 Thanks for joining us on the life of the land is in its real estate. I am Keena Nicely and I am a real estate agent at Keller Williams Honolulu. Today's guest is Josie Hines with 101 Financial and Aloha Lending Services. Hi Josie, thanks for joining us today. Hi Keena, thanks so much for having me. Go ahead and can you tell us a little bit about yourself? Okay, that's a super loaded question. Born and raised in Hawaii, I am first generation here. One of six girls and military family, so of the six of us, four of us joined the military. I'm in the Coast Guard Reserves. I've been in the Coast Guard since 2005 and so on top of that, you know, a lot of things, but most recently I guess back to stay at home mommy again with three Kiki and then over the last five years I was a or I still am a 101 financial instructor and last year I decided to dawn on a different hat. I became a mortgage and loan officer and hence why we're here today. Yes. Alright, so let's talk about why we are here today. So with COVID-19 and everything that's been going on, can people still buy a house? Can people still afford to buy a home in Onohahu during this pandemic? So yes, absolutely. People can definitely buy and I think one good thing to note though is there's a difference between qualifying and affording. Those are two totally different beasts if you will. You know, on the one side a lot of people are really focused on what they can qualify for and but at the same time it's always good to kind of have a guideline on how to figure out what you can afford because there is a gap. For example, when somebody comes to me wanting to purchase, I don't just look at their numbers. I also want to take a look at what they want to do after they buy this house. You know, if they're buying this house as an initial starter and then plan on upgrading later and whatnot, those are all or if they want to have multiple properties, those are all kind of good things to know when we're going through the pre- qualification process and of course it's good to know their income and their debt to income ratio. So when they qualify you though, the biggest difference from being able to know what you can afford is that they qualify you on 100% of your gross income versus your net and our net is what we actually take home. And so if you think about your gross income and you actually take out the taxes, then it really kind of limits how much you actually have after you take into account how much of their income is going to go to now this new home that they want to purchase versus how much they have to live on. That kind of answers the question. Yeah. So what are some ways that people can prepare to so they can afford to buy the house they qualify for? Right. So that is a great question. So in terms of qualifying, there's so many different types of loans available for first time home buyers and like USDA loans, FHA loans are great when you don't have a down payment and a lot of times they go around the lower 600s and able to qualify. The number they look at for qualifying to is your, they call it DTI. So DTI is your debt to income ratio. So it's how much debt you have, how much your monthly debt payment is divided by your gross monthly income and a lot of times they want you to be at most 50% or less. If you're doing a FHA or first time home buyer, first time home buyer, oh sorry, FHA or USDA loan, they actually want it to be even lower like 40, about 40%. So that means that 40% of your gross income can go to debt in order to qualify. So for example, say they made $10,000 a month and I'm just using that because it's a nice round number, $4,000 of their, they cannot be paying more than $4,000 in debt in order to be at 40% debt to income ratio. And that's based on their gross income. But a lot of times what I find is, so if this is your money pie, right, and it's on 100% gross of your income, 50% or less can go to your debt. And so for me, before becoming more financially savvy, I would think that would lead me to think, okay, so that means I got 50% of my income to live on, right? Right, if you're doing 100% gross, 50% goes to, you know, your debt, and I can qualify for a house that should leave me 50% half of my pie to live on, right? But if you take out your taxes, and the average Americans in the 15% tax bracket, then 50% minus 15, 50% minus 15, that's like 35% of your income to actually live on, you know, and that's where understanding what you can afford becomes really important when you're buying. All right, so let's back up a little bit. Let's talk more about the USDA and the FHA options, just so our viewers can kind of understand those more. So let's talk about USDA. So are there any limits on that or different parameters in order to do a USDA loan? Yes, so there is an income cap per the number of members in the household. So not necessarily how many people are going to be on the loan. So say you have three individuals in the house, right? But only two of them are going to be on the loan, they're actually going to take into account that third person's income in order to see if you are below the income cap. And so that's one of the things that that's good to be familiar with on whether or not you can do a USDA loan. And those, those come with, you could do it with 0% down. So those are great options. And then the FHA loan is somewhat similar. There is an income cap and also dependent on the number of people in the household. And FHA loan requires a 3.75% down. Yeah, but both of them also have upfront private mortgage insurance. And so that is, that's basically to try to think of a nice way to describe a PMI. But it's basically ensuring that if the borrower was to default on the loan, that the bank would basically be paid for, you know, it would it insures the bank, not the borrower. Basically, yeah. Okay. And so what kind of rates are they looking at with private mortgage insurance? What does that do to their payment, say on a $700,000 home? Oh, gosh, I feel like I should have my encompassment. So those um, it's a 1% upfront mortgage insurance. So that's part of your closing costs. And then I believe it's and oh gosh, I don't actually do too much FHA and USDA loans, I actually like a little bit more creative types of loans to avoid having a PMI. But I believe it's like 0.75% of the loan amount divided by 12. It's something like it's something like 0.75 or 0.85%. So if you're buying and I'm, you know, if you're, yeah, if it's a whatever, if it's a $500,000 house, you times that by 0.75 and then divide it by 12. And then that's what you pay additional to your mortgage payment monthly. And you can also, you know, get rid of the PMI. You can refinance it at a later time. But you need to be at 78% for FHA loan. So 78% loan to value ratio. So if you bought a house that was 100,000, let's just say, and you put 3.5% down, that would put you at 96.96.7% of the loan amount remaining, you would need to pay it down to 78% in order to get rid of the PMI. So are there strategies that you can give people that they can pay that down faster? So yes, actually. So before becoming a mortgage loan officer, like I said, I'm a 101 financial instructor as well. And I love 101 financial. What we do, it's financial education. And we teach you how to be more Akamai about money, how the banking institutions work, you know, we teach you about interest and of course budgeting and how to get organized with your finances so that you can pay down your debt quicker. So perfect example would be my own. Let's see, in 2015, we had a flood and then a broken tub. And we just had baby number three. I was a stay at home mom and my husband worked for Spectrum and we're kind of like, okay, what are we going to do? Because our really good situation where I can stay home and, you know, we were able to afford it went really bad really quick. And so we heard about 101 financial and we're like, okay, how are our friends paying off cars, buying houses after going on bankruptcy like two years prior, like how are they doing this? So we got a 101 financial and the education that we teach is actually really simple. We just teach you how you can turn your normal money that would normally be going to interest now to the principal to help you pay it off faster. So it's interest savings to now go towards your principal to help you pay things off a lot faster. And so in our first six months, we were able to pay off our $26,000 car loan. So we started September of September of 20, 20 15, March 2019, we paid off our car. And then April, we went to Florida for my sister's wedding, and then had my daughter's first birthday party the month after. So like my first year, it was about 45,000 in debt and expenses that we were able to take care of in our first year. And then we moved forward to buying a second property after we were on the program for a year and a half. So that's another thing I love about 101. We basically breed home homeowners. Because we can help you pay down your debt really quickly, as well as increase your credit score, decrease your DTI, all of the factors that come into play with wanting to qualify to purchase a house. And then on top of that, we also, you when you run your system, you'll know what you can afford, because we help you create this 90 day roadmap that essentially details all the ends, all the outs, and how much money you should basically have, how much you can put into savings. So you could just plug in, okay, I want to, I want to adjust my Brent, which is 1500 to a mortgage at now 2000. And when you put that into your roadmap, you'll be able to see if your numbers are positive or negative or zero, and then be proactive to make changes to it, you know, to create the end result that you want that fits within your, your finances. So I don't want you to give away, you know, the secrets that coming into the program for, but, but is it a matter of like, you know, go out to E, or you know, how, how are people saving the money to be able to do this? How did, what did you cut back on? Did you have a lot? Actually, in the beginning, when we first did the program, we, we just had to know where everything was going, right? Because if you don't tell your money where to go, you're going to be left wondering where the hell it went. You know, it's like, so right, if you don't have a plan for it, it's just going to go all over the place. We're not going to know where, where it is, basically. And so, so when we first started our program, and we were able to pay off that 26,000 on our car loan, we, we actually just had to know what was coming in, what was going out. And then when we saw that it was going fast, like how quickly we were able to pay it off, then that was where we were like, okay, where can we trim the fat, right? That's when we really looked at our budget, because we wanted to do it faster. You know, we were already able to do it fast enough. I mean, for us, 26,000 in six months is pretty fast. So we wanted to do it faster. So that's where we really got into the details of our finances, like, how much are we spending on groceries a week? How much on gas? How much on entertainment? How much on eating out? And when you look at it, when you break it down into those little buckets, then that's where you can kind of trim it down. And reverse engineer it basically, to see where maybe you can trim it down. So then now your system will run faster, because it's all about your cash flow. Oh my gosh, I'm so sorry, my computer is making noises. But it's all about your cash flow. And cash flow is, you know, after what comes in, all our bills that are paid, and our living expenses, what do we have left? So that's your cash flow. And once you get a handle on that, that's what's going to really enable you to know what you can and can't do. And it's also the driver of the one to one program, gonna help you be able to pay it down faster, pay your debt down faster. Okay, so they've gone through that. And now they're ready to buy. So let's go back over to your other hat. Officer, you mentioned some, you know, USDA, yes, there, I do need to mention there are only certain parts of the island that you can use a USDA loan. And, and we can help you with that, if that's something you're interested in. And we talked about FHA, but you mentioned some other creative ways to buy a home, other mortgage, other creative mortgage ways. So if you could share some of those, I'm sure we have a lot of people that'd be interested. Right? Yeah. So, so ideally, traditionally, right, when you're buying a home, they always say if you can come up with 20% down, then that would be the best option, because now you don't have that private mortgage insurance that you'd have to pay monthly. But, you know, 20% down on the single. What is the, what is the median house? Look for this month, it was 860, then 790, you're looking at, yeah, you're looking around 800,000 for your, your average single family home on Oahu right now. Right, exactly. And so, you know, if the, if the homes are going at 800, 20%, you know, that's $160,000. Not to mention you still have closing costs on top of that. That's just your down payment. So you probably need more like 170 if you're buying at $800,000 house. So that's why FHA loans, USDA loans are a bit more appealing, right, even though you have the private mortgage insurance. Another option where you have a little bit more flexibility on the mortgage insurance is a 95% conventional loan. So that means a 5% down and then 95% conventional. So it comes with private mortgage insurance, but the private mortgage insurance is based on your, your credit score. So instead of just the flat 0.7 or 0.8% for the FHA and USDA loans, it's very, it's variable, depending on your credit. So if you have, if you have a higher credit score, you would have a lower private mortgage insurance. So that's one other option that I like to look at. And then another option that I like to look at is a, is a 80, 15, 5. So 85, oh, excuse me, 80% conventional loan, a second, sorry, 80, 80% conventional, 15% piggyback, HELOC, and then a 5% down. So how does that work? So you're a, so, so you would be closing up basically on two mortgages simultaneously. So the first one would be the 80% conventional loan, and then the 15% HELOC, you would close them simultaneously. And then your 5% down, the 5% down plus the 15% HELOC, that would be your 20% down so you could avoid mortgage insurance. So now, can you explain to everyone where you're getting the 15% HELOC, just in case some people don't know what a HELOC is? Okay, gotcha. So HELOC is a home equity line of credit. So how I have a couple going through right now. There's a, so I usually try to find the lender that has the best rates, right, for the 80% loan to value based on their credit and all that. And then the, the probably right now, I hope I don't get into any trouble, but the bank that I'm using right now for the 15% HELOC, I'm not gonna get into trouble, is HSFCU, Hawaii State Federal Credit Union. Yeah, because they will go up to 95% combined loan to value. Combined meaning your first and your second combined is not more than 95% of the value. So they're basically pulling out equity of the home that they're they're buying. Basically, yeah, yeah. On the home yet, but they can still go in and pull the equity out to help as the down payment to avoid the online. So that yeah, that is a great strategy. So people can afford to buy a home that and so now let's talk a few minutes left. What if people do want to refinance out of a loan? How is that working? Can can they refinance? We touched on it a little bit. Can you refinance out of a loan that you are playing, you know, a high PMI on? Right, or even a high interest rate. Yes, you definitely can. And with refinances, usually the at least the closing cost is rolled into the loan. So you don't have to worry about having, you know, closing costs. And I think the biggest thing right now with COVID is that they are requiring they are requiring additional documentation just to show that your income has not been affected by COVID. So they will ask for income verification in the beginning, as well as right before closing, like two days before closing, they're going to go and get a income verification to make sure that the income hasn't changed as a result of COVID. So we're having them where they're calling employers, and someone better pick up the phone, because if they don't, they're not business anymore. So with the refinance, is there a PMI? If you're refinancing something, or can you can you totally get rid of the PMI? That's a great question. It really depends on your loan to value ratio. So I want to just explain loan to value ratio. So when the house gets appraised, it gets a value, right? And so the loan to value is just how much of the loan is outstanding in regards to what the value is. So you just divide those two numbers up. And that's where you get the percentage of the loan to value ratio. And if you do have a PMI and you want to get rid of it, you need to be at 80% or less loan to value ratio to refinance it without it. All right, so you can still refinance like FHA loan or USDA loan to get a lower interest rate. But if you're still above the 78%, 80% loan to value ratio, 78% for FHA, 80% for USDA. If you're still above it, then you'll refinance it with the PMI still attached. All right. So are there any other tips and tricks that you can share with our viewers if they need to buy a home? Well, actually, it was actually in regards to refinancing because you said tip. So on your closing docs, there is a number called tip. It's your total interest paid. And so if you're looking to refinance, I would highly suggest looking at what your tip is, your total interest paid over the life of the loan. Because even though your APR or your might be like 4% or 3.5%, your tip is upwards of 50, sometimes 60% of the interest you're going to pay over the life of the loan. So whenever I'm looking at refinances, I always try to make sure we're beating the tip and that the refinance makes sense. And then just in regards to purchasing, just really taking a look at your not just your bills, but your living expenses, because your living expenses is going to help you know what you can afford. You know, how much groceries, eating out gas, electricity, all of that, it comes into play to help you understand what you can afford when you're buying a house. So and really quick, what if someone wants to pay out their house sooner than later? Is that possible? You don't want to take 30 years. Yes, absolutely. You know, if you do the bi-weekly payments that can cut off about I think four or five years on your on your mortgage term. With 101 Financial, we utilize different strategies, kind of like chunking or snowballing towards your debt, but very, very strategic so that when you're making these extra principal payments, you every time you do that, you're shaving off interest as well as time. I'll give you a quick example because I know we're getting getting close, but I had a student who she was able to we were able to calculate she could do a 16,000 accelerated payment to her her mortgage by September. And when she does that, she's saving 22 months. So she's shaving off 22 months on her term, her 30 year term. And we added up all the interest she would have paid and it equal to about $50,000. So yes, so if people would like to talk to you about budgeting and then then buying a house, they can reach out to you directly. You guys have me connect you with Josie. I do believe we have our contact information should have been flashed somewhere. If not, you can reach out, you can comment on the video, I can connect you. Thank you so much. It was great information and hopefully, we can help people who didn't realize that they they could afford to buy a home and help them into their home. It is something we both love to do. So thank you so much for joining us on the life of the land is in its real estate. And thank you think Tech Hawaii for having us. I will see you all in two weeks where we will talk about 1031 exchanges. For those people with investment properties that would like to maybe buy up change in do something a little different. I will have Tiffany here and to go over some of the pitfalls of a 1031 exchange and then some of the benefits. So I will see you all in a couple weeks. Thank you so much, Josie. Thank you. Thanks, Tina.