In today’s episode of How To Buy A Home, David Sidoni goes into versus talk with his listeners. You guys have questions, and they’ve got answers. Three often asked topics are broken down with pros and cons – and there is no ONE answer for everyone. Learn about newly built homes versus re-sale homes, 1099 versus W-2, and paying versus spending money. Listen in to find out which option works best for you.
New Homes Vs. Re-sale, 1099 Vs. W-2, And Paying Off Debt Vs. Saving
First Time Home Buyer Questions Answered
In this episode, we are going to tackle the versus question like when you got something versus something else, which is pretty apropos considering that the 2022 housing market is like a battle royale. These are questions from you, the reader, maybe not you exactly, but you know what I mean, the universal you. People are always asking me to compare the pros and cons of something versus something else.
On a weird side note, when I was coaching my kid’s soccer team, all the kids never asked me who we are playing now. They said, “Who are we versing now?” In several years, everyone is going to have a podcast. Your kid is going to have one. You need to teach them some better English. For this episode, I might go ahead and destroy the English language, but I am going to help you with these versus topics. What are they? They are in the title of the show. You read them. Let’s go.
Doing what I have been doing for the past several years here on the show is passing on the free information to you on how the hell you buy a home in this market. It is time for you guys to get some good solid info. I’m going to help, educate, inform and empower you to help make the best moves for you, especially in this difficult 2022 market. You can figure out the big versus renting versus buying.
Spending Versus Saving Money
Topics number one is loan approval. What do you do? 1099 versus W-2. I will also answer the question a lot of people want to know, which is, “Do I need two years on the job?” Topic number two is balancing saving money versus paying off debt. Topic number three is new construction homes versus resale homes.
Before I get into topic number one, I want to give you one insider secret. I love giving you tips and tricks. I wanted to share this one with you. I’m here for you because I saw the information out there for the first-time home buyers was scarce or just plain wrong. Frankly, you folks are getting pitched some terrible stuff out there. The deal is that you are getting pitched hard by realtors desperate for some clients, especially newer realtors.
There is nothing wrong with newer realtors as long as they are trained right, but some of the stuff that I see is skeezy, ignorant or lame. For instance, there was something I saw in my Instagram feed from a broker. I get all kinds of real estate people in my feed because that is the dope life I live. These were their top tips for training new agents, telling them how to get business and be successful, the top three. One is to start branding yourself immediately. Number two is to write down a business plan and number three is to create a daily schedule or routine.
Did you notice anything there? Did you sketch what they were trying to sell there? Here is the insider scoop. To get your license, the test has very little to do with actual contract negotiations, what to look for in inspections or comprehending the financial aspects of not only buying a home now or the market history. Who needs that when you are trying to help a confused first-time homebuyer figure out this entire situation?
The number one thing they want you to do is to build your brand. Ladies and gentlemen, boys and girls, that is scary. Your insider information is there are three million licensed real estate agents in 2022. There are only about a million homes for sale. At the very least, if you got a buyer’s agent and a selling agent on those one million homes, that is only two million. That means there were a million more agents than we needed to have.
They are being told by the pros in their industry that the keys to their success are not doing the training that you desperately are looking for and need to know when you are an advocate for a buyer. Contract negotiations, how to present your offer in the most competitive market in history, studying the history of the market and using that to help shape the long-term goals for your buyers or financial options for buyers in a crazy housing market. No, do not do any of that.
The number one thing they are told to do is brand themselves. Do your research. Do not be fooled by a stylish Instagram account. You need way more than that, especially in the bananas market of 2022. If you are reading the blog post, you know I shoot from the hip, my concern for you comes from the heart and it is backed up with Math in my head. Is that the cheesiest thing you have ever read on a blog post? Do you see what I did there, the hip, the heart and the head? It’s gross.
[bctt tweet=”Do your research. Don’t be fooled by stylish Instagram accounts. ” username=””]
1099 Versus W-2
Let’s go on to this topic. It’s real information that you guys need to know. Topic number one is 1099 versus W-2 and do I need two years on the job to even get approved for a loan? As with all questions pertaining to the name of the show, How to Buy a Home, there are some general concepts that might pertain to everyone but overall, probably not. Everyone is different.
There are only a few things that pertain to everyone. You have to be a human, no aliens. You can’t be artificial intelligence yet. Your dog can not be on the title, no matter how much they are part of the family. You can will the dogs, the home with the caretaker and turn it into the world’s biggest dog house. I’m not kidding. Several years after the owner had passed away, because we knew the owner had passed away in the neighborhood, they disclosed it to us when we went to look at the home. For the last several years, the home had been a dog house for three French poodles.
The good thing for the people who are the beneficiaries of that particular home is the home went up in value over several years. The Frenchies lived in a place that made the siblings a whole lot of money. Why is this important? The dog thing is not. That only made me laugh. If you are not paying cash, you then are going to need a loan to buy a home. If you want to get a loan, you have to have a job. We got to talk about these 1099 versus W-2.
Many people are asking you about the requirements of the job, so let me give you some basic guidelines. Most banks nowadays and for several years in the past, they do like to see two years on a standard W-2 job. Does that mean anybody else can’t get a loan? No, but if you are thinking, “I can do this.” If you have had a W-2 job for a couple of years and you make enough income, you are probably got the baseline. You can do well. You can verify this with your pay stubs and your tax returns. Remember that for later.
Tax returns are the main way the banks are going to verify your income. If you are self-employed and you have been writing off every time you go to a Fast and Furious movie because you started your own business painting cars and you got a big old, huge refund because you wrote that all off. That means your income is going to look lower on the tax return than it was and that is how the banks decide how big a loan they are going to give you when you are trying to buy a house.
Back to the W-2 peeps. Two years is what they like. That is not to say that you cannot get a loan after one year on the job. Find out now, get yourself a unicorn, get a referral to a lender and ask where you stand now. There are general guidelines, but there are exceptions to every guideline and there are new guidelines happening every single day.
By the time this episode drops, there could be a dozen or hundreds of new programs that differ from that norm, the regular two years W-2. There is no worst thing. You go in, you have been working for a year at a W-2 job, and you find out that you do need another year working in that W-2 before you can get a job. You already thought you knew that, so there is nothing worse about that. Now you have a contact, an advocate, a guide, a team, a squad or some people to help you so you can prepare during that next year and not walk around blindly.
I loath blanket statements for first-time home buyers. There is no trick. There is no one sentence if you are trying to get a loan for hundreds of thousands of dollars. Everyone has different variables. They are many and unique. There are tons of different loan products out there. The guidelines and the new products are coming out every day.
I hesitantly say this to you. In general, remember that there are plenty of exceptions and changes in loan programs all the time. If you got two years of W-2 work with pay stubs and tax returns, that is what you are going to need. If you have not filled out the second year’s tax return yet, go ahead, find your mortgage broker and get your plan going.
There are solutions for that too. You do not necessarily need the second tax return to be filed yet. Sometimes they can show a pattern and get you pre-approved. They do the same thing with overtime hours and bonuses. They count those towards your approval number if you have a pattern. Remember, this is specialized for everybody and your unique situation is the real answer to your question. Not me saying, “This is how it works.” “That’s great, David. Thanks for topic number one on the versus. What am I supposed to do?” Start your plan now.
Many people find out that they have options now to purchase. You can be buying right now instead of renting, even though they have not got the full two years of W-2. Many others find out that they do need to wait a little bit, but now they have a guide and someone who can give them a map, so they are not aimlessly saving and working on debt with no clue of what they are doing is what the banks want to see when you eventually ask them for money. With everything in getting ready to buy a home, time is your friend. Get a guide and use them to help you to your advantage.
How does that work against self-employed people and entrepreneurs? Maybe you started your own business or you are anyone out there who gets a 1099 instead of a W-2. For you, it is all about tax returns. How many of you out there had your butt cheeks clench up a little bit because you realized that you wrote off tons of stuff on your tax return to show the minimal income, so you keep more money in your pocket. Come on, do not lie to me.
Look at this from the bank’s perspective. You asked them for money. They want to see that you make money. Although you made $150,000 last year selling your super tasty cinnamon pickles online, you wrote off $100,000 in advertising, shipping and Mason jar costs. You only showed $50,000 worth of income, but we know you made more than that.
They are only going to give you a loan based on the income that you show on those tax returns. That is the basic philosophy. There are a million different ways that you can skin this cat, but I’m not going to tell you that this is the end all be all way on the show. I have already told you I’m not doing that. You need to see someone and have them get all up in your business. Once again, that was fantastic wordplay with the correct use of the word literally. For God’s sake, if you learn nothing from this show, learn to use the word literally correctly, please. What is more important, the biggest financial transaction of your life or your command of the English language?
Here are some real-life reader stories on the subject of dealing with 1099 income. The reader writes me this, “I have had tough times to get a big enough loan with my self-employed, low-income. The lender found a DSCR loan option for me. That is a Debt Service Coverage Ratio loan and it usually comes through an investor. I’m going to pay a pretty high interest of 5.875% but reading your blog post and crunching all the numbers is still better than renting an apartment. Reading your words calms me down when I’m starting to doubt myself and it is better to have a loan in a home with high interest than no home at all.”
This is where you expect me to have read that reader question, comment or email to me and say, “I was right.” “Thanks for reading and taking my advice. You are going to succeed and dump that rent. This is the perfect thing for you to do.” I do not know. I have no idea, but he does. He ran the numbers, looked at the scenario and knows his options because he went through the show and understood the numbers of renting versus buying.
[bctt tweet=”You need two years of W-2 work with pay stubs and tax returns to get a loan. But remember that everybody has their own different variables. ” username=””]
That is why I do not say to all of you, “If you are self-employed, do not wait until you have got two good years showing big profits with low write-offs. Getting a higher interest loan is better because the math is always still better.” I do not know your personal situation. I do not see that because that little paragraph from the reader that he gave me now was the tip of the iceberg of their information. Apparently, this reader had used the show to get all their math and run their own numbers. Even a scary 5.875% mortgage interest rate is still better than renting for them. They know it because they know their numbers.
Screaming from the mountaintop point that I would like to give you is that rates as low as 3% and 4% give you guys the options like this reader. With rents going up out of control, even what is considered a high rate in the market nowadays could still mathematically make sense for you. The show is not named How To Do This Right Podcast. It should be called, How To Take advantage of Today’s Market Podcast, but that name sucks, so How To Buy Home it is.
You have options because of the math that exists in our financial world now, high rents and low rates. Remember, anything under a 6% mortgage interest rate is a low rate. You started paying attention to stuff, so do not let the current news of the rates be your guide. You have to understand where we stand historically versus where the rents are going now. Let the current math be your guide.
Here is another reader’s thought, “I’m not sure if you ever mentioned it before, but you should tell your readers to never, ever change from a W-2 to a 1099 or vice versa within two years of buying. I have worked for one company since 2016, but they switched me to 1099 a couple of weeks before I contacted you. Now, that job never existed as far as the brokers are concerned.”
This is a prime example of why I asked you to ask your local mortgage pro about your situation and not listen to the comments, Reddit threads, or your uncle that has bought five houses and thinks that he knows everything. It is never the same for anyone, and I get it. This reader is frustrated. They said, “Tell your readers to never, ever change from W-2 to 1099 or vice versa.”
I am not ragging on them for saying that. I’m not ragging on your uncle or the comments that you read. I am ragging about some of the comments, but that is another story. The people who are telling you these things are trying to protect you like this guy. He is trying to protect you. He says, “David, tell your readers, I got screwed and I know you want to help them.” You are right. I do, and that is awesome.
What I know about several years of helping other people work the plan to homeownership is that sometimes what screwed somebody else might work for you. The number one thing that I hear from all of my buyers is, “I should have started planning this way before I called you.” Your situation is unique. You can find all tips and personal tweaks to avoid the pitfalls that have erect things for others.
Most real estate horror stories happen because people started doing things on their own. They tried to save and pay off their debt without getting a guy to explain to them what the banks were looking for. Maybe they Google it or use their other resources asking their friends and family before they talk to a professional, a real estate team, your realtor and your unicorn lender who do this every day.
I have talked earlier about what phase you might be in buying a home. It does not matter if you are in phase one or phase five, ready to buy this weekend. If you are not running this by a team of people who buy and sell houses and one of the experienced teams, you are bound to find roadblocks that maybe you did not even know existed. That is real.
I’m experienced and old. I’m not branding and working on my branding now with a photo saying, “Hire me in my glossy, picture-perfect style, and I will help you get a house.” I’m telling you that you can do this the easy way by finding an experienced professional or an entire team to guide you and help you avoid the drama or you can do it on your own and possibly learn lessons later.
Thank you to the readers who wrote in. They both had discoveries. I hope those discoveries help all you guys out there on your journey. You have learned the biggest lesson in buying a home and expect the unexpected. It is not going to be exactly how you pictured it in nowadays’ market. It might be different and rough, but the math is probably still going to be in your favor. Maybe, could be but not for everyone.
Topic number two. For this topic, I got a great example and a reader that is going to help us show us some of the tips and tricks on this one. We are going to call him Brian. He wrote in and his specific question was, “Credit card debt pay down to help assist getting my credit card up versus keeping the cash on hand for the home buying process?”
I asked them some basic questions that I asked all the readers and I responded to him in several different correspondences. We eventually got to a place we worked out a plan for him. Let me go through what I said and tell you how I helped him and his wife. I’m going to call her Roxie. That is an honor of the 25th anniversary of the Broadway Musical Chicago and also because Roxy is a dope surfwear line. I said, “Musical theater and my favorite surfwear line.” Just try and figure me out.
Brian and Roxie said, “First of all, thank you for all your work and putting together your show. We were severely disappointed in the resources out there for first-time homebuyers until I found your blog post, and I have been reading it ever since non-stop.” That is a real quote. I got this guy snowed. “My wife and I are looking to buy our first house. We live in New Jersey, but we are planning to relocate to the greater Boston area. I was wondering if you knew any unicorns?” He mentioned some of the Boston areas that he wanted.
I have already hooked up Brian and Roxie with some local pros in Boston. They are getting their team together and they are going to help them with their further questions. Let’s get back to Brian’s questions, “The current rental lease ends on May 31st, 2022. We are looking to buy a home at some point this summer of 2022. Thankfully, we have a backup place to live. It is my in-law’s place. We do not have to have a house until June 1st, 2022. We have yet to get a full preapproval based on our combined income of $200,000 a year. We both got credit scores between 740 and 762, depending on which credit cards look at your credit score that we look at. We are looking to buy a home in the range of $700,000.”
These are some readers who are doing pretty well. These numbers, if you are nowhere near that, fine. Just drop them in half. It’s not a big deal, but these are the type of folks that it is interesting. They are educated in buying a home ahead. I have no idea. I do not know squat about personal education and it does not matter. It is not a job interview. It is buying a house.
[bctt tweet=”You have options for buying and renting because of the math that exists in your current financial world right now.” username=””]
This is a great start for them. They have some ideas, but those ideas they got are based on minimal information, not having it done by a professional. On top of that, their lease is going to be up in several months. Once we get them connected to a unicorn realtor and a unicorn lender, they could discover a bunch of things that they should probably be doing before they go out and apply for a loan.
The number one thing you need when you are trying to set yourself up to look great for the bank for the loan time is time. It is the one thing that you can use to make adjustments. Several months seems like a long time, but that is nothing when you are looking to buy a house. There are so many things that they have great guesses on, but they won’t know until they finish talking to the unicorn I have got them set up with.
Is $700,000 the actual number that a bank is going to approve them? What about the different neighborhoods that they are looking for since they are moving from Jersey to Boston that maybe they are not aware of? They talked about how they got their credit scores from the credit card statements. What credit scores are the bank and the lending people going to use? What small tricks and moving money around can they do to jump their credit score one tier? They are right on that top tier. The tiers go in twenty-minute increments. They are right there at 760.
Here is the trick. You need to get both above 760 because, regardless, the bank is going to use the lowest score. It is not average. They do not take the highest. I said before in another show, “Be careful who your partner is because the lowest score determines your mortgage rate for your home.” They have only got several months to plan. Time is the greatest advocate to get the best purchasing power.
They are setting their clock right now based on their lease because they got someplace else to go, not setting their clock to buy a house based on the best time to buy a home in this market. If you are deciding between renting and buying, you should be looking at the timing of the market, not necessarily the timing of your lease.
I know you are thinking here, “David, that is money. I have got to figure out how to get the money? I do not want to lose money with my lease.” Do this for me. Do not binge all the episodes in order. Jump around. Go and read episodes 36, 40, 53, 57, 68, 69, 70, 73, and 74. Do you think I’ve covered the whole deal with what is going on with the market and how to work the lease? Check it out.
Back to Brian and Roxie, “We graduated from grad school and had some wedding expenses in 2021. Our savings aren’t as substantial as it could be, but we do have about $40,000 saved specifically for possibly buying a home. We have about $250,000 in credit card debt. About half of it is a 16% interest, and the other half of zero or 5% is due to balance transfers and credit card offers. We have the ability to pay off about half of that credit card right now, but we are struggling with the idea of having less cash on hand when the time comes to put an offer. We are going to need cash for the down payment to cover the closing costs and we would like to have some cash to make our terms more attractive to the seller.
My gut tells me that the majority of the credit card debt that we should pay off so that our credit scores get a little bump within the next 30 to 45 days and potentially push us into the 760 plus credit score bracket. The plan is to pay down the credit card debt to get it to a 7% to 10% usage window.” That was the end of their question. Now, we are talking.
Brian and Roxie have their gut, and they have got their theories, but they did the right thing, they asked a professional. In this case, there are some tight little variables for them to work with. They asked me, and then I sent them to a local guide to help with the answers. They said one more thing. I asked him, “Do you have a 401(k) account, any kind of retirement? How much is in it? How much did you contribute? They told me, “Yes.” They got $66,000 total. They contribute 7% and the company matches 3%.
Here is a side note. Most people have a non-taxable withdrawal from their 401(k) for up to 50% or $50,000 as a max for the sole purpose of purchasing a primary residence. If you do not understand what that means and you have got someone in your 401(k), that is a big deal. It takes a lot to figure out and get your whole brain around it, but it is non-taxable. Read the details in episodes 22, 58, and the middle of episode 75.
The other big hack with the 401(k) is adjusting your contributions to be partially to the 401(k) and to the new, more expensive mortgage payment because both assets have long-term growth for what you are going to be putting those payments into. It is diversifying your retirement funds. Did you notice I asked them how much your contribution is and how much your company matches? I always tell people to do what they match, but maybe you can use the overage above what you are matching to diversify your retirement. Did any of that make sense to some of you out there? If it did not, go read those episodes I told you about.
Why didn’t I give him an equation on how much do you save and pay to reduce your debt? That was their question. Even with all the information they gave me, and it was a lot, it is not enough to offer intelligent advice. There are many things that you need to know before you can tell someone exactly how much they should be dropping, savings, and paying off on debt. What are their goals with this purchase? Do they like where they live now? How long can you hang out with your in-laws? Are they expecting a pay raise anytime soon?
You finished grad school. You got student loans. What about he has got married? Do you think about having kids, buying puppies, buying chickens, or starting a business? All that stuff is going to come into play when you are figuring out how to financially construct your plan for when you are trying to move forward. There is no formula. You do not pay off debt at X%, save at X% and now you are buying a house. No, it depends on you, your goals and the current housing market conditions.
This is one of the trickiest questions I get asked and the best answer is to find a unicorn team willing to help you make this your last lease ever and help you plan your finances. Preferably I tell people, “A lot of times, it is great if you could start this twelve months out.” If you feel like you are in good shape and you got a lease coming up here in a few months. You want to get ready for next year, start prepping, and start your plan when you sign that lease.
The moral of this is do not just pay off your debt, save money and think you are doing it right. There are tricks and formulas to paying off and saving. Everyone out there is going to have a little bit of a different tweak based on where you are, where you want to be and what is the best path to get you there? There is no generic answer. I cannot say it enough.
New Construction Homes Versus Resale
The last versus is a new build home versus a resale home. I hear this one a lot, “David, this market is crazy. I think a new build is better for me because there is too much competition on the resale, normal purchases. That is what I should do.” The jerk in me wants to say, “Sure.” The easiest way to do anything got to be the most lucrative. It is got to be the most beneficial, the easy way.
[bctt tweet=”When you’re trying to set yourself up to look great for the bank to get a loan, the number one thing you need is time.” username=””]
Anything worthwhile is going to be probably the more challenging option. All change has challenges, simple challenges that equal smaller change. Difficult challenges usually equals greater change and difficult challenges can be made less difficult if you got a game plan and small, consistent changes in your behavior.
I can’t and nobody should answer that question for you without at least asking you 25 questions beyond what you asked them. They are not yes or no questions. They are questions you have to explain your plan, what you would like to do, and what your goals are? My content is free and I’m here to help you, but I will not nor will I ever give anyone seeking advice on how to buy a home an absolute or a general generic answer.
For this one, there is a huge, basic factor that you can’t decide, “Wherever you live right now, it is better to buy a new home than a resale.” I do not know that. I’m not in your area. Wherever that area is or wherever you want to move, how many new construction projects are out there compared to the resale homes? That is going to change everything in your decision. After that, there are 1,000 factors, but as a starting place, I always recommend the local pro can tell you what is going on in the neighborhood. They are going to have more knowledge about upcoming construction and projects.
There are so many different variables, and each builder behaves differently. Everything that they know is going to be more helpful for you to understand. They are going to understand land availability, city planning, long-term cost-effectiveness versus an established neighborhood. Here is something you might not know about new builds or about being a first-time buyer. Did you know that the compensation for your buyer’s representative is the commission that your agent gets paid, which the seller pays, not only varies from each house or builder? It also varies in the amount at different times of the market.
When it is hard to get buyers, they are going to end up paying more to have me bring my clients to them. My dumb ass decided to become a buyer specialist and start a show for my passion, first-time home buyers, right when the sellers have seen the biggest frenzy in supply and demand ever in history. That means that most of the time now, I’m getting compensated 2% instead of 3%.
How was that sound? No big deal, 1%. Imagine this. You have been working for fourteen years in your business and now you are good at what you do. You are so good and such an expert that you start a show to share your knowledge and it works damn well. Now you are an expert. You must be making more now. No, not at all.
For the last several years, I have been making an average of only 2%, not 3%. That was an entire 33% of my income. Imagine that would be like you work in 15 or 16 years for the same job in which you are now an expert and got a podcast. Suddenly, you get a 33% decrease in your pay. That is what is happening with the new builds.
The builders have decreased the incentive for your realtor to help you with their home. With these new homes, they are going to follow the same practice. A lot of times, they are not only trying to decrease it. They are actively trying to deny your own representation at all. I’m telling you this now, so I can sit here and whine about my job. I love my job. I love to help you guys and the pendulum always swings back. Now I’m getting to help more you out there and this is way more fun.
One of the things you should know is that is happening. The buyers and agents are getting used to it, and the builders know they are getting used to it. They are slowly but surely trying to push those buyers and agents out. Many of them are trying to deny representation at all. They are going to pay nothing if you try to bring in a buyer representative because the demand is high. They can offer nothing and they are still going to sell the units to buyers that are willing to use the builder as their representative. They are going to even offer you incentives to use the builder lender, which is illegal.
This is not legal in any way, but somehow they are getting away with it. That is what is happening right now in this market. I’m old enough to remember when the market sucked so bad for sellers that the home builders would be coming to our brokerage and beg us to bring them buyers. They were offering us all extras and bonuses. Now, is a new build a better deal and easier since resales are competitive?
It is a trick question. I already told you I couldn’t answer that, but I can tell you that the builders have more ways to try nickel and dime you. Syncing your mind, buyers are a dime a dozen. It’s the double dime analogy. Here is something important. Most builders have a sign-in when you first go there. It seems pretty innocuous but did you know that even if you have a buyer representation, if the agent does not accompany you, like walking and holding your hand on that first visit and you sign in. By signing that piece of paper, you forfeit your right to use a realtor.
That realtor is free to you. The builder has to pay for it, but because the builder realizes they have to pay for it in a market like this, they use that trick for them not to have to pay your realtor. They know that when they tell you that, you will be pissed, but you are desperate to buy a house. You might go through with it. This is another thing that should be illegal.
I’m going to make you a deal. If you guys share this episode with enough of your friends, I’m going to build up a unicorn nation so big and strong the unicorns will someday they will pay me huge money to be called the unicorn because they know everyone is going to come running to them and I can retire. I can lecture everyone about how to be a first-time homebuyer. I promise you this, if you make that happen and you share this episode with everyone, I’m going to work and become a lobbyist so I can change all these stupid laws that screw you, buyers.
You sign in, they got you, you are screwed, you have no representation. What is the moral? Always make sure that you have your agent there or before you sign in that you tell them that you have an agent, give them your agent’s information, make sure that they write it down and give you a copy of you writing it down.
As far as being right for you, the versus part of this, new-build versus resale. That would be a discussion with you and your local unicorn to have. The advantages and disadvantages are so local that I would be irresponsible to advise everyone who reads this blog post with some big blanket statement because things are different all over one.
One reader had a question about a new build. This is a question I can answer because it is something you might not have thought of. New homes take time to build. If it takes time to build and you are doing all your calculations ahead of time, loan approvals expire. Do you see where I’m going with this? Do you see where it was headed?
[bctt tweet=”There is no formula. You don’t pay off debt at X percent and save at X percent and buy a house. It depends on you and your goals.” username=””]
Here is something you might not have thought of. This reader says, “My buddy referred me to your show and I’m in a bit of a pickle here. Having agreed to purchase a new build townhome in November 2021, that is going to be completed by June or July 2022. I already invested $20,000 in the earnest money deposit and the builder deposit. I’m getting hit with one of the worst mortgage rate markets in the last several years.”
In this situation, this is somebody drowning and I’m doing my best to save him. I can’t make everything right, but I can’t see what I can do. The bummer is that mathematically they are correct. It is one of the highest rates of the last several years. However, if you read my other blog post on mortgage interest rates, the market forecast, and where we were in 2021 and 2022, you would know that January 2021 was the lowest mortgage interest rate in history forever.
They had nowhere to go but up. Therefore, part of the planning when you are looking to buy a home at the end of 2021 and if you are working with a unicorn team, you would have been preparing for the fact that if you put in a deposit on a home, you are not going to be able to lock in the loan rate until you get close to the closing which is going to be several months from now. There is nowhere to go for the mortgage rate but up. Apparently, this reader did not get that information. It is not their fault. They reached out to me now. They put the deposit down three months before they found me.
The reader continues, “I was not able to lock in a rate back in November 2021 because of the timeline for the new construction. I did not know what to do or if there was anything I could do now to get a good mortgage rate. I have gotten quotes from 4 or 5 lenders. One of which was their preferred lender, the builder and he tells me they had the highest rate of all the lenders.” He goes on to finish three words to describe my current state of being a first-time homebuyer, “Confused, deflated, frustrated.”
This is one of those moments I don’t know if I should cry or be inspired that I know the show is getting out there, and hopefully, I’m going to be able to hit more of you guys before you end up in a situation like this. This is where, if you are a new reader out there and you do not know my vibe, that I might sound like a bit of a chode. I am not mad at this reader for reaching out in the middle of the tidal wave, but I am going to be pretty harsh because I’m recommending to the rest of you what you should do before you go out in the water.
I’m still going to try to help both the reader who wrote in and you guys, who hopefully can stay away from the situation. For him, I’m going to tell him that his realtor and lender should have explained that any new build is a gamble because most new builds are longer than 90 days and most loans only lock your rate for 90 days. It was built from November 2020 to July 2021. This should not have been a surprise to our reader.
Somebody should have explained to him that at the end of 2021, we were at the lowest rates ever. That is a big bummer. I can tell you now you should go back to your lender and a realtor and tell them you are pissed. You should tell them that they should have told you this and ask them to help contribute, to help pay for some of that difference.
I do not have any life preservers for the tidal wave that you are in now. You have to hope that the math is still in your favor, even with a higher rate than you would originally be calculated. For the rest of you out there, your lesson before you go out in the water is to know that it is a gamble. What do you do? You get your weather report before you go out to see.
Rates can change a bunch of times and different ways up or down before you get to the point where you are 90 days out, and you lock it in. Speaking of weather, do not count on those build-out dates to be correct. If they tell you it is going to take six months to finish their home, guess what the number one reason is for the timeline’s getting extended in buying a house?
It’s the weather. It gets slowed down for all kinds of reasons, but the weather is the big one. Some of the other reasons going on these days, have you heard about the supply chain thing? What about the cost of lumber? If your build is six months out and the material prices kick up or the price and houses in your local areas start to go way up, the builders are going to figure out a way to try and make up some of that lost money.
They do not care if they piss you off. They are not counting on you for their return business. As soon as they finish the deal, they are packing up and gone. You are never going to see that builder again. What happens if you are working with a unicorn team, lender and realtor? They are working in the neighborhood all the time.
They need you to be satisfied with what they are doing, just like a seller who is selling their house and moving to Denver. They do not care about you. It is a one-off sale. I have mentioned that in other episodes. They can dump you and move on to another buyer. They do not care how pissed you are. The builders are a one-off sale also and they are leaving town.
In some instances, I have heard that when they will dump a buyer, give them their deposit back because they realize that the prices have gone up so much and they can use the supply chain and lumber, even when they give you your deposit back and cancel your contract with you. They still make more money with a new buyer because the line is out the door and inventory is low. If you do not have a representative with you from the very beginning with that initial contract you have for you deposit, they are in control and will find a way to weasel out of it.
Supply and demand are going to change how much crap they give about you, just like the story I told you when they used to come in and beg us when the supply and demand was the other way around. In 2022, the line is out the door. You better know all your numbers going into it. I can highly recommend that you tell them right away that you got a realtor before you sign anything, even a harmless signing sheet, so you can have the protection and stay calm in those waters. You do not have to call me when you are in the middle of a tidal wave looking for me to fly over with a helicopter and rescue you, which I hear is incredibly difficult. It is like drumming. You have to use all four limbs if you are doing a helicopter. Can you tell? I have no clue how to do it. That would be flying, David. Thank you.
The last thing about new builds, the price you see online or on the billboards, is basic modeling, like buying a car. You do not get all those extras for that price. The model that you walk through when you are on a builder site, the one that has tons of upgrades. In some cases, that can be a six-figure difference between the price on the billboard and the one that you walked through.
In California, you do not even get anything in your backyard. It is dirt. Do not even think for a second that you are getting those cool countertops, the backsplash, the flooring and the fancy security system. None of that stuff that you see in the model comes for the price that is on the billboard. This sounds like I’m a hater of new builds. I’m not at all. I’m a hater of the builders trying to screw you. I have seen it happen a lot.
[bctt tweet=”Simple challenges equal smaller changes. Difficult challenges equal greater changes.” username=””]
If you are prepared and you dig that new home smell and financially it works best in your long-term plans, you can get a kick-ass buyer representative and go for it. Be sure that you look at other older resale homes as well so you can compare and contrast. That is the whole versus episode. You could factor in your lot size, the neighborhood, the commute and the potential to remodel an older home for a cheaper price. A lot of newer homes have higher HOA dues. It is something else you should factor in and many things a unicorn could help you look at to decide which is the best fit for you, your family and your homeownership goals.
How is that? Are you ready to jump in the ring? Questions that you never ever asked or perhaps, maybe you were thinking about it and you thought, “If I have to go through his stupid jokes to get the free information that I want, I will sacrifice.” You can help out other lost, confused, and frustrated friends by simply texting them this episode. Please share the episode. It is going to help us so much, get me closer to that lobbying job so I can sue all those people and change the laws.
I’m not saying that all your friends out there are bewildered, confused or pissed off, but I would not blame them if they were in this housing market. Let’s crush all the confusion by spreading the word. I don’t ever want to hear again from any of my readers that they are confused, deflated and frustrated. I’m giving away this to end all that.
I’m sure that many of you others feel that way and that sucks. This is my mission to put all this information out there for free and help you first-time homebuyers that have been getting the shaft. Now, more than ever, I want to make sure that you either are finding your own unicorn or you are asking me for a unicorn that you understand what a unicorn is, the unicorn criteria and making sure that you are covered.
You’ve got to have a good representation right now and not someone who is brand new, trying to build their brand. If you ever got a question, go to HowToBuyAHome.com and drop me a line. Check out more free content on Instagram @DavidSidoni or the Facebook group, How To Buy A Home and join the conversation.
We are just getting going on the YouTube page. If you read this in the future. I’m sure I’m gigantic up on the list, but if you are brand new, check out the YouTube page. There has a ton of content on there that people have not been looking at because I suck at YouTube, apparently. I think I’m doing okay at podcasting. If you have questions, you should. If you don’t, you probably should. This is going to sound gross, but consume my content, consume me. I put many years of experience out there for you for free because I got sick and tired of seeing you guys get screwed.
Is it possible to buy a home in 2022? I got hundreds of readers doing it now. We have got a whole bunch under contract now. Was it easy for them? No, not in 2022, but for many of them, most of them are going to move forward and go get a contract. Is it going to be better for them in the long run? Could it be better for you for your personal financial situation in the long run?
I do not know because I do not know your personal situation. I do not know your specific questions and what is going on in your life. It would be irresponsible for me to tell you that I think it is better for you to do this, push an agenda on you without understanding you and everything that matters to you.
However, I can recommend that for many of you, if you pay an average rent in your area, the math is probably still in your favor to jump into this battle. Nothing great in life is easy. It is always better to go into battle with a unicorn general. Be prepared for what might happen and for extra surprises that might come up that even I haven’t mentioned in 77 episodes of me rambling.
For many of you, I believe that now, if you do the math, you will find out this is a better long-term plan for you. That is the only reason I would tell you to do anything difficult, go out there and get your butt handed to you when you are trying to write offers. That is the only reason I’m trying to tell you that you will feel crappy, but at least you can know that you are going to feel crappy because later on, you will feel happy when you become a homeowner. That is the craziest cheesy thing I have said. The good news is that with the right team, you can do this.
- Ep. 36 – Timing Your First Home Purchase With The End Of Your Lease
- Ep. 40 – Should I Buy My First Home Now, Or Wait? Question Of The Week
- Ep. 53– Real Story From A Real First-Time Homebuyer – Madison’s Story
- Ep. 57– It Will Cost You Much More To Wait For Things To Cool Down
- Ep. 68 – 2022 Housing Market Forecast For First Time Home Buyers
- Ep. 69 – Dave Ramsey Is Dead Wrong When It Comes To Buying Your First Home In 2022 And Beyond
- Ep. 70 – URGENT 2022 Housing Market Update For First Time Home Buyers
- Ep. 73 – EMERGENCY Information AGAIN On 2022 Bidding Wars – And Your Realtor Representation
- Ep. 74 – The Bubble Bursting And A Market Crash And What To Do As A First Time Home Buyer
- Ep. 22 – How To Financially Prepare To Buy Your First Home – Part IV
- Ep. 58 – How to Use Your Retirement Savings to Buy Your First Home the SAFE Way, and Deep Random Thoughts
- Ep. 75 – Inspection Red Flags, New Tips For 2022 Bidding Wars, And To Wait, Or Not to Wait?
- @DavidSidoni – Instagram
- YouTube – How to Buy a Home
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!