You Made it!!!
Congratulations!!! It may have been a long road to get here but you made it to closing!!! There are a few things left to keep in mind as you move on to the home ownership stage.
What to Bring to closing
My transaction coordinator Sara, your lender, and title person will tell you what to bring to closing. What I will say that I've seen a few people miss are the following:
Cashiers Check or Wire: You closing money will either be paid by a cashiers check from a bank or a wire. Personal Checks will not be accepted.
2 Forms of ID: I would bring two forms of photo id if possible. I have seen medical cards or social security cards also be accepted.
What to Expect After Closing
It is now public information that you have closed on a house! So you will be getting a lot of mail telling you: that you need extra insurance, you need to pay for a deed, or stuff that looks like government letters asking you to pay something. 99% of the time these are scams. When in doubt reach out to your title person, Sara, and or me of course!!!
Your mortgage may get sold! A lot of times your lender will be what is called an originator who creates the loan. Then they will sell it off to a servicer like Wells Fargo. This is pretty common and my loan has been sold a few times. Any questions on this reach out to your lender.
Save money on your property taxes
If you bought a house in Philadelphia take advantage of their homestead exemption! This program is for people who are living in the home not investors. It is a simple form and will save you a good amount of money every year on property taxes. Here is a link to how to go about doing that: Save On Your Tax Bill Article!
Get Pipe Insurance
Unless you are buying brand new ground up construction you most likely have pipes going out to the street that are as old as the house. These pipes are generally cast iron and will eventually break. It can be costly (10K+) to repair the pipes from the house to the street. We always suggest whether you are in Philadelphia or the Suburbs getting this insurance. I have it myself. The cost is generally 10-20$ a month. Here is a link for more info on that: Pipe Insurance How To
Up keeping the home
Homes can need a lot of things and I always get asked for great contractors which is why I created this vendor page (plumbers, electricians, exterminators, insurance people etc...) If a trade you need isn't on there always reach out to me I will find you someone great. Here is the link to more info on that: Vendor List
Your Realtor For life
I will not abandon you after the closing! If you even need anything always feel free to reach out to me. I keep in touch will all of my clients periodically and make sure I have them covered if they need anything! You will have a lot of questions as you navigate home ownership and my cell is always on! Feel free to reach out with anything you need. If your friends or family ever need help with their real estate needs I am always happy to help. Referrals are the highest compliment a client can give!
Thank you for trusting me with this important step in your life. Best of luck in homeownership!
Being in your 20's you're probably just getting out of college or trade school. Have little to no money and are just trying to pay the loans, rent, insurance and other bills you have just taken on. And you can't buy a house until you are older right? WRONG you have amazing assets in your twenties that no one else has!
the power of time
Now at any age you are busy right? We're all busy. There was a great article I read on the decreasing hours in a work week but somehow we still find a way to be busy. Originally we spent 16 hrs/day as farmers/laborers until we industrialized more and headed into the tech revolution. Now we spend 8 hrs/day at work and most of us have dropped our commutes since we work from home and still we're just as busy as when we had 16 hr days. However being in our twenties most of us do not families of our own yet. A lot of us have more time than we think on our hands.
If you buy a house that needs some work in your twenties you can spend that free time fixing it up! Sometimes it's a pain doing the work but a lot of the time it's fun and gratifying. Instead of watching Netflix you can be listening to music and painting or landscaping your house. I hear a lot of people who rent and are really great at doing projects all say "I want to fix it the place I live in but I don't own it so why would I?" That's right! If you had a house of your own to fix up you would be spending a lot of your energy tackling these projects! When you fix up a house you force appreciation and can really skyrocket quickly how much that house is worth.
Appreciation is the gradual rise in value of a property over time. The earlier you buy the more appreciation you see. If you buy a property in your early twenties you can see significant appreciation over the time. If you buy in a urban area with a lot of development you can see 5% or greater appreciation per year. Check out the power of appreciation below. How much will these home owners homes be worth in their 40's?
Time is your best friend!
In your 20's you have the power of freedom. Maybe you are single and can house hack which means you can basically live for free with roommates. Then you save that money and pay down your student loans or buy another deal! You can keep buying more deals and growing your portfolio with the loan down payments since you're living in them. Even if you're not single you can buy a house live in it and keep moving every year into a new one just renting the one out behind you. You are not tied to a school district, or a specific place.
If you are housing hacking and building a rental portfolio you can use these rentals for certain things. 1 rental could be to subsidize your own mortgage cost. Rental 2 could be to save for your kids college fund every month. Rental 3 could be vacation money. It's up to you but it gives you options!
Trade up to your dream home
Everyone wants to move to a nice area someday with a nice house and a big yard right? We live in the city so maybe not everyone needs a yard. But everyone still wants a nice house in a great area! If you look at those high desire areas you'll see the decent homes starting at 350 and go to 700 for middle class homes. That can be a large mortgage payment every month for people in there thirties with kids, cars, a house to maintain. So how do you get a large down payment to reduce your monthly payment?
I'll use an example Jack and Diane bought a house in their 20's for 200k and this is what happened:
Year 1: Cleaned up the outside of the house and made it beautiful. They redid the backyard. Tour up the carpets, painted, and some other little projects. As a bonus their lender called them and told them rates had dropped and to refinance their house. They went from a 30 year loan to a 20 year loan. Now they are gaining around double the equity in their house every month!
Year 2: They took on a bigger project and redid the kitchen to something trendy people would like.
Year 3: They took on the bathroom project!
They basically spent over the years 15k fixing up the place. Which is 2500/person per year. They liked the area and stayed for around 8 years. They now have accrued 44,000 in equity in there house.... just for paying the mortgage every month.
After the renovations the homes worth was estimated to be 260k. Then there was still 5 more years of appreciation on top of that! This brings the value to 331k!!!
So let's do the math....
331k - final value
-156k - remaining loan balance
We can subtract the renovation costs too which leaves them with 160k for a down payment on that dream home! The sales is also tax free because they lived in it for more than two years!
So maybe you're saying to yourself: I don't have the time and I don't have the money to do this. But when you're in your 30's or 40's and want to buy that dream home that's 450k or more that mortgage is going to take all of your time and money. Leverage time to your advantage and your money now will be worth 10x in the future if you use it right!
If you want to learn how to save for your first down payment check out:
So as I am writing this the country is moving to reopen the economy. Real estate services in Pennsylvania have just been deemed essential as of yesterday by Governor Tom Wolf. This is the perfect time to write about timing the real estate market. What does that mean? Can it be done? What does it involve?
What was the market like before the Shutdown?
The real estate market in Philadelphia and the surrounding area before the shutdown was extremely competitive. Many deals seemed to be ending in multiple offer situations or paying full price. One deal I worked on, three times we went to multiple offer situations and another duplex deal got 18 offers in a weekend (both in the winter which usually has reduced traffic).
What The Market Has Been Like During the Shutdown?
When this began I heard many people say real estate is going to get wrecked by this. Many people seemed to be excited by this because it meant they could probably get deals for cheap right?
I have not seen the huge crash that few were expecting and I do know if people will. None of the buyers that I have worked with have wavered in their desire to buy. A few renters I work with have had to delay things due to delays in job starts. As far as listings go people have been temporarily delaying those until this blows over. This means we have even lower inventory...raising the demand for good homes. The listings that have been hitting the market if they're priced appropriately have still been selling fast.
This week I was looking at a house with a buyer on the internet (we were not allowed to do in person tours until today). The home was on the market for 1 day. I called the other agent to ask if we could get a FaceTime tour of the property and she said sure but she already had two offers and one was considerably over asking (without even seeing the property). A few people that I work with have listed homes during this crisis and had them go in a few days. That is not always the case but I have seen it happen with a few listings.
So Should We Expect A Huge Crash Like 2008 and Steep Discounts on Prices?
I think home values are going to remain pretty steady with maybe a small discount (nothing to write home about). This is different from 2008 as in where real estate pulled down the whole economy in 2008 and now we are being hit by an existential crisis. The economy before the shutdown was BOOMING the stock market had risen considerably. As far as housing, home prices were surging as well and home starts were rising year over year. Where as real estate brought down the economy in 2008, this shutdown is negatively affecting the economy thus in turn could hurt real estate. The real answer is I do not know what is going to happen tomorrow and no one does (which is how that has been forever).
Timing the Real Estate Market for Deals
When I was buying my first house the market had been rising for several years. So in comparison where I was buying at was much higher then the previous few years. I had a few peers say "You want to buy now? The market is really high" or ..."Once the next crash happens I'm going to buy". This had me thinking: "Am I an idiot for buying now should I be timing the market and wait for a downturn?". My fear was either I'd buy this house and a "2008 crash" would happen... plummeting my home value and me missing the "golden opportunity" for a deal.
I ended up buying that home then which allowed me to buy a second home. Since then it has appreciated considerably and I have done a lot of work to it. Those peers still do not own any real estate and the "golden opportunity" to buy has still not come. Waiting for a market down turn is really an excuse for not taking action.
After that deal, reading tons of books, networking, and listening to tons of podcasts, I do not believe in timing the market. None of us know what is going to happen tomorrow and coming up with a system for trying to know I believe it is a waste of time. Spend time LEARNING YOUR MARKET and preparing yourself to be in a position to buy when a great deal comes along. When looking for my first house at the time I was working with a Realtor, but I still spent a ton of time learning the prices in my market. Everyday I would search for a new deal in my market and when it came along I paid full asking price, both times with a sellers assist of around 10k. I do not mind paying full ask when I know the home is worth more and both times they were. Since then both homes have appreciated considerably. DON'T TIME YOUR MARKET KNOW YOUR MARKET!!!
Buy for the long term:
Most people buying homes will either live in them or rent them out eventually. Buy a home expecting to hold it for 5-10 years. If you are a house flipper different rules apply but for most of us ask yourself if you think the market prices will be higher in 5-10 years when you go to sell.
The Advantages to Buying Today:
One of my real estate meetings I went to there was this speaker who was in his 60's and he owned 144 houses in the Philadelphia area. He gave his speech and at the end of the real estate meeting someone asked: Do you think we should still be buying or preparing for a downturn because it's hard to find deals?
"You guys have been through one market cycle you don't really have a perspective on the market you are in. Deals maybe expensive today but interest rates are incredibly low and you have to factor that in. When my wife and I refinanced our house in the 80's from 12% to 6% we thought we were geniuses. (Today 6% would be a terrible rate)."
He's right for most of us we did not factor in the interest rates we got to wrapped up in the sticker price. Today rates are the lowest I've ever seen which is a huge advantage if you are going to buy!
What it all means?
If you are an investor, invest for the long term and take consistent action. If you keep buying over time consistently you'll hit some home runs that even out the high priced ones. Check out Dollar Cost Averaging
If you are a potential first time home buyer ... Personally I believe in buying over renting.
Once you have your own house you are investing in your future and usually paying less than you would in rent.
Do not time your market...Know your market better than anyone! Buying a house is a huge investment. Even if you are working with a Realtor invest some time and learn your market!
Not a fancy topic but an important one! If you own a home/or want to own home in Philadelphia or the Suburbs pay attention.
Older homes in this area were built with cast iron sewer and drain lines. If you look in an unfinished basement they are usually the two large pipes riding along the bottom of the wall. Why are these important? Basically what they do is one carries out your rain water and the other carries out your sewage and used water. These pipes run throughout your house in areas you may not be able to see them and out to the street. You may even have PVC exposed piping then at the walls there is a black coupling which connects to cast iron once you get in the wall. I rarely have seen a home without some cast iron in it.
You are responsible for those pipes out to the street!
If you have these pipes in your house they are most likely decades old. Unless they have been properly maintained they are probably deteriorating even where you cannot see. These are usually one of the ticking time bombs I see when showing homes, buying homes myself, or going over inspection reports. They can be tens of thousands to replace. Think if these pipes run from the back to the street outside your house what you would have to tear up to get to these pipes and replace them. If outside your yard/sidewalk is getting torn up. I had a client who told me in the past had dealt with this issue. The pipes ran under their den which had to get torn up, then the concrete floor of the den, all in they said it was a 30k expense. If you do not have the necessary insurance you most likely will not be covered by general home insurance. Usually I hear the expense is 10-15k to replace them but it could be more.
The picture on the left is the back of a basement where PVC pipes have been connected to the cast iron pipes. On the right is a split cast iron pipe which can be patched but will need to be replace eventually. These are from an inspection report of a home I almost bought.
How can we fix the pipe issue?
Not everyone has 10-15k or more to go and replace pipes after buying a house. When I originally bought my first house I had a really hard time finding anyone to insure these pipes for me. I got a rider from Erie Insurance which is additional insurance and only covers me I believe up to 10 or 15k in the even these need to be fixed. It is raised my insurance a lot also.
A new insurance however come to market a few years ago called American Water Resources. From talking with them they informed me they will insure the pipes for an unlimited amount. So if the pipes rupture and it costs 30k to replace them it will be covered. There are two different plans on to cover the drain and sewer line.
The water and sewer line protection together is only 7.98! I think that is an amazing deal which removes the burden of worrying about when these pipes will go. When I bought my first house this insurance didn't exist and I called 20 different companies trying to insure them.
Here is the link below to the plans (just make sure you put in your specific zip code):
I always think insurance and inspection are the two best ways to spend money! These repairs happen but they can be small problems when you have the right insurance.
One of the great things offered to home owners in Philadelphia is the Homestead Exemption. This is only offered to people who own their primary residence in the city limits of Philadelphia. If you own an investment property this one is not for you.
The exemption itself allows you to reduce your tax assessment by $45,000. Your tax assessment is the value the county deems your home to be worth. They then have a millage rate which varies per county and using those two numbers arrive at your tax bill.
Once you apply for the Homestead Exemption you never have to apply again as long as you continue to live there.
The below is info that can be found on the Philadelphia housing website:
The above application can be found by going to the below link. https://www.phila.gov/media/20191220150105/Homestead-Exemption-application-2020-English.pdf
It is really easy to fill out the only portion people get caught on is the OPA number. An OPA number is Office of Property Assessment number. An it can be found by going to this link:
All you have to do is put in your property address and your OPA number will come up.
Simple as that. So if you live in a home that you own start saving today!
As America is in our 4th week of quarantine I have been getting a ton of questions lately on the state of the real estate market. Are people still buying and selling? How are people buying and selling? What do we expect to see when the shutdown ends? I'll answer all these in the below and more.
It is no question that the economy is being affected from the current government shutdown to curve the Covid-19 pandemic. Thursday March 19, 2020 Pennsylvania Governor Tom Wolf ordered all non-life-sustaining businesses in the State of Pennsylvania to close which includes most real estate services.
How is this affecting Pennsylvania real estate?
All in person real estate services ie: touring clients through homes, in person listing/buying consultations, open houses, and any other face to face service has ceased until further notice. In addition closings will not be happening at real estate offices anymore. Closings are being held remotely which is a welcomed change in the industry and should make life easier moving forward.
How is this affecting the Pennsylvania real estate market?
New listings and new under contract homes have gone down this April compared to last April. Many people believe this is a temporary issue and are waiting to list until after this is over. Spring is one of the best times to list your home on the market. The urge to buy has not wavered. People are increasingly looking to buy and sell as we get deeper into Spring.
The Opportunity for Sellers -
We have seen incredible price increases in properties of the past several years. The market has been very competitive for buyers. While demand remains high for new listings, inventory is lower compared to last year at this time. For sellers who are listing now your competition is greatly lower than in normal Spring markets! The urge to buy is still high so capitalize on this opportunity while it lasts! I will later touch on how sellers are listing their homes today and what has changed.
The Opportunity for Buyers -
"Be fearful where people are greedy and greedy where people are fearful" - Warren Buffet. There is always opportunity in any market and there are some great ones for buyers in this current market. The Spring market is one of the hottest, which I touched on earlier usually we see multiple offers on listings, bidding wars, and homes going quickly. I was seeing that this Winter which had been uncommon. Which to me indicated this Spring was going to be extremely competitive for people trying to buy a home.
Since buyers cannot tour homes right now people are waiting until they can tour homes to begin putting in offers. There are great homes on the market right now that people can make offers on without competition, getting bid up, and running into having to make concessions they normally would have to make. I will touch on how buyers are doing this later.
What we expect to see after quarantine ends -
As I said earlier the urge to buy and sell is still as it would be in any Spring market and seems to be growing each year. Once the government shutdown is ended we expect to see a surge of tours, multiple offer situations, and properties getting bid up.
How are buyers still making offers?
People still need to sell homes and move, buyers are taking advantage! Buyers know that their dream home won't wait for them and are making offers sight unseen which I know seems crazy but it is not the typical sight unseen offer. These contingencies make things safer for buyers.
30 day inspection contingency
An inspection contingency is a window of time that allows the client to bring an inspector in and learn more about the home. This protects the buyer and allows them to negotiate repairs or back out of the deal. Usually this is a 5-10 day window. However clients are doing 30 day inspection contingencies so that once the shutdown is lifted they have the opportunity to see the home and make sure there are no surprises.
PAR (Pennsylvania Association of Realtors) COVID-19 Form
"This form allows the buyer and seller to agree that in the event performance becomes impossible or impractical either party can unilaterally invoke an automatic extension of all deadlines (the default is 30 days) that have not yet passed, including the settlement date. This form is basically a pause button. It gives the parties a set time to figure out a backup plan without being under the gun with immediate deadlines, but it doesn’t change anything else in the agreement". - PAR.Org
Buyers and sellers still have to make a good faith effort to close on time!
It is a great resource for buyers along with the CTA which is a change in terms addendum. Both will cover most changes that would need to be made.
How are Sellers still listing properties?
Video Tours - Video tours are not new but are definitely now a vital part of listing properties today. Since clients cannot tour properties right now video tours do a great job of capturing most of what you would want to know about a property.
Virtual Tours - allow clients to virtually walk through a property online and something I think will be the standard for every property in the future. It even allows you to measure walls and floors. This is great because for anyone looking at homes often times pictures can make tiny rooms look huge. The How Group's Jacci Neerland utilized this for Her listing check it out below:
Click for Virtual Tour of 800 Belmont Ave
FaceTime tours - We may not be able to do in person tours but sellers can walk people through their homes over FaceTime.
Prerecorded open houses - Agents are prerecording tours through homes and posting them on Facebook/Instagram live while answering guests questions over the internet.
If you have any questions about buying or selling in this market get in touch with me @ 484-620-7798 / Matt.firstname.lastname@example.org / or you can go to the contact form and I will reach out to you!
The cost of living is one of our largest expenses! So why pay more than you have too? Many people are paying more for rent than what they would if they owned the same house that they lived in. I know a landlord who had the same tenant for decades and said they could own that house now with all of the rent that they had paid.
What is renting good for?
- Living somewhere for under a year
-No maintenance to worry about
Negatives of renting:
-You are most likely paying more than the mortgage + taxes + insurance would be
-You cannot make the house your own and redo a kitchen or bathroom if you would like to.
-If you want a pet it can drastically limit where you can live.
-You have a landlord some can be great some can be really pieces of work. So this one depends on your situation.
-You are paying someone else's mortgage
Positives of buying:
- You have an asset that will be paid off one day.
-You are gaining equity (the % of property you own) every time you pay your mortgage.
-You can choose to rent out the rooms and live rent free.
-If you want a pet that choice is yours.
-The home is yours to make your own, do projects, redo a kitchen or bathroom.
-Get to deduct the interest on your mortgage from your taxes!
-The home will appreciate (go up in value) as you own it (based off Philadelphia appreciation values).
-If you choose to move you can keep it as a rental and have an extra income stream.
-If you rent it out it could be part of your income when retired.
-If you choose to move you can sell and hopefully you did some work while you lived there or it appreciated. Now you can collect a nice check for living somewhere instead of renting.
Negatives of buying:
-Higher barrier to entry - need to put more money down
-You are the one responsible for maintenance
High barrier to entry - by using an FHA Loan putting 3.5% down and a seller's asset the barrier is not that much higher.
Maintenance - I have done most of the maintenance myself except fixing appliances. Doing the maintenance on most things can be fun projects and you gain a new skill. On appliances you really need a technician. These can be $250.00 costs to fix it. Or I paid $140 for someone to diagnose a problem with a fridge and found it was better just to replace it. I had to spend another $600.00 on that fridge. So the maintenance can be expensive and hopefully with the monthly payment money saved from buying instead of renting that will be saved as reserves.
More responsibility - The only area I have found owning a home to be more responsibility is in regard to maintenance. But in the places I have rented it usually resulted in me calling the landlord and waiting for him to send someone out. Then I usually fixed it. Now I just call a contractor. Same process different person.
Real world scenario:
Buyer Bob decides he is going to buy a property on the same street where Renter Rick is going to rent (I know the names are corny but it helps me from mixing the two up.)
(These numbers are based off real market properties. I have worked with buyers on this street as well as rented a home on this street).
I almost forgot to mention the rent difference over 5 years!
Bob spent 1350/mo while Rick spent 1750/mo.
(400/mo x 12 months) x 5 years = That is 24,000 over 5 years! There is Bob's renovation money he spent and then some.
If Bob chose to house hack and rent the other two rooms for 500 each. He paid 350/mo.
1750 - 350 = 1400
(1400 x 12) x 5 = 84,000 (before taxes).
The point is that on the left there is a lot of options Bob can choose from. He can choose to live alone or with roommates and reduce his rent (house hacking).
When Bob moves he can sell or rent!
Then the profit from that sale or rent gives him more options.
Rick has the option of paying rent that's it.
I know it seems almost incredulous that this is the gap of renting vs buying but it is real. Buying gives you options which usually people think it ties you down to one place. These are small differences in how you choose to lead your day to day life that can lead to incredible results.
Where Do I Begin?
"How Do I Save Money?" is the most common money question I hear. We live in a world where everything we have is at our finger tips; online shopping, concert tickets, trips etc... Maybe you're thinking "I don't have a problem with online shopping but every time I get started saving my car needs work, the fridge went out, I had a medical bill, or another unforeseen expense." This was my problem every time I had some extra cash accumulating my car always needed work or a credit card bill came in always keeping my balance at zero. I just needed to make more money right? I started reading, listening to hundreds of hours of podcasts and audio-books, and networking to learn how to save.
The following are the most important tips I have learned on saving money:
OPEN A SEPARATE ACCOUNT FOR SAVINGS
It sounds cliche, but having a separate bank account just for savings that you DO NOT TOUCH is a CRUCIAL step towards building savings. If you have a problem where you keep dipping into your savings open an account at another bank that you cannot access by card. You don't have to save $500 a month but just get started. Start putting away a certain amount every week/2 weeks/ or month, it can be $50 a month just get started. Once you get started you will be encouraged by the growing savings and start to put more away.
You can automate your savings account to automatically withdraw from your account. This can go towards your investments, 401k, or to your savings account.
START PAYING YOURSELF FIRST! I read this in Rich Dad Poor Dad and it is in many other finance books as well. This one I struggled with the most, I am someone who paid their bills as soon as they come in. Once I started "paying myself first" my savings stopped getting hit because of bills. The idea is that you pay yourself first instead of paying your bills first. Most people pay their bills first then whatever tiny amount is left goes into their savings. Pay yourself first put simply is adding to your savings first. It forces you to get creative.
If your goal is to save $500/mo and you make $1500/mo but have $1500 in bills:
$1500 (Monthly Income) - $500 (Savings) - $1500 (Bills) = -$500 (YOU'RE IN THE HOLE $500)
The bill collector needs to get paid right? This is where the creativity starts you need to ask yourself how you're going to get the $500. You need to start making extra money to pay that $500. Get a side job, create a side hustle, UBER if you have too; that bill collector needs to get paid after all. This will force you to get creative at generating income. Next month you'll find ways to reduce your spending to meet your savings goal.
REDUCING YOUR SPENDING and AVOID THE STORES
I always think it's crazy how whenever I go in a store there are always one or two things I need. Even if I didn't go to the store for those things example: a new jacket for exercising (it's a health investment), something for the house, or a new book (educational investment I can justify). The point is my life was content before I went in the store and now the store is telling me I need this item. These little purchases add up and they're vampires on your savings. Avoid going to the stores all together whatever that may be for you. Stop the weekly clothing store, home decor store, video game store, whatever your "I'm just looking" trip may be. It's going to be hard for the first week or two but after awhile you won't even notice it.
Now the hard part, try dropping your Amazon subscription. I had a prime subscription and the monthly cost for me wasn't the problem. I kept purchasing things monthly even weekly with Amazon and guess what I thought I NEEDED all of those things. It's conveinant and you get many perks with it but this is a HUGE VAMPIRE of your savings. These little purchases combined with your weekly store trips are where you're non existant savings are going.
REDUCE YOUR GROCERY BILL This one is actually really easy and it is something that will benefit your health and your wealth!
First plan your shopping trips, I get my groceries delivered through InstaCart for a 5-8$ charge.
1. This planned shopping trip usually results in getting the same food and avoiding over spending.
2. Planning when I will shop reduces my decision fatigue throughout the week. Before I planned my shopping trips I would run out of food at random points in the week. This led to me buy lunch or eat out and waste money I didn't have to. No longer do I have to worry about when I will go shopping or running out of food. An additional benefit to this has been cooking more. My girlfriend loves to cook and we enjoy trying new recipes together. I'm spending less money eating out and have found a new hobby I never thought I'd enjoy.
If you're a person or family that uses a lot of produce go to a farmers market first. You can usually get a lot more produce for a fraction of the price of normal stores. Costco is also a good place to get produce for a low price; however, it is usually more than I can use and a lot goes to waste. For regular groceries I shop at Aldi which I found has the lowest prices. Most are their generic brands which are just the same as the regular brand names.
Our weekly grocery bill for 2 people?
$20.00 @ the Farmers Market
$50.00 @ Aldi
$70.00 or $35.00 each, not bad right!
When thinking about reducing expenses the go to ideas are getting rid of subscriptions, reduce shopping, maybe cable etc....
Housing accounts for Most of our budget each month and yet no one really addresses how to reduce this expense. This is seen as a fact of life expense that we can't change. THIS IS THE MOST IMPORTANT EXPENSE TO REDUCE in my opinion. So how do you reduce your housing expense? My favorite way is through house hacking, a term coined by Brandon Turner @ Biggerpockets.com however he did not invent this trick. House hacking is simply the idea of buying a house you will live in and rent the additional rooms out to pay the mortgage or even make money. Don't think you could buy a house? People do not understand how achievable this is.
My first house I bought for 237,000 with a 10k sellers assist that went towards the closing costs.
My cash out of pocket on this deal: 13k (I will go into this deal in another post but I used an FHA Loan and put 3.5% down)
I got the house rented out and basically covered all of my mortgage and utilities. Reducing my housing expense: I was previously living in someone's house hack and paying $575.00 a month. Which is cheap for rent but now that rent was saved and used to buy my next deal.
Today many people have student loans, rent, and now a car loan. America needs to get out from under these loans that dry out bank accounts every month. One of the first steps to getting out of the loan life style is by not having a car loan.
Do you need a car?
If you live in a big city the chances are that you can work in that city and take public transit to work everyday. If you can avoid having a car do it, not only will you save yourself from a car loan, but also:
According to Consumer Expenditures in 2017, released in September 2018 by the U.S. Department of Labor's U.S. Bureau of Labor Statistics, the average vehicle costs $9,576 per year to own and operate. The breakdown of the figure comes to $4,054 for purchasing the vehicle, $1,968 in gasoline and motor oil expenses, and $3,554 in other vehicle-related costs. (Investopedia)
If you need a car (most of us do):
If you need a car which most of us do you can still find other ways to cut expenses. Don't buy a new car if you can avoid it. Today most people get out of college fresh with loans and the first thing they do is buy a new car. It is staple of adulthood: graduate from college, buy a new car, put on Instagram and get congratulated for a week, then pay the loans for 5 years (WITH INTEREST).
had this debate with myself, should I get a brand new Ford? It's only 20k and the payments would be around 300/mo (289 on 5% interest) that's not bad right? However what if you could buy a used car for $6,000, maybe a ten year old Honda? Sure it won't be as nice and you may have some intial maintenance to take care of but guess what all cars have maintenance. If you hustle you should be either to buy that car cash or pay it off within a year.
20k with a $2,000 down payment 5% interest
= $289.00 / mo for 6 years.
All in cost after taxes and interest less the down payment
$6,000 with $1,000 for upfront maintenance all in $7,000.
Paid off 1 year after purchase.
5 Years without a 289 payment
= $17,340 in savings
That's more than the down payment on my first house and it's not that hard to do, it's just about being intentional with your money!
If you are feeling overwhelmed on whether to do all of these or none at all just start with one. Start small with a separate bank account and paying yourself first a small amount even $20.00 a month. Once you get that down maybe try another money saving method each month to add to your savings and it will compound from there!
The Ten Easy Steps!
Process Summary in Order
Disclaimer: This is based off my personal experience. Any one seeking legal, tax, mortgage, and or inspection advice should contact the appropriate party before moving forward.
Thinking about buying your first house but have no idea where to start? Then this post is for your, I bought my first house not long ago and had no idea where to start, loan products, how the process works, do I have to be handy, do you need $40,000, what kind of inspection do I need? I will answer all these questions and more in the below post!
Getting Started, Know What You Want!
,Where do you even start in what seems to be a herculean task? I think a good place is finding out what type of property you are looking for, neighborhood, price, and sqft.
For me this was easy because I always had planned on moving to a certain neighborhood since I was in high school. You may have other priorities though do you want to be close to your job, hiking trails, need a driveway, whatever it may be do you research.
Price - What Can You Afford?
This can be tricky. When you get your pre-approval you will probably get a high number you never knew you could afford. For my second loan I got pre-approved for a high number which I ended up only spending half that amount. You don't have to spend the whole amount you get pre-approved for. Pick a target of how much you want to spend each month on housing and does that include utilites/maintenace?
What goes into your monthly payment:
Principle - The portion of the house you're paying for each month.
Interest - The interest rate based off the interest rates at the time and the principal amount of the loan.
Taxes - What you pay each month for schools, trash, we all know what taxes are.
Insurance - Your home owner insurance.
PMI - If you put down less than 20% you will most likely have to pay PMI. It is mortgage insurance and can be costly. My first loan I did a 3.5% FHA and it had PMI.
Once you are ready to start looking at houses you will need to find a realtor to let you into the houses you want to see. The realtor will also negotiate on your behalf and take care of most of the paper work. Finding a good realtor is really like finding anyone to work with; word of mouth is probably best and someone in your community probably knows a good one. In addition your realtor is a guide but do not expect them to do all the work. You should know your market better than anyone as you are investing hundreds of thousands of dollars in this. Generally I looked on Zillow, Redfin, and Trulia every night for hours. I would send my realtor properties I wanted to see. The houses that met my criteria I put in an offer usually day off. I know they are a good deal for that market and if I wait I could lose out.
Looking at houses is an emotional process but it can be fun. Just know that if a property falls through due to a bad inspection or you get out bid it's a learning experience and you will find the right property! I lost two properties due to bad inspection and I was crushed but I ended up finding even better ones.
What to look for?
When I look at houses I look the structure, location, and the mechanics of the house.
For me being in walking distance to the main part of town was important. This was part of the reason I was moving to this area, I wanted to be close to the action. What do you want out of your location? Do you have kids and want to be close to schools or the park? This is really a personal question.
I tend to buy homes that are average either 3 bedroom/4 bedroom homes. No 2 bedroom or 5+ bedroom homes. Reason being is that if I ever want to resell the house I don't know many people in the market for a 2 bedroom or 5 bedroom house. Also I think 3br/4br is the sweet spot for rental properties. I stray away from wierd layouts also. One home I saw marketed the house as a 4br but you had to walk through one bedroom to get to another. Things like this will hurt your resale value in my opinion.
This is a universal thing that everyone should be looking at. If you buy a house that has structural issues you can be in hot water. No need to fear though, here are some tips: Hairline cracks seem to be common in old homes and I haven't found them to be an issue but definitely consult your inspector if you see them. Soft spots in the floor could be a sign that there is water/termite damage. My buddy had soft spots in his bathroom and it led to a whole bathroom gut and renovation. I also ended up redoing my bathroom do to water damage which I didn't know about. The repair wasn't as bad as I thought and I did most of the work myself with the help of some friends.
When I enter the house I'm looking at all of the pipes to see if there is any mold or water damage. You are going to want to check all of the bathrooms, kitchen, and radiator hookups if that applies.
THE BASEMENT: is the most important room in the house to inspect in my opinion.
Beams - if they look soft it could be a sign of termite damage. Termite damage if treated can fix the problem and should be retreated every ten years.
Pipes - again take a close look at them. If you have cast iron sewage/drainage realize they will probably crack and repairs can be $5,000-$15,000. However pipes can be insured through insurance or through other private programs like American Water Resources.
Water damage, if you see mold most likely you have a damp basement. Installing a sump pump or dehumidifier can solve this issue.
Electric - Make sure your panel is up to code, there are certain panels that are fire hazards and should be replaced before purchasing. Look out for knob and tube electric, this is something found in older homes but it can be a fire hazard and may make the home harder to sell down the road.
Furnace/Water Heater: Ask if they have been recently serviced and are in working order. A furnace replacement can be around $3,500.
Fixer Upper/Or Move In Ready?
Again personal preference. My friends and family all said to buy a move in ready place, but I found a great house that was 30k below market but it needed work. I'm handy right so why not? Well we did the inspection and it was awful. I just wanted to do a deal and almost closed on that property. If I had I would probably still be fixing it up today and never have bought more properties. In my opionion I would go move in ready on the first one, trust me once you move in you will find alot of things that need fixing. If you have the capital and want to do a flip go for it but I did not at the time.
When you move into a house you will find a lot that needs fixing that is a cost of home ownership. Don't get discouraged this happens to everyone!
Loans: There are a lot of loans but I will only cover a few that I have seen commonly used. This is brief overview so please consult a mortgage company for more detail.
Conventional Loan - This is normal 20% down mortgage with no PMI attached.
Conventional Loan with PMI - You can do a conventional loan with PMI. This is usually a down payment of 5-20% and the PMI will fall off once you reach 20% equity in the property.
FHA - Federal Housing Administration Loan which I used on my first deal. The loan allows you to put down 3.5%. When you put down less then 15-20% you will pay PMI (Private Mortgage Insurance).
203K Loan - This is an extension of the FHA loan that includes money for renovations. You will have to get detailed quotes from contractors, timeline of money draws, and cannot do the work yourself. Longer closing time.
Fixed Rate: Fixed rate loan means the interest rate of the loan will not change for the life of the loan.
ARM (Adjustable Rate Mortgage) - The interest rate of the mortgage adjust with market conditions. As the market is unpredictable this can be risky especially since interest rates are low right now (2019).
Life of the loan - this is how long you plan to pay the loan. The longer the lower the payments generally, loans can generally go to thirty years. Thirty year loans are what I do on my properties, I always have the choice to make extra principal payments.
Looking for a mortgage company:
I'd recommend looking for someone who is responsive and returns your calls quickly. Again reach out to your network and find recommendations from people you know. Your realtor should also have an in house mortgage person.
What paper work do you need? (Again each case is different this is what I needed)
-W2's and two months of pay stubs / If self employed you will need two years of income history.
-Two Months of bank records and if there are cash deposits expect to explain where that came from.
-Two years of tax returns
-Copy of your license or photo id
Insurance: You don't have to buy a house to figure out what the insurance price will be. If you find a property you like in the right area I would get three insurance quotes on it. Prices can vary widely by zip code. At closing my mortgage rep said he was jealous, he lives blocks away but technically in a different zip code. His insurance cost is double what I pay due to that zip code change. AREA MATTERS so check it out before hand!
Appraisal and Inspection
Inspection - You will have to find someone to inspect your home. A good inspector will spend hours going over your house and I recommend being there if you can. This will teach you about homes and their working parts / flaws. Generally they will check all of the visible things, under cabinets, basement, roof, and outside. They should run the appliances, make sure the heat works, and test the outlets. For me I always pay extra and get a termite/radon test. A general inspection in my area is $450.00 with the addition termite/radon it's around $615.00. An inspection will happen after you have an accepted offer and the property is "under contract".
Concessions - If your inspector find serious problems with the house you can ask the buyer to fix them or to give you a credit at closing. Things I have asked for have been fixing water damage, fixing electrical meter where water was leaking in, and fixing cracked pipes.
Appraisal - The bank will make you pay for an appraisal before closing and in my area this costs around $450 which should come off of your closing costs. Generally there is also a $150 application fee from the bank that will come off at closing as well. The appraisal is to determine the homes value matches the offer you made. Basically if you are offering $300,000 and the appraiser is sent to make certain the property is worth $300,000.
Title: Before closing your realtor should have you sign up for title insurance. They should have a company that they work with. The title company ensures that you have clean title basically the person selling the home actually owns it and there is are no liens or taxes pending that you will inherit.