How to Stay Sane During Your Home-Buying Experience
So you've decided it's time to buy a new home. Maybe it's your first, maybe it's not. Either way, we can all agree that the process can get confusing and overwhelming. Have no fear - I asked to my go-to real estate gal, Courtney Poulos, Owner/Broker, ACME Real Estate, Forbes Real Estate Council Author, BreakUp! With Your Rental to get down and dirty on everything involved with buying a new house. You're welcome.
Tell us about your book, Courtney!
Break Up! With Your Rental is a guidebook for to encourage professional women to get in the real estate game! Real estate is an extraordinary wealth building tool, whether to live in, flip, or buy and hold as a long-investment, and money is the great equalizer. In my 15 years of selling real estate, I've learned that there are some old lingering ideas that a house is something you buy when you marry, to raise your children. However, I have seen many of my clients break through the noise, transitioning from spending money on shoes and trips, and instead building their own personal wealth, with the help of appreciation, to a point where they are financially free. I wanted to share what I have learned to encourage my sisters to consider changing the way they think about real estate.
In your experience, why do most women continue to rent instead of buy?
Women rent for a multitude of reasons - I've heard everything from, "But what if I meet my future husband and he wants to move?" to "I don't make enough money" to "My city is so expensive!" To be honest, I think there is a tiny remnant of a Cinderella story that prevents many women from taking their financial health and fortune into their own hands. Somewhere, in the back of our minds, we still want to be saved. In actuality, financial independence is an extremely attractive quality in any person, and ultimately attracts higher quality partners, accustoms one to a higher quality of life, and offers more freedom and flexibility to be creative and inventive with time and alternate business enterprises. One of my clients bought an investment property which supported her dream of starting a kombucha company. Having a leverageable asset gives you choices.
What are the benefits of renting vs. buying?
One, you get the mortgage interest deduction. For the first 10 years of a 30 year conventional mortgage your mortgage payments are mostly interest, so your mortgage interest deduction (for a principal residence) will be highest during the first 10 years. Of course, check with your tax preparer to confirm how you would benefit from the tax break. Second, you have an appreciating asset. For example, I bought a house for $685,000, installed new wood floors in the bedrooms, and did a bit of landscaping, and 2 years later sold it for closer to $900,000. There is no way I would have been able to "save" that amount in two years by saving my pennies! Each market is different, sometimes the better move is to buy a house, rent it out to tenants, and wait a full cycle, around 10 years, so someone else's money is paying down your principal AND you are making passive income. Perhaps you buy a multi-family and add an additional structure, making a property a triplex for example. So many of my clients are investor/renovation resale artists, and for them, they can make $60,000-100000 on average per home by reinventing the design, adding some square footage, and creating the dream for another buyer. There are so many ways to make money through owning real estate - it's easy to be creative about what you can do. But you have to start somewhere!
What would you say to a woman who is considering buying but is nervous?
Take it one step at a time! What is there to be nervous about? The science is there - properties appreciate over time. Period. If people who could have would have held on to their homes during the real estate slump, they would find that their property is more valuable than it was when they bought. There is NEVER a bad time to buy, only a bad time to sell - you want to make sure you are reselling in the same or more favorable conditions as when you bought. If life changes, you have to move, etc., you can just rent out your property until the right time to sell comes!
What is the first step in buying a home?
The first step is to talk to a lender. I recommend asking a local real estate agent who their preferred lenders are and start there. If you are thinking of buying anywhere in the USA, Quicken Loans is a great place to start. There are incentives and credits they offer to buyers, but also they can lend almost anywhere. For more complicated financial situations (self-employed, artistic income), a local mortgage broker might be a better fit. Once you have a number, that's when you should talk to a Realtor. I'm very happy to help with referrals, as I have a nationwide network of wonderful agents that I can refer buyers to.
How long does the home-buying process typically take?
Depends! In Los Angeles, the process from contract to keys is between 25-45 days on average. In NY, it takes a little longer. The house hunt itself can vary based on what you're looking for. But if it's your first home, I recommend remembering that it's most likely a 5-7 year purchase, and remind yourself to stop looking for "the one!" Ask yourself as you walk into the property, "Is this a place where I would like to have my morning coffee for the next 5-7 years?" Usually life looks a lot different 5-7 years from your first purchase, so don't put too much pressure on yourself. Just getting into the real estate game is a victory itself! Once you remember that you're looking for a 5-7 year plan, you'll find that there are many properties that will meet your needs. Some clients fall in love on the first showing, and some take a couple months to get that "feeling." I would encourage you to alleviate the idea that there is a "time" that is normal!
What is typically a good % down payment that we should be putting down?
There are FHA loans at 3.5% minimum, conventional loans starting at 5% down! Many people put down 10-20% or more, but right now there are a ton of programs that will allow you to put down less. If you served in the military, you may qualify for a VA loan, which is a 0 money down loan!
Is a loan a good idea?
A loan is a great idea - it allows you take your 1 dollar and turn it into 2! Some people think, "This is the biggest purchase I've ever made!" I say, "No, it's not! This is 20% of the biggest purchase you've ever made, mortgaged at historically low interest rates, over a 30 year period with the benefit of a mortgage interest deduction!" LOL! Remember, if you are buying a house for $600,000 with a 3.5% down FHA loan, you are putting 21,000 down, but the bank is loaning you $579,000. The bank is assuming the bigger risk, really! Especially for first time buyers, a loan is a very smart way to go.
Realtor, mortgage broker, home inspector - so many people involved! What is each person's responsibility/role?
Mortgage Broker/Lender - Only get one pre-approval to get started! Once you are in escrow you can shop for rates, but to begin, just get one letter and you can start writing offers. The mortgage broker or lender will pre-qualify you, tell you how much house you can buy, verify your income/assets/credit to make sure you will qualify for financing, order the appraisal (an independent 3rd party responsible for assessing the value of the home), and communicating with the closing company to prepare the documents for the loan. A good lender, like a great Realtor, will answer your calls and questions on the weekends and in the evenings, and will clearly walk you through the process so you understand what your monthly payments are and how much money you will need to bring to the table.
Home Inspector - During the physical inspection period, a home inspector will investigate the condition of the property, including roof, foundation, windows, doors, appliances, plumbing, electrical and more! A home inspector will recommend a specialist if a deeper dive is needed, for example, if there is evidence of water intrusion, a home inspector may recommend a mold inspection. A buyer has the right to do whatever inspections he/she would like to do, but a general inspector is a great place to start. You may also get a sewer line inspection, termite inspection, radon inspection, fireplace/chimney inspection, etc. depending on the home!
Check out breakupwithyourrental.com - we are launching an online course soon that will answer all the unanswered home-buying questions!
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