$0 DOWN MORTGAGES ARE BACK (Get Paid To Buy A Home)

what's up you guys it's Graham here and the housing market is about to explode that's right in the middle of record high prices record high mortgage rates and record low inventory a brand new proposal was just announced that would give first-time home buyers and starter home sellers a $10,000 tax credit give developers an incentive to build and renovate more than 2 million homes eliminate some of the red tape that comes along with mortgage costs and push forward initiatives that would help lower the price of rent to be honest this is only the tip of the iceberg in terms of what the White House is planning to offer and even though they say the goal is to help ease the pressure of rising home values critics say that this is only going to make the situation worse and flood the market with more buying pressure than the Market's able to handle that's why we got to discuss exactly what's being proposed how much money you could get as a future home buyer or seller if this is going to add fuel to an already competitive housing market and then what you could practically do with this information to come out ahead because there are some details that everybody needs to be made aware of although before we start as usual if you guys enjoy videos like this where I just cover the facts all I ask for in return is that you hit the like button and subscribe and if you want even more details than I'm able to provide in a YouTube video I have a link to a newsletter Down Below in the description go ahead and sign up for that it's totally free thank you so much and now let's begin all right so in terms of why this is being proposed it all has to do with two words home affordability see a basic way to measure the housing market is to take the average sales price in monthly payment divide that by the area's average income and voila you have a formula to determine how many buyers qualify in a certain Market on a really basic level this gives us a pretty good indication of whether or not the current market is over or undervalued and in terms of what's happening today Nationwide we have the worst affordability since 1984 a CNN reported currently 38.6% of the median household income is required to make the monthly payment on the average home purchase and typically a home is considered affordable if that number is below 30% this unfortunately has resulted in 99% of the United States being unaffordable for the average American making $71,000 a year comparatively this means that depending on where you live you could require an income that's 70% higher than what you needed back in 2020 and if you want to put that into actual numbers buyers in San Diego need to make $273,000 a year to afford the average home Los Angeles needs $279,000 and San Jose requires wait for it $454,000 every single year to be able to afford something like this the reality is affordability has not been this bad since the stagflation era of 1981 so with housing prices quickly pulling out of reach of the typical buyer the White House has stepped in with some proposed changes to make things a lot easier and I got to say some of them are quite nice and others are going to have some long-term consequences the first order being proposed is a mortgage relief credit as reported the White House issued an official statement calling on Congress to provide middleclass first-time home buyers with an annual tax credit of $5,000 a year for 2 years this is the equivalent of reducing the mortgage rate by more than 1 and a half percentage points for 2 years on the median home and will help more than 3.5 million middleclass families purchase their first home over the next 2 years or really in essence think of it this way the $10,000 tax credit is enough to offset the cost of higher interest rates over the next 2 years and then hopefully by then interest rates will be lower than they are today and you'd be able to refinance to save the extra money however what they don't tell you is that this plan falls short in so many ways let me explain first the $10,000 credit is nice if you are going to buy a home anyway regardless of where mortgage rates are but the way I see it this $110,000 should not be the reason that you go and buy a home it should not be the thing that pushes you over the edge if you are on the fence why well as they explained this tax credit is only enough to subsid the cost of higher interest rates for 2 years and then after that point you're stuck paying the full cost of ownership now of course I'm sure some people will say but Grand the Federal Reserve is going to lower interest rates and by the time the two years comes up you could just refinance and save the extra money and sure okay it's likely to be true but number one it's not guaranteed two there's a chance that interest rates in the future could be identical to where they are today and number three is I'm about to show you ref financing could be very very expensive CNN recently did a fantastic breakdown in the average ref financing costs and they found that it ranges between 2 to 6% of the entire loan balance that means with a $200,000 mortgage on a starter home you're looking between $5 to $122,000 out of pocket just to lower your interest rate completely wiping out the tax credit that you received now to me as someone who's worked in real estate full-time for the last 16 years I think this is only going to benefit people who are going to buy a home anyway regardless of market conditions and I don't see this as a way of driving viable demand during a time that we already have record low inventory but we'll continue because this goes on to the next part in order to help bring more inventory under the market since sellers are locked into low interest rate mortgages they also propos to give sellers a one-year tax credit of up to $110,000 to middleclass families who sell their starter home to another owner occupant this means that for 88% of the country homes under 350 ,000 would qualify but again the problem is three-fold one these sellers are going to have to pay a higher mortgage rate when they become buyers on their next home two they're probably going to have a much higher property tax basis because guaranteed they're paying less than what the property is currently worth and three these sellers need to move somewhere so without more available for sale it's likely to be a wash in terms of adding inventory this also might be difficult to stipulate that it's sold to an owner occupant because for many sellers who've been in their properties for decades there's a lot of neglected maintenance and upkeep so unless the future buyer wants to do a substantial amount of work and spend a lot of money it might be sold to an investor which would completely disallow the $10,000 tax credit again to me this seems great for people who are already planning to sell their home to begin with but it's not enough to push a seller over the edge who's not really thinking about selling like 10 grand is not going to be a good enough reason to prompt people to put their homes up on the market and third they're calling for down pay payment assistance as they say the president continues to call on Congress to provide up to $25,000 in down payment assistance to first generation home buyers whose families haven't benefited from the generational wealth building associated with home ownership now before we go into some of the specifics it's important to mention the down payment assistance is really nothing new and there are plenty of programs that already exist you just have to go and find them for example Nevada offers a $25,000 forgivable down payment to eligible homeowners purchasing a primary residence anywhere in rural Nevada this is structured as a second loan with zero interest no payments and it's forgiven in 3 years or on December 31st 2026 this is also the same premise as the down payment towards Equity Act of 2023 which was Joe Biden's revised proposal of 2021 down payment act and as they say to qualify you must be a firsttime home buyer earn a lower moderate income consistent for the area buy a home that'll be used as a primary residence use a government-backed mortgage and be a first generation home buyer Fire have parents or legal Guardians who defaulted on a home loan or lived in foster care during their lifetime and just like today's proposal it'll include a down payment assistance of $25,000 however since 2021 this has been sitting with Congress and not yet passed into a law although like I said down payment assistance already exists on a state level like just look at California's dream for all shared appreciation loan I know what a name right anyway this is a program that was introduced a year ago that would give firsttime home buyers a 20% down payment when they go and purchase a property and after you close the new buyer would eventually pay back the loan when they sold the house plus 20% of profits for example if you go and buy a $500,000 home while borrowing $100,000 from this program if the home is one day sold for $640,000 you pay back the original Loan in addition to 20% of the profits leaving you with whatever is left over well guess what the program was so unbelievably popular that all $300 million was completely gone in 11 days it's gone it's all gone that is an average of $130,000 per person during a time when housing is at its most expensive oh and if you thought the program was over nope it was so popular they brought it back again for 2024 except with a few other qualifications one you must be a first generation home buyer meaning your parents don't already own a home two you must make no more than 120% of the area's median value reduced from 150% a year ago and three you must have a credit score of at least 680 and a debt to income ratio of no more than 45% now in terms of California's down payment programs I can't help but think that it such a very dangerous precedence that if housing values continue going higher down payments are just going to be subsidized by the state even if that entitles them to 20% of profits when this happens all of a sudden the state now has a financial incentive for housing values not to go down especially when they have their money at risk I think the real winners here are existing homeowners because now they have an extra 2,000 buyers in the Market at a time again when there's a low amount of inventory basically this just increases demand without increasing Supply but now that we got the purchasing aspect out of the way let's go and talk about loans the fourth aspect to be changed is refinancing as I mentioned earlier getting a loan or a refinance could be very expensive and this aims to chip away at that in this case they're introducing a pilot program that would W the requirement for Lenders Title Insurance and certain ref finances this would save thousands of homeowners up to $1,500 and the lower upfront fees will unlock substantial savings for homeowners as mortgage rates continue to fall and more homeowners are able to refinance as they explain title insurance companies could be so profitable that they pay out just 3 to 5% of their premiums to Consumers compared to More than 70% in other types of insurance so it's time to have these fees reduced these are also going to extend throughout closing costs which as some someone who's represented more than $130 Million worth of real estate deals as an agent are absolutely absurd in terms of what they charge you buying or selling a home is stacked with fees on top of fees on top of fees for every little thing that you could think of and all of this get add up to sometimes tens of thousands of dollars depending on how expensive the home is although keep in mind at this point it's not exactly clear what they're going to do and how much of an effort they're going to make to lower these costs so it's still to be determined although since demand is only one side of the equation let's talk about adding more Supply like I mentioned earlier housing inventory is still near record low levels and just from what I've seen a lot of people would rather keep their home than risk giving up their mortgage which is understandable but because of that if you're currently a home owner or you're looking to buy a home in the near future learn from my mistake and research putting your home in a trust the fact is property records are public information so if your name is on title anyone could search it up and find its value but a trust on the other hand is the ultimate form of privacy and allows you to keep all of your details confidential and under certain conditions assets held within a trust carry some pretty substantial tax benefits depending on how it's structured again this is something I wish I would have known when I purchased my first property but thankfully setting up a trust and then transferring a home into a trust even after you bought it is a lot easier than it used to be all thank you to our sponsor get Dynasty they have completely expedited the process of setting up a trust in a few spare minutes from your computer or phone and you you could even do it while you're multitasking for less than $100 this is also something that's a lot easier to do now than wait and do it later because the more assets you require the more work it's going to take to retitle everything so if you currently own a home or you're looking to buy a home in the near future and you have a few spare minutes use the link Down Below in the description or go to G dynasty.com gram and use the code Graham for 10% off plus they even allow you to get started for free if you're interested and real talk even if you don't use them just research the benefits of putting a home in a trust I promise it's very intriguing thank you so much for listening and now with that said let's talk about adding more Supply onto the market another major measure of this plan would pass legislation to build and renovate more than 2 million homes which would close the housing Supply Gap and lower housing cost for renters and homeowners essentially this would give tax credits to those who build or renovate lowcost housing since development could be very risky timec consuming expensive and generally only Mak sense for luxury units for instance just consider this if you're a developer you need to invest at least 2 to three years into a project you also need to invest a lot of money in the project and you also have to make sure that there are profit margins built in to make the development worth it so because of this it's generally the safest to build as much square footage as you can at the highest price point you can and that really maximizes what you're able to get for your time flat out properties below a certain price point don't make any sense to develop there's no money in it people will lose money so they don't do it now tax credit would certainly help with this but it's unclear exactly how much it's going to be now in addition to that there's also a$2 billion housing expansion funds that would help support the construction of affordable multif family rental units incentivize local actions to remove unnecessary barriers to Housing Development pilot Innovative models to increase the production of affordable and Workforce rental housing and spur the construction of new starter homes for middleclass families and finally speaking of rent this last initiative will help drive down cost how well the first has to do with with corporate landlords who use algorithms to determine the highest rent they could generate based on nearby properties that the algorithm also monitors essentially it's alleged that this constitutes price fixing since it could be used throughout the majority of available units in an area with very little room for new price Discovery landlords love it because it leaves emotion out of the mix but others say that it Aggregates competitor data for the greater profit of landlords and that's very expensive to tenants on top of that they're also going to aim to eliminate junk fees throughout the Rental process including convenience fees to pay rent online and fees charged to sort mail or collect trash they argue that these fees are often more than the actual cost of providing the service or are added on to rents to cover services that renters assume are included or that they don't even want now on this one I tend to agree that certain fees like convenience fees for paying a bill online are getting absolutely absurd I recently had to pay $2.75 just as a convenience fee to pay a $50 bill that's sick but I could also see the landlord's perspective that if they are providing an additional service they deserve to make a profit on top of that just like any other business now usually this is just baked into the overall cost of the lease and it's never really itemized but I guess we'll leave that for another video anyway in terms of my own thoughts on this again as someone who's worked full-time in real estate since 2008 I can't help but feel like this is a misguided effort with good intentions that practically won't do much other than help people who are already going to buy or sell anyway I tend to think that this is not enough on its own to push people off the fence and even if it is then we have a big problem that there's a lot more buyers than there are sellers with very low inventory and the outcome to that is simply that prices just go higher like you remember 2008 now just to clarify this is not a on toone comparison by any means but the last time government got involved in housing it didn't end well that's because back in 2014 policies opened up that allowed major lending institutions to begin issuing riskier subprime loans in an effort to meet affordable housing guidelines but basically Housing and Urban Development wanted to improve the home ownership rates for people who couldn't afford to buy a home so they introduced no down payment stated income and balloon payment terms so that anybody who signed on the dotted line would be able to get a house and we all saw how that turned out again I'm not saying this is a onetoone comparison because down payment assistance is not going to crash the market but it does risk putting a lot of pressure on a market that's already very fragile the way the way I see it if you actually want to make a measurable difference in the housing market and not just do things for political posturing here's what I think will actually make a difference first make it possible to take your loan balance and the interest rate with you when you go and buy another home I don't get how this is such an impossible concept it seems like it would make sense that if you have a loan you could take that loan balance with you and roll it into the next home so you keep your mortgage interest rate you don't have to give that up if this happens guaranteed you're going to see every seller relocate to a home that better suits their needs they're going to want to sell their home because they finally can most likely the only reason this isn't already a thing is because the investors of mortgage back Securities typically see their loans paid off in full within 7 to 12 years because after all people don't keep their home for that long and when they sell it that balance then pays off the loan so this would completely screw up that market to a certain degree but if we could find a way around this so that once people have a loan they could take it with them on the next home at least on a PRI primary residence it'll open up a lot of inventory second they should allow you to take the tax basis with you the fact is homeowners are sitting on a ton of equity and since those property values are typically tied to the value of the home when you purchase it it could be very expensive to move this entices a lot of people to stay and never sell because by selling they would be giving up the low property tax basis and would have to pay a lot more on the next one if you get rid of this and allow people to take their property tax bases to the next one it'll solve the problem entirely three reduce capital gains when you sell a property I know this one is a bit unpopular but it's true there are so many homeowners out there who are sitting on record gains and they don't want to sell because they don't want a portion of those proceeds to go to taxes sometimes as high as 37% just imagine you bought a property in 1970 for $100,000 and now it's worth3 million even with the $500,000 capital gain exclusion on a primary residence if you lived in California that is an 800 $80,000 tax bill just gone because you sold and finally fourth give tax credits to builders I promise if you eliminated A reduced taxes on profits generated from property development you would have so many developers jumping on the chance to go and build more homes alternatively if you get Builders a subsidized interest rate as an incentive to build more homes they will build more homes I hate to say it but everything here is about money and if you make it enticing to build lowincome units or starter homes they'll build those units as a real estate guy these four items would have a measurable difference immediately even I would consider selling if I could take the loan with me and that says a lot because I absolutely love where I live but since I have a 2.8% mortgage rate fixed for the next 30 Years I'm not going anywhere I'm keeping that for as long as I can the same applies if I were a developer right now there's just too much risk there's too much uncertainty and interest rates are too high but if all the profits were tax free well that's something I would consider to me this just seems like a net positive because the alternative is just no new construction anyway for anybody listening this is just my take and I would love to know if you agree or disagree Down Below in the comment section and don't forget if you want more information that I'm able to include in a YouTube video I do have a newsletter Down Below in the description it's totally free I post all my research there once a week so if you want to be a part of it the link is down below thank you so much and until next time

Channel: Graham Stephan

Views: 496,347

Keywords: investing, investing for beginners, investing in your 20s, how to invest, how to invest in real estate, how to invest in stocks, stock market investing, stock market investing for beginners, stock options, robinhood, robinhood app, best stock trading app, how to be a millionaire, how to be a millionaire in 3 years, credit score, credit score explained, credit card, credit cards for beginners, passive income, how to build wealth, how to build wealth in your 20s, real estate 101

Id: -1DVIRODAcQ

Length: 19min 56sec (1196 seconds)

Published: Wed Mar 13 2024