4 Financial Tips To Help Plan For Homeownership

Money Files

The homebuying process can feel overwhelming whether you’re looking to buy your first home or you want to make the transition to a new home. Today, I’m sharing four steps I used to prepare for homeownership.  If you want to feel financially prepared to buy a home tune into this episode.

In this episode, I share four financial tips to get ready to buy a house. Whether you are a new home buyer or looking to upgrade to a larger property, my four-step process makes purchasing property a seamless and stress-free experience. Learn what to budget for, how to prepare for mortgage payments, and which type of loans could benefit you. This is the same process I’ve used to help my clients  realize their dreams of homeownership, and I am excited to share this financial strategy plan with you!

Listen as I explain the importance of taking these four financial steps before considering home ownership: 

[06:00] create a budget to see what you can afford

[07:06] create a budget for home ownership

[09:50] save money and pay off debt

[13:23] get prequalified for the house you want to buy

If you are considering buying a home, don’t miss this episode of Money Files!

Are you ready to start asking for help with your finances? Apply to work with me, and let’s start working towards your financial goals.


Transcript for “4 Financial Tips To Help Plan For Homeownership”

Hi, and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work every day with professional women and solopreneurs to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances.

Hello and welcome back to another episode of Money Files. I hope you are having a great week, and thank you so much for listening to Money Files and sharing your financial journey with me. Whether you’re a client, whether you’ve been thinking about becoming a client, or maybe you’ve just found my podcast because somebody shared it with you and you’ve enjoyed the money lessons that you’ve learned. So today I actually want to talk to you about home ownership. And for those of you who may or may not be familiar with my story, I bought a home before the age of 30 and I still had debt, I had credit card debt, I had student loan debt. And I think sometimes the financial advice that we hear is that you shouldn’t buy a home until you’ve paid off all of your debt. You shouldn’t buy a home until you have 20% saved for a down payment.

And I bought a house without a 20% down payment and buying a home was a dream of mine. I actually moved to DC and when I moved to DC I was moving from St. Louis and when I lived in St. Louis, rent was like $600 a month. And I knew that the cost of living in DC was higher. And I was like, okay, the cost of living is higher. I should just buy a house. And at the time I was not in a position to buy a home. I think I was like 24 years old. And at that time, it’s funny to think some of the houses that I actually looked at and the condos that I looked at, they ranged from like $200,000 to maybe like $370,000. And now those same properties are worth so much more. But I wasn’t in a position at the time at 24 to buy a house, but I had home ownership still on my radar.

I was managing my money through the lens of home ownership and I knew that was one of my goals. And I also felt pretty confident about buying a home in the DC area because I just felt like I’d always be able to rent it or I’d already always be able to sell it. And so I felt good about it. And then fast forward several years, I found a house that I love. I actually live in a town home in DC and it’s been an amazing journey. And I still walk into my house and I get really excited that it’s like my house. But I wanted to talk to you. Maybe you are considering purchasing a home. Maybe you’ve already have a house, but you want to buy a second property, so you’re looking to upgrade your home or maybe you’ve lived in a home before, but for whatever reason you went back to renting and so you’re looking to buy a house. 

No matter where you are, you are in some level of home ownership and so I’ve actually helped several of my clients prepare to buy a home. And one client was a first time homeowner, somebody else that wasn’t the first time that they’d bought a home, but they were a couple. And so they just had new things that they needed to think about as a couple when it came to home ownership and really being prepared and in the financial position to be able to purchase a home. So you know that if you’re listening to me, there’s one fundamental foundation that I have for anything that I do and anything that I teach my clients to do and that’s to create a budget. If you are looking to buy a house, you want to make sure that you know your numbers.

So the first way I want you to prepare to buy a home, whether it’s your first property, your second property, or your third property, I want you to have a budget. And the reason that I want you to have a budget is because I want you to actually know what your expenses are. I want you to know how much money you have coming in, how much money you have going out, if you’re focused on paying down debt, if you’re focused on saving, I need all of your numbers in one place because when you have all of your numbers in one place, it’s going to allow you to see like what you’re actually working with. If you’ve gone through the home buying process before or you are going to go through the home buying process, once a lender gets involved, they’re just looking. I mean, they’re basically looking at your credit report.

They are going to look at your income and then they’re going to tell you like here’s how much house you qualify for. But you are going to want a budget to actually determine how much house do I want to pay for? And you might not want the mortgage payment that’s associated with the amount of money that you qualify for. So when I was looking for homes, I think at the time I was making, I know I was making like $80,000 a year and I think I qualified for like $420,000 or something like that. And I can tell you making $80,000 a year, I couldn’t have afforded comfortably afforded a $400,000 mortgage or a $400,000 plus mortgage because it wouldn’t have allowed me to save money. I wouldn’t have felt comfortable furnishing my apartment or my house. I wouldn’t have felt comfortable being able to save.

And so those are some things that you’re not going to be able to think about if you don’t actually have a budget established. So the first thing I want you to do if you’re preparing to buy a home is I want you to create a budget. Budget is key in here. And so if you have aversions to a budget, I really want you to just be thinking like this budget is really just a tool that I’m using to write down the decisions that I want to make. And one decision I’m making is that I want to buy a home. One decision that I’m making is that I’m going to be saving money because my goal is to own a home. My goal is to buy property and so if you think about the reason that you’re budgeting through that lens, it’s going to connect you to a purpose and a why.

And a lot of times in the work that I’m doing with clients, when I’m talking about budgeting, it’s also about reframing how we talk about a budget. Because budgets I think have a really bad reputation and we only think about a budget as a way to restrict and make ends meet and really budgets are about helping us expand and reach goals. The way that I’ve reached the goal of home ownership was that I had a budget so that’s step one. Step two is going to be, create a budget for home ownership. It’s a concept I call also financial visioning. There’s where you are now, and then there’s where you desire to be. So if you know that you want to buy a house, I want you to know what would your budget look like as a homeowner? What does your budget look like if you go from owning a town home to owning a single family home? What does your budget look like from renting an apartment to owning a condo? 

And so once you actually have your actual budget, now you can go in and you can actually play with numbers to see what makes sense. I mean some of the numbers are going to be numbers that you are maybe estimating, but you can also do better research. So with one of my clients when we were talking about this, she was moving from Maryland down to Houston. And so we were going through this process, like we were looking at some of her ideal neighborhoods. And by looking at the ideal neighborhoods that she wanted to be in, we can see the price of the homes. If we can see the price of the homes, they have calculators online that calculate your mortgage payment and so if you’re calculating your mortgage payment, you can put that new number into your budget for home ownership. 

When I bought my house, I went from paying $1,800 in rent to like $2,200 in mortgage and escrow. And so I knew that there was a difference of $400 a month. I prepared for the shift from renting an apartment to buying a home by making sure that I knew and had an idea of what would my budget look like from $1,800 a month to $2,200 a month. And so step number two is to create a budget for that home ownership. One of my favorite, favorite things to do is to get my clients to play with a budget for whatever they’re trying to do next because it allows them to create options. And my clients, Dan and Daina, they bought a house last year after working with me and it was a seamless process because we had gone through and created a budget for home ownership. So they learned how to actually make sure that they could afford the house that they bought by having their actual budget, but then also having their budget for home ownership and knowing that they could afford an increase in their monthly payments, they can afford additional bills, whether it’s like landscaping or now you have to start preparing for home repair if you are going from renting to actually owning a home. 

So step number three so now you’ve created a budget for home ownership so you know what your numbers look like you know what they potentially look like. And now I want you to save and pay off debt. So a part of the paying off debt, focusing on paying off your debt, if you have debt that’s going to actually help improve your credit score. And if you have a budget, you’re going to be able to look at your budget and you’re going to be able to decide how do you want to go about paying off your debt? Is there extra money in your budget? Where can you allocate more funds towards paying off specific debts that you have? So paying off your debt is going to be one focus and then the other focus should be also on saving money. So you can be focused on saving a down payment, you can be focused on saving for moving expenses, but you are going to want to make sure that you know how to consistently save. And if you are working on improving your credit score, you also want to be paying down debt so that way you can get better interest rates and you can qualify for different types of loans because lenders are going to look favorably upon you.

So the third step should be to save and pay down debt. One of the things that I love to mention here in thinking about your down payment and saving money, I bought my house for 5% down. And the way that I went about doing the 5% down, I remember at that time I was looking at at FHA loans and something was happening with the FHA loans, where eventually I think I was right on the cusp of, like I wouldn’t be able to write off the PMI, that’s property mortgage insurance. And so I didn’t want that to be something that I had to carry and my town home was actually built. I remember one of the lenders at the town home office, they taught me about conventional mortgages with no PMI. And so there was an option that they had for like 5% down with no PMI.

And so of course that was up from my 3.5% that I had in my head. But when I looked at the fact that I would have no PMI, it made my mortgage payments a lot easier. And so with my lender, I actually have a mortgage through Navy Federal Credit Union. I love credit unions. And I got a conventional loan for 5% down with no PMI. I know Navy Federal Credit Union isn’t the only credit union or bank that offers that type of mortgage but that was something that I was able to take advantage of and didn’t have to like think about whether or not I’d have property mortgage insurance. I also didn’t have to be really stressed out about putting 20% down on an almost $400,000 property. And so that made it accessible for me to actually buy my house and actually have a mortgage payment that I felt like went really well with my budget and that I felt comfortable with.

So if you are in the process of wanting to buy a home, just know that’s an option. And also know that anytime you are asking someone to loan you money, there’s more than one person you can ask so don’t feel like you have to go with a specific bank, but know there are multiple banks and you can shop around. I would advise that you shop around and also just be really mindful of whether or not they’re going to do a hard inquiry on your credit or a soft inquiry on your credit. So pay attention to that, especially when you’re in this home buying process and you want to make sure that it’s not impacting your credit score as you are qualifying. And then the next step is to get pre-qualified. So I kind of started to go into that when I was telling you about the down payment process, but get pre-qualified for the house that you want to buy.

You know that you want to buy a house, and maybe if you’ve already created a budget, you already know, okay, here’s my budget for home ownership. I feel really good about my ability to save and pay down debt. I want to look at houses over the next three to six months, whatever that looks like. Get pre-qualified with a credit union or a bank or a lender because that’s going to let you know what you would be approved for. And so I shared earlier in this podcast that I would think I was approved for like $400,000 or a little over $400,000 when I was buying my home. And I knew for myself that I didn’t want to spend that much money because I had a budget. And I knew that those mortgage payments giving the interest rates at the time, that wasn’t a mortgage payment that fit in my budget at the time because one of the things that you’re going to want to consider is that you’re like, oh, I can afford a $4,000 mortgage every single month, that’s what you believe because you make $7,000 a month and maybe you can afford a $4,000 mortgage if you’re just looking at the math of $7,000, minus $4,000 and you have $3,000 left over, but you want to make sure that you’re not what they call house poor. 

And so if all of your money is going towards your mortgage, like that would be over 50% of your income and you would probably be in your house really stressed, you’d have a beautiful home with no furniture, you’d have a beautiful home where you struggle to pay the utilities. Like think about those pieces and so that’s why you maybe don’t want to buy a house that’s at the top of what you qualify for because it may not work within your budget, but you also won’t know if it works within your budget if you don’t have a budget, which is why we start with step number one, which is to create a budget so you know what you qualify for. So don’t buy too much house and leave some space for your transition. When you’re creating a budget for your home ownership, you’re going to want to consider what are the bills that I’m going to have that are going to be different than the bills that I have now? 

When I lived in an apartment, I didn’t have to worry about paying security for my house. When I lived in an apartment, I didn’t have to worry about changing my light bulbs or changing my vent because I could just call maintenance. But when I live in a house, I have to do that maintenance on my own. When I lived in an apartment, I didn’t have to worry about fixing my roof. But as a homeowner, like those are things I need to consider. Even if my home is new, I want to make sure that I have money to put towards repairs. And so those are the things that I’m thinking about as I budget for home ownership. And I think I’ve talked a lot in this podcast episode definitely from my experience of buying my first home. But as I think about where I want to move next, I’m still going to go through all of these steps. I have my budget and the next thing that I’m going to do is I’m going to create a budget for the next home that I desire to buy. 

I know that when I buy my next house, I want a single family home. I know that I would like some property. So I can already tell you that I’m going to have to think about lawn maintenance and I know that because of the rising price of homes. I know that my mortgage is probably going to be significantly more than my mortgage is now. So those are all things, like I’m not positioned to buy a house next year, but those are all things that I’ve already thought about and I know about. And so what I am thinking about is how do I make sure that I’m in a position to continually save money and that I’m paying off debt if I have any debt and then I’ll be positioned to get pre-qualified when I want to buy another home. And so if you are looking to own a home, buy a second home, it is just so important for you to know your numbers. You don’t want to get into a house and then not be able to afford it. And that happens to people. That’s why you hear about people that are experiencing foreclosures because they’ve bought too much house and they may not have had money saved, they lost jobs and things like that happen.

And so as we’re in this market and economy that we’re in right now, like interest rates are high, you may be thinking, I can’t afford to buy a home right now. And what I want you to be thinking about is take this time to get to know your numbers. Take this time to budget because you do want to be ready when there’s an opportunity that you want to scoop up in terms of like home ownership. Like I think about, I have a friend of mine who sold a condo here in DC and then she was able to buy a house that was off market. And I’m thinking about the fact that like if she didn’t know how to budget, if she didn’t have her numbers in order, she wouldn’t have been able to buy this house off market and like she wouldn’t have been prepared. And she bought when people were throwing in 30, 40, $50,000 over asking and so knowing her numbers helped her stay in that financial position to be prepared to buy that property that she bought. So I hope this episode was helpful. If you took something away or you know someone who is going through the home buying process, definitely share this with them. Share it on social media and tag me and I will talk to you later. Have a great week.

Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to www.wealthovernow.com/appointment and let’s get started.

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