Category: Real Estate

So you’ve finally decided to buy a home! Like many in 2020, low mortgage rates, working from home and the pandemic has gotten people thinking about jumping into the home ownership pool. Or maybe you’re just tired of paying rent but either way, you think you’re ready. The next step is doing some 25,000 foot research and starting to narrow down your home choices. And here’s where the unfortunate reality of your finances meet the real world market! And also when you start spinning up your spreadsheets and lists to help document and prioritize your home needs. If you’re a single person like myself, hooray, the decision-making will be quicker and easier but you’ve only got one salary. If you’re a two-earner couple, hooray, you’ll have more money to spend but making the decision with two opinions will be tougher.

First thing I’d recommend doing is targeting when you want to purchase your home within a four to eight week window. Take into account any life events, the seasonality of the real estate market, weather and time to prepare your home and finances for the move. By setting up a target time period you can back into all the other details and when they need to happen. Things like when you need to get pre-approved, when you need to have the due diligence money saved up, when you need to have the down-payment ready to go, when you need to put your home on the market (if you’re selling) and when you’ll be moving. And you know that the real estate market is typically hottest from March to September with the most homes on the market but also, the most competition and higher prices. Be realistic about when you can get all the prep done on your end and how long the search will take, I’d say 1 to 3 months for a home search is realistic depending on how demanding you are.

Step two, figure out how much of a down payment you’re likely to put down on your future home. That down payment may come from cash in your bank accounts, a gift from a relative, a loan from your 401k or current house, or sale of your existing home (equity). Just be aware that your down payment will potentially impact your mortgage rate and future monthly expenses because less than 20% down on a house will incur PMI (mortgage protection insurance), which can run from .5% to 1.0% or so. For my current mortgage, I think PMI adds about $90/month on a $200k mortgage. We will talk about mortgages and personal financial history in more detail later during the pre-approval process!

Step three, do a review of your finances to determine how much house or home you can afford on a monthly basis. There are two numbers here, in my opinion. The traditional rule for home buying is 28% of your gross monthly income at the higher end. In most average markets, that 28% should be plenty but I’m thinking that in high housing expense areas like California, NY, Boston, etc, you may have to be paying out that much or more, unfortunately. At the lower end, I’d put down what you are spending today for your living situation with the expectation to pay more when you’re purchasing a home.

So now you have an approximate range of what your monthly home expenses could or should be. Plug those numbers into your monthly budget (hopefully you have one) to make sure you feel comfortable at either end of that range. If you’re under 50, you can anticipate your earnings to increase over time. But mentally set a range of what you’re comfortable with in terms of home expenses, these numbers are still pretty broad but will help us figure out how much home you can afford.

Step four, let’s figure out how that monthly living expense translates to a target property value. Use a mortgage calculator, interest rate (be conservative here, choose a 30 year fixed interest rate) and range of money borrowed to see what the monthly “mortgage” could be. In the image above, I have a range of borrowed mortgage amounts across four different mortgage loan lengths (from 15 to 30 years, assuming a fixed rate). I then plugged in amounts from the mortgage calculator for each possibility. My expectation of a mortgage costing $1,000 to $1,300/month is shaded in gray. That’s a baseline for how much you’ll spend but there will be additional expenses like property taxes, property insurance, water-sanitation-refuse fees and HOA fees which becomes a more realistic, future monthly expense. These are line items that you may not pay right now, as an apartment person who rents but you will, once you purchase a home.

You now have a fairly accurate expectation on what your monthly home expenses will be at various amounts of mortgage money borrowed. When you add your down payment amount to the money borrowed, you’ll have an approximate home value for each monthly home expense! In my case it was $320k to $390k given an expected down-payment of $70k and mortgage of $250k to $320k. The range of what you can afford on a monthly basis defines how much you should-can borrow. And that amount in addition to the down-payment becomes how much home you can buy from your perspective. Once you apply for a mortgage, the number could be slightly different from your own expectations since they will take a deep-dive into your financial situation and determine, what they are willing to lend. And as you can tell, there’s a lot of math and modeling in the home buying process. And since a lot of these calculations are estimates, you should try to be conservative when you model what you can afford.

Realistically for me, I had a range of $300k to $400k for my future home with a target price of $375k based upon my initial financial model. A number where I thought I could get a decent house with a decent amount of space and not feel too stressed financially. My current condo is valued at about $300k so a larger, more valuable home is the overall goal (gotta move on up)! In a high cost real estate market, I could see someone ratcheting their target numbers down a bit to keep things affordable but that’s your call.

But there are still a lot of questions to be answered even with those target home price numbers. Do I get a detached home or townhouse? How big should the home be? Which locations are a good fit? What features do I want to have vs. I have to have? That’s the next step once you’ve calculated the basics of what you can afford. The price range you can afford will be one of the key criteria for when you set up your online home search to find properties for sale. Before we even get to that point, let’s talk about the down-payment needed in our next Real Estate 101 blog post!

Resources

1. Bankrate.com Mortgage Calculator
2. HSH – The salary you must earn to buy a home in the 50 largest metros

Maybe you’ve got a house, townhouse or condo. Maybe you’re selling first or maybe you’ve purchased a home and now need to sell your home. No matter what the scenario, the sale of your home is definitely one of the more stressful parts of the home-buying process! Depending on the condition of your space and how many denizens you have in your home, it will be different degrees of a challenge for you.

First up, as part of the home selling process, you’ll usually have some photos taken of your home for the MLS listing. And it’s a bit of work to get there. You do a deep-cleaning, hide everything in the closet, in drawers or in cabinets. The goal is to remove most personal elements from your home and to make it as uncluttered as possible to show off the space. A stager may come in to add some knick-knacks and brighten up the photos. But once you’re done with the photos, you’ll have to be ready to show it in a similar condition. While you may show your home after moving out, for those of us who show their home while still occupying it, it’s a process!

For the photos, things don’t have to be perfect. There can be blemishes, dust and dirt, stains and things are unlikely to show up in the photo or can be edited out. But when you’re showing your home for a real live person, everything will be reviewed up close and the place needs to be pretty spotless. They’ll open pantry doors, look into closets and imagine themselves living in your space. And you’ll need to keep your property in that pristine condition for probably at least a weekend (a hot market) up to many weeks. So how do you prepare to show your home?

I’m assuming that you’ve done all the major repairs and touch-ups at this point and time. You’ve painted, caulked, and cleaned the basics in your space. I personally have a PODS storage container outside so half of my stuff is already in there for a de-cluttered space. Once you’re ready to show, it’s time to take it to the next level. Some things you’ll need to do in about an hour of time:

1. Clear off all the counters. Move items into boxes and tuck into closets
2. Clear all bath areas of personal belongings
3. Clean/wipe down all kitchen, bathroom counters, sink basins to make them sparkle
4. Clean/wipe down all windows and mirrors
5. Clean/scrub hardwood, tile and linoleum floors
6. Vacuum all rugs, floors to remove dust, dirt and hairs (don’t miss closets)
7. Pull up all blinds, pull back curtains for good lighting
8. Fluff-arrange pillows, remove-hide extra items hanging on walls, lying on the floors or on furniture (jackets, garbage cans, antennas, cables, desk accessories)
9. Spray/deodorize home if needed, add potpourri (shoot for neutral-pleasant odor)
10. Put out home marketing materials in welcome areas

At this point and time, you’ll have your place at what I call “99% clean” or about as far as you can realistically make your home look. It’s about where you’d be when having friends over, plus a bit more. You’re ready for the white glove test and it shows. To make this happen, I have my vacuum out at all times, a box of cleaning sprays and magic erasers along with a stack of micro-fiber towels. My condo showings have been from 10am to 6pm and I get a text-email whenever a showing is scheduled. Theoretically I may need to get out of the place in under and hour so you have to be READY to GO! I also have a cat so securing kitty in the carrier on the way out is part of the showing process.

While it’s going to take you a bit of time to get your home in this condition before you start showing, you’ll have to maintain a 95% clean type condition for the rest of the time you’re showing. And that means you’ll have to KEEP your place mostly clean, in between showing days. It’ll most likely keeping to a fairly disciplined lifestyle that is a bit different than your normal day to day. And the more people and pets you have at home, the harder it will be, I keep the doors closed on a couple of rooms that I don’t want my cat roaming around in.

When you get up on showing days, tidy the bed, put your clothes away in a box and smooth the comforter/bedspread for show. It also means making sure I’m showered by 9am and I keep an extra towel near by and wipe down all tile and fixtures before getting out. I try to actively use only one bathroom to minimize the mess. And all the bath-personal accessories I use go into a plastic tub for quick clean-up. I minimize the cooking I’m doing to keep the range grease-free and odors to a minimum, you may be doing a lot of take-out during your showing periods! Keep most of your food items in the cabinet, the pantry or anywhere else it can be hidden. Dishes, glasses and utensils should be stored in your dishwasher or stored away. I also keep a garbage box out by the door that I use to throw away items that need to get tossed on a regular basis. You don’t want a lot of wastebaskets in your home during showings, as you can guess, they won’t add any value!

The goal is that once you get the text or email that a showing has been scheduled, you can get out as quick as a bunny. My goal is to get out fifteen minutes before a visitor might arrive which shortens down your time to prep and do some final cleaning. Typically it’s all about the kitchen and bathrooms since that’s usually where you’ll create your day to day mess. I do one last vacuum pass to pick up any dirt or hairs, use the hand-held nozzle vs. the roller which will just push debris around. On they way out, you’ll need to set up your realtor’s marketing kit. For me that’s a couple of plastic stands with information on what they should do while visiting along with masks, booties, a binder and information sheets for your home. Lock the place up and head on out for an hour and the viewing should be done.

In the end, the showings are super important and you want to give the visitor the best impression of your home and have them imagine themselves living there. That means keep it clean, keep it neutral and keep it welcoming. Not an easy task when you’re still handling your life in the space. And while you could show your place once you move out, having a bit of furniture and belongings helps them visualize its potential. Just hang in there and hopefully you’ll get a call for an offer sometime soon!

In a previous post, I discussed the pros and cons of buying a home vs. renting. But if you’ve decided to purchase a home, how do you start the home-buying process? What decisions do you need to think through to prepare? And how do you get through the home purchase process with a reasonable amount of stress and speed? Unless you have an unlimited amount of money, you’re going to be dealing with everything first-hand so be prepared.

So let’s start with this one fact: Buying and selling a home is one of the toughest experiences I’ve gone through as an adult. Understand that while it will certainly be a joyous process at the end when you pick up your key and move in, everything leading up to that point is fraught with uncertainty, doubts and lack of control. You’ll be at the mercy of the real estate market, what gets listed for sale, and your finances.

And while the buy side of things can be stressful, I hate to tell you this but the sell side is even tougher! Unless you’re a first-time buyer or purchasing an investment property, you’ve probably got a home to sell. While an agent can be involved in both your buy and sell side of your real estate transaction, they don’t have to be. And some people actually try to sell their home by owner to try and save the real estate agent fees. There is definitely a lot to consider when selling your home!

All in all, the home buying process is filled with with tons of emotion, math and decisions. Since I’m in the midst of the buy-sell real estate process, I’m going to try and outline some of the basics around this process, what to consider and to hopefully give you some insight to be prepared for what’s to happen, from one person to another.

A couple of facts from my side to set context. I currently live in Raleigh, NC, a relatively hot, mid-sized real estate market and will be targeting a home to purchase in the $350k area (2,200+ sq feet) and will be selling a condo in the $300k area (1,140 sq ft). My goal is to buy a home first, have about 2 to 3 weeks overlap before selling my home for the move. While certainly there will be some differences from state to state, the basics should be pretty similar! And I’m offering this information not as a financial professional or realtor but as a fellow customer.

I’m also assuming you’ve already done a significant amount of working saving up for a down-payment and cleaning up your credit score. Both of those goals take time before you should even start looking. So are you ready? You better be because for most people, buying their home is usually THE biggest purchase decision they will make in their life. More details below, I’ve ordered them somewhat chronologically and links will be added as posts are published. Let’s go!

Key Real Estate Purchase and Sales ToDos

1. Targeting a new home for purchase
2. Timeline for buying a home and the down-payment
3. Finding a mortgage, pre-approval and finances
4. Picking an agent
5. Searching for and visiting properties
6. Offer – Price, closing date, due diligence, earnest money
7. Due diligence, inspections and closing on your new home
8. Selling your house
9. Showing your home for sale
10. Closing on the sale of your home