David Sidoni, the How to Buy a Home Guy, has broken down the nineteen crucial financial steps for all first time home buyers – tips, tricks, pitfalls, and real free advice for anyone looking to make this giant undertaking seem a lot less overwhelming. This is part 2 in a four-part series that will guide you to the ultimate goal of getting your dream home and never dealing another landlord ever again! Too many real estate professionals want you to figure this all out on your own, and then come to them when you are ready. But how do you get ready, and where do you even start? Not here actually; part I is where you start, and then listen to this one, part 2, which are steps 2 to 7 of 19. Enjoy.
How To Financially Prepare To Buy Your First Home – Part II
How to Financially Prepare To Buy Your First Home Part Two. Let’s do this.
Step 2 – Use An App
Thanks much for reading. If you’re here for the first time, you’re super weird because this specifically says part two, not sure why this would be the first one that you ever read. Thanks for joining us and stop reading this and go back and read part one. There’s a whole bunch of information there. We’re going to get started moving to part two of the financial preparedness show. I’m going to jump right into it starting with step two. In part one, what we did was we went through the basic overall and the numbers and I got into the steps. I’ve so far broken it down to nineteen steps. There could be more by the time I do part three and part four of this little miniseries I’ve got going. We got down to the first step after we went through the overall numbers. That was save money. Step two is going to help you do that. There’s an app for that. These are the best apps for the dreaded B word. In my house when you were growing up, you were not allowed to say the B word. Sooner or later as I grew up, I realized the real B-word was budget. Go ahead. If you’re reading this, open up your app store and start taking a look at these. We’re going to run through the best apps for the nasty B-word, budget.
Mint is probably the oldest and best-known app for budgeting. It’s the gold standard, been around for a long time. It automatically updates and categorizes your transactions. It gives you a big picture of all your spending in real-time. It also does a bunch of other things for financial stuff. This is if you want to do everything, but people seem to say that Mint is good for budgeting because it puts it front and center it. When you open up the app, it’s the first thing you see right there. It will automatically categorize transactions, whether it’s coming from your credit card or your debit card. If you want to, you set up a budget and it tracks it up against your budget. You’ll then get an alert if you go over budget. It will also let where you’re sitting with your cashflow every single month and it gives you a good picture of everything that you need.
If you’re looking for something to protect you because you have no willpower, then PocketGuard is a good app. It’s basically a nagging virtual partner or a loved one. It does the one thing that mainly lots of people need to know, how much money do they have left for spending. It tells you how much money I have in my pocket. After I’ve paid all my bills, my savings goals and all my contributions are out there, how much money is left in my pocket? If you want it to detail it, and this is something I highly recommend that you do, whether you do it with this app or something else, detail for 90 days. Find out how much money you spend on groceries, on clothes, on eating out, on booze, on your recreational drug habit, whatever it is. Write all those numbers down and then you’re going to be able to take a look at those and realize where you can make a few cuts. Usually people like to say, “Starbucks,” or things like that, but making sure that you’re in check with your drug habit, that’s a good thing.
Next up, nerds, this one is for you. Those of you phase two-ers or phase three-ers, those who are hardcore or people who are phase one and you’re still a few years out. If you want to get into this, go for it. Excel spreadsheet, here you go. It’s called You Need A Budget. This one has serious followers like crazy, Harry Potter, Star Wars-style followers. It’s pretty intense. People call it YNAB, they’re totally into it. It’s not free. It’s $90 a year, but people say they save way more than that when they use it. I’m not even going to explain it to you and say, “If you’re a diehard Excel numbers nerd, get in on it.” The next app is called Wally. This is one that a lot of Millennials are using. As far as it’s user, it’s not the most user-friendly, but it’s become popular because it’s free and works on iPhone and Android. A lot of people enjoy Wally. Check these all out and figure out which one works for you. One of the reasons why Wally is so popular is because it also works with foreign currency. It’s for people outside of the United States.
Moving onto our next app, more than budgeting, you’ve got Prism. Prism is an app that takes your account balances and your bills and puts them all on one platform and it can help you pay those bills directly from there. A lot of you might use online banking, but if you want to use an app, knock yourself out. Prism is a good one. Simple is another app that has got some good reviews. Simple tracks your income and your spending automatically and then it implements a goal feature and that helps motivate your savings. If you’re getting ready to spend something, they’ve got this one feature called Safe to Spend and it tells you, “Are you on track to hit the goal that you put at the beginning of the month?” It’s like that app that makes sure that you don’t drunk dial. This does the same thing and doesn’t cost you anything and it also can be used for your banking. It’s pretty cool for banking and budgeting.
Another app that a lot of people use is called Mvelopes. For those of you familiar with Dave Ramsey and budgeting, basically think about it this way. If you’re old school and you need to visualize it, take all your bills, write it on the envelope and stick all those envelopes up against the wall in the side of your room. Every month you put money into the envelope. When you need to spend money on something, if you’ve got some of the envelopes beyond your bills or into your entertainment, your fun stuff, when the money’s gone, it’s gone. When my dad was in the military, they used to go into the PX, which is the little store there and buy a jar of pickles every month. You knew exactly how much money they were getting and they could afford one jar of pickles every month. My dad still to this day says to me, “David, when the pickles are gone, the pickles are gone.” My dad’s a weird dude, but I love him. It’s good advice.
Moving onto the next app, it’s Goodbudget. It’s used the same way as the Mvelopes vibe. It’s a whole philosophy. It’s great to try it out. What Goodbudget does is it works with the Mvelopes theory, but it works for couples. You can budget together. If you’re afraid to do that and you’re afraid to think about budgeting with someone, then you should probably rethink the entire relationship. That’s just me. I’m saying if you can’t figure out how much money to spend on pizza, maybe the whole moving in together is not such a good idea.
Another app that we like is Acorns. I talked about it with my boy, Joel Larsgaard from the How to Money podcast. He was super awesome and came on episode fifteen of this show. He talked about Acorns. It auto invests your money. It rounds up and the money goes right into investment. It’s a great way to start saving. If you are still freaked out by all of this, if you’re reading this about me talk about saving and talking about apps, take your money and put it away and think about your bills the whole time, then fine. Use these apps for your FOMO event. If you’re afraid you’re going to miss a concert, a festival, a super cool brunch, whatever it is, then use the app for that. I still want you to live your life.
I don’t want you to put every single penny that you have toward a house. You figure it out. Use The Richest Man in Babylon, 70-10-10-10. It’s your call what those tens are. You can make one of your tens for whatever you want. Concerts, Burning Man, Coachella, music festivals, have a cruise with your friends or vacation. Some crazy extravagance you want to do to pretend like you’re some trust fund influencer, whatever. Make a budget for that. The fact that if you use these apps to make those budgets, it’s going to change the way that you look at money and gets you ready to stop renting and throwing your money away. Remember, if you’ve got that money set aside and it’s already there then, “There’s a great concert. I find out they’re coming to town.” What do you do? You scramble, you pick up an extra shift. Even worse, you skip a payment on something, you’re late on something or you use that tax refund that you should have used off a bunch of other stuff to do that big thing.
What if you planned for that? What if you used these apps to make a FOMO account? Once a month, you skip one little thing, one extra movie, one dessert. Forget skipping an entire dinner. Skip the dessert, get the cheaper thing, get water or drink at home. Learn how to be a mixologist instead of going out and spending money on four different cocktails. It’s one less collectible this month. Instead, find these alternatives. Eat at home, cook, have friends over, watch Netflix that you steal from your friend. Use their code. All of that stuff can be things that will help you save some money and help you be ready so that you’re not scrambling to pick up over time or having to sacrifice or not pay your bills. Who knows? Maybe when you invite friends over to your house and you’re the one doing the bartending, working on your flair skills that you can charge $10 cover for them to come in and check you out. You’ve got such sweet bartending skills tossing the bottles all over the house.
Step 3 – Have An Emergency Fund
Let’s go to step three. Make sure that you have an emergency fund before you even start saving for your down payment. Get that emergency fund. Have it ready. This is a step that is not fun. It’s adulting. I tell my buyers all the time, “It’s not sexy but it’s real.” Have it be ready. It’s that simple.
Step 4 – Check Your Credit
Step four, check your credit. How do you do that? Go back to episode three and episode eight. Remember, those episodes are huge. There are tons of information from other professionals who do credit full time. The key is that all credit reports have errors. I used to hear between 20% and 30% and then TRW is like, “70%, 75% of the stuff has something wrong on there.” It’s insane. The longer that you wait to check on your credit to see if you’re one of those people that has something wrong, the less time that you have where it’s off of your credit and your credit is rising. Credit moves slowly and the more time that it’s working correctly, the more time that it goes up.
Whatever you’re doing, go back and read those episodes and get on this and do it. Skip bingeing, skip your workout and figure it out. Next time, take another twenty minutes and do the same thing. The more time you put into your credit now, twenty minutes a day, twenty minutes a week or whatever. The more time, the more growth you’re going to have. As a matter of fact, you haven’t started on your credit, you lost two points of growth because the history and length of your credit report are correct, all that stuff grows. You lost two points by not doing anything. Do it. Are you still here? You just lost two more points. Seriously, fix your credit now.
Step 5 – Check Your Interest Rates
Step five is an interesting one. Check your interest rates. Interest rates differ from credit cards to a savings account to car loans to other accounts. What you might not be realizing is that you could be getting higher savings accounts, interest rates and you could be getting lower interest rates on your loans. Go through every bill and account that you have and check the interest rate. Can you do better? Did you answer that question? Did you start working in the banking industry? How do you know? I didn’t know. Nobody knows. If you’ve been making full and prompt credit card payments, call them all up and say, “I’d like a lower rate.” You never know, you might get it by asking.
Your auto loan, check it out. The deal with auto loans is they’re a little weird. They don’t have to play by any rules. They’re not regulated. It’s unfortunate but they have what we call a carve-out, where they use their lobbyists and they figured out how to get around any legislation that makes sure they’re regulated and that’s the way it is. They can do whatever they want and their interests, unless you’ve got a simple interest, your car loan is probably a bad loan and it sucks. Those are the rules and you’ve got to deal with it. A lot of times if you’re like, “I’m going to jump on and make an extra payment,” sometimes on a car loan, that doesn’t even help. Instead of trying to make an extra payment or pay the whole thing off, save your money and diversify that money in a different way.
Call them up, look into refinancing, find a good nice loan and keep that payment low instead of paying the whole thing off. Remember, the banks look at your overall debt. If you owe $10,000 on a car, you don’t want to pay off the whole loan if you get a $10,000 check from grandma because that’s only $200 a month payment and the banks don’t look at your overall debt. They don’t say, “He owes $10,000 on a car. She owes $10,000 on a car.” They look at your monthly obligation. That monthly obligation is only $200 a month. They compare that $200 a month that you owe on that $10,000 debt. They look at that $200 a month compared to how much money you bring in each month. They figure out how much of a monthly loan you can afford. They look at your monthly number, not your overall debt. It’s the same thing with your student loans.
Sometimes it’s better to refinance your car loan into a longer payment program, but with a lower payment. That means you might have to chill a little longer in your not-so-fresh whip and you do that so that you can upgrade into a nice house. What’s cooler, sleeping in your car or sleeping in a cool house? It sucks, but if you’re the person who needs to ride around in front with a fresh ride, then eventually whoever you’re trying to impress, once they get in your cool car and you drive them back to your apartment that you rent with three friends, they’re not going to be impressed anymore. It’s time to let that car payment work itself out, lower it down and keep it out there for a long time.
Step 6 – Use Big Chunks Of Cash To Your Advantage
Step six, use big chunks of cash to your advantage. It’s a great way to save. You can save by doing these little pieces every single month, but this big giant chunk is another huge source for you. Those occasional times in your life when you get money, whether it’s a birthday, tax refunds, Christmas, Hanukkah, Kwanzaa, whatever. Don’t forget the biggest payday of them all, those are your weddings and your babies. Most folks are regularly depositing thousands of dollars a year from these cash chunks, whether it’s their taxes or birthdays, refunds, whatever. There is an opportunity for you to figure out how to use those as a large portion of your savings.
I know tons of people that spend their tax refund before they even get it. In fact, they’ll even plan their vacations based on that. I know that there are people that want to blow their cash that they get if you get a sudden windfall and you want to blow it on something cool, but think about it. Big chunks of money work two ways for you. One is they boost your savings. That’s a big deal. That’s simple. You understand that. Two is that mortgage programs, the program that you’re going to ask the bank and the lending institutions to loan you the money, especially the FHA, the one that we talked about in part one of the series. They’re going to be looking at your money in your bank and seeing when you got it.
The term they use is seasoned money. That means that if your money’s been there awhile, it’s marinated, it’s had time to sit there and season. Not the money that you got from your aunt who’s lovely, wonderful and wants you to buy a new house. If you start using your big chunks and you toss it in there every once in a while, they’re going to see that you are demonstrating financial responsibility and that you have an ability to take your money, save it and season your money. Don’t let that discourage you because we’re going to talk about how my clients have used gifts to purchase homes. I gave you those numbers, $15,000, $21,500 and $28,000, those basic numbers to buy a house. I’ve had people that once they income qualify, if they’ve only got a couple of thousand dollars in savings, maybe their grandma and grandpa or their parents give them $25,000. You can use that $25,000. You just have to find the right program that doesn’t need your money to be seasoned. Don’t be discouraged. You can still use a gift, but why not start showing the seasoned money now? Down the line, you can always have an option.
Step 7 – House Hacks
The last one for part two of my How to Financially Prepare To Buy Your First Home, this is something that’s interesting that a lot of first-time buyers are doing. This is step seven, house hacks. First, you’ve got to suck it up. When you’re waiting to buy a house, you don’t need to be living in the giant two-bedroom apartment for just you, your cat or your dog with the doorman and the dry cleaning and all that. If you’re getting close, fine. Maybe you need to, that’s cool. I’m giving you this option. The longer you do that, the more money you’re going to spend on rent and the less money you’re going to spend giving to yourself. If you need to live with roommates, live in a studio but try not to live in a fancy one or two-bedroom by yourself unless you have already planned that twelve-month lease is your last lease in a place like that. One of the things we do with the house hack is when you’re getting ready to buy a house, find a place in the middle of everything. Get a little studio apartment or live with roommates in a place that’s surrounded by all the great bars, restaurants and fun things to do. That’s going to save you money because you’re not going to have to drive and go places. When you are going out, there’s this one website that said, “Take it easy when you go out, chill, live with roommates, relax.” When you saved all that money, you’ll be able to live in a whole house. You can celebrate by turning cartwheels in all that open space.
The second house hack and this is a big one, this is especially for you phase three-ers who are getting close. Renting out part of your house or house hacking is a super popular way that Millennials have found to make buying a home more palatable than renting. The deal is a lot of you already live with roommates, you’ve done this. Anyone who’s been a college or slept on a couch or a floor, you’ve done this. Think about renting out part of your current place. If you’re a good communal person, this is easy for you. Get a roommate or even rent an entire room. I’ve got people that have done Airbnb and Vrbo. Who knows, by the time you read this, maybe there will be a new app for that. What if you live near something cool? You’re in a desirable part of town or someplace there where people want a vacation.
I saw this great thing on Shark Tank. These guys came in and they had an idea of doing an Airbnb called Game Day Rentals because they were from parts of the country where people were into college football. For six weekends a year, a couple of preseason games and then the four games there at the stadium, there are people that live near the football stadium who didn’t necessarily care. They went, “I can get my entire year’s mortgage paid by renting my place out six times for all the alumni who come back into town.” I’ve got one of my great Disney clients who got a house and rented out their third room through Airbnb or Vrbo. A few years later, they had a housewarming party and they had a beautiful new backyard because they let people stay there while they were going to Disneyland. It was awesome.
Let’s recap our steps. Before we get to our steps, you need to know your basic numbers. We went over those. You’ve got your basic minimums. In 2018, 1.76 million people were first-time buyers and they bought a home with only 6% down. Don’t believe the dinosaurs, the pundits, the fear preachers or even people who mean well like your parents or your smart older relatives or friends. You just can’t believe them. Believe that number. It’s a fact. The average of 1.76 million buyers was 6%. Of my 81 first-time buyers, most of them used a 3.5% FHA down payment and that’s starting back in 2006. These people who are trying to help you out and give you advice, they’re using the old formulas. They’re coming from a place of concern and that’s great and they want to protect you. People who haven’t purchased a home recently, they don’t know what it’s like to buy in such a rising rental market where the incomes are still a little flat and not matching the rising rents. Many of them haven’t bought a home in a decade and don’t even know about these plans. As long as you know the numbers and you’re conservative and thoughtful, the math is going to work out for you in the long run.
You’re protected if you put 20% down. If you’re reading this, that means you’re the person who is already thinking about this. As long as you go 3.5% down and you talk this all out, you’re going to be in great shape. We’re talking about $15,000 for a $200,000 home, $21,500 for $300,000 and $28,000 for $400,000 home. That’s 3.5% plus 3% for closing costs, plus a couple thousand for loan inspections and appraisal. That’s all going to be on the notes for episode nineteen and this one’s episode twenty. We’ve still got twelve more steps left. Why nineteen? Why only one on the first one, six in this one and twelve in the next one? Seriously, if you can’t handle that math, why do you think you can handle figuring out a $300,000 loan?
There are complexities that go within buying a house. There are several steps and I wanted to spread them out for you. This can be simple, but it’s not always easy. Sometimes you are going to have to think. That’s #Adulting. The first seven steps, number one, suck it up and save. That’s adulting. It’s a good practice. Practice like getting a dog before you have kids. 70-10-10-10, if it’s killing you, change the last ten to FOMO and automate it now. How do you do that? Step two, use an app. I’m dead serious about you using an app to get to your financial goals no matter what they are that I’m going to break the cardinal rule of podcasting and tell you to stop reading this now and go research the apps. Do it. Put an app on your phone now.
Now you’ve got an app on your phone, that’s awesome. We’re going to go to number three. Number three is start an emergency fund. Number four, your credit is important. Learn all you can. Check yours, start correcting it now. Time is your enemy on this one. If you wait, you lose potential points that you could be earning now, so start. The longer that you take fixing this, then the better your score will be when it matters when the time comes. Number five, check and improve the interest rates that you have now. You’re going to be surprised by asking and seeing what results happen from that. On the 4th of July, my entire Facebook and Instagram feed was filled with people who were bingeing Stranger Things 3 that came out that morning. Fine, go ahead. Do what you’ve got to do, but binge one less episode. Take twenty minutes and make some calls to your credit card companies, your phone companies if you have a loan on that, your car companies, whatever it is, your colleges for sure. See what you can do. Eat this elephant one bite at a time.
Don’t forego all the things that you love. I’m not telling you to take your days off and carry yourself in this budgeting crap. I’m saying you take twenty minutes a day and then when you are looking to do this gigantic thing and buy a home, you’re not going to be in a situation where you’re missing out because you needed a few extra points on your credit score or a few extra dollars in your savings account. Number six, chunks are good. Use them wisely. Number seven, house hacks. Live simply and think about the idea of renting out part of your house. That’s the recap. That’s where we’re at. This is important that you read it. This is part two. There’s going to be part three, probably a part four. Read all this stuff. Take some time. You don’t know what you don’t know. That’s what I’m here for. I have done a lot of research on this as well. Thanks so much for reading. We’ve got part three and part four coming up. We’re only seven in and I’ve got a list of nineteen steps to help you financially prepare.
You’ve got your information. That’s all at DavidSidoni.com. This will be episode number twenty. This is part two of at least a three, probably a four-parter. If you like this, please share it with your friends. Make sure they go back and start it, part one of this. If you have any other questions, go back and look at all the other episodes. Everything is at DavidSidoni.com. You can look at that. It’s right there on your interwebs. Check us out on Facebook, How to Buy a Home. I am on Instagram as well. Everything here is to help you. We are looking to start a revolution, changing the way the real estate industry takes care of you, the first-time buyer. If this is something that interests you, if this is something that you’re excited about, share this. Share this show with your friends, anyone out there who are stuck renting. This revolution can only start if you get out there and demand the service that you deserve. It’s there. You just have to hunt for it. Thanks so much. Part three is coming up next. Remember, you can do this.
- You Need A Budget
- How to Money podcast
- Episode fifteen – Past episode
- The Richest Man in Babylon
- Episode three – Past episode
- Episode eight – Past episode
- How to Buy a Home – Facebook
- Instagram – David Sidoni
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!