Should You Buy A House In 2020? (LOW INTEREST RATES!)

we’re going to be addressing if you should buy a house in 2020 given the low interest rate environment that we’re in right now so i get a lot of comments and i also get a lot of direct messages on instagram

check me out if you haven’t already with people asking me hey marco should i buy a house in 2020 should i sell a house in 2020

you know what’s the deal so a lot of my viewers are similar age as me and they’re going through

a similar buying process as my wife and myself

so they’re either looking for a first first time starter home or they’re looking for a primary residence that’s going to be potentially a forever home to raise a family in

so buying a home is typically the biggest purchase that we go through in our lives and it’s important to make sure that we get it right

so in this video we’re going to cover the four basics of buying a home whether it’s now

or you know 10 years from now these are four basics that always apply in my opinion

we’re going to talk about low interest rates and the market

given the demand and the supply that we’re working with right now and then to finish off the video i’m going to give you my personal thoughts from a home buyers perspective because i have been looking at houses for about three or four years now so without further ado let’s get i’m just kidding no but seriously without further ado let’s get right into it so the first portion of this video is going to go over four things that sound like common sense

well because they are you’d be surprised how many people go into a huge home purchase without having these four things in order

so the first one sounds like common sense it’s good credit

so whether you have good credit or bad credit the better credit you have the better rate you’re going to receive period basically if you’re anywhere from a 740 750 760 and up

you’re probably going to get the best rate possible given the money down term and stuff like that so this is important because

mortgages can last years some are 15 years some are

20 some are 30 and with that interest rate being

lower than you would if you would have had poor credit you’re actually going to save a ton

of money over the course of the term of that mortgage so even something as small as 20 or 30 basis points meaning 0.2 or 0.3 percent

that can save you tens of thousands of dollars over the course of that mortgage so some good resources that i look at is mortgagenewsdaily.com i’m not affiliated with them

and then also bankrate.com and i’m not affiliated with them either it just gives you a good benchmark of what rates are

however it doesn’t hurt to shop locally i would actually get two or three rates from your local credit unions and banks just to make sure that everyone is giving you the best rate possible on an apple samples comparison

so the bottom line for number one is having good credit it’s going to give you a better score

and it’s going to make home ownership more affordable period

number two is having a healthy debt to income

so a debt to income ratio if you haven’t heard of this before is basically your monthly obligations

such as debt like car loan you know whatever whatever you have monthly obligations on

divided by the monthly gross income so notice how i said gross

gross i don’t use gross banks use gross anyone that’s smart and who watches whiteboard finance

uses net income so you want to take whatever your obligations are using that divided by your net income so if you have a 500

car loan and that’s it and your income is 2500

a month net you have a one to five debt to income ratio which is 20 percent so lenders they typically lend up to 43 percent of your debt to income ratio but i would not recommend that

the lower your debt to income ratio is the better chance you have of getting approved of that mortgage

and what i recommend is taking all of your income

your net income figuring out what all of your expenses would be for owning the home

so i don’t mean just the mortgage i’m talking about the mortgage the insurance the utilities the hoa the taxes the ongoing maintenance everything that goes into owning that home should be no more than 30 percent of your net monthly income

some people like to use that metric on a 15 year i may consider a

20 or a 30 and i’ll let you know why at the end of this video

so if you haven’t used my home affordability calculator that i created myself

that came from this video right here you can actually get that down in the description and in the comments below it’s very useful

and it’ll actually show you if you’re house poor or not number three is getting your savings in check and making sure you have strong savings so i know this sounds like a no-brainer and i know you can get low or no money down mortgages for example an fha loan for a first time home buyer is three and a half percent down so if it’s a hundred thousand dollar house three and a half percent is thirty five hundred bucks

that’s very little to get into a home however you’re typically going to have pmi on anything less than 20 or 15 percent down

pmi simply stands for private mortgage insurance and this is basically insurance that the bank is making you pay to say hey you have very little skin in the game since you put such little money down and have very little equity in case you decide to walk away from this house and default this is covering my butt as the bank

that money does not go towards principal or interest that is money that is literally being lit on fire every single month

so i recommend putting down the minimum that you can

to at least get rid of pmi in my case that’s 15

and i’ll talk about that later in this video so you also need to have three to six months of living expenses put away in case something goes wrong with the home so my buddy bought a house within two months he had to do the roof and hvac

those were huge expenses a lot of people forget about this when

accounting for the price of a house it’s not just what the price of the house is and the down payment

it’s all that plus you have to furnish it you have to update it you have to make sure you have money put away for a rainy day

and a lot of people don’t account for that and then finally number four steady job or income so this one kind of speaks for itself and it sounds like a no-brainer

so if you’re a commissioned salesperson or an entrepreneur and you don’t know what your monthly income is every month some months could be great some months could be horrible i would recommend taking an

average of as long as you can of tracking those months

and figuring out somewhere in the middle along with if you have a significant other and they make a steady income that would be a good baseline to work off of you don’t want to take your highest best sales months and you know pretend like you make that every month because you don’t you’d be lying to yourself and you’d get yourself in trouble

so what do i mean by this is if you don’t have a steady job or steady income home ownership may not be the best choice for you at this point if you remember in 2008 which actually caused the financial crisis

they were basically bundling up all these crappy mortgages with people that had ninja loans

ninja loans were basically just no income no job if you can fog a mirror here’s a mortgage right

people had multiple properties they obviously couldn’t perform

especially if they had adjustable rate mortgages those rates went up boom they’re foreclosed upon they couldn’t afford it so the more money you put down

the smaller your monthly obligation is going to be so if you are someone that has this unsteady income you may want to come to the table with more money down to lower that monthly payment so the second part of this video and the crux of the whole video and the reason why i’m getting so many questions about if now is the best time to buy a house is because

interest rates are extremely low and there’s very little supply

and very high demand so we’re going to talk about low interest rates and also the current state of the market so the first point is that interest rates are pretty much at all time lows at the time of this recording my wife and i are pre-approved for a 30-year fixed rate

mortgage i’m going to have you guess what percentage down in the comments below

so typically you know 30-year mortgages are three four or five percent what do you think my wife and i are pre-approved for right now at the time of this recording

so if you’ve left a comment it is 2.99 on a 30-year fixed if you can believe that or not or not that is very cheap money

at that same bank a 15-year is 2.79 and a 10-year is 2.59 that is very very cheap

however that leads to low rates and that leads to

high asset prices so low interest rates lead to high asset prices whether it’s stocks or real estate

so look at this example if mr and mrs homebuyer

take home i don’t know 10 grand a month i’m just using you know easy numbers here

if mr and mrs homebuyer take home 10 grand a month and they can fit in exponentially more house into their budget because the interest rate is super low

they’re going to be willing to pay a higher price for the house

because the rates are lower and the money is cheaper okay

so they can afford more home for the same payment at higher rates than if the rates were higher is what i mean finally

there’s low supply in inventory right now so

baby boomers there’s about 10 000 people in the united states that turn 65 years old every single day

these baby boomers are not moving out of their houses which is leading at least where i live in northeast ohio to an inventory glut

and this is actually a theme across the whole country okay

so when you have high demand low supply and cheap money that can only lead to higher prices

right now in northeast ohio i actually have access to the mls and this is all verified

we’re at record prices per square foot okay which i’ll talk about later in the video

finally the fourth point is equity so when we talk about a 30-year mortgage versus a 15-year mortgage and i’m going to use this as an example

30-year mortgages don’t typically start paying down the principal

more than the interest until seven years into the mortgage

if you look at a 15-year mortgage and you look at the amortization schedule you can see that the 15-year mortgage starts knocking out the principal from day one

the 30 does not it takes much longer to actually start knocking into the principal

more so than the interest so let’s look at this for example

if you took out a 250 000 mortgage at 2.99

so i’m using a real example here and you paid that mortgage off in 30 years you’re going to pay over the course of those 30 years 128

958 dollars just in interest alone okay not the down payment and the loan amount but the interest

that same exact loan if you want to use a 15-year 250 000

mortgage at 2.79 percent to use real numbers

you’re going to pay 56 237

okay in interest alone so those are two big numbers

the reason for me telling you this is because if you can’t make more money in the market or wherever in any return then 2.99 it doesn’t make sense to take out the 30-year mortgage

okay the 30-year mortgage is cheap however if you can make

anything above 2.99 percent you’re basically negating what you would have sunk into the walls of the of your house and equity

okay with paying cash instead of taking out the cheap money

and if you can beat that 2.99 it makes mathematical sense to invest that money otherwise so i’m typically someone who wants to have no debt i want to sleep cheap i want to be able to live you know affordably

however the crux of this video is if you have the discipline to invest the difference

and put down the minimum down payment so this same bank actually has no pmi on 15 down for my wife and myself so if i take let’s just say a hundred thousand dollar house for example

i put down 15 percent that means i have an 85 000

mortgage i’m putting down 15 grand now i can take that 85 000

that i have instead of you know putting 100 grand into the house or whatever you know i have the cheap money and then i can use that other money elsewhere to make me more money

thus not only covering the mortgage but making me more return

does that make sense so to finish off the video here is my

thoughts and perspective as someone who is in the market for a potential residence i’ve been looking for about three or four years now

i have access to the mls i used to have my real estate license when i worked in commercial real estate

i’ve looked at a million houses at this point i know exactly what they go for so with that being said these are going to be some metrics for you to actually keep you in check

because a primary residence your numbers get thrown out the window you look at certain things from an emotional perspective as opposed from a logical and numbers perspective

and you should you know it’s a house it’s not a gallon of milk right so number one is figure out what kind of market are you in

and what i mean by this there’s different types of real estate markets so where i’m located in northeast ohio it’s a very flat market

okay housing here pretty much just keeps up with inflation

there’s no big booms or busts okay except after oh wait that was oh man i wish i had like way more money in oh eight so anyway

if you’re in like a san francisco for example you’re gonna have big booms and busts big booms and busts

what this means is are you buying uh when are you buying in that cycle are you buying at the top and then selling at the bottom which would be stupid are you buying at the bottom and selling at the top which would be great you can rinse and repeat that

or are you buying at the top and selling at the top or buying at the bottom and selling at the bottom

so at that point you wouldn’t be making that much gain right so figure out what kind of market you’re in first of all and then figure out are we at the top of the market or at the bottom

nationwide we’re at the top okay i can tell you that right now we’ve had cheap money and asset prices are high when money is cheap

now if you look at like northeast ohio for example

very little population growth no one’s going to say hey you know what honey we’re going to get up and move to northeast ohio

you know no one really does that however it’s a lot of bang for your buck in terms of value from a cost of living standpoint and also what you get for that cost of living

so those houses will keep up with inflation so now that we know we’re at the top of the market what i like to do is compare

new home prices versus used so when i say new i’m not talking about crazy custom build i’m talking about what are the national builders building these things at

i’m talking your well this may not apply for nationwide or even worldwide audience but

i’m talking about the national home builders that come in where the house is literally delivered on a truck they put it up in 90 days right so i know that’s not the best example and we will compare apples to apples here in the next point

however if new construction in a nice development is going for like 150 to 175 bucks a square foot and used prices are at 145 to 150

use that as a benchmark to think to yourself well why would i buy the 20 year old used home that needs a new roof hvac driveway you know landscaping this and that

for 145 bucks a square foot when i can buy the new one for 160 for example so i like to use that as a benchmark the third point is

basically looking at this from an apples to apple standpoint

okay oh that kind of looks like a butt i didn’t realize that apples to butts no apple bottom jeans

i have a soft spot for t-pain that’s when i was in college man he was crushing it

so anyway i’m going to edit this out maybe i’ll leave it who knows so apples to apples what i mean by this is you have to look at the finishes the lots

the acreage the taxes the build quality uh everything that’s going on with the home you’re not buying a gallon of milk here you have to make sure that you’re when you’re comparing two different properties and maybe potentially two different suburbs or two different

areas of a city you know what exactly are you getting

you know some may have high crime some may have low crime some may have great finishes some may have

you know crappy finishes that’s why buying a whole a house is very difficult because it’s hard to make an apples to apples comparison

your real estate agent will be able to run comps which will which stands for comparables

which will show you hey houses within a you know

half a mile radius or even a quarter mile radius within the last 180 days sold for x it had granite crown molding updated bathrooms et cetera et cetera and then you can make an apples to apples comparison

finally is this a need or a want so what do i mean by this

so when you’re looking at cars for example you can say oh man i really like that red convertible that’s a want or you have five kids and you need the minivan that’s pretty much a need at that point

so you have to look at the house in a similar fashion yes we all want the you know 3 500 square foot house with the in-ground pool and all that stuff however is that a want or a need or you can look at it from do you have a growing family you know are you literally bursting at the seams do you not have enough rooms in the house to house your family at that point that is a need

so at the end of the day you need to figure out you know are you starting a family are you moving for a job are you relocating

is this something that needs to happen or wants to happen i would say in this market right now given where interest rates are at

and given where house pricing is i may hold off just for a little bit because of everything that’s going on with the layoffs and the unemployment numbers

okay there’s mortgage forbearance going on that’s probably going to last about a year

then you have foreclosure process that happens so i say

if you can wait anywhere from like i’d say 12 to 24 months from the time of this video

housing prices will most likely correct at that point

and then finally i know i said this was the last point but just thinking out loud here

don’t force it you guys this is a big purchase and i know that you know renting may feel like

you’re throwing away every you’re throwing away money every month or you’re making your landlord rich that is not necessarily the case because you have to realize when you own a home home ownership is expensive a lot of people think that a home is an asset it is not an asset it is a liability it is something that takes money out of your pocket from you every month it is not a rental property that is an asset that brings money in your pocket every month

so at the end of the day you guys be smart don’t force it it’s a big purchase you have to think about things like ongoing maintenance and landscaping and all that stuff to maintain a home don’t rush into it and make sure you watch the beginning of this video with the basic four checklist

so at the end of the day i know this was a mouthful i know i kind of rambled here but it’s very important when making such a big purchase to have all your things in order so if you got value out of this video please share with a friend who’s potentially looking to buy a home and as always have a prosperous day ah my mic didn’t record the first time i recorded this dude i’m like smoked hopefully i recorded this time let me check okay we’re good we’re good you.

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