Ep. 19 – How To Financially Prepare To Buy Your First Home – Part I 

 July 12, 2019

HBH 19 | Buying Your First Home

Buying a home is a dream. In this episode, David Sidoni advises on how you can be financially prepared to buy your very first home. As he discusses how setting goals can help you avoid overspending and getting yourself into a giant jam that you cannot get out of, he shares come some tips that you can use, starting with budgeting, commitment, and getting a real estate agent. He then introduces one of the nineteen things that can guide you towards financial preparedness in home buying. Read on and learn more of his extra useful tips for helping you get that dream house you believe you deserve.

How To Financially Prepare To Buy Your First Home – Part I

How To Save, Plan, And Determine How Much Money You Need To Be A Homeowner

Can something as simple as buying a washer and dryer or a piece of furniture before you close on your house make you lose your dream home? It sure can. We’re going to be talking about something important, financially preparing to buy your first home. If you’re here, it’s because you’re curious and we’re here to help. This is how to turn your largest monthly bill, your rent into your largest wealth builder and we want to help you do it sooner than you think. We appreciate your curiosity. We want you to know you can do this. You just have to get educated. If you’re reading this podcast, I’m so glad that you’re here and I’m guessing you’re probably in one of three different phases.
Phase number one is you clicked on a podcast that says, “How to buy a home,” because you have no clue how to buy a house and you want the basic info because your rent sucks and you hate it. We got you covered. Phase two is you’re getting closer. You started saving and you started thinking about this. You’re out there dipping your toe in the water and now you’re looking for some real guidance because your rent sucks too. Phase three is you’re super close to buying a home and you started researching because you went to an open house and got super excited and now you want to buy a house or you’re involved in things. You’ve talked to other realtors and other lenders and you’re not sure that you’re getting the whole picture. You want to validate that what they’re seeing or the research that you’ve done is correct and you want to be sure you’re doing this giant undertaking in the right way. We got you covered too.
No matter what phase you’re in, one, two or three, understanding the finances of buying your house is a huge part of this transaction, whether it’s your first house or your second or you’re third. Each phase that we’ve got, they’ve got little individual nuggets that you can use. I’m going to lay out all the steps that you need to know. There are so many things. I’ve had to divide this podcast up into three different parts. This is part one. My goal is to help you avoid overspending. I don’t want you to be getting yourself into a giant jam that you can’t get out of. What if you under-save for the next few years if you’re a phase one person and then you miss out on your dream home?

Escrow Situation

I mentioned the deal with a washer and dryer. This is true. When you get into a transaction to purchase a home, when you’re in escrow, if there are unusual things that happen. For instance, let’s say you’re in escrow and you get fired. Suddenly, the bank might not loan you the money. That makes sense. Everybody understands that. If you go out and you buy a washer and dryer or a new couch and you’re tight on the purchase because you’ve been reading this blog and you figured out how to get it done and you think your rent sucks. Now you’re buying, but every penny counts. By just that one purchase, you might throw your debt-to-income ratios or the basic qualifications and the bank might tell you, you can’t get that loan anymore. I’ve seen people three or four days before purchasing a house, go out and buy all their furniture and a washer and dryer, and either they have to throw in a ton of extra money or some of them have even lost the house.
Fortunately for me, none of my first-time buyers, that’s just stories, but they’re true stories and they happen. For all you newbies out there, you phase-oners trying to figure this whole thing out, here’s the financial crisis that you’re in. You’re paying all that rent and then you’re paying it to somebody else when you could have easily set yourself up to buy a home and improve your own wealth, instead of improving the wealth of your landlord who’s sipping Mai Tai’s on the beach in The Bahamas. Let’s figure this out. Let’s avoid all the traps and the pitfalls all together and help everybody out there. Phase one, two and three, get to your happy ever after. Some of these tips are going to be coming straight from real-life stories because that’s what’s important.
[bctt tweet=”You’ve got to look at your income and your debt in figuring out what’s affordable for you.” username=””]
I’ve been doing this for thirteen years. I’ve got 81 first-time buyers and in fact, the stories come from far more than those 81 stories because those are all the stories with the happy endings. Some of the folks that had that talk to me, they ended up not following the guidelines and they ended up not being able to buy. There are more than just these 81 stories. Also, there are people that are following these guidelines and learning things along the way, but they haven’t quite made the purchase yet. We’ve got our one buyer, Jacqueline, she doesn’t count in my 81 but she counts in someone that the podcast has helped to buy their first home. We’ve also got 25 of you out there that are emailing me and asking me questions and we’re working through it. It’s over a hundred real-life examples from real-life people using these tips to figure out how to work your finances.

Community For That Happy Ever After

Let’s gather as a community, figure this all out together and make sure that you avoid all those issues and help you find you’re happy ever after. I do want to help all of you start a revolution and change the way that first-time buyers are treated in real estate. I went out there and did some research myself beyond the work that I did. I got some cliff notes for you. Here’s how to financially prep yourself for buying a house. First of all and most importantly, buying a home should be a long process. It shouldn’t be something that you just get on a whim and go out and start looking at open houses. It needs to be started years before.
You’ve got to be taking a look at your income and your debt and figuring out what’s affordable for you. It sucks for people that maybe didn’t read this blog, but if you did, somewhere in the back of your brain and maybe the front of your brain, you’re down to figure out how to do some adulting. Get in the habit and when I say get in the habit, take these things that we’re going to talk about and put them into practice. Put them into practice so you can practice being an adult and sooner or later, you can be the Lord or the queen of your castle. You’re going to have to handle homeowner expenses some day in your life so you might as well start budgeting and practicing. Think of it like getting a dog before you have kids. It’s practice.


The money, financially how do you prepare for buying a house? If you’re in phase one, you probably want to know how much you need. That breakdown is in order to figure out what you can be approved for. That’s all in episode nine. That’s a whole different podcast. We’re going to be talking about once you figure out how much you need to make to qualify for a loan. What are the tricks that you do to financially set yourself up? That means we’re going to be talking about the B word, budgeting. That means that you are going to have to put in a little work. Once you have convinced yourself to follow a plan, you not me, not your parents, not your uncle, not your big brother or big sister, not your psychic. Once you realize that monthly rent payments always go up, but a good fixed loan stays the same for 30 years. Once you figure that out, then it’s time to start a plan. Your rents are going to continue to grow.
Over the last decade, it’s been growing at an average way more than your income is growing. In fact, in a lot of places in 2016, ‘17, ‘18 and ‘19, rents had been going up 10%. As I’ve said before, show me a job that gives you a 10% raise every single year. The first step is to figure out, “Where are you with your income?” You’ve got to know. That’s just part of the plan. Are you young? Is your income going to grow? Are you older? Are you at the top of your income? Are you in a job where you’ve hit the top of your income? Are you somewhere in the middle? If you’re in phase two or you’re in phase three and you’re getting close to your purchase and you want some more details, we’re going to get into that.

HBH 19 | Buying Your First Home
Buying Your First Home: Buying a home should be a long process. It shouldn’t be something on a whim where you go out and start looking at open houses.

I want everyone to understand, once you figure out where you’re at and you’re ready to practice, don’t just go online and click a mortgage calculator and think that you’ve figured everything out. I had to break this into three different podcasts, so don’t believe “Click here. Get a house.” If you’ve read the blog in the past, we all know my feelings about tapping to get a house. You can’t just tap a button. I know that smartphones have done a lot and the internet has done a lot to change things, but you cannot get a home and a loan as easy as you get an Uber. That’s just not the way it works. You might have to do a little work to convince some bank or a lending institution out there to give you hundreds of thousands of dollars. It’s more than just figuring out the monthly mortgage by putting things into a tap here to figure it out. You have to figure out your monthly expenses and the cost to purchase your home. We’re going to get into those numbers but hang in there because I know some of you out there going, “Where’s Captain Optimist?”
I know a lot of you reading because I tell you all the time, “You can do this.” Remember, I want you to stop renting and I want you to save your money. I want you to live your best life but I would like to help you understand you need to do this correctly. I want to give you the honest, pragmatic big picture. Here are the expenses. This is what you’re looking at. First and foremost, you’re going to be working with a realtor. Remember, your realtor and your real estate agent are free. First expense, zero. If you’re new to the show, go back and read every other blog. You’re going to know all the details about how getting a free real estate agent. A free realtor is the best thing that ever happened to a first-time buyer.

Get A Real Estate Agent

Do not get screwed. Join the revolution. Get a great real estate agent. Change the industry for you and your benefit. You’re going to pay loan fees, inspection fees, appraisal fees, closing costs and then here’s some stuff maybe you don’t think about. You might have to take some time off of work. You might be paying potential vacation days or sick days because you might need them to do some house hunting. You might need that time off to be there for your inspection or to sign your loan documents. You can’t press a button to do this. You have to sign about an inch and a half worth of paper to purchase a house. Moving on beyond that, we’ve got moving expenses. Once you get in there, depending on what you could or could not negotiate within the transaction, you might have repairs on the property.
You’ve also got renovations. You have furniture and also you’ve got a lawn and garden stuff. You might have to buy the first lawnmower you’ve ever had in your whole life. Finally, your insurance and your taxes. The big one, the down payment. What does that all add up to? First, let’s start with your down payment. Your down payment can be as little as zero. If you’re a vet or an active military person or you qualify for some of the special first-time buyer or buyer programs, you can get a zero down payment. A lot of folks are using 3.5%. That’s a number for a specific loan that’s called an FHA loan. It’s not 20%. I know everyone tells you that maybe you need 10% or maybe you need 20% but here are the numbers, 1.76 million first-time buyers and the average down payment was 6%, not 20% not 10%. That’s the average. For most of the folks that I worked with myself and my team, most of the time we use the 3.5% FHA loan. That’s the first chunk that you’ve got to figure out.

Closing Costs

The second chunk you have to figure out is your closing costs. That includes your title in your escrow and your prepaid taxes and insurance. It can vary depending on the time of the year that you close. I’ll go on the high-end and call it anywhere from 2% to 3%. If we go with a conservative high-end, you’re at 3.5% plus 3%. We’re at 6.5% in total. That’s not your down payment. Your down payment and your closing costs, add on top of that your loan, your appraisal and your inspections. That whole thing should cost you about $2,000, so 6.5% plus $2,000. Most importantly, the reason why I’m not giving you just a quick little simple number is that anyone that tells you that is lying, I can’t. I’ve got to know everything about where you are financially and not even me. I’ll even send you to a professional, to a lender. You’ve got to give all your information. You’ve got to strip down naked, you’ve got to give your tax returns, you’ve got to give your paystubs, you’re going to give them your mother’s maiden name and you’ve got to tell them your favorite color when you were in third grade.
[bctt tweet=”The cure-all for most situations is to have that little extra cash handy.” username=””]
Everybody has to understand everything about you and where are you are financially, but I can give you some general numbers. This will help you with your goal. Let’s take that 3.5% down plus about 3% for closing costs. That 3% that’s high and we’ll add $2,000 for the loan, the inspections and the appraisal. For a $200,000 place, that’s about $15,000. For a $300,000 place, it’s about $21,500. For a $400,000 place, that’s about $28,000. If you’re trying to figure out a goal, how much money do I need? Number one, we have to find out are you approved. If you are approved, you will need for $200,000 place about $15,000. For $300,000, $21,500 and for a $400,000 place, you need about $28,000. That’s the minimum that you want to be shooting for. If you’re in phase one, that’s your goal. If you’re in phase two or phase three, that’s low-end. Anything higher than that is important because you get a cushion.

Save And Have Some Money

The big key for this episode about how you financially prepare for buying a home is so simple that it’s stupid. Have enough money to have options. How do you financially prepare for buying a house? Save and have some money. If you have enough money, you won’t lose your dream house. I’m not trying to be like a one-percenter here. I’m trying to explain to you that if your dream house requires you something silly, you need to buy a fridge instead of asking them for a fridge. That’s the thing that’s going to put you over the top so that the seller will accept your offer or so that you beat out another buyer. If you saved over the last six months, two years, three years and you’ve got a little extra money for the fridge, then maybe you can put that into your offer and then you’ll be the one that’s accepted.
If there are a few repairs that they don’t want to make, don’t worry, you can do that with a little extra cash. If your dream house has everything except the air conditioner, you’ve looked at 30 homes. If you’ve got good enough credit because you worked on your financial stuff by reading this blog and doing the research on your own, then you can buy the house that has everything on your dream list except the air conditioner. Use your good credit. Go to Sears and put it on a Sears credit card and figure out your payments. There are a thousand other things you can do if you prepared. The idea is to prepare and do the non-sexy stuff, the non-HGTV stuff first, then you’re going to be in a better position to be able to get what you want. I know it sounds silly, but I’ve seen it a hundred times.
I’ve seen $500,000 transaction. We’re talking about $500,000 purchase for a first-time buyer because I live in SoCal, it’s expensive. I’ve seen buyers, some were my buyers and some were other buyers that my buyers were competing against. I’ve seen people lose their dream home over a $2,000 fridge. The person that has a little wiggle room wins. They get enormous dreams fulfilled and the other guys run away screaming, bummed out and pissed off. They think the system is rigged and then they think they have to rent forever and they whine and complain. I get it. It’s hard but if you’re reading this, start saving immediately.
Every deal comes down to two things: time and money. That’s what every single real estate transaction comes down to. The more flexible you are in either one of those, the better deal that you can get. If you’re flexible on the time of when you can close the home or if you’ve got your finances together and you can close your loan quickly, that could save you. Maybe the seller might want to close quick and the other people don’t have all their stuff together and they need the traditional 30 or 60 days, but you can close in 21 days.

HBH 19 | Buying Your First Home
Buying Your First Home: To help with your goal, everybody has to understand everything about you and where are you are financially.

Maybe you get the home because of that. That’s time or maybe you’re flexible and you can do 60 or 90 days because you’re not getting kicked out of your apartment. That’s time. If that benefits the seller and you can get a better deal. If you aren’t demanding because you’re prepared, then you have a better situation. If you have to demand that things have to be fixed. If you have to demand the seller has to spend money because you don’t have any money or it has to be done in a certain time because you’re getting thrown out of your apartment, then expect that to cost you. In every single deal, money is the cure-all. It stinks but that’s the way it works. I’m not saying that you can’t do this. I’m saying you can do this. Go back and look at the numbers and make that your goal and then be ready with savings and a little extra for the little things. In other episodes, I’m not asking you to deprive yourself. If you’re two years out, blow it out.
Go on a big fat vacation because the year before, the best thing you can do is save because you’ll have those little extra cushions that might help you. Is that all that making you cringe yet? Are you freaking out following to Mr. Positive and, “You can do this,” spew all this adulting and savings talk? Part of doing this plan is budgeting, but budget the way that you want a budget. Set your own timelines. The sooner that you start, the more leeway you can give yourself. Know the math. Understand the consequences and benefits. You got to prepare yourself to shop for a home with an understanding of how to use the internet and how to research. How to choose a badass realtor that’s going to work for you to free. How to understand the mortgage process? You’ve got to figure all that out. There are a thousand ways to figure out how not to get ripped off and to get yourself the best deal. The cure-all for most situations has that little extra cash handy. That’ll keep you from getting screwed. That’s the basic overview of what you got to do to get started.

Financial Preparedness – Step One

I’ve put together a list of nineteen different things that you need to know for your financial preparedness to buy a home. Let’s get started on them and we’re going to start with number one. Number one on the list is save. Find your balance and figure it out. Here’s what’s going on with saving. Here in America in 1975, the personal savings rate was about 15%. Now, things have changed so bad. We’re spending so much more than what we earn each month that the savings rate that used to be at 15% is below 2.5%. Lots of people are using their credit cards like checkbooks, they’re trying to front. They’re living poser lives. Even though in the ‘70s we were saving all that money, but since then the cost of housing, healthcare and your college loans have all skyrocketed. Your wages haven’t kept up with all these and this house we’re trying to buy. They’d gone up way more than just following your natural cost of living increase. Savings have dropped by 12% and 13%. It doesn’t make any sense.
Because it’s flattened out, that means most of you folks don’t have a lot of extra cash stashed away, so let’s try to figure that out. Start saving right now. I remember when I was 21 and I was in Vegas for the first time, my friend was losing all this money at the table and he’s like, “That’s okay. We’re young. We’ll make more money.” How did that work out? It used to be that 40% of the people were first-time home buyers, were down to 33%. That’s not bad. We can do it. How do you save up for that $15,000 for the $200,000 house or the $21,500 for $300,000 or the $28,000 for $400,000? It’s easy. You just got to get the mindset for it.
Don’t try to save dollars, try to save as a percentage. I’ve talked about this book before, The Richest Man in Babylon. That’s where you live on 70% of what you bring in. The other 30% you divvy up, they suggest 10%, 10%, 10%. Where you got 70% that’s what you live on. 10% goes to investing, 10% goes to savings and 10% goes to charity. You can give divvy that other 30% up however you like. For me, my charity when I was in my twenties was paying for all my freeloader friends while I was flush and I bought all their beer and food and entertainment for about six years.
[bctt tweet=”Understanding the finances of buying your house is a huge part of the transaction.” username=””]
Whatever you want to do, but start with that 70%. If you want to do 20% for parts of charity, parts of savings, then 10% of it, make a FOMO account for yourself, so you don’t feel like you deny yourself. If you do, 70%, 10%, 10%, 10%, however you do it, you will put yourself in a better situation so that you’re not paying that ever-increasing rent because it’s not going to stop. Open a savings account and automate it. Do it immediately. Put your money on autopilot. Erase it from your mind. Just live on a portion. Unless you are a saver by nature, which the stats show us here in America that you’re not. I don’t know how you guys are doing in Canada didn’t get those stats, but you need to automate your savings process.
Sometimes you can do it directly through your work and through payroll just like your 401(k) does. A lot of times you can do it with your bank. You can allocate a certain percentage of your regular pay that goes directly into a savings account or you could set it up with a money market account. Accumulating all those funds and eventually, that will be there for your down payment. By doing that, that makes it invisible. Your money moves from your paycheck into your dedicated savings account without you even seeing it happen. It’s the best way to avoid the temptation of life. If you have that little 10% FOMO account when those tickets for the concert come up, use that. It’s fine. I know you might be reading this right now.
If you have those days when the bills come and you’re freaked out and you’re scared or nagging at you, how would you like to have that nagging feeling go away because you know you have money in savings? If you’ve lived on 70% for just three months, the next time the phone bill comes or the rent check comes, you don’t have to freak out. You’ve got three months of money in there and you did cut out 30% of your area or your spending in the month. Just try for 90 days. Track your expenses, see where you overspend and where you can cut back. If this is too much for you and you’re freaking out, then fine. Make a vision board of all the things that you want. How cheesy is that?
I thought I was going to do this in three parts, but I think I’m going to end up doing this in four parts because there’s so much. Let’s do a quick recap of part one here. The first recap, you could be in one of three phases and no matter where you are, the keys are to save. We’ll figure out how to move that money around if you’re in phase one, phase two or phase three. Number two, understand the numbers, realize that you’ve got to have a goal for yourself. The average might be about $15,000 for that $200,000 house all the way up to $28,000 for $400,000 house. That doesn’t mean if you save that, that you qualify for a loan, but this is a number that you can start looking. The next piece we want to recap is not going into this, whenever you decide to do this. Real estate is about time and money. The better you prepare yourself to be flexible on both of those options, the better deal you’re going to get.
Finally, you’ve got to save. Try 70% 10%, 10%, 10%. Live on 70% and automate those savings. I have a bunch of apps, a bunch of tips and more things that you can do to help you with your saving and some very detailed things moving into the entire home buying process. This is just phase one. It’s good that you’re reading because you don’t know what you don’t know. The lists of websites that help me learn some stuff because doing this as long as I have, I still learned. We’ve got The Simple Dollar and Money Under 30. Dave Ramsey is another good place.

HBH 19 | Buying Your First Home
Buying Your First Home: Your money moves from your paycheck into your dedicated savings account without you even seeing it happen.

My dad was a Navy guy for years. They’ve got some good information there for first-time buyers at USAA. Adam Carroll has the Mastery of Money podcast and I’ve gotten some great information about budgeting and some stuff on student loans. He goes around the country and talks to college students about their financial well-being. You know my basics. We’ve got NerdWallet, TheBalance.com and Listen Money Matters. That one helps too. These are great sites you can check out.
Those are some of the places where I did some research. Obviously, I’ve been doing this a long time. There’s a lot of information on the podcast. We’ve got eighteen podcasts before this one that digs deep into credit and a whole bunch of other things on the whole home buying process. A lot of times, the finances get wrapped up into it. Check those out. We’re just getting started. This is part one. We went through the whole introduction section and only step one. I’ve got nineteen steps. I think this is going to be maybe a four-parter. This could get pretty exciting. Everything you need to know financially to purchase your first house.
If you want more information, go to DavidSidoni.com, click on Podcast and the YouTube page. There’s a Facebook page, How to Buy a Home from the guy who brings you the How to Buy a Home podcast. There’s also my Instagram, @DavidSidoni. There are lots of places for you to get more information. Check it out and if you’re enjoying this podcast, please help us out. Write a quick review and share. Send this to all your friends. Remember, the sooner you get started on this, the better position you’re going to be in and you’re going to avoid all those problems and have a better chance of getting your dream home. That’s the whole goal of this podcast. That’s part one. We’re going to move on to part two, part three and possibly part four coming up. Remember, you can do this.

Important Links:

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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Ep. 230 – NAR Lawsuit – The New Rules For Real Estate And How To Buy A Home – PART 1
Ep 229 – What Is A Unicorn Real Estate Team?
Ep 228 – Interview With Andrew And Melissa Who Did NOT Need 20% Down To Buy And Bought Their First Home In A Matter Of Weeks!