Buying your first home requires a long list of preparation details. In the last part of this series, David Sidoni shows steps 22 and 23 to financially prepare yourself into buying your very first home. Understanding tax details, document preparation, balancing debt reductions, and savings are some of the key topics that he discusses. David also gives a recap of all the other steps for financial preparedness and gives emphasis on step 23 which is about the delicate balance between debt and savings. Moreover, David shows you his roadmap metaphor to explain values and figures related to homeownership and investments.
How To Financially Prepare To Buy Your First Home – Part VII
Big Tips For First Time Home Buyers On The Tax Benefits Of Home Ownership, And How To Balance Debt Reductions Vs. Saving
In early 2019, after thirteen years in the business, I quit the usual path of real estate agents to focus on a huge problem. Nobody out there is willing to give you the expertise that you need to start planning for your first home. They don’t want to talk to you unless you’re 30 days from buying. I know what you’re thinking, “How do I get to 30 days from buying?” We’re here to change all that. We’re going to show you exactly how to do it with my epic miniseries that absolutely refuses to end. This the last installment. I’ve listened to you guys. I’ve been watching the downloads. I see these financial planning episodes, even though they’re the most recent ones. They’re jumping way up in the number of people who are downloading them. I hear you. This is the stuff you want to know about. This is part seven and it will include step number 22. It’s a big topic. The tax benefits of homeownership. It is really important. We’re also going to talk about our final topic, step 23. I’ll have a recap with some updates. We’re going to finish with a crazy story about a realtor and a conversation that I had with her. You don’t want to miss it.
Step 22 is the tax benefits of homeownership. The mortgage interest tax deduction is the greatest thing that the Congress ever invented for middle-class homeownership, except that they didn’t invent it for just that. That’s the myth that is sustained to this day so we’re going to run with it. In 1913, when interest deduction started, Congress wasn’t thinking about homeowners at all. It was designed because most businesses had a difficult time separating their home expenses and business expenses. This was a simpler way to allow all the interest to be deductible for the business. Why should you care about this history lesson? Number one, how are you to avoid pitfalls in the future if you did not study your past? History repeats itself. Those that see the future coming based on the past repeating patterns will reap the rewards in the future.
No one teaches you this stuff in school. Here’s why this matters to you. Congress made your interest deductible way before any of us was getting any home loans. It was mostly used for businesses, then it started to creep in after 1913 into farms. As the country grew throughout the roaring ’20s, the depression and the World War II era, people started getting home loans. Banks started front-loading the repayments of those loans. They front-loaded the mortgages with interest. That means most of your payment was your interest at the beginning, then they packed all the principal into the back. That way they knew they got all their interest upfront.
Too many people were now dependent on this interest deduction because of a large part of their payment. Too many people were too dependent on it before Congress figured out what was going on. Before they could take it away, they realize if they took it away at that time during the World War II suburban blow up, that’s was the beginning of the greatest generation. It’s the Leave it to Beaver suburb tracks and all that stuff and all the track homes. If they took it away then at that point, once they realized what it was doing, that would have stifled the American dream. Here’s the way it works. When you buy a home loan, most of your first few years’ payments are all interest and you get a big fat to write-off for that.
Let’s say you have a $2,000 payment, something like $1,998. I am probably wrong on that, but I’m sticking with it. That’s the interest, then it’s $2 that goes to your principal for the first couple of years, give or take. Usually, when I sit down with first-time buyers, I explain this to them. I write this out on a piece of paper. I use a line chart and graphs. We’re going to use simple numbers to help this make sense to you. Let’s say you pay $2,000 a month in a mortgage. That’s $24,000 a year. As I stated in those first few years, most of that $24,000 is going to be interest. Let’s call it $24,000 annual interest. We’ll take the whole thing. That means that $24,000 is the mortgage interest that you paid for the year, which is a deduction. You don’t get it dollar for dollar. You don’t get a $24,000 write-off.
This is the way it works. You need to consult a CPA or an accountant to get the accurate numbers. I’m sending you some things that my clients have told me after they received this information from their CPAs after they bought their home. All they needed to do was once you buy your home, you take your loan document into the accountant and they run the numbers for you. They’ve told me that they get anywhere from 15% to 25% of their total interest as their write-off. On $24,000, the whole interest for the year, the write-off that you get is $3,600 to $6,000.
This is where I need you to pay attention. Let’s talk about how taxes work. When you get a job, you fill out a W-4 form. If you’re a W-2 employee, the W-2 is what you get at the end of the year telling you how much they took out. When you started, you filled out a W-4. It has the spot for you to fill out how many dependents you wish to claim for your taxes. That affects how much is withheld from your paycheck every month. The way that you claim it is anywhere between zero and nine. Most people usually claim zero or one. The government takes a lot of money so you don’t end up owing at the end of the year. The IRS takes the amount out of your paycheck depending on what you claim. If you don’t have any dependents or if you’re working on your own, you’re probably one of those people who claimed zero or one. The IRS takes that money out and they keep a record of it.
It’s like your own little personal account with the IRS. When you file your taxes in the spring of the following year, they look at how much you owe versus how much you’ve already paid into your own little personal ledger sheet. The way that they take the money out is all these little acronyms on your paycheck. The ones that take all the money out and it shrinks your check from the big number to the little number. Those little teeny abbreviations that make you cry every single month like FICA, FWT, SWT, SS and OASDI. There’s a bunch on there. You know those and you hate them. We all do.
When you file the money that you put in versus the money that you owe, that will determine if you need to pay or if you get a refund. Over the year, if you’ve put enough money in because you claimed a low dependent like zero or one, they’re going to take a lot of money out and then you probably don’t have to pay. If you get a refund right now, you could have changed your deductions last year. You could have gone and changed your W-4 form. You could have gotten that money upfront each month. Let’s say that you got a $6,000 refund. You could have got $500 a month instead of getting that $6,000 in April. You would have to figure out exactly how many dependents you have to claim so that the IRS would take out less and then you get $500 extra.
Here’s another example, rather than getting a $2,400 refund in April, maybe you could have claimed two instead of zero, then you could have gotten $200 not deducted by all those little acronyms from your paycheck each month. At tax time, they would go back and look at it and say, “He should have put all this money in and then we would have given that $2,400 refund but he didn’t.” The net result, you owe zero. That’s a $2,400 refund in the spring of the next year. You can get that refund or you can figure out what to do with your dependents and change it so that they take out less from your paycheck and try to spread that $2,400 over twelve months.
You’re going to get your money early instead of waiting, tallying up everything at the end of the year or tallying it up when you do your taxes in February, March. Trying to do that can be a little complex to figure out. Most people claim as little as they can so they can get that big fat present of a refund. A lot of people I know think of it as a bonus. They pay off some big debt with it or they go on vacation. They’re not realizing that with a little planning, they could have gotten the money in chunks. They could have gained the interest themselves instead of letting Uncle Sam gain all the interest. Let’s go back to our mortgage deduction. You’re paying $2,000 a month in mortgage. Let’s say for the sake of argument that all of it is interest because most of it is. That’s $24,000 a year. You get 15% to 25% of that. That’s a write-off that you’re going to get. That’s $3,600 to $6,000 a year.
Using the same scenario as we did with the $2,400 a month story that I told you, now we know we’re going to get $3,600 or $6,000 a year. The difference is we know that exactly. What you can do is take your first mortgage statement to your accountant. That nerd is going to create an algorithm that will tell you exactly what to change your holding with deductions too. They’re going to tell you exactly what number on your W-4 you need to change. If you’re a zero, you need to change to one. If you’re by yourself and it’s just you, they might say “You’re a zero, you should claim three.”
If you’re a couple and one of you is a one, they might go, “You go to a three and you go from a zero to a two.” What that does is those little acronyms, they take out less money based on how high your deductions are from zero to nine. Here’s where the magic comes in. Once you do that, your paycheck gets bigger. Those little acronym buggers take out less. You get more and your paycheck gets bigger. That $3,600, which is 15% of that $24,000, if that’s where your tax bracket fits, you could get an extra $300 a month. If you’re at the $6,000, which is 25%, you could get an extra $500 a month more with no changes to what you owe when you follow your taxes.
If you think you can’t afford a house because your paycheck is too small, thanks to the mortgage interest tax deduction. If you think your paycheck is too small to buy a home, have no fear. When you stop renting and own a home, your paycheck gets bigger. Next year, when the IRS says, “You changed your withholding dependence on your W-4. You owe us $6,000, no refund for you.” You say to them, “About that $6,000 tax write-off, thank you, mortgage interest tax deduction.” This is crucial to anybody buying a home. I have tried to have this conversation with many people. It takes a little while, but if you understand the process and understand that the government takes your money ahead of time and then gives it back to you, they’ve been withholding it for 12 to 14 months for you. They’re getting the interest. You could have got that back by figuring out how much they should take out of every single check.
I’ve had this conversation before. “David, we’re renting for $2,000 a month. We can totally save the down payment, but all the homes we see at $2,000 a month payment are garbage.” I get that. You can actually afford $2,600 a month with the mortgage interest tax deduction. It’s a tax deduction that you can take monthly. You won’t get burned at the end of the year because you get a big write-off. Get your money early in little small doses every month instead of getting a big refund check in April of next year.” I have had that conversation literally over 100 times. People freak out and they get excited because they realize not only were they going to stretch anyway above the $2,000 a month if they knew they were going to be putting money into their home. Now, they’ve got an extra $300, $400, $500 a month.
If you did not comprehend me, if you did not understand the words I say, you can go to DavidSidoni.com, scroll down the bottom and shoot me an email. I’ve got a simple and easy-to-understand document that lays it out for you. It’s really easy. It’s what I hand to all of my first-time buyers when I go sit down and meet with them at coffee. It’s a great little document. I’d love to give it to you. You have to grasp this concept. It’s a must. This is your golden ticket, your secret spell of enchantment to unlock the door to hidden treasures. Seriously, this is a big deal. It’s the key to unlocking your financial power. It’s the true secret to being able to afford a higher monthly payment on a home that you own, higher than the monthly payment that you already pay on your rental. Yet, it won’t affect your bottom line at all. It’s your money. You can get it when you want. You can pay more on the first of the month than you’re already paying right now, but you don’t have to sacrifice anything else in your monthly expenses. I hope you get that. This is how Simonette, our reader in New Orleans, got her home with her unicorn agent. She’s not panicking about her monthly payment because she talked to me about this tax deduction.
Step 23 is balance. Why should you talk to a pro 1 to 3 years out? Everyone says, “I’m not even close. I’m not even ready. Don’t even think about it.” Everyone tries to do it on their own. There’s a delicate balance between debt and savings. You’re trying to figure out you want to pay off all your debt. At the same time, you need to build up a savings account. Those are opposite things, money in/money out. You can work your Dave Ramsey debt reduction, pay everything off, get super excited and then have no money for down payment. You’re now stuck in another lease for a year while you try to save money for your down. Unless you live every day with the crap that I and the lenders deal with, you’re not going to be able to figure out how to go through this on your own.
That’s not your fault. It’s not your job. Unless you’re dealing every day with debt-to-income ratios, seasoned and verified money versus new money or gift money, unless you’re dealing with seller credit and closing costs as a potential for the buyer, but only being able to use in certain market conditions. All that stuff. You’ve got to know where and how everything is happening. How are you going to know how much to pay off your debt versus how much you should be saving? I didn’t even mention how doing all these things affects your credit score, which can affect your complete loan approval in monstrous ways.
This is all a lot. At the time I started this show, I had 76 first time buyers. They all said the same thing, “I should have called you earlier. We never should have rented as long as we did. Look at all the money that we lost.” If you’re reading this episode and you’re thinking about this, you don’t want a plan. I’m telling you this from the mistakes of others. People who are very happy with their life now, but they realized that they could have done things better. Don’t say, “I’m going to wait until I’m in a better place,” or “I’m going to wait until I’m a little closer before I call a realtor.” I know why some of you feel that way because you talked to realtors and they suck. They make you feel crap. They make you feel you’re not even close. What are you doing wasting my time? Screw them. We’ll find you a unicorn realtor. Someone who treats you with respect and the value that you deserve, someone who’s going to save you tons of money. This is a balance game and doing it on your own doesn’t work.
The Roadmap Metaphor
Let me give you the roadmap metaphor because I’ve made it up and I love it. Let’s say you get in a car in LA and you want to drive to Nashville. Nashville is buying the house. I could get my car and I could start driving East. Eventually, I’d get to Nashville. I follow the signs and figure it out. If you had a map, GPS or Google Maps on your phone, then you’d get there in the most efficient way possible. You will save time and money. Start now and start in LA with a map. Even if you don’t think you’re in a car yet in LA, do you want to buy a house? In this metaphor, LA is where you start and Nashville is the house. If you want to buy a home and you want to go to Nashville, I’ve got news for you. You’re already in the car and you’re driving. How about that? You didn’t even realize it. You’re driving with no map, no GPS, no navigation system, no Waze, no Google Maps. You don’t even have a MapQuest printout. Remember that? If you don’t have a ZIP code, you can’t get anywhere with the MapQuest. It might be too old for you.
You’re in the car. You got your foot on the gas and you’re driving, except you don’t have a map. You’re thinking, “David, I’m saving $50 a month. I’m not doing anything.” The big thing about saving and most importantly credit is the thing that you most need to set those things up is time, especially your credit. Get an expert who has a map and use all that time. If you’re here, you want to know how to buy a house, otherwise, your holes will be filled with something else. If you’re taking the time to read this, you’re in the car. If anyone out there is saying, “I’m with you. My credit sucks. I don’t want to get my credit pulled on closer.” I’m going to reach you right now. You have to get an expert opinion early. Getting your credit pulled is absolutely no big deal, especially if you’re years out. A credit pull 2, 3 or 4 points. If you’re a year or two away, there’s plenty of time for that inquiry to be made up in incremental amounts. Don’t let that be the reason because I hear that all the time. It drives me nuts.
Simonette closed on her house in New Orleans with her unicorn agent. She posted a beautiful picture of her badass new backyard. It’s amazing and beautiful. She posted it with this caption, “We are officially homeowners. This is our new view. I can’t believe this actually happened. I didn’t even know we could afford a home three months ago or what we could afford.” She was driving without a map. “I didn’t know how to go about finding a realtor or navigating the housing market when I stumbled upon this great show, How to Buy a Home with David Sidoni. He’s funny.”
She compliments me and then she says, “I immersed myself in the show and research. I got my husband on board and we went all in. Three months later, we’ve closed on our dream house.” She was sitting in a car in Los Angeles, back to the metaphor. She has no idea she even was going to start driving. She stumbled upon this show and got a map. She took the express bullet train and got to Nashville in three months. Her Instagram is @Sim_Art_Nola. If you want to check her out, she’s pretty cool. She wasn’t even in the car yet, but once she got that map, there she is.
Your mission is to reach out to me. Let me know where you are. Let’s get you a unicorn realtor. It’s that magical, mystical and rare combination of experience, compassion, empathy and an actual willingness to work with you years before you’re ready to buy. I know it sounds magical like a unicorn and mythical, but they do exist. I am the unicorn wrangler. A unicorn nation is built. We’ve screened and tested agents out there who understand what you need. I even found one in Helena, Montana for one of our readers. We are taking it deep and we’re ready to serve. In 2019, we have four closed purchases. I’ve decided I’m not going to ring the bell anymore. If you want to vote on it, go to DavidSidoni.com, go down and fill it out. Send me an email and in the subject line write Team Bell or Team Keep the Bell Retired. We have four new homeowners, thanks to the show. We got Chris and Jacqueline in Denver. We’ve got Nicole in Greenbay, Simonette and David in New Orleans. She’s been so nice to me. We’ve got Jason from Santa Clarita. He just closed on a house. He asked me to do an episode on what happened after the closing.
For real, I have 75 topics in my notebook for stuff to do before the closing. I’m with you. I’ll work on it. As of October 2019, we also have 37 planners out there. They are readers who are in the car in LA with a map. They got their unicorn hookup. There are too many of them to name them all. Shout-outs to a boss in ATO. We’ve got a single mom of two in Boca Raton. She thinks she’s about two years out, but she finally knows this can be a reality. We’re having a positive conversation. She’s my new hero. There’s more than that and I can go on, but this show is getting long because I’m so fired up.
Summary And Insights
We’re going to do the final summary and final insights on this whole financial planning thing. After that, I’ve got a story for you. It’s about a realtor. You won’t believe the insanity. If you’re still skeptical and you’re still wondering if you need to reach out to me and start your plan, “Why even read this blog?” That’s what you’re thinking. I once heard a business guru say, “I’m not an economic-academic. I’m not smart. I’m just in a position as the entrepreneur and owner of this company that no one can fire me. If I was at a company and I was an employee and I said the stuff that I say, the company would say, ‘That’s not how we do it. Don’t say that.’ They might fire me for speaking the truth.” I listened to him say that and I thought to myself, “That’s why I’m doing the show.” That’s why I feel I can because I don’t have a broker telling me, “That’s not how you do it.” I don’t have brokers trying to train me and tell me, “Don’t waste your time on buyers. Buyers are liars. They’ll suck your time. Go get a home to sell. Then the buyers will come to you like a Pied Piper.” I don’t have anyone telling me that because they don’t care what I do as long as I produce and that’s happening.
I decided I don’t want to answer to their backward logic of success, the, “How many homes you sell makes you the king.” I have loyal customers who appreciate what I offer. I got sick of seeing you, the first time buyers, get screwed by the dinosaurs in our industry. The truth is I came from working within real estate. That’s where I found that truth. It is not because I’m so smart that I could see bad practices everywhere and all sorts of business. I’m just an insider who happened to be in this specific space. I noticed there was a large group of people out there. I’ve told you the stat, 1.76 million first time buyers in 2018. They’re all losing this gigantic first step in their financial security. They’re losing it because the industry is ignoring them. They’re not doing it as soon as they could. They’re ignoring you. I’ve seen this firsthand. I’m not someone who sat around contemplating what’s wrong with the real estate industry, trying to figure it out and then capitalize on it.
The truth is I was getting sick of it. I was ready to quit unless I found some passion and real purpose in what I was doing. I’m not globally academic about the macroeconomics. I’ve been immersed in the microeconomics for several years. I’ve seen what’s going on and I found something that I’m passionate about. Through this show, I can tell you all about it and fix something while I’m serving the people here in my community. I’m the insider, the whistle-blower giving you the transparent real facts. Do you know why no one else is doing it? It’s not because I’m smarter than everyone else in the industry. It’s because it’s not sexy. I’m telling you this so that as you move forward, you keep this in mind. It’s like when I talked to you a couple of episodes ago about the obstacles that you’re going to face. I want to prepare you for it. I want you to be prepared for the fact that this is not sexy. It’s not going to feel like you’ve got some big discount deal.
It’s not sexy to get you to start your plan earlier and get you to stop renting sooner. It’s not that easy to quantify. If you read this blog and you follow me and the plan that’s been set by me and the 82 first time buyers, all the other people I’ve referred, talked to and advised over the years, let’s say then you contact me. You get a unicorn realtor in your area. You get your guy to help you do this earlier, someone who can give you all the tools and the roadmaps in the years before you buy. If you do all that, when you’re done, no one sends you a check for the $25,000, $50,000 or $75,000 in rent that you saved. You don’t get one of those crazy publishers clearing house checks or game show checks. You don’t get a big check for your $6,000 write-off. You just go in and change it with your nerdy accountant and then you get a few more dollars in your check every month.
No one gives you a check at the closing. When you get your keys, they don’t give you an advance check for the 3% appreciation that you’re going to gain annually on the price of your home on average in North America because you decided to be a homeowner instead of a renter. You don’t get a big check. No one throws you a party. You don’t get the satisfaction that you get when you get a deal on Black Friday or Cyber Monday, that huge discount. You don’t get the immediate gratification of the discount or the sale. You even have to sacrifice to get there. Not only do you not get that instant gratification, but you’ve got to suffer on your way to this closing. It’s not sexy, neither am I anymore. Sexy doesn’t matter to me. I’m done. I’m past it. What matters to me now are mission, purpose, truth, everyone’s financial wellness, getting the word out there, letting people know their dreams aren’t dreams, they could be reality.
Here are some recaps of the sacrifices, the struggles, the changes and the financial preparations that you should be doing so you can benefit in the long run. Know that nothing great comes easy. Also know that you already made your largest payment each month to something that is not benefiting you in any way. Stop to think about that. Your largest bill could be transferred to a financial growth vehicle, which is a little bit of savings. Go back to Episode 9 to find out how little you need to buy a home. I break it down into $200,000, $300,000, $400,000. You can still stay pretty close to the mortgage payment as it is to your rent payment based on where we are with the interest rates. The largest bill you pay each month could be transferred to the foundation of your financial freedom. That’s not extra, that is not sacrificed. That’s the payment you already make on the first of the month.
I’ve got another metaphor for you. Imagine you’re looking to buy a new car. One car you could get for $4,000 down. It would appreciate and deteriorate over time just like a regular car. Imagine there’s another car, a new, crazy magic car. One you could buy for $15,000 down. Notice from this metaphor, the $4,000 I’m using for the first car. That’s for a $2,000 rental place. The $4,000 is your first and last deposit and your monthly rent is $2,000. For the magic car, I’m using $15,000 which is the down payment, just like a first and last. It’s a down payment and the closing costs of $15,000 on a $300,000 home. You’re getting it at a 3.5% loan. That $15,000 covers that 3.5% plus your closing costs at the interest rates now. Your payment on that is $2,000 a month.
The payments are both $2,000 a month, one is $4,000 down and one is $15,000 down. You can buy that magic funky car for $15,000. That’s $11,000 more than the regular car that you were going to buy, the one that you’re familiar with, the one that depreciates and deteriorates over time. The new magic car is magic because it retains its value. If you keep the car for ten years, it will be worth no less than what you paid for it, probably more. You also get a $4,000, $5,000 or $6,000 tax write-off every single year for owning that car. Do you get the math? For $11,000 more, the next time you’re thinking about signing a lease, you could buy instead of rent.
This is a general math scenario and you have to qualify for the loan. If you’re already paying $2,000 a month for rent, unless you’re some crazy freak who makes $3,000 a month and spends 2/3 of your money and your income on your rent. You eat Top Ramen and you don’t have any other bills, but you really want a dope-ass crib. Unless you’re that guy or girl, you can probably fix a few things, learn how to do the balance, talk to a pro and get approved to buy a home. It’s an $11,000 difference than if you’re putting down $4,000 as a first and last on a lease. Think about that. If you can save $917 a month, you can be buying instead of renting in one year. You could save $458.50 a month for two years. You could be buying in two years.
Recap Of The Financial Planning Steps
Let’s use those numbers as we go through the recap of the entire financial planning steps. We’ll use those numbers. At $917 a month, if you could save that, you can buy in a year, $458.50, six months. These numbers aren’t going to be exact for everybody. They won’t even be exactly this equation that day that you buy a home because mortgage interest rates change multiple times in one day, let alone over months or years. This $15,000, $2,000 a month for a $300,000 home, that’s a general equation based on the interest rates where I did it originally at 4.75%. The truth is the interest rates now are lower than that.
That’s based on that general equation. It’s going to sound super scary when I talk at the beginning because I’m going to say, “Save your money as step one.” “Sure, David, I’ll save $917 in every single month for a year. No problem, dork.” I get it. It’s going to sound impossible on the first few steps. We’re going to go through all the steps, keeping this equation in mind. This will help you focus and see how clear and simple this can be. Step one is to save your money and automate it. In 2018, 1.76 million people bought their first home, but none of them started saving 30 days before they bought their house. They all started well before that. Get on it, you’ve got to get that 3.5% down payment. Can you save $917 a month for a year or $458.50 a month for two years? Probably not, but you can save some of that and lower those numbers.
Step two is to app it. Budget in your pocket. $10 here and $10 there, using an app helps you with your budget, then that $917 and $458.50 gets smaller. Step three is to start an emergency fund because rainy days are going to happen. That throws a wrench in my whole number equation thing. Regardless, you need to work on that too, get the rainy-day fund. Step four is credit. Check it, fix it, learn the tricks and grow your score. You need a good score so that you can qualify for the $2,000 a month payment. If your credit score is too low, you might need to save more than that $917 because your payment might be more than $2,000 and your down payment might have to be a little bit more. The whole thing can get a little funky. The higher your score, the better interest rate you’re going to get and the lower your payment.
Work on your credit and remember, credit takes the most time. If you do nothing now, if you ignore everything I said and don’t get a unicorn, fine, get some credit started. Go back to the credit episodes. You could reach out to me. I can get you in touch with a credit specialist. You can start doing it right away. Step five is to change your interest rates on your credit cards that you have right now. You can use step four to learn how to do that and learn how to work with your credit. That could be another $100 or $200 a month that you save that goes towards reducing $917 and $458.50.
Step six is to use money chunks wisely. Birthday, Christmas bonuses, tax refund, you could pay off a month or two of your $917 or $458.50. You can roll the savings into the next month and have your next month already started. Use that to pay it off. Use the little chunks to start the payments that you’re going to make in two or three months. It’s the Dave Ramsey technique, rolling it down the hill. Step seven is house hacks. Qualify for a big payment and then only pay half of it by using roommates to pay or you can get a duplex. This is interesting. This would save you on your $2,000 a month payment, but what does that have to do with our savings number? I need to save $11,000, $917 a month or $458.50 a month for two years.
If you get a roommate and you’re paying $2,000 a month, then you split the payment. Not only do you get to be the landlord, but you’re also getting an extra $1,000 a month. What if you took out a personal loan or you asked a family member for $11,000? Check your loan approval, went and bought a house, collected $1,000 a month, you could pay that loan back in eleven months. A $1,000 payment for eleven months. It’s done. Step eight is the harsh reality, change jobs. $917 and $458.50 is not a big number when you get a big fat paycheck.
Step nine is to pick up a second job. You’re going to get double the plus-minus. That means the plus-minus is you earn money on your normal days when you usually spend money. You can take all that money, put it towards the $917 or the $458.50. We’re starting to knock it down a little bit. Step ten is to develop your side hustle. It’s the same as the last one, knocks it down. Step eleven, sell your stuff. Look around. Do you have money in your garage or storage space or stuck in your closet? Let’s say you’re short one month, the $917 or the $458.50. Sell some of your junk. Step twelve, re-evaluate your transportation. Go green and save some green. Save away. Keep getting those numbers smaller. Step thirteen, be careful of the big expenses. If you’re trying to save $11,000 in a year or break it down to $917 a month, do you want to spend $1,000 for a trip, a concert, a festival, a Yolo event one time during that year or do you want to take that year off and chill? Do you want to push back your calendar by a little bit? That’s up to you. That’s your call.
Step fourteen, watch and track the small expenses. It takes a week or two of tracking. You track it and you’ll be surprised. That $917 and $485.50 can be $832 and $359 with just fewer lattes. Track those expenses and you’ll be able to find ways to knock those numbers down. Step fifteen, be a sugar daddy or a sugar mama. Live on one income. One of you pays the bills, the other one pays $917 or $458.50. Step sixteen is the 401(k). It’s the greatest way to diversify your money into what will likely be your largest investment. If that sentence sounds like gobbledygook to you, go back to Episode 22. The 401(k), maybe you have the whole $11,000 you need right now and you don’t need to save $917 a month. All you need is the last $4,000 and you’re in. You actually have the whole $15,000 right now. Keep in mind the maximum that you can withdraw from your 401(k) or your retirement funds is usually 50% if you want to use it as a non-taxable event.
What you’re going to do is ask them to withdraw the money for what they call a primary residential purchase, which is their fancy words for buying a house. You can usually take up to 50% of $50,000 depending on your money market. I highly recommend you go back to episode 22 to get a real grasp on the entire picture of how using your 401(k), your IRA or your other retirement vehicle to buy your house, your largest financial investment. It’s just a simple diversification of your long-term financial goals. You’re not taking away from your retirement. You’re adding to it with the base being a home, which for most of us is going to be the largest piece of our estate as we move forward. If you haven’t got the $30,000 in there to get the $15,000, here’s an idea to help you get to that. Diversify and reduce your contributions for a while and save up until you’ve got $30,000, 50% of which is $15,000, in your savings account that you can use for the down payment. It’s still planning for your future.
If you reduce your contributions and stick it into a savings account, you’re still putting it someplace where it’s going to grow for you and your family. Your money is not going to be thrown away on rent and you’re going to be gaining appreciation. You’re going to be gaining tax savings. That’s going to be worth way more than you renting and contributing double into your 401(k) to get the 3%, 4% or 5% return that you’re going to get on that. The money that you save in not throwing away in rent, the appreciation, the tax savings, that’s going to be way more.
Step seventeen, the IRAs and retirement funds. It’s the same thing as a 401(k). Read episode 22, that’s How to Financially Prepare to Buy a Home Part IV. Step eighteen is student loans. This matters in the $917 and $458.50 model because perhaps you can pay the minimums on your student loans and don’t pay extra and still qualify for a loan. That’s where we talk about the balance. Instead of paying off your student loans as quickly as you can with those extra payments, maybe you can put those extra payments towards your down payment savings account. When you’re finally ready making the move, you have the money and it’s not already spent inside your loan where you can’t get it out. Step nineteen, PMI, the one that affects your numbers. It might be a little higher is the way it might affect your $917 and $458.50 numbers depending on how much your PMI is. “David, how would I know that? How do I get my new number with the PMI?” Don’t drive without a map. I’ve said that paying down debt and saving on your own is the map metaphor. Don’t just go east, get a map. It shows exactly where you’re going and you get the answers on your PMI.
Step twenty is grants and down payment assistance programs. Eventually, possibly, maybe these could affect your bottom line. It might be cheaper for you, but it also can affect your ability to get your offer accepted. They’re a little tougher and in a competitive market. They put you down at the bottom of the pile. Be sure to go back to that episode where we talk step twenty about the grants. It’s a little bit of a pipe dream especially when saving 3.5% is not a bunch of money in the long run. Step 21 is to beg. Maybe grandma has got $11,000 sitting in a coffee can. Ask your folks for your inheritance early. What? They’re going to give it to you later? “Give it to me now. I’ll get a house for you to hang out with your grandkids. Do you want to come see the grandkids in a cramped apartment or do you want to hang out in the backyard with them and have a barbecue and have dad ruin everything by burning everything?” Step 22, tax benefits. This one doesn’t necessarily affect your $917 or your $458.50 savings each month, but it will affect how comfortable you are with your monthly payment once you make that purchase.
Step 23 is to balance. How can you know the balance of what you need to do, saving your cash versus paying your debt down if you don’t have a map? Get yourself a unicorn realtor. Why do you need a unicorn realtor? Jordan is my single mom friend. I called someone in Boca Raton to get her a unicorn agent. This was someone who was referred to me by some other agents that I respect. Apparently, she’s a big agent in Boca Raton. I’m going to make fun of her and I don’t give a damn. I know she’s never going to read this. If she were, I would have her call me back and say, “I have a difference of opinion with you and I am perfectly fine putting it out in the universe.”
She says to me, “Is this a lead you got from a show or a referral from someone you know?” I said, “No, this is someone from my show. We’re trying to get them realtors and help them. She’s a couple of years out.” “I’m not going to chase around a buyer for two years. If you had someone selling a home, I’d talk to you about that, but I’m not chasing a buyer around for two years.” “Thanks, lady.” That is the way the real estate industry sees first-time buyers. If you’re too stubborn to reach out now and get your unicorn from me, then I’ve got some other stuff for you to do. Join the How to Buy a Home Facebook page. There, you’ve got all kinds of more free information for you as if the free podcast was not enough for you and the invitation for you to call and get you unicorn, like the 37 other people and the four people who have closed. That’s what we do. You can also follow me, @DavidSidoni on Instagram. There are lots of great tips there. It’s David Sidoni on YouTube. Explore the website, DavidSidoni.com.
This information is for you from your insider who got fed up with things. If you find it valuable at all, please help me out. Spread the word. I want to get this show out to as many people as we can. It was growing in my little time away and now it’s still growing. All you need to do is scroll down in your app and press share. You can text it to all your friends. Get it out there. Some of your friends might be thinking about this. Maybe they don’t talk to you about it. Share it and help me out. Rate it and write a review if you got anything out of this.
I know there are a bunch of you out there reading this because I see all the downloads. I see the people continuing to download over and over again. That can’t be the same 45 people. If you got anything out of it, take three minutes to write a review. By doing that, we go up in the charts and more people get to see it. We can help other people with this mission, my passion project. Help me help other people. Let’s fix what’s broken. I want to spread the word and make more happy people do all these totally non-sexy things. Come on, let’s start a revolution. This starts with you. Are you in the car right now without a map? You can do this.
- Dave Ramsey
- @Sim_Art_Nola – Simonette’s Instagram
- Episode 9 – How Much Money Do I Need To Make To Buy My First Home?
- Episode 22 – How To Financially Prepare To Buy Your First Home – Part IV
- How to Buy a Home – Facebook Page
- @DavidSidoni – Instagram
- David Sidoni – YouTube
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!