How to Buy a House

Owning a home is the American Dream.  I’ve always liked the idea of owning my own home.  When I was in college I rented an apartment with friends.  It was fun, but it bothered me that I was paying a large sum of money to somebody else for something I will never own.  For some people, owning a home is not an immediate option and renting is what you need to do.  That’s fine.  Like I said, I did it too and honestly, in certain cases, it might be better to rent than to own.  My hopes have always been about being a landlord to eventually create supplemental income, so owning was the route I chose.  If you’re remotely interested in purchasing a home, I’ve put some useful tips together to hopefully help you out.

WARNING:  I’m not a realtor, mortgage lender, financial guru or anything of the sort.  I’m just a regular dude giving you tips based on my experiences.  Hope you find it helpful!

How to buy a house

A Steady Job

It’s important to have a steady job to show the bank that you’re able to make payments.  They take a look at something called your “Debt to Income Ratio”.  That’s basically showing them that you earn more than you spend on a monthly basis and adding a mortgage payment wouldn’t be more than you can handle.  Personally, I think that’s a good thing.  You shouldn’t be spending more than you earn and if you are, buying a house is probably not what you should be doing.  An easy way to be assured that you’re not spending more than you earn is by implementing a savings system in your life and creating a budget for yourself.  Click here to see my 60/40 financial lifestyle.  Also, in any sort of bank dealings, try not to be “in between” things, like switching jobs.  Banks want consistency.  If you have a new job opportunity, that’s great, but Banks just want to see a consistent history in your income.  So if you’re in the process of getting a new job, they’ll probably want to see a few months of pay-stubs to know that the money will be consistent.

Good Credit

You need good credit.  With good credit, a lot of doors open up for you.  Luckily, Sheena and I didn’t fall into any deep credit traps and have been pretty good about paying off our debts as they came.  If we did have any debt, we made sacrifices to pay them off as quickly as possible.  If you’re young, please don’t screw up your credit.  If you’ve screwed up your credit, do whatever it takes to fix it up.  That means cut back on spending and pay off all debt.  Clear the deck so that you’re able to use your credit to your advantage.  Good credit can get you better rates, and sometimes be the deciding factor on if you can get a loan or not.  Protect your credit!

A Good Bank

A good lender bank is very important.  Sheena and I have purchased 3 houses (so far) and each time we used different banks.  For us, it’s all about the interest rate they’re offering and the fees they’re charging.  The most recent house we bought, we actually got our lending done through a Costco affiliated bank.  Since we have membership at Costco, we have access to their affiliate banks.  It was the cheapest closing costs we’ve ever seen and the lowest rate that was offered at the time.  We saved thousands of dollars (no lie)!  On top of that, the customer service was amazing!  In the process of getting a loan, you’ll be working alongside your lender to provide all your financial information to them so that they can do their job.  Since this is the case, it’s good to have an open door of communication with them.  Comparing all of our transactions, the Costco affiliate bank was the best.  I should note that my brother had a different experience.  Although they were able to close on the house and got a great deal on their loan, they had a crappy experience with Costco.  He used a different bank offered by Costco, but that goes to show that it’s really a crap shoot.  You never know what you’ll get.  So again, focus on the lowest rates and the smallest fees.  If a bank is not open about what they’re going to charge you, move on to the next bank.  It’s your right to know what you’ll be paying.

Money Saved up

You’ll be surprised how much it’ll cost to buy a house.  I mean, you’ll have a general idea based on the negotiated price of the home, but you’ll have to bring money to the closing table.  To avoid PMI (private mortgage insurance) you would have to bring 20% to the closing table.  That can potentially be a large amount depending on the price of the home.  Like I mentioned before, the rules always change, but we were able to get an 80/10/10 loan on our most recent home.  This means we brought 10% to the closing table, we got a small loan for 10% and another loan for 80%.  This allowed us to avoid PMI, but it also means we have 2 loans on one house.  The smaller loan has a slightly higher interest rate and tighter rules.  Because of that, we make efforts to pay it off faster (projected to be paid off within 5 years).  All this to say, save your money.  In addition to getting into the loan, you’ll probably need to furnish the place too… all of that costs money, so the more you can save the better off you’ll be.  Need tips on how to save?  Click here.

A Good Realtor

This will be your lifeline.  When you’re buying a house (particularly a house that’s not a new construction home), you’ll want someone on your side that’ll be open and honest with you.  My realtor showed me a ton of homes and opened my eyes to things I never thought of.  It was also nice to have an inside view of how negotiations work.  Having a trustworthy realtor helps in actually closing a deal.  I would highly advise to find someone that’s been in the business for a few years.  As with anything, years in the game brings experience and that experience is what gets you better deals.  A well seasoned Realtor will most likely have suggestions on inspectors and handymen to do work on your house as well.  In my opinion, referrals are very important, and it all stems from a trustworthy Realtor.

I hope this was helpful!  Questions?  Feel free to leave a comment and I’ll do my best to answer.

5 Replies to “How to Buy a House”

  1. This was actually pretty good buddy. But I don’t understand how you avoided the PMI insurance? I thought 20% down is regardless of loan size. Even if you did two loans………….you only put down 10%. Maybe I missed something.

    1. Thanks Dudley! I’m not 100% sure on how it works, but I see it that the “main” bank wants protection for their money. That’s why they want 20% or hit you with PMI. The secondary bank that’s giving me the 10% loan is sorta like my “buddy” helping me present a full 20% to the main bank. That way the main bank is happy with their 20% and the secondary bank is happy because they get a slightly higher interest rate on the smaller loan. Hope that makes sense.

      It was a deal that my lender (from the main bank) proposed to me so I jumped on it! I’m sure it’s commonly offered but probably not heavily advertised.

      1. ooooh…………that makes sense. I didnt realize you gave the second loan to the first loan bank. Gotcha.

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