Are Some Loans Better Than Others? Kris Krohn Explains FHA Loans, VA, USDA, & Conventional Mortgages

You can leverage loans to make money or to lose money. Because there are good loans and there's bad loans. And in fact, there's a total of 7. Today, I'm going to share with you all 7 types of loans. How I've used some of them to become rich and how others have gotten into hot water. And we're going to start today by me showing you how I deal with my bad loans. Man, eliminating bad debt for me is fun. It's kind of like a video game, right? Like if you know how to play the game and you know how to win, it feels good. When it comes to money, people suck at it. Like you can either for example use loans to make money or you can use it to lose money. And today, I want to help you understand the difference so that you can be the financial ninja I know you are. So that you can crush it in life financially. First of all, what is a loan? A loan is a borrowed sum of money that is expected to be paid back with interest. Like think about a bank. A bank lends you money but they don't just want their money back. They want their money back plus a little bit of interest. That's the extra money that they get. You're just so extra. Extra? Yeah. Extra what? In fact, the usage of the word itself. Loan has gone up increasingly since the Industrial Revolution. Bottom line is lending and borrowing money is really a way of the economy. And if you want to be a part of the economy, if you want to get good at the game of making money, then you need to learn how to borrow money the right way. But Kris, isn't debt bad? I mean, if I get a loan and I owe someone money, this is bad, right? Not correct my friend. There are in fact 2 different kinds of debts. One is good, one is bad. For example, this is what bad debt is. It is a loan that does not make you money. Like for example, let's say I borrow money to buy a car. Well, I owe money to the bank and the car goes down in value and I have to keep paying on it. Or it's a credit card, right? Like I'm buying things that I don't have money for right now. That's called a consumer debt. And it's bad because every month that you have a balance left on that credit card, you have to give money to the bank but you also have to give them interest. And often, it's not a little bit my friend. And what about the house that you live in? Did you know that your primary residence or the house that you buy to live in, if it's not making you money, it's also considered a bad debt. But why do I love being millions and millions and millions of dollars in debt? Millions and millions. It's a good question. That's because there's another kind of debt. It's called a good debt. This is a loan that makes you money. For example, let's say you buy an investment property. It's not for me to live in. My renters are going to live there and they're going to give me more money than I need every month to pay the bank back. And that difference, I get to keep. And it makes me money. Or for example, let's say there's a business that I want to run. My business needs some money. I take out a loan but it allows me to make a lot more money. Or finally, student loans, right? Kris, how do you feel about college debt? If you are in fact using your college degree to make money at a job you couldn't have gotten otherwise and that's making you more money than you would have gotten otherwise, that's actually a good debt. It's an investment. On the other hand, if you went to college to get a piece of paper that says you're smart and you're actually not using it to make money, I would actually call that bad debt. So, in this context of talking about loans, this really is the question of the day. How do you borrow money to make money? Let me tell you about house that I bought in my early investment days. This was a cheap house probably in the wrong side of town that I got from the bank for $97,000. It was already worth over $130,000. So, I was thrilled about the discount that I got on it. By the way, if you want to know how I pick up homes at really good deals, you need to make sure you're a subscriber because I teach that on this channel all the time. So, in buying this house, I was really young in the game and I was super nervous. Because even though it was a cheap $97,000 house, I was promising to give the bank $97,000 back plus a whole bunch of interest. And I was young enough where that actually made me really afraid. But you know what? I had a mentor that walked me through the deal. I decided to pull the trigger on it. And things didn't go perfectly smooth on that deal. But years later when I sold it, I made over $65,000. That means that the bank got paid off all the money that I still owed them and there was $65,000 left over. I would have never made that $65,000 if I hadn't actually borrowed money from the bank. So, let me show you how to do it. If you want to know how to leverage loans to make money, then you need to first understand the 7 different type of loans that are out there in the market. And the first one is called a fixed rate loan. The most common type of conventional loan, a fixed rate loan prescribes a single interest rate and monthly payment for the life of the entire loan which is typically 15 to 30 years. Here's a very simple way to actually understand it. If I have a fixed rate mortgage, it means that I have the same interest rate. It's never going to change and I'm going to have it for the life of the loan. This type of loan gives me huge predictability. Doesn't matter whether the economy goes up or down. Doesn't matter whether banks are struggling or breaking in the dough. It means that you can depend on that mortgage and those terms, that interest rate staying the same for the life of the loan. By the way, for a lot of the deals I do, I love fixed rate loans because I love predictability. I want to know that nothing can screw this deal up if I've done a good job and I'm making a pile of money. The next kind of loan that I want to teach you about is an arm or an adjustable rate mortgage. Arms will typically offer you mortgage interest rates lower than you'd get with a fixed rate mortgage for a period of time. After that, your interest rate will adjust usually once a year roughly corresponding to current interest rates. This basically means that when rates go up, your rate will go up with your arm. But if they drop, then it can actually go lower. So, if you're interested in this type of loan, you're probably curious about how they even define your rate. Well, it's based on 2 things. First of all, banks like to look at some type of index rate. For example, the LIBOR. This is something they use in London that determines their interest rates. And then they'll take that and they'll add to it a margin. You might think of that as like profit. Like the LIBOR is at 3%. We always have a margin of 1%. 3 plus 1 is your rates going to be 4%. But guess what? This next year, the LIBOR went down a percent. It's now 2%. Well, 2% plus the 1% margin, now your interest rates going to be 3% for this year, not 4%. So, it's going to adjust. Now, listen up my friend. Arms are great if you're planning on borrowing money for a very short period of time. But for example, when I'm buying real estate holding it for 5, 7 or 10 years, that's too long for me to want an arm. Step 5, once you've completely cut off your arm. Because if I buy a house and I have a cash flow of $300 a month, if next year interest rates go up and now my cash flow turns into only $100 a month, I'm pissed. Where did my cash flow go? It's because I chose a loan that is tied to something I can't control. For that reason, I'm out. I'm out. I'm out. I'm going to go back in. And for that reason, I'm out. I'm still out. This next kind of loan is for people that need a huge loan. Whether it's a fixed rate, whether it's an arm, those big loans, they're called jumbo loans. A jumbo loan is a mortgage used to finance properties that are too expensive for conventional basic conforming loans. The maximum amount for a typical conforming loan is $510,000. If you need more money than that, you're now going to fall into a new loan category called a jumbo loan. Recently, I had a subscriber asked me how I felt about jumbo loans. And I thought I'd frame it up this way. Is it a jumbo loan or it is a gumbo loan? I mean, the reality is I live in really nice big expensive homes. And they're not always paid off because I like to use my money to make money. So, when I buy a multi-million dollar property, guess what I'm getting? I'm getting a jumbo loan. And you know what? I've earned it. I've made the money. I've built my wealth. And that's a great product for me when I'm buying something really big. But I'm going to tell you that if you're at the beginning of your journey of building wealth, you shouldn't be looking at jumbo loans. You might be trying to live too rich of a lifestyle. Especially when it comes to purchasing investments. You'll notice that on my last 4,500 homes, they're all under the price point of $140,000. Which means there's nothing jumbo about them. I do that because I like predictability in my cash flow. I like to have lots of growth. Ultimately, I like to have a big ROI. So, if you are considering getting a jumbo loan for a large investment property but you don't have a lot of experience with it, you could be making a big double mistake. The fourth type of loan is my favorite when it comes to first-time homebuyers. There's a government agency that has actually given you an upper hand to encourage you to own your very first home. It's what's called an FHA loan. It stands for the Federal Housing Administration. Our government wants you to own real estate. For many people, that's tied to their American dream. Now, I want you to understand that when you actually acquire real estate, normally the bank wants you to put 20% down. But from realtor.com, they explain that the government, the Federal Housing Administration gives you this special type of FHA loan where you can put down as little as 3%. And that's because the Federal Housing Administration loans are government backed. Now, you probably know by now that I love the root for the little guy. Someone that hasn't built their wealth yet. I work with millionaires. I work with people that have financially made. You know what brings me a lot of joy? Helping someone that doesn't know where to get started learn how to step into their first million dollars. And if you're subscribed to this channel because you like my information about real estate, you probably know that my first advice is for you to buy a house for you to live in and get that 3% down on an FHA loan as opposed to giving 20% down to a bank. I mean, think about it for just a second. A $200,000 home, that's like a $40,000 down payment if it's 20%. But that's like $6,000 if it's just 3%. I look at this kind of like a shortcut. When I bought my very first house, I was getting it for $110,000. It was worth more than that. And with only 3% down, I had to write a $3,300 check to the bank for them to actually get me that house with an FHA loan. And believe me, I'm super appreciative. Because 5 years later when I sold that house, I made over $60,000. And it meant that I could make that deal happen because in the first place, I had less than $5,000. FHA is how I got started. By the way, funny little fact most people don't know. You can keep using an FHA loan over and over again every time you move. In other words, it's not literally for like the first house you ever buy. It's really for the next time you buy a house that you're going to live in, you can get a first-time homebuyers loan at FHA Loanman. That's going to score you some real dough if you use it. If you have served in the military or in any of its branches, did you know that the government, Uncle Sam really loves you. As much as they love helping Americans get loans, they have something very special for you. It's called a VA loan and it's for veterans. If you're actively serving or if you have in the past, the government makes it basically as easy as possible to get a loan. Because instead of a 3% down payment, guess what? You get a no down payment. And they make qualifying literally so easy. It's literally like almost just walking into the house that you want and getting a government-backed loan. By the way, they also do not enforce mortgage insurance requirements which is going to save you probably 2, 3, 4 hundred dollars a month. That rocks. And again, thank you to our military. You guys deserve it. Now, listen. Maybe you haven't served in the military. But do you know someone who has? They've got a free ticket to ride and you could ride that trip with them. If you've been looking for a reason to get in the game of real estate, guess what? That's a freebie. So, go out make some friends. You know, some people make fun of rednecks. But they also get some really cool loan options. I call this the boonie loan. Basically, the USDA, the Department of Agriculture says, you know what? Families that live super rural, check this one out. You also have no down payments and you're going to get a discount on your interest rate. For some reason, they want people living in the middle of nowhere. I wonder if that's how Kanye West got his 14 million dollar ranch in Wyoming. People's foreheads... Certain people have really big foreheads. So, if you have the push-up lining and the push back lining. And we're trying to adjust and make these boxes look like they're the same. Because their forehead is so small. And finally, the seventh kind of loan is what is called a bridge loan. This is designed for people that have a house but then they're moving and they're trying to get another house. And they're trying to figure out how do I juggle having more than one mortgage. Banks call it a bridge loan. It's where you wrap your current and new mortgage payments into one. And once your home is sold and you pay off that mortgage, you basically refinance and have it all wrapped into one simple loan. This makes the lending process easy for people that have that predicament of how do I balance this house and my new house. So, back to the question of the day. How do you borrow money to make money? Well my friend, at the end of the day, it comes down to why are you borrowing money in the first place. If you can show me that you're going to borrow money and that it's going to make you money, there's a good chance you're trying to acquire a good debt. But if you're just buying something because you want to elevate your lifestyle, you want to have something and you become worthless, worthless for that choice, that's going to be a bad day. Now that you understand what loans are and that it is possible to use them to make money, I want to show you how to actually strategically use several of these kind of loans to get into so much debt that it can literally make you hundreds of thousands of dollars and for you maybe even millions of dollars. If you want to know how I did that when I was in my early 20s and how I'm still doing it today but just at a jumbo size level, then go ahead and click the link below and talk to a member of my team and say, I want a game plan. I want to know how I can use Kris's knowledge of loans to make me money. And if you just want to text me directly, it's right here on the screen. Give me a shout out. Let's connect with each other. Let me show you how to crush it with this knowledge in making a lot of money. Do you know how cheap money is literally right now in the world? I'm talking about money being cheaper to borrow than we've seen in the last 50 years. In fact, I had to make a little video about it and show you how you can get the banks at their own gate. It's almost going to feel like robbing the banks, sacking the banks, plundering, cutting their heads off. Click the video. Stop!