Latest / The Jon Sanchez Show / How Much House Can You Really Afford?
Transcript
- Jon G. Sanchez: Welcome to the John Sanchez Show on News Talk seven eighty K, which it's a pleasure to be with you and a pleasure to be with my co-host, Mr. Aaron Clark of Edge Reality. How you doing, buddy? Good to have you back. Good to have you back. ⁓ it really has. It really, really has. I know. I know. Dwight Millard of On Home Loans. How are you, my friend? Aaron Clark, Edge Realty: I'm doing good. Yeah. It's great to be back. Dwight Millard: you I'm doing fantastic, John. How are you today? Jon G. Sanchez: Good, good. You okay, buddy? You took a little while for you to answer me that. Were you were you contemplating whether you're doing good or bad or hot or cold or Dwight Millard: Yeah. No, no. Yeah, yeah, yeah. I don't know. Maybe I got technical difficulties going on, but can you hear me all right? Yeah, I'm doing I'm doing good. I'm doing good. Jon G. Sanchez: Yeah, you look a little blurry, but other than that good, good. Glad to hear it, buddy. Glad to hear you should be. You should be. righty, fellas. Well, we got a lot of things to talk about. Let's get ⁓ we're gonna get down to what our topic's gonna be with or for you, and ⁓ give you our brief stock market recap. A little bit of a tough day today, but nothing to worried about. I'm gonna explain what happened today. But let me tell you about our real estate topic. This is gonna be a great one. I was teasing with the boys. I said, How'd you guys like this? I really balanced it between the two of you. I'm gonna make both of you work really, really hard today. And and I have to join right in also because I've got a I've got a piece of today's topic. here's what we're gonna be discussing. Many home buyers one simple question of Dwight and of Aaron. How much house can I afford? Right? Really basic, simple question. That that should be the first thing that comes to your mind when you are starting to shop for a home. How much ⁓ can I afford? But the real question boils down to this: How much house should afford? Notice how I changed the word. Not how much house could I afford or can I afford, but how much house should I Well, today we're going to be doing with the boys is we're going discuss affordability, payments, down payments, interest rates, and the most importantly, the costly mistakes that so many buyers make when they stretch their budgets too far. Folks, going to be in for a great treat because both these gentlemen, of course, deal with this question. Dwight, how many times a week do you get this question? I mean, probably at least once a day, I would imagine. ⁓ You Dwight Millard: at least once a day, know, but John, I'm gonna sound like an old mom here, but it all starts with the budget letter. It all starts with the budget letter. That's gonna tell you what you can and should afford. You know, what of money you have left over, but ⁓ I it all the time. People do blow through my stop signs though, John. Jon G. Sanchez: Yeah, yeah. Absolutely. Absolutely. they tend to do that. We're not just talking kids either. Aaron, how often do you get that question? Dwight Millard: They do that. Aaron Clark, Edge Realty: I get it a lot. And and primarily I would say a lot of lenders out there that don't do a good job of asking a lot of questions like Dwight does, they'll just give ⁓ a blanket number of of of their max affordability without explaining all the additional costs that go into it. So then they call me up and they're like, I I mean, I'm approved for a million dollars. And then I go, Well, your payment would be this, and then they go, I can't afford that. And I go, Then you're not approved for a million dollars. So yeah, we have to work the numbers backwards. Jon G. Sanchez: Right. Yeah. I'm glad you brought that up. And I wanna just ask this real quick and then I'll get to the stock market side. Dwight, don't know if you keep these stats or not, but if if not, just let's just go off your 40 plus years of experience doing this. How many times does a borrower max the amount that you pre approve them for? Are they you know, let's say within five, 10 grand of that maximum you've said they're they're they're approved for? Or are they ⁓ you know, I'm responsible enough. Dwight's looking up at the sky going, boy, John, why'd you ask me this question? ⁓ Dwight Millard: John, it's 85, 90%, you know. What's interesting, I think is the, yeah. What's interesting, I think the people who are most concerned about whether they can afford it not, are the ones that can actually afford it. It's the other group that says, oh, can make it work. I'll figure it out. I'll make it work. Those are the ones that are a little bit concerning. Jon G. Sanchez: Is it really that high? Right. Yep. Yep. Yep, absolutely. we're going to start off after the stock market recap. We're going let me tell you some of the the the kind of the ⁓ the breakdown of what we're gonna be going through because there's a lot here. So we're gonna talk about the differences between can and shit, right? You got a little taste of it just now. ⁓ then gonna get into with Aaron the true cost of homeownership, right? It's not just the down payment, it's not just the mortgage payment. There are so many other things that a home buyer needs to consider. ⁓ gonna talk about we're gonna we're gonna we're gonna rip the curtain back and we're gonna pick brain and say, okay, Dwight. What do you look for when you issue that golden qualify pre-qualification letter or pre-approved letter? Right. He's gonna tell you, like I said, he's gonna put back the curtain and say, these are what we look for behind the scenes. we're gonna get into the hidden budget killers that Dwight always warns us about. We'll talk about how much house should different buyers consider because, right, it's completely different for a first-time buyer versus, let's say, a retiree. So we'll lay out that differential there. ⁓ Then I'm going join in the conversation, talk about the financial planning meeting, homeownership, right? We'll talk about balancing the housing and the retirement savings and all the other obligations that you have in your life. And then we'll wrap things up with basically closing thoughts. Like a lender approval tells you what you can borrow. It's not what you should borrow. And a few things along those lines. So ⁓ got lot of things. It's going to be really interesting to ⁓ to learn what the boys have to say about that. All right, fellas, let's get down to today's stock market activity. You know, we we we just did not have much of a chance today whatsoever, we we saw significant weakness around the world as we were tucked into our beds last night. We to, well, I'll you, I'm looking at my notes right now. My first stock update at 523 this morning. The Nasdaq futures were down 800 points. 800 points. Worst level, we hit about 919, if memory serves me correctly. But again, it started overnight. What had happened? This is exactly what I warn all of you about, right? And that is you wake up one day and all of a sudden the traders they don't want a certain segment of the market. And today they will, or last night, while we were asleep, they decided South Korea, in Japan, in Asia, the Asian markets, so on and so forth, they decided they didn't want semiconductors. No specific reason behind it. You can say whatever you want. Overvaluation, whatever the reason is, they did not want it. So that's what set the table for us today. The Dow was kind of hanging in there, all right. It was down a little over a hundred points for most of the pre-market session, almost 300 at its worst level, right before the opening bell. But it was the Nasdaq that had so much concern. S P was also in triple digit decline right before the opening bell, down about 111. we didn't have much of a chance, at least in the pre-market session. But all of a sudden, you know, stock market opens at six thirty. Everyone went, you know what? Maybe this is overblown. NASDAQ only opened down about 350 points. So approved about ⁓ 700 points just from literally the that last report again at it ⁓ 623 to the opening bell at 630. Just bizarre. So the features were off a little bit. Let's just say that. So then we start to get into a focus and say, okay, really what happened? So I a little bit deeper. And I mentioned this many times on my on the on the stock updates this morning. So if you're missing those, please join us. You know, the I do the updates at 23 and 53 after the hour from 523 all the way up to 853. So hearing live action, what's going on? but really what I uncovered was today was nothing more than a than a rotation, right? Here's what I mean by this. You've heard use the term many times when we get into the end of a quarter called window dressing. These are where institutional portfolio managers say, I want to get of this stock and I want to bring in this one to make it look good on my clients, you end of the month, end of the quarter statement. Okay, a little bit of a game. You've heard it a million times. But in reality, what really also is happening is a So as we've said many times, these institutions control the market, they have mandates, right? If they are a, let's just call it a 60-40 manager, that their mandate is I can have no more than 60% on equities and no more than 40% in fixed income. At the end of the quarter, they need to rebalance. Well, with the strength that we have seen in the month of May, predominantly, June's been a little bit choppy, but also in April, Aaron Clark, Edge Realty: Mm. Jon G. Sanchez: I promise you, those allocations are way out of whack, right? What started maybe as a 60-40 portfolio at the beginning of the year probably now is a 73%, 74%, 75% on the equity side. They can't do that, right? That's not their mandate. It's not their investment policy statement. So they do at the end of the quarter, they go, okay, let's say they end up with a, I don't make the number simple, a 75 ⁓ percent equity allocation when they're supposed to have no more than 60. So what they'll do is they'll sell off the 15% to get down to start the quarter. The 60%. Okay. Pretty simple. So what ends up happening is they pick what areas had the greatest gains for them when they're doing this portfolio reallocation. Well, what area, Mr. Clark, the biggest gains right now? Semiconductor related, right? I mean, it's it's really that simple. Yep. Sand disk, micron, lamb research, names we talk about all the, you know, literally almost every day on this program. So they those, right? Because they have great profits. They reallocate. Aaron Clark, Edge Realty: Yeah, anything tech. Yeah. Dwight Millard: . Jon G. Sanchez: come in. And then also what they do is they they have to rebalance based upon allocations, right? That sector, that that technology sector, and we can break technology down into many different areas, but let's just call it the technology sector, also got out of whack. Remember, there's 11 sectors in the SP 500. ⁓ So what they do is they go, okay, you know, I'm overweight, maybe I can only have eight percent in tech. Well geez, look at I'm at 20% because of the gains that have happened in the previous two months. So they sell off the hot area in this quarter, it was tech, and then they redeploy the capital into other areas like the Walmarts and the Home Depots. We saw really good strength in. I mean, Johnson Johnson was the second best performing stock in the Dow. Verizon was the the the third best performer. Procter and Gamel, the fifth best performer, Travelers, Walmart, you know, so on and so forth. But what was at the bottom of the list? It was, let's see, Apple was the ⁓ the second worst performer. I'm sorry, not the second. It was, I don't know, about the sixth or so. ⁓ Aaron Clark, Edge Realty: Mm-hmm. Jon G. Sanchez: ⁓ Nvidia was the absolute worst performer down about eight dollars and sixty-one cents. You had Honeywell, which had a phenomenal quarter down five dollars and seventy-four cents. Goldman, which had a phenomenal quarter, gave up almost 12 bucks. So you get my point. So all today was. There was nothing fundamentally different, nothing fundamentally changed in the markets, the economies, etc. It's just the end of the quarter, end of the month portfolio rebalancing. ⁓ how long can this last? I keep getting that question a lot. Typically, it can be as short as one day, like today. Or it can drag on for maybe two days. It just depends upon how how rapid the selling goes. But generally, it is not a long-term trend by any means. Now, I'm gonna put a little asterisk with that comment though. Tomorrow night gonna be a very important night. ⁓ technology, which has really led these memory names during the quarter, they report after the close. Now, ⁓ stock has just been on an absolute terror so far this year. Today gave back, don't fall off your chair, $159.61, about a 13.1% loss. But know, this is a company again that it it can rise a hundred, two hundred dollars in a day. It just it's a big, big mover both on the upside and on the downside. give you an example, I'm going back to my notes from yesterday. I think I jotted down yeah, I did. Yeah. it gained seventy seven dollars and thirty-nine cents and it's just kind of been doing that. So, but it's gonna report the gonna report after the close tomorrow. If the numbers are good, ⁓ yeah, here we go off the races again. Everyone's looking at this stock is like a Barometer of the of the memory area semiconductor space, et cetera. ⁓ that's all really that was involved in today. When we come back, we'll talk about what happened on the oil side, ⁓ bond side, and of course most importantly, the mortgage side with Aaron and Dwight. Sanchez show on Instac780KOH Dwight Millard of OnQ Home Loans and Mr. Aaron Clark of Edge Reality. All right, here's how we finished up before we get to our topic. How much house can you really afford? All right. For the day, how we finished up. ⁓ again, didn't turn out all that bad on the Dow side. Lost his 46 fraction of a percent. Our close was 51,666. NASDAQ, though, 580 point decline down 2.22%. The SP lower by 107 points, 1.44%. right. And on the commodity side, gave up $1.91 on oil. Can you believe this guy's $73.28 a barrel? we were what? $112.113 when this whole thing was just unleashing on us. Keep going down, baby. Amen to that. You got that right. $50, yep, $53.70 loss on gold. Finished at $4,148.90 an ounce. Mr. Millard, you are quiet today in the bond market two basis point decline on the 10-year $4.49. How did we do on the 30-year mortgage nationwide? Aaron Clark, Edge Realty: Keep going down, baby. Keep going down. Dwight Millard: Yep, keep going down. Well, John, we're in this yawn period, right? According to mortgage news daily, 30 year fixed rate down one basis points to 6.65. So, you know, even your FHAs and VAs that we bragged about being in the fives, there are 623 and 625. So, I mean, we just aren't getting any traction at all. mean, there's just, I don't know if there's light at the end of the tunnel. I'm not even sure where the tunnel is anymore, but. Jon G. Sanchez: Yeah. No. Dwight Millard: It just feels like this is just going to be the norm for at least the foreseeable future, I'm afraid. Jon G. Sanchez: It's the norm. Yeah. Yeah, it's the norm. you know, there there's some yeah, there's some predictions now after, you know, Worcester's comments last week at the ⁓ Federal Reserve interest rate decision. There's a Wall Street firms now saying, you know, look for a quarter. And I even saw a prediction Thursday or Friday last week, I think it was. ⁓ they're saying some are saying a half to a three quarter of a percent interest rate increase at the next Fed meeting. So well not the next, excuse me, either October or again the end of the year. So ⁓ No talk right now on Wall Street as far as the interest rate cut. It's either hold steady or increases. So yeah, a it's a tough predicament that we're in right now, Brian. ⁓ Dwight Millard: So why, you know, this has no desire then to move, right? This has no desire to trade. mean, you're just, I see us, John, I guess the sweet spot is six and a half to 6.7, right? Just that pendulum right there. I don't even see us getting inside of six and a half much. Yeah. Jon G. Sanchez: Right. Right. Yeah, I think you're right. Yep. Yep. Yep. Aaron, that steak and lobster dinner that Dwight promised us after five interest rate cuts this year, it's just gonna be so good. good. I think we go to the Atlantis. No, no. Yeah. What do you say? Atlanta Steakhouse like the old days, Dwight. Yep. Atlanta Steakhouse and Steak and Lobster. Caesar salad. There you go. All right. ⁓ But still early in the year. ⁓ Dwight Millard: Hire for longer. Aaron Clark, Edge Realty: I'm salivating. I can't ⁓ didn't even like lose by a little bit. He's getting destroyed. Like Dwight Millard: Yep. Yep, I know. Lost by a lot. Yeah, yeah, yeah. Yeah, exactly. Yeah, yeah. Looking forward to it. I'm not sure how I'm going to pay for these high rates, but looking forward to it. Aaron Clark, Edge Realty: ⁓ huh. Jon G. Sanchez: Exactly. Exactly. take us to dinner, but we got to pay for it. I understand. All fellas, let's get down to our topic today. It's gonna be a great one. How much house can we really, can you really afford? Once again, I know so many Americans, of course, buy a home, largest financial decision they ever make. Yet so many people go, Hey, you know what? How I'm gonna buy whatever Dwight qualifies me for. Well, not quite the case. And that's what we want to kind of break this misnomer about. Because the lender approves you for a certain amount does not mean, does not mean. Dwight Millard: Yeah. Jon G. Sanchez: That that is the amount of money that you need to go spend. But as Dwight said, what'd you say, Dwight? But eighty five to ninety percent of what you approve them for is about what they spend? Is that kind of a good, good rule of thumb? Dwight Millard: Yeah, I'm holding off the 100%, but yeah, it's a lot. And you know what's interesting is somebody will put in and they'll say, I wanna qualify, I'm looking for, let's just say 500. it's, mean, John, it's 48 hours before, how much can I actually buy? So I get them qualified for that. Once you get them qualified for that, then it's like, well, how much can I actually go? So it's very common. Jon G. Sanchez: Yeah. ⁓ interesting. Yeah, that's the true number. that leads us into our our first topic on this, Dwight, which is what's the difference between can and should, in your opinion? Dwight Millard: Yeah, yeah, yeah. can and should. What can afford is what I feel comfortable. You know, should is more a dream. The problem you have is John, when you look at most of these clients, they don't even demonstrate a history of being able to save, you know? And so, you know, it's an unfortunate tight spot we had this during the 08, 09, know, run up I wasn't doing, I didn't do subprime loans, you know, and people just, when I didn't approve them, they went down the street. So, you know, I you know, it's just have to be a hard conversation with yourself is what you feel like. Cause I don't factor groceries. I don't factor in insurance. don't, there's a lot of things I don't factor in to qualifying you. So, I mean, I just, ⁓ I think most yeah, and it's, Jon G. Sanchez: Yep. And we're gonna get to that. What what it what is it? And I think I think I I I think I'm sorry, I think that's exactly what Dwight Millard: That's gonna say it's generational too, John, some of these people, yeah. Jon G. Sanchez: Yeah. I think I think that's really the biggest issue we want to get across today is know what what you are pre-approved for versus what you do, how do you know what that number is, right? Because you have emphasized, and I know you're gonna go through it today over and over again, there's a lot of things, right? You're gonna get into DTI debt to income ratios and things like that, ⁓ but doesn't include, as you just briefly touched on, a lot of things that really take money out of our pocket each and every month and our monthly budgets and our monthly expenses. And I think especially for those that are first-time buyers, they've never been down this path. That's something that they want to do. Aaron, how much you know, as a realtor, how much do you feel responsible for talking them down a little bit? Or do you? Is that your responsibility? So if Dwight says, hey, you're approved for $800,000, do you ever and they Hey, Aaron, I want you to find an $800,000 house. Do you try to talk them down a little bit and say, you know what, guys, maybe you know, $700 or $650 is a better, better range for you, or do you not get involved in as a realtor? Aaron Clark, Edge Realty: Yeah, I mean we're we're ten percent realtor and ninety percent marriage counselor, financial advisor, ⁓ mean we're all of it. So ⁓ yeah, I mean a a lot of it is because Dwight doesn't factor that stuff in, right? And they're not telling their financial planner that, you know, things are rough at home. Jon G. Sanchez: Yeah, that's true. No, no, never, never, never. Aaron Clark, Edge Realty: Right. And so there's emotional aspect that but I'm seeing it all because I'm looking at houses and I'm seeing like the kids and I'm seeing the family and the dog and everything, you know, so a lot of that kind of like helps put everything into perspective where you can find out where a person's fear is, what where they're stretched too much, what kind of behavior they have, you know, if it if they're talking about how poor they are but they're rolling up in a brand new, you know, a hundred and fifty thousand dollar diesel lifted truck. Jon G. Sanchez: Yep, yep. Aaron Clark, Edge Realty: And they're like, we don't know where we're gonna get our down payment. It's like, well, you should probably sell that thing, you know what I mean? And I've had those conversations, you know. So yeah. I mean, I I yeah, I I want to see people succeed. Like I I get more joy out of that than the dollars that come along with doing a good job. I want to see people succeed and I want them to parlay that into more success. And in order to do that, it's you gotta have some tough conversations on the front end. And ⁓ fortunately the ones that listen, they're doing well. Jon G. Sanchez: Yeah. Have you? Yeah. Yeah. You're you're you're a pretty frank guy, so I can see you doing that. Yeah. Yep. Yeah. Yeah. Yeah. Welcome back to the John Sanchez show on News Talk 780KO with Dwight Millard of On Q Home Loans and Aaron Clark of Edrility. Once again for the market. Quiet day for the SP and on the NASDAQ or on the ⁓ Dow side, but ⁓ boy, the NASDAQ was a tough one. 46 point loss on the Dow was all NASDAQ down 580 points, 2.22% loss, SP down 107, 1.44%. All right, we're just getting warmed up on our topic. How much house can you really afford? So, Aaron, we're gonna move you on over to the next segment here, which is the true. cost of homeownership. Now, those of us that have owned homes for a million years, yeah, we know this is so true. But for those that are new or have been out of it for a while, we need to bring this to their attention. Let's go down your list of the true cost of homeownership. Aaron Clark, Edge Realty: Yeah, I would say the number one most important thing on the true cost ⁓ we talk about on the investment side a lot is we'll talk about like repair costs, you know, allocating a certain percentage of rent. And homeowners just don't think about it. They get into a house, everything's fine, and they start living life and then bad happens. You know, a water heater goes out, a furnace goes out, fence blows down, tree falls and hits your house, whatever it is. So the Biggest hidden cost is just having the normal expenses of repairs and things like that. So I always tell people, as soon as you buy that house, whatever you think may or may not happen, it doesn't matter, open a separate account, aside separate from everything, and take a ten percent of your mortgage for the first couple months or years or whatever, and just start stacking cash in there so that when it does happen, you have the funds to do it. You're not borrowing because A lot of these, a little bunny trail here, but a lot of these contractors that are predatory will come out and you're in an emergency situation, your furnace goes out in the middle of August and you're dying, the number is so outrageous, you don't have time to shop for it, and they throw a number at you that you can't afford and they'll go, Don't worry, we got financing. So then you get into that trap. Yeah. So you have to be careful, and that's how you avoid that. So that's like the Jon G. Sanchez: Yeah, yeah. I I've heard that from two clients in the last month. Two clients in the last month, yeah. Aaron Clark, Edge Realty: most important thing. But as far as fix with the house, of course you're gonna have your property taxes, which Dwight will include those, but keep in mind those adjust. As your har home is appreciating in value, you're gonna get a little postcard from the assessor every year that says, Congratulations, your home value has increased and we're now gonna charge you more in taxes. So you're gonna have that. The big one right now that's just people out ⁓ ⁓ I mean ⁓ You've got a lot of the issues that you're hearing in California here, no different. you're having a lot of issues where insurance companies are coming out and they're flat out just doing non renewals. So then you're scrambling and then you might pay you might pay an extra hundred dollars a month than what you were paying, which was already high. ⁓ Yeah, that it I mean, on average, that's what it could be. And and then if you have any claims, whatever, so you have to be careful of that. And then the other one I'm seeing a lot of right now is HOA fees. So Jon G. Sanchez: ⁓ I I yeah, that's I think that's being conservative from what I've seen. Yeah. Yes. Glad you brought that up. Aaron Clark, Edge Realty: People go, ⁓ yeah, my HOE fees are 200 bucks a month, they never change, whatever. you would be shocked at this different things that are happening. I have a client right now selling a condo, and a new assessment just started because one of the condo buildings is sinking. And so because it's sinking, they're gonna pass that cost on to fix that building to every homeowner in the complex. And so everyone's gonna be paying for that. And that's an extra two hundred dollars a month for how many years? Jon G. Sanchez: ⁓ How do you f how do you find a buyer when I I know that has to be disclosed, but real quick a little tangent here. How do you find a buyer when there's something looming like that for your seller? Aaron Clark, Edge Realty: I mean it's what you're selling is is prevalent, it's common, it's an area that's known at people that want it want it, ⁓ it becomes a negotiable item. So it's like, Hey, we'll split the cost with you or Mr. Seller, we want you to give us a ten thousand dollar credit because we have this or whatever. It it's gonna depend on supply and demand and popularity, but yeah, that's how it comes out. So Jon G. Sanchez: Okay, no matter what. ⁓ does it? Okay. Okay. Okay. All right. Very good. So yeah, main ones, property taxes, HOA fees, homeowners insurance, those are your big ones. Then ⁓ like said, the miscellaneous home repairs, et cetera, which can add up significantly. ⁓ So the line for those of you that are new, pardon me, for those of that are new to homeownership, just have that. Dwight, what what's a good or one of you, what's a good budget figure? Aaron, I'll start with you. should you just go ⁓ Aaron Clark, Edge Realty: Significant. Jon G. Sanchez: Like for example, like with with with boat ownership, the rule of thumb is you set aside ten percent of the value of the boat for repairs, right? Do you like to to advise on a percentage, Aaron? I'll start with you. Aaron Clark, Edge Realty: I mean, I I always tell everybody from the perspective of the mortgage, whatever your mortgage is, plan on ten percent of that, just putting it aside. But remember, you you can get a home warranty too, which will help offset any surprises, and that's what you want to start with. No, but it will help with maintenance, which those are the huge costs that hit you hard. Jon G. Sanchez: Okay, there you go. All right. Do I you agree with that? Good point. But not property taxes, homeowner insurance or HOAs. Yeah. Yeah. Dwight, how about you? What kind of ratio do you like to recommend? Dwight Millard: You know, John, I'd like to s I I personally would like to see the people have at least a couple, if not three months of money they can actually set aside that they can have as you know, a little comfort zone if if something should happen. Jon G. Sanchez: Yeah. Yeah. Okay. Very good. Dwight, now it's time to pull back the curtain. The big question everyone wants to know, which is what do lenders look for when you are pre qualifying people? Let's start with your debt to income or DTI. Dwight Millard: Yes, so the debt so that yeah, so the debt to income ratio is probably the most important along with the credit scores. But the debt to income ratio, remember, we are qualifying you off gross income. Believe it or not. You don't go to, you know, not net income, what you take home. We're qualifying you off gross. That gives you a little benefit right there. Still kind of silly. I'm not gonna argue with it. We're gonna wipe a lot of people out if we change it. But so we we price off the gross income. But John, what we don't put in there at like Aaron talked in the first Jon G. Sanchez: Still doesn't make sense. Still doesn't make sense. Aaron Clark, Edge Realty: No, it doesn't. Jon G. Sanchez: Yeah. Dwight Millard: Part of this is we ⁓ we count property taxes, homeowners insurance, HOA, anything that ties to the property. We don't count, you know, your private If you have some insurance over here, if have storage, you know, medical expenses, dental bills. I mean, I don't see any of that unless it comes on a credit report. So I mean, life, forty percent of your life happens outside of what I can probably see in a, you know, either on a credit report or what you list. So the debt to income ratio based off your gross is very, very generous in my opinion. I know you echo the same thing, but w I you know, again, we don't want to change that or we're gonna not be able to qualify a lot of people. Jon G. Sanchez: Mm-hmm. And and d real quickly, real quickly give the audience the the the calculation of debt to income and then ⁓ ratio you like to see. Dwight Millard: Mm-hmm. Yeah, so typically, you know, John, we've pushed these up quite a bit, but typically you can see about a 35, 37 top ratio, which is just your house payment divided by your your gross income. Then we'd we like to see somewhere between a forty-five and a forty-nine percent of your gross income going to your total house payment plus your fixed debt that I know about. On government, you can push that. Especially if you put a another one and a half percent down, you can push that all the way to about a fifty seven percent, John. So fifty seven percent of your gross income going ⁓ income is to your house payment plus your fixed debt on on government loans too sometimes. Yeah. Jon G. Sanchez: Amazing. And are you seeing people push that? Dwight Millard: Does doesn't yeah. ⁓ all the time. All the time. ⁓ it doesn't leave much room for error. Doesn't leave any room for error actually. Jon G. Sanchez: Yeah. then of course the other things besides the debt to income that you're looking for, you're looking obviously credit scores. Like he keeps saying you love low sevens. That really opens up the door, low seven hundred on the FICO. That opens up the doors to a lot of different lending of programs. But ⁓ again, we did a show a few weeks ago, pick up the podcast on it or YouTube. you know, for the lower credit scores, there's still lots of programs, FHA and many other programs. So that's where you're gonna work with Dwight and and again, really there's a program out there for you, no matter what your credit score is, from the most part. Employment history, down payment requirements, the reserves, so on so forth. Dwight Millard: Yeah, it it it just quickly, John, I mean, the the the employment history's gotten a little flexible. We just want to see a two year earning history unless you've had some education to tack into that. So, that that that one's kinda gone away. I remember you used to have to document every job you had and all that, but it's just looking at an ⁓ that you've had the ability to earn, that you just didn't take time off and you're now getting employed to just qualify for the house. Even though I could probably still get that one approved too. Jon G. Sanchez: Okay. And and to wrap up on this yep, and to wrap up on this, what you call your budget killers, those are things like you said that you can't see on the credit report. Some of these you can, but ⁓ car payments show up, credit card debt shows up, but lifestyle inflation, that's nothing you see on a credit report. Sometimes you see student loans, sometimes you don't. ⁓ care expenses, right, Aaron? I mean th that's ⁓ you know, I've got two young grandchildren and thank God my daughter in law is able to stay home. But yeah, she was telling me the other day, I I don't even remember the quote. I think it was Dwight Millard: Mm-hmm. Aaron Clark, Edge Realty: And they are expensive. Jon G. Sanchez: 500 bucks a week or something for because my grandchildren are 19 months and and about five months. And and she said, Yeah, if I had to go to work, I'd be looking at, I bet she said like twenty-three, twenty four hundred dollars a month for two kids. I'm like, My God, know, I just I've been out of it for a while. So yeah. ⁓ but Dwight, you don't see that, right? And and then of course vacation spending, etc. So yeah, that's where your own responsibility comes in, having the budget and really, you know, working with your lender and say, ⁓ Dwight Millard: Mm-hmm. We don't see that. Jon G. Sanchez: you know what? ⁓ you approve me for this, but according to my budget, I can only afford this. So, you know, let's let's be realistic on it. 'Cause I think again, such such wise advice to White. Great job. All right. come back, we'll wrap up our topic once again. How much house can you really afford? Dwight Millard: Mm-hmm. Jon G. Sanchez: Welcome back to the John Sanchez show on Newstock seven eighty KH. Mr. Millard, can we get your phone number, sir? Dwight Millard: Yes, sir. Two four zero two zero two two. Jon G. Sanchez: Thank you, Mr. Edge of Realty. Clark. your name on the video and I'm like, Edge Realty. Aaron Clark. ⁓ wait a minute. The brain didn't Edge Realty. Let's start it with. ⁓ Yes, I do. Yes, I do. All right. Once again, we've been talking how much house can you really The bottom line is we can sit here and tell you all day, all night, what you should, what you shouldn't do. The bottom line is this this is why you need a team of of Aaron and and Aaron Clark, Edge Realty: Mr. Clark. Dwight Millard: Ha ha ha. Aaron Clark, Edge Realty: It's okay. seven three sixty seven hundred. Everybody knows it. There we go. Jon G. Sanchez: Corey and Dwight and so and so forth to really work with them. They're not gonna steer you down the path, as Aaron said at the beginning of the show. He is not gonna max you out. Maybe even though Dwight may have approved you for, you know, whatever, $700,000, $800,000. not where Aaron's gonna let you go. And Dwight's not gonna, ⁓ gonna counsel you, even though the system may come back and say, Yeah, you're approved for that, you know, seven or eight hundred. Dwight's gonna go, look it. Let's reality here. Now, let jump in real quick. What about financial and how it meets home ownership? So I want to just cover this very quickly. ⁓ So this is the challenge, especially for those that are new to homeownership, right? You have to balance your housing and your retirement savings. Don't make the mistake, and we've all seen this, we've all done it. I know I did it early in my life, which is your goal is to get into that house at whatever expense it can be. And you end up going years without funding your 401k, your IRA, or putting money away for your kids' college education or something. I get it. Year or two, if you're young, no big deal. Not going to make a huge significant difference. But just remember, you know, your goal is to get into that house. Get the best rate you can, be happy where you are, but at some point get back on the bandwagon, start saving for the retirement sooner rather than later. Make sure you got a good amount of emergency reserves, as both of the boys had talked about. What is that amount? Well, like I said, your your professionals can help you with that side of it, but you heard Dwight's recommendation, two to three months of of the mortgage payment. And Aaron said, you know, it depends upon if it's an investment property or not, what that amount is, but just be careful on that. investing versus paying down the debt. Dwight, you've done a great job over the years talking about look at I don't want that extra $10,000 down payment. It may sound good that you're putting 20% down, but if you don't have to, it really does not make that big a difference when it comes to the payment is. So again, that's where Dwight can work with you. Obviously, I'm near and dear and passionate about the estate planning considerations. If at all possible, get a hold of me. Take a look at our website, specializedrust.com. Get the living trust done before you purchase the home. ⁓ this is something Dwight is He and I have been talking a lot about just right, Dwight, you've been emphasizing the importance of how much easier it is to get it done. We all know that before escrow closes. Dwight Millard: Mm-hmm. Yeah. Yeah, absolutely, John. And it and it just it's something everybody doesn't think about. And then, you know, when they do think about it, maybe it's too late. So it's just keep it at top of mind. Jon G. Sanchez: Yes. Yep, exactly. And as Aaron has always said, and we all three of us know this, and many of you know this, real estate's a great long term wealth building ⁓ strategy. It really is. So yeah, do it, but just don't sacrifice and don't, you know, be house rich and cash poor, right? Aaron, we we've all seen it. And again, I remember doing it earlier in my life where you you you get in by the skin of your chinny chin chin, you've put every penny you can into it, ⁓ you've from four ⁓ one Ks, you've sold things, you've done whatever you can. Hey, you know what? That's a sacrifice you need to make. ⁓ But let me tell you, it's no fun, especially if it lasts for two or three years. We think, Hey, you know what's gonna be tight the first year, we can do that. But then whatever, you lose a job or get your hours cut and this it remains that way. That's that's no fun. It's no no house is worth that. No house is worth that. Right, Dwight? Yep, Aaron? Aaron Clark, Edge Realty: No. Dwight Millard: No, absolutely not. Absolutely not. Jon G. Sanchez: So to kind of give you some closing thoughts, a lender's approval tells you what you can borrow, not what you should borrow. Yeah, that's a your financial plan really tells you what you should borrow. If you don't have a financial plan, reach out to us. We can get that done for you. the goal is not to buy the biggest house possible. The goal is to build a life that you can comfortably afford while you are still preparing for your future. Dwight, us up on your final thoughts and advice. Dwight Millard: Mm-hmm. Yeah, John, I think it's these are all good points. They're all good points to consider. You wanna establish a lifestyle that allows you the freedom and flexibility to do some things. While your friends are out camping and things and you can't because you just can't afford it, it's not the way to go. I mean, you know, it's a as Aaron and I have talked over the years, mean, there are times w maybe it's not the perfect time, maybe it's to buy, maybe it's not this house, but you know, just be mindful of that. It'll be an easier road for you. You know, if you're at home cooped up and frustrated all the time 'cause you can't afford anything. Jon G. Sanchez: Yeah. Yeah. Absolutely. Great job, boys. I do appreciate you as always. We will do it again tomorrow on the John Sanchez show, Mr. Clark. Great job. See you guys. Dwight Millard: It's not a fun route.