[Music] so the real estate world has a lot of kind of confusing terms and it can feel like buying a home is very intimidating because it's like this whole other part of life and if you're not familiar with it it can feel very overwhelming and so it's important to know you know these terms and understand how Housing Works before you get into it because for a lot of people this is one of the biggest financial decisions that they're going to make and when you buy a home usually it's the largest purchase you'll make in your lifetime so today we're going to talk about the basics and this is everything from what the principle means to interest to PMI all of these terms we're going to talk about because when they're less mysterious it's much more approachable when you go to buy a home and before we jump in be sure to like subscribe and share this episode with your friends all right we're going to start off with the basics what exactly is a mortgage well a mortgage is a type of loan that you take out for a home and a mortgage is the one type of debt that Ramsay says is okay right because we are all about being debt free but when it comes to your mortgage that is the one type of debt it is okay to take on and there's lots of different types of mortgages out there but your mortgage the basic definition it is the money that you borrow to buy a house all right what percentage of your take-home pay should be going towards housing costs so when you go to buy a home and you take out a mortgage they're going to break your mortgage up into payments and so it's really important to look at that payment per month and make sure it's a good ratio for the income that you're bringing in because if it's too high and so much of your money is going into your mortgage you're not going to have a lot of money left to do things like pay off debt or to save or to live off of and so the 25% rule is always what I go by and this includes HOA insurance and all of that okay so 25% of your budget really should be of your income should be going towards housing which is a mortgage or a rent another question we get a lot is what kind of mortgage loan does Ramsey recommend so we always want to do a 15-year fixed rate mortgage so there's a lot of different types of mortgages out there there's balloon mortgages adjustable rate all these different ones but a fixed rate locks you into a rate that you know forever and ever amen that is your rate and you can do a 15-year or a 30-year when it comes to fixed rate mortgages and the 30-year is very very common because your payment is less you don't get as great of an interest rate uh but you're spreading out those payments over 30 years so it's much more digestible for a lot of people but we recommend the 15 so cutting that 30 in half because I want you to get out of debt as quickly as possible and so this really forces you into a rhythm of getting out of debt very quickly so the 15year fix rate mortgage is what we recommend how do you know when you're ready to buy a home so when you're going to buy a home you want to be finan finally in a good spot this is one of the biggest mistakes people make is you know maybe living paycheck to paycheck they don't have a lot of wiggle room and then they go and buy a home and when you're a homeowner it's very expensive you have to pay for a lot of different things that you may not be thinking about versus when you're renting the landlord covers a lot of those things and so you know you're ready to buy a home when you have all of your debt paid off so all of your consumer debt is paid off you're debt free and you have a fully funded emergency fund and that's going to be 3 to six months of expenses so if you're starting out and maybe you're renting right now and you have some debt and you have no money saved again it may be a couple years till you get into the home buying process but when you don't have payments and when you have money saved in the bank and you go and buy a home it is much less stressful process and again it gives you peace where your home is a blessing not a curse now once you have that fully funded emergency fund you do want to save up for a down payment so for first-time home buyers saving 5% to put down for your home for a down payment is what we'd recommend all right before I tell you about spefic specific costs included and not included in a mortgage I want to tell you about our sponsor Christian Healthcare Ministries when you go against what Society thinks is quote normal it might feel weird at first but that is okay because we want you to do things that are weird if that means you're doing things intentionally including how you spend your Healthcare dollars and one way to be intentional is with Christian Healthcare Ministries chm isn't health insurance they're a health cost sharing Ministry that's helped hundreds of thousands of families like yours take care of of healthcare costs without sacrificing their freedom Program start as low as $98 a month so find out more and join at CH ministries.org budget that's chministries.org budget all right so what are all the costs that are included in a mortgage payment so first is the principal so the remaining balance that you owe on your home after the down payment so let's say you bought a $350,000 house let's say you put 20% down which is $70,000 then You' have have $280,000 left on your principal to pay off over 15 years or if you took out a 30y year so the principal is just that it is the exact loan without interest the exact loan that you have left to pay off then you add on interest and interest is extra money that you pay to the bank for borrowing money from them to purchase your home so there's different types of Interest out there we kind of mentioned this earlier uh the fixed rates means again it is what it is so if you take out a loan and mortgage rates are at 6% you have 6% for 15 years if you got in early in the market a few years ago maybe your rate is like 3% which is amazing and it's a fixed rate it's 3% regardless if rates go up it is what you have and again there's the adjustable rate which means it fluctuates and goes up and down there's different types of loans in this but again the fixed rate is what you want you do not want your rate going up and down you want it fixed so for example if you have a fixed interest rate of 5.2% on that 200 $180,000 you're going to pay an extra $273,500 in interest over 30 years which basically is double the amount of your original loan so that's the 30y year okay so think about that you guys I mean you're paying more in interest basically than what you were paying for the house of what you put down which is crazy but if you did a 15-year loan then you'd only pay $123,800 in interest on that same loan so you're paying way less interest cuz you're paying off that loan early and if mortgage rates drop you can always refinance your loan to get a lower monthly payment or shorten the life of your loan to pay it off faster so a lot of people will do this again depending on what rates are doing but if you get it in now and let's say you know your rate is six 7% then in maybe five six years you know it may drop back down who knows so let's say it does to 3% we'll just dream for a second you can go and refinance and get that lower interest rate so you have to pay closing costs a couple other things but in the end you end up saving money long term when you do that um especially depending on how deep you are in the mortgage all right so if you want to run some of these numbers maybe on your own maybe for your own mortgage just to see make sure to check out the Ramsey mortgage calculator I will put a link down below for you to try but it's always fun to kind of fool around with that or if you are um going to buy a home put some numbers in and kind of see okay what can we afford now you're also going to pay property taxes so by law land and buildings have to be reappraised every six years so property taxes often change according to that timeline so you have to pay taxes on the land that is what it is so you can do this usually it's wrapped up within your mortgage payment but let's say you're on baby step 7even and you paid it off then that property tax will come at another date and usually you can just pay for that in full there's also homeowners insurance that you're going to have to get and it's common to bundle home and auto uh to include that again in your mortgage payments every single month you can do that there's also PMI which is private mortgage insurance and if you have less than 20% down for a down payment you're going to pay PMI which can run a couple hundred bucks a month I mean depending on what your mortgage is and so once you hit that 20% of the princible then you don't have to pay that anymore but this is basically insurance for the bank or for the mortgage company that that you loan the money from to make sure that they get their money all right here is what is not in a mortgage payment your HOA payments so if you are part of an HOA yeah you're going to have to pay that extra uh there's utilities so think about water gas electric cable and internet maintenance costs because that is some big ticket items if you don't take care of those so be sure to prepare for all of these costs in addition to your mortgage payments when you're buying a home and you're using that calculator because again it is so understated that when you buy a home you have a lot of other aspects that you're going to have to pay for so it can be very very expensive that's why I want you in a good place financially when you do this now if you want more mortgage hacks make sure to check out my episode easy ways to pay off your mortgage early you can click right there or if you're listening on podcast click the link in the description all right you guys remember to take control of your money and create a life you love
