Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, are you getting a later start in life on saving for retirement, Reducedebtincreasewealth.com is a podcast to educate those to improve personal finances. Whether it's eliminating debt, or making smart investments. Hello, Mr. Chuck here. This episode I'm going to talk about buying a home whether you're a first time homeowner or maybe selling your your starter home and moving up, the same strategies are gonna work for both of those type of buyers. First thing you got to do is be honest with what you can afford. So if you've been listening to his podcast, you should have a budget set up. If not, you need to set up a budget. If you're serious about getting into a home, or moving up to a larger home or a different school district, or whatever your reasons are, you need to know how much you can really afford. And factor that in to your budget. And previous episodes, I talked about how much your housing costs should be out of your budget and it's roughly 30% which when you're in a home that also should include real estate taxes and homeowners insurance. your lender is not gonna allow you not to have insurance. So that is a requirement for lenders. Once you figure out, are you ready to buy a home or you're ready to move up? Is your budget under control? Do you have an emergency fund set up? And how much of a downpayment Do you already have? Those are factors you need to take into consideration once you get that under control, and if you're scared that you may not be able to afford a home and what you can afford. And here's a tip, if you're not sure you can afford a home. Try sticking to a budget with what you expect your home payment will be and put the extra money in savings. This can build your confidence and your saving so you can move forward with the home purchase. So if you're paying rent and your rent is 500 dollars a month, estimate that in the area which you want to buy a home, that your mortgage payment over 30 years, let's say it's gonna be $1,000 a month, you pay your rent 500 put another $500 into savings and you don't touch it. And you do that for at least three to six months to determine Can you really afford the home in the area which you want. Once you get that figured out, you're you're good to go. I'm a reference to an article in the balance.com. How to Buy your first home. got good information in here and if you're gonna move up, it's the same information. Next step. Once you figure out if you can afford it or not, is to get out of debt and build an emergency fund before you're buying it which you should already be working on that even if you have a carpet I remember when I bought my first home, that I didn't even consider even making my offer or even looking until I had my car loan taken care of. In order to do that, I sold that car. It was a newer car had a loan on it at three, four more years to go. I just sold it got out from underneath the loan, bought myself what I referred to as a beater car, a less expensive car at the time, I believe I paid 2500 for it, but that was a years ago. So now you're going to be looking at maybe five $6,000 car for a good used car and get it paid off. If you can afford to pay cash for it. Because you want to build up your emergency fund, take out a loan, make extra payments, get it paid off within a year so in the meantime, you're also you know rent car payment How much are those two numbers? Plus What are you can put in savings. That would be a new amount of your new loan that you may be able to afford over time. So that's important. Once you get that figured out, you got all your loans paid off, got no credit card debt, you got a emergency fund built up and on top of the emergency fund, you have some downpayment money, I would prefer at minimum of 10%. I know if you're a VA loan or something like that, you may go with last. But the last downpayment you have would mean that you might get stuck paying principal mortgage insurance, and if you can get a bigger down payment you can afford paying that amount, which is going to make it harder for you to buy a house because you got to come up with more money every month. Once you build up equity in the house, that principle or PMI, as it referred to, can you can refinance, get it go away, or if you get enough equity can contact your lender, say, Hey, I got all this equity. I think PMI we're good to go. You can get rid of it and see what the requirements are to get rid of it. So yeah, at that point, you need to know what your loan options are. Well, this is 2020. Interest rates on mortgages. That's what a loan on a house would be referred to are pretty low. I believe they're around 3%, maybe a little bit less, so he can start looking around for a mortgage. You can even pre qualify for a mortgage before you even start looking for a home so you know what to look for. You can know what you can afford what the lender is willing to lend you based on Your income. That may be a good option for first time homeowner and maybe if you're selling a home, you have big down payment, you're not going to have any problems getting a mortgage, you have great credit. So for if you're buying up a home, you may not have to do that. But it may be a good idea just to find out what you really can afford. Because you need to pick where are you going to live. Location is everything in a value of a home, the better location, whether it's a school district, whether it's in the suburbs, if it's a low crime area, high crime area, or it's an area that's being rejuvenated, all those things come into play. You may be able to get into an area that is just starting to rejuvenate which people are remodeling their homes. new buyers are coming in buying up an older property Maybe gotten a house remodel on them, make them look nice, make a modern and get a neighborhood like that at the right time, you can get in cheap, you can remodel the home, move in live there, everybody else does the same thing which is key in this point. And the value of those homes are going to go up so that that's a good thing over time a value or homes go up over up just because of inflation. If nothing else, find the best payment options and loan type different loan types of payment options. Now, you don't have to worry about a balloon payment or a variable rate interest because the interest rates so low now, I would highly recommend a fixed rate loan. No more than 30 years if you can get a 25 year or 20 year loan and so you can get it paid off faster. If you can afford it, then you can go for that if you're getting in a more home, you might have to stretch it out to 30 years. But don't worry about it right now. Because once you're in the home a few years, maybe you'll get a couple pay increases. And you'll be able to make extra payments at this point when you're first starting look. Yeah, I highly recommend at this point, this economy if you got a good stable job, a fixed rate lanters. You have other types of loans or adjustable rate versus fixed rate. adjustable rate varies over time, which means that might have two years at 3%. And then that two years is adjusted based on the current interest rate. So maybe it goes to three and a half percent. And it's a stated amount of time and it looks at the current rate and it goes up or down based on what the interest rates are doing. It If it's going to go down a whole lot, you don't have much go down it down around 3%. It's not a whole lot of room to go down. It definitely can go up. So that's why I say a fixed rate mortgage at this time would be a good thing. When I bought my first house, the interest rate was about 12 and a quarter percent. Well, adjustable rate at that time might have been a good deal. I didn't go for it, I went with a fixed rate, waited a few years when that interest rate dropped to 3% I refinance. At CNI, you can do that too. If you want to be set at a fixed rate meaning that the terms that loan is not going to change until you decide to change it. Or adjustable rate is going to change every so many years. And then they have a balloon loan which means you get alone maybe at a low interest rate. You got five years and bloons up, and what you didn't pay on the interest rate difference because it gives you a below market rate or something and you have to refinance it and pay it all off and get a new loan. They definitely would do that. And don't ever go with an interest only loan the rates are low enough you need to be paying on principal have a down payment ready, your down payment can reduce wait yo also reducing your cost. Because your points when you borrow money for a mortgage, they charge you points the lender charge you points and that's a percentage of what the dollar amount you're borrowing 1% 2% 3%. So if you're borrowing $100,000 1% would be roughly $1,000. You can also pay more points to get a lower rate of interest. Just rate so low right now, and 2020 I wouldn't even do that. If you put down less than 20% the cost of your home you could end up with pan private mortgage insurance PMI why you don't need 20% down to be successful on homeownership, it might be a good idea to consider the cost of PMI when you buy which a realtor could tell you. We're going to get to that later. Be honest what you can afford. Step one is determine where you want to live. Then you got to look what's the average selling cost of homes in that area? Can you afford that? What a monthly payment be? How much of the real estate taxes do go to your county auditor's website? At least in Ohio and look up the taxes on homes. So you have a good idea what the taxes are in a realtor will tell you this home is asking prices 250,000 the yearly taxes on it are about 3000 10,000 whatever Some states are higher than other states. Gotta divide that 3000 or 10,000 by 12, because you're gonna make 12 monthly payments, and that's going to be added to your loan. Then you got to add in insurance call, your insurance agent asked her how much it would cost for insurance on a home in that particular area, and they give you an estimate ballpark, and then that number needs to be divided by 12. And that's going to be added through your mortgage payment. And that's called an escrow. Most lenders especially for a first time homeowner, won't let you pay your own real estate taxes and your own insurance. They put it in what they call an escrow you pay every month. And then when the bill comes due, the lender pays it for you so they know that that is being paid. They know your taxes are up to date and they know your insurance is up to date, because they got as much invested in that sales as you do and at the beginning really More because you owe a lot of money, how much you can afford, I say 30% 25 to 30% as a good of your net income, or you can use your gross income. We've had a past episode where I talked about that. And then you need to find a good real estate agent. You need to find a real estate agent that knows about the houses in the area which you want to buy. Consider using a buyer's agent, someone who's bound to help the buyer. A listing agent is responsible to the seller. So it might make sense to have someone in your corner I don't know about that. In reality, all real estate agents are going to be represent the seller because the seller is the one paying their commissions. Now there nowadays, agents will say oh, we represent the buyer, Ben reality who's paying them we keep that in mind. Who's paying And they're going to try to get you to buy a more expensive home, they're going to try to get you to max out what you can afford. And or go over it a little bit. Say you set your budget at 27%, you want to give yourself a little leeway. And that 27% you're including your mortgage payment, principal and interest, your real estate taxes and your homeowners insurance that gives you 3% of your net income for repairs and maintenance. And maybe you want to paint you can do a lot of that stuff yourself. If you're going to have little things you're going to always be fixing it don't cost a lot, but over time it does add up. Once you settle on a home that you're interested in, you make an offer. Now you want to make sure you have a home inspection. This is an independent person who knows about the building codes and knows about what things should be, he could go in and look for things in that home and give you a report of what maybe you should look out for. You might say, well, you got some leaky pipes plumbing under the kitchen sink. Or it might say, it appears to be some settlement in the foundation, but it's not too bad. The houses roughly 12 years old, as settlement should be done. So it puts you at ease on some items and let you know, potentially what's wrong. I always looked when I was looking for a home. Always look for things that were wrong. Check the ceiling, you see any dark, wet marks on the ceiling, maybe the roof, that one time, you could have damage. Maybe it needs a new roof. Maybe we definitely need to paint the ceiling. The kitchen. Oh, and if you're in a home, that's safe. years old. How old is the kitchen? Is the kitchen original with the house? Or is it been remodeled? Well, if it's original with the house and you want to remodel it, I'm gonna knock off money on my purchase price or try to. So I'm gonna lowball. That's just me, depending on the market, and where you are, and how long the house has been on the market, all those things you can take in consideration on your initial offer. Remember, it can always go up, you can't go back down. So start low and work your way up. So it takes two or three offers, who cares? You got to get the best price. How do you find out how desperate they really are? to sell that home? That's what I do. That's my strategy and it seemed to work out pretty good. My current home I've been here 30 years. The buyer was on the market for a long time. I knew that I knew it was a divorce, I knew she went to get out of the house, I went in low, came up a little bit, and got at 20,000 under the asking price, so I saved a bunch of money. I used that 20,000 for remodeling, there we go. And then once you make an offer, you have an inspection, the loan mortgage company and now it's time to make your offer and I covered that you want to go low, make a counter come up a little bit, let them come down a little bit. And this is where the real estate agent will earn their money. You tell them the reasons why you putting in such a low and don't let them say Oh, that's too low, you need to start higher. Don't let them do that to you. Say here's my the list price. Here's a list of everything and the estimate what I think it's gonna cost to fix it. So, here is my first offer. I'm willing man To come up and put it in writing and hand it to the insurance agent, they know you're not messing around, back and forth, you come up with a price you both agreed to a pay, you got the house. Now you got to go, your mortgage company, and the mortgage company is going to require you. They want a termite inspection. There may be one inspection of their own, they want a survey of the property, they want a title search done, make sure there's not multiple liens against the house and if there's liens against the house, the current owner has to pay those off before they can close. You don't want to buy a house with a lien on because then you end up paying. So that takes some time, usually 30 days maybe longer depending how busy they are. It could be longer it may be shorter. Then you come and they set a closing date. Everything's approved. your mortgage is approved house looks good. Everything's done. Everybody's happy. That created a lot of paper. work and you go to closing, you're there, the sellers there and y'all gotta sign a bunch of paperwork. You can get that paperwork in advance and go see an attorney if you wish. It's pretty much a cut and dry thing. template everything says template it's all pre made and is basically put the addresses in your name in there. So it's a template that's pre pre made up. It's a standardized it's pretty much standard. If you're not happy or if you're not comfortable the first time maybe have the attorney go with you, it's gonna cost him money. But if it makes you happy or less afraid, and by means don't overlook that, so you go to closing you sign all the papers, the the seller gets their money and the real estate agents get their money and everybody's happy. Now, you may have Give them 20 days to move out from closing or 30 days use for this standard but nowadays it's you close and it's yours and you can move in the same day you get the keys and you're moving in. That's the way it goes and good luck and you have 30 days from the date of closing because you prepaid interest for the remaining of that month. So then you go the whole next month, and then you make your first payment. closer to the end of the month, you can close the less interest you got to prepay because you got less days going forward. If you're close on the second day of the month, you got to pay interest for that whole month at closing. Close a little bit sooner or a lot later. That's just a tip there. I'm not gonna put any advertising in this episode. I do have a website with my wife on isotonic vitamins. If you're interested, if you take vitamins you can go to my show notes at the bottom support the show there is a link to my website and I would greatly appreciate it. Once you buy a house you especially your first one you want to plan on living there for a minimum of five years because over five years I'll give you some time to save up some more money get used to making home payments, get the house up fixed up a little bit better and let the market appreciate some so that you sell it you'll have a game which is not taxable because it's your personal residence. And I will give you more money for downpayment on the next home you decide to buy. plan on Stan air for a minimum of three years I always say fi if he can go longer and five, you're fine and have a valid reason for Why you want to move up to a different home and may not be bigger, maybe you're going to move down to a smaller home, or a different area or whatever reason, make sure that's valid before you go ahead and do that. I have another article from the nerd wallet which got a few more tips. You want one you're looking around for a house, maybe still hadn't got your downpayment saved up, and you picked out a few neighborhoods that you're interested in. You can always go to open houses and see what the houses are like in that general area. So when the time comes to start looking to buy, you have an idea what the other houses to sold maybe six months or a year earlier, we're like, gives you something to compare it to take notes, take pictures if they allow you and that would be a good idea while you're building up your downpayment. Once you start looking and you're serious you know the making the offer is a negotiating process and you gotta be aware of what the markets like if it's a seller's market, they're not gonna want to negotiate very much if it's a buyers market, meaning there's more sellers than buyers in you can have them maybe lower the get the price lower. Maybe have them pay some of your closing costs, such as the termite inspection and the title search and stuff like that. It depends on the market. Right now we're in a seller's market. There are more buyers than sellers. So there's not much room to negotiate. At least here in 2020. We're I live in Ohio. They plan ahead is the number one key to getting that first home or even buying up to another home. Start looking early before you're serious about doing it. And once you get serious, then check your notes and see what things were like when you start looking and what compared to what they are now know what's going on in that neighborhood and know what the taxes are going to run Yeah, and the insurance so you can stick within your budget and don't let the insurance agent try to get you into more house then you can afford. Because if you can't afford it, you might have to sell it. And the agent may be your agent to sell it and they can make money again, beware on the real estate agent. I always think of them as the representing the seller because the seller is the one that's paying our commission. That's the end of another episode. I hope you found it useful. And if you'd like to share this episode with your friends, please do so. I'm open for any suggestions for improvement or for information that you would like to talk about in future episodes. You can go to my Facebook page and leave me a message more than glad to comply. To find my Facebook page go to Reducedebtincreasewealth.com and click on the Facebook icon to go to my Facebook website.