RE: Real Estate Podcast - Video

Clint C. Galliano (00:22)
Hey, Ben, how you doing?

Ben Harang (00:25)
Hey Clint, I'm doing terrific. How you doing today, man?

Clint C. Galliano (00:28)
I'm doing wonderful.

Ben Harang (00:30)
good. The weather changed on us last night. It was warm and muggy with a little rain yesterday and before I went to bed it got a little chilly, not cold. Woke up this morning it's like whoa where'd that cold weather come from? Blue sky outside.

Clint C. Galliano (00:47)
I'm loving

it. I love it, man. I'm of the opinion that it's never too cold because you can always put more clothes on to warm up and you can never take enough clothes off to cool down.

Ben Harang (01:02)
I understand. I don't like 100 degrees, but I can handle 90 easier than I can handle 30. But it was actually nice this afternoon. I was looking at a little drainage project before we got on and had a light jacket on in the sun. It felt good.

Clint C. Galliano (01:22)
Nice.

Ben Harang (01:24)
So what are we gonna talk about today?

Clint C. Galliano (01:29)
Today we're gonna talk about different types of loan products that buyers use when they're buying a home. We've kind of referenced them in a couple of different episodes, but today we're gonna kind of different loan types and what the requirements for them are. And again, well.

what the requirements for them are, what their best uses are. ultimately, the main thing we want to get across is that this is informational. We're not loan officers. But we do advise our clients on the best things for their situation.

Ben Harang (02:19)
Yeah. And sometimes you have multiple loan products available to you and it just, it's, matters which one makes more sense for you. Not just the first one that you qualify for. you know, the traditional loan is a conventional 30 year fixed rate home loan. the private investors that sell those loans or buy those loans and,

You need a little higher credit score. You need a little more down payment. The interest rate may be a little higher because it's not a government backed loan. So those are for people that I guess are more qualified for the loan. The government insures the FHA loans, the

VA loans and the rural development are commonly referred to as RD because I have trouble saying rural. USDA, Department of Agriculture product. And then there's jumbo loans for people that exceed the limits of those four loan products based on the sales price or loan amount.

Why don't you take one of them, Clint?

Clint C. Galliano (03:49)
So we'll start out with conventional loans. Conventional loan, like you say, it's for your slightly better.

I guess, financial history, buyer, the better credit scores do get decent rates. The rates are a little bit more expensive than the government sponsored loans, but you can purchase up to $750,000 home with a conventional loan in most areas. And that may vary a little bit depending on the property and where it's located.

But you can purchase with as little as a 3 % down loan So first-time home buyers with a really good credit score can do a 3 % down Conventional loan and They you know, that's actually better than an FHA loan, but they'll also be paying private mortgage insurance on top of that Cool thing though is that

Ben Harang (04:53)
Right.

Mm-hmm.

Clint C. Galliano (05:02)
once they get to an 80 % loan to value ratio on that home. So either they pay down 20 % or pay down to an 80 % equity position or their home appreciates to less than 80 % of that loan, they can get rid of that private mortgage insurance. So that's a neat approach.

Ben Harang (05:25)
Yeah.

It is, it is. And sometimes we talk about interest rates and that's not the only factor involved in the loan. The other costs involved, and you talked about PMI on a conventional. PMI is added to a loan for any loan with less than a 20 % down payment to cover the loans that would go bad.

And as Clint said, you can take the PMI off once you have a 20 % equity in the house. FHA, on the other hand, you can get into an FHA loan with a 3.5 % down payment and a little bit lower interest rate, but there is an upfront fee.

And then there's also the PMI monthly on the FHA that is on now for the life of the loan. The rules changed recently. You used to be able to take it off. But now it stays on for the life of the loan. So depends how loan you plan on staying in the house.

A conventional loan product might be better for you. The FHA loan product might be better for you. There's some income limits on the, that's not right. There's no income limits on the FHA. There's income limits on a rural development loan. But there's maximum loan amounts on all of them. So,

Clint C. Galliano (06:58)
now.

Yeah.

So one thing about the FHA,

if you are able to put more money down on an FHA loan after 11 years, if you're below that 80 % loan to value ratio or yeah, below that ratio, you can remove the mortgage insurance, the MI on an FHA loan. But that's if you put down more than

Ben Harang (07:30)
Okay.

Clint C. Galliano (07:35)
10%.

Ben Harang (07:37)
Okay, so there's a little sweet spot right there. And you will get better rates on conventional and FHA with a larger down payment. The larger the down payment is, the lower the rate would go. And people typically are saying, well, how much will it take to get into a house? And we can, we've become experts at getting people into houses for little or no money.

Clint C. Galliano (07:41)
Right.

Ben Harang (08:07)
that sometimes it makes sense. Sometimes it makes sense to put a down payment down and reduce the monthly note. So it depends on your particular circumstances. If you have some money saved and you want to get the note down, put a larger down payment on it and you'll dispose of the MI and the PMI, private mortgage insurance and mortgage insurance on those.

two loan products.

Clint C. Galliano (08:39)
And ultimately, it's like Ben said, it's what's best for your situation. You don't want to be spending all of your money to pay your note. You don't want to get up in a position where you spending most of your income to pay your note. You also don't want to be.

I guess they call it, well, I don't remember what the term is, but basically you got a nice house, but you don't have money for anything else. That's not a good position to be in because you have a storm come through or something breaks. Then you're stuck with maintenance that needs to be done or repairs and you don't have the money to do it.

Ben Harang (09:14)
Your house poor. Right.

Yeah.

Clint C. Galliano (09:31)
And

then you have to go further into debt if you can take on debt to make that repair or that upgrade or whatever is needed. Case in point is hurricanes, damages, know, insurance will cover it sometimes. A lot of people didn't have any resources or reserves to make any of the repairs.

Ideally, the best situation you can be in is to have the reserves to cover that yourself and then get your money back from the insurance company. Another thing is air conditioners. And with the cost of air conditioning systems these days, that's a whole other reason to not necessarily spend all your money and keep some reserves on hand.

Ben Harang (10:23)
Short of a... Right, right. But short of a hurricane, the roof and the air conditioner are the two biggest maintenance items typically in a house. I tell people that don't buy your last house first. People typically on average spend about seven years in a house before something changes in their life in a...

Clint C. Galliano (10:24)
Not that we turning this into a finance podcast, but

Ben Harang (10:52)
They outgrow it, they get transferred, they want to move up, want to move down. They spend about seven years. So don't buy a house if you're 25 years old that you think you're going to need when you're 50. Buy one that will serve your needs for five to seven years. And get that note in a comfort zone that it's not stretching you. And you can enjoy the house. You have some money, you have some disposable income to...

to spend on family and entertainment. And you're not house poor. So if you qualify for a $250,000 house, think about buying a $175,000 house or a $200,000 house and don't max it out. It gives you lot more breathing room. And if something does happen, it gives you some capacity to.

to where you either have the cash or you're able to take on some debt to make the repairs if you have to in an emergency. Excuse me, in an emergency.

Clint C. Galliano (12:00)
And a lender friend of mine, she likes to consider herself a financial consultant. And her approach is she calls it the 50, 30, 20 budget approach. She likes to set her clients up where 50 % of their income goes to mortgage and expenses. 20 % goes to

your non-typical expenses, so groceries, clothes, things like that, that you don't see on a bill. And then other 20 % that's for leisure or what have you or savings or what have you. And that's a pretty solid approach for how to manage your spending. And if you can stay below that, then you're in really good shape.

Ben Harang (12:54)
Yeah.

Yeah, you know, we sit in on closings. I can count on one hand on closings. I've not attended personally. And we see all the numbers and the paperwork and they kind of all run together to us. And we're not judging anybody. Every now and then I'll look at one of them and I'm thinking, whoa.

Sometimes if people get a hangnail at work is what I call it. They stubbed their toe and they can't work for four hours. They'll never make up that time from a cashflow standpoint to get back in front of the note on that house. So don't buy a house that's going to put you in a bind. Enjoy your house.

You know, buy one that you can afford, whatever that range is, and live comfortable and enjoy the rest of your life so your life isn't centered around the house.

Clint C. Galliano (14:02)
All right. So we while we kind of detoured a little bit, but we're you know, this is good information for buyers. To be honest, I felt it's something that we needed to say up front. Because sometimes we get a bad rap that we're just trying to sell everybody and we don't care about things. But ultimately, this is what we care about making sure that

Ben Harang (14:09)
We typically do that.

Clint C. Galliano (14:31)
you get what you not only what you want, but what you need. So next type of loan FHA loan. that's FHA stands for Federal Housing Administration. They're better suited for first time home buyers, people with lower credit scores. There's some of the lenders that will accept down to a 580 credit score.

or those that are only able to come up with a smaller down payment. So it's a minimum down payment of three and a half percent.

And like I say, with some lenders, it's 580 or better. 10%, there are some lenders that will go down to 500 on that. Loan size varies by area, but it's typically lower than conventional loans. DTI would be up to 57%.

Ben Harang (15:26)
10 % down payment.

Clint C. Galliano (15:39)
with compensating factors, but most will be 50 % or lower as the maximum that the lenders will cover. 50 % is high. Like I just said, you really don't want your mortgage to be over 50%. Your mortgage and expenses at 50 % is a good target to shoot for. And even at 50 %...

Ben Harang (15:45)
And 50 % is high.

Right. Right.

Clint C. Galliano (16:07)
that would be where the loan officer probably wouldn't feel comfortable with that unless it was a multiple income household that was only going off of a single earners finances to do the loan, so that they knew that they had other income coming into the household.

Ben Harang (16:26)
Yeah, that's the

And that's

getting into the weeds of the how to structure the loan product. So Clint and I sell real estate. We don't sell loans. We know a little bit about them, but we're giving you an overview. The best thing to do to figure out which one it works best for you is have your lender work them up.

Clint C. Galliano (16:34)
Right.

Ben Harang (16:56)
work up different loan products for you. See what the cash to close is, see what the down payment is, see what the note is, see what the interest rate is. And you might be surprised at which one works better for your situation. There's a trend in the the mortgage industry probably to put everybody almost straight into an FHA loan with a minimum three and a half percent down payment. And I really don't like

Doing that, that's where you might end up. kind of look, take a step back and see what kind of down payment you can handle and see where that puts you in the different loan products.

Clint C. Galliano (17:41)
Yeah, again, you're to have to keep pulling me back in because I keep getting on the soapbox. Yeah, check with your lender. And if you need a lender, contact us. We can refer you to some. We work with a bunch of good ones.

Ben Harang (17:59)
Yeah, we can. And we are we on the Internet.

We own the Internet and anybody in the world can be seeing us. We operate in South Louisiana and we have local lenders. We've had had some success with some online lenders. We've had we've had some disasters with online lenders. And I'd much rather have somebody to sit across the table from to talk to.

If a problem pops up, they can't ghost us. And hopefully we can work through whatever problem may pop up. we online, they can just quit answering the phone, quit answering emails, and we're left with absolutely nothing. So it matters who your lender is.

Clint C. Galliano (18:47)
Yeah. All right. Next loan type, VA loans. So, Veterans Administration loans. Obviously, those are limited to active duty military veterans and certain National Guard members. It's kind of a specialty of mine. I work with lot of veterans and active military.

There's no down payment required. If you have that certified eligibility as a member of the military, whether it's a veteran or active duty, it's kind of a no brainer to use a VA loan. The government guarantees it for you. There's no mortgage insurance and there's no official limit on the amount of property or the price of the property that you can purchase with it.

You have a certificate of eligibility and that'll give you the amount that you can purchase up to. And it's not necessarily for one property. You can potentially use it to buy multiple properties depending on what you're eligible for. There is a funding fee for veterans. But if depending on if you're disabled or not.

then your disability determines how much of the funding fee, if any at all, you have to pay. Generally, there's 41 % DTI, so that's debt to income ratio, but you want to obviously stay under that. That's kind of everything about the VA that we're going to cover with not being loan officers.

Ben Harang (20:41)
The VA, you need something, I think, is the DD 214, which establishes your eligibility. And if you're a veteran, which I'm not, and I have the utmost respect in the world for people that served our country, you're to know what the DD 214 is. that's what you...

Clint C. Galliano (20:43)
And so was going to I was going to tell us you the rural development.

Ben Harang (21:05)
That's what you need, at least people that have been in the military previous, maybe not active, but it just verifies that you were in the military and got the honorable discharge. So I think that's enough for the VA loans, So USDA, yeah, thank you. United States Department of Agriculture, Rural Development.

Clint C. Galliano (21:23)
Yep. So take on rural development. Call it RD.

Ben Harang (21:35)
commonly referred to as just an RD loan. I'm sitting right outside the city limits of Thibodaux Louisiana right now and the Thibodaux-Houma area, the entire Thibodaux-Houma area, Lafourche-Terrebonne areas are eligible for the RD loans. It is 100 % loan product similar to the VA.

I'm always learning and Clint and I were talking about before we started recording that RD is the only loan product that if the house appraises for more than a sales price, the RD program will allow the buyers to increase the loan amount to the appraised value and which allows them to finance the closing costs to get in the...

in the house. So it actually reduces the cash to close, which is always a concern. the debt to income ratio is higher at 48%. There are loan limits. It's a moderate income product. I'm sorry, are income limits. It's a moderate income product and the limit is $112,000 of

adjusted gross income. So a lot of people will qualify for it. If you fit in it, it might be the loan product for you. If you want to, if you have a down payment and you don't want to spend the money on a down payment, you want to keep it for maintenance or you might, might be buying a house that needs some repairs and you want to keep your cash. It may make sense to do this rather than putting a down payment in down and then turning around and borrowing some money to have the cash to, to make the

the repairs.

Clint C. Galliano (23:36)
So a couple

of key things to add to this, that $112,000 is the household income limit for Lafourche Parish. And so it goes by area and it is the household income limit. So if it's mom, daddy, son and daughter all living in the same house, then by the guidelines of the law, they have to include all of their income.

Ben Harang (23:48)
Okay.

Clint C. Galliano (24:06)
they can't leave them off the loan or anything like that. have to consider all of their income when qualifying for the loan. I want to say it's either 80 or 115%. I couldn't get confirmation in either direction of the median income for whatever area. And it's probably, for Louisiana, it's probably broken down by parish.

Ben Harang (24:31)
Yeah.

Clint C. Galliano (24:32)
When we talk to a loan officer later on, we'll get more clarification on that and we'll share that for you.

Ben Harang (24:38)
And again, we have a working knowledge of the loan products, but I like to stay in my lane and I like for other professionals to do their job. We're gonna find a house and negotiate the best deal we can for you. The loan officer is gonna do the loan for you. The appraiser is gonna do the appraisal. The title company is gonna...

do the title insurance and check the title and do the closing for us. So we have a working knowledge about all of it, but we're not loan officers and the details keep changing. We have a working knowledge. So the best thing you can do is be in touch with a quality loan officer that you get a comfort level, you can trust, and you can sit down and talk to.

Clint C. Galliano (25:33)
Yep

Ben Harang (25:35)
All right.

Clint C. Galliano (25:36)
All right.

Excuse me. So got a couple of other loan products. We're not really going to go too deep into detail on them, mainly because that's not what the majority of the home buying public will wind up using. One is jumbo loans. So.

Those are loans, $766,000 and higher up to $3 million. And while we'd love to represent you as a buyer and loan amounts that high, we know that the majority of the people out there aren't looking to buy with loans that large. But just a couple of key features. They typically are looking for 10 to 20 % as a down payment.

Ben Harang (26:21)
Right.

Clint C. Galliano (26:32)
Debt to income ratio is typically somewhere between 43 and 49%. If you've got a

high enough down payment, then there's no mortgage insurance. Typically you're looking at a higher credit score, but there are some jumbo loan products that will go down to a 660 credit score, but they'll do some stricter income and asset verification on that.

Ben Harang (27:00)
Yeah, when you get into the higher

numbers, one bad loan is a big chunk. So these are for the professionals where they have a significant cash flow.

I've seen doctors not qualify for a jumbo loan because of other debt they have. So just because people do make a lot of money doesn't mean they can spend whatever they want to spend on whatever they want to spend it on. But this is a product for people that are above that $775,000-ish price range. Because if somebody's going to buy a million dollar house, they need something above that.

And that kind of fills that niche. Another one, and it's a loose product, it's a fixed rate versus an adjustable rate mortgage. Today's climate, it may or may not make sense to do an adjustable rate mortgage if you feel like the rates are going to go down.

do an adjustable rate and that typically resets every three or five years depending on the actual loan product and it resets to the competitive rate at that point. The adjustable rate is always less than the fixed rate.

And I look at it as kind of once you get into an adjustable rate, it's hard to get out because it doesn't matter what the market does as far as interest rates. The adjustable rate will always be lower. Now, if you think it's going to increase and you want to lock it in, then you might go ahead and lock in at a higher rate. So you don't see a higher rate in three years. But that's another alternative in today's interest rates.

May or may not make sense, but it is an alternative to get the monthly rate down if you can lower the interest rate. And all of these products, Clint, we didn't talk about this, but you can buy down the interest rate with cash. So.

If the interest rate is 6 % and you want to buy it down to 4.5%, there's a fee attached to that, but you can buy it down for a one-time fee. And then the 30-year loan is based on the 4.5 % interest, which can be significantly less depending on the amount of the loan. So there's all kinds of options out there, but the best thing to do is let's get you qualified with a

Clint C. Galliano (29:42)
right?

Ben Harang (29:48)
qualified lender and then we just go out and find a house that fits your budget and your wants and needs and we get to the inspections appraisal and closing it's kind of that that easy sometimes, didn't it Clint?

Clint C. Galliano (30:06)
Yep, and sometimes it's not.

Ben Harang (30:10)
Most of the time it's not. That's a very oversimplification, but that's kind of the steps we go through. So at the end of the day, you need a quality realtor, you need a quality lender who then picks the appraiser, you need a quality inspector, and then a title company to get to the closing with maybe some contractors in between there somewhere.

to make some repairs that the appraiser or lender may point out.

Clint C. Galliano (30:46)
Yep. And so to summarize, there's a lot of loan products out there. Find what fits your situation and not just on a single data point. know, don't make a decision just because you got a low rate. Might have a low rate and they're charging you $10,000 in fees.

that's not necessarily a good deal.

Ben Harang (31:18)
And

I would suggest and I might be beating a dead horse, but get the loan officer, the lender to show you the different loan products with different down payments and try to compare apples to apples. So if you're to put down X amount of dollars, not a percent, but X number of dollars.

and whether it falls in a conventional loan, an FHA loan, if you're a veteran, a VA loan, and then an RD loan. And you see which one fits. And Clint, you do more VA than I do, but I don't think there's a requirement that you have to borrow 100 % on a VA loan. You can borrow up to 100%.

Clint C. Galliano (32:07)
No, if you've got money, in fact, I've,

yeah, like you said, it's an up to... I did one where the buyer puts the money down just so he could get more. then, you know, there are situations where they can do that. you know, especially that'll come into play if,

You know, if it's under contract for a certain price and it appraises for a little bit less than that price, then they may come out of pocket for that. Or if they just want to put some down to help pay it down. You know, again, going back to a financially good standing, the more equity you have in the home, the better position you are.

Ben Harang (32:53)
Right. One more thing, one more tangent I want to go off on, Clint, getting back to the FHA loans. A lot of people don't realize that you can use an FHA loan to buy up to a fourplex. So you can use a single family residential loan to buy a four unit apartment complex.

if you decide you want to live in one and rent the other three out, the FHA loan is available for that, whether it's a duplex, a threeplex, or a fourplex. So that's an option that a lot of people don't realize is available if you decide you want to live in one of the units, the FHA loan is available for that.

Clint C. Galliano (33:43)
It's a great way to start your investing career.

Ben Harang (33:48)
Yeah, and just because you start there doesn't mean that's where you're going to end up. Don't buy your last house first. Buy your first house first. That is a good way to start.

Clint C. Galliano (33:54)
Yep.

Ben Harang (34:03)
So what else we need to cover Clint?

Clint C. Galliano (34:08)
Well,

we need to invite everybody to subscribe to our channel, like our content on Facebook and YouTube and TikTok and all that fun stuff. You can find us on there at RE Real Estate Podcast. And I just want to say this 10, 15 minutes of content has turned into 35 minutes here. This is the longest.

Ben Harang (34:33)
this is the longest one. Okay.

Clint C. Galliano (34:38)
thing we've talked about so far. Nice short conversation.

Ben Harang (34:40)
Yeah, no, it's

not. You know, I had a buyer consultation yesterday and it's the second time. Second time I was face to face with this young person and they're nervous about it and it's a lot of money and all of those things.

But I made the point that you can sign a loan, sign your name on a loan for a lot of money for 30 years. Or you can not sign your name on a loan and go rent something for the rest of your life. And at least after 30 years, it's paid for, it's yours. You have something to show for it. If you're renting, you don't have anything to show for it. So anyway, just a...

It's always in my mind, you're better off buying a house and maintaining it. It does cost money to maintain it, than you are renting and paying somebody else's mortgage on their behalf.

Clint C. Galliano (35:48)
All right, Ben. Well, this has been a wonderful Wednesday afternoon.

Ben Harang (35:54)
Yeah, we got a lead start, but I think we got a lot of content. We talked about a lot, but I think it's all good stuff.

Clint C. Galliano (36:02)
Yep. And so comment on this episode. Let us know what you liked about it. If you've got any questions, hopefully in the near future, we're going to have our question form up. We've also got a contact form on our website. So if you've got questions, go ahead and post them there, or you can email us at rerealestatepodcast.gmail.com and we'll see you on the next one. See you, Ben.

Ben Harang (36:29)
Have a great day.

See you Clint.