Naked Money Ep. 2 Mortgage and Private Lending for Millenials

Naked Money Ep. 2 Mortgage and Private Lending for Millenials

[Music] hi everyone welcome to naked money episode two just coming out from Valentine's Day and Valentin is up the family day in Ontario and some other provinces and be getting started on our episode – I'm your host today ah heal and polish and then I said for financial planner and founder and CEO of flight plan investments today we have a guest Abbi not from religion financial naked money is about truth about money with old filters without any agenda told me about the money and the concept that you need to know about some of the areas of the finances you do with money so without further ado I would like to ask Abby like give you a little idea about who you and you know what do you do so i'm abby from legion financial solutions i'm a mortgage broker right we also do private lending mm-hmm so i've been in this field for about six years now starting from working with the Tier one bank I worked for a Mick which is just another alternative private lender with the broker side so the whole spectrum and I can say there's a there's a lot of questions you probably have is a lot of things to discuss and there's a lot of things that people out there especially the general public do not know about examine and you know when you ask me saying hey let's get the truth out about every nitty-gritty detail I was like this is great because no public needs that knowledge it needs to be aware of certain things going in and out of mortgages right or any other finance for that gift yeah thank you happy for coming so let's start with the the bigger part of today's crisis I've been okay because of the housing market and little cry tea and be mean in the lowest interest rate environment and the economy itself so we have some challenges for Millennials and Zenzi yeah to get in the first homes or condos they also you know what other challenges you see when you're working in clients and how you as your team how you actually able to help them with three different major blending criteria right yeah so a lot of the a lot of which actually my career shifted when I said I went from a tier one bank and I and I left and I went into the let's call it the private / broker realm one of the major concerns that I had and why I even did that shift was because a lot of the young generation you know Gen Z Millennials they were all having trouble getting qualified at a tier one bank and some of them had good income so not all the times was an income sometimes they had good income they had the down payment right the only issue was the fact of too much debts they might have more SAP right some of them went and bought vehicles in university right they have a car loan so a lot of these things that people don't know is that these loans right these monthly payments the more monthly obligations you have the harder it makes you to get approved for a mortgage loan exactly right so one quick thing that people don't know is we've always advises as mortgage professionals we say buy the house first then buy the car okay and I think is the biggest mistake a lot of people do is because you know that they need to get places right ATB they got a new job they're making let's say a starting job of 60 65 K which is pretty good for a universities doing fresh grad right and the first thing they want to do is buy a vehicle right and obviously they're not gonna go buy a used vehicle off Kijiji 4 5 6 k know they want the newest whatever car out there for 60 K and they do the monthly payments right they can afford it yes but there's certain ratios that we have to look at whenever we're dealing with the bank's right now these are called your tedious and genius ratios mm-hmm right so the GDS ratio is basically anything to do with the specific property so the property tax the heating cost if applicable the condo fees let you man right the monthly mortgage payment that's gonna come right the stress test TDS is all of those lending criterias to do with the house those ratios alongside every other debt you may have mo SEP car loan may be you cosign for somebody else's house yeah that's one other biggest thing that is dams right a lot of people don't realize when you cosign for somebody you are putting your credit on the line for them yeah so the name and everything this is the this is the biggest thing some people say my cousin I signed for my cousin's car but it's their card they sign the papers it's in the car yeah yeah right so that's that's the issue and so it goes back to saying you know I tell people get the house first then deal with the car right going back to my first point because a lot of people make the mistakes where they buy the car and now it hurts their let's call it their affordability in their ratios for their mortgage yeah yeah get the house you could walk into any dealership they're gonna give you the car right and the loan because you have equity in your home right you're putting 20% down you might have a little bit more equity in the house and I have moved 30 percent forty percent whatever the case may be right you'll get the caramel no but when it comes to house is the first first thing I always tell people it's the biggest thing for the youngest generation out there is please focus on on keeping your monthly payments as low as possible your OSAP if you have a little bit of extra money try to pay it off as much as you can or call it OSAP one of the biggest things I've been doing now with a lot of my new buyers is telling them okay you don't have thirty forty thousand to pay off the osa but when it hits your Bri the credit bureau it's showing the monthly payments as three four hundred dollars call OSAP make that I think it's a mandatory payment you have to do after certain six months grace period I am calling those up ask them to lower the payment lower it to $100 $120 exactly right so if they're able to do that then what the obligation is now less mm-hmm so it helps in the ratios of the mortgage yeah so the biggest thing I think that Millennials are having now isn't is not too much of the income that's not the down payment they either saving and getting the down payment or getting it gifted from family but the biggest thing is not realizing that adding the debts before going for a mortgage hurts and I think the biggest reason as to why is because a lot of the young generation is still split between am I going to rent or am I going to buy mm-hmm and so they make these rash decisions of I'll pay up later I want to buy a car right and they don't focus on the two three year planning mm-hmm right when you're looking for a mortgage you have to be planning ahead of time you have to make sure your taxes are straight your income is going to be there sort of look at the price range you're looking at the down payment needing for that right what debts do you have to eliminate in order to get approved so hmm the focus has to be in the planning process rather than okay I'm buying the house tomorrow let's see what we can get yeah right and that's the biggest difference I think not even just the millennial generation of Jersey I think in marketing you mentioned very valid point of you know planning writing one reason that like Lennox's today is because the planning I mean we focus on it could be not 100 pages of financial plan itself but as a study Dakota chol clan of one-page understanding where you are and what you need to be going and the most important understanding the difference between the needs and wants exact so we have that big disparity because thing is I notice that I mean we see that every day yeah I advises clients coming through this challenges they bore certain things because they want and a balloon said big really but it's born it of showing to society and yeah I mean an XML person but they don't they forget about the needs and that's a issues are at point-a to point-b you have to really look at you know leaving that but it's actually going to help you and in terms of one at a time yeah so then it's really is a matter of needs and wants and the planning is a key point oh so you have Erica when is when they looking for the mortgage right or the lending part writing in that so first up is episode we had is we had a b2b bank Rohan but she probably talked about how they can actually borrow from our esteemed loans for supporting seventy thousand for down payment yeah so now we going do I mean we talked about the TDS are yes perfect so let's talk about treatment this difference okay I mean yeah give us a little our audience kind of simple terms what are the three blenders white that they have to be looking at these letters okay so the little bit of a breakdown just a say and then we'll go into each one mm-hmm let's call them tier 1 banks sleep schedule e makes B banks are some credit unions and some other banks that take on more debt and I'll go into the detail of that and then finally at C you have the private lenders okay so the differences between each for 8 okay you're looking at the schedule a banks Tier one banks the five major banks good credit unions that are giving you the best rates obviously and why that is because your triple-a client so good it come no debts or very minimal me right now yeah and you have solid down pain mm-hmm right so three things that they're sort of looking at in aspects to what you're going to be going before right yeah and not only just dump in but you can even do less than 20% down payment but more importantly is your credit score yeah right to get into the eight it's six eighty plus Beacon score right that is your a market right these are people who can walk into any branch and you should pretty much just bow down to this right yes so then we move to the B side the B side is what has picked up a lot and once again that's where my career shifting from working for Tier one moving to the broker around is because I wanted to service all clients I realize not everyone was me some of them could have made it to 8 but are just off mm-hmm and they have to go to be mm-hmm right so when you go to be I want to see a book of that business is self-employed individuals okay individuals with multiple properties mm-hmm because of the new stress test a lot of individual individuals before we're able to buy three four five six seven eight homes yeah right and they just have to get qualified for what are the five year fixed rate was that they'll anymore mmm-hmm now with the stress test it makes it much more difficult to get it to be mm-hmm so a lot of them are falling into B mmm-hmm two reasons one obviously the debts are higher you have a bunch of mortgage loans right on one two properties and maybe you're buying if they're two one right whatever the case may be do a little bit of rental offset or move your income but the ratios are gonna be pretty hot no compared to when it was just doing it on the a side and there was no stress test right so now it's like you have to qualify for double the income pretty much to get what you were getting before mm-hmm and another part of that is the bulk of the business is self-employed individuals right there are a lot of individuals that are self-employed making over six figures and the issue there is obviously the nobody wants to pay the taxes stated income right rather than saying hey here's my here's my last two years anyways showing quarter-million dollars right we go oh hey here's six months bank statements but if you ask me for my end always they probably already show thirty forty fifty K right yeah it's a reality rate you know with the write offs and business expenses whatever I do right I'm a new book hardened expenses I just write off and they didn't do this and I think the biggest thing also is like you were saying it's not telling the client what they want to hear it's about educating them on what they need to hear examine right so that's where I guess the success of my business picks up is I differentiate myself because I will explain to the client what their options are mm-hmm and why they have those options so yeah yeah when self-employed you might tell someone hey you might have to pay one percent higher on your interest rate compared to and a bank but you have to rationalize why yeah I have to explain you know mr.

financial advisor

X what are you getting out because right yeah you know you're saving yourself maybe 15% in taxes okay you're paying 1% higher on the rate and 1% to the lender okay you have a 10% cost in doing this mortgage out of the 15% that you're saving in your taxes net that you still have 30 percent of your overall net worth money in your pocket pocket so the finances of comment sentences it's very exactly because you know when you tell somebody hey you need to go to B because everyone's expectations I want to be eight yeah yeah they have good income obviously the business is doing well yeah not in a way but the business is doing well they have good credit right most of the time um but once again it's the debt ratios right it's because they're not showing that income they're stating it yeah we have to we have to work with what we can show I just quickly interrupt you yeah yeah I think I had this stigma before I become financial planner before given this anesthesia yeah and I cared about ill and Avilan des I thought oh no I want to be in the idea right yeah is somebody giving us money doesn't matter is if you see that as long as it it's makes sense for what our need is a zag back to the need yeah and understand the mathematics of the number line of I am paying for this explaining income an extra interest rate and that's it that's fine but then I need to be so careful when we investing in the money do be investing in a or b or c right right so which is what our financial planners or other professionals can help the people but that's actually a really good flow into the last category which is C climate exam so private you touched on both sides there you know said the risk for the person giving the money yeah and then you also talked about investment so we'll get into that but so the the risk it's having the client understand why sometimes they may need to go to private a lot of the clients that do purchases that end up in private is because they haven't planned once again planning they haven't land properly for the mortgage closing mm-hmm right they thought maybe two years ago one year ago I put the downward builder all of some two weeks before closing they come they're like hey builders not doing extensions I need a closed it uh my wife just you know switched jobs a month ago it's a moment only maternity leave is whatever the keeps maybe you know I can't sell this house right now I need three months and then I can sell it and put them down for the new place yadda yadda yadda it was wintertime I didn't get to list it there's a lot of things that can happen right it happens so many people so much I knew so many people every day lost so much the down payment hard and money without having the right planning that's a run in the first place that's right so yeah I pride myself on trying to follow up the clients every month every couple months prior to the closing because I want to make sure they're on track with no hiccups yeah yeah yeah yeah so clients I get I guess they didn't do the planning and they were referred to me or coming from other brokers they maybe have a sour relationship with their whatnot so in these cases we have to sometimes temporarily put them in private three months six months maybe a year sometimes right mm-hmm depending on what their situation is why they're in that situation or if it's just a means of being very poor credit yeah right because even in the bead banks yes they will take higher debt ratios they will take a lower credit score or individual but only to a certain limit Yeah right so private they don't really look at credit scores they don't really look at your income all they care about is that equity of the home where is the home located right does it matter if it's a primary residence doesn't matter if it's a rental property right they might have a slight fluctuation on rayna that's a rental now with private pitching that to a client one is making them understand why were in that to holding their hand and giving them the confidence that you're going to get them out of that situation in three months six months one year whatever the case may be absolutely and third is is telling them the rationale and the reasoning once again mentioned is what is the risk to the lender because like you mentioned the other one giving the money right so sometimes clients don't understand why am i paying high interest rate why is it interest only why am I paying so much in lender fees right but when it comes to private it's a risk it's at the end of the day points I have to tell them you have to sort of realize we're not talking about a bank right we're not talking about a tier one bank that has billions of dollars yes that can lend just at a great rate mm-hmm the lowest thing is that hey these are investors investors need to make a certain return the company being a lending company needs to make a certain return right so you're paying for that return initially right until none fix your situation because you couldn't get any you couldn't get in B we have to go to private for whatever the case may be life happens right but now because you're in C in private you're risking somebody's money someone's risking their money too much situation just towards your situation to see the potential that you can get out mmm they don't want you to renew in private either they want you to be out they would rather give their loan to somebody else mm-hmm so nobody wants to see you in private nobody wants to be in private mm-hmm so it's it's working together to get out of there you pretty much I mean it's very well said I think there's a really lots of mint concern misconception a lot of people burn themselves on the private lending yeah going into watching it too you know I don't have a time okay give me a sign go back and then look at it all they did this and I think yeah one of the truth about why do you talk about naked money you know this is not a financial advising place we actually helping you to a wearing off the situation you need to talk to the right professionals the due diligence of the people that you dealing with right you know we cannot help three million a lot of people we have out there smaller professionals out there talk to them understand what are you getting into don't rush into making that when we going traveling so to the board especially the weather like this yeah we spend so much time about reading the reviews and looking at more bodies yeah and spend more time on looking at those but really making the biggest financial decision it could be insurance investments or the mortgage or any other financial planning areas we don't take a time we don't do the due diligence we just listen to you know put their trust in the people who has done the work and under proper due diligence and then they continue to be doing indicating themself and means it continue learning those people you want to be put at faster and asked questions there's no stupid question there's no never question have asked any question that you have because you you have a right to ask the question right it's not only that they're not the expert in this field right they're coming to you and I know man our job is to answer every single question to make sure that they are confident and the purchase or in this investment that they're about to do whether it's insurance whether it's investments whether it's the mortgage yes right so let's talk about the last wrapping up the conversation today so let's wrapping up this conversation tell me about the people when we talked about the traditional we talked about the linen different criteria why don't think they may be cautious about when they're signing up any of these documents giving in reading reading the contracts or having the broker or their lawyer reviewing their contracts okay knowing hey here's what it costs for the to do this mortgage here's what it costs to break the mortgage here's what it costs to renew here's what it costs to discharge there's a lot of nitty-gritty fine details and the lines that are not a lot of people pay attention to mm-hmm and I think that's one thing that everyone needs to do is to pay attention to the costs of the mortgage from beginning of funding to the end when they're getting rid of that mortgage cheongha there's there's a lot of fees that I've seen on contracts especially in privates that end up in the back end that they only find out about when they're discharging that mortgage get hit with a bunch of fees yes yeah because the front looks very nice yeah back is it back listen yeah so then definitely they need to talk to the right lawyer this person has understanding about this details of all in this industry or even in dealing with privates and whatnot right are not just ones that deal with a banks every day yeah so definitely I think the really the takeaway is understanding not only when you get in if you need to get off the mortgage or renew in the discharge in the market all if life happens and things happen in the middle of the way what is gonna happen to you your mortgages Jonnie and beyond that you know book fit the planning sit down and look at the cash flow but in bodies going out understanding your wants and needs right so then understanding that is an important part we will be having above another Chartered Accountant he posts focus on real estate investment so it may have a pivoting into the next subject in upcoming podcasts stay tuned and thank you for joining the naked money and thank you Abby for coming and make sure you subscribe the button below in our YouTube channels and follow other social media platforms if you want to hear more about this and please feel free to reach out to us if you want to know more about these particular topics or any other financial concerns that you have you can able to give you unbiased advice and make a truth about money and thank you for tuning in have a good day bye [Music] you [Music]

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