What is the First Step to Buying a Home?

I’ve spent the last month reviewing dozens of articles on First Steps to Buying a Home. From the information already on the web it appears all these How-To blog articles contain a bias based on author representation or who is paying for placement and what the company is selling.

I too work in real estate with thousands of first-time home buyers over the course of decades – however, this article may be the first ( and only ) that is written in an editorial style without the sales bias – I’m going to let my author-self write like this like instructions to my children who would like to start planning to buy their first home and gain some level of accessibility into the homebuying process.

At the age of 23, I became a homeowner. Actually, that may not be entirely true. My first real estate purchase was a rental property.  There’s a difference between owning a house and being a homeowner. Big difference. But I knew real estate was where my future was. By the time it came to buy my first real “home,” I had already purchased, financed, repaired, renovated, painted, and swept basements in a dozen properties. And by the time I got into my current position, I had also sold them all – except one. My home.

The analogies in homeownership are similar to many other important processes in your life.

This could be compared to planning for which college to attend, or which field of expertise you’d like to study. Or directing your career to the pursuit of a passion or theme. You could leave it up to luck, or you could create a purposefully designed environment. You could learn, take steps, eliminate options, focus, and avoid being hijacked or robbed of your bandwidth.

Let’s participate in the deliberate game. 

I like where that leads to better. Fate and luck often fall under the guiding hand of a source with ulterior motivations. 

So before taking any “First Steps to Home Ownership” you will need to plot a course. 

A detailed plan. The investment in that plan will have a tremendous return on its time to create it. With a completed written plan course map you will take fewer overall steps in the process of home buying. 

Those steps will also be in a direction of your choosing not under the spell of a motivated salesperson (please note the sales commissions on buying a house are large. You, being the source of a financial incentive to someone you don’t yet know, can place you in financial vulnerability just by purchasing a home).

The Written Plan will also provide guardrails to guide you along a singular path rather than foraging along multiple paths in the stages of buying your first home.

Grab a blank notebook, quiet corner seating, and some caffeine, and let’s begin.

Does your plan involve buying a house with someone else? If yes this will now be a joint endeavor with them. They should therefore also be responsible for creating this plan. 

Categories or Chapters for your Written Plan Course Map should include:

– Timeline constraints

– Pricing and payment parameters (self-imposed) 

– Home Category Attributes 

– Physical Attributes

– Macro Location needs

– Micro Neighborhood 

– Lot criteria 

– Non-negotiable Amenities

– Desired Amenities

All of these chapters should be addressed in writing. Since everything is subject to change, updating, and editing you don’t need to worry about getting it wrong, or perfectly right. Nothing is irreversible at this planning stage. You’re going to learn a bit about yourself in this exercise and come to the realization there may be some Essentialism type choices you’ll need to make based up your hierarchical needs.

First, write a short Mission Statement about your project and give it a title,

Just as:

Kellie and My First Home Together

By next Thanksgiving, we want to arrive at a fireplaced residence that is calming, yet with a neighborhood feel. We desire a commute that isn’t agonizing with a total monthly payment not to exceed $3,500 so we can still eat out once a week. I’ll embrace light home improvement but don’t like ladders or lawnmowers. Kellie grew up in a house on a flight path that had a septic system and we don’t want either. Colonial and Capes are fine, but the Gambrel or Dutch Colonials are instant turn-offs, the latter because I grew up when they played Amityville on TV. Because we don’t enjoy moving we shouldn’t focus on a traditional starter home which we could outgrow almost before buying.

See what just happened there? You’re being called to put a definition on the project through a discussion-style exchange. The way to manifest the dream house is to first visualize it. If you want to Three-Little-Pig-It in a brick house up on the dry ground, then that needs to go in your plan – else someone’s going to waste a lot of time kicking tires on straw houses. 

Once you have your mission statement you can start to define the other key elements.

Timeline Constraints  

Are you under a departure lease you need to work around? If so, research the penalties for breaking the lease. Is it only a 2-month penalty? That may be a very low cost to extending your lease for another year thus providing you the luxury of syncing timelines with the purchase of the house of your dreams. 

You can’t Abracadabra your Dream House to appear. It’s not an “on-demand” or “buy it now” type of asset purchase. You’ll need to watch the new inventory patiently. If the stopwatch of a lease expiration is running that will increase the likelihood you’ll need to settle for that lowland straw or stick house, not the high-and-dry brick one. 

If you’ve recently accepted work on a full commission basis or “went out on your own” (to start a company), you will be surprised to learn that mortgage application qualifications for this type of income are averaged backward…. not future looking like most jobs. Therefore you’ll need to complete two years of earnings for your new endeavor to quality.

Other timeline considerations could include an overlap of housing to renovate (sanding floors and painting), moving in (and out) over the course of a few days (instead of a few hours), and availability of movers or other contractors.

If you’re waiting on a gift, inheritance, or divorce to finalize in order to undertake the goal, please resist the urge to start shopping before that occurs. If you engage the train, it will be difficult to stop it without coming off the tracks.

Lastly, If you’re interested in trying to time the market? 

Don’t. 

You’ll lose focus on the mission of trying to find a “sale”.  Read our article on Spring Market if you’re curious about seasonal cycles. And we also have guidance on monthly cycles. 

What about the seemingly upward tendency of interest rates?

No one knows the direction of interest rates. It’s a problem that may never happen. Or rates may rise slowly. Or move in your favor. Running from a falling object may lead you to run over the edge of a cliff. Don’t worry about mortgage rates until the decision to select a rate is inside of your control. By convulsively reacting you’re more apt to put unreasonable pressure on yourself causing you to misfire on a tactical decision in the homebuying process.

Pricing and Payment Parameters 

Before you undertake a preapproval, set your household budget. 

Why is this so important?

The bank’s underwriting parameters will never know or ask about your personal budget. Nor will they care about your expense for dog sitting, yoga classes, or your decision to eat organic or vegan. It’s up to you to protect budgeting for the things that are important for your lifestyle. An overly robust housing expense won’t financially support your core values or purposes that may be important to you. Interests such as mentoring, tutoring, dog walking, and reducing your environmental footprint, will now need to compete with your housing budget as well as the time you spend earning the income to pay for the new housing expense.

What is a Leaky Budget?  

Do you recall K-Mart used to demonstrate prices ending only in .98 cents? An effort to make things appear cheaper?  When you buy a house you’ll notice the K-mart side of the pricing.

You’ll discover that the real estate taxes on that home are demonstrated at “last year’s” (lower) rate (dirty little secret: taxes go UP every year).

After you buy your new house you’ll notice that the taxes come up to the current tax rate very swiftly. And the valuation (what the tax rate is applied to) will be adjusted from a stale valuation … closer to your purchase price, as my father used to say, PDQ.

Shop under your allowable budget and do not use the preapproval amount as your guidance. A Home Affordability Calculator may reveal where your paycheck stops and your qualification winds down.

If your personal budget doesn’t provide you with enough cash flow to purchase a home of your desire, then you will need to use a scalpel to decide which parts of your lifestyle you’re willing to carve out to supplant your Housing Bully. This exercise forces the hierarchical arrangement of what’s truly important in your life. Maybe the house weighs in more than your 2 week Aruba timeshare or motorcycle …. then again maybe it doesn’t? 

But shouldn’t you make that call? ….. not a Loan Officer?

Home Category Attributes

Houses come in various shapes, styles, and even species, By species I mean it may be a home that you do not own the land it sits on (condo or co-operative) and you may even become introduced to houses (not condos) on “leased land” and this doesn’t include mobile homes in communities. There are also multi-family homes, homes with in-law apartments known as Accessory Dwelling Units (ADUs), houses built in associations (PUDs) where you pay a fee for services and can’t park trucks with corporate lettering on the side, nor fly a flag, or leave your lawn uncut, or leave you trash barrels at the curb too soon or too long.

If you know that your toleration ends at Doc Martins echoing across your ceiling at 3:17 AM you’ll want to cross condos off your list …. other than penthouse or townhouse style. If your hearing or olfactory senses are finely tuned, multifamily living could cause tweaks to your operating system –  especially around cooking or bath time. Having a tenant help pay your mortgage is, well, certainly helpful, but that paying tenant ringing your cell phone regarding an overflowing sink as you are boarding a plane? Not-so-much.

Choose a lane. Then stay in it. This will help you with comments like you should check out my neighborhood, or “Why don’t you just build?”.

Physical Attributes – homes can be divided up into private and public spaces. Private spaces are bedrooms, a home office, storage and work areas, and a master bath. Public spaces include a living room, kitchen, recreation, family, and game rooms. For those who like to host the need for an abundance of public space in the house is important. Others it’s not. Think carefully about the division of these spaces and the requirements you may have. Blending the two attributes can create awkwardness within the home’s functionality. 

Put your pencil on paper for bedroom count. Decide if you really need an only-used-five-times-per-year formal dining room, or if you can make do with a large eat-in kitchen. 

Is the home “future expandable” or are you beholden to the user under which you purchase it? The possibility of future expansion is important as it PRESERVES YOUR FUTURE OPTIONS– one of the most valuable things there is. Is the setback allowable for expanding the footprint if you ever needed to? Or would you be forced into moving if your family expands?

Could you add a detached garage later? Maybe the house is perfect except it’s lacking the rec room … what about building out over the attached garage later when the budget permits?

For us, a fireplace was a must-have. For you, it may be a room for a soaking tub. Tall ceilings? Basement (or a dry basement)? Parking and for how many cars? How about central air and 2nd-floor laundry? Do you like a certain heating system? Is natural gas even available IF you chose to install it later? Septic or sewer?

List out your true needs – the nonnegotiable attributes. Then describe the house that fits that description. Also, itemize your hard No-No’s. High-tension power lines? Railroad tracks? Firewood processing neighbor? 

Macro Location needs – your base camp needs to work for you. Don’t set yourself up for a commute too long to be sustainable. Consider the commute home in the winter. Now consider it with 2 inches of snow on your windshield while you were at your desk. 

If you’re going to relocate, “test drive” the area with an extended stay rental. You may discover greenheads, blackflies, odors, and sounds. The first Sunday morning in our new house my wife and I became aware there was a gun range nearby before long our internal clock could predict when their opening shot would occur.

While adjacent States may not have a specific tax, know that state funding comes from somewhere. What may appear to be a bargain in lack of income tax may actually be a burden with ”double” real estate tax. 

Unless you’re politically agnostic consider the leanings of your destination town. Are you going to be facing down signs that irk you each time you arrive home? Many people can emotionally detach but a lot cannot. If you aren’t the type that can, or you get easily triggered –  think about aligning your future home with your tribe. Tribes congregate.  

Micro Neighborhood – so much to cover in this section! I recently discussed beach walkability with a client. His target house was about a mile from a small beach in Beverly’s Cove neighborhood. We talked about how many times he would actually walk to the beach. Maybe 4 times the first year, once the second year, and probably zero in the subsequent years.  We recycled this energy and cost back into something more important to him. Finding a home in a neighborhood that provided larger lots for his newborn to play and dog to gallop. Unless your hobbies are showing up in the top-ten list of priorities, don’t let a “theme” (like the ability to walk to the beach) distract you. Him: you can walk to the beach. Me: yeah but you don’t have room for a diaper changing table.

Your household values will come into play significantly here. Every neighborhood has a personality to it. We’ve seen neighborhoods defined by Karaoke, non-golfing golf carts, ice skating + barrel fires, community centers, playhouses, annual fireworks, rail trails, and direct access to horse trails or ski slopes. Bike, dog, or walking friendly. The list goes on. Where are you choosing to vest yourself?

Watch for seasonal uses (Halloween in Salem) and proximity to busy colleges that may impact your future quality of life during peak seasons. Anyone abutting a college campus knows their house can only be marketed in the summer when the campus is closed.

Lot Criteria – this is different from the neighborhood. Think about this as a generic location consideration. Shaded or sunny? Yard or parking spaces? Or both? Wildlife or neighbor life? Is a busy street tolerable? 

You can’t (inexpensively) change topography, environmental smells, and noises, sun travel, light pollution, street lights, or passing car headlights. One family we know has a child’s bedroom bathed in red light 99.9% of each hour of darkness from a newly positioned stop light (always red except for an occasional green). Always do multiple viewings even if not with your realtor: Traffic patterns may fluctuate during weekends. So Tuesday evening AND a Saturday morning could prove insightful. 

Non-negotiable Amenities & Desired Amenities – Have fun with this section. Build you lists of “Must Haves” and then also of the dream features that you’d enjoy but won’t kill the deal over. If you don’t build this list, it will be built for you, without your input.

Inflation is one of the other herculean topics at the forefront. 

As the Federal Reserve Bank churns the proverbial printing press 24/7 to keep pace with the hungry spending appetite that is the new norm in the US, the dollar becomes diluted.  I heard inflation described as a slow-moving monopoly game where players don’t have enough cash on hand to buy and build properties. One player recalls a spare game board in the closet and the players agree to fetch it and divide up the cash from the 2nd game equally. Pretty soon the properties are being bought up again. Yet at higher prices. And then the money is all spent again. But everything costs more now. Read our article on the effects of Inflation on your mortgage and home pricing.

What happens next? 

Once you have your Written Plan in place keep it with you. Talk about it and when you run up against the inevitable conflict or paradox, solve it and then revise and edit the plan.  For instance, if you need to push the monthly carrying costs lower, you’ll need to increase your down payment and build up your liquid assets, select a property with a lower tax rate or valuation, or move into a lower price tier. Record the outcome in your revised Plan. I’d love to read it if you want feedback on it.

Your published plan (yes I encourage you to print it) will become your road map. 

The plan will be fluid but when you are introduced to the concept of building a new construction home via an Instagram Reel from high energy real estate agent influencer with a vacant lot they are trying to sell, you have a principal agreement with yourself to honor the original plan OR revise the plan. Not honoring the plan would be like pursuing employment as a chemical engineer and then tossing your education and direction aside to buy a Dunkin franchise because it’s for sale and represents a rare opportunity. 

Stay the course.

Or.

Revise and edit to a new course.

Ready to dip your toe in the great sea of Real Estate?

2023 has brought about significant challenges to the First Steps in the house-buying process. Rules that have applied historically to purchase a home are simply no more. 

It seems like the stakes for buying a home post-pandemic are higher. 

Why?

Honestly, because it’s being allowed. And it’s more fueled by greed and emotion.

Here’s an example – waiving contingencies, like the mortgage/financing and home inspection contingencies. I thought we were done with that nonsense. And we should be. But we’re not.

To the consumer playing the first round, it’s like not wearing protective gear in baseball. Is the experienced team throwing the pitches? They aren’t going to warn you should be wearing a helmet. That would work against their aggressive tactics backing you off your best swing.

So once you have the Plan above now it’s time to build your team. As much as you think you play the sport of real estate without a team, you’ll have better results with a vetted team. The correct team will protect you. Protection from things you didn’t even know could harm you. We’d be honored to play a role in your Your Future Home-Buying Team. 

GoldCoast Mortgage is on the opposite end of the service spectrum of mortgage lenders like Rocket Mortgage or other fintech companies with customer service created out of javascript. Our Loan Officers pick up the phone live without voice recordings. We know the names of the homebuyers we work with and often recognize the sound of their voices. Sure we use email, but only after we have an understanding with our future homeowner that it is their preferred communication medium. 

We’d rather answer your financing questions related to income, expenses, credit, debt-to-income ratio, cost of closing, and real estate tax with a personally prepared response or conversation than through a frequently asked question page. FAQS may work well for some light topics, but the answer on your browser screen may be from a source like Zillow that isn’t aware of rapidly changing underwriting guidelines and credit score thresholds. The bottom line is that as an expert advocate, we may be the only homebuyer’s guide to help you draw a map to ownership.