy that house full of furniture that you want before you close. Charge up, don't go buy that house full of furniture that you want before you close. And you know you should be budgeted for that already anyway. But we've had somebody go and purchase a brand new car, like they had no car, and then they can't close because now their DTI is out of whack. You just put yourself out of your house to go buy a Mercedes. Was it worth it?
Speaker 2:So let's talk a little bit about a pre-approval. So what does the process look like after someone submitted an application and, assuming they checked some boxes, what does a pre-approval look like?
Speaker 3:So, we do a pre-qualification versus a pre-approval, meaning we don't review your income documents up front. We would do that once you submitted a purchase agreement. So we do a pre-qualification based on the income that you state that you make in the application, combined with a credit poll, and then you know, give you a pre-qualification letter if you want to make an offer on a house. Once we receive an accepted contract, then we go about verifying all of that. So I would also caution people to take care of the accuracy of those numbers, because we also get deals where wait, you make half of what you said you did. You didn't think we'd look into this, so accuracy is key. On the application.
Speaker 2:You mean, we have to prove what we say.
Speaker 3:Right, and some people will upload their docs up front. I'll take a look at them to see if you know anything looks wildly off. But then sometimes some folks have side businesses which can affect an income calculation. If you have a Schedule C business under taxes showing a loss, that will be negative income on a mortgage application. So that's another thing to consider because some people do that for tax benefits but then it can cause a problem in this process.
Speaker 2:Are there other common mistakes that people make just during the application process that can, you know, maybe warrant a denial? That could just be a mistake that they've made.
Speaker 3:Well, generally, that's why you have a loan officer that will review the application and even denials. I go over and verify everything with them just to make sure we have it input correctly. A lot of people get nervous that they're going to put something wrong on the application. Can always be corrected once it comes over to my side and you know I will go over everything with them.
Speaker 4:So yeah, and to piggyback on that, I feel like a lot of people leave out. There's a section on there for real estate owned. A lot of people will leave out. Oh, I didn't even think about that. Yeah, I have some land. Well, you have to pay taxes each year on that land, so we need that for your, your debts and things like that. They'll leave that off, and sometimes people leave it off on purpose, but we will find it.
Speaker 3:We don't like surprises.
Speaker 5:And Bridget. I will mention this because this happened with my husband. His parents put him on property that he did not like. He's not paying the taxes, he's not generating any of the income, but he's on title, but that still factors into the debt numbers that you're calculating. So I think that that was a good point to bring out, because it's those small things that you don't consider, but that's also shrinking your buying power to a degree.
Speaker 3:Yeah.
Speaker 2:So, denetra, of course you're often that first point of contact for somebody. What do you wish? Homebuyers or prospective homebuyers knew you know before they began the process.
Speaker 5:That it is. I like to replace the word process with journey. Okay, right, that it is a journey and it can be daunting or overwhelming, but it doesn't have to be when you have the right mindset, the right motivations and we get your money together. So those are my three ends that I'm like, if you say that this is hard and that's where you are, it's going to be hard. But if you say, like you know, it could be challenging, that's where we have like an elite group of people that we work with, right, putting you with the right lender, the right loan officer, you can have the right product. But at the same time, do those two people jail? And I've seen that happen where it just the deal and everything just had a lot of friction because of who is involved, not necessarily that a person didn't qualify right. So, understanding that those things all do play factors, but that really is up to you how big of a factor it plays.
Speaker 5:Law officers are your friend. They're not your enemy here, and so when they're telling you you can't do something, it's not because they're targeting you as an individual, it's listen, most of these things that I've been putting to place are for your benefit. It's because you haven't considered the cost. So I'm a Bible person, I'm a spiritual person, and the Bible does tell us that like who would first be without counting the cost, and so I just hope that people would kind of start them, start at that place with getting to the numbers and understanding your money and what that means for you, and that is not something that is going to be the going to be the same. So you and I are now friends.
Speaker 5:If we're talking, our buying journeys are going to look different because we have different incomes, we have different lifestyles.
Speaker 5:And you have a husband, I have a husband, but we don't know what contributing factors our husbands may play in that role too, right, and so you may be a breadwinner and your husband still has an income, but the household income is mostly on your part, or vice versa your income may be a smaller component, but it's heavy on your husband's side, and being able to understand those pieces that says again, that's not anything bad, it's just that that's not your race, it's a different one.
Speaker 5:And if we go into it with those things, then we can overcome it and instead of having the mindset that I'm going to be denied, I don't really I think that some people stay in rental positions where I'm just renting, I'm just renting, they don't buy because they are afraid of being denied, like I'm not ready. Well, you don't, sometimes you actually may be ready and you don't even realize that part, and so I would just also kind of put that piece out there, that we don't focus on the denial, that it may just be delayed, like I'm not going to tell you never, right, we're going to give you a plan to put in place to kind of get you to that point.
Speaker 3:I hear that so frequently and it's always surprising to me. I'm scared I'm going to be denied Once we've pulled your credit. It really doesn't matter. Denials don't get recorded anywhere. We're just, you know, legally required to inform you of the decision, but you can try again. There's no time frame. You know, if you're denied, I'll tell you why and say here's how we can get you out of this. You know, or at least a good loan officer will.
Speaker 2:All right. So, speaking of getting out of this, you know I want to give you two different scenarios and any of you can kind of chime in in terms of what advice you would give, because often we'll get that person that has really good income really good, you know, in terms of debt to income, but very poor or limited credit, and then, on the other extreme, we may have that person that has really great credit, but then they have very limited income. So what recommendations, what advice, or is there hope for individuals that sit in that position?
Speaker 3:So income, you know, may change over time, but generally that's what you're working with. So you're going to have to work on either the credit or your current expenses. A lot of times, if someone's on a fixed income you know social security or a pension unless they're to go out and get a job, that's what we have to work with. So you know we have to look at that. With credit, you know, having obligations that are currently passed to is a sign that you're already living beyond your means or at least you're not managing your money properly.
Speaker 5:And that's not what we want to see. When you know, entering a 30 year commitment with you, and I think that, if I'm just chiming in on the same thing that you're alluding to here, is, if you're in these positions working with someone, there's other creative financing kind of deals that we can structure right, and so maybe there is an opportunity to do some owner financing in the meantime while we correct those things, while we improve the credit, and then can refinance into a permanent financing vehicle through again coming back to the bank. That's where, again, starting with the right people and having the right team in place to help kind of put together that plan of where you are versus where you want to be, just again getting in the door to get an evaluation of where you're at helps that piece. I think that banks do put a lot of emphasis on credit, and I just personally, I don't think that it's a very good indicator of people's buying power, because I'm like, when we look at the numbers of foreclosures, banks lend based off of credit, right, and so we see that that's not really the best, or always the best, indicator.
Speaker 5:The thing is, though, is so we can't allow that. I think people will hold themselves back from getting into this when it's understanding why is your credit bad. Some people just don't pay bills on time, so let's just get that part together. Like that, we put your stuff on auto pay Right, like you don't have to go to a credit repair specialist, and I think, miss Kim, that's something that you help them with with in terms of giving them steps that they can do to improve credit. So getting some financial literacy or education around credit repair and not just going to the credit repair gurus online that's just doing a lot of deletions or charging you a dispute in ways that, again, I think that those secondary reports and things that you said, like if you have real estate, the bank will still find it.
Speaker 5:That means that there's other reports and research and things that they're doing on your side. That's a part of this their fiduciary responsibility to look these things up. I think that the more that we can just come to terms with that and say, look, I had a problem at this time, but we can put an explanation to explain what happened then allows you guys to then make deviations or other suggestions that maybe this one was tight, but because we know this, you've had several overdrafts. Okay, can we put in a savings account that gives you some overdraft protection, Things to help you guys get to a place of being comfortable with a person that may have had bad credit habits but are now just in a place where, look, I've recognized this, but here's the steps or the plans I've put in place to remediate that now going forward, yeah, and to speak on that like utilization of credit cards, you want to stay at 30 percent or less credit of your limit on your balances and that'll help your score stay up.
Speaker 4:A score can go down really quickly. When you get over that it can start going down. You could have had a 700 and literally go down into lower sixes in a matter of a month of overspending. So don't get in the habit of putting everything on a credit card. A credit card used properly is a good thing to build your credit for you and get you a good score, but if you can't pay it off monthly or keep it below the 30% of the limit, then you probably shouldn't have one.
Speaker 2:And I think that you know it would be you know well of us to talk a little bit about some of those common mistakes, because we use Google all the time and so you'll get somebody that gets information and they'll say, oh, I don't have any credit, so they'll go and open five credit cards. And then they'll come and say, hey, you know, I went online and I didn't have any credit, and so I opened five credit cards and then, to speak to what Bridget said, they didn't have the education about utilization and so they ran those credit cards up. What are some other common mistakes you think individuals make in the in the guise of oh, I'm trying to get myself ready to buy a home, I'm trying to fix my credit, I'm trying to build credit. What are some common mistakes that people make up front?
Speaker 3:Well, danita mentioned credit repair earlier and you know there's plenty of people out there that are legitimate that can help with that stuff. And you know there's plenty of people out there that are legitimate that can help with that stuff. But a lot of those people, from what I've heard, they just dispute accounts and you may see a temporary bump from that. But if it's not resolved in your favor, then a month later you're back where you're at, and I think some of those businesses operate by just continuously doing disputes, so the problem never actually gets resolved. You get a temporary bump, but then you're back to where you started. So you know, I refer a ton of people to you if they need more detailed credit counseling than what I can offer, but I would recommend reaching out to a financial institution for those sorts of issues.
Speaker 5:And that's free right institution for those sorts of issues. And that's free, right, absolutely, that's free with you guys. I think that that part is important. It costs a lot of money to be ill-informed, right, and so going to a person who says the fact that they have people that specialize in credit repair tells you that it is a necessary and needed thing. But, again, being with an elite service provider is more important than just the service itself, right? Someone that actually knows what they're doing and can give you those steps to take or point you into the right direction. And, again, just counting the cost of those things, right, and so deleting too much stuff. So if you delete everything off of here, you don't have a history.
Speaker 5:And then Bridget mentioned or I think both of y'all kind of spoke to, as I was just listening some of having the proper mix of credit is what you guys mentioned, and so those are the kind of things that I think make a big difference too. So you've had a car, you've had a student loan, you've had a credit card, you've had these other types of credit, and I think that understanding that a bank can also offer those things. So again, depending on the journey that we're on, so again depending on the journey that we're on, maybe you might need to refinance your car as a temporary thing to give you the ability, on something smaller, to again build credit. That's something that y'all would tell them yes, let's do this, but you don't need to refinance a full amount, let's just do a small amount or secured type loan or whatever the case may be, to again start to establish that credit history and doing that early on. I think that I wish someone had told me those things coming out of college or while I was in college no, I didn't need a house at that point but if someone were giving me steps that I could do to prepare myself to purchase a house when I was ready and knowing the importance of how heavy I think that, at least for me, my family has always been.
Speaker 5:I think with Black families in particular, credit is not a big thing. It's cash, cash, cash cash. Like you know, especially older ones, like they buy everything cash. Their houses were bought cash, their cars were bought cash, and so I just remember when my grandfather had we pulled his credit and he had a 500 credit score and I was like no way with all of the real estate and all the things that he had wasn't because his credit was bad, he just didn't have one, he didn't have any credit history, so there was just nothing there for it to calculate off of.
Speaker 5:I think that that's a big piece that I think is just always, always missed, especially now, in this particular day and age. Cash is not king, credit is, and you just have to have it. In the scenario that you brought up, the person that is strapped for cash but has excellent credit, versus a person that has a lot of cash but bad credit, which one do you have? Which one would y'all say has a higher likelihood of being approved in a shorter amount of time? Probably the person with the yes, with a better credit with a better credit over the person that has the money and I.
Speaker 5:I think that is such a conundrum in in my own mind, but at the same time I'm like it doesn't matter what I feel about it personally. This is, this is what these are the regulations, and whether you don't like neighbors because they told you, when you go to the next bank, the numbers may change a little bit, whether or not it's 600, 630, or whatever, but the thresholds of whatever that minimum floor is, that's regulated right. Pretty much, yeah.
Speaker 2:So, since we're talking about cash, I think we really want to kind of pause and talk, dive a little bit into the fact that, while, yes, credit is definitely going to be important, let's talk about what does it mean? Or why do you need 20%? And then, for those mortgages that say no money down, why do you still need cash? What are some of those things that people or individuals are going to still need money in the bank for?
Speaker 4:Yeah Well, with the 20% down, that's like an optimal goal for homeowners to avoid the private mortgage insurance payment, which is a default insurance which is only benefiting your lender, has no benefit to you. You must pay it. It'll legally fall off at 78% of the value of the home compared to where your balance is, and that's based off of where you start. You can always request to have it sooner removed, but then you'll have to pay for an appraisal. With FHA loans, though, your PMI is on there for life, no matter how much you put down. But that's a good goal to be able to get you into the house that you particularly want. If you're wanting a much higher dollar amount house, it'd probably behoove you to save some more money down. Depending on where you are at in life, you may make enough money that it doesn't matter if you put 2% down or 20% down. You're still going to be able to get a house. So it's not so much that you have to have the 20% down, it's just people prefer to have that to avoid the PMI. There's plenty of options for a three and a half percent down on an FHA loan. You can put 5% down on a conventional as little as that and actually as little as 3% on a conventional the 100% products out there.
Speaker 4:We have a personal in-house product that we created. It's called Purchase Power and it allows you to get into the house at technically with nothing down, because we allow for 6% seller concession on that. So that means typically all of your closing costs can be covered if your seller's willing to do that for you. And then you are putting no down payment. It's 100% financing. So we have a little bit stricter guidelines on that. And then we don't require private mortgage insurance on that either.
Speaker 4:So you could possibly get into a better house or a higher dollar amount house with that, whereas you couldn't if you had to put a down payment. Now the rate is a little bit higher on it because it's a, you know, a bigger commitment for us on our side not to have our default insurance on it. Then you have VA, which is 100% financing, and then you also have rural development, which is 100% financing. So it's all dependent on where you are in life. As Denetra's kept, you know, alluding to that, you have to have an overall good picture of what can you afford. So, but there's plenty of products to get you into the home that you can afford.
Speaker 2:All right, anybody else want to piggyback?
Speaker 5:on that, closing costs, right I think you said the 6% but there are some things that you have to pay outside of closing before we get to that point, right. And so, having that in mind, your appraisal is going to be something you're going to usually pay outside of closing An inspection. While you could waive it, I don't think anyone should do that, even on a new construction, absolutely, and probably even more importantly, on a new construction. So, again, having those things, but now from the I know yourself to pay that agent, a commission, and what happens there is again depending on the agent for which you're working with and their ability to negotiate on your behalf. That's why, again, working with someone who is what I would call of elite status helps you to understand all the numbers that are potentially there. Because if the agent doesn't have you sign it legally, the it that I'm referring to is a buyer's broker agreement. That's another cost that, technically, is your cost and agents, we're going to try to get that covered by the seller. There's no guarantee to that. There's nothing guaranteed. You're not guaranteed, even in this loan, that even as we sign those things, that you're going to 100% get approved. That's why it's called a pre-approval. But you have to go through these steps right, and so understanding that part is very, very important.
Speaker 5:But again, reading is important. What are you signing off on with the buyer broker agreement? What are you signing off on with your application? As you sign those things? They're all saying that you're swearing that this information is true, right, the same thing there. You may work with or start with an agent You've signed a buyer broker agreement. You're not liking the way those things work out, and then you say I want to come work with you or you want to come work with me, or whomever. The problem becomes is, if you've signed that and you've not read it, I can't represent you if you're already working with an agent that you've signed that for. So what's the length of time that you signed? Most people may want you to sign for a year, maybe six months, maybe three months, and so those are a lot of things that I think like factor into your home ownership journey that you don't really realize.
Speaker 5:But there's no. You said 6% can be covered in your sellers On that particular product, on that particular product. Does that include realtor commissions or it depends, it depends, it depends. So that part right. And so if you had to, if the seller wasn't willing to do both, pay the real estate commission and said I'm only doing 6%. Well, that concession at that point now is not going to alter your total closing costs because you are obligated if you signed a three, four, five whatever that percentage was with your agent, you're obligated to pay that. So it's gonna come out of that seller's credit, if there is one. And so, again, being informed and partnering with the right people is so, so important during this process Because, if not, as I've said previously, being ill-informed is the most expensive mistake that you can make.
Speaker 2:And I definitely think that's some very good information and almost to the point that, Denetra, I hope we can get you to come back just so we can have that conversation in terms of why it's so important to have a realtor, what role they play and how do you even choose a good one and, like I said, we definitely wouldn't even have time to touch the surface of that, but I think the realtor part is so important. So, as we close out, you know thinking about each of your individual roles, what is that? One piece of information you want a listener to know, A would-be homebuyer. What should they be considering? What's that one thing that you want them to take away and focus on? Bridget, we'll let you go first.
Speaker 4:I would have them focus on the budget and looking at the numbers. So you'll get what's called a loan estimate when you get pre-qualified and you get your purchase agreement in and your disclosures. That's going to break your closing costs down. Typically, you're probably going to have about $5,000 between the title company and just your lender fees. But you're also, on top of that, going to have your taxes and insurances to be set up, which is called your escrow account. So it's not going to just be that little amount. You could get up and possibly to 10,000, depending on the dollar amount of your insurance, because you have to pay a year up front. So my thing would be to know your numbers and to know what you could afford. Work your numbers, work your budget.
Speaker 3:I would say, have realistic expectations about how the process is going to go. Average is 30 days from beginning to end. We have to order an appraisal, we have to order title work, we have to gather all of your documents from you. So I would familiarize yourself on what the lender is going to be asking for documentation-wise and have expectations that this won't be completed in a week. You know, and people get spoiled and you know Neighbors has a great auto lending process. I know some of those deals get funded same day. All you have to do is show them a couple of pay stubs. This is different. We're going to be asking for a lot more and it's going to take some time because there's third parties involved that have to do their piece and you know this is a huge commitment that we're entering into with you. So about 30 days to get it closed if there's no issues, but sometimes there's issues and it takes longer.
Speaker 5:Okay, ms Deneitra, and mine would be to focus on being informed so that you can run your race, so that you can close confidently, and I think that that just sums up everything that we've just kind of said here. Knowing the numbers is important, being patient and knowing the timeline is important. So the more informed you are about what that home buying journey is and what it looks like for you as your individual race that you're running, I think that that helps you to again plan properly and position yourself for the best closing experience possible.
Speaker 2:And I think if our guests are actually listening to this podcast, they're already making smart moves. And so I'll definitely kind of plug shamelessly our Blueprint for Financial Success program free financial counseling where you can come in, we can look at your credit, we can look at your DTI, we can get you on the road for home ownership.
Speaker 5:But then I also want to make sure Ms is Denetria D-E-N-E-T-R-I-A at DB, so Denetria and Burris, which really actually is an acronym for another company we have called Dream Boost. We'll have to talk about that on another episode, but dbcloserscom, and that's closers with an S? C? L? O S E? R Scom is a good way to start off with an email. I'll also share my phone number with Ms Kim. Matt knows how to talk. Get in touch with me as well. So anything that I can help with, I'm happy to do so and hopefully we'll even kind of put a course or class together to get some people pre-qualified. I think that that would be fun for us to kind of do as a follow up to this. For those that are interested, let's embark on that journey together rather than just kind of twiddling our thumbs and saying I think I want to do it. There's no better time than right now to see if you qualify, and if you do, then then we'll put that plan in place to get started.
Speaker 2:And Matt, we'll let you in with telling them how they can go on our website and find the application.
Speaker 3:Yes, neighborsfcuorg. Go to the mortgage page. There's a button that says apply now. Or you can text me or call me. My cell is 225-953-5076. I can text you a link. We have a mobile application. We have a new system. That's great. Everything's through that system. That's where we'll send you stuff to sign, where you upload things. It really streamlined the whole process.
Speaker 2:All right. Well, thank you all, Denetra. Definitely we'll have you back. Thank you again, Matt and Bridget.
Speaker 5:You're welcome, thank you. Thank you for having me, guys. Thanks for inviting me.
Speaker 1:It's time for Blueprint Building Blocks small changes that lead to big financial wins. Let's stack up for success.
Speaker 2:Check your credit score early. Your credit score affects your loan approval and interest rate. Review it now and take steps to improve it if needed. Go ahead, get that pre-approval before you start shopping. Pre-approvals help you understand what you can afford and show sellers you're a serious buyer. And then save for more than just that down payment Budget for closing costs, inspections, insurance and moving expenses. These often can catch you off guard and finally know your real budget. Don't just focus on a mortgage payment. Factor in taxes, insurance and maintenance to avoid becoming house poor.
Speaker 1:That's a wrap on today's Blueprint Building Blocks. Stay on track with your financial journey. Subscribe to the Money Matters podcast and visit neighborsfcuorg slash financial wellness for more tools to help you build a strong financial future.
