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“The goal is not to buy a home, the goal is to own that bad boy": Financial Expert

Chris Hogan, Ramsey Personality and Financial Expert joins the Yahoo Finance Live panel to discuss how to buy and save for a house to avoid 'buyer's remorse’.

影片文字紀錄

AKIKO FUJITA: The red hot housing market has led to a record rise in mortgage debt. That number topped $10 trillion last year, pushing household debt to nearly $15 trillion. So how should you save for a house to avoid buyer's remorse? We've got Chris Hogan, Ramsey Personality and financial expert. Chris, it feels like there is a lot of FOMO that's happening in the market-- people who are sort of worried about missing out, sort of jumping the gun. What do you see as the biggest mistake that you've seen played out in the housing market over the last year as people really try to race ahead to avoid having to pay what they expect to be much more down the line?

CHRIS HOGAN: Well, you're absolutely right-- FOMO is definitely fueling a lot of things right now. But along with that, we have the pandemic where people are spending more time at home than they ever have before with interest rates being as low as they are. But then you also have the housing inventory is shrinking. And so we're seeing people that are feeling this urge to hurry up and get something done for the sake of missing out.

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And I really want to caution people on this, because I'm also reading stories of people that are living their nightmares where they've jumped ahead of their financial situation to hurry up and buy something, or they forwent having a home inspection done just to hurry up and buy a home, only to find black mold. So there's a process that we need to follow to this to make sure that buying a home ends up being a blessing more than a curse.

ZACK GUZMAN: Yeah and when we talk about that side of it, the excitement around jumping into buying a home-- obviously, it's a pandemic, so a lot of people might just want more space. But on the debt is good front, it's weird, because it's a little bit different when we think about inflation expectations starting to go higher and higher. Some people might say, look, it'll be easier for me to pay back a mortgage if that, indeed, happens-- at least in the short term. So talk to me about maybe that being a piece of this too around inflation expectations.

CHRIS HOGAN: Well, I would say this-- you know, the last thing you're going to do is make a home-buying purchase decision based on what inflation might do. But I also caution people the same that you're not going to buy a home just because interest rates are low. I mean, let's be honest-- the goal is not to buy a home, the goal is to own that bad boy. That means we want to pay it off and have it. And so it's really about positioning-- making sure you're in a position to buy a home.

So I've got some tips for people. You know, first and foremost, I want you to get out of debt. I want you to pay off all the credit cards, student loans, car loans, get those things out of your life. And then I want you to build up a fully funded emergency fund of three to six months of expenses. That way, you have a cushion between you and life happening. But then I want you to have a game plan for your home.

And what I mean by this is you need to define how much are you going to spend on a home, right? And when you get ready to go into that direction of how much you're going to spend, there are a few guidelines I want people to follow. And this is important-- you only want to do a 15-year fixed rate mortgage. Now, I know the West Coast is getting creative with 40 and 50-year loans. We're not going there. We're going to do a 15-year fixed rate mortgage.

But you don't want a mortgage payment of more than 25% of your take-home pay. Because, let's be honest, you've got to live life not just buy a home. So you've got some things to do, but you also need to save for a home down payment. Now, minimum of 10% down is good, but I'd prefer you go in with a 20% down payment. This is going to allow you to go in with some equity and also be able to avoid PMI, which is private mortgage insurance. And by the way, PMI only protects the lender. It doesn't protect you. So having these guidelines in place will ensure that you buy a home the right way instead of just jumping the gun because your parents say so or your neighbors did so.

AKIKO FUJITA: So, Chris, this is all great advice, except for those who have already jumped in on the market and purchased a home. And I wonder how you're looking at this in relation to what played out during the last financial crisis-- the default rates, how significant you anticipate that to be, given the types of buyers who've jumped in this time around.

CHRIS HOGAN: No, this is a really good point. And you bring up '08 and '09, and I literally was having some flashbacks. Because looking at this, this is where people were overextending based on real estate. It was this hot thing that's going to happen. But you know, when we start to look at this perfect storm that happened in 2020, we had the pandemic. We had 54 million people unemployed. We had interest rates low and the housing market booming.

And so it just causes me concern. And I hope that people are in a position with an emergency fund to be able to afford that home if and when there's another downturn or something happens to their job. And so this is just one of those-- I want people to be aware, be in control. If you did already jump the gun, and maybe you bought more home than you can afford, it's really important to start to understand your options. What can you do? You're not stuck there for another 20 or 30 years, but it is important to get understanding of your options and know what you can do to unwind this.

ZACK GUZMAN: Chris, last question for me too-- just more on this kind of being a weird time for up is down, and down is up advice in the personal finance space, because now we're hearing people say, look, maybe don't pay off your student loans just yet because they might get canceled. Or file your taxes later, because if you made more money this year, you could prevent yourself from getting a stimulus check. So it's all kind of strange advice in this window. So just you personally, I mean, what's the biggest stand out for kind of giving advice in this era we find ourselves in?

CHRIS HOGAN: Well, you're trying to get me riled up. You hit on a couple of topics there I could talk for hours. But I'm going to be brief-- first and foremost, with student loan debt, let's be honest-- interest that you pay is a penalty, interest that you earn is a reward. So any kind of debt that you have is a threat to your financial future. The student loan cancelation-- listen, we have been hearing this for 12 to 14 years.

Every election cycle, it's something they tickle people's ears with, because they know we've got a true financial situation with $1.7 trillion in student loans. The reality is this-- there have been no clear parameters about them forgiving student loans or not, or all the stipulations around it. I'm hearing that they're to have people commit to community service for x number of years per dollar amount paid. The bottom line is this-- we're not going to wait on the government to save the day. We've got to take control.

And so it's us having a game plan to eliminate debt, get it out of our lives. And let's be clear-- on the whole financial front right now, I think we have to continue to control the controllables. Debt is a threat to our financial future, an emergency fund is absolutely crucial to protecting us and our families, and saving and investing is the way that we're going to get to spend in retirement. So we need to have a plan, because if you don't, other people have a plan for your money.

ZACK GUZMAN: That's a very good point. All right, Chris Hogan, financial expert, always love having you on the show. Thanks again, and be well, sir. We'll chat soon.