Tag Archives: Personal Finance

10 Things I Didn’t Know About Buying Our First Home

My wife and I are in the process of purchasing our first home.

While interest rates are likely going to stay low for a few more months, prices are going up and inventory is down. In short, it’s a great time to take the dive if you can swing it.

I’m excited that we may be in our own home soon, and I can’t wait to do some of the projects I’m reading about at Young House Love.

I’ve talked to a lot of folks and researched homebuying for a little longer than a year, but as I’m sure you can imagine, the actual process brings new challenges that I didn’t know about. If you’re a potential first-time homebuyer, I invite you to learn with me. Here are the ten things I didn’t know about buying a home and ten tips for you as you begin the process:

1. Shop for lenders, get pre-qualified and be realistic about what you can afford.

Before you make an offer, you’ll need a letter of pre-qualification from the lender. This shows the seller that you’re likely capable of making a purchase. Pre-qualification normally lasts for a few months, so don’t do it until you’re geting close to making an offer, since running your credit will take a few points off of your score. Talk to a few different lenders, since most of them have access to the same mortgages. I’d recommend obtaining your credit scores from the first lender you talk with so that you can shop other lenders without having them run your credit score every time. If you’re hearing two very different things, dig deeper to see who is telling you the truth or what you may be missing. We dealt with three lenders over the past year, and most of them gave us similar numbers.

As you know, your credit score, job history and assets will be the factors that determine how much house you can afford. While you may have a high credit score and a solid income, I would not recommend shopping for a home based on how large of a loan you can obtain. Determine how much you’d like your monthly payment to be, and use that as a basis to determine your price range.

2. Find a buyer’s agent and use them.

The whole process moves quickly and you’ll be putting your signature on countless documents before you ever receive the keys. Use a real estate agent that can help you navigate through the system. We are fortunate to have two family members assisting us, and without their help, we may have missed some important things.

Remember that the listing agent works for the seller, and they want to sell the home quickly and for as much money as possible. A buyer’s agent will work for you, and they’ll receive a small commission payment when you purchase the home (this is included in the purchase price).

3. Don’t waste your time shopping.

Once you determine how much home you can afford, set as many filters as you possibly can on the home search engine you’re using. We knew we wanted three or more bedrooms and two or more bathrooms, but we wasted valuable time looking at a few homes that only had one bathroom. We also wasted time looking at homes that were out of our price range. It can be discouraging to look at homes you can’t afford, so don’t do it. If you realize you need to wait until you can afford a better home, then do that. But don’t look at homes out of your price range.

We also looked at a few homes that were zoned for schools we knew weren’t performing well. Even though this was one of the most important factors we considered during the homebuying process, we wasted time looking at homes in bad school districts that were newer and cheaper than the one we decided on. This was pointless.

You get what you pay for, folks, and sellers aren’t stupid. Most have a fairly accurate idea of what their home is worth. If it looks too good to be true, you’d better find out what the catch is and decide if you can stomach it.

4. You need to be prepared to throw down some cash the day you make your offer.

I thought we wouldn’t need to put any cash down until closing day. Actually, earnest money is required to prove to the seller that you’re serious about buying the home. This cash is credited to your down payment or closing costs on closing day, but be prepared to put down about 1% of the purchase price when you make your offer. If you walk away from the home during the contingency period, you can get this money back. Check out number 7 for more information about the contingency period. If you get the home fully under contract and opt to walk away, don’t expect to get this cash back.

5. Your down payment won’t cut it.

I heard the term “closing costs” before, but I didn’t know how much they would be. In fact, our closing costs are higher than our down payment. We asked the seller to cover closing costs, and they agreed, but this is a cost you should factor in if you’re serious about purchasing a home. The closing costs cover attorney’s fees, lender fees, the first few months of homeowners insurance and property taxes and a few other fees you may not have realized you would have to cover. You may also hear the term “pre-paids”, which refers to the insurance and taxes you pay in advance.

6. Ask for a one-year warranty that includes appliances.

During the first year of home ownership, I assume that something will break. Don’t let it break your recently-depleted bank account too. Warranties only cost about $500 and they can cover things that may break in the home. It’s quite normal to request the seller to include a warranty, so put that in the original offer and make it a point to keep it there.

Many inspectors sell warranties that cover the things they detail in their report as well. Either way, this should give you some peace of mind for the first year when you can’t call the apartment company every time you have an issue in your home.

7. When you put a home under contract, it’s not really under contract.

After we made an offer and the seller countered, we countered again. Once the seller agreed to our counteroffer, the home was placed under contract, but we had a 14 day contingency period. While it’s great to have the gratification of being fully under contract, the contingency period allows you to do your due diligence.

During this time, we had the home inspected, and found a few things that we wanted the seller to fix before closing day. They didn’t agree to fix everything, but they did fix a majority of the issues the inspector raised. After fourteen days, we had an amendment to our contract that included these fixes, and the house became fully under contract. That’s actually where we are now in the process.

You will be expected to pay for the inspection, and it can run you anywhere between $250 and $400, depending on a number of factors. Most lenders do not require an inspection, but it is well worth the investment, especially if the seller agrees to make some fixes. The cost of the inspection will be covered by all of the fixes that we don’t have to worry about when we move in.

8. Mortgage insurance is brutal.

Most first time homebuyers don’t have a 20% down payment for their new home, and so they’ll be required to pay at least some sort of mortgage insurance in order to own a home. Mortgage insurance – sometimes referred to as PMI, for private mortgage insurance – is not the same as homeowners insurance, which covers your home and your belongings in cases of damage or total loss. Mortgage insurance insures the lender if you end up defaulting on the loan. It doesn’t help you at all, but it’s required if you don’t have a 20% down payment.

It is important to understand how much you’ll need to pay each month in mortgage insurance and factor this in to your monthly payment. While your actual mortgage payment may be in your range, when you include mortgage insurance, homeowners insurance and property taxes, you’ll likely see your payment go up a few hundred dollars per month. Most of the time, once you have paid back 20% of your loan, you are no longer required to pay this insurance, but if you’re going the FHA route, you’ll have to pay for PMI for the life of the loan as of June 3, 2013 unless you refinance down the road.

9. Be prepared for the loan officer’s requests.

Getting pre-approved for a loan is fairly painless, but once you have a home under contract, you’ll need to prove all of the things you’ve been saying about yourself and your abilities to buy a home. We had to send in:

  • W-2s for the past two years
  • Tax Returns for the past two years
  • All bank statements for the past two months
  • Pay stubs for the past two months
  • Copies of our drivers licenses

The internet makes obtaining these documents relatively painless, but be sure you know how to access your pay stubs and also that you know where your tax returns are located. If you own your own business or get paid on commission, the requirements are a bit mor stringent, but I’m not familiar with that process. I merely know that the income you said you had during the pre-approval process must be verifiable.

10. Read, understand and believe your lease.

If you’re living in an apartment or condo, you’re probably contractually obligated to some sort of lease agreement. Most apartments require either thirty or sixty days notice when you opt to terminate your lease agreement early, and most will include some sort of early termination charge. If they didn’t, a lease agreement wouldn’t mean much, would it? Often times, this charge will be the equivalent of paying an extra month’s rent in addition to continuing to pay regular rent after you give notice. Dig up your lease when you start shopping and understand the timeline. If your apartment requires sixty days notice before moving out, you’ll probably want to try to push the closing date as late as possible so that you’re not paying rent and a mortgage at the same time.  Your mortgage payment won’t be due until 45 days after closing day, so that will help as well. While some sellers will offer to pay your early termination fee, most lenders do not like seeing this arrangement on paper.

We haven’t closed on our home yet and the process is far from over, but I hope this may help someone searching for answers when they purchase their first home. Let me know if you have any questions or don’t like what I’ve said.

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Your Today List

Boom. That’s the word I use when someone puts me in my place. Chris Brogan really knows how to put me in my place.

Instead of a todo list, make a today list. Make the word “today” synonymous with how you live your vision. Make your view of the future your lifestyle, not a project.

We spend so much time talking about what we’re going to do. We love to tell ourselves that – at our age – we can wait. Here are a few examples:

  1. I’ll start going to church when I get a wife/husband.
  2. I’ll save for retirement when I make a little more money.
  3. I’ll work out more when I can afford a gym membership.
  4. The housing market isn’t going anywhere, I’ll save for a house later.
  5. My job is o.k. now, I’ll wait until “blank” before I look for a new job.

Or on a smaller scale:

  1. I can clean my bathroom later…I’m the only one that uses it anyways.
  2. I’ll make that budget next week…this week is an exception to my normal schedule.
  3. I’ll wake up early tomorrow…I had to work late last night.

I think you get it.

We have to get out of the mindset that the future is in our hands. As we all have probably experienced at least once in our lives, the future isn’t promised to anyone. Turn that To-Do list you’ve made in your head for the “you” that you want to be into a Today list.

Me? I need to work out. I need to find a church with my wife. I put these things off every week, assuming I can work on them when I have more time. The truth is, there just isn’t any time quite like the present. In fact, I probably have more time right now than I will ever have until I retire. What are you holding yourself back from this week?

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Five Books That Helped Me That Just May Help You Too

I love reading, and since graduating from college in 2010, I’ve had more opportunities to read books “for pleasure” than ever before. Ironically, I’ve spent a great deal of that time reading books that I was required to read during my 17 years in school. It’s funny how things work out that way. I could probably title another post “Books I’ve read Since Graduating that I Should Have Read the First Time Around”.

The following five books, however, are resources that I find helpful in navigating life as a twenty-something, young professional, millennial, and newlywed. My hope is that if you check any of them out, they will help you too. In fact, I’d recommend these books to anyone interested in improving their personal finances, use of time, and relationships – no matter how old or young you are.

Number 1: I Will Teach You to Be Rich by Ramit Sethi

I Will Teach You To Be RichImagine if Dave Ramsey had a prodigal son with similar ideas about money but a different delivery approach. Ramit Sethi sets out to renounce the “latte myth,” eliminating the notion that if you want to save money, you should quit going to Starbuck’s every day and put the money you would have spent on that Frappucino in a jar or something. We’ve all heard that before, right? Imagine the thousands of dollars you would save if you stopped drinking that one Frappucino every day for a year! The reality is, why would you do that if you like drinking Frappucinos? Financial peace is much bigger than that latte you’re enjoying and Ramit Sethi teaches you ways to get your personal finances in order and still do the things you like to do. By automating your budget, investing your money, even a little, and negotiating “like an Indian”, you can be well on your way to achieving your financial goals long before you thought you could. If you’ve just graduated and started bringing home a paycheck or if you need a personal finance check-up, I highly recommend reading this book and implementing Sethi’s suggestions.

Number 2: How to Win Friends & Influence People by Dale Carnegie

How to Win Friends & Influence PeopleIf you only pick up one of the books on this list, make it the one that has sold more than 15 million copies since it was first released in 1937! Dale Carnegie beautifully illustrates the characteristics to strive for and the actions to take in order to win friends and influence people. I remember when I first started reading this book and didn’t realize it had been around for some time and was very well-known, I felt ridiculous reading something about winning friends and influencing people in public. I mean, shouldn’t I already be able to win friends and influence people by now? I quickly realized that this book has literally taught millions of people how to better leverage their personalities and character traits to influence those around them in a positive way. There is a reason that Dale Carnegie leadership courses live on even though he is no longer with us, and this book is where it all started. If you think self-help books are dumb but you secretly wish you had a better grasp on your relationships at work and in your community, give this book a try.

Number 3: The Tipping Point by Malcolm Gladwell

The Tipping PointLikely the most well-known book on this list among millennials and young professionals, Gladwell seeks to show how small things can end up making a big difference. In this relatively short book, you’ll read about interesting relationships between teenage smoking, crime rates and the AIDs epidemic, to name a few. Of particular note to twenty-somethings, Gladwell uses Paul Revere as an example of a “connector,” someone who seems to know everyone and who can get things done quickly. An easy test to see if you’re a connector is to randomly list some surnames from a phone book and name anyone that you know that shares the surnames listed. Connectors can name between 90 and 110 people when challenged with this task, indicating how easy it is for them to have friends and acquaintances compared with others who can only name 20 or 30. If discussions about connectors and causal relationships stimulate your interest, go for the Tipping Point.

Number 4: Love & Respect by Dr. Emerson Eggerichs

Love & RespectThis book will only interest you if you’re a newlywed or nearlywed, but I put it on this list because I read a number of books about marriage in preparation for my own this past year and this was by far the best. Dr. Eggerichs attempts to make sense of something otherwise thought to be non-sensical: the difference between men and women. In his book, his premise is that a husband communicates with his wife in a different way than the wife communicates with her husband because the two perceive love in vastly different ways. Men crave respect in order to feel loved by their wives, while wives demand unconditional love to build a strong marriage. Failing to understand this simple truth makes for a “crazy cycle” as he defines it, where communication is poor because of a lack of understanding. If you think you’ve got women figured out and you’re a man, stop reading this blog and google “psychiatrist” and go see one. If you’re a woman and you know exactly what men are thinking at all times, do the same. Otherwise, read this book. I guarantee you and your spouse will thank me later.

Number 5: The Happiness Project by Gretchen Rubin

The Happiness ProjectThis thoughtful book was introduced to me the summer after my senior year of college while I was still finishing up two classes in order to receive my diploma. Gretchen Rubin sets out to do things in her life that simply make her happier and encourages readers to do the same. Examples include cleaning closets she hasn’t touched in years and subscribing to magazines that cover topics she doesn’t know anything about. She has turned her idea into an enterprise, penning a blog/website by the same name and sharing her thoughts as a leader on LinkedIn. She also released a sequel called Happier at Home that I have not read but would like to read in the near future. I appreciate her practical ideas for changing things up in her life and I think this book challenges the reader to think about scripts they’re using to keep them from doing interesting things, starting new hobbies and getting happier.

Have you read any of these books? What did I miss? What books do you recommend for getting a twenty-something off of their parent’s couch, out of debt and networking like a champ?

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