HGTV Makes Home Buying Look Easy
The picture of the American dream has historically been painted as a single family home with a garage, a white picket fence, and a dog. This year I embarked on my journey to acquire a slice of the “dream”, well at least the home ownership part. Truth be told, I am terrified of the responsibility associated with a single family home and I am allergic to dogs so needless to say my American dream is definitely improvised.
Why now? With the interest rates reaching an all-time low this is the perfect time to purchase a home. Having been on the journey for a couple of months now, I wish I would have done it sooner. Someone put it to me in the simplest of forms – “in paying rent you are literally giving the money away vs. owning where your mortgage is building equity into your home. Think of it like a savings account where the worst case scenario is that you sell the property for less than you purchased it for as opposed to renting, where once you move out of the property the money you spent to live there is just gone for the same exact utility of home ownership. Once it was broken down to me like that it became a no brainer. Despite knowing this truth, I was completely intimidated by the process of buying a home largely in part because it can be an overwhelming when you don’t know where to start.
Today’s blog is intended to demystify the home buying process because let’s be clear watching House Hunters is not going to cut it. Take it from me, having consumed enough HGTV to have a masters degree in interior design and doctorate in millennial home buying, I can tell you all of that information was useless when actually getting to the nitty gritty. Here are a few tips that I had to learn along the way which will help get you started.
1. Get your finances is order! This is a big investment and there are multiple cost associated with buying a place. I would recommend you listen to the great philosopher, Kevin Hart and move your checking to your savings because you’re gearing up for an expensive few months pre and post signing on the dotted line – meaning you will need to be cash liquid as you approach closing. Outside of your down payment and other associated fees you’ll have to prepare for moving cost, furniture, initiation fees, décor and now your new mortgage.
2. Get an understanding of the associated costs. Websites like Zillow, Trulia, Realtor.com and other related apps will have you thinking you can afford a lot more than you can by showing you sticker price and proposed monthly spend. They put the responsibility on the buyer to read the fine print. Their estimates are based on certain down payment percentage and don’t often include all associated costs. When considering how much home you can afford there are multiple line items to consider beyond the sticker price. A lot of these costs will be estimated then totaled into one lump sum and broken down monthly by your lender to make up what will potentially be your mortgage, but it is important to understand them individually:
a. Earnest money – Money you have to put down to show the seller that you are serious about purchasing their property. If you move forward with the property your earnest money will be applied to your down payment as the process progresses.
b. Down payment – Cash you have available to put toward a house at time of closing.
c. Closing costs – Cost needed to pay the attorney to protect the sellers and buyer interest during the transaction including the cost of inspection, paperwork filings, and holding funds in escrow
d. Property taxes – The annual cost to live in the city limits of where the property is located.
e. Mortgage insurance – Cost to protect your loan.
f. Homeowners insurance – Cost to protect your home from an unfortunate occurrence. (Think natural disaster, fire, break in)
g. HOA – Homeowner association fee, cost to maintain the neighborhood or condominium
h. Utilities – Necessary home operating amenities (power, water, etc)
3. Get your wish list. Take some time to thoroughly figure out your absolute must haves and things you can live without. What type of space are you interested in -- single family, town house, or condo? Do you want to be in a specific location or are willing to sacrifice your ideal location for your dream kitchen? There are thousands of homes on the market at any given moment this will help you refine your search and allow you to focus exclusively on what you want.
4. Find a realtor that you trust. The older you get, the more you will begin to realize that you know more real estate agents than you thought, which can make it difficult to choose the best fit. Find someone who understands your preferences AND understands the market that will help you feel confident that you are making an informed decision. Most realtors won’t take you seriously unless you have a pre-approval letter. This is simple to acquire, call your local bank and speak with a mortgage specialist and tell them you want a preapproval letter. They will want to move you toward a prequalification letter – that requires a hard credit pull and if you aren’t ready to purchase you will want to hold off as a hard credit pull will negatively impact your credit score. When speaking to the specialist be firm that you only want a preapproval letter. They will then ask you questions about your credit score, income, savings and how much you think you can afford and based on that information they should be able to get that over to you.
5. Get a lender. Once you’re ready to begin this journey you are going to need to know exactly how much you can afford. No one can tell you that truly except for your lender. This is the person who is going to comb through all the granular details of your financial history and tell you exactly how much you can borrow plus your interest rate. You are going to want to get a second and maybe even a third opinion to make sure you have the best option. Note lenders WILL do a hard credit pull. It is best to shop for lender within limited time span 15 business days as multiple credit pulls can negatively impact your credit report.
Now that we have done all of the homework here’s the fun part, you get to start looking! You’ve done all the preliminary work and assembled your dream team now all there is left to do is start looking. There’s no defined length of time to find your house, the first one you see can be the one or the 100th one you see. That will only be determined by you. I will be the first to tell you, that the process is an emotional roller coaster. But that’s why amusement parks bring in millions of dollars a year because they are exciting. With every home I see I know I am getting closer to the home of my dreams – at least for the next few years. Until then happy hunting and stay tuned to part two. What to expect when you’re expecting…to close.
