Thinking About Buying A Home? Don't Make This Mistake

Summary

The video script emphasizes the importance of financial literacy when considering a mortgage. It clarifies that bank approval doesn't equate to affordability, as banks prioritize loan sales. The speaker advocates for understanding personal finances, suggesting a 75/15/10 spending, investing, and saving plan. They stress that a home is an expense, not an investment, and debunk the myth of building equity through mortgage payments. The script advises on the three financial aspects to consider before purchasing a home: affordable monthly payments, a substantial down payment, and planning for moving costs, to avoid debt and build wealth rather than enriching banks and salespeople.

Takeaways

• 🏦 Approval for a mortgage doesn't guarantee affordability; banks are in the business of selling loans, not ensuring long-term financial stability.
• 💰 Affordability of a home means having enough income to cover all housing costs and still have money left for other expenses, savings, and investments.
• 📈 Wealth is built through investments and assets, not merely by owning a home. The goal should be to build wealth, not just to own property.
• 🔢 Financial education involves understanding how to allocate income wisely, such as the suggested 75/15/10 plan for spending, investing, and saving.
• 🏡 A home is an expense, not an investment. The common misconception that mortgage payments build equity is a fallacy; most payments early on go towards interest.
• 📊 Home prices fluctuate, and no wealthy person has become wealthy solely through home ownership. Investments in stocks, rental properties, and businesses are where wealth is built.
• 💹 The first step to affording a home is ensuring that monthly payments fit within your budget, allowing for other necessary expenses and savings.
• 💸 A significant down payment, ideally 20% or more, is crucial to avoid additional fees like PMI and to secure better mortgage rates.
• 🚚 Moving costs, including moving services, closing costs, and potential upgrades or furniture purchases, should be budgeted for to avoid going into debt.
• 🛋️ It's important to plan and save for non-essential purchases like furniture, rather than financing them and incurring additional interest payments.
• 💼 The speaker emphasizes the importance of financial planning and budgeting to ensure that the pursuit of homeownership does not compromise one's ability to build wealth.

Q & A

What is the main concern expressed in the transcript about getting a mortgage approval?

The main concern is that just because a bank approves a person for a mortgage, it doesn't mean they can truly afford it. Bankers are in the business of selling loans, not ensuring the long-term financial well-being of the borrower.

What does the speaker mean when they say 'afford your home'?

The speaker means having enough income to cover all housing costs, including mortgage payments, property tax, insurance, upgrades, and maintenance, while still having money left over for other expenses, savings, and investments.

What is the '75-15-10 plan' mentioned in the transcript?

The '75-15-10 plan' is a financial system where for every dollar earned, 75 cents is the maximum that can be spent, 15 cents is the minimum to be invested, and 10 cents is the minimum to be saved.

Why is it a mistake to consider a home as an investment according to the transcript?

It's a mistake because a home is an expense, not an investment. Wealth is built through owning assets and investments, not just by owning a home, which can be subject to market fluctuations and is often tied up in expenses rather than generating returns.

What are the three main costs a person needs to afford when buying a home, as mentioned in the transcript?

The three main costs are the monthly mortgage payment, the down payment, and the moving costs, which include moving expenses, closing costs, and any upgrades or furniture purchases.

Why does the speaker recommend having a larger down payment when buying a home?

A larger down payment helps avoid fees like PMI (Private Mortgage Insurance), secures better mortgage rates, and allows the homeowner to build equity in the home without the additional cost of interest.

What is PMI and why might a smaller down payment lead to paying it?

PMI, or Private Mortgage Insurance, is a fee that lenders charge when a borrower makes a down payment of less than 20%. It protects the lender in case the borrower defaults on the loan, and it's an additional cost for the borrower.

How does the transcript suggest one should approach financing large purchases like furniture?

The transcript suggests that one should avoid financing such purchases and instead plan ahead, save money, and pay for these items in cash to avoid paying interest and additional fees.

What is the importance of understanding your finances before buying a home according to the transcript?

Understanding your finances is crucial to ensure that housing costs fit within your budget, allowing for savings, investments, and other expenses. It helps in making informed decisions about the size of the home you can afford and how it fits into your overall financial plan.

What is the role of the Market Briefs newsletter mentioned in the transcript?

The Market Briefs newsletter is a free resource that provides a concise report on the economy, including housing, stocks, crypto, and global economic trends, making it easier for readers to stay informed about financial markets.