George Kamel - This Experiment Could Cost You Hundreds of Thousands

Episode Date: November 15, 2023

Buying a home can seem impossible these days—but could Zillow be coming to the rescue? In this episode, I’m taking a hard look at their latest experiment to make buying a home feel easier right now.   Links: Preorder George Kamel’s new book, Breaking Free From Broke, and get more than $100 in FREE bonus items. Speed up your savings with the Ramsey Guide to Saving for a Down Payment  Check out the Ramsey Mortgage Calculator This episode is brought to you by BetterHelp. Give online therapy a try at https://www.betterhelp.com/george and get on your way to being your best self.  EveryDollar budget deal: I love a good deal, and when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar. Learn more about your ad choices. Visit megaphone.fm/adchoices

Buying a house these days can feel as impossible as explaining memes to your grandparents. It's just a unit of cultural information that's virally transmitted via social media, grandma. How hard is that to understand? My grandma doesn't speak English. That's part of the problem. Love you, Tita. Now, this is especially hard for you first-time homebuyers out there. And I get why. Home prices are still high.

Competition for homes is still high. Not to mention, interest rates are also high. About 2 or 3% higher than they were just a year ago, currently sitting at 7 or 8%. In summation, she's so I'm sorry, or you're welcome. Don't do that again. P.S. Little Nugget for your next trivia night.

Tau Bachman is the genius behind that one-hit wonder. And where is Tau now these days? Performing at the J.W. Marriott in Ontario, Canada, in case you want to pay him a little visit. See the live set? Maybe he'll be playing that song. And the pressure of all this home ownership craziness is causing people to lose their cool.

just a little. Okay, a lot. Some people are making purchases they might not have in more stable times, and others are boycotting, buying, and selling homes altogether. That's right, they're tearing down those picket fences and using them to protest. I wish there was a word for that. What's that called? People get in lines and they protest. I can't get there. Anyway, when the populace takes to such dudes, companies like Zillow take notice and then make it their Q1, Q2, and Q3 objective to turn those frowns upside down. Enter Zillow's latest experiment to make buying a home right now feel easier than 1% down payment program. You heard that right.

1%. 1%. Um, et. Pop it. I know, 1% sounds too good to be true. And spoiler alert, it is. But you know what else is too good to be true? This YouTube channel? I mean, how is this content free?

Well, I'll tell you right now, partially because of advertisers. And today's episode is brought to you by our friends at BetterHelp. Also, if you want to say thank you to the team who works so hard to put this hot content together, go ahead and bop it, twist it, and flick it, a la the like and subscribe buttons. And pass it on to a friend by hitting that share button. Okay, quick reminder here, a down payment is a portion of the home price that you pay out of pocket before financing the rest with a mortgage. And today, the median down payment on a home is about 12%, which to give you an idea for a $400,000 home is $48,000. Not cheap. For what it's worth, it was 20% back in the

90s, simpler, less expensive times. go to there. Now, I'm going to guess a price tag like that is why nearly three in ten first-time homebuyers say the most difficult step in the whole home buying process is saving up for that down payment. That's no walk in the park, unless we're talking the industrial park. But what if instead of $48,000 for a down payment, you only needed $4,000? Well, with Zillow Home Loans' 1% down payment program, that just became possible, kind of. Here's how it works. Borrowers who qualify contribute 1% to cover their portion of the down payment. Then Zillow home loan steps in and gives you a 2% grant to add on to that, bringing the total down payment to 3%.

And before you get any big ideas, that 2% is paid through closing costs, not as a payment to the borrower. So don't even think about using it to fund your destination wedding at Lake Tidicaca. What? Hey guys, it's George. You knew that. Sometimes this time of year can get a little rough. The sun goes down sooner. You don't know whether we're wearing long sleeves or short sleeves, and if you don't like pumpkin spice, well, you're just praying for peppermint season to get here. You see, it's rough. Seriously, though, if you struggle with seasonal blues and not the kind with an A7 chord,

it's natural to feel some sadness or anxiety about it. And that's okay. A lot of people get down this time of year, but adding something positive to your routine can help counteract some of those feelings. Therapy can be a bright spot in all of the stress and change, something to look forward to, to make you feel grounded, and to give you tools to manage those feelings. So if you're thinking of starting therapy, give BetterHelp a try.

Better help is flexible because it's online so it can fit your schedule. Just fill out a brief questionnaire to get me. match with a licensed therapist, and you can switch therapists at any time for no extra charge. So find your bright spot this season with our friends at BetterHelp. Visit BetterHelp.com slash George today to get 10% off your first month. That's BetterHelp.com slash George. All right, let's get back to it. Now, to qualify for the 1% down program, you have to be a first-time home buyer,

have a minimum credit score of 620, earn an income that falls below 80% of the median where the home is located, and complete a course on home ownership, plus plan to live at the home as your primary residence. Oh, and also, you have to live in Arizona, which is where they're soft-launching the program before expanding to other markets. But we're not there yet. You also have to somehow make it through a row ceremony.

Just add insult to injury. Sounds relatively simple, right? Well, here's what Zillow Home Loan's senior macroeconomist, Orfei, Dvongi, says about the whole thing. For those who can afford higher-end payments but have been held back by the upfront costs associated with home ownership, down payment assistance can help to lower the barrier to entry and make the dream of owning a home a reality.

Now, that sounds all well and good, truthfully. But what old Orfei isn't telling you is that this whole 1% program exists because Zillow really just wants anyone and everyone to start buying houses again. And by the way, Zillow conveniently overbought homes in Arizona. Seems a little suss to me. It's almost like we have an imposter among us.

On top of that, Zillow home loans reported revenue was down 17% year over year. So to drum up some business, they're basically pulling out their version of a wacky, wavy, inflatable tube guy and offering a buy-one get-to deal to the most desperate people in the market. Because what's giving away 2% when Zillow is making 7 to 8% on the mortgage itself? Zillow home loans ringing a bell?

I mean, just look at the numbers. Here's how that breaks down for a $400,000 home we've been talking about. You put down 1%. That's $4,000. Zillow gives you the other 2%. That's $8,000. That brings you to a total of 3% down or $12,000. Then you get a mortgage from Zillow for the rest.

That's $38,000. Let's crunch the numbers. For a 30-year mortgage with an 8% interest rate, assuming you don't refinance or make any extra payments, you will have paid Zillow a total of $636,918 in interest alone. So if you're keeping up, Zillow gave away $8,000 oh so generously, but made over $635,000, netting them $627,000 on this deal. That's a pretty good return on investment for them, but for you, not so much. Because with what you put down, plus the principal mortgage amount, plus the interest, you end up paying a grand total of $1,16,916. That's over a million bucks you paid for a $400,000 home. Insanity.

You would have been way better off, just renting. You see, these special mortgage programs that allow you to put next to nothing down are designed for people who can't get approved for a mortgage that meets traditional lending guidelines. And the lenders who approve low-down payment mortgages end up taking way more of your money in the long run, like hundreds of thousands of. of dollars more. So, are they really helping people? It's a no from me, dog. Instead, these mortgage programs just make broke people think that they can afford to be homeowners when they're actually not ready yet. And the same goes for options like adjustable rate mortgages, arms, FHA loans, and VA loans. And just like every timeshare presentation, it's great at first blush, but it's all a facade, and it's not worth the free massage. Also, if you're wondering what all those acronyms and mortgage terms

mean, I talk about it in chapter six of my brand new book, Breaking Free from Broke. which you can get right now on pre-sale with a whole bunch of goodies and bonuses. And if you want to check it out, I'll drop a link in the description below. Plus, these sketchy mortgage options put broke borrowers in incredibly risky financial positions. I mean, think about it. If you buy a house with 3% down, you have little to no equity in this house. So if the market dips and drops your home value down $10,000 when you only put down $5,000, you're underwater on this house.

And you're not down there doing cartwheels with sea turtles. You're food for sharks. So if 1% isn't a good option, what's a better number? Well, my rule of thumb for down payments is this. The bigger, the better. Coincidentally, that's also my rule of thumb for wristwear. You see, a smaller down payment means you spend more on your home in the long run. A bigger down payment means you spend less.

Not to mention, a smaller down payment makes your monthly mortgage payment super high, which in this example of a $400,000 home would be about $3,400, including your principal, interest, BMI, property taxes, and homeowners. which I can't imagine $3,400 is easy to afford for people who could only put down 1%. So my personal goal for you would be to save up 20% or more for your down payment. I know what you're thinking, surely this guy's not serious. Well, I am serious and don't call me Shirley. It's triggering.

I get dressed in the morning. I'm triggered. I take a shower. I'm triggered. I get in the car. I'm triggered. I know it's a big chunk of change. And if you're a first-time homebuyer, it's okay if you're going to put down 5% or 10%

if it's a reasonable house that you can afford. But I'd love for you to put down 20% or more to help you avoid an additional fee called PMI, private mortgage insurance. And what this does is just cover the lender's butt because you're a risky borrower if you're putting down less than 20%. And that won't fall off until you've hit 78% or more of equity in this house. Now some good news here. If it's not your first time buying a house, you've probably built up some serious equity, which makes a 20% down payment on your next house way easier to reach once you sell your current home. But for a first-time home buyer, you don't have to get to 20.

It's okay to put down that 5 to 10%. Just keep in mind, you will have to pay that extra PMI fee. And no matter what, make sure that mortgage payment is no more than a quarter of your take-home pay on a 15-year fixed-rate conventional loan. Otherwise, you'll be charged a prairie schooner-sized load of extra interest and fees. Not worth it. You need that extra money to account for the total cost of home ownership and your other important financial goals. So the bottom line here is, if you don't have the money, don't buy a house.

even if it seems like everyone is buying a home and your father-in-law keeps indiscreetly probing you about it, remember that their timeline is not your timeline. Those people don't pay your bills, and that means they don't get a vote in the biggest financial purchase of your life. It's perfectly okay to rent until you're financially ready to buy. Renting shows patience and responsibility and gumption as you get your financial house in order and save up for that down payment. I talk to people all the time who are in a real bind because they bought a house before they were ready because they felt that pressure in phone-o. So until you're out of debt and have built up an emergency fund and a sizable down payment,

renting is the way to go. I want you to be a homeowner. Hear me say that. I just don't want that home to own you. That's deep. You will get there if you do the right thing. It may take hard work. It may take more time than you want to.

It may take some changing of your expectations of what that first home is going to be. But you can get there without winning the lottery, without inheriting your great Aunt Gertie's fortune, or these sketchy mortgage programs. You just need the right plan. So if you want some help, breaking your job, down payment savings goal into simple steps. I've got a free guide that shows you exactly how to do that, and I will link it in the description below.

And let me know in the comments your thoughts on this 1% down program. And don't forget to share this with your friends who would 1,000% fall for something like this, or maybe that timeshare. They might get offended, a little hurt, but they'll thank you later for the tough love. Maybe. Thanks for watching. We'll see you guys next time. Twist it.