Are You Really Ready To Upsize Your Home?

June 05, 2017

Real estate season is in full swing — everywhere I look in my area there are homes with “For Sale” signs. There are some larger homes for sale in my neighborhood, and the families who buy those neighbors’ homes have multiple children and want room to grow and an excellent public school system. Have you been wondering whether it’s time to make a move to go bigger? How do you know if you should stay where you are for the time being instead? Here are the factors to consider:

What can you afford?

You’ll have the most financial freedom in your life if you keep total housing costs (mortgage, taxes, insurance, utilities, maintenance) to 25 to 35 percent of your after-tax income. For example, if your family take home is $4,500 per month, your monthly housing costs would range from $1,125 to $1,575. With a 20 percent down payment and a 30 year mortgage at 4 percent, that’s a purchase range of approximately $212,000 to $300,000 (see calculation here). I realize the 35 percent ratio could be a challenge in an insanely expensive city like Los Angeles or New York, where housing costs can eat up to half or more of a family’s income, but it’s a helpful guideline for maximum financial ease.

Why upsize to a bigger home?

When we moved back to the United States after an overseas assignment in Bermuda, a country with a very high cost of living, it was the bottom of the U.S. housing recession. Great deals on large homes in good school districts were available, so we upsized our living space to have room for three kids and lots of visitors, and still spent less than our previous location’s housing costs. This house will be too large for us once all the kids are grown up, but for now, we’re happy with the decision. Upsizing may be right for you if you can afford it and:

  • You would like the space for all your kids;
  • Grown children or grandchildren are moving in with you;
  • One or more parent(s) are moving in with you;
  • You’re moving to a less expensive state and you can afford more house for the same cost;
  • You need more space for a home office/business; or
  • You’ve always wanted to have a big house – it’s a serious bucket list item.

You’ll upsize a lot more than your mortgage

Caution: with a bigger house or bigger acreage, you’re upsizing more than your mortgage. Everything costs more: property taxes, homeowner’s insurance, home maintenance, furniture, painting, landscape, etc. Make sure you take those increased costs into account when figuring out how much you can afford.

If your mortgage is 30% bigger, your other bills will be as well. For example, if you upsize from a $200,000 mortgage to a $300,000 mortgage you should expect your related costs to go up by a third as well. Upsizing can also prompt “keeping up with the Joneses” syndrome, where you feel like you must compete with neighbors who have a more lavish lifestyle. Finally, if you frequently have visitors, do you really need or want to accommodate them in your home, or would it be better and cheaper to put them up in a nearby hotel over time than to pay the costs of upsizing?

Or should you stay put?

A bigger house is a bigger financial commitment. If you can’t afford the total costs, you’ll be “house poor.” If you just can’t decide what your next home purchase should be and at what price it makes sense, there are plenty of reasons to stay put instead of upsizing to a larger home:

  • You like your current home and its size fits your family;
  • You enjoy your neighborhood and your neighbors;
  • You and your spouse don’t agree on what to do next;
  • You don’t want your kids to have to change schools;
  • The costs of selling a home and buying a new one may not make it worth it to move right now; or
  • You believe real estate prices will rise on your street over the next few years, so you are willing to wait to sell.

Moving is a big decision. Our sense of community is often connected to a physical location. You may find that going bigger gives you a more spacious and satisfied feeling, assuming you can swing the additional expense. On the other hand, if you’re not sure if it’s the right time to move on, it may make sense to stay put until you have a clearer idea of where you want to go and what makes sense for your goals going forward. There’s always next spring to revisit the question.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here and on Twitter @cynthiameyer_FF.

Should You Move For a Job?

January 23, 2017

Have you received an interesting offer to live and work somewhere else? Moving to a new city can be very stressful, especially if it involves changing jobs or re-locating with an existing employer. While this stress can be heavy on the person dealing with the job change or transfer, it can also affect others.

Before you accept the move and start plotting your appearance on HGTV’s House Hunters, you and your family will have to work through some tricky decisions. That’s the scenario my fellow planner Brian Kelly, CFP® was discussing with an employee on our Financial Helpline recently. Here’s what he had to say:

1. Don’t base your decision solely on the new salary. Think about how far your income will go in the new city. If you are moving to a place where the cost of living is much higher, you might have to eventually answer this question: “Is the location worth it?” The answer to this question might just be “yes, it is worth it to live in a smaller house near the ocean or have to spend more in a town that has more amenities,” but this is a trade-off that you should be aware of. You will also want to consider new expenses you are not currently budgeting for such as traveling to visit family and babysitters.

2. Calculate your net pay after benefits. Employee benefits are now a large part of a person’s compensation. Taking a new job with a salary increase but weaker benefits can actually decrease your total compensation so factor these in. See this guide for calculating the value of your benefits.

3. Consider your spouse’s career too. Think about this in a longer term perspective. In 5 years, is our “team” going to be better off?

4. How does the move affect your children? Moving children can have effects on their education, their relationships and possibly their well being. Do some research on school systems and after-school care. This might impact your decision on where to buy or rent.

5. How does it affect your parents? Some grandparents’ retirement plans center around time with their children and grandchildren. Others will need elderly care. You might need an extra bedroom in your new home.

6. Should you purchase a home right away or is it wise to rent for a certain time period? Purchasing a home is a major financial decision. The closing costs alone can make a short-term home buying decision a bad one if you have to sell before the house appreciates in value.

7. Lastly, you have to consider the real possibility that it doesn’t work out, for whatever reason, and have a plan B. Companies fail, managers can be impossible to work with, the job doesn’t turn out how you thought it would, parents get sick, or you just miss home.  In that case, have a backup plan.

Checklist of things to do:

  • Create a side-by-side budget with current and new income and expenses. Factor in cost-of-living and benefit changes.
  • Have a family meeting with spouse, children and/or parents to discuss how the potential move will affect them.
  • Visit before you make the final decision. See the new work facility, meet and interview people you will work with and check out schools and areas where you might want to live.
  • Research school districts and after-care if necessary.
  • Compare the costs of renting and buying a home. Consider renting, even if it’s temporary, until you are sure of where you want to live.
  • Articulate a plan B just in case.

Once you’ve worked through the action steps, the wisdom of one path vs. another should be more clear. What does your head tell you? Your heart? The balance of both will help you make the best decision for you and your family.

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

 

7 Questions to Ask a Prospective Real Estate Agent

January 05, 2017

Whether you’re looking to buy or sell a home, one of the most important decisions is who you select as your real estate agent since this will likely be the person you work most closely with during the transaction. You can identify prospective agents by asking family members, friends, and other professionals you work with (financial planner, accountant, lawyer) for recommendations. Then be sure to interview several of them and ask the following questions:

1) Are you a REALTOR®? People often use the terms “realtor” and “real estate agent” interchangeably, but they’re not always the same thing. While all REALTORS® are licensed real estate agents, not all real estate agents are REALTORS®. The main difference is that as members of the National Association of REALTORS®, REALTORS® have to follow an additional code of ethics. While this doesn’t mean that every REALTOR® is more ethical than every non-REALTOR®, it certainly can’t hurt to choose someone who has at least made a commitment to a higher ethical standard and is subject to penalties for violating it.

2) Who do you work for? As a seller, your agent always works for you. But as a buyer, be aware that an agent can also be working for the seller. Even “buyer’s agents” often work for a “dual agency” that represents the seller as well. You can search for an “Exclusive Buyers Agent” here.

3) How long have you been working in the area I’m buying/selling in? This question has two objectives. The first is to screen out agents that may be new and just starting out. You probably don’t want to be their “learning experience.”

The second is to measure their experience in your particular neighborhood. An agent who’s unfamiliar with the area you’re interested in may only be slightly more helpful than one who’s new to the business. After all, much of their value comes from bringing the kind of local, specialized knowledge that you may not be able to find with an online search.

4) How will you work with me? As a buyer, some of what you’ll want to know are how the agent will find prospective homes, how often they’re available to show places to you, and how they would handle multiple offers. As a seller, you’ll want to know how they will market the home and the fee that they’ll charge (which is negotiable but top agents will charge more). In either case, ask if the agent will let you cancel the agreement if you’re not satisfied with their service.

5) Who else do you work with? Agents typically play the role of quarterback with the other professionals that may be involved (mortgage broker or loan officer, home inspector, real estate attorney, and title and homeowner’s insurance agents) and can help you select them. Ask for a list of their recommended professionals, but be aware that if they are labeled as “affiliated,” the agent may be receiving compensation from them.

6) Do you have references? If an agent is experienced and has a lot of online reviews, you may not need to ask this question. However, it can be an important one for a new agent. Not having any references might be a red flag. You may also want to check your state’s real estate regulatory agency to see if any complaints were filed against them.

7) What documents do I need to sign? Make sure you look at them before signing and keep copies. If you’re a buyer, you’ll want the buyer’s broker agreement, agency disclosures, purchase agreement, and buyer disclosures. If you’re a seller, you’ll want the agency disclosure, listing agreement, and seller disclosures.

Finally, don’t’ forget the importance of personal chemistry when choosing a real estate agent. They may answer every question correctly, but if you just don’t feel comfortable with them, you’re probably better off with someone else. Buying or selling a home can be stressful so you’ll want an agent that can help alleviate rather than add to that stress.

 

 

 

 

What to Expect When Closing on a Home

November 28, 2016

You’ve found your perfect home, you’ve qualified for a mortgage to buy it and it’s passed inspection by a qualified home inspector. Now it’s time to sign on the dotted line. A closing is the last step in buying and financing real estate.

If you are buying a home for the first time, you’ll be in for a surprise. There’s a lot more to do in order to cross the finish line. Here’s how to make sense of the process:

Your lender will ask for a lot of documentation

Your mortgage lender has given you approval for your loan, conditional on you documenting your income and assets. Be prepared to submit:

  • Tax returns
  • Account statements
  • Pay stubs
  • Documentation of the sources of recent, large bank deposits

Your lender is likely to have a “trust but verify” attitude towards your documents. They want to see everything. Make sure you include every page, including the mysterious “this page left intentionally blank” one that you think doesn’t matter. Lenders typically run an additional credit check on borrowers right before closing date, so make sure you don’t do anything which could jeopardize your loan, such as opening a new credit card, taking a car loan or switching jobs.

You’ll need homeowner’s insurance

You will need to give proof of your new homeowner’s insurance policy to your lender, so start shopping around. Ask your real estate agent for suggestions on insurance carriers if you are new to the process. Make sure to get at least three written quotes before you decide on a policy. For more tips on shopping for a homeowner’s policy, see this blog post. FYI, if you live in a flood or earthquake zone, those aren’t included in a traditional policy, so decide if you need flood insurance or earthquake insurance.

You can’t bring cash to a closing

The cash you need to close can’t actually be paid in large bills.  Make sure you receive and understand the written instructions on whether to bring a cashier’s check or plan for a wire transfer of funds on the closing day.

Review your loan estimate

It’s up to you to understand the terms of the loan agreement you’ll be signing. Your lender will send you a loan estimate. Review this very carefully and make sure that the written terms of the loan match what you’ve discussed. You can use this guide from the CFPB as a framework. Be proactive about asking your lender questions if there are differences in what you have discussed and the loan estimate terms.

You can shop around for closing service providers

Closing costs can be expensive, especially costs relating to title. Not all of them are fixed, however. You can shop around for services in section c of your loan estimate (“Services You Can Shop For”):

  • Title costs, including insurance, title search and settlement agent
  • Pest inspections
  • Survey

Receive a closing disclosure and other key documents

Your lender is required to give you a closing disclosure statement three business days prior to your closing. Use this checklist as a guide to double check that all the details on the closing disclosure are correct. If you find that something isn’t correct, contact your lender immediately and ask for an explanation.  Ask for your other closing documents in advance in order to review them:

  • Mortgage (also called security instrument)
  • Promissory note
  • Initial escrow disclosure
  • Right to cancel form

You may want to consider hiring a real estate attorney to review your documents before closing.

Take a final walk through

The last step before you start signing paperwork is to take a walk through the home with your real estate agent to make sure the home is still in the same condition it was when you made your initial offer. Make sure that everything that the seller agreed to repair is repaired and that items they agreed to leave in the home (such as a washer/dryer, air conditioners or curtains) are still there. If there are big problems, this could potentially push back the closing or even void the deal. See this article for more walk through tips.

Don’t sign anything you don’t understand

Read everything you’ll be signing and ask questions about things that don’t seem clear or seem different from what you expected. This is the step that many homeowners skip and later regret. Remember, it’s up to you to understand the legal documents you are signing. Use the CFPB’s closing checklist for things to review before, during and after your closing. Don’t sign anything until you are comfortable that it’s correct!

 

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

 

Are You Ready to Buy A Home?

November 03, 2016

With all the speculation about interest rates possibly moving up soon, I’ve been hearing a lot of talk from people about buying a home. You may want to buy, but are you ready? The answer involves a lot more than what interest rates are expected to do. Here are some questions to ask yourself:

How’s your credit? If you’re planning to get a mortgage, one of the first things the mortgage company will do is run a credit check. To get the best rates, you typically need a score of 740 or above. If yours is lower, you’ll pay higher rates or you may not even qualify for a mortgage at all.

One of the quickest ways to improve your credit is to order a copy of each of your 3 credit reports from annualcreditreport.com (free every 12 months) and dispute any errors you may find that could be hurting your score. Another is to pay down credit card or other consumer debt, which also improves your debt/income ratio. If neither of these can improve your score in time, you may just have to build a positive record of on-time payments and wait for your score to rise over time.

Do you have enough savings for a down payment and closing costs? Ideally, you would have enough savings to put down 20% to avoid paying PMI, although mortgages with lower down payment requirements are available. You’ll also likely need another 2-5% of the purchase price for closing costs plus whatever you plan to spend on furniture, renovations, etc. This should be in addition to your emergency fund, which will be even more important with your home on the line.

Can you afford the higher payments? Contact a mortgage broker or loan officer to get a quote and see what your monthly payments would be with different purchase prices. Don’t forget to include estimated costs for insurance, taxes, utilities, and maintenance/repairs. Then see how this would fit into your current spending. It’s important to do this analysis before you even start looking at homes so you don’t fall in love with one and then talk yourself into being able to afford it.

Would buying be cheaper than renting? The rule of thumb is that you need to keep a home at least 3-5 years to make it worth the transaction costs and the risks of the home falling in value. You can do a more precision calculation with this Rent v Buy calculator from the New York Times that factors in everything from how long you plan to keep the home to the tax benefits of home ownership to the opportunity cost of not being able to invest the money you spend on the down payment. If you have a really good deal on rent, or home prices are particularly expensive, or you just don’t plan to stay put for long enough, renting may actually be more financially beneficial.

Are you ready emotionally? The numbers may make sense but they won’t matter if you don’t actually feel comfortable buying. Being a homeowner means freedom from a landlord but it also means being tied down to a home that you’re responsible for. No financial calculation can tell you if you’re ready for that.

 

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How to Make an Offer for a Home

November 02, 2016

If you’re a fan of home-buying shows that follow couples who are seeking a home in a new city, looking for a deal to flip or even searching for a much smaller home to live more simply (how do they do that???), then you’re probably familiar with some of the factors that go into looking for a home that provides a good value without over-paying. But one thing those shows don’t broadcast are the negotiations for price and how people actually arrive at what they will offer. Making an offer for a house is not just a wild guess. There are some things you and your real estate agent can do to find a price that will be accepted without overpaying. Here are some expert tips:

First, ask your agent to do a comparative market analysis (CMA). This is basically a mathematical analysis of homes that are similar to the one you’re looking at, including the number of bedrooms and baths, the square footage, the neighborhood, etc. and evaluates whether yours is priced in line with recent sales and other current listings. The CMA report will include the specifics of the properties used in the comparison so you can use your judgment as to how relevant the comparable pricing may be.

Keep in mind that it’s the sales price that matters, not the list price. There’s a rehabbed home in my neighborhood that’s listed for 50% more than the buyers paid a year ago. Sure they’ve done a lot of work to the property, but enough to double its price? Since it’s been on the market for several months now, I’d say that prospective buyers feel the same. Once the home sells, then we’ll know what it’s really worth.

As you’re deciding on what price to offer for “your” property, pay attention to the adjusted average sales price in your CMA. First, throw out comparables that are extreme, like a teardown/rebuild that was sold as a foreclosure or on the higher end of the spectrum, homes that are overly upgraded or way nicer than the one you’re looking at. Then adjust the average price by how the remaining comparables actually compare to yours:

  • Are they smaller or larger? More beds/baths or less?
  • Do they contain similar upgrades and features? (When we bought our top-floor condo, we felt it was only comparable to other top-floor units, even though many of the similar sales in our neighborhood were middle or ground floor. We were willing to pay a premium to not have footsteps overhead)
  • Are they actually in the same neighborhood? Depending on where you are looking, one street over can make a difference in price, so pay attention to proximity.
  • How long ago were they sold? The more recent the sales transaction, the more relevant the sales price.

Use your powers of reasoning to decide how comparable these other homes actually are. The averages aren’t worth much if there’s nothing nearby that’s similar to yours. That’s one of the issues with estimator sites like Zillow. It uses publicly available information to estimate values, but doesn’t adjust for things like inferior location or big upgrades post sale.

For example, Zillow shows our property losing $25k in value in the two years since we purchased due to several foreclosures and low sales prices on our street in the past year. What Zillow doesn’t “know” is that this is one of the hottest neighborhoods in the US right now and all of those properties were teardowns being rebuilt into multi-unit condo buildings similar to ours that will sell for possibly $100k more than our purchase price. Once those condos sell, I expect the estimated value of our place to far exceed what we paid.

Finally, knowing where the market is in terms of trends will play an important role in determining your offer price. Here are some factors to consider:

  • Buyer’s market versus seller’s market: If it’s a seller’s market, you may find yourself competing with other buyers and making several offers. In a buyer’s market, you’ll have more time to do analysis.
  • Number of days on the market: If you’re looking at a home that’s been on the market for a couple months, especially in a seller’s market, you’ll definitely be able to offer a lower price than if the property was just listed.
  • Timing: Generally speaking, spring and summer are hotter markets than fall or winter. The other timing factor is interest rates. Don’t buy a house just because rates might go up soon, but if you’re planning to buy, potential rate increases could add a sense of urgency that limits your bargaining potential.
  • Seller’s motivation: If you can suss out why the current owners are selling and you learn that it’s due to a pending divorce, job relocation or other more urgent need, you’ll know you can probably go lower than if they were just seeing if they could sell.

At the end of the day, your agent will be a tremendous source of guidance and advice in this area, which is one reason it’s important to find someone who specializes in the neighborhood you’re looking in. Here are two final tips when making your offer:

Make your best offer on your first offer. Assuming the sellers will counter could lead to a flat out denial, especially if you’re competing with other potential buyers. It can be tempting to play the “how low can we go” game, but if you really want the house, don’t play the game.

Don’t offer more than what the property can appraise for. Plenty of people learned this the hard way back in 2008–2010 after they paid top dollar for homes that ended up appraising tens of thousands of dollars less than they owed after the bubble burst. If a seller accepts your too-high offer and the appraisal comes back lower, you could end up back to square one without a deal.

Stick to what you can afford and accept that if you don’t get the house you want, it wasn’t meant to be. We had this experience with the first offer we made and our agent saved us from making a big mistake. We lost to someone who offered $25k more than the listing price, which in retrospect was a bad move… for the other buyer.

 

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Lessons in Home Buying

September 20, 2016

I was recently at an overdue dental appointment talking to the dental hygienist, Jana. I try to talk about anything that distracts me from the drilling and moans of pain I hear in the other booths. She started telling me about her new home purchase and how she used lessons learned from her last property to make a better decision – like giving her kids free reign to run around the house. I will admit that I have never heard of this as a house hunting strategy, so I asked for more info and below is what I learned from our conversation:

Test drive a new house. She said the mistake she made with her first home was that she did not think to check on how soundproof the home was, especially with four kids. When she was looking for a new home, she brought all of her kids with her and unleashed them in the prospective homes to test the sound quality of the different rooms. If you value peace and quiet with kids, have your kids go upstairs and be loud (they will love this), walk through the rooms, and close the doors to gauge the sound quality of the rooms

Neighbors are your best friends. Jana mentioned that after she bought her home, she talked to the neighbors and learned most of them were moving out within the next few years because the neighborhood was recently redistricted into a not-so-great school system. This time she walked around  prospective neighborhoods and struck conversations with neighbors who were not shy about telling her about the good, the bad and the ugly of the community. This saved her from potentially buying a home in an area that she learned was having major traffic issues during rush hour traffic – enough that some of the neighbors had formally complained.

Don’t just relay on what a real estate agent tells you. Visit a neighborhood you are thinking of living in during different hours to get an idea of the traffic flow and talk to neighbors. Many are not shy about giving you their opinion.

You get what you pay for. For the first home she bought, she went with the home inspector that was the cheapest. She was not present during the inspection and ultimately paid the price with plumbing, appliance and roofing issues. This time, she interviewed home inspectors and paid an additional fee for a more thorough inspection. She also stayed for the entire inspection, asked questions along the way and was able to get a rough idea of whether the repairs were small or large.

She said the lessons she learned saved her from making another home buying mistake and helped her get into the home of her dreams. Take the time, like Jana did, to take the extra steps to make sure you are choosing the right home for you. It will go a long way into making your home buying experience a good one.

 

 

How This Millennial Couple Bought Their First Home Before They Thought They Were Ready

August 17, 2016

We often discuss planning for obstacles in our financial planning workshops, acknowledging that even the most perfect plans need contingencies. Life happens! So when our director of PR, Danielle, and her husband Adam discovered they were expecting their first child a few years before they had planned to start their family, they obviously had to shift some of their other plans. “Obstacles” aren’t always negative things!

Danielle shared with me that she and Adam had a 3 year plan that included purchasing their first home before having kids, so when they found out they were expecting, the home purchase plan was pushed back. When she announced they were closing on a home less than 7 months after their son was born, I had to know how they worked that out! Here’s what I learned and what we can all learn from prioritizing goals and examining our spending, in an edited interview with Danielle:

Me: When did you and your husband start thinking about buying a house?

Danielle: We’d been talking about buying a home since we got married in 2014 as part of a three-year plan, but when we found out we were having our little boy earlier than we’d planned, buying our first family home became a ‘when we can’ sort of goal that sat on the back burner for about a year. We kept saving but weren’t looking seriously and were even discussing renewing the lease on our apartment when we filed our 2015 income taxes. The straw that broke the camel’s back was our tax guy telling my husband, “You need more kids and a house” to write off as we were paying a ton in taxes. We started our search then.

Me: Did it happen on the timeline that you planned?

Danielle: Surprisingly, it happened before we had planned. We didn’t think we could afford a home or were ready for the responsibility. When we realized that we’d saved enough for the required down payment and could get a pretty low rate because of the current economy, we thought now’s the time!

Me: What were the initial financial moves you made to start the process?

Danielle: We had to get our financial ducks in a row, so to speak. First, we checked our credit scores to see what kind of a rate we could get. My husband works in mortgage, so we had a pretty firm grasp on what we could qualify for and what the best program was for us based on our income and down payment savings.

We crunched the numbers to decide what our maximum monthly payment could be and then after dreaming a bit, settled on what a comfortable payment would be, and started looking. I am SO glad we stuck to the lower amount, even after looking at some awesome homes in our peak price range! We also decided to pay off some credit cards to make sure we could qualify since my husband’s income, being commission-based, could get complicated through the loan process.

Me: Did you make any changes to your spending in order to save for a down payment?

Danielle: Yes! We had been cutting back for about a year prior to looking, like going out to eat less and cutting our cable back from the full package to a basic package while using Netflix instead. I also have a hybrid car, so I started charging it more instead of filling up for more mileage on less money. We cancelled magazine subscriptions we weren’t using, and I cancelled my gym membership because our apartment complex had a pretty nice one on the premises.

My husband and I are pretty impulsive, so saving money is hard for us, but we knew we had to change those habits – especially if we were going to be responsible for a mortgage! We have been working hard to do that and it’s paying off. We also said “NO” a lot more to friends who invited us out for social events. Not only were we trying to save more in general, we were expecting a baby so we knew saving needed to be our number one priority!

Me: What tips or tricks did you learn from working at Financial Finesse that helped in this process?

Danielle: I have learned so much about simple ways to save money that can really equal large amounts of savings. I remember sitting at the counter with my husband and talking about where we could cut back. At first, it felt like nowhere!

But when we really began to break it down, we found hundreds of dollars every month we could save. That was pretty cool. I’ve also learned a lot about using credit wisely and keeping your debt to income ratio balanced, which paid off in the home buying process.

Me: Was there anything you wish you’d known before about buying a house that you have learned?

Danielle: Yes! I didn’t realize how difficult it is to buy a home in a competitive market like Southern California. It was extremely frustrating and at times, I couldn’t help but feel like the industry is pretty biased in some areas.

We were finding it was hard to even get our offers looked at. We were beat on several homes by all-cash offers, which is to be expected. What caught us off guard was that we were being completely overshadowed by offers that were being written by an agent acting as both the selling and buying agent.

This seemed crazy to me. How is this legal? It made it impossible for anyone who wasn’t working with the selling/buying agent to get a look.

When we lost a home we really wanted because the agent held off on even showing our offer to his client in order to give his buying clients a chance to put theirs in first, we learned our lesson and ended up going through the selling agent ourselves on the home we finally did get. As a result, we had to pay our agent outside of contract for all of his work with us AND the selling agent for getting our offer accepted. We were so desperate at that point, we went ahead with it, but if we weren’t needing a home (our lease was up in 3 weeks at this point!) we probably wouldn’t have done it.

Me: How does this change your financial picture going forward?

Danielle: It has helped us lay down our roots to really start planning for our future. We look around our new place and think, “Wow this is ours!” and it feels so good to not be paying someone else’s mortgage! Now that we have a home with a comfortable payment, we are focused on saving for our son’s education, preparing for more children and saving for our retirement someday. It was definitely the right decision for us even though we didn’t anticipate making the move for another year.

Me: What words of advice do you have for other young families who are thinking about buying their first home?

Danielle: Do your research. Don’t rely on what listing agents are sending or telling you. Go to open houses yourself and talk to the agents.

Get a scope of what the seller is looking for. It’s always good to get as much information as you can about what you’re going into. Compare loan rates at different financial institutions and ask about first-time home buyer programs.

Also, don’t skimp out on the inspection! My husband and I spent nearly $1,000 on three different home inspections because we decided to go with a very thorough inspector instead of a cheaper, less thorough one. As a result of what he found, we backed out of two homes that would have ended up being financial nightmares for us down the road.

Finally, start saving now. We didn’t honestly think we could buy a home this soon after having our son, but saving was pretty painless, and it wasn’t nearly as hard as we expected to cut back on things we rarely used anyway. Pick 2-3 small expenses you can cut and start there. You’ll find that it’s kind of fun to see how much you can save every month!

Thank you so much to Danielle for sharing this experience and wisdom! For tips on applying for a mortgage, check out Five Things to Know About Applying for a Mortgage. Now you tell me – what things did you learn as you saved and shopped for your first home? Anything you’d do differently? Please email me, share on our Facebook page or send me a tweet @kclmoneycoach.

 

 

Should You Buy or Rent?

August 11, 2016

This is a question I recently got on our financial helpline and one that I’m struggling with myself right now. The conventional wisdom is that renting is “throwing money away,” but owning a home also involves throwing away a lot more money than it may seem. One way to see this is by using a “Buy vs Rent” calculator like this one from the NY Times. Not only are you paying interest on the mortgage, there’s also maintenance costs, taxes, the opportunity cost of not being able to invest any extra money you put towards buying, and the transaction costs of buying and selling. Here are some things to consider before making one of the biggest financial decisions of your life:

How long do you plan to stay? For most people, this is probably the single biggest deciding factor. The longer you stay, the more buying usually makes sense because it takes time for the financial benefits to outweigh closing costs and real estate agent commissions, not to mention the risk that the home could actually be worth less when you try to sell it. It’s generally better to rent if you plan to stay less than 3-5 years.

What mortgage rate can you qualify for? To get the best mortgage terms, you typically have to have a credit score of at least 750 and put down 20%. If your credit isn’t so great or if you can’t make much of a down payment, you may want to delay buying until your credit or savings is in better condition.

Where would you invest any extra savings? If you can save more by renting and earn a good return on those savings, renting may be better. For example, if you’re not contributing enough to max your employer’s match, or have high-interest debt to pay down, or are just an aggressive investor, the return on your savings can be quite high.

What’s your tax bracket? The higher your tax bracket is, the more you can save by deducting mortgage interest and property taxes. Just be aware that you only benefit to the extent that these itemized deductions exceed your standard deduction.

How handy are you? As a homeowner, you won’t be able to call the landlord anymore when something needs to be fixed. If you can keep maintenance costs down by doing a lot of your own work or even by being a savvy shopper, buying might be more beneficial.

I’ve been renting, but I’m now considering buying a home. I should be able to qualify for a good mortgage rate and I’m in a moderately high tax bracket. On the other hand, I think I can also earn a decent return on my savings if I rent, and I’m not the most handy person.

The tie-breaker might be how long I would plan to live in my next home, which is a tough call that involves a lot of big life decisions. In the end, the decision to buy or rent often comes down to an emotional one. There’s nothing wrong with that as long as you’re aware and okay with the financial consequences as well.

 

Is It Better to Rent or Own?

February 09, 2016

One of the biggest questions I get when I talk to people is, “Is it better to rent or own?” I tell them that it is not as simple as a yes or no answer. The cost of living in your area, your area’s housing market, and your financial stability are all factors in deciding if renting or owning is the better decision. For some, renting temporarily is a better option but no matter what I say, I normally get the following rebuttals from those determined to buy a home now: Continue reading “Is It Better to Rent or Own?”

The Five Biggest Myths About Saving Money?

December 10, 2015

When one of my colleagues recently sent me an article titled “The Five Biggest Myths About Saving Money, According to a Millennial,” I was intrigued. After all, it can be fun to bust myths, especially about something as important as saving money, and hearing a Millennial perspective is interesting, both because I might be one myself (I was born in 1979 and Millennials are sometimes described as being born in the late 70s and other times in the early 80s so maybe I’m actually something called an Xennial) and because they (or we) are the future. The article features the views of Ethan Bloch, the 30-yr old founder of Digit, an online financial company. Here are the “myths” about saving that Bloch aims to correct: Continue reading “The Five Biggest Myths About Saving Money?”

5 Things to Know About Applying for a Mortgage

December 09, 2015

Even though interest rates are likely to begin rising again (haven’t we been saying that for a couple years now?) mortgage rates are still reasonable, and buying a home these days is still cheaper than renting in most areas, providing you’re planning to stay for a bit. Buying a house is more than just a financial decision, but if after considering all the factors, you’ve decided that now is the time to buy, prepare yourself for the mortgage application process. And I mean gird yourself because it is a royal pain. Here’s what to expect: Continue reading “5 Things to Know About Applying for a Mortgage”

When Winning The Lottery Isn’t Really Winning

September 04, 2015

I heard about a story from a friend and I didn’t believe it.So I went to a more reliable source than my friend’s text message, and I found this article about Illinois lottery winners receiving IOU’s rather than money. The lottery agency is a state run entity and the state has not passed a budget so winners of $25,000 or more are not getting paid right now.   Continue reading “When Winning The Lottery Isn’t Really Winning”

Should You Buy or Rent a Home?

June 11, 2015

Summer is often a popular time for people to buy a home. In fact, I was recently talking to an employee who wanted to buy a place but she noted that the mortgage payment would be more than the rent for similar priced homes in the area she was looking at. However, after looking at the tax breaks and possible home appreciation, we discovered that owning would actually be cheaper for her. Continue reading “Should You Buy or Rent a Home?”

What Is Your Family Vision?

May 19, 2015

Okay, I am somewhat of a geek. One of my favorite channels is HGTV. I am fascinated by how they can turn a home that looks like something out of a horror movie into a dream home. Continue reading “What Is Your Family Vision?”

How Much Progress Can You Make Next Year?

December 26, 2014

One of the joys of being in a role where I can see a person make progress over the course of time is that I can remember where they started and see where they are now. Since they are living in it day to day, they don’t have the perspective that I do as a casual observer. It’s a lot like when my kids were younger, there were cousins we would only see once every year or two. Every time we saw them, I was shocked by how much their kids had grown and they were shocked by how much my kids had grown, but neither of us was shocked by the growth of our own children. Continue reading “How Much Progress Can You Make Next Year?”

Sometimes It’s Okay to Punt

October 06, 2014

Football season is an exciting time of year as fall has officially arrived and even the hot and humid southern states get some relief. Personally speaking, I am a college football person. Although I may be an unbiased financial educator, there is admittedly a great deal of bias when it comes to my allegiance to certain colleges and universities on the football field. You will likely hear screams of “Roll Tide,” “Go Tigers” (the orange ones from Clemson in the Palmetto State), and occasionally “Go Wildcats” (K-State- I have to support my grad school) if you are in my neighborhood on a typical college football weekend. (Yes, similar to my investment portfolio, I like to maintain a diversified portfolio of schools to support but also have the documents to prove that I am not a fair-weather fan of the first two programs on my list.) Continue reading “Sometimes It’s Okay to Punt”

When is Borrowing From Your 401(k) a Good Idea?

June 20, 2014

If you ask most financial planners when is the best time to borrow money from your 401(k), the overwhelming answer will be “NEVER”! And, for the most part, I agree with that. But, like almost every rule, there are exceptions.  Continue reading “When is Borrowing From Your 401(k) a Good Idea?”

The 2 Big Financial Mistakes Most People Make

June 06, 2014

My daughter’s favorite animal is the koala bear and that was never more apparent than when she and I went to the San Diego Zoo and saw the koalas there.  Her reaction:  “KOOOOAAAAALLLLLAAAAASSSSS!!!!!!”  –  if I recall correctly. We talked about koalas and why they hug trees.  We had no idea, but now with this article we know the answer.   Continue reading “The 2 Big Financial Mistakes Most People Make”