Intro

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Welcome to the 5 Minute Prime Podcast. Quick actionable tips to master personal finance and real estate investing. In just five minutes a day, we'll help you build wealth and achieve financial freedom. Hey Prime Investors, Martin Maxwell here. Welcome back to the 5-Minute Prime Podcast.

The offer

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Say you've found the house. The pre-approval letter is sitting in your email, your agent just texted, and the question is simple: are we writing an offer tonight? The rate is the thing everybody wants to talk about. In early October, the 30-year fixed reached 7.4% in Freddie Mac's weekly survey, its highest since November 2023. And the Fed meets this week, so half the internet is busy guessing. I'm not going to guess. You can't fix the rate, and a lower rate later would be a bonus, not a plan. Here's what I'd rather you think about. In the National Association of Realtors' most recent annual survey, first-time buyers were just 21% of home purchases, a record low, and the typical one was 40 years old. If that's you, you waited a long time for this house. You can't afford to buy it unready. So what can you fix before that first offer? Four things. Odds are you've done one or two of them already. Let's check the rest.

01 · Your cushion, in months

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Number one is your cushion, and I want you to count it in months, not dollars. Let's use the typical American home. About $369,000. You put 10% down. At $1.4, principal and interest come to about $22.98 a month. Add property taxes, homeowner's insurance, and mortgage insurance, and the full payment comes to about $28.58. Now say you'll have $10,000 left after closing. That sounds like a real cushion. Divided by the payment. Three and a half months. Here's the part that surprises people. On a one-unit home you'll live in, Fannie Mae's automated underwriting may ask for zero months of reserves. Zero. So the lender's minimum isn't a safety net, it's the floor under the floor. Why months? Because the things that drain a cushion come in months. A job change that takes eight weeks to land. A furnace in January. A tenant who leaves if you're renting part of it out. Six months of that payment is about $17,000, on top of roughly $48,000 to close. I've made the case before that a deal can work and you can still be the risk. Counting in months is how you find out, before you sign anything. Number

02 · The lender's number

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two is the pre-approval. Get one. That part's non-negotiable, but read it for what it is. The Consumer Financial Protection Bureau puts it plainly. A pre-approval says the lender is generally willing to lend you up to an amount, and it's not a guaranteed loan offer. It's the lender's number, not yours. Say your household makes $120,000 a year, and you've got a $450 car payment. A conventional lender's automated system can let your total debts reach half your gross income. That leaves $45,500 a month for housing. Run that through the same assumptions, and the letter could say you qualify for about $597,000. The typical house we just priced takes about a third of your income, car included. The letter would happily approve one that costs $228,000 more. That debt to income test answers one question. Will you keep making the payment? It never tells you the house is a good buy, or that you'll have anything left when the water heater goes. A pre-approval isn't a yes, and clearing a lender's test is never evidence the deal works. Now check the date on the letter. If it was written around September 10th, the average rate was 6.76. On our 369 house, the move to 7.4 adds $143 a month, about $1,700 a year. And that same income now qualifies for about $33,000 less house than it did in early September. The payment at this week's rate is the one you'll live with, so that's the one to run. Your rate isn't yours until it's locked. The one variable in the deal that really is yours is your close date. And if you already have an offer out near the top of your letter, don't panic. Run the full payment at this week's rate tonight. If it fits and you'd still have six months of that payment left over, you're in range. Then get the insurance quote before anything binds.

03 · Your team, insurance first

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Number three is your team. In the second edition of my book, the core four became the core five. An agent, a lender, a property manager, a contractor, and now an insurance agent. The insurance agent made the list because insurance stopped being a line you fill in at closing. It decides deals now. On a first property, you might not need the property manager yet. You do need the insurance agent, and you need them before the offer, not after. If any part of the house will be rented out, tell the agent, because a rented unit changes the policy and landlord coverage is priced differently. Remember the insurance line in our payment? $121 a month. That's the middle of what homeowners with a mortgage told the Census Bureau they paid in 2024. Treat it as a placeholder. Depending on the state and the house, the real quote can come in a lot higher, and in some places, a standard carrier won't write the policy at all. So get a written quote on any house you're serious about before you make the offer, while saying no still costs you nothing.

04 · Your own screen

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Number four is the easiest one to skip. A deal screen you run yourself. Not the agent's comps, not the lender's letter, yours. If this first purchase is a rental, here's the 32nd version. Take the same typical house with 25% down, a common down payment on an investment loan. At 7.4, principal and interest are about $19.15 a month. Now take the typical rent, about $19.48, and apply the 50% rule. Half of it goes to taxes, insurance, repairs, vacancy, and management. That leaves $9.74 to cover a 1915 mortgage. Minus $9.41 a month. And that's at the home buyer average. An investor loan usually costs more. That isn't a verdict on rentals. It's a verdict on that house at that price at this rate. To break even, the rent would need to be about $38.30. Nearly double. So the screen sends you somewhere else. A different metro, a different price, or a different play, like living in one unit of a small multifamily. That's what a screen is for. It says no fast. So your evenings go to the deals that might say yes. Write it down once, like the buy box we built. What you'll buy, where, and at what numbers. Then run every house through it before anyone else's opinion lands. Buying the home you'll live in? Same idea. The full payment at this week's rate, next to the rent you pay now and the months of cushion you'll have left.

Tonight's four numbers

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So here's your challenge for tonight. Write down four numbers. The full monthly payment on the house you're eyeing at this week's rate. Your cash after closing divided by that payment in months. The insurance quote in writing, and your own screen's answer, yes or no. Then what? Any number you couldn't fill in is your next phone call this week, not your next offer. And once all four are on the page, write the offer at a price you picked, not the one on the letter. The calculator on reiprime.com runs the math at today's rate, or use any spreadsheet you trust. The rate is the part you can't control. Everything on that list, you can. I'm Martin Maxwell. This has been the Five Minute Prime Podcast. I'll see you next episode.