A1 – GETTING STARTED, WHAT ARE THE STEPS?

1. HOW DO WE GET STARTED? 

Lanny and Becky (not their real names) have decided it is time to consider buying a home. They have two tax-saving dependents, Bryan and Sarah, and no pets. One of the reasons for buying a home is so that this dog-loving household can adopt a puppy from rescue and complete their family.

Both parents are employed. Becky works in an office. Lanny is self-employed and works almost entirely from home. Becky always gets her paycheck. Lanny not so much, but he is highly confident that this will soon change. The rugrats are seven and five, and Becky has declared the baby factory closed.

That is as far as they’ve gotten. Becky wants to look at open houses in suitable neighborhoods. Lanny wants to spend time looking on Zillow and Redfin. Both are dragging their feet knowing that buying a first home is time consuming, stressful, and fraught with potential problems. But the kids have been let in on the plan, and they are getting on everyone’s last nerve with whining about the dog they don’t have yet.

Is that you? Or are you more like Jose and Annie? Their kids are grown and on their own, and this couple still have a savings account after helping with university. Unfortunately, they didn’t have the ability to get the kids through school without student loans as well as buy a home. So, like Becky and Lanny, they are first timers.

They are both employed, Annie was in the military, and they only owe on one car, though the other car is on its deathbed, and costing money almost monthly. Annie has always wanted a horse and Jose thinks it would be cool to have a serious back yard farm, maybe even an acre.

Annie thinks they should start their effort by hiring a real estate agent. Jose wants to drive the neighborhoods to see if he can find a FSBO (for sale by owner) sign.

Finally, we have Nate and Brittany, who are old hands at owning homes. Both Nate and Brittany are 60 and living the dream, or… it would be a dream if the 3500 square foot home and outdoor recreation area (complete with pool and jacuzzi) weren’t turning into a money pit.

They are both thinking about a townhouse or condo near recreational areas. They would consider an over 55 community. Brittany owned her own business, and while it gave them a very nice income, they also refinanced the house a few times. They agree that the new place will be luxury, and that this will likely mean a mortgage.

Nate suggests they find a mortgage loan officer first, and Brittany is already watching interior design programs on her smart TV.

Here we have a tiny fraction of the potential scenarios that confront homebuyers. We will consider many of the issues raised thus far in future chapters. This chapter, however, will only look at first steps.

We have 5 possible first steps in this group of chapters, and they are certainly common steps that buyers start with. We are going to recommend starting with these steps to make the entire adventure less stressful and more successful.

Goals, Logistics, Strategies, Tactics

Preparing to get a home seems like we’re going to war! You would be right. These are definitely ways that leaders in the military, government, business, or charities should look at planning – and some do. Almost no one looking to buy a home takes the hour or so needed to do some planning. As you’ve undoubtedly heard: Those who fail to plan, plan to fail.

Start by gathering the interested parties:. This could include your kids, parents, or best friends for some, or all, of the planning. Make it fun. Don’t see plans and goals as oppressive. You can always change them, modify them, or even throw them out entirely. You master the goals, don’t let them master you.

2. DECIDE ON YOUR “DREAM SCENARIO” 

Who, When, Where, What, Why, and How

You might have seen this list in an English class. It is the reporter’s prescription for writing a good news article. But it is also excellent for creating the goal part of any plan. Start filling in the answers:

Who is moving? Check out each persons’ thoughts about the move. What are their hopes, dreams, expectations, fears, and limits.

When will the move take place? Now? In a year? There may be reasons related to leases, schools, or jobs that are impacted by the time of the move.

Where is the perfect neighborhood? Which neighborhoods are not acceptable? The neighborhood can have more impact on the quality of life than your interior and be far harder to correct. What other aspects of the where matter? Schools, walkability, crime statistics, bicycle paths, nearby shopping, recreation, nightlife, houses of worship, parks?

What are you looking for? Now is the time to have fun working out the perfect home. There are lots of ways to approach this. One might be to list all of the things you must have, then all of the things you’d like to have, then all of the things you can’t tolerate.

Is three bedrooms a must or a like to? What about the number of baths? Formal dining room (that is so last century)? Bonus room? Theater? Kitchen large enough for center island? You get the idea.

What amount of work are you willing to do? Maybe you aren’t handy at all, and hate the whole process of fixing anything up. You’ll need a turnkey home. Maybe you are really excited to get out the saw and ladder. You might like the idea of saving money by purchasing a home that needs some TLC. (Technical real estate term: Tender Loving Care.)

What about the yard? Horse property? Big enough for fruit trees and vegetables? A standard lot? No ownership of the yard – Let the HOA (HomeOwners Association) take care of the yard.

Other amenities? Community clubhouse, pool, tennis courts, water features, guest parking, landscaping, HOA rules (for better or worse.)

Why? You could take this one from many angles. Why do we want to own rather than rent? Why now? Why are the things on our Who, When, Where, and What list so important? It is important to have the issue of Why dialed in. There might be some frustrations ahead, and you might feel like quitting. If your Why is strong enough you’ll be more likely to take heed of this sign found in a local gym: When you feel like quitting, remember why you started.

Finally, we come to How. How will you manage the finances, the move itself, the communication with everyone else concerned about the move, any disappointment, any stress, and getting settled into the new neighborhood?

Logistics

We will end this first chapter with logistics and then move to strategies in chapter 2. Tactics will be interspersed throughout. What is the difference between a strategy and a tactic? The best way to think about that is that strategies tend to be more philosophical, more closely tied to goals and top-down thinking. Tactics are the specifics of execution.  A football team may adopt a strategy of creating a strong defense to stifle the opposing team. Tactics are which players they put on the field, calling for blitzes, changing formations and so on. 

Logistics, of course, are the tangible and intangible resources available for the adventure. How much money, credit, time, knowledge, patience, furniture? do we have for this project?

It is much better to get this together before you start out. It will be necessary at some point, but you will avoid a lot of pressure if you have the bulk of it organized now.

3. KNOWING YOUR RETURN ON INVESTMENT…. RENTING VERSUS BUYING

Take a moment and confirm why buying a home is better than renting. You need to measure the profit you can make when you sell the home you are looking to buy. It is not hard to calculate over say 5 years the cost of renting versus buying. You need to compare the amount you have invested, including initial purchase price plus future costs, against the value of the home when you sell. 

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4. CREATE A BUDGET AND GET YOUR DOWN PAYMENT READY

To the best of your ability figure out how much money you can afford for this move. You will need a down payment, some transaction related expenses, moving expenses, utility deposits, and furnishings. Now isn’t the time to calculate how much you’re going to need, but rather to figure out what you can get your hands on for the home purchase and move. It is also a good idea to start a folder that includes where these funds are located.

You’ll need to know what your income is. This will determine in large part how much the lender will let you borrow, a most important question. Place any documentation about your income into the folder including two months of bank statements, your last two years of tax returns, and your proof of income.

Next, take a look at any amounts you owe to credit cards, personal loans, auto loans, student loans, your Uncle Harry, and your bookie. Add any paperwork to your folder.

Check out your credit score. We’ll talk more about this later. If you know where to look for this information, print it out and add it to the folder. If not, you might try www.annualcreditreport.com. This site was set up by the government and the bureaus.  You can run one report per bureau and see all the details that affect your score and what is keeping it low or making it high.  It doesn’t give you a score, and it doesn’t show as an inquiry.

Wisdom suggests that you don’t borrow any new amounts until the house closes. That old rattletrap car will just need to keep going a few more months.

5. UNDERSTAND REAL ESTATE MARKET

You would start by understanding the normal appreciation history of the area that you are interested in purchasing property in. Specific data is available on the internet and you need to focus on supply and demand. Look up median home prices, local new home construction options, current mortgage rates and how the economy looks. As a buyer, understanding these factors can help you determine your purchasing and negotiating power.

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