Are you considering buying a home in 2024? Whether you are just starting to think about buying a home or you’re already working hard to save a down payment, there are five essential steps you need to take before committing to a mortgage.
This episode is part two of my financial spring cleaning series, and today, I want to focus on preparing to become a homeowner. From getting into the right mindset and overcoming money insecurities to exploring finance options, I share the five-part framework I used to buy my first home. Saving for a down payment is important, but there is so much else you need to do to prepare for homeownership. If buying a home is one of your goals in 2024, this episode is for you!
Stay tuned for insights on these topics:
[01:40] Shifting your mindset
[05:30] Step 1: Create a budget of current expenses
[06:20] Step 2: Create a home budget
[10:20] Step 3: Explore financing options
[13:25] Step 4: Build a relationship with a realtor
[14:25] Step 5: Revisit your home budget
Tune into this episode of Money Files to learn five essential steps you should take to prepare for homeownership.
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IF YOU LOVED THIS CONVERSATION ON, 5 SMART FINANCIAL MOVES TO MAKE HOME BUYING EASIER, CHECK OUT MY EPISODE ON 4 FINANCIAL TIPS TO HELP PLAN FOR HOMEOWNERSHIP!
Transcript for “5 Smart Financial Moves to Make Home Buying Easier”
Intro: 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.
Keina: Hello and welcome to part two of my financial spring cleaning series. So today, maybe it’s a little less cleaning and more so like preparation. In the spring, one of the things that I know happens is the housing market opens back up. Not to say that it’s closed, but a lot of people start looking for homes in the spring. People are listing their homes and you might be in a position where you’re like, I would actually really like to buy a home, but I have no idea where to start. I don’t know how to save for a home. And so I want to talk a little bit about saving for a home today. And before we even get started, I actually want to clean up a little bit of your mindset that you may have going into home ownership. I know housing prices, they’re really high right now.
Interest rates are high. And to some degree, I’m like, I think some of those things. What if that’s just the new normal? And so how do you shift and change how you are going to think and position yourself? I’m going to tell you a little bit about my story. I know when I moved to DC back in 2009, I wanted to buy a home. Now, this is coming from me making like $33,000 a year. I think I was making $36,000 when I left St. Louis and then coming to make like 50, $55,000 a year. And one of the reasons I wanted to buy a home was because I was paying $600 in rent. And I knew when I moved here, one of my friends laughed at me when I told him I was willing to pay $1000 for rent. And I just couldn’t imagine putting my money every single month into a rental.
And I was like, I’m just going to buy a house, girl. I looked at houses and that was not happening with my $55,000 salary. But what did happen was that I never lost sight of wanting to buy a home. And so I had a connection with a realtor and she had shown me a lot of different properties. And for years I went back and forth and looked at houses. I want to say I lived in my apartment for four years before I actually put a contract on a house. Actually, this is the 10th year that I’ve been in my home. But I want you to think about what story am I telling myself about home ownership? Because some of us may have stories about no one in our family has ever owned a home. So that could be one story you’re telling yourself.
You could tell yourself that you’ll never be able to afford a home. That could be another story that you’re telling yourself. You could be telling yourself, I can never save for the down payment on a home, but I want you to sit with and you could do it right now, you can put me on pause, or you can do this later on in the day. But I want you to think about the story that you’re telling yourself about home ownership. What result is that keeping you, or what result is that creating for you? If you’re telling yourself it’s too expensive, you’re always going to exclude yourself from being a homeowner. And so you’re never going to have an openness or curiosity about actually buying a home. You are never going to prepare to buy a home. And if you are telling yourself like, I can’t save that much, you’re not even going to explore financial options.
You’re literally, like I just have a picture of you sitting on a curb just waiting. But you’re not going to put yourself in the game if you are telling yourself stories that don’t serve you. Maybe you’ve never had a home. Nobody in your family has ever had a home. But I want you to consider what would it mean if you bought a home, like what would that mean for you? What would that mean for your legacy? And just really being able to play with the story and the narrative that you may be telling yourself about home ownership, like if in 2009, if I just figured out that I would never be able to own a home because I was making $55,000 on a teacher salary, I wouldn’t have been able to position myself to buy the home that I’m in right now.
When I bought my house, I was making $80,000 a year. My home was about $389,000. I figured it out. And you can figure it out too, but I want you to get ready and I want you to create an openness to be able to buy a house. And then when the right property or the right opportunity comes, you’ll be prepared. But most importantly, I want you to position yourself in a place where you have options because if you’re telling yourself the story that doesn’t serve you, you won’t be in a place where you’re actually prepared when the right opportunity or the right property comes your way. And it could come in a lot of different ways. So just know that I’m talking about this. Maybe you don’t buy a home this year, but what would it look like to prepare yourself to buy a home?
So let’s go ahead and dive in. So if you are in a position where you are saving to buy a home, the first thing that I want you to do is I want you to make a budget for your current expenses. Everything comes back to a budget. I need you to know how much money do I have coming in? How much money do I have going out? Where do I want money to be going because that’s going to allow you to see like, do I have money that I can be saving? Do I have money available to actually put towards the down payment on a home? But if you are only thinking about what you can’t do, you’re not even going to want to do the budgeting because you’re not going to see yourself as ever being a homeowner. So I need you to get all your numbers in one place so you can make a budget of your current expenses.
And step number one is very crucial because you’re going to use it for step number two. I use step number one to help me buy my home. So step two, I need you to make a home budget. What’s a home budget Keina? It’s your budget. Create a tab, copy, put home budget. And your home budget is really you thinking about what expenses will be similar or different from where I am right now. So when I was in my apartment, I was paying the last month I was there, or last year I was there, I was paying $1,800 a month. And as I got closer to buying my home and looking for properties, I knew that my mortgage was probably going to be about $2,000 or so. And so when I was making my home budget, I made sure that I put in a mortgage of $2,000.
I also made sure that I accounted for HOA, I made sure that I accounted for an increase in my utilities. I accounted for home repairs that were going to happen. But I went through when I thought about, okay, I’m living in an apartment right now, but if I move into my house, what expenses are going to be similar or different? And I always love to make these what I call like dream budgets and play budgets because nobody gets hurt when you’re just dreaming and looking at numbers in a spreadsheet. You’re not buying something and then realizing you can’t afford it. And so in my home budget, I went through and increased my numbers. And to be honest with you, what it meant was that initially when I moved into my house, I was able to get in my house, but I actually didn’t save as much money as I was saving when I lived in my apartment, which makes sense.
My home was more expensive, there were more expenses that I needed to cover and more things that I needed to put into my budget. But while I was shifting from my regular budget to my home budget, so I put a contract on my house in 2013 and I live in a town home and they built the town home. So for I want to say like eight to nine months, I paid myself into a separate account and I paid the difference in between my rent and my mortgage. And I think because I knew the numbers a little bit better at that time, I think I had come to the fact that it was going to be about $2,200 a month. So I was putting $400 a month into a savings account. What that did was, one, it helped me know that I could pay my mortgage and nobody get hurt.
It also helped me build a buffer. So when it was time for me to move, I was able to move. I also had some money to buy a washer and dryer, a couch, the things that when you have more space you start to buy. And so putting that money into a savings account, like if you were in the position where you’re like, okay, can I actually afford to make a house payment, a mortgage? Taking the difference in between like your current rent and your actual mortgage and putting it into a savings account will help you see what you’re able to do. Are you dipping into that all the time? Or do you even notice that it’s missing? But that’s one of my favorite things that I love to do because it builds confidence in our ability to be able to take that next step, especially for something like a home purchase.
Because homes, your mortgage payment is really expensive and it’s probably one of the most expensive things you’ll ever buy and one of the most expensive payments you’ll ever have. And so you want to feel confident with that. You heard me say that I used some of what I saved in my mortgage account to go towards moving expenses, etcetera. But one of the things you’ll also want to consider is what are some of those one-time expenses. And so it’s exactly like the home furnishings, like I bought a new couch when I got here. There was like patio furniture, which I actually totally didn’t think about that until I moved in. I was like, oh, patio furniture but patio furniture or just little odds and ends that you put in bathrooms. Every bathroom needs a toilet brush or hiring movers.
So thinking about where does that go in the budget? How are you going to make sure that you have that covered? It’s a one-time expense. So you make a budget for your current expenses, then you’re making a home budget. The next thing I want you to do if you are in a space where you are saving to buy a home is I want you to explore financing. So exploring financing, I live in DC so I feel like there are a lot of great options for first time home buyers here, first responders. But you can look into first time home buyer programs. And they could be teacher specific, they could be military-specific, it could be first responder or maybe it could be state specific or county specific. But look into first time home buyer programs. You want to do that now because sometimes those programs can take a year to go through.
And so it gives you an opportunity to actually educate and figure out what it is that you want to do. Notice that I’m talking about a lot of planning here and the planning will help create readiness when it’s time for you to move forward. But the first time home buyer programs, they could have special partnerships with banks that could help you with financing. They could have special incentives on your down payment. So there’s money that could just be available to you just by the fact that you’re a first time home buyer. I didn’t actually use any of the first time home buyer programs because it just didn’t end up aligning with what I was doing, but I definitely went to some of the classes.
And the next is like also ask if there’s builder incentive. So if you’re in a place where you are doing a new build, ask if you can get support with your down payment or maybe you can get support with buying down your interest rate. So that’s another option that’s available for you there. The third thing that I want you to know about is I got a mortgage that is a conventional 5% down with no PMI. So I know everybody hears that you have to put 20% down on your mortgage or unless you have like a VA loan or you’re doing FHA. -FHA has the PMI and then you’ve probably also heard, like if you don’t put down 20%, then you have PMI, and that’s called property mortgage insurance. I got a loan with no property mortgage insurance. It was a conventional 5% down, so I only had to put 5% down of my property value.
And I got that loan through a credit union that I’m a member of. But this is why it’s really important to have a plan to do your research because you can be asking these questions as you’re going through the process and just thinking about where you want to land. And then lastly one of the things you can explore for financing is a 401k loan. So I actually kept a lot of the cash that I had on hand for my down payment and I actually took a loan out from my 403B, I think I took out like $20,000. I took that loan out and that’s what I used to put down on a down payment on my home. I paid the loan back when I left my job, and now my 403B is now rolled over into an IRA and we’re fine. But that was something I knew that I could do. It was something that I leveraged 10 years ago.
And so just knowing that when you’re exploring financing, you’re exploring opportunities to help you buy your home, it’s really going to be important for you to be curious about that process for yourself. Because when you bring in curiosity, you’re going to start creating options. And then the fourth thing that I want is for you to start a relationship with a realtor. I had a relationship with a realtor, which was phenomenal because she would send me homes, she would tell me about different incentives in the city and I had an on and off again relationship with her, like in the beginning when I came here and I realized I couldn’t afford anything and then I would reengage her periodically, but I never felt bad for like, oh my goodness, I can’t buy a house.
But they want to do business with you, and maybe you don’t buy a house right now, but you buy a house later at some point. And they are going to also, if they have a relationship with you, they’re going to be thinking about you as they see different properties become available or if there’s new construction happening and you are going to be the person that they think of. So as you’re getting together your home budget, you’re getting together your financing, then they’ll be able to come back to you and be like, hey, I saw this property and I thought about you. And if you have all your ducks in a row, then you’ll be able to say yes, and it’ll be an easy yes for you because you’ll know that you can afford it.
And then lastly, I want you to revisit your home budget. So after you kind of know what kind of homes you’re looking for, the price of the homes, go back and make sure that the numbers make sense. And when you go from creating your current budget to your home budget, that is going to be the space that you’re actually going to be able to give yourself to start saving for a home. So the sooner that you can do this, you’re going to realize, oh, okay, maybe I have a $1,500 rent payment right now, but I know that my mortgage is going to be $3,000, or I can afford up to a $3,000 mortgage. So for the next 12 months, you can be saving an extra $1,500 and that money can start to become the money that you use for a down payment on a home.
When you get extra income, if you’re thinking about, okay, I’m buying a house and you’re cleaning up all of your finances when you have extra money, as you make more money, you are going to be thinking about how is this going to help me save for a home? Because I want you to go beyond just like, oh my goodness, I need to have 20% down and I need you to actually take stock of the numbers. Taking stock of the numbers is going to give you a clearer plan with clear next steps for where you need to go and want to go financially to be able to buy your home. It took me four years to find the house that I wanted and that fit, but I love my house. And if I hadn’t have prepared back in 2009, I would’ve missed that opportunity to put a down payment on a home that I love, that I’ve been in for the past 10 years.
So I hope that this episode, if you definitely are in the stages of like wanting to buy a home or exploring buying a home, I hope that it gave you some ideas about where you can start. And if this episode inspires you, share it on social media, share it with a friend and make home ownership your goal for this year. So thank you so much for tuning in and I will talk to you later.
Outro: 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.
