Welcome back to Business & Budgets! I recently shared a bit about my home buying journey on Instagram and I was flooded with questions. This resulted in a Business & Budgets live focused on the subject. This post is a summary of that live with the blueprint of how to get started on your real estate journey. If you are interested in purchasing property for profit, I will share a few tips for new investors at the end of this post. So let's jump right into it, starting with, what's in it for you.
Benefits of Homeownership
You SAVE a ton of money on living expenses in the long run. No matter who you are, you have to pay to live somewhere. If you buy early, your home will be paid off many years before you retire. Allowing you to enjoy your money and do some heavy investing. Check out this post, Saving on Housing Expenses to learn more.
At TAX time you can deduct your mortgage interest and property tax payments, along with other house related expenses from your federal taxable income. Your taxable income is what determines your tax liability, so the lower this number is, the better.
You are in CONTROL of your life, unlike when you have a landlord who can pop-in for property check-ins or tell you that you can’t use nails to hang pictures. You will have the ability to do whatever you want in your castle. This also extends to your land where you can now grow your own food or build your own treehouse.
Are you ready to buy a home?
First, you need to determine how stable you are in regards to income and life balance. A few questions to consider when determining your stability are:
Have you had similar or growing income for at least 3 years?
Have you maintained your current employment at least one year?
Do you have a credit score of at least 620?
Do you have errors or collections on your credit report?
Have you been paying rent for a least a year? At a rate similar to mortgage ($600-$1500)?
First, determine when would you like to move? It will be the first question that your realtor will ask. Consider when your lease is up. Will you have at least $3500 saved by then?
Next, determine how much you can afford. Your bank will help you best determine this number but as a general rule of thumb, multiply your annual income by three.
Thirdly, choose a general area that you would like to live in. Think about schools, transit accessibility and quality of life when reviewing each area. List your top zip codes and cities.
Fourth, select how you will be funding your home. Will you be putting a large lump sum of life savings down? Or will you be using a new homeowners program? If so, which would you like to use and what do you need to do to receive the funding. At this point it may be a good idea to start a spreadsheet.
Last, find realtors in your area of interest and select one that serves your needs. Look them up on their company website, on LinkedIn, etc. How long have they been doing real estate? What do people say about them? Picking a good realtor can make or break the ease of this transaction.
MY BAD REALTOR STORY: The first time I attempted to buy a house was back in 2011. I was 19 years old and Deuce was a baby. At the time me and his dad thought it would be a bright idea to buy a house together, bad move. We were pre-qualified for $60,000 (lol) and hired a realtor. Moral of the story, she sucked and only wanted to show us small and ugly houses. I found a few good options but we decided to end it all before finding a home. Unfortunately, we signed a contract with this lady, a Buyer's Agent Agreement. In this contract it stated that we would only work with this real estate agent and we were actively tied to this contract for 90 days. We were about 45 days in and we had two options, ride it out or end it immediately. She ended up charging us a $500 Finder Fee -____- never again. *My 2016 realtor was amazing and we never had to sign some "exclusivity contract," if you are seeking a Atlanta based real estate agent check out Lisa Navarro.
First, you are going to get pre-qualified. Whether you are going about the process independently or going through a program you will get pre-qualified very early on. If you do go through a first time home buyer program you may be required to take a course on home-buying and financial literacy before moving on to to pre-qual. Pre-qualified means that you have given your information to the bank and based on this information they have given you an amount and interest rate that they believe you will be approved for. This is what your realtor uses to make sure you are looking at houses you can afford.
Next, find a house! This is the most interesting part of the process and typically it takes the longest. Make a list of must- haves. See if your realtor can find anything to accommodate that list within budget. If not, go back and remove two things and put them on the It would be nice to have list. Even though it is your realtor’s job to find you a house, it doesn’t mean that you can’t send options. Make sure you send them to your realtor and have them take you to the property. If you go directly through the owner, the realtor doesn’t get paid for their efforts.
Put in an offer. Determine the best strategy for pricing with your realtor. Are there any issues that need to be addressed? If so, how much will they cost to repair? Will the owner make the repairs? Sometimes you win and sometimes you don’t, so never tie your heart to a property that isn’t officially yours, trust me I know.
Going under contract. At this time the house is sorta kinda yours. If the owner has agreed to fix anything that will be done during this time. You will also get an inspection done (roughly $350), as well as an appraisal (roughly $300).
Closing. If everything is good to go, 30 days later you will sit at a table at an attorney’s office and you sign a huge stack of papers and hand over your check. They then hand you your keys and you all will hug and smile. (And you finally explain where the For-Sale sign is lol)
Terms to Know
Ernest money: Typically $1000 or 1% of the home, this is your I’m serious money. This money can be lost if you pull out the deal or something goes wrong on your end.
Contingence period: Starts once offer is submitted for review. This usually lasts between 15 and 45 days, this is when everything will be confirmed, either party can pull out of contract during this time. They can technically still accept offers. (I know scary)
Inspection: A professional tour that is conducted by an inspector though the home to determine what condition the home is in. This information is shared with all parties as well because it can effect the property value.
Appraisal: A professional tour that is conducted through the home by an appraiser to determine the value of the home. This information is then shared with all parties. to ensure the loan, price and value align.
Investing in Property
It's best if you already own your personal residence, some lenders won't loan you any money if you don't.
You can buy a duplex, triplex or quad as your first property .The only catch is that you have to live in one of the units.
There are first-time homebuyer programs that will help you buy a multi unit, such as the NACA program.
You have to put more of a deposit/down payment down if buying commercially, typically 20-25% instead of the 3% of a FHA loan.
These loans typically carry a higher interest rate and shorter loan terms.
If you need help with getting your business funded, let m know I have access to funding.
Roofstock.com is great website to get you started with your property search. It will also help you learn terms and see the reality of real estate profits.
Thank you so much for taking the time to read it this post! I hope this is useful to you as you take the leap into real estate. Make sure to like, share and subscribe!