The Real Cost of Home Buying

Browsing is okay. It's all right to do things like go to open houses or to go online and see what homes are available or what's realistic in the place that you're looking. You don't just have to show up to an open house on the day that you're prepared to actually make an offer. I don't want you wasting real estate agents times if you're really not in the market, but there is nothing wrong with the fact that, I mean, I can tell you my most recent deal down in Florida, I think she was probably, she's a great agent by the way, but she, I think she was starting to wonder, is this family serious? Cause I mean, we probably did three or four fact finding missions and every time meeting up with her, going out there and looking at properties, that's just part of the job. They understand that is that even good buyers cause to find the right property, remember this is a transaction. It's not like they're commoditized. That's right. You actually have to, if you're like for us, we were looking for a ranch in the main part of town with this, this, we had like four or five must haves and we were going to just keep looking until we found that right thing. I think as long as you're honest with the with the agent and you're transparent with what you're looking for, browsing is an okay part of the transaction. And one of the great things that browsing does is it allows you to send properties to your realtor so that they can begin to understand what it is that you like, what it is that you're looking for. If you show up on the day that you're ready to go make an offer, they don't really know what to show you. But if you sent them, Hey, I like this house or Hey, remember we looked at that one. They're going to be able to better curate for you high probability homes that you might like. So the earlier you do this work, the earlier you do the research, the more prepared you'll be for the buying process. And speaking of being prepared, tip number four is go ahead and get pre-approved. Now when we talk about pre-approved cause everybody uses that term way too easily right now is we're not talking about going on some online questionnaire and answering two or three things and getting a rubber stamp pre-approval. That's more of just a process. That's a marketing thing to kind of make an introduction to you. We're actually saying get in there and find a bank or a lender that is actually going to work with you to help you facilitate this transaction. Yeah. So what we're saying don't do is don't start looking at dream homes, just thinking, okay, I can make it work. I'm going to go, well, this house is $3 million. If $3 million is nowhere in your price range, we want you to get pre-approved so you understand what's realistic. But just like you said, we don't want you doing the online pre-approval system that just asks two or three basic questions because that's not going to be an accurate, realistic representation of what you can actually borrow. When it comes to getting pre-approved, there are some things we want you to actually do. And the one that matters the most is actually get a legitimate lender to underwrite you and your unique and specific financials so that they can take an in-depth look and actually give you an accurate representation of what financing is truly going to be available to you. And this is going to require a little work. I want to go ahead and be transparent on the front end. Probably got to share pay stubs, got to share tax returns. You're going to have to unlock if you have your credit report frozen, your credit record frozen, you're going to have to unlock it. It is going to require a little work on the front side of things, but this is important because you guys, what happens with real estate is it's slow, slow, slow, and then really fast. And if you'll do this pre-approval process, it at least lets you go into a transaction knowing what you're going to be able to get financing for. And that time is going to be super, super valuable, especially you get into a competitive situation. You're going to know exactly what you can afford and be ready to act on that very quickly. Now, a word of caution, the lender is on your side. So don't feel like you have to lie to them or you have to fudge your numbers. Be sure that you're honest with your lender so that they can give you an accurate representation of what affordability looks like for you. If you're trying to inflate your income, if you're trying to decrease the debts that you have, it's going to come out in the wash. So be honest and be truthful. If you do that, it's going to set you up for our next tip. Tip number five, you're going to be better able at this stage to know your numbers. Yeah. I mean, I felt like this is, I love that these kind of go together. Is what we say when we say know your numbers, we want you to run your own numbers because look, you could be working with the best lender in the marketplace, but they're just trying to make sure you look like you can pay for the house. They're not thinking about your savings goals. They're not thinking about when you want to retire. So you need to have that in the background. So maybe you don't take the maximum amount that the lenders tell you you can have. You actually think about how do I have some life? So I'm not house rich life, poor, build all that into your process by knowing your numbers. I love that. And then the other numbers we want you to know when it comes to running your numbers is that there are costs associated with purchasing a piece of real estate. And there are really two that you need to be aware of. There are the upfront initial costs that you're going to bear, but then there are also the ongoing monthly costs. Now when we're talking about upfront costs, we're talking about things like down payment for first time home buyers. This is often somewhere between like three to 5% for second home purchases or people that are upgrading. This could be as much as 20% down. There are also going to be closing costs, which a nice rule of thumb is somewhere around 3% of the purchase price. The home could be the closing costs. And then there are maintenance and furnishing costs. Okay. How much is it going to cost for me when I get in there? Do I need to paint the walls? Do I need to replace the carpet? Do I need to go buy the furniture for the home? Those are all costs at the very beginning that you need to factor in. Yeah. And by the way, several of these things, the down payment, the closing costs, you need to once again, do your research on this is because a lot of times with closing costs, it is kind of in the industry. It says the seller will pay the closing costs. Maybe not always. That's why we made sure we listed it on here. So you can ask the question or build it into the process. So you're not caught holding the bag going, Oh my gosh, I didn't take into account that I'm not only going to need the down payment. I might actually need some money for the transaction costs, the cost of even closing on this piece of real estate. And then that leads to the other, you know, costs that most people don't think about though. And this is a big one. I know with both of us, we bought our homes, the maintenance and furnishing costs, just because you can get in the house, doesn't mean that, you know, about the blinds, that's right. About the lawn mowers, about the target run to go by the ladder for the house and all the other cleaning supplies and all. It's amazing. All these things that you just don't think about. I mean, even some homes, it's going to sound crazy. Toilet paper holders and towel, towel, towel, my first home, the toilet paper, there were no toilet paper holders. So I just like set it on the back of the commode, not realizing I had to go out and buy that stuff. So you need to do your research to know what you're getting into. Cause it's not just the transaction costs. It's actually how do you make this a usable asset for you and your family? So that's the upfront cost, the cost that you're going to bear basically at the time of acquisition and then shortly thereafter. But then there are ongoing monthly costs. And you need to run the numbers on these. And these are your principal interest, taxes and insurance, which makes up most people's mortgage payment. And there's another one that a that's association dues. So if you're moving into a neighbor neighborhood that has a HOA, if you're moving to a condo that has association dues or fees, you want to make sure that you factor those costs in. Cause those are the costs that you're going to bear month after month after month. And those are the costs that you're going to be on the hook for for the entire time that you own this place, unless you pay off that mortgage. And I don't want people to sleep on the a, because let me give you some examples. When we were down in Florida, looking at this, this last transaction we did, the condos were, you know, you could buy these condos for a few hundred thousand dollars. You're like, Oh my gosh, so this is so great. And then you'd find out that the condo association fees were $900 a month. Wait a minute. This, the equation for affordability just changed a lot. Even when we moved here to Tennessee, I was shocked at how many HOA fees were $250 a month greater. And you're like, okay, for $250 a month, is this like a gym? Is this a swimming pool? No, these were just expensive. There was my builder. He tried to convince me to move into his new neighborhood he was doing. And I said, okay, I'm paying $75 a month for my HOA. What's the new HOA fees for your new neighborhood? Cause you know, I'd like to have a bigger lot. And so I think it was like $675 a month. And I was like, what does that come? That is, it was nothing. It was because it was a gated community and you had to cover the roads. You had to cover. So guys pay attention to that. A, it's not just the principle. It's not just the interest. It's not just the taxes. You have to make sure you're taking an account. Even those HOA or those condo association fees, because they could blow up your cashflow if you're not careful. And when it comes to running the numbers as you're calculating, okay, what will my mortgage payment be? We want to make sure that we understand rates are higher now than they have been historically for the last five, six, seven years. You need to be okay with the current rate because while rates may come down and you may have some reprieve, it's not a guarantee. So we don't want to see you rush into a mortgage, assuming that, okay, I can't really afford it right now, but if rates come down to 5%, then I can afford it. We just don't know when that will happen. So make sure you're comfortable with the current rate. And if you're confused or you want to figure out how do I calculate all this? How do I actually know what I can afford? We have a great resource for you. Go to moneyguide.com slash resources and play with our home buying calculator. It will actually help you determine for yourself in your unique situation, how much house can I afford? We want you to marry what you uncover with this tool with what you're pre approved for from the lender. And if those two meet nicely, you're going to have a very solid idea of what the price range of homes you should be looking at is going to be.