Making A Marginal Deal Work with Financing - Buying from a Seller Smartly

[Ken M.]

Buying a house for most people is a matter of a known number their income is divided by. As you already know, most people rely on getting a loan to buy a house.

The lenders have to underwrite to FHA, Fanny Mae and Freddy Mac guidelines if they wish to sell their loans on the secondary market. By selling their loans, it frees up money for them to do more loans. They make money on the front end with commissions, by doing new loans, not on the back end by servicing loans. I used to be one of those characters. I understand the process and the incentives.

Since the guidelines include a maximum percent of monthly income allowed to go toward housing, say someone making $5,000 a month with good credit and along other good credit items, can spend 35% of their monthly income on housing. Or, on a monthly principal, interest, taxes, and insurance of $1,750. When you remove taxes and insurance, which runs a couple hundred dollars plus PMI because they put less than 20% down, the principal & Interest payment is somewhere in the $1,400 a month arena. At 7% interest that means they can buy a $225,000 house. Even at 2% they can only buy a $400,000 house but then they need 3.5% or $14,000 down. It's presumably more house, but if you reduce the interest rate, EVERYBODY'S rate goes down and therefor everybody wants the same benefit and it drives up housing prices by competition.

They need a minimum of 3.5% down and then that increases their monthly payment because Private Mortgage Insurance gets added in. 3.5% of a $500,000 list on a house means they have to come in with $17,500 plus thousands of dollars in closing costs to to buy the house. That gives them a payment of about $3,226 plus taxes and Insurance. Can't be done on a $5,000 month income

Since a large part of Americana "cana not" even afford a $1,000 emergency, a whole swath of Americana's aren't going to have the $20,000 cash or more need to qualify for the loan.

It's a "I want it now" problem. Lowering interest rates helps everyone who doesn't rely on pensions, 401(k), savings and so on, but it hurts those relying on interest payments. That's actually a big problem when you want to get elected.

The solution is to build more houses, reduces taxes, reduce regulations (not completely, but yes, some regulations are ridiculous and hurt housing.)

The current countrywide housing strategy will not survive as it is, it will collapse, AGAIN, and that will be a "buy" signal.

In the meanwhile, I am buying "off market" so the seller & I have no realtor fees, I buy at 85% of value (yes, saving 15%, on a $400,000 property, that's about $60,000 below cost) and taking over the financing of the existing mortgage, saving loan fees and getting 2.5% loans, that's a monthly savings of about $1,000. So, my properties cashflow.

This isn't brain surgery, but it does require training to do legally. It is not being taught in a safe, legal way on Youtube. Expect more legal fallout coming from there. But, some people are doing things correctly & legally, all over the country. They're waiting for the correction, but we're still buying.