Hello, everyone and welcome back to a new video sean's, a name and mortgages are the game today, down payment assistance, free money - i am the one the way your time don't need a gun to get respect psych. It honestly hurts my heart so much when i see how many people are so misinformed when they get themselves involved in a down payment assistance program when they have no idea what's going on so today i want to make this video, so you are fully educated and Informed so you can decide if going with a down payment assistance. Loan is right or not for you. So are they a great option for first time home buyers hell? No, but also hell? Yes, here we go okay.

So for those of you who don't know, i'm a licensed loan officer for a mortgage brokerage in arizona and texas, but i've got colleagues in all 50 states. But the reason that's important is because i get at least two to three people reach out to me. Every single week, who are first time home buyers, saying hey sean, i heard about this down payment assistance program. Can i get that because everyone thinks oh, if there's no money, i have to put down to get into a home.

Why? Wouldn't i do that? Well, the first lesson in economics, finance and life in general is the fact that nothing is ever free when a bank or lender says hey. You know what joe schmo don't worry about, putting down your down payment, i'm gon na cover it for you. If they're saying that, there's definitely a way for them to be making money somewhere else, because banks and lenders are for-profit businesses that are designed to make money not just give money away. That's like going into a restaurant ordering food and then being like all right.

Well, thanks for the free food, i'm gon na walk on out no you're paying for a product or a service, no matter what you're doing in life and mortgages are not the exception. People and companies have to be compensated for the work that they do. That's just kind of how the world works, but that's why today i want to break down what the typical down payment assistance program looks like, so you are well educated when you get yourself involved with one. Oh and that's another thing: is i'm not going to necessarily be talking about a specific down payment assistance program today because there's about 10 to 30 different ones that i personally know there's probably even more and every single program is slightly different than the next.

So i'm going to be talking about three main factors that each one of these programs will have that you can kind of keep an eye on and understand as you get involved with one so, first and foremost, the most important and probably the most popular one out Of all of these down payment assistance programs that you are going to be having a higher interest rate, if you are not willing to put down money on your home and the bank, is carrying all of that liability because you have zero money invested, it is a Riskier loan so because of that, the bank needs to be compensated for it for holding that liability, which means you get a higher interest rate and when i say higher interest rate, i don't just mean like a little bit. Typically, a down payment assistance program will come with a rate, that's like 1.5 to 3 and a half percent higher than what a normal loan would be if you were to put down the minimum down payment so to put things in perspective on a 250 000 loan. That's an additional 448 dollars a month in monthly payment. That's insane considering that after one year you would have spent an additional 5376 dollars in interest alone.

That's added interest, not total interest. So you really need to understand that, when considering a down payment assistance loan, but not only that the next thing, the number two thing you need to really understand and dive in deep on is what kind of down payment assistance loan is it? Is it a soft? Second, silent, second actual second or best case scenario. Is it an actual grant, and i know all those were probably really confusing and you probably don't know what a lot of those are. So i want to break down each one of those for you.

Basically, when you get a mortgage, when you buy a home and you get a mortgage, the first mortgage is the big boy. Is the bad boy? Is the one that you're paying on? Primarily so, let's say, for example, you bought a 300 000 home. Your first mortgage, if you were to put the very minimum down, would be 291 000. That is your first mortgage on the property.

Okay and most people will just have one mortgage and they'll have that one mortgage, because they'll put that other nine thousand dollars down as their down payment. But if you use a down payment assistance program, you're not putting that 9 000 down. So you got your 291 thousand dollar first mortgage and then you've got your nine thousand dollar second mortgage in some cases, so that's kind of the difference between a first and a second mortgage. Now i want to dive into this second mortgage because that's what down payment assistance programs are typically about is you've got a second mortgage on the property and it comes in all different shapes and sizes like i previously mentioned, but let's start with the simplest.

A second mortgage is exactly what it sounds like you're, paying on your first mortgage and now you're paying on your second mortgage. So you don't have to come to closing with any money to put down, but every single month you're making a payment on your first mortgage and your second mortgage for that entire three hundred thousand dollar purchase price home. That second mortgage will also have different terms in your first mortgage. Your first mortgage might be a 30-year fixed term.

That's a five percent interest rate and your second mortgage might be a three-year term or a ten-year term with an eight percent interest rate and you again pay on your first mortgage first and your second mortgage second. But those payments happen simultaneously in terms of what you see so basically, let's say your first mortgage is 1500 a month. Your second mortgage is 200 a month you're making a 1700 a month mortgage payment every single month, because you've got a first and a second. That's a normal second, okay, there's different types of seconds, there's, what's called a silent second, which is technically illegal.

It's basically hiding this debt, or this liability of the second mortgage from the bank, who's lending you the money for the first mortgage again. These are very rare. So i'm not going to dive into them too much, but it's basically a form of mortgage fraud and usually legal, so just kind of know about silent seconds, but you're, probably not going to see a lot of them and then. Lastly, in terms of second mortgages is probably the most important one that you'll see with the down payment assistance loan and it's called a soft second, so you've got a first mortgage and a second mortgage, but this second mortgage you're not actually paying on you're only paying Your first mortgage, because the second mortgage has a deferred payment schedule.

Now what that means is basically, if you've got a three year soft second, it pretty much means you're, making your monthly payment on your first mortgage every single month, then after three years, this soft second just disappears, and you don't actually have to pay it most of The time i say most of the time, because it really depends on the specific program that you're in, but one thing you want to really take note of this soft second, is the fact that if you plan on refinancing your home or moving before that deferred time Frame is up, then this entire second mortgage on the home is due and is payable. So this really hurts a lot of people when they buy a home and they think well i'll get into the home. I know i have a high monthly payment, but i'm just going to refinance the home in a year or two and we'll be fine. You can't quite do that because if you refinance that loan before your soft second has the deferred payment schedule, that's done then you've got to pay that whole amount and essentially the down payment assistance program you used was completely useless.

So you really need to pay attention to what kind of second mortgages that your down payment assistance comes with. Is it a normal second that you're paying on a silent second, which is rare or a soft second, now soft second, is probably the most ideal. If you plan on staying in the home forever and not only the home, but also the loan forever, so you want to kind of know the difference between those three but the last option. A down payment assistance program might have, and in my opinion, is the best option is that the down payment assistance is in the form of an actual grant.

It's not a second mortgage. It is a legit check, written at closing. That's basically saying hey. Here's a 5 000 down payment assistance, there's no type of repayment.

You have to pay on that. It is a legit grant. The reason i like these is obviously for obvious reasons - is you're not held to a second mortgage. I will say when you get these in the form of a grant, it usually comes with a much higher interest rate because again, banks and lenders do need to be making money and profiting, but i always tell people why don't you just do the grant pay? The really high monthly payment for six payments, and then after six or seven months or whatever you can refinance your loan and you don't have to pay that grant back.

So it's kind of the best of both worlds. Okay, i know that that was probably a lot to understand in such a short amount of time, but it's just really important to understand what type of down payment assistance program you're in, because it can have some major complications later down the line. Now. The last thing i always want people to really understand when they're getting into a down payment assistance program, is what kind of fees come with it.

It might sound like the best down payment assistance program ever you're, getting a grant you're getting a low interest rate you're. Getting all these amazing things, but then, when you actually see the fees involved with it, you're paying a ton and then you kind of question well shoot is down payment assistance even worth it. So you really want to drill down on what kind of fees are there, because again, banks and lenders need to be making money. So if they're, giving you a low interest rate and and giving you all these sweet spots, they're going to be making up for it somewhere else, and it's typically in the fees section - and i don't want this video to come off as wow banks and lenders - are Bad because i'm a lender myself, but you just need to understand the entire picture.

Lenders and banks need to be making money at the end of the day. So nothing in life is free and you just need to understand what kind of risk you're taking or what kind of things you're giving up to get the down payment assistance. So those are the three main things you really need to understand. Okay, what are the fees involved? What type of down payment assistance program? Is it, and what's my interest rate going to be so with knowing all of that is down payment assistance programs actually worth it? Well, i tell my clients: it depends if you have the luxury of waiting six to 12 months or maybe even more, to really hardcore save up money for a down payment.

Then down payment assistance. Programs really aren't the route for you, but if you're really in a pinch, maybe you got a new job and you're moving towns and you need a place to live or your lease agreement is ending soon or you're, just you're, just in a tough spot, and you Really need to get into a home and you don't have the luxury of waiting or you don't have the ability to save a lot of money. Then yeah down payment assistance programs are great. You just need to know the full picture, so you don't get yourself into trouble later down the line and again i always try to tell my clients if you qualify for it.

Let's do the option of the grant, because if we can get you the grant down payment assistance program, then we'll just refi you in like seven months and you'll end up saving tons of money with the refinance. So it's a win-win. Hopefully this video kind of made sense. I know it was a lot but bottom line.

If you're thinking about down payment assistance programs make sure you know what's going on one and two. If you have the luxury of waiting, then just wait. Okay, you only need three to three point: five percent to put down on your first time home purchase. So if you can save up a little bit of money, then you're definitely going to be in your best interest.

I mean the average home price in the united states is about 266 thousand dollars. So that's like what saving up eight thousand dollars to put down if you're able to do that, you're gon na be in a great spot. If not, then, grab a down payment assistance program, just do your research and make sure you're working with a loan officer that you can actually trust. Okay, it's really really really important and if you want more information on kind of mortgage stuff - or you want to dive into more info on the mortgage process, then head on over to my website lending.shawnmaoku.com, and it would also be awesome if i could work with you As well otherwise subscribe to this channel, i'm always dropping some great content on here and hit the like button.

If you really enjoyed this video, i would really appreciate that or if you have questions or comments or anything leave me a comment down below. I love getting comments from you guys, but that's gon na do it for this video, so i will see you in the next one. You.