Purchasing your home is also an investment in your future.
One of the biggest, and most important purchases most people will ever make, is that of their home. Consequently, the importance of having — and understanding — current, accurate market knowledge of the home, and the area surrounding it, cannot be overstated. Learning this information in an “easy-speak” way that makes sense to you is where we start.
That’s my cue.
Want to have fun, learn and love the process along the way? Read on…
This absolutely CAN be a fun, stress-free education along the way that will serve you well in growing your wealth through buying your home…if you have a knowledgeable, skilled and patient Realtor representing you (And a Broker like me? Even better!).
In this brave new world of HGTV and DIY real estate, it may appear on the surface you have many alternative processes to explore in buying a home without a Realtor. Prior to jumping down that rabbit hole, though, I strongly encourage you to read through this material first, and arm yourself with real knowledge that can help prevent massive headaches…or worse.
You might have gathered in your research on such sites as Zillow, Trulia, and RedFin, for example, that this process is a cinch for the savvy, educated do-it-yourselfer. I would strongly encourage caution against “swallowing that blue pill.”
Your impetus may be the thought of saving money doing this on your own. Are you the type of person who hates to ask for directions when lost?
Guess what? Consulting with a full-time, professional Realtor will save you not only money, but headache, and any number of possible legal issues dealing with anyone who is not professionally invested in your success. Additionally, your Realtor owes you, and only you, a fiduciary duty to legally watch out for you!
Think about this for a second. Would you invest in the stock market without any education, guidance or representation? No? Of course not. Why would you look at real estate any differently? Your home, one of the largest, if not the largest investment in your life, should be one where you have terrific, experienced and dedicated guidance and representation.
My job: to educate, advise and represent you, watching out for both your financial and legal best interests. Period. There are a lot of behind-the-scenes “sub-sections” of that job description, but those are the crucial points.
Guess what else?? The services of a buyer’s agent are 100% FREE in the state of California! Yes, that is correct. You read that right. FREE!
Now, the wrong agent could end up costing you in other ways. The right agent is one who is educated, well credentialed, experienced, communicative, listens to YOU and wants what you want, and asks you all the right questions. Someone who, simply speaking, knows what they are doing.
So please, if you value your time, and your hard-earned money, before you waste time looking at properties that might not be there anymore, or available to you (for any number of reasons), sit down and talk to a full-time, experienced, personable Realtor.
It costs you ZERO and can save you tens of thousands of dollars, not to mention any number of legal and financial headaches you may not even know could be around the corner on a DYI home purchase.
Step 1: “Become One” with the home-buying process
Crucial to an informed and, therefore, stress-free and even fun and exciting home-buying process is to be intimately familiar with the process from beginning to end. I call this “getting your ducks in a row.” Perhaps you are familiar with that? It makes SO much sense.
Book at least an hour (sometimes more, or less, depending on you, and how many questions you have) to sit down with your excellent, educated and dedicated-to-you professional Realtor, so they can go over the home-buying process with you. This way, any questions or concerns that you have can be addressed, and you will then have a truly realistic set of expectations moving forward.
The reality is that good deals and beautiful homes sell fast, so it is critical that you are ready to proceed with an offer with everything your Realtor needs to make you a strong and favorable choice for the seller to accept.
A home purchase is not a chocolate and peanut-butter shake at Baskin Robbins, where you know going in exactly what you want, and in seconds the transaction is done – if you are a choco-holic like me!! It is a process, and you need to be prepared and well-armed with the best information possible, to make the best decision for you and your family.
Step 2: Define the maximum purchase price you are comfortable with
“Reverse engineering” are the key words for this part of the process. After getting all of your documents to your lender, and having received an approval letter for a purchase price, you may be surprised that you qualified for much more than you thought you might. The reverse may also be true.
Best advice? What we need to do is reverse engineering of a purchase price by understanding where your comfort zone is for your living expenses. Whatever your lifestyle is, account for all the things that are important to you in terms of average monthly expenses. When we tally that up, judge what is left from your sources of income to make up whatever payments would be needed to pay a mortgage, taxes and insurance. That would be the monthly payment you would be comfortable with. This figure will likely be similar to your current rent payment if you have one.
Knowing there will be tax benefits to your income tax will be a plus to your calculations, adding to your buying power. These are all things your lender will work out with you.
As you may have noted, with taxes and insurance, there is more to home ownership expenses than just the mortgage. Other expenses may include homeowner’s dues (HOA fees) or special tax bonds, such as Mello-Roos (your Realtor and/or lender can explain what this is). Definitely something we don’t ever want is for you to be “house-poor”, so it is critical to work out with your lender the maximum purchase price you are comfortable with, taking into consideration all facets of your life, and the expenses of owning a home.
Get some real-time, “no-strings-attached” ideas of those figures by playing around with some numbers on this mortgage calculator. Definitely refine by talking to a great lender (I know one! AND also, no strings attached), but this is a great place to get at least an idea of what you can afford. J
Step 3 – WHAT? Tax deductions?!? Yeah!!
There are tax advantages to owning a home! If you have only heard about them but are not quite sure how they work, know that speaking to a great Realtor and lender (I know one!) can assist you in understanding how your home is also an asset that will help make you money in the form of lowering your tax basis, depending on certain factors. This is important financial information that should be taken into consideration when deciding your price point, but it is as an investment tool overall, too.
Step 4 – What floats your boat?
Know and understand well going in: you will NOT get everything you want. NO home has it all. There is no such thing as a perfect home. Period. Read that again. One more time. Really! With more than a decade of doing this wonderful job of helping people buy homes, I can tell you that no matter how much money you have to spend, all cash or not, no one gets 100% of everything they want. It’s extremely helpful to make a list of things that you absolutely cannot live without, and things you can live with. Your Realtor can then use this information to set up search criteria that will find properties having the features critical to you, and save you tons of time and angst with this filtered search.
A helpful exercise I like to do with my clients that assists them in deciding what is truly important to them ends up being based on 3 prime categories:
- location (maximum commute time, school distance, etc.), and
- amenities available (property and neighborhood).
Ironing out what is realistic — and what is not — what you can live with, and what you cannot, will honestly save you tremendous emotional energy, time and stress. Realizing what the truly important things to you are will make the home hunting process significantly less stressful, and a lot more fun! Having realized what these things are will make you a more educated and learned buyer.
Step 5- What’s it going to cost me? Typical buyer costs:
Understanding the financial pieces of buying a home will be an important key in greatly reducing the potential stress and frustration of the home-buying process. There are additional costs to the home purchase over and above the earnest money and down payment. These costs are collectively known as “closing costs.” Some of them are fairly fixed, and some of them are negotiable. Knowing in advance what they are likely to be will help you budget and prepare well to close the deal. Your Realtor will go over these with you.
I am extremely conservative in this department and recommend budgeting for roughly 3% of the purchase price in closing costs. Typically, 70% of those costs are lender/loan related. Again, some are relatively fixed, and some are slightly negotiable. Costs are never that high, but I’m a huge fan of under-promising and over-delivering.
Be prepared for that, and you will be happily surprised at the savings you will experience at the close of your home purchase.