It’s good to be over-prepared when you’re buying a house. It is one of the biggest purchases of your life, so educating yourself on the whole process is a good way to start. And buying your first home can be challenging. You start with a plan and you’re six months into it, and WHAM! The whole landscape changes and suddenly all your math goes out the window and your budget spreadsheet is worthless. Join David Sidoni as he talks to first-time homebuyer David about how he bought his house once interest rates and prices decided to make big changes. Hear how this first-timer weathered the storm and stopped renting, even with a shifting market.
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Interview With First-Time Home Buyer Dealing With Rising Interest Rates
How To Buy Your First Home When Interest Rates Are Shooting Up
When you are buying your first home, things can change all the time but what do you do if you are working and saving on a buying plan for six months and then right when you are ready to find your dream home and start making offers, the entire financial and housing markets change? I know most of the time, people think that’s it. You are screwed. Here’s an interview with a reader. You get great tips from David, who started planning and then had to adjust because right when he was ready to buy, suddenly interest rates were a full 2.5% higher, and prices were 10% higher. It’s tip time with David and David. Let’s go.
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We are excited to talk to my friend. He’s the other David. He’s the better David, the East Coast Virgin. David, usually what I like to do instead of a little introduction because people came here for the information, everybody, this is David. He bought a house. Tell us what was probably the biggest thing that you felt you learned in the process of buying a home. Start with the whammy.
Honestly, for me, budgeting was the biggest thing. Figuring out what your budget was and how you can even make it happen. That was a big thing that your show helped me through, and a few other guides as well.
[bctt tweet=”Buying a home is all about budgeting. You need to figure out what your budget is and how you can even make it happen. ” username=”no”]
I’m always curious because I’ve got my guides. Was it family? Was it friends? Do you have any websites or books? I don’t want to put you on the spot but what else helped you? What has helped you in your life with budgeting?
I will be honest. I’m not the biggest reader in the world. I have never been but I had a good friend, and he is. I soaked up as much knowledge from him. I made him do the heavy lifting with reading. He and I talked a lot back and forth. He’s also looking for a house. We were bouncing off things left and right. He was a big help in that and talked through what he learned and read. Nothing specific but a big shout-out to Justin.
Justin, thank you very much. David, I do a show. I’m with you on the reading. Thank God. Over the last several years, I’ve gotten a Master’s degree without cracking a book from other podcasts and Audible.com. Thank you very much. Not a sponsor but anytime they want to, “Hi, guys.” Let’s get a little bit of your background. There are people that are all different types, ready to buy a home now, trying to get the last little pieces together with no clue what they are doing, and they flip on the show. You closed on July 22nd, 2022. Give us your story. How long were you a renter before this summer?
I have been renting for the last few years. Out of college, I started renting. I knew in the back of my mind that I always wanted to eventually buy a home. I was living out in Ohio at the time. Luckily, rent was pretty cheap out there. A few years ago, when I started saving for a house and made some moves. I ended up here in Pittsburgh. It all came together even though the housing market wasn’t the greatest but it all came together until one moment. Next thing you know, I’m a home buyer here.
For those who don’t know, David bought in July of 2022, which means he was under contract in June. For 3 or 4 years, he had been thinking, saving up, and buying a house. That means in January of 2021, you were seeing prices go up, and interest rates drop to 2.5%. You kept saving through 2021. When you finally get ready to go, suddenly, you are doing your thing, and March and April interest rates start to shoot up. Buying in June of 2022, people don’t realize your interest rate went from 3% to 5%.
It went real quick. It’s weird. I don’t know if I had too much thought behind it or preparation. I knew I was ready. Luckily, I was in no rush. I was ready to buy a home but in no rush. I still had a lease and apartment. If needed, I would continue renting. That portion helped me in maybe not pulling the trigger on something I wasn’t fully ready for. After checking out a few homes, I was able to find one. The interest rates scared me.
They are not great but prices also on the houses were going down. It wasn’t like I was fighting to get my off or even looked at. That portion was a lot easier than what I heard was going on previously before that. Even though the interest rates went up, it was easier to negotiate on the house and work with the agents to get something that worked for both myself and the seller.
I wish I could explain that to people. People come to me. I’ve said it before in the show. There was a guy who ran a printing shop who said, “You get 2 out of 3, fast, cheap, and good. Pick two because you are not getting all three.” Everyone was freaking out in 2021, going, “There’s too much competition.” In 2022, they were like, “Rates are too high.” You get one or the other. That’s the way it goes because there’s a whole other entity of people trying to sell the home. For those out there who are like, “I got no clue where I’m going. I’m starting saving.” I’m going way back here. Those 3 to 4 years, what were the things you did in the saving process? When did you kick into turbo boost? What got you going, “I can do this?”
Luckily, I’m a structured person, to begin with, but the biggest thing is setting a budget and consistency throughout the entire process. When you are consistent, at first, it doesn’t look like much but after a year or two of consistent saving, next thing you know, that’s when it starts creeping in where it’s like, “I got some savings. I’m getting closer to be able to put a down payment down.” I would say the turbo boost kicked in a few years ago when I was like, “It’s game time. Let’s start putting more and more away.”
What kicked it off was creating a budget, sitting down, and figuring out, “Where am I spending money? Where maybe shouldn’t I be spending money? Where can I scrape things together?” I know when I first started, I listened to a lot of Dave Ramsey, and great getting out of debt with that. This sounds terrible but listening to other people in worse situations motivated me to make sure I didn’t maybe get into those same situations they were in. That pushed me to stay on course, keep budgeting, and do what I was doing until the next thing you know, I’m like, “I got enough for a down payment. Let’s do this.”
Don’t worry about it. I’m running this whole show based on, “Please don’t be a dumb ass like I was in my twenties.” That’s the whole thing. I blew it. When I started doing real estate, suddenly I was 36, 37 years old and went, “I could have $500,000 now but I got a $1,500 security deposit instead when I was 28. Yay for me.” Let’s go back to the specifics. A few years ago, getting on a budget. You are a structured guy. What do you use? Did you automatically withdraw from your paycheck? Did you start a separate savings account? Let’s get into the nitty gritty on that.
I didn’t have anything automatic. It was automatic in the fact that when I got a paycheck, I immediately went in and did a transfer. The thing is, I always set a minimum, whether it was, for example, let’s say, $500 once a month I would put away. I would always make sure I hit that. That was always going in no matter what. I would make other things move around and work for me. The reason I didn’t have it automatic was that then there were some opportunities may be some months where I had a little extra to put into it. That would not force my hand but allow me to then put, for example, $700 in. Making sure I always hit the minimums and then always sprinkling in when I could was my game plan for all of those years.
I’ve got an episode that I don’t know if it’s right before or right after yours with these awesome financial planners who help people. If you are not talked to about money as a kid, you don’t know how to do it. They totally changed my mind because I’m like you. When the money comes in, I go into the same bank and move it from one account to another. Their suggestion, which I love, is to open a separate bank account someplace else.
I was like, “You don’t see it. You can’t wash the money from one to the other.” It’s not a slush fund. You have to move it directly someplace else, which you could do with an automated. A few years ago, what was the turbo boost? What was the kickstart? People out there are going, “I found the podcast,” but where did you go once you said, “I’m ready. I got enough?” What was your first step?
Do you mean as in the home buying process?
In the process, yes.
I started reading this, and you were the first step. I reached out to you. It was funny. I sent you an email, thinking, “This guy’s got a show. What are the chances he responds?” You emailed back this massive email with all this information. I loved it because I’m an info freak. I want to take in as much as possible and sort it out myself. I love the fact that you sent all that info and helped me get a real estate agent in the area, a unicorn real estate agent. Shout out to Michael Young for helping me out with that. My first step is reading that and talking to not only my buddy, Justin but a lot of other of my friends who were homeowners already as well. They also had a lot of good input. That was the starting point. That’s what made me go on the offensive.
It’s like pregnancy or a new car or getting married. You start talking about it with your friends if they have been through it or whatever. Everyone is going to have something to say. I appreciate that. Thank you very much. I love being able to put the information out and let people decide for themselves. If you need a unicorn, awesome, reach out. If you want to take all the information and find your own, that’s cool. Again, David’s unicorn is in Pittsburgh. I’m in Southern California but his unicorn and I were in Arizona together.
We were talking about the process. He’s glad that the buyers that I send to him and go, “You should talk to this person. They are educated. they’ve started the process.” I love to hear the fact that you got it from the show and from other people as well. Let’s get into it now. What happened during the process? What were the learning things that happened through the process that when people come to you now as you did to your friends, what are you going to share with them? Besides, of course, “Here’s David Sidoni’s show.”
Again, for being informative and budget based, the closing costs still threw me a little bit of a loop. I remember going back, there were several times when I would re-read some of your episodes because I wanted to be prepared. I read it before it all happens. During the process of that section, I would go back to the episode and read it again and be like, “Did I forget something? Do I need to pick up on something?” I did that a lot. Closing costs was one that I read several times because there are always a few extra fees or something that you are not including. I remember going into the process, I said, “I had X amount for closing costs but then I forgot the fees on top of that.”
I was simply doing a percentage of whatever I was going to offer on the house. I was working with a great lender as well, who I asked a bunch of questions too. They were more than willing to help. They provided me with a bunch of different rundowns of what the fees would look like. I’m glad they did because the first time I got one, I was like, “This is way more than I have for closing costs.” It was because of all the fees that I had completely forgotten about it. I went back through, read again, and had to learn a little more about that.
You are not the only one, David. Everybody, closing costs like the closing date are fluid. Closing costs, forget it. If you google it, you will see 2% to 5%. That’s a big difference. I tell people, save 4%, 5%. What’s the worst thing you can do? Have extra money to fix up the house when you move in. The reason is that the fees are set but there are many different things like the big one. You pay however many days are in the month that you close.
If you close on the 10th, you pay 10 days with your closing costs but don’t pay from the 11th to the 30th, and then you don’t pay the next month until the end of the month. You get 7 or 8 weeks where you don’t have a mortgage payment but if you close on the 28th, part of your closing costs will be almost a full mortgage payment because you are paying all 28 days.
That’s the way it goes. The taxes you could pay, depending on what state you are in. You might be paying five months of taxes ahead of time. That’s a big chunk of change. I’m glad you said that. David, I reread financial books all the time that I read when I was 30 because I didn’t understand what they were talking about when they were talking about what to do when your kids are college age or transferring your retirement funds from one to another. I didn’t even have one when I read the book the first time. Relistening is important. Closing costs, any other parts of looking for the homes, the home inspection process, anything under the contract that you would share with if your brother came or your sister and said, “I’m buying a house? What should I know?”
Honestly, a big recommendation of mine is that my agent was great. During the entire process, I asked a bunch of questions. I was fine with that. I want all my answers or questions answered. My agent they were more than willing to answer any questions I had. There were several times when I called them all the time. I was texting them, asking questions where I could. The lender was also great at answering all the questions. As a side note for me, a big thing is having people that are responsive. That’s important to me. That was an important process throughout that. My agent recommended several different inspectors they’ve worked with that were good.
[bctt tweet=”In the home buying process, it’s important to have people who are very responsive because you’ll be asking a lot of questions.” via=”no”]
I did write a little vetting of them as well and picked the one I liked. Again, the process was honestly smooth. I would say my biggest thing is if you want a smooth process, there are no dumb questions. You most likely make the biggest purchase of your life, ask away. My agent may say otherwise but I always say, ask away whether it’s the loan partner you are using or your agent or the inspectors.
[bctt tweet=”If you want a smooth home-buying process, ask questions. There are no dumb questions.” via=”no”]
I was doing the same thing when I was in there during the home inspection, asking all the questions I could to get as much information out as possible. Luckily, there weren’t too many surprises or anything that scared me or something because I had a good team around me that was more than willing to answer anything I had. That would be my biggest comment on the whole process.
I tell people all the time. I have clients that have said to me, “What’s with all the email? Can you guys text me?” Understanding the way that people communicate is important. When I’m working with someone, I might not be available during the day but I can respond to a text via email in the middle of the night. It is important to make sure you find someone. You can’t feel like you are bothering them.
I will text people a week after we close the deal, and we were like, “I miss you. We used to talk every day like six times a day.” The important part is to have that relationship and have those other people to lean on. I’m glad you felt comfortable. It’s funny because you are a prepared individual, I can tell, yet you still asked all the questions. Sometimes I look at people going, “You want to ask a question now. You should.” They were like, “No, it’s fine.” I’m like, “Don’t call me in a month then and tell me you don’t like this house.”
Going back to your question of, “What do I feel like I could tell others?” I was in an interesting situation where my girlfriend was in the process of also purchasing a home, and then my parents were in the process of selling a home. It all happened after I had closed. I felt cool. I was always like, “I can help you out with this. I know how this process works.” With my parents, it was on the other side of the selling. I had the buyer’s mentality. I knew what to look for and talked them through it. Luckily again, both of them had good agents as well that worked with them. You learn a lot during the process.
My biggest thing was reading contracts and making sure closing costs were where you wanted them to be. Inspection is important. I would say those two things are the big things, closing costs and inspections. At the end of the day, when you sign those papers and before you forego the money for it, the closing costs that you want to make sure are good, and the inspection was as good as it could be.
There are always issues that it may not catch but you want to make sure you are asking the right questions that are in those two processes because those are right. It’s the money and how good the house is. To me, those are the two most important things during the process. You don’t want to mess up on those. Ask all the questions there, and you will learn a lot. Read this. There are plenty of episodes on all aspects of those.
The one thing that freaks me out when I’m working with buyers is when they ask me for different inspectors and how much they cost. I’m like, “That’s the last thing you should be thinking about. They are all going to be within $100 and $200 of each other. Pick the one that you feel you are going to get the most information from. That’s going to work for you.” You are in. It hasn’t been too long in the house. Give us the update so far. How do you feel not being a renter now?
I’m still in my apartment. That lease ends here pretty soon. Real quick for anyone who’s wondering, I worked with my agent. My lease on the apartment was ending pretty soon, and I wanted to do a slower move into the house. There were a few things I wanted to clean up. Not that there were many major things. I remember I talked to my agent and said, “When my lease ends, I want to make sure I don’t pay until this point in time.”
The way they set up the contract then made everything work out. Like you were saying, you do your closing costs but then you don’t pay that next month. They set it up in a way that I didn’t pay until later, close to when my lease was up so that I didn’t have either four months of the lease, mortgage, and my rental. If you can talk to your agent, they can help you out with that for sure. Mine did.
[bctt tweet=”Talk to your agent about the closing costs. They can help you so that you don’t have to pay until later when your lease is up.” via=”no”]
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That’s right where the technology crapped out on us. I lost David. Sorry, David. If you are wondering what’s going on, it’s just me now. This is one David. The other David is gone but fortunately, he dropped some golden nuggets of first-time home buyer wisdom before the internet gods came in and shunned us. Before we lost David, the last point that he mentioned was about the overlap period. That’s between the end of your lease and the move-in day. This is something that I’ve brought up on the show lots of times before and all over YouTube as well. It ties into David’s entire overall theme from the interview. That theme is being over-prepared.
The cutoff there is good because I will finish the thought for you because this is something that I want to make sure this is a giant tip for anybody buying a home. I don’t care where, how or when you do it. This is something you need to understand about the end of the lease and the move-in period to the home, what I call the overlap period. A good prepared person like David was overly cautious and had a four-month overlap period. That’s great. You don’t necessarily need to do that. David found a way that he negotiate it so that he was comfortable with it. For whatever the period was with his lease or whatever free situation they got from the seller, it worked out for him.
It’s important that you know. We are going to break down the minimum guidelines that you can follow for the overlap period and not feel like you are double paying forever. Some of you out there don’t want to deal with this, so you are going to budget in paying both rent and mortgage for a month or two so you can guarantee yourself stress move out and move in. That’s good.
If you’ve ever ordered anything online as a pre-order, a book, a phone or a T-shirt, the delivery date can often be fluid. When you get might not be exactly what they thought it was. It’s an estimation for sure, not a guarantee but if you fully cheapskate out and try to get your rent last day of renting to be your first day of owning, you could be homeless if things don’t work out perfectly. Your stuff from your apartment could all be in the back of your buddy’s truck while you wait for your home to officially close.
I have good news. You don’t have to budget too much to make sure that you got time. The first thing I will recommend that you do is budget for a minimum overlap of one month. Don’t freak out. If you are penny pincher mcfrugal, I do not recommend that you try to spend the last day of your apartment to be the exact same day as the first closing day of your home but you might not have to double pay, especially when you understand how it all works. This is good news for you. stingy van misers out there. By the way, I looked up miser in the thesaurus, and it gave me this other definition. The word skinflint. Apparently, skinflint is a real word that means a person who would save, gain or extort money by any means.
Go ahead. Drop that one in conversation with your friends. See how that goes over. Back to good news for a captain cheapy-cheapy no likey to spendy. There is a built-in coverage period for you when you are buying a home, so you don’t have to double-pay for at least 30 days. Stop stressing about putting in the notice on your apartment and dropping that 30-day notice immediately after you get your offer accepted. This is how it goes. It works like this. If you close on the 15th of January, you don’t pay your first mortgage payment until March 1st. You have no payment in February.
If you get an offer accepted on December 15th and you are set to close on January 15th, don’t freak out about putting in your 30-day notice in December so you can line the closing and move in for the exact same time. As you close, you are going to pay the mortgage for the remainder of the months in whatever month you are in. In this case, you are closing on the 15th-ish.
At the time of the closing, part of your closing costs which you’ve already over-saved for and budgeted, because as David found out, that figure is never a simple, easy equation. Like David, he planned on saving anywhere from 2% to 4% of the sales price. You want to save that and have it there. If you end up being less than that, great. It’s extra for your new home.
Back to the overlapping example. That closing cost that you have already budgeted for that’s going to pay for whatever time is left in the month, in this case, from January 16th to the 30th. You get your offer accepted on the 15th of December to close on January 15th. You have a lovely holiday season in December, and you don’t have to put your notice on your apartment.
About January 12th, you figure out that everything is ready to go, and you are signing your loan documents. That’s when you decide to put in your 30-day notice because you know you are going to close somewhere on the 14th, 15th, 16th or something like that. On January 13th, you put in a 30-day notice, and you are going to be out on February 13th.
You’ve already paid January 1st rent payment, so you are good to go. The rest of your payments go like this. During the contract period on January 1st, you pay your rent payment. You pay on the 30th. Around the 15th or so, you get the keys to your new home. Now you got your home and your apartment, and you’ve already paid the remaining January days through your closing costs.
Now you’ve got both places and get to February 1st, what do you do? You don’t pay a mortgage payment. You don’t have to double pay in February because now you have bought a home and are paying on a mortgage schedule. You are going to pay your rent on February 1st but you put your notice in already and you only have to pay to the 13th. You pay the 1st to the 13th but that’s all you are going to pay.
You pay your rent ahead of the days you are going to live there but in February, you are going to start paying like a homeowner. Mortgage payments are not due until after the time you live there. Your first mortgage payment isn’t until March 1st because owning a home and paying a mortgage is the exact opposite of renting you pay after the month that you live there, not before. Mary McScrooge, chill out on trying never to pay for those extra days. I highly recommend that you take advantage of this overlap gap. That way, you can have a complete and stress-free move, not to mention if you feel like doing a little rehab before you get in there.
Unfortunately, we got cut off there. David had a lot of other killer tips about being educated and being prepared. Being prepared, having an amazing team representing him, and having his budget in place, having all that there meant that David could handle those extraordinary circumstances. Think about that. He was buying in the hottest bidding frenzy in history.
He handled more than a 2% increase in rates. He went from 3%-ish to 5%-ish. It’s like a 66% raise in interest rate. That’s crazy. He said that he learned a lot from other people’s stories and mistakes, even though he felt bad about it. I encourage you to go back and read David’s story again. Don’t forget his two big tips, money and picking the right house. He was talking about closing costs, preparing for that, and not going cheap on your inspector, making sure you have the right house.
One of the things I always like to tell people is if you are buying a $400,000 house and deciding between a $700 inspector and a $1,000 inspector and you are trying to save $300, the $1,000 for a $400,000 house is 0.25% of the price of the home. Not the place to go all super chancey. Feel free. Splurge here. It will help you in the long run.
I hope these interviews help you see two big things about buying a home. One, you learn that there are lots of people out there that have situations that might be similar to yours. They have lots of great experiences that you can learn from. Share this show with friends and family so they can realize what they can do. Secondly, it’s great for you to realize that while there are a lot of similarities in a lot of the interviews that we have here on the show, each buyer on the show has a truly unique story. Lots of things are the same but everyone has individual little tweaks they do to create their specific path, their journey to home ownership. With a unicorn team, you are probably going to find a path that you didn’t even know existed. Take action, get planning, and you can do this.
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This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!
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