Speaker 1: Welcome to How the Money. I'm Joel and I and
Speaker 1: Matt's and today we're discussing developing a home buying strategy.
Speaker 1: This episode is dedicated to everyone who has purchased a
Speaker 1: home or who is considering purchasing a home. Did that
Speaker 1: kind of sound like an ad like this episode has
Speaker 1: brought to you by home buying. Yeah, the general ability
Speaker 1: to buy a home. We're gonna talk about that, and
Speaker 1: Matt strategy is it's such an important part of buying
Speaker 1: a home. I think it's something that people don't consider
Speaker 1: enough and it can leave you over pain right for
Speaker 1: the most expensive purchase you'll ever make in your life.
Speaker 1: So there's an important topic for us to tackle. Absolutely. Man,
Speaker 1: I know a lot of what we're going to talk
Speaker 1: about in this episode. I never even can ordered back
Speaker 1: when Kate and I bought our first house over ten
Speaker 1: years ago, and so I wish that we had been
Speaker 1: challenged in the way that we are going to challenge
Speaker 1: our listeners today. So I'm excited to get to that, man.
Speaker 1: But first, I've got a quick little frugal or cheap
Speaker 1: for you. How do you feel about keeping something that
Speaker 1: you got on sale if it doesn't fit perfect perfectly well,
Speaker 1: Because here I'll give you a little bit of backround
Speaker 1: while you consider. I got a nice jackets on sale
Speaker 1: from a website that sells discounted outdoor clothing, and it's
Speaker 1: a really nice jacket, and it was on tremendous sale,
Speaker 1: and these kind of jackets never go on sale by
Speaker 1: this particular company. It was over off, and so I pounced.
Speaker 1: I thought, man, that's a great looking jacket. But the
Speaker 1: thing is, it doesn't fit me the way I wished
Speaker 1: it would fit me, and so that bums me out.
Speaker 1: But I'm a little bit torn because I did get
Speaker 1: such a good deal on it. So what are your
Speaker 1: thoughts if I were to keep this jacket even though
Speaker 1: it doesn't fit me so well? In my being cheap?
Speaker 1: I think it's a cheap move. And and here's why
Speaker 1: I've completely changed my tune on this. I used to
Speaker 1: be all about paying a rock bottom price and if
Speaker 1: it was something that I got, if it was I
Speaker 1: think we've talked about this before. If it was like
Speaker 1: an eleven dollar pair jeans, I'm gonna keep it, but
Speaker 1: I'm not gonna wear them. And they just sit in
Speaker 1: my drawer and you can't wash them. Otherwise they dissolve exactly.
Speaker 1: So I think sometimes buying something on sale, getting a
Speaker 1: great deal, I used to hold that in like the
Speaker 1: highest esteem, and and then that just led to clutter
Speaker 1: in my house and in my life. And so yeah,
Speaker 1: I would recommend uh sending back, either getting a size
Speaker 1: that fits you better, or finding just another jacket, maybe
Speaker 1: that that you're actually gonna wear. I know, at least
Speaker 1: for me, if it doesn't fit me, well, I'm not
Speaker 1: gonna wear it, And so it's a complete waste of money.
Speaker 1: Maybe some people don't care as much about the fit
Speaker 1: and they're like, oh, it's a little bag, who cares.
Speaker 1: I'm gonna wear it anyway. But but for me, it's like, man,
Speaker 1: if it doesn't fit me, well, I'm not wearing it. Yeah.
Speaker 1: I wonder if that's because you and I are both
Speaker 1: like two skinny guys, and so it really is important
Speaker 1: to me as well, Like I would rather wear a
Speaker 1: shirt that I am less excited about wearing from like
Speaker 1: a color or graphic or material stepoint pink with unicorns
Speaker 1: on it takes me really well, I'm gonna wear it.
Speaker 1: So I kind of agree with you. I'm of the
Speaker 1: mindset of sending it back because it does in my
Speaker 1: mind depending on the product. If it's something that's I
Speaker 1: don't care much about. So for instance, I recently bought
Speaker 1: like a bike light. I just picked one up that
Speaker 1: was really cheap that had really great reviews. Like I
Speaker 1: don't care about the brand. I don't care what other
Speaker 1: features it has. It just needs to be able to
Speaker 1: light up on the front, you know, for the handlebars
Speaker 1: and the little red light on the back. It just
Speaker 1: needs to blink, Like I really do not care. Uh,
Speaker 1: And you might think that I would care because it's
Speaker 1: bike related. As long as the cars can see you
Speaker 1: and you can see the road exactly when it comes
Speaker 1: to fit, I wanted to to sit a certain way
Speaker 1: and especially to man like in the winter, I wear
Speaker 1: jackets basically all the time, Like I just wear like
Speaker 1: a T shirt and I wear a jacket over and
Speaker 1: so basically that's like my all time shirt, Like it's
Speaker 1: what people see. And so in that case, I'm willing
Speaker 1: to pay a little bit more to have something that
Speaker 1: I am excited to wear, not something that I you know,
Speaker 1: I am not excited to wear, or even worst case scenario,
Speaker 1: like you said, it just sits around ends up cluttering
Speaker 1: your house and then you end up selling it for
Speaker 1: you know, like ten bucks at the yard sale. Yeah,
Speaker 1: and I think sometimes, I don't know, maybe some people
Speaker 1: replace their jacket every winter every season. No, no, I'm
Speaker 1: talking five ten years baby, right. I know you're not,
Speaker 1: but I'm sure some people do that. Right. But but
Speaker 1: you and I especially, we live in Atlanta, so like
Speaker 1: the winner is not that cold, pretty mild, you know,
Speaker 1: we can we can if we find the right jacket
Speaker 1: that looks good, and then we can wear the that
Speaker 1: same jacket for yeah, ten years. I know I have
Speaker 1: most of the jackets I own, I've owned for about
Speaker 1: a decade, and you know, I probably only have two
Speaker 1: or three because again, it doesn't get super cold down here.
Speaker 1: But that's just another factor. The more that you love
Speaker 1: that jacket, you're drawn to it it fits well, Uh,
Speaker 1: it doesn't matter even if you didn't get it on
Speaker 1: at off sale. If you're gonna get more years out
Speaker 1: of it and you're gonna enjoy wearing it, then I
Speaker 1: think that's an important consideration. Nice. I'm glad we are
Speaker 1: on the same page. I've got it right here in
Speaker 1: the back of my chair. Do you notice I was
Speaker 1: trying it out here in the office to see how
Speaker 1: how it felt and whatnot. But I don't don't cut
Speaker 1: the tags office yet. All right, let's go ahead and
Speaker 1: introduce our beer for this episode. We are drinking a
Speaker 1: Labonte with figs and this is a beer by Wicked Wheat.
Speaker 1: This is a great brewery out of Asheville, North Carolina,
Speaker 1: Beer City, USA. I'm looking forward to sharing this one
Speaker 1: with you, buddy, and talking about it at the end
Speaker 1: of the episode. Labonte sounds fran labonte. It is all right, yeah,
Speaker 1: so you're saying that word. Yeah, right, it's labonte. It's cute.
Speaker 1: All right, Let's get onto the subject at Handmatt. We're
Speaker 1: talking about developing a home buying strategy. And it's interesting
Speaker 1: because millennials, like they've often been considered to be behind
Speaker 1: the curve when it comes to home buying. But now
Speaker 1: that generation, the generation of millennials, the people in their
Speaker 1: twenties and up to what eight uh, those people are
Speaker 1: starting to get into the idea of homeownership in a
Speaker 1: meaningful way. And the average price of a new home
Speaker 1: it now exceeds thousand dollars. Crazy. Yeah, we recently just
Speaker 1: crossed that line. There are lots of things to consider
Speaker 1: in order to make a wise purchase, and at the
Speaker 1: same time, interest rates are at all time lows. That
Speaker 1: creates this feeling I think for a lot of people
Speaker 1: like you have to move quickly before those rates start
Speaker 1: to creep back up. But if you move too quickly,
Speaker 1: you can make some missteps. So let's talk about the
Speaker 1: home buying process today, Matt, and what it looks like
Speaker 1: to have a solid strategy in place so that our
Speaker 1: list seners can make a smart purchase, one that's going
Speaker 1: to serve them well for years to come, and not
Speaker 1: a hasty purchase that's still conceived. Kind of like your jacket.
Speaker 1: It wasn't hasty, it was well thought out, you know,
Speaker 1: and I pounced on the sale. But sometimes you can't
Speaker 1: tell the fit until you get it in personally. I
Speaker 1: felt the need to throw that in there, ruffle my
Speaker 1: feathers a little bit. Uh. And So another reason that
Speaker 1: home buying right, why this is so important to get right,
Speaker 1: is that because once typical Americans purchased their first home,
Speaker 1: a large portion of their wealth is instantly tied up
Speaker 1: in that home right nearly, and as folks get older,
Speaker 1: that percentage only increases. Households where folks are older than
Speaker 1: seventy five have nearly half of their wealth as equity
Speaker 1: in their primary residence. Now, this isn't necessarily a good
Speaker 1: thing because it's tricky, you know, to survive off of
Speaker 1: your home equity when you retire. You can't eat your
Speaker 1: house unless you're a gingerbread man. I guess, yeah, but
Speaker 1: then or with a helock. But he likes take time.
Speaker 1: And as we've seen now that they're not readily available,
Speaker 1: a lot of banks and credit unions are not offering them.
Speaker 1: And even then you're paying money to access that that wealth,
Speaker 1: it's tied up. Yeah. Yeah, And so whether we like
Speaker 1: it or not, though, that's the reality for most folks.
Speaker 1: But by developing a strategy for your home purchase, our
Speaker 1: goal is that you'll you'll save a good bit of
Speaker 1: money on that purchase, you know, along the way, and
Speaker 1: then hopefully too, you might even consider spending less on
Speaker 1: your house to begin with. So let's go ahead and
Speaker 1: get into some of the most important considerations that we're
Speaker 1: gonna talk about today. Yeah, part of this really involves
Speaker 1: asking yourself a few incredibly important questions, right, And the
Speaker 1: first one that you should be asking is should I
Speaker 1: even be buying a home? Or does renting serve me better.
Speaker 1: It's so important to note that buying isn't necessarily the
Speaker 1: best option for everyone, and in fact, it's not the
Speaker 1: best option for a decent swath of the population. Renting
Speaker 1: can be a better move for people of all stages,
Speaker 1: depending on how long you plan to live in that
Speaker 1: location and your overall money goals. So part of your
Speaker 1: strategy should involve a little thinking about why you're wanting
Speaker 1: to buy a home. Is it because your friends have
Speaker 1: started buying homes? That can be a factor for a
Speaker 1: lot of people, but it's important not to base your
Speaker 1: decision on your peers. It's a personal decision that is
Speaker 1: going to affect you for years to come. Right at
Speaker 1: the same time, a home can be an incredible place
Speaker 1: to feel settled in a community or to raise a family,
Speaker 1: But if you can't get rid of that home because
Speaker 1: you were maybe a little shortsighted on the front end,
Speaker 1: it can feel like a burden that you can't get
Speaker 1: rid of. And that's why it's important to know that
Speaker 1: you're ready to be planted in a place for a
Speaker 1: while before you're making that purchase. Otherwise, buying that home
Speaker 1: the day of closing it can be a joyous occasion.
Speaker 1: The day that you list it, and the months that
Speaker 1: it might be on the market while you're trying to
Speaker 1: sell it and not lose money can be incredibly frustrating. Yeah, man,
Speaker 1: And so you mentioned some of those personal lifestyle considerations, right,
Speaker 1: But then of course there's also the financial considerations as well.
Speaker 1: You know, you mentioned it being a burden. It's a
Speaker 1: burden because financially speaking, you're either going to take a loss,
Speaker 1: like you said, when when it when it comes time
Speaker 1: to sell it, or if you can't afford it um
Speaker 1: if you have a boatload of other debts. Maybe if
Speaker 1: you have poor credit, and if you live in an
Speaker 1: expense of market, then buying a house might be a
Speaker 1: bad decision for you. The same goes to if your
Speaker 1: employment is a bit tenuous. You know, we've seen this
Speaker 1: past year. Sometimes it's not even about how great of
Speaker 1: an employee you are, but there are larger issues at play,
Speaker 1: which then in turn impacts your industry and then your company.
Speaker 1: Where you feel the effects of something like a pandemic,
Speaker 1: it can be tough, you know, especially for a single
Speaker 1: individual with just one source of income, to have solid
Speaker 1: financial footing. And so if that's you, if you're not
Speaker 1: in a solid position, you might be better off running
Speaker 1: matt And sometimes that doesn't necessarily mean you'll never own
Speaker 1: a home. That's just right for the time being, right,
Speaker 1: And I know there are a lot of people who
Speaker 1: that's a goal, that's a dream, that's an aspiration, and
Speaker 1: that's great. But if your financial circumstances currently dictate that
Speaker 1: it's not the smartest move for you, you don't want
Speaker 1: to buy a home at the wrong time, then it
Speaker 1: becomes again, like we were saying, like this this plague
Speaker 1: on your personal finances and a source of frustration instead
Speaker 1: of that source of joy. So again, it doesn't mean
Speaker 1: that it's not a possibility at some point. It just
Speaker 1: means that it's not a great idea right now. Yeah,
Speaker 1: that's right, man. And so we wanted to mention that
Speaker 1: that renting might be a good option before we dive
Speaker 1: into you know, all this home purchasing talk. But that's
Speaker 1: what we're gonna get into next. Specifically, we're gonna talk about,
Speaker 1: you know, sort of an overarching strategy for for buying
Speaker 1: a home that will have a dramatic impact on your
Speaker 1: ability to grow your wealth. And so we're gonna get
Speaker 1: to that right after the break. All right, we're back
Speaker 1: from the break. Let's keep talking about developing that home
Speaker 1: buying strategy, Matt. And and again there's a few important
Speaker 1: questions we talked about. One isn't even the right time
Speaker 1: to buy home. But the next most important question for
Speaker 1: anybody to ask themselves when they're thinking about buying home
Speaker 1: is what's the purpose of this home? Right? What's the
Speaker 1: core to how you're approaching purchasing a home, Like if
Speaker 1: you're going to be house hacking or if you're buying
Speaker 1: a multifamily property, there's a different a set of circumstances
Speaker 1: that you need to consider versus buying a single family residence.
Speaker 1: And so yeah, that that overarching question of what's the
Speaker 1: purpose of this house is an important one. It can
Speaker 1: significantly change how you approach purchasing that home, Right, Matt.
Speaker 1: We've talked about house hacking on the show a good
Speaker 1: bit and you know what, maybe we'll do it more
Speaker 1: in the future. I'm sure that's because the ability that
Speaker 1: we have to significantly reduce the cost of our housing,
Speaker 1: which is of course the largest expense many of us
Speaker 1: face across the board, it's unmatched. Right. If we can
Speaker 1: find a way to use our home and profit from it,
Speaker 1: or at least drastically lower the costs of our own
Speaker 1: housing by renting out a room or having a multifamily
Speaker 1: home where other tenants essentially pay the mortgage for us,
Speaker 1: that's gonna change the equation on our buying strategy, right.
Speaker 1: And most folks out there, they just don't really consider
Speaker 1: house hacking or moving out and renting out their old place.
Speaker 1: But that's something that that we think is important to
Speaker 1: challenge people to at least consider because it has a
Speaker 1: mans have impact on the strategy, but also a massive
Speaker 1: impact on your ability to grow your net worth over time.
Speaker 1: If you can choose house hacking as opposed to the
Speaker 1: traditional way of buying a home, you're gonna completely alter
Speaker 1: your financial future. Yeah, and just to clarify, I mean,
Speaker 1: like you said, you like, house hacking can be as
Speaker 1: simple literally as just having roommates, right. It doesn't have
Speaker 1: to be this overly complicated thing, but it can be. Right,
Speaker 1: if you want to buy a quadplex where you are
Speaker 1: only living in a single unit, maybe the smallest unit
Speaker 1: there is in that quadplex, and then you're running out
Speaker 1: the other three units and then you're cash fling every
Speaker 1: single month. Or maybe even more complicated is say adding
Speaker 1: onto your house like we did and finishing out a
Speaker 1: basement that you plan to list on Airbnb. There's a
Speaker 1: wide spectrum of what house hacking could look like. In
Speaker 1: our book, every single one of those is a type
Speaker 1: of house hacking, and so that's what we are referring
Speaker 1: to when we are talking about house hacking. Yeah, Matt.
Speaker 1: And another example, like when I bought my first and
Speaker 1: second house, each one of those purchases was done with
Speaker 1: the intention of becoming a rental property in the future,
Speaker 1: and that changed the parameters of what I was looking for.
Speaker 1: I was looking more at multifamily properties and I had
Speaker 1: like a hard cap on the price I was willing
Speaker 1: to pay for a single family home. Both homes that
Speaker 1: we ended up purchasing a couple of years apart from
Speaker 1: each other ended up being single family homes and they've
Speaker 1: been great. But knowing the purpose behind the home I
Speaker 1: was looking for before we began our search and even
Speaker 1: started making offers was crucial to the path that we
Speaker 1: ended up taking, because if I wasn't ultimately thinking with
Speaker 1: a future investment in mind, the homes I'm actually pursuing
Speaker 1: probably would have cost more and wouldn't have been nearly
Speaker 1: as good of a fit for an investment or rental property.
Speaker 1: So yeah, that's definitely an important thing to keep in mind.
Speaker 1: What's going to be the current and what's going to
Speaker 1: be the potential future use of this home in your life.
Speaker 1: It also takes the pressure off of that first house
Speaker 1: perhaps being like the perfect house, you know, like it
Speaker 1: doesn't have to be a perfect fit. It doesn't have
Speaker 1: to be your dream house. Basically, if you can look
Speaker 1: at it and say, hey, this is a house I
Speaker 1: can see myself in for the next couple of years,
Speaker 1: and the numbers make sense, it kind of comes down
Speaker 1: to the numbers at that point. It's more of a
Speaker 1: math equation versus could I see myself here for the
Speaker 1: next ten twenty years. Can I seem myself raising a
Speaker 1: family in this house? Probably not, you know, like, if
Speaker 1: you can happen to find a house that can evolve
Speaker 1: with you, uh, I think that's amazing, Like that's great.
Speaker 1: But at the same time, I think there can be
Speaker 1: so much pressure on individuals finding the perfect house for
Speaker 1: their very first house purchase, and like you mentioned, I
Speaker 1: think that can cause a lot of folks to to
Speaker 1: overpay maybe and and even over extend themselves to choose
Speaker 1: something that's a little bit maybe beyond their reach. And
Speaker 1: so you know, another question too for folks to consider
Speaker 1: is what's your timeline? Second to what's your purpose behind
Speaker 1: this house? This is probably the most important question you
Speaker 1: can ask, uh, And it's also a consideration that is
Speaker 1: impacted by whether or not you're planning on house hacking
Speaker 1: or not. So for example, if you're buying a to
Speaker 1: one and then you're planning maybe on having four kids
Speaker 1: in the next few years or in our case ten years, uh,
Speaker 1: you might not be there for very long and it
Speaker 1: may be an unwise purchase, unless again, you are planning
Speaker 1: to convert that house to a rental, which is actually
Speaker 1: what we did. So when it comes to houses, kay,
Speaker 1: now we've only moved once. We moved from you know,
Speaker 1: one house to the house that we're in. Now you've
Speaker 1: moved twice. So you've got to convert two houses in Tormentos,
Speaker 1: we've only converted one. And so again that's something that's
Speaker 1: going to be significantly impacted depending on what it is
Speaker 1: that you're planning to do with that house when you're
Speaker 1: ready to move on. Yeah, the timeline, Matt, is crucial, crucial,
Speaker 1: crucial for how to think about the home that you're buying.
Speaker 1: And I think a lot of people haven't thought through
Speaker 1: maybe how long they plan on living in that city,
Speaker 1: or whether that home is going to meet their needs
Speaker 1: for a number of years to come. They buy something
Speaker 1: because it fits their lifestyle right now, and when it
Speaker 1: comes to something like buying a home, because of the
Speaker 1: massive amount of transaction costs involved in that move, you
Speaker 1: can't think like that. You can't afford to be shortsighted.
Speaker 1: So you have to ask yourself this question of what's
Speaker 1: your timeline. And let's say, Matt, somebody's in the army
Speaker 1: in their station somewhere for the next three years, but
Speaker 1: they have no idea where they're going to be after that, Like,
Speaker 1: buying a home doesn't make a whole lot of sense, uh,
Speaker 1: in particular financial sense for that person either. Right, it's
Speaker 1: important to think about some of the likely scenarios of
Speaker 1: how long you're gonna own the home. But again, if
Speaker 1: you serve in the military and you're like, you know what,
Speaker 1: I'm totally cool being a long distance landlord, then maybe
Speaker 1: buying a home with that in mind makes a whole
Speaker 1: lot of sense. Right, If you're cool with that property
Speaker 1: becoming an investment property in the future, your personal timeline
Speaker 1: of how long you're going to live in the property
Speaker 1: matters less. But at the same time, there are a
Speaker 1: whole lot of people that aren't interested in becoming landlords,
Speaker 1: and so your timeline and how long you're planning on
Speaker 1: living in the property is just of massive importance. Yeah,
Speaker 1: I've heard that the most unhappy landlords are the landlords
Speaker 1: by default. Yeah, it's a whether you're planning on your
Speaker 1: house being a personal residence only versus a house hack.
Speaker 1: That also has an impact on how much you need
Speaker 1: to have saved up for a down payment. We're all
Speaker 1: about pushing people to have a down payment if it's
Speaker 1: for a personal residence, but you know what, we're okay
Speaker 1: with a smaller down payment. If you're buying the home
Speaker 1: partially as an investment property. You know, if your home
Speaker 1: will provide cash flow as a house hack, or you're
Speaker 1: looking to buy some multi family housing that will provide income, well,
Speaker 1: that threshold is less important. This is another instance where
Speaker 1: you're basically looking at the numbs. If you can crunch
Speaker 1: the numbers and it makes sense if you're getting a
Speaker 1: good return on your investment versus what you'd be able
Speaker 1: to get in the market, then this becomes less of
Speaker 1: a personal kind of qualitative decision and it becomes more
Speaker 1: of a numbers decision. Yeah, accelerating your savings for a
Speaker 1: down payment is huge when it comes to your strategy
Speaker 1: for buying a home, and Matt, for people out there
Speaker 1: listening who have been running for a number of years
Speaker 1: with the goal of owning a home, maybe in the
Speaker 1: back of their mind, maybe in the front of their mind,
Speaker 1: it's really really important to start saving up for that
Speaker 1: now and making it a major goal in your monthly budget.
Speaker 1: But if that's kind of been on your radar but
Speaker 1: you haven't been able to save maybe even a dime
Speaker 1: towards that goal yet, then you know, we would say
Speaker 1: buying a home needs to be put off until you've
Speaker 1: been able to accrue at least a meaningful amount of
Speaker 1: savings towards the down payment. Right and in particular, Matt,
Speaker 1: you mentioned pushing people towards the number, that's not necessarily
Speaker 1: a hard and fast thing. We think it works better
Speaker 1: for people for so many reasons, right, uh, to get
Speaker 1: to that market, it allows people to avoid p M.
Speaker 1: I can add quite a bit to your monthly payments,
Speaker 1: roughly one percent of the overall cost of the mortgage annually,
Speaker 1: and that's just a tough pill to swallow. And at
Speaker 1: the same time, you've got more more skin in the game.
Speaker 1: So we love the idea of pushing people to to
Speaker 1: have that much to put down because it's the smartest,
Speaker 1: least risky way to go about it. And another thought
Speaker 1: as well is that you know, you might be able
Speaker 1: to afford the home today, right, but can you afford
Speaker 1: it over the long haul? Like that's the question you
Speaker 1: want to ask yourself, Like, are you buying too much
Speaker 1: house right now? If you'll be stretched every month to
Speaker 1: make the mortgage payment, it's not going to be worth it.
Speaker 1: And then additionally to you need a factor in the
Speaker 1: price of maintenance and upkeep into your life as well.
Speaker 1: You know, a good rule of thumb for budgeting purposes
Speaker 1: is one percent of the purchase price of the home.
Speaker 1: So twollar home will likely need two thousand dollars annually
Speaker 1: on average, right some years is going to be even
Speaker 1: more than that, but some years it might be less.
Speaker 1: So after factoring all those costs in as well, you
Speaker 1: might be seeing yourself like renting for a couple more years.
Speaker 1: Like that sounds like the way to go, and so
Speaker 1: start there. We want you to consider house hacking. We
Speaker 1: want that to be a challenge to you, and we
Speaker 1: hope you consider that. But regardless of if you're going
Speaker 1: to consider house hacking or not, if you're listening to
Speaker 1: this episode, you might be looking to purchase a home
Speaker 1: just for yourself as a primary residence. Either way, there
Speaker 1: are some important guidelines to follow and we'll get to
Speaker 1: those right after the break. All right, we're back from
Speaker 1: the break and Matt hopefully we helped people refine their
Speaker 1: home buying strategy just a little bit, making sure they're
Speaker 1: not buying more house than they can afford, being sure
Speaker 1: they know their timeline. Things like that are so important
Speaker 1: before you pull the trigger on a home purchase. But
Speaker 1: now let's talk about a few of the really important
Speaker 1: things that people need to have in place as before
Speaker 1: they begin home shopping. And one of the most important
Speaker 1: things is to have a really good credit score. And
Speaker 1: if you don't have one, you've got to work on
Speaker 1: improving it. Part of the home buying strategy involves making
Speaker 1: sure that that credit score is in great shape. But
Speaker 1: first you you kind of need to know what your
Speaker 1: credit score is, right, A lot of people out there
Speaker 1: listening might not know what their score is. And so, yeah,
Speaker 1: look at the section in your credit card bill where
Speaker 1: they give you that info every month. And if you
Speaker 1: don't have access to your credit score there, check out
Speaker 1: a site like credit Scorecard or credit Karma. Both are awesome,
Speaker 1: and Credit Karma does this great job. Also, they've got
Speaker 1: a scorecard tool that gives you insight on how to
Speaker 1: improve that credit score. They'll say, you know what, in
Speaker 1: this area, you're getting an A over here you're getting
Speaker 1: a C minus. And so that's the part of your
Speaker 1: credit score that you can attack the hardest in order
Speaker 1: to to boost that score, because your score is going
Speaker 1: to have such an impact on the loan terms you're
Speaker 1: gonna be able to get, and those loan terms are
Speaker 1: gonna have a direct reflection on your monthly payment, which
Speaker 1: influences your budget and and so yeah, it just goes
Speaker 1: on and on. You've gotta have a great credit score.
Speaker 1: You gotta be working on your credit score before you
Speaker 1: start shopping for that house. Yeah, that's right, and and
Speaker 1: so if your your credit score is awful, we would
Speaker 1: recommend for folks to go back and check out episode
Speaker 1: one thirteen. That's where we talk about how to rebuild
Speaker 1: a rough credit score. Uh, it's not always easy, you know,
Speaker 1: and it can take quite a bit of time, but
Speaker 1: that that hard work will pay off big time in
Speaker 1: the future as you will be able to qualify for
Speaker 1: the best mortgage terms and interest rates as well, and
Speaker 1: that can save you tens of thousands of dollars over
Speaker 1: the life of the loan. But like you know, like
Speaker 1: we're saying, it's gonna take a while. You can't instantly
Speaker 1: flip the switch on your credit score. And so if
Speaker 1: a home purchases in your future, that's something that you're
Speaker 1: gonna want to start now, all right, Matt, you just
Speaker 1: mentioned getting the best mortgage terms and interest rates, and yeah,
Speaker 1: one of the next important things and having a solid
Speaker 1: homebuying strategy is is shopping around for the best financing.
Speaker 1: Most people look at a ton of homes but really
Speaker 1: actually only apply for financing with one lender, like one
Speaker 1: bank or credit union, and then they stop there because
Speaker 1: they're like Okay, this person got back to me. Yeah,
Speaker 1: and yet what they don't realize is that there could
Speaker 1: be uh thousands of dollars in difference in closing costs,
Speaker 1: or you know, a half a percentage of difference in
Speaker 1: the interest rate you're being offered by different lenders. So
Speaker 1: it's really crucial to get that apples to apples comparison
Speaker 1: from a a mom of three. Different lenders look to
Speaker 1: local credit unions and local banks in particular. Right, credit
Speaker 1: unions often offer the lowest rates and they can charge
Speaker 1: fewer fees for the loans that they're offering. Mortgage brokers
Speaker 1: are also a great place to turn because they can
Speaker 1: essentially shop with a bunch of different lenders for you
Speaker 1: all at one time with your information. So, yeah, reach
Speaker 1: out to a mortgage broker as well. But yeah, shopping
Speaker 1: for financing is it just an incredibly crucial step in
Speaker 1: the home buying process. Yeah, mortgage brokers are great, and
Speaker 1: so are insurance brokers when it comes to ensuring that house.
Speaker 1: But we're not going to get into that this episode.
Speaker 1: Let's keep talking about financing. You know, it's also important
Speaker 1: to think about, you know, what type of loan that
Speaker 1: you're gonna be taking out. I'm sure a lot of
Speaker 1: folks have heard of fifteen year thirty year mortgages. Maybe
Speaker 1: they've heard of f h A or arms as well.
Speaker 1: There are all sorts of options that you can choose from,
Speaker 1: but we are not fans of f h A loans,
Speaker 1: and almost never is an ARM ideal, especially in the
Speaker 1: current age of insanely low rates that we have right now,
Speaker 1: and so that's why we recommend for folks to consider
Speaker 1: either a conventional fifteen or thirty year fixed rate mortgage. Yeah,
Speaker 1: there are all sorts of interesting mortgage products out there,
Speaker 1: but the two most basic are are the ones that
Speaker 1: are ultimately the best for most people, the fifteen and
Speaker 1: the thirty. Right, and Matt, let's talk about to the
Speaker 1: pre approval letter. As you're starting to shop for homes
Speaker 1: before you make your first offer, it's important to get
Speaker 1: pre approved from a lender before you start submitting those offers.
Speaker 1: But here's the problem with the pre approval typically is
Speaker 1: that the bank or credit union sometimes might overestimate how
Speaker 1: much home you can afford. They're not necessarily thinking about
Speaker 1: what fits into your monthly budget and how much breathing
Speaker 1: room you're gonna need. Yeah, they're not looking out for
Speaker 1: your best interests necessarily, right, Yeah, they're just saying, oh,
Speaker 1: you know what, on paper, it looks like you could
Speaker 1: afford this much house. So let's say you're like pre
Speaker 1: approved for a dollar mortgage from a lender. That doesn't
Speaker 1: mean that you should be buying a home that cost
Speaker 1: that much. I think that's like one common misstep map
Speaker 1: that people make when it comes to their home by
Speaker 1: strategy is they take that fixed number that a lender
Speaker 1: gave them as gold as their upper limit or the
Speaker 1: you know, the price of a home that they should
Speaker 1: be looking at. It's not terribly different from spending on
Speaker 1: your credit card up to the limit just because you can.
Speaker 1: Right Instead, it's important to figure out what works in
Speaker 1: your monthly budget and don't be afraid to be conservative.
Speaker 1: Right Like, for me, Matt, I'm nervous about being house poor,
Speaker 1: and so I've always tried to buy cars or homes
Speaker 1: or anything like that just that's far under what I
Speaker 1: actually could afford because I want to prioritize saving and
Speaker 1: investing and also using extra money to do other other
Speaker 1: fun things as opposed to to socking it into a
Speaker 1: home that's like a little on the expensive side. Yeah,
Speaker 1: I sort of see a pre approval letter almost as
Speaker 1: like the speedometer on your car, Like, just because it
Speaker 1: says it can do one forty like doesn't mean you
Speaker 1: should be doing them. You know, Like there's a limit
Speaker 1: that you should probably stay within. There's a legal limit,
Speaker 1: and there's not necessarily a financial limit that tells you
Speaker 1: what you should or shouldn't do, per se when it
Speaker 1: comes to the amount that you you know that you
Speaker 1: can take out. But but yeah, just because you're pre
Speaker 1: approved a certain amount doesn't mean you should take it there.
Speaker 1: And so another question that's gonna come up to when
Speaker 1: you're talking with a lender, uh, that they're gonna start
Speaker 1: talking about your debt to income ratio. This also has
Speaker 1: a major impact on the strategy that you'll need to take.
Speaker 1: If you haven't saved enough money, you know, like that
Speaker 1: could derail your ability to buy a home, But your
Speaker 1: outstanding debt could also do the same. So it's important
Speaker 1: to get focused on paying down your most egregious debts,
Speaker 1: in particular your credit card debt before you buy a home. Yeah,
Speaker 1: you might get some lender pushback as you're applying, and
Speaker 1: they might say your d t I is too high, well,
Speaker 1: that means that you have too many monthly debt obligations
Speaker 1: and so yeah, relative to your income exactly. So you've
Speaker 1: got to start paying some of those things off in
Speaker 1: order to be able to then buy a home. And
Speaker 1: specifically when we talk about d t I, the goal
Speaker 1: should be to have one under thirty percent. They're helpful
Speaker 1: dt I calculators out there on the internet. Will will
Speaker 1: post a link to one in the show notes. But
Speaker 1: that's something that you can kind of know ahead of
Speaker 1: time before the lender gets back to you and says, actually, sorry,
Speaker 1: you have too much debt. You qualified for this alone.
Speaker 1: I think sometimes we have an internal gauge to a
Speaker 1: certain extent of how bad our debt actually is. But
Speaker 1: actually seeing the number and a d t I calculator
Speaker 1: what your d t I percentage is, can really help
Speaker 1: you know, Okay, I got some work to do before
Speaker 1: before I keep going down this path. Or you know, actually,
Speaker 1: I'm I'm in a pretty good spot and I have
Speaker 1: a d t I that's that's healthy. So I can't
Speaker 1: afford to buy a home right now. So every time
Speaker 1: you say d t I, I just keep thinking d
Speaker 1: t R do you remember having the d t R.
Speaker 1: And we've been married so long now, I almost forgot
Speaker 1: about the d t R. Yeah. Well, so when I
Speaker 1: was back in college I actually appreciated having the d
Speaker 1: t R because I just like clarity. I like to
Speaker 1: know what I'm working towards. If this isn't gonna work out,
Speaker 1: like I'm ready to move on to people know what
Speaker 1: the means that DTR is defind the relations. Everybody knows
Speaker 1: what d just in case. I. I specifically remember having
Speaker 1: the d t R with Kate and it's just such
Speaker 1: a good moment of clarity. But yeah, sorry, a little
Speaker 1: tangent there. Every time you were saying d t I
Speaker 1: I was like, he's just saying d t R. But
Speaker 1: we're talking about money. We're talking about, you know, getting
Speaker 1: qualified for a mortgage. Something else that can say. Or
Speaker 1: if you're like me, if you're self employed and you
Speaker 1: have been for the past twelve years of your life,
Speaker 1: be prepared to go through a more rigorous underwritting process,
Speaker 1: especially if you've been, you know, more recently self employed.
Speaker 1: And so Kate and I we've been kind of transitioning
Speaker 1: away from photography lately, and because of that, our income
Speaker 1: has gone down a whole lot, and I very acutely
Speaker 1: felt the effects of that, not just in our decreased
Speaker 1: income a little bit, but in the ability to get
Speaker 1: some mortgages refined. You know, you and I we both
Speaker 1: have investment properties and with rates at all time loans,
Speaker 1: of course we're pouncing on those opportunities to get a
Speaker 1: lower rate. Well, dude, when you know it, because our
Speaker 1: income has dropped, it dashed our hopes a little bit.
Speaker 1: It ruined the opportunity to take advantage of the deals
Speaker 1: right now, and so in our case, we weren't able
Speaker 1: to refy. And so that's definitely something to consider. You know,
Speaker 1: if you've had a corporate gig for you know, the
Speaker 1: past five years, and you're moving more towards independent work,
Speaker 1: where they're gonna want to see a couple of years
Speaker 1: worth of corporate taxes in order to consider the income
Speaker 1: that you received from those side businesses as qualified income. Yeah,
Speaker 1: lenders love nine high people who collect a bi weekly paycheck.
Speaker 1: That's for sure, totally predictable, exactly, It's never been my life.
Speaker 1: Uh yeah. Another really really important thing, Matt, as we're
Speaker 1: getting close to the end of this one, is is
Speaker 1: finding a great real estate agent. That is such an
Speaker 1: important part of this entire process. Right, finding a seasoned
Speaker 1: agent can make all the difference when you're buying a home,
Speaker 1: especially if you're a first time HomeBuyer. Matt, I remember
Speaker 1: being so green when I was shopping from my first home.
Speaker 1: I didn't really know what to look for, and I
Speaker 1: felt like my agent was a godsend like guiding me
Speaker 1: through the process. She had a couple of decades of
Speaker 1: experience and she was incredible. I feel like she really
Speaker 1: held my hand in the process. And there are probably
Speaker 1: a lot of other agents I could have gone with
Speaker 1: who wouldn't have provided nearly that value. And now that
Speaker 1: I've been investing in real estate for a number of
Speaker 1: years going on a decade, my agent provides help in
Speaker 1: other ways, like being an expert negotiator. Now I don't
Speaker 1: need nearly the amount of hand holding that I used
Speaker 1: to need right when I was buying my first one.
Speaker 1: But it's important to make sure you do your due
Speaker 1: diligence on the real estate agent front as well. Right,
Speaker 1: that solid agent makes a major difference not only in
Speaker 1: the price you pay, but whether or not you're even
Speaker 1: going to get the home that that you really want
Speaker 1: or not. Yeah, that's right, man. And so speaking of
Speaker 1: real estate agents, I know who your first realtor was
Speaker 1: because I we used her one time. And my favorite
Speaker 1: story about you in that realtor is that, well, that
Speaker 1: was back in the day when you would ride around
Speaker 1: in the car with them and you know, you'd go
Speaker 1: to and see houses. I remember talking about one time
Speaker 1: how she dropped you off back at your apartment, I guess,
Speaker 1: and I think you responded with see you later, I
Speaker 1: love you. It sounds like something I would say, Do
Speaker 1: you remember that. I mean you're like, well, I mean, yeah,
Speaker 1: you're great. But I think in your mind you had
Speaker 1: that like, oh, this is mom dropping me off. She
Speaker 1: was kind of like a second mom. Man. She's such
Speaker 1: a great agent. I stay in touch with her still
Speaker 1: a little bit. But it's great. Yeah. I love her,
Speaker 1: I got I'll be honest. I love her. She's great.
Speaker 1: She's the best. Yeah. Speaking of dtr Um and so,
Speaker 1: you know, there are lots of other things to consider
Speaker 1: when it comes to buying a home, like inspections, negotiating.
Speaker 1: We just kind of mentioned that, but like, this isn't
Speaker 1: a comprehensive list per se, but you know, The biggest
Speaker 1: factor though that determines your home buying strategy is whether
Speaker 1: or not you're planning in the house ack or if
Speaker 1: you're going to convert that personal residence to our rental.
Speaker 1: We feel that that can just have such an outsized
Speaker 1: impact on your ability to put yourself in a home
Speaker 1: that's going to treat you well down the road, because
Speaker 1: you know what, like it has converted from what a
Speaker 1: place that used to call home to something that is
Speaker 1: now generating income. It's now an investment, and so we
Speaker 1: want to make sure that folks are are going to
Speaker 1: just challenge that notion of of just purchasing a home
Speaker 1: for themselves and instead to consider some of those long
Speaker 1: lasting implications as well. Yeah, and just the notion that
Speaker 1: putting as little down as you can put down and
Speaker 1: buying as much home as you can write like that,
Speaker 1: those are two of the biggest mistakes you can make,
Speaker 1: you know, in this home buying process. And so that's
Speaker 1: an important thing to realize as well, is it's important
Speaker 1: to be in a solid financial position before you even
Speaker 1: go down this road. So to any of our listeners
Speaker 1: out there, who are you know, in the process of
Speaker 1: of getting ready to start shopping for home, or maybe
Speaker 1: you're in the middle of it right now and you're
Speaker 1: about to make an offer. Best of luck to you.
Speaker 1: I hope that this episode has been helpful so that
Speaker 1: you can navigate these waters well and by something that's
Speaker 1: going to be good for you and your family for
Speaker 1: for years to come. All right, Matt, you want to
Speaker 1: get back to the beer real quick. Today on the show,
Speaker 1: we had a wicked weed Labonte And it's not just
Speaker 1: Labonte's Labonte with figs. So this is a type of
Speaker 1: sour that they make with like pear, with like some
Speaker 1: other fruit as well. But yeah, this is the fig variation.
Speaker 1: Reminds me of our fig tree that was in full
Speaker 1: bloom the summer. Dude, we got so many figs off
Speaker 1: that thing this year. But but what do you think
Speaker 1: about this beer man? You have so many figs, But
Speaker 1: did you make any beer with it? No, I'm a loser.
Speaker 1: You're not a loser. You just you just don't make beer. Okay,
Speaker 1: So this beer man, in my opinion, it was aggressively tart.
Speaker 1: It was very acidic. But you know how I roll,
Speaker 1: I really enjoy that in a sour beer, and so
Speaker 1: this one didn't disappoint at all. I felt it did
Speaker 1: have a little bit of that fig flavor going on,
Speaker 1: not a whole lot of it, but something else I
Speaker 1: feel like I picked up on. I don't know if
Speaker 1: I'm just imagining this, but as I finished it out,
Speaker 1: I feel like it would get sweeter, Like you drink
Speaker 1: it immediately and it feels really tart, really mouth puckering,
Speaker 1: but then the sweetness kind of rides out on the
Speaker 1: back end. It kind of lingers, And specifically it kind
Speaker 1: of made me think of like any sweetness, And I
Speaker 1: wonder if that's because I'm just thinking in my head
Speaker 1: of like a struck qu to replate where there's like
Speaker 1: figs and honey with some meats, some cheeses. But yeah,
Speaker 1: to me, it felt like it almost had this honey
Speaker 1: sweetness going on on the tail end that made me
Speaker 1: appreciate it even more. Yeah, I totally see what you're
Speaker 1: saying on the sweetness. It almost had like a white
Speaker 1: wine kind of quality, like a sweet white wine kind
Speaker 1: of sweetness going on. And I agree it was kind
Speaker 1: of light on the fig but heavy on the tart.
Speaker 1: But I'm cool with that. I like figs, but not
Speaker 1: nearly as much as my seven year old who would
Speaker 1: just like pull them off in clumps and just start
Speaker 1: tossing them in her mouth. But I thought it was
Speaker 1: a truly excellent golden sour. I mean, wicked Weed still
Speaker 1: makes I think some of the best fruited sours out there.
Speaker 1: And you know with this bottles three years old, man,
Speaker 1: it's held up nicely. This one's just been hanging out
Speaker 1: in my beer cellar, which is actually our pantry, and
Speaker 1: I really enjoyed it. Manethelois was a delicious sour beer.
Speaker 1: Nice man, Well, that is going to be it for
Speaker 1: this episode. Listeners can find our show notes up at
Speaker 1: our website at how to money dot com and there
Speaker 1: will be sure to link to that deaths income ratio calculator,
Speaker 1: as well as some other resource is that you might
Speaker 1: find helpful. Again, if you have enjoyed this episode, if
Speaker 1: you're enjoying the show in general, well, we would encourage
Speaker 1: you to hit the subscribe button so that you get
Speaker 1: every single episode delivered to your podcatcher. And also if
Speaker 1: you haven't left a review yet, man, we'd really appreciate
Speaker 1: you letting people know what you think of the show
Speaker 1: over on Apple Podcasts. And thanks in advance. All right, Matt,
Speaker 1: that's gonna do it for this episode until next time.
Speaker 1: Best Friends Out, Best Friends Out,