buying a home can be confusing but don't worry I'm here to make it easy today I'm going to be covering how to buy your first home for absolute beginners this may end up being a very long video but I guarantee if you watch it all the way to the end you're going to learn all of my secret tips and tricks from buying properties and it will make you much better prepared for when you make that offer onto your dream [Music] home so I made this presentation a couple of months ago and people really enjoyed it so I figured I'd put it up on here for all you guys to see here all right so for how to buy your first home for those you know me my name is Sean and I make real estate easy and I'm a real estate investor that's purchased multiple homes over the course of my career and we currently own over 30 units in a portfolio so in today's presentation we're going to cover the benefits of home ownership how to prepare to buy a home as well as how the home buying process works now obviously because this isn't a live session we're not going to have a Q&A session here but feel free to drop any questions you have down in the comment section below so what are the benefits of home ownership well let's take a look at owning versus renting a home if you own a home the good thing is your mortgage payment will remain the same if you get a fixed rate mortgage your mortgage is calculated so that over your 30-year period you're going to pay off your loan including any interest you have on the property but if you're renting a home your rent can and probably does increase every single year and depending on where you're living that rent can potentially increase by over 10% so even though it may be cheaper to rent today in 30 years your home payments will be a lot less than your rent payments the second thing is your property taxes and the interest you pay on your mortgage may be tax deductible for you whereas your rent is generally not tax deductible of course if you do work from home and you have a home office you can deduct a portion of your rent but same thing if you own a home if you do work for yourself you can also ride off a home office now the big part is when you own a home you have the potential to build equity which greatly increases your net worth you build up your Equity by paying down your mortgage over time and by having the property just appreciate naturally over the time you own it now the downside to renting is all of your rent is going to pay towards your landlord's mortgage so you actually aren't building anything and as I said in a previous video if your rent is $2500 a month then over a year you're paying $30,000 in post tax income to your landlord and over a 5year period That's $150,000 that just goes into nowhere it's not helping you build any assets so that's why it's important to get into a home as soon as possible so one of the big tax breaks of owning a property is this thing called the section 121 exclusion so this states that if you lived in a property for two out of the past 5 years and it doesn't have to be consecutively it doesn't have to be the last two years you get $250,000 off of your capital gains taxes when you sell or $500,000 if you're married and you file jointly so as an example here let's say you bought this home in 2017 for $700,000 and you sold it in 2023 for $1 Milli andless say you lived in it for two of the past 5 years that means that you get $250,000 off of your capital gains and so instead of paying taxes on $300,000 you're only paying taxes on $50,000 so this can be a tremendous amount of savings just because of this one exclusion now certain States also have different tax benefits for example if you own properties in California you can take advantage of something called prop and what this States is when you buy a property your property taxes are fixed at 1% of the purchase price so if you buy a property for a million dollar then your property taxes are going to be around $10,000 every single year but the benefit of it is that the property taxes from then on are pretty much Frozen and can only grow by 2% every single year so that's why people who've owned properties in the Bay Area are still paying very low property taxes because of this proposition whereas if you own properties in other states like Texas their property taxes get reassessed every year which means that if the property value double then that year you're going have to pay double their property taxes so it makes for owning properties in California very very powerful now there are other propositions like Prop 19 that allow a parent to give their property tax rate to their descendants so I was actually able to do that and it made it so that my property taxes on my very expensive Bay Area Property are similar to the property taxes I pay on a home here in Texas even though my properties here in Texas are around 1/4 of the price my properties back in the Bay Area it's pretty insane so the next section is preparing to buy a home so the first you want to do is assess your Readiness do you have a steady income do you have a good credit score and you also need to understand how debt to income ratios work this is all for you to get a good loan on your property most people aren't buying their own properties in cash just doesn't happen very often what the debt to income ratio does is it lets the lender know if you can afford to make the monthly payments on this property with the income you're getting from your job so what they're going to do is they're going to take your total gross monthly debt including the debt that you're going to have to pay for the property and divide it by your gross income which is your income before taxes so as an example most lenders want to see a 43 to 50% debt to income ratio so as an example let's say you have $600 of student monthly debt you have a $300 monthly car loan payment and the pii which stands for the principal interest which is the mortgage taxes and insurance are $11,100 if you add all that up that becomes $2,000 a month that you have to pay now let's say you made $60,000 a year from your job that means your gross income is $5,000 a month so you take $2,000 divided by $5,000 and then you get $ 4% as your debt to income ratio now of course if you have other mandatory payments like alimony child support minimum credit card payments that would all go towards the top DTI number so they you have to think about how much do you have to actually save well that largely depends on what kind of loan you're getting and how much the minimum down payment is for the most part conventional loans go from 3 to 20% as a down payment if you have a conventional loan for under 20% you do have to pay something called PMI which is mortgage insurance in case you default or stop paying for the loan to the lender this is a couple hundred here every single month and unfortunately this payment does not help you pay down your mortgage faster however the good thing about this is that the PMI gets removed a automatically once you hit a certain threshold and your Equity kits a certain amount another good thing about conventional loans is that they do have lower interest than you know other loans out there second type of loan is an FHA loan now with FHA Loans the minimum is 3. 5% they generally accept people with lower credit scores but there are some downsides to it like an FHA loan usually has more paperwork it's a little bit more complicated so some sellers may not want to sell the property to you because I know that going through an FHA loan is a bit of a hassle another bad thing is FHA Loans have something called MIP which is basically the same thing as PMI except MIP does not go away so even if the property is appreciate in value or even if you pay if your mortgage enough to have 20% Equity the MIP will still stay with the loan so you're always paying that additional payment no matter what so the main benefit of FHA loan is the 3. 5% down payment and the ability to get these loans with a lower credit score now these loans do have loan limits you can find them on the different websites but they have maximum loan amounts depending on the location of the property as well as the unit count so if you're buying a one unit property it's going to be a certain amount a two unit property a little higher three and then four it'll be the highest now if you go to other loans there are USDA loans VA loans for veterans and physician loans for people who are doctors there even loans specifically for lawyers that offer 0% down payment but you do need to be in a special category for that and it probably won't apply to most people watching this video but here are some things that you need to also consider it's not just a down payment you have to pay you also need to pay for closing costs which can be transfer taxes towel Insurance Esco fees lender fees Etc a lot of the also want you to have 6 months of the Piti payments in reserve somewhere in cash because they don't want to give you a big loan and have you have zero money in the bank account because what if you get laid off next day then you won't have enough money to make these payments and you're going to default for month one so all these extra closing costs I usually budget around 2% of the total purchase price and then six months of cost reserves are just from my calculation of pi so if you want to know how to calculate exactly how much money you need to save to buy a house you can check out the video where I go through it all over here or you can just simply download the sheet by using the QR code right over here now getting a loan is very important but getting a good credit score will help you get the best loan you can get you know if you have a very bad credit score you're paying higher interest rates and if you have a very very low credit score you might not even qualify for a loan at all typically credit scores above 740 get the best terms so don't worry too much if you're already at a 760 780 range but if you're in the 680 or you're at a 700 range you can try your best to improve your credit score to 740 so you can get the best terms now if your credit score is below 580 it may not be the right time for you to look at buying a house because you're going to end up paying a very high interest rate it might be better for you to work with a credit repair specialist or use a tool like smart credit to help build your credit score in the meantime if you guys want you can try smart credit for 7 days for just $1 with my exclusive Link in the description so my tips to try how to improve your credit score is to get this process started ASAP like as you're saving for money you should also be building your score do your best to pay off any outstanding credit card bills and if you need to right before you get your credit pulled pay them all off so your utilization ratio is basically at zero and you have the highest score possible of course when you're getting a mortgage don't try to open any new lines of credit don't open new credit cards don't try to get a car loan because it could affect how you get a mortgage now before you buy a home you should be very clear about what type of home you want to get the worst thing you want to do is waste everyone's Time by looking at 5,000 houses only to be sure of the exact home you want so definitely write down things that you absolutely need that will be a deal breaker for you so some examples of that are the location how many bedrooms and bathrooms you need do you want a house with a pool already what are the school districts like definitely have a conversation between you your family and your spouse and consider all the different factors that go into a home and decide which things are absolutely mandatory for you and which things are more flexible next thing you want to do is start building your team so who are the people that you need well number one person is going to be a real estate agent a real estate agent is extremely important for you when you're buying a home because you're going to be able to review the contracts for you and they're going to be able to give you advice on negotiating tactics on how to make the best offer for the property now you may be thinking well what if I cut them out and I try to do it myself the thing is most buyers aren't paying for the commission anyways the sellers are paying the commissions for both sides so you could potentially find an agent that's offering to give you a kickback but to be honest the best agents are well worth the money and just let them make their commission and have them guide you to find the best properties the best agents are the ones that know the market very well they know the other agents and they know how to smoo the deal to help you get the house you want so the best way to find great real estate agents is by referral you know friends neighbors or people who've used people in the past but if you really have a hard time you can just go on Zillow or Google and try to find someone who knows the area very well now the next person you want team is a lender and with this lender you're going to want to make sure that they can actually fund the deal in your area and also have them take a look at your background to see how much you can improve once you do that they can give you something called a pre-approval letter now getting pre-approved is very important because it shows the sellers that you are serious about buying their homes it'll even give you extremely clear picture on what you can and can't afford what some leers are going to want to ask you for are 2 years of your tax returns two years of your W2 state statements your latest two bank statements as well as two paychecks just to confirm that consistency of income they're also going to do a hard credit pull on you to see what your credit score is so finally we get to the buying process so the first thing you're going to do is go online house hunting it's kind of like online shopping it's a lot of fun go on websites like Zillow or redin and then start looking for properties in your area and short list some of the ones that you can send to your agent I suggest setting your right filters so that you look at the properties within your right budget within the right bedroom and bathroom count size so you're not seeing everything out there personally I like looking at deals that are on the market for over 30 days because you may find some properties that are amazingly good deals but the thing is a lot of agents are pricing the properties below what they're actually going to sell for in the hopes that it generates more traffic so just because you see a deal online that looks really cheap in reality it won't sell for that cheap whereas the properties have been sit on the market have a better chance of actually being negotiated down once you have a short list of properties that you actually want to see your agent will either schedule a route for you to check out the open houses or they'll tell you when to come on property and they'll schedule something with the other listing agent to go look inside the property now an openhouse is when the listing agent will have the properties open for anyone to come by between typically 1: to 4:00 p.
m. on Saturday and Sunday so you can just go you don't need your own agent to go with you and those are very nice because you don't have to bother another person to go check out a property but if you want a private tour and the property is vacant your agent can probably schedule time to go inside themsel and they usually have a super lock box to just get the key and go inside if you want to find out information about the open house they usually have the information on the Zillow listing now a question I get is do you need to make an offer before going to the open house and the answer is obviously no like part of going to an open house is to see the property you really like before making an offer so now let's talk about an offer from a buyer perspective you want to buy the property at a reasonable price but not one where you're going to have regrets later on but another thing too is consider the long-term effects of buying the property you know my parents bought our property in the Bay Area 30 plus years ago and at the time they bought it for $200,000 now if they bought it for $220,000 in their hearts they might have felt like they overpaid they paid 10% more than market price but think about where we are 30 years later that same house is now worth over $1.
