Did you know that your knowledge about home financing can mean the difference between making and LOSING tens of thousands of dollars?

If you’re like most people, home financing…with all it’s hidden costs and games…can be a daunting and confusing event. And for about 80% of people out there, borrowing $100,000…$200,000…or even $500,000 or more is the largest financial transaction you will incur in your life.

Small mistakes can leverage themselves into HUGE losses of money. That’s why you need to be armed to the teeth, not only with helpful knowledge, but with proven, helpful strategies and questions that will get you the very best mortgage for your situation for the absolutes lowest cost available in the market.

And that’s why I created this report…to give you a number of helpful, straightforward tips for avoiding costly mistakes and getting the very best financing for your dollar.

Here are 7 strategies (I call them "secrets" because so many home buyers disregard them when buying a home) you should consider when financing your home…

Secret #1: Clearly Understand How Much Financing You Can Afford

Like it or not, there are 2 guidelines bankers and mortgage lenders use to determine how much loan you can afford.

The first guideline is the Payment To Income Ratio. This guideline compares your income – or your total household income – to the amount of mortgage payment you’re considering.

To calculate the "payment" part of the formula, the lender will take the mortgage payment (principal + interest) and add to it Property Taxes and Insurance. Hence the term "PITI" (principal, interest, taxes, and insurance).

Usually lenders will loan up to 28% of your total household income.

But before you think you’re home free, there’s something else you need to know…

It’s called the Debt To Income Ratio. Debt refers to ALL the major monthly payments other than your mortgage payment (PITI). To arrive at this amount, the lender will consider…

Your car payment…

Your credit card debt and payments…

Any IRS liens or payments due…

Any other payments and debts you have (boat, 2nd home, etc.)

Then, they’ll compare your total debt to your ability to make current payments with your new home loan added into the equation.

Now, here’s the "stickler." Each mortgage company sets different limits on your Debt To Income ratio. Which is why it’s critically important to find a MOTIVATED LENDER.

Don’t follow the "canned" financial advice like you see on TV. Most of that advice is "rule of thumb," and designed for the lowest credit rating and highest interest rates.

Think about this…

If you spend 2 or 3 days to find a loan that saves you $40,000 to $150,000 over it’s term, your time is WELL WORTH SPENT! Doing a little homework on your own will literally save you thousands over the term of your loan.

Secret #2: Be Financially Prepared – Ahead of Time!

Many people go about the home finding process backwards. They go through the entire process of searching, evaluating, and writing an offer on their home, WITHOUT being financially prepared.

And it usually costs them money. Big money!

Doing a few things up front, BEFORE you go searching, will save you a lot of money, time, and hassles. What are those things?

Here are 3 of them.

First, find a MOTIVATED lender. No, don’t just go down to your local bank where you’ll likely to be slowly tortured by some bureaucratic "vice president" who makes his bonuses and gets promoted according to how much paperwork he creates (at YOUR expense) and how many DECLINES he produced.

You see, the only quota a banker has to live by is: "How many BAD loans did you originate?"

They don’t get measured by their production…

They don’t get measured by their service…

They only get measured by the MISTAKES THEY AVOID!

Now, I know if your local banker sees this, he’s going to blow a cork, and start reciting all the ad campaign jargon most banks are spouting these days. But the truth is…

There Is Absolutely NO Incentive For A Traditional Banker To

Serve Your Interests In Any Way

What you want to do is find a mortgage lender who is MOTIVATED to take your loan. One who represents many different products, and can offer you many options for making your loan most affordable.

Here’s an important tip: Ask your REALTOR® to refer one or two lenders to you. Why? Because Realtors have power over lenders, because they send lots of clients. It’s not just YOU alone talking to them.

If they don’t give you first class service, the Realtor who sent you will refer (ALL) their clients to someone else. So they’re motivated to SERVE YOU. And the minute you have a problem with your loan, you can turn to your Realtor…who has much more influence and leverage over the lender than you alone.

After all, your Realtor and lender both want to see the transaction close. There’s power in numbers and influence. Use it to your advantage.

Now, the second thing you want to do is GET PRE-QUALIFIED with a lender. Better yet, try to get PRE-APPROVED.


Because the first question any home seller will ask when an offer is presented is "Is your buyer approved for a mortgage?"

And rightfully so! The seller doesn’t want the deal to fall through because you couldn’t get financing. When they accept your offer, their home comes OFF the active market. If you fall through, it costs them time and money.

Plus, there’s one more reason to get pre-qualified or approved…

You Will Have Much More Power To Negotiate

Price And Terms When You’re Financially Qualified!

When you have money behind you, the seller knows your serious. And a serious buyer ALWAYS has more influence to negotiate. So do yourself a favor, GET PRE-QUALIFIED or PRE-APPROVED!

Now, the third way to become financially prepared is to have deposit funds available immediately. One way to do this is to write a check in the amount of 3% of the highest price you’ve been qualified for financing.

Make the check out to the Brokers Trust Account, or the Title Agency you will use. The broker or title company are trustworthy fiduciaries by law, and will hold the check un-cashed until you make an offer that’s accepted.

Now I know what you’re thinking… "It’ll be a cold day in Ecuador before I write a check before we’ve even located a home." I understand.

But you may want to consider this…

Jim and Susan were buyers from outside their immediate area. Because of their distance, they could only get together with their agent with 2 days notice. And the market was pretty good.

Three homes came on the market, and were sold before they could get together to visit them. Twice, they lost other deals because of bidding wars.

Finally, out of frustration, they placed an un-cashed deposit with their broker.

When they finally found the right home, they decided to write an offer…

And because they placed an un-cashed check on deposit, their agent could enter negotiations with verbal authority to make the offer. And because the agent could demonstrate that he had earnest funds, the buyers were able to sign a faxed copy of the offer, and their deal was secured.

And it’s a good thing! The very next day, 3 more offers came in on the home they just put into escrow!

Secret #3: Understand The Basics Of Home Financing

Your ability to afford a home will be related to a number of items. They are…

The PRICE of the home;

Your DOWN PAYMENT on your home, and thus the amount financed;

The INTEREST RATE and POINTS of your loan – the amount a bank charges you for the money;

The TERM of your loan: 10 year, 15 year, 30 year.

The overall TYPE of your loan: Most common is fixed vs. variable rates. But there are hundreds of loan packages to choose from.

And just in case you were looking for a specific "rule of thumb," for financing your home, you should know that…

There Are NO General Rules Of Thumb About Financing Your Home.

Each case is different, and your personal financial circumstances will have an impact on how much home you can afford.

However, you MUST understand the relationship and impact interest rates, term of loan, points, and type of loan can have on your overall financial picture.

Let’s start with the "amount financed" first. Many people often pay cash or put 20% or more down as equity. The reasons they do this are…

"The bank required us to…"

"We’ve just always put down this amount…"

"We wanted a lower payment."

Problem is, these reasons could cost you thousands of dollars.

The answer for how much you can put down on your home is different for most people. However, I have learned over time that…

Many People Put Down More Cash On Their Home Than They Need To,

And Could Have Received A Better Return On Investment Had

They Invested The Money Instead Of Putting It Into Their Home

Here’s a simple and fast way to "ballpark" the actual annual return on investment you get from the money you put down on your home:

Take a look at the homes in your area. How much have they appreciated, each year on average, over the past 5 years? For example, you might find that values have increased an average of 1.5% a year.

Now, take the total cost of your home, multiply that value times 1.5% (the average expected annual appreciation of your home). For example, a $150,000 home increasing value at 1.5% for the first year. Thus, the home will be worth $2,250 more a year from now.

Now, divide the amount of increase in your home ($2,250 in the example) by the total amount of Down Payment you put into the home. For example, if you put down 20% (or $30,000), then $2,250/$30,000 = 7.5%.

Now 7.5% sounds like a fair investment. But the question you need to ask is this: Can you make more than 7.5% elsewhere?

And did you notice something else here? Had you put down just $15,000, your return on your Down Payment would be 15%!

The moral of the story: Putting more money into your home may make your banker happy, because it lowers the risk of getting his money out if you default.

And it may make your overall payment a little lower…

But it may be a wiser decision to put less into your home, IF you can locate an alternate investment that will pay greater interest on your hard-earned equity.

Now, let’s shift gears a little and talk about the impact Term and Interest rate will have on your overall financial picture.

How INTEREST RATE and TERM can make or COST you thousands.

Mortgage lenders toss around interest rate numbers as if they didn’t matter.

They DO!

And to illustrate the impact interest rates can have on your overall financial picture, I’ve presented a table below showing the interest you pay over the term of a 30 year, $150,000 loan at 8%, 7% and 6%.

And here’s the clincher: Just ONE percentage point on a $150,000 loan can cost you almost $37,000 over the term of the loan! TWO percentage points will cost you over $72,000!!

Your banker might tell you his "slightly higher rate" is only a matter of $103 a month in payment. But YOU should know better! Take a look at the table below…

Loan Amount







Interest Rate







Monthly Pmt.







Interest Paid














That’s money taken out of your pocket if you don’t look for good rates!

And if you think interest rate has an impact on your overall financial picture, take a look at what modifying the TERM of your loan can do…

Here’s another example of a $150,000 loan at 7% interest. But this time, we examine the total interest paid when you select a 30 year vs. a 15 year vs. a 10 year amortization…



30 Year


15 Year


10 Year

Interest Rate







Monthly Pmt.







Interest Paid














The "bottom line?" Estimate the maximum amount of payment you can afford, and adjust TERM and INTEREST RATE of your loan to minimize the amount of total interest you’ll pay.

But then your banker cuts in and says, "but the interest you pay is Tax Deductible…" And you should know this: If you’re in the 28% tax bracket, for every dollar in interest you pay, you only save 28 cents. Don’t go spending a dollar to save 28 cents if you can help it!

Here’s How To Instantly Know How Many Points You Should Pay…

Another consideration in the formula is the amount of POINTS your lender will charge you to initiate your loan. And what you’ll notice is there’s a GAME being played with you.

And if you don’t know the rules of the game, YOU LOSE!

Sitting across from a banker while he throws obscure numbers at you like you’re a human dartboard can be pretty overwhelming. And frequently you’ll hear terms like "7.5% with 1.5 points," or "7.25 with 1 point."

All-the-while you’re thinking to yourself, "I have no idea what the financial impact of this guy’s blabbering means to me." And quite frankly, your banker knows…

The Less You Know About What You’re Paying

The Better For HIM!

So hopefully this little "ballpark" example will help you quickly determine the best points-to-interest rate for you. How many points should you pay, and what formula is best for you? Here’s a little help…

If a banker is giving you several options of interest rates and points, you need to sort out the financial consequences so you don’t lose money. Say, for example, you were considering 2 loans. Both are for $150,000, and both are 30 year amortization.

DEAL #1: One loan he offers you is 7.5% with 0 points for origination…

DEAL #2: Another loan he offers you is 7%, but he wants 2 points to originate the loan.

What’s the ONE factor that will determine which loan is better?

How LONG You Keep The Loan?

The first thing you need to think about is how long you’re going to live in that home. The average homeowner spends about 5.5 years in their home before selling for whatever reason.

So, for example sake, let’s say you plan to live in the home 5 years. Here’s how you determine which deal is better…

Take the difference in monthly payments (principal and interest only) of EACH loan…

Multiply that amount by 12 months to get the annual amount of difference…

DIVIDE that amount into the $$ amount of points you pay to determine the number of years at which you recover the points paid up front. If the number of years is LESS than your anticipated time in your home, you’ll be better off paying the points and getting the lower rate. If it’s higher than you plan to spend in the home, opt for the lower points.

Here’s an Example…



#1, $150,000


#2, $150,000







$$ Points





Interest Rate






Mo. Payment






The difference in monthly payments is $51 a month ($1049 - $998 = $51).

$51 X 12 months is a savings on (approximate) interest of $612 per year.

Total Cost Of Points divided by $612 is 6.13 years ($3,750/$612 = 6.13).

The result? If you stay in your home for 5 years, you will NOT recoup the points you paid up front with the savings in a lower interest rate. Recoup time is about 6 years and 2 months to breakeven.

So your best bet would be to select loan #1.

If, however, you planned to keep your home beyond 6 years and 2 months, you’d be better off with loan #2 (i.e. the overall savings in interest rate will exceed the amount you paid in points – not considering the time value of money).

Are you starting to see how important it is to understand your home’s financing? How important it is to shop for the best rates, terms, and points?


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