A young family came to me last week because they wanted to buy their first home and had a couple of questions. Actually, they had more than a couple of questions, but only a couple that they knew they had. Let me elaborate:
The two most common questions folks have when they are thinking about buying a home are:
- What do I qualify for? and
- How much will it cost?
That’s fair enough; those are important questions.
But as we talked, other concerns that they had soon became clear.
- We don’t want to be house poor
- How long will we live in this new house?
- Is this going to be just a starter home, or should we buy one we want to stay in for a while?
- If we do move up soon, should we keep this one and rent it out?
- Is that even possible?
- What changes do we need to make to our income to increase our options?
- What changes do we need to make to our cash reserves to increase our options?
In my experience, all of these questions are simply different ways to deconstruct the three main concerns that every homebuyer should consider:
- How much will this cost us to get in?
- How much will this cost us each month?
- What will the long-term financial effect be on us?
All the other questions are ways of dealing with the strategy of making a wise, well-informed decision.
These folks are well educated, smart, and want to make thoughtful decisions. They have a 9-month-old baby and are beginning to think in a larger, longer-term framework.
So how did our conversation go?
First, using their existing income and cash-on-hand we determined what they would qualify for. We also determined that using only their existing income they would qualify only for a home in an area that wasn’t appealing to them, and that they would feel “house poor.”
Since one of them is working part time in order to stay home with the baby, they do have the option of increasing their income relatively easily in order to buy something in a higher price range.
We also explored options in terms of loan product and pricing; using an adjustable-rate loan would lower their cost considerably during the first few critical years should they choose that path. As long as they are well-informed and understand the risks, it’s worth considering.
We explored options regarding their cash situation. They do have family that might wish to invest with them. That, too, would increase their options considerably.
We discussed the possibility of buying a duplex so that they could occupy one unit and family could occupy another.
With each of these options, we ran an analysis which clearly showed – usually with more than one way to structure the loan – exactly how much it would cost to get in, how much it would cost each month, and what the long-term impact would be on their lives.
When they left this family had not yet made a decision about the direction they wanted to take. So why do I call it a success story? Because when they left they were better informed than before they came.
Do I think it’s a good time to buy real estate? Absolutely! Do I think this couple should examine their options and move quickly? Without a doubt.
The important thing, in my opinion, is that folks make an informed decision about the largest debt they will ever have in their lifetime.
Is it time for you to explore your options? Whether you are buying your first home, your last home, are moving up, scaling down, or anything else, the answers to the really important questions are not that hard – they involve math, not guesswork. Whether you work with me or someone else, demand precise, meaningful information before spending more money than you’ve ever spent before.
Casey Fleming, Mortgage Advisor
Author of The Loan Guide: How to Get the Best Possible Mortgage
NMLS 344375 / BRE 00889527