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In this episode we talk about how to prepare for buying a home, what the process looks like and how nuts it is to buy a home in the San Francisco Bay Area.

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Danielle
0:00:00–0:00:06
Anxious about buying your first home? We'll tell you everything you need to know on this episode of Happily Unmarried. Hi my name is Danielle.
Daniel
0:00:06–0:00:07
And my name is Daniel.
Danielle
0:00:07–0:00:12
And you're listening to the Happily Unmarried podcast. A podcast about adulting and living your best life.
Daniel
0:00:12–0:00:23
In this episode we will talk about how to prepare for buying home, what the process looks like, and how nuts it is to buy a house in the San Francisco Bay Area. Roughly a year ago we bought our first house together.
Danielle
0:00:23–0:00:27
Yeah it was a very exciting and stressful time.
Daniel
0:00:26–0:00:32
Yeah reflecting on it now we wanted to share with you everything we learned during the house-buying process.
Danielle
0:00:32–0:00:35
And I think we're going to start with how to prepare for this process.
Daniel
0:00:35–0:00:39
So what are the steps I need to take to prepare for buying a house.
Danielle
0:00:39–0:00:47
So there's a lot of factors that go into preparing to buy a house but the first step is preparing for the mortgage,
0:00:48–0:00:56
right so you can't buy your house until you have your pre-approval and you know what how much a lender will even be willing to lend you.
Daniel
0:00:55–0:00:57
Unless you have a lot of cash lying around.
Danielle
0:00:57–0:01:11
Unless you just like full cash, done. Most of us, that's not the case. So you know, in preparing for the mortgage or some things that you should consider if you haven't considered and potentially maybe to work on before,
0:01:11–0:01:19
either you take those steps in and go to a lender and get pre-approval. And the first thing is making sure your credit is good.
Daniel
0:01:19–0:01:30
Making sure your credit is good can be a very long process. If your credit right now isn't very good then it might take months or even years for you to be able to get your credit up to level where you can get a good mortgage.
Danielle
0:01:30–0:01:32
and there's a lot of information out there,
0:01:33–0:01:48
online in regards to how you can clean up your credit scores. So were not going to go into great detail about that. Instead, I think we're going to focus on what you could possibly do short-term to increase your score. Starting with lowering your credit to debt ratio.
Daniel
0:01:48–0:01:58
Right so the credit to debt ratio is an important factor for your credit score and there are two ways how you can improve that. That is you reduce the amount of debt that you have or you increase the amount of credit that you have,
0:01:59–0:02:10
so for example of one easy way is to just reach out to your credit card company and ask them if they will ever willing to increase your credit and if they are then there you go you have a couple additional credit,
0:02:10–0:02:11
score points suddenly.
Danielle
0:02:11–0:02:20
Right and I think we both actually did that in preparation for our mortgage and then I also did the other thing which was pay off your debt.
Daniel
0:02:20–0:02:22
Wait you paid off my debt?
0:02:24–0:02:34
Right and very important leading up to something like a big mortgage is you want to make sure that you don't open up a bunch of additional credit lines just before you apply,
0:02:34–0:02:36
So no new credit cards, ideally.
0:02:36–0:02:49
They're an argument to be made that you will get additional credit and will improve your credit to debt ratio. But the additional dings on your credit report, the new accounts as well as the credit report inquires that these credit cards will cause will...
Danielle
0:02:49–0:02:55
It will negatively impact more than the positive impact of getting a increase credit.
Daniel
0:02:55–0:02:57
And that ties into the last point as well.
Danielle
0:02:57–0:03:04
Right and you also briefly just mention this, every time someone runs your credit that negatively
0:03:04–0:03:19
impacts your credit score and that's even the mortgage lenders themselves as you're searching for a mortgage have to be mindful that these these companies are also going to be checking your credit and hitting up your credit score so you want to minimize any that don't need to be done.
Daniel
0:03:19–0:03:30
Well there's a little trick. Multiple inquiries for the same type of credit on your credit report will actually only show up as one inquiries as long as those inquiries happen within a specific time frame,
0:03:31–0:03:43
it may be three months, maybe it's less than that, but basically if you have all the different lenders pull your credit report in the same couple of weeks then they will only be one,
0:03:43–0:03:51
ding on your on your credit report. So what you do not want to do is, you don't want to go to one lender,
0:03:51–0:04:04
today and then to another lender in a couple of months then to another lender in a couple of months more. That will actually negatively impact impact your credit score. So what you to want to do is go to all the lenders that you are considering around the same in the same time frame.
Danielle
0:04:04–0:04:17
Great so the next thing that you want to consider when preparing for a mortgage is your income to debt ratio which is different than your credit to debt ratio.
Daniel
0:04:17–0:04:20
So many ratios, specifically is
0:04:20–0:04:35
how much money do you make every month and how much of that money that you make every month are you paying in interest and principal payments for already open lines of credit. So for example, an auto loan or maybe a mortgage that you already had or something else.
Danielle
0:04:35–0:04:41
Right, and that's actually something that I did when we were preparing for our mortgage is I make sure that I paid off
0:04:41–0:04:50
all of my student loans. I didn't want to carry that debt, I wanted to ensure that I had the appropriate funds to pay the mortgage every month. My overall
0:04:50–0:04:54
debt that I was paying off went to zero, that was fun.
Daniel
0:04:54–0:05:04
Generally a income to debt ratio of 36% or less is considered good and any lender will be happy to give you a mortgage if,
0:05:04–0:05:16
your income to debt ratio does not increase over 36%. This is important, you need to include your mortgage that you're shopping for in determining your income to debt ratio and that needs to be,
0:05:16–0:05:21
well it can be over 36%, but 36% or lower is considered great.
Danielle
0:05:21–0:05:23
Right and I think a lot of people don't
0:05:23–0:05:39
think about that part. They just look at their current situation and what their current income is and what their current debt is and then when you factor in that additional cost and maybe the mortgage is twice as much as what you're currently paying rent and all of a sudden you are no longer
0:05:39–0:05:42
under 36% when it comes to the debt income ratio.
Daniel
0:05:42–0:05:57
The next one that is really important when preparing for a mortgage is employment and employment history. Your lender will want to see your last two years, I think, of employment history and to make sure that you are able to continue to pay for your mortgage.
Danielle
0:05:57–0:06:02
Right to this is specifically to you job-hopping Millennials don't,
0:06:03–0:06:08
quit your job if you are planning on buying a house in the next year or two,
0:06:09–0:06:14
and the last piece which is the piece that I think everyone thinks about when they are
0:06:14–0:06:27
planning on buying a home is the down payment right so we're all thinking about the down payment that's for some people the hardest part of buying a home and when we think about it down payment what we're talking about usually is 20% of the home price.
Daniel
0:06:28–0:06:33
And you can go higher or lower and it has effects on your new monthly payments,
0:06:34–0:06:38
but that is the norm. I think 20% is what the lender wants to see,
0:06:39–0:06:51
and important for the down payment is also to understand before you will get pre-approved. You will have to prove to your lender that you have those funds available. So, they will want to see a bank statement or a brokerage account statement or whatever so just be aware of that.
0:06:51–0:06:55
you will probably not get pre-approved if you can prove that you have those funds.
Danielle
0:06:55–0:07:04
Right, this isn't going to work if you're anticipating getting a significant amount of money but you don't yet have it. You need to wait until you have the money before you apply for the pre-approval,
0:07:04–0:07:12
okay so once we addressed all of these things and made sure that our credit was in line, we had stable employment,
0:07:12–0:07:20
we're getting our income to debt ratio under control and we were preparing money for a down payment we stopped and thought,
0:07:20–0:07:33
well can we actually afford this and I know what your thinking. Well you have the money for the down payment so why are you thinking about it now, if you can actually afford it? and I think that's because a lot of people don't consider that when you buy a house it's not just a down payment
0:07:33–0:07:43
there are different types of costs that go into buying a house and what we did was we sat down and we broke down those costs and we looked at them separately to ensure that
0:07:43–0:07:49
whatever decision we decided to make in regards to buying a house that it was the best financial decision for both of us.
Daniel
0:07:49–0:07:54
The two major parts to the cost of buying a house you can break them down in,
0:07:54–0:08:00
one-time costs those are the things that you pay once when you buy the house and then there's,
0:08:00–0:08:12
recurring costs that you have to pay every month or every year once you own that house and we wanted to make sure that buying the house makes sense financially for us for both of these categories,
0:08:13–0:08:21
the biggest one-time cost that goes into buying a house and this is the one cost I think that is on everybody's mind is the down payment.
Danielle
0:08:21–0:08:35
Right because it's the biggest obstacle for many. So depending on where you live and the cost of housing in your area 20% down can be anywhere from $10,000 to,
0:08:35–0:08:37
300,000.
Daniel
0:08:37–0:08:48
There's several things that you can do to help you achieve or save up that down payment. The obvious one is to save cash, you get a paycheck every month, to take some of that, put in the bank account save up for your down payment.
Danielle
0:08:49–0:08:57
I mean I know people that will move back in with their family for a year just so that they can put all their money aside to gather the money.
Daniel
0:08:57–0:08:58
Reduce expenditures.
Danielle
0:08:58–0:09:03
Another thing that you can do is sell stock from a brokerage account.
Daniel
0:09:03–0:09:07
Well you have to have a brokerage account obviously with stock in it.
Danielle
0:09:06–0:09:14
If you have a brokerage account with stock at it you have the option to sell it.
Daniel
0:09:14–0:09:21
If you have saved cash in the past and invested that to make better returns on it then obliviously you can liquidate some of those assets.
Danielle
0:09:21–0:09:24
But that also has some hidden additional costs involved.
Daniel
0:09:24–0:09:30
Right if you make capital gains on those stocks then you will have to pay taxes if you sell stocks,
0:09:31–0:09:45
worth $50,000 and you have $10,000 in capital gains you need to consider that you may have to depend on your tax bracket if you have will have to pay between 10% and 20% of those gains at the end of the year in capital gains taxes so you better keep a thousand dollars somewhere.
Danielle
0:09:46–0:09:48
You'll have the option to borrow from,
0:09:48–0:10:02
your 401k or you can cash out an IRA if you have it, I believe you can cash out from an IRA up to $10,000 for minimal penalty. 401K is little bit different
0:10:02–0:10:07
you have to actually pay that back so that is also another option.
Daniel
0:10:07–0:10:20
Yeah and then the last option that I think a significant amount of people actually utilize is borrowing money from friends or family or maybe even getting it gifted more likely in the case of family but.
Danielle
0:10:20–0:10:27
If your family is available and they have the money and they're willing to help you don't say no to that.
Daniel
0:10:32–0:10:39
If you like our podcast please give us a review on iTunes and don't forget to subscribe to never miss an episode. And then there's also the option,
0:10:39–0:10:46
off not paying down 20% but paying down less than 20%. Lenders like to see a 20% down payment,
0:10:46–0:10:59
but it's not necessarily impossible to get a mortgage at a lower down payment but generally this will mean that you will have to get a private mortgage insurance. Basically that insures your mortgage against you not being able
0:10:59–0:11:02
to pay back the loan to the lender.
Danielle
0:11:02–0:11:08
Right which means you then have to have the money to pay your mortgage and the additional cost of that insurance.
Daniel
0:11:08–0:11:17
And paying for the mortgage means all the running costs that come with owning a house not only the mortgage which will go in a bit.
Danielle
0:11:17–0:11:24
Another one time cost that needs to be considered when buying a home is inspections.
Daniel
0:11:23–0:11:37
Well you have to consider them if you're not waving them. Here in the Bay Area when we were buying a house we ended up waiving all contingencies also the inspection contingency so we didn't even have an inspector go though the house on our behalf.
Danielle
0:11:37–0:11:44
Right and this is unfortunately very common practice in the Bay Area in order to be competitive with your offer
0:11:44–0:11:53
we tend to wave these. Then after inspections the next one time cost you're going to run into are the closing costs. So everything that you are
0:11:52–0:11:56
that goes into finishing out the mortgage.
Daniel
0:11:56–0:11:59
ome buying process.
Danielle
0:11:59–0:12:05
Wrapping it all up that includes the title insurance escrow.
Daniel
0:12:04–0:12:10
Escrow fees, the appraisal of the the house which is something that the lender wants.
Danielle
0:12:08–0:12:16
Just processing all of this paperwork and all of these costs are typically between 2% and 5% of the total.
Daniel
0:12:16–0:12:25
Although 5% seems awfully high to meet, we got those numbers from Google. I think we paid more like 1% in closing costs,
0:12:25–0:12:32
that may be different in different areas and depending on your home price etc. and then the fun part begins which is
0:12:32–0:12:46
all these renovations and repairs that you want to do before you move into the house. So you want to get a new kitchen, maybe you need a new HVAC system because the old one is rubbish, or you want to replace those grimy carpets with like nice shiny hardwood floor,
0:12:46–0:12:52
all of those cost money as well and all of those need to be part of your budget to be able to afford that.
Danielle
0:12:52–0:13:00
Right so if you are not purchasing a house that is move-in ready it's very likely that you will want to put money into the home,
0:13:01–0:13:13
or even need to depending on the situation before you can even move in and we were relatively lucky our house is basically move-in-ready we just replace some carpets, painted, that was pretty much it.
0:13:14–0:13:20
and lastly moving costs. I think a lot of people don't think about this part
0:13:20–0:13:35
whether you're paying a professional service to move you or you're paying your friends in beer and pizza, that's still packing materials, boxes. If you are paying a professional company, depending on how far you're moving from,
0:13:35–0:13:46
plays a factor. If you are moving yourself and you have to pay for the U-Haul and depending on the size of the U-Haul. So there is always going to be some additional cost involved,
0:13:46–0:13:52
we paid roughly $1,500 to move and we moved what? Two miles?
Daniel
0:13:52–0:13:55
At most.
Danielle
0:13:55–0:14:03
Once we confirmed that you know we had the money together for that the one-time cost then we had to sit down and really figure out
0:14:03–0:14:14
what the the running costs what the reoccurring costs are going to look like to own a home together and whether or not that was something that we would be able to afford on a monthly basis.
Daniel
0:14:14–0:14:24
When you look at the initial payment the down payment is the most significant part to that. And that is usually what people have on their mind when I think about the initial cost they tend to forget all the other small things,
0:14:25–0:14:31
they are relatively small compared to the down payment but when you come to the running cost people,
0:14:31–0:14:42
the only thing that people really consider is the mortgage payment but there's really a lot more to owning and maintaining a home and we want to look at this a little bit more closer now so,
0:14:42–0:14:52
primary recurrent cost is your mortgage payment and depending on your interest rate and the lifetime of your loan your your mortgage payment can be higher or lower
0:14:52–0:15:06
but it's important understand that your mortgage payment is composed of two parts which is one of the interest payment that you pay and then there's the principle that you pay and obviously you have to pay both every month but in a lot of ways
0:15:06–0:15:19
you can think of your principal payment more like saving money then spending money. Whereas the interest is, is an actual cost to you. You still have to come up with the money obviously right but that's something to consider.
0:15:19–0:15:27
paying the principal actually builds equity in the house for you. One thing that's easily overlooked is that your mortgage payment is not the only running class.
Danielle
0:15:27–0:15:36
Right so the next running cause which I think people do consider and think about it's not top of mind is not the number one thing is property taxes
0:15:36–0:15:49
property taxes due vary by state in California that's typically about 1% of the home value or the cost of the home and that's annually so for a million-dollar home you're looking at $10,000 a year in
0:15:48–0:15:50
property tax it.
Daniel
0:15:50–0:16:02
And I think this is the important thing a lot of people they are aware they will have to pay property taxes but they don't realize how much that actually can be annualized or even on a monthly basis so,
0:16:02–0:16:05
approximately 1% for an approximately $1M home is
0:16:05–0:16:14
eight hundred and something dollars every month in addition to whatever mortgage you're already paying that could be easy 20% of your total mortgage cost.
Danielle
0:16:14–0:16:20
Right so if you thought that you could afford a $4,000 monthly mortgage payment you may only
0:16:20–0:16:27
afford a $3,400 monthly mortgage when you're also considering property taxes,
0:16:27–0:16:32
the other thing is that you can pay your property taxes in two different ways you can either
0:16:32–0:16:38
roll them into your mortgage payment and pay the monthly through your lender or you can just pay directly
0:16:38–0:16:47
to the local tax collector that's twice a year and they say it's at Christmas and tax time it's like the two best times that you want to fork over a big chunk of money.
Daniel
0:16:47–0:16:59
I think for most people the easiest solution is to roll it into your mortgage payment. There are some drawbacks to that but for most people I think it's just the more convenient and easier to calculate with way to pay the property taxes.
Danielle
0:16:59–0:17:05
The next thing that you got to look at is homeowner's insurance pretty standard varies by state,
0:17:05–0:17:16
approximately $1,000 a year roughly $80 a month but again it may seem small when you think it's only $80 a month but it is another reoccurring cost that you have to be mindful of.
0:17:16–0:17:26
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Daniel
0:17:26–0:17:40
And then the next item is the silent sleeper I think this is just the one point that everybody misses when they're thinking about how much will a house cost me effectively and that is actual maintenance of the home.
Danielle
0:17:40–0:17:45
And we're not talking about remodeling we're talking about things are breaking and need to be fixed.
Daniel
0:17:45–0:17:55
Exactly, so today if something breaks in your rental, you call your landlord and you're like hey dude my washer is broken down the garbage disposal doesn't work.
Danielle
0:17:55–0:17:56
or the roof is leaking.
Daniel
0:17:56–0:18:01
The roof is leaking. Guess what as a homeowner your going to pay it now.
Danielle
0:18:01–0:18:09
You can easily spend thousands of dollars a year on the upkeep of your home and we got to learn this,
0:18:10–0:18:23
I mean not the hard way because we did our homework and our research and we were we we knew that this could potentially happen but we weren't necessarily prepared to spend the amount of money that we have spent in the last year on maintenance for this home.
Daniel
0:18:23–0:18:26
I mean I think it was pretty hard.
Danielle
0:18:26–0:18:36
I just give everyone it and idea of kind of what we went through in the first year we had a water incident in our
0:18:36–0:18:39
downstairs we had to
0:18:39–0:18:48
pay for restoration of our floors and drywall so that was covered partially by our insurance. Fun fact, if you really want to make sure you have your homeowners insurance
0:18:48–0:18:55
at the time of closing because we filed our very first home owners insurance claim.
Daniel
0:18:55–0:18:56
.
Danielle
0:18:56–0:19:01
2 weeks into owning our house so that was roughly $5,000.
Daniel
0:19:01–0:19:05
It was $5,000 that stuck with us the insurance paid more than.
Danielle
0:19:05–0:19:19
We had a broken dishwasher that we replaced it was $800. We had a power surge. So PG&E our electric company messed up which created a power surge on our home and essentially broke a bunch of our electronics.
Daniel
0:19:19–0:19:24
Yeah, so like our microwave died or heater HVAC system got damaged.
Danielle
0:19:24–0:19:36
The ventilation hood above our stove broke a bunch of light switches that was about 3,800 bucks plus additional electrical repairs for another $800.
Daniel
0:19:36–0:19:42
Yeah later, that was unrelated. Although it could have been related we just hadn't noticed that problem before.
Danielle
0:19:43–0:19:48
So in total we spent roughly $10,000 in repairs in the first year of owning a home.
Daniel
0:19:48–0:19:49
Yeah Hallelujah.
Danielle
0:19:49–0:19:52
Yeah! home ownership.
Daniel
0:19:52–0:19:57
And that doesn't even include any voluntary home improvements that we've made to the house.
Danielle
0:19:57–0:20:11
Yes these are all the things that we did not want to pay for. So I guess this is our PSA if you don't consider these additional costs your dream of home ownership can quickly become a nightmare that ends in foreclosure alright now that we're super pumped,
0:20:12–0:20:19
let's talk about the steps to buying a house. Step 1 find a lender.
Daniel
0:20:18–0:20:25
When looking for a lender, you want to go and shop around with different options but you really going to stop at your house bank you generally have a,
0:20:26–0:20:36
business relationship with them, they are less likely to just send you away when you approach them. Start there and then then find other options and what do you want to do so you want to shop around so you want to get
0:20:36–0:20:43
offers for a mortgage from various lenders and then see who gives you the the most competitive offers and then you can go back
0:20:43–0:20:57
with those more competitive offers to the other lenders and say hey Bank of America offers me this better interest rate if you can undercut them by 22% then I'll prefer to get my mortgage from you guys instead.
Danielle
0:20:58–0:21:11
Once you've chosen your lender the next step is going to be to get your pre-approval which we've covered. All the things that you need to do with that, you'll need to have an idea of how much house you plan to buy and what you can afford.
Daniel
0:21:11–0:21:15
The lender will literally ask you how much money do you want and you need an answer.
Danielle
0:21:15–0:21:24
You'll also then have to provide documentation on your income and your employment if that's what I'd run your credit and tell you if you can afford that amount of house,
0:21:25–0:21:34
it is also to note that just because a lenders willing to approve you for a mortgage it doesn't mean that you actually can afford the house right keep those hidden running costs
0:21:34–0:21:35
in mind when you do this.
Daniel
0:21:35–0:21:47
Just because a lender will give you the money to buy a ridiculously expensive house doesn't necessarily mean that it's the best choice for you or that you can actually afford it without going house poor essentially.
Danielle
0:21:47–0:21:51
But once you've got your pre-approval letter that's when you can start looking for your realtor.
Daniel
0:21:52–0:22:01
Realtors are a dime a dozen right everybody and there Grandma is a realtor these days. Especially in competitive areas like the Bay Area. but it is important to understand that a realtor
0:22:01–0:22:13
is kinda like your guide in the house buying process. The realtor will be the person that you can go to with questions that you can get advice from and they will generally be the
0:22:13–0:22:16
the most helpful person in this entire process.
Danielle
0:22:16–0:22:24
Right try to find someone who's competent that you can trust and who understands who you are as a as a person as a couple and what your.
Daniel
0:22:24–0:22:25
What you looking for you.
Danielle
0:22:25–0:22:31
Referrals from friends are usually always a good start that's how we found our realtor her name is Kiera Garonne.
0:22:31–0:22:43
She was a referral from a friend, she was fantastic so if you are listening from the Bay Area we will include her contact information in our description cuz we highly recommend.
Daniel
0:22:43–0:22:48
And so if you worrying oh a realtor I can't afford a realtor they are way too expensive here
0:22:48–0:23:02
is good news for you you are actually not paying for the realtor the person paying for the realtor is the seller effectively. So there's a commission that the seller pays for that is split between the seller's agent and the buyer's agent.
Danielle
0:23:02–0:23:04
So once you,
0:23:04–0:23:17
start shopping around for a realtor you meet with them and have them explain to you how they can help you and what their role in the process is going to be don't get frustrated if they don't immediately,
0:23:17–0:23:32
find your dream home that can take a little bit of time and you also don't have to rely on the realtor only you can absolutely look yourself and go to open houses on your own and house-hunting in general can be kind of a long drawn-out process.
Daniel
0:23:32–0:23:43
But if you feel like your realtor is maybe not competent or does not really get you and you don't feel comfortable with them don't be afraid to look for somebody else.
Danielle
0:23:43–0:23:51
This is a big probably one of the largest purchases you're ever going to make you want to make sure that you're working with somebody that you trust,
0:23:51–0:23:57
so once you found your realtor that's when you're going to start attending open houses both probably on your own
0:23:57–0:24:09
alone with your realtor start looking you know in your price range maybe even a little bit higher just to get an idea of what the market looks like and what people are asking for and what how much house you'll get for that much money
0:24:09–0:24:17
and one thing also that we suggest it when you're considering your home is actually aiming lower than your max
0:24:17–0:24:27
specifically again in the Bay Area being such a competitive market a lot of times you have to go lower than your max because you may have to offer higher or
0:24:27–0:24:34
they make counter you later typically better off if you aim lower and you don't look at homes that are at your absolute max.
Daniel
0:24:34–0:24:48
In our case for example we ended up paying 30% more for the house that we bought compared to what the original listing price was. So the next step in the process is to actually go and make an offer once you found your dream house.
Danielle
0:24:49–0:24:56
So before you actually make your offer there's a few things that you need to do. One is working through the disclosures. Disclosures
0:24:56–0:25:04
have to be submitted by the seller and they have to disclose information about material defects regarding the property.
Daniel
0:25:04–0:25:16
So if the roof is leaking for example the seller has to disclose that information to the buyer and the seller is legally liable for any undisclosed material defects if he was aware of them.
Danielle
0:25:17–0:25:30
Next you'll review comps in the area. So comps are comparable properties that have been sold recently this helps you gauge the value of the property to set make sure that your offers and rain.
Daniel
0:25:30–0:25:44
There a little bit complicated because the details matter so much. Same square footage, same bedrooms, same area house, vastly different prices can make sense depending on whether or not the homeowner model for example.
Danielle
0:25:44–0:25:58
So you'll get all of this information from your realtor and once you've reviewed all of that that's when you will work with your realtor to actually submit your offer. And then your offer consists of a couple different things first,
0:25:59–0:26:02
how much are you willing to pay for this home.
Daniel
0:26:01–0:26:11
This is the most exciting part but it's actually very easy to get wrong. Specifically you want to set a price or offer a price that you feel comfortable with,
0:26:11–0:26:15
what I mean with this is you want to make sure that you're not regretting that offer later
0:26:15–0:26:24
when you do not get the house or if you get it and you realized oh I was totally in FOMO mode. We offered way too much for this.
Danielle
0:26:24–0:26:36
You don't want to feel like you regret the fact that you didn't throw in an additional $10,000 but you also don't want to feel like oh shit we went a little overboard and we probably shouldn't have offered this much money.
Daniel
0:26:36–0:26:49
Is it before you put a number down on your offer you want to ask yourself if this offer gets accepted with this amount will I regret paying this much and if it does not get accepted with this amount will I regret not offered more.
Danielle
0:26:49–0:26:51
The next piece of
0:26:51–0:27:05
the offer are the contingencies so again in very competitive markets like the Bay Area we just waive all contingencies to make the offer more attractive and the reason for this and we'll talk more about this later is that
0:27:04–0:27:12
you go up against a lot of cash offers and cash offers just go much faster so we want to
0:27:12–0:27:15
maintain competitiveness so we just,
0:27:15–0:27:22
wave them away but you don't have to. I think a lot of States it's still very common to do that but that is something that you have to include in your offer.
Daniel
0:27:22–0:27:26
And this is the part that you like the most I think it said that the love letter.
Danielle
0:27:26–0:27:28
The Love Letter won us his house,
0:27:29–0:27:42
so the love letter is something that we include here and it's basically a letter to the seller telling them about yourself and your family and why you love their home and
0:27:42–0:27:45
really you know you want to appeal to your audience.
Daniel
0:27:44–0:27:55
So, the reason why you add this offer letter is to add a personal touch to your offer that helps you stand out compared to this faceless investor that buys.
0:27:55–0:28:03
Tenth rental property. Follow us on social media to get a peek behind the scenes we are at a@umarriedmedia on Facebook Twitter and Instagram.
Danielle
0:28:03–0:28:17
One thing that I recommend I think this worked very well for us is to do a little bit of research on the seller you're going to get their information look I'm up learn some things about them and then appeal to them
0:28:17–0:28:20
you have to remember that when someone sells their home it's very personal
0:28:20–0:28:34
and there are some people that personal connection is really important to them so if they believe that they found a family that will treat their home in the same way that they did and respect it in the same way that they did and relate to them in some way it gives you a,
0:28:34–0:28:35
An edge.
Daniel
0:28:35–0:28:48
Once your offer was submitted to the seller and buyer agent will go in review of the offers that they have received and at least in the Bay Area that typically goes really fast so like either the same day or the next day you will likely be able to hear back from.
Danielle
0:28:48–0:28:50
Whether or not your offer is being considered
0:28:49–0:29:04
and typically the top three offers are considered and potentially given a chance the chance to readjust their offer to be more competitive so this is when they made counter you in that in fact is what happened to us so we got to the top,
0:29:04–0:29:08
two offers I believe we were up against an all-cash offer
0:29:08–0:29:16
but because of our love letter and the personal connection that I identified between us and the seller they liked us they wanted
0:29:16–0:29:26
us to have the house so they came back and said hey if you can match the top offer which at this point I think it was only what $1,600 difference,
0:29:26–0:29:28
16000 sorry,
0:29:29–0:29:39
skip that right they would give us the house so they weren't going to counter the other offer they said if you can meet us here the house is your's,
0:29:39–0:29:43
and that was a very intense 20 minutes.
Daniel
0:29:43–0:29:48
Think I was in the gym with my personal trainer when I got that when I got the call.
Danielle
0:29:46–0:29:55
Yeah I called you I called you and I'm like they want $16,000 more what do we do? And you were like just pay it.
Daniel
0:29:53–0:30:00
I went to my trainer and I said, give me a second I need to buy a house.
Danielle
0:30:00–0:30:07
So yeah once your offer is accepted though that's when things start going really quick and that's when escrow begin.
Daniel
0:30:07–0:30:10
Escrow is the process of having a neutral third-party,
0:30:10–0:30:25
that kind of helps close the transaction and the deal there will be in escrow account where you wire are all the money into and it sits in that escrow account and the seller won't actually get any of the money until the title is transferred to you
0:30:25–0:30:27
and then the escrow company will release the funds to the seller.
Danielle
0:30:27–0:30:35
Right and you have to start this process by funding the escrow account with they call earnest money.
Daniel
0:30:35–0:30:40
Right, that's one or two percent of the home price generally it's money that you need to
0:30:40–0:30:52
put into the escrow account before anything even starts and in fact if the deal busts for a large number of reasons at the very least you will not get that money back so this
0:30:52–0:31:01
shows your commitment to actually wanting to complete to this deal instead of just being like I put in an offer and accept it but actually I'm changing my mind.
Danielle
0:31:00–0:31:12
So once you've done that that's when your lender finishes up the loan so we've got the title report and the insurance. The lender is then going to need to confirm all your funds so you have to provide more,
0:31:12–0:31:20
documents again depending on how long you know long it's been since you got that pre-approval you have to provide your latest documents to confirm
0:31:20–0:31:28
your income and the funds that you have available and then the lender has to appraise the property which is also another scary things in the Bay Area.
Daniel
0:31:28–0:31:39
Well it's not only the scary thing, that was actually the step in the entire escrow process that took the longest for us. Cuz I think it took three business days and it was on a Thursday or so so we didn't get
0:31:39–0:31:49
back to the appraisal until Monday the next week that was just we're just sitting there waiting for this appraisal if you don't know what an appraisal mean,
0:31:49–0:31:50
Right is,
0:31:50–0:32:04
basically we made an offer on the house for a certain amount of money and now an appraiser comes to make sure that the house is worth that amount.
0:32:04–0:32:13
in the mortgage than what the house appraises for so if we if we have offered 20% more than lenders willing to give us we have to come up with this 20% by ourselves.
Danielle
0:32:13–0:32:27
Right and in a very competitive market where you are typically offering over asking and could potentially get into a bidding war with somebody you better hope that you're home then appraises for that much if you're not paying cash.
Daniel
0:32:27–0:32:29
We were lucky, out home appraised.
Danielle
0:32:29–0:32:40
I don't know I think our realtor said that in her entire career she'd only seen one home that didn't appraise typically they always do but it doesn't make it any less scary.
Daniel
0:32:40–0:32:45
And with that the lender can then finish up the loan and approve you for the loan.
Danielle
0:32:44–0:32:52
Once a loan is approved that's when we go through the approval of the disclosures and that's when you get a giant stack of paper.
Daniel
0:32:52–0:32:59
Yeah you're a bit busy 500 pages and you have to put your initials on every single one of them.
Danielle
0:32:59–0:33:00
What's a lot.
Daniel
0:33:02–0:33:16
And then if you have and wave them inspections will happen so you actually have to hire an inspector your realtor will help you do that. They'll go through the house, make sure that all the disclosures are correct. Can't speak too much of this part of the process.
Danielle
0:33:16–0:33:17
Do we really didn't do it.
Daniel
0:33:17–0:33:18
We didn't do it.
Danielle
0:33:18–0:33:23
Then you'll do a final walk-through with your realtor, double-check everything make sure,
0:33:23–0:33:35
everything is according to the inspections and disclosures one other thing that we might recommend is you know if you have the ability to you know see the home while it's in closing,
0:33:35–0:33:45
yeah while it was in escrow we asked if we could pop in and see if we can take some measurements and that actually brought to light that the water heater in the garage was leaking and it had leaked
0:33:45–0:33:51
under the floor through the whole downstairs now mind you this is not the same water damage that happened a month later,
0:33:52–0:33:56
in the exact same area but we identified a bunch of water damage while we were in
0:33:56–0:34:10
escrow. That delayed our escrow a bit because the seller had to then make the repairs and hire the people to come in and fix it. So had we not had that happen we would have closed in 10 days. But, it did take longer because we found that so,
0:34:11–0:34:13
doesn't hurt to pop back in and check things out.
Daniel
0:34:13–0:34:25
At the very least at your final walk-through you don't want to buy something that has since crumbled. And then the last step is close of escrow and signing that the final piece of paper.
Danielle
0:34:24–0:34:27
Yeah this is when you wire all the all the money,
0:34:28–0:34:35
of the money this is when you're paying your your wiring in your down payment and then your lenders also wiring the rest of the,
0:34:35–0:34:47
the loan we highly recommend that you look to your where you're keeping your money and how quickly they can turn around a wire transfer because this,
0:34:48–0:34:55
literally could come down to the wire so you want to make sure that you're able to get all your money into the account by the time he needs to be there.
Daniel
0:34:54–0:34:57
Yeah so we had our funds,
0:34:57–0:35:07
in various accounts depending on where we got those funds from you had some funds in your savings whatever I had some of my savings I have some in my brokerage account I had some.
Danielle
0:35:07–0:35:08
I had some in a brokerage account.
Daniel
0:35:08–0:35:14
So they were like all over the place basically so we didn't just sent one wire we sent a couple of wires from different accounts and
0:35:14–0:35:23
with every single one of our banks we were able to call them and ask them to please expedite those wire transfers because this is really,
0:35:23–0:35:37
the seller and Escrow Company they expect this to go through within hours not days. We called them and asked them if they could expedite this. With every single bank there was no problem except
Danielle
0:35:38–0:35:44
We won't throw them under the bus but it's an online bank, it's a relatively smaller bank we learned after,
0:35:44–0:35:49
hours of dealing with them that they just weren't equipped for the amount of,
0:35:49–0:36:00
wire transfers that they were getting requested so literally we waited until that Monday but actually should have put a request in the Saturday before so that it was in line,
0:36:00–0:36:14
Basically we're at the end of the line and it took a lot of effort and was quite stressful to get someone on the line that would help us get this through in time which is something to consider depending on the type of bank that you use to.
Daniel
0:36:13–0:36:16
Yeah make sure that all the funds are in one account.
Danielle
0:36:16–0:36:17
That would have made it easier.
Daniel
0:36:17–0:36:23
And call your bank and ask them if they are able to expedite a wire transfer if you were to put one in.
Danielle
0:36:23–0:36:31
And once all the money is there that's when you get another giant stack of paper and you sign congrats.
Daniel
0:36:31–0:36:33
Now you owe a shit ton of money to the bank.
Danielle
0:36:33–0:36:35
But hey! You own your own home.
Daniel
0:36:35–0:36:38
Mostly.
Danielle
0:36:38–0:36:52
This process is relatively the same wherever you're buying a home in the US but we have mentioned some of the nuances of purchasing a home in the Bay Area and why specifically it's a little bit nuts. So if any of you are listening from
0:36:51–0:37:01
out of state and just kind of aren't familiar with the market out here we thought we might point out a few things that make looking for a home in the Bay Area significantly more difficult than
0:37:01–0:37:02
somewhere else.
Daniel
0:37:02–0:37:16
I think the most important thing is just housing prices are through the roof . It's virtually impossible to find a home that can accommodate a 3-4 person family for less than $600,000, $700,000, $800,000.
Danielle
0:37:16–0:37:19
And just to be clear we're not talking about San Francisco proper,
0:37:20–0:37:33
we're talking about the Bay Area. Within a 50-mile radius of San Francisco. If we actually, we couldn't even buy a house in San Francisco. A house that would support a family of four would be starting at 2 million.
Daniel
0:37:33–0:37:36
Worst most property than even sells over asking.
Danielle
0:37:37–0:37:45
In fact, we paid beyond 130% of asking for this house. To be fair I think this house was posted quite low.
Daniel
0:37:45–0:37:53
Yeah I think, our realtor explained, Kiera explained to us this way, they purposefully post or list the house at a rate that is
0:37:53–0:38:02
below its actual market value to get more interest going and so then you get like this bidding war going on which in the end kind of was the case.
Danielle
0:38:02–0:38:07
So when we made the offer we knew there was no way that we would just put down but we had to make a significant jump.
Daniel
0:38:07–0:38:10
Initial offer was already significantly over asking price.
Danielle
0:38:10–0:38:24
We've also mentioned that the competition here is insane. Specifically you know a lot of people like to invest in property and when you're going up against investors they typically will pay cash.
Daniel
0:38:24–0:38:37
Yeah and there's with all the tech companies and stuff there is a very significant influx of people coming from literally all over the world that have significant amounts of money available that are looking to to buy,
0:38:37–0:38:45
their first home and so all this money is essentially floods into the housing market through investors as well as affluent,
0:38:46–0:38:53
people that are moving here from from all of the place so the that just causes an explosion and the prices for housing.
Danielle
0:38:53–0:38:58
When you go up against these all-cash offers they don't have to wait for a lender to.
Daniel
0:38:58–0:39:00
Approve the loan or appraise it.
Danielle
0:39:00–0:39:12
Yeah so I mean it goes much faster which is why were forced to waive all of our contingencies because when we do that we shortened what should be a 30-day escrow to 10 days and then lastly
0:39:12–0:39:18
we thought we touch a little bit about how to buy a house when you're not married everybody knows we are not married so
0:39:18–0:39:29
it made the house-buying process a little bit different we wanted to ensure that we both found value in owning this home together. So what we did was going we went to visit home as tenants-in-common.
Daniel
0:39:29–0:39:38
What this means is each of us owns a certain fraction of the house a common way to do this is to to split it 50-50, that
0:39:38–0:39:53
didn't work out for us though we wanted to make sure that whatever percentage of the house we own is also what we contribute to both the initial cause as well as the running costs so if we were to split the house 50/50 each of us would have to put,
0:39:53–0:40:02
in 50% of the initial cause as well as 50% of all the running costs and that that didn't work out for us so we actually adjusted the percentage of someone,
0:40:02–0:40:04
to account for.
Danielle
0:40:04–0:40:10
How much I essentially could afford every month without stretching myself too thin.
Daniel
0:40:10–0:40:17
And so we actually put together a sophisticated spreadsheet that had all the different costs lined up and the.
Danielle
0:40:17–0:40:18
With our income.
Daniel
0:40:18–0:40:30
Yeah, had our income and all the different costs and initial costs and also opportunity cost if we invested that money instead into the stock market to see what amount of opportunity cost we were paying for buying a house,
0:40:30–0:40:39
and then we had like a slider basically where we could say ok we are splitting this 50/50 or 60/40 or 55/45 whatever and then it would output
0:40:39–0:40:47
both the fractional initial causes as well as the fractional running cost for each of us until we're able to determine exactly what we can afford and in what split.
Danielle
0:40:48–0:41:01
That's definitely something that we would recommend for people who are buying a home together and you're not married is splitting ownership by what you can afford so if one person can pay more than the other than reflect that in the actual,
0:41:02–0:41:03
ownership of the home.
Daniel
0:41:03–0:41:10
And vice versa if one person owns more they also will be responsible for more of the costs.
Danielle
0:41:10–0:41:25
Not only do we split did we split the the one-time cost and the reoccurring cost like mortgage and property taxes. I also want to be clear that that that also includes you know repairs and ongoing costs.
Daniel
0:41:23–0:41:34
And home improvements so if we ever make any if we decide to make any improvements to the house or have any repairs that we have to pay for we will split those costs according to the house ownership as well.
Danielle
0:41:33–0:41:47
I think it's safe to say that buying a house is a huge commitment and it's not something that you should jump into without preparing. To ensure that your adventure in to home ownership is a smooth and rewarding experience remember our top five quick tips.
Daniel
0:41:47–0:41:54
So I think the first step is start building credit early this is really important if you need to clean up and repair your credit,
0:41:54–0:42:04
you'll need time to do that you can't do that overnight even if your just considering maybe buying a house at some point in a couple of years make sure to start working on your credit today.
Danielle
0:42:04–0:42:10
Number to don't quit your job if you're thinking about buying a house in the next year so we mentioned that
0:42:10–0:42:22
stability in your income is important to the lender and they want to see that you've made the commitment and that you've stuck with a company for at least 2 years so if you're at all considering buying a home in the next 2 years,
0:42:22–0:42:27
really think about where you're working because if you job hop that will impact your mortgage.
Daniel
0:42:27–0:42:37
Number three is do homework and understand what you can truly afford including all these hidden cause and not so obvious costs that we have outline.
Danielle
0:42:37–0:42:46
Number four, don't get discouraged. Depending on the job market in your area you may be looking for a while so don't give up the home for you is out there.
Daniel
0:42:46–0:42:53
And then number 5, the final tip. Don't have your documents and money ready to go. Escrow goes fast don't get stuck on a lazy wire.
Danielle
0:42:53–0:42:56
Don't get stuck on a call with customer service for 3 hours.
Daniel
0:42:56–0:43:00
I think that about covers it thank you for listening.
Danielle
0:43:00–0:43:03
If you enjoyed this podcast leave us a review on iTunes and make sure to subscribe.
Daniel
0:43:04–0:43:15
Have you already purchased you on home or are you still looking to find that perfect house, maybe you're struggling to find a good mortgage that can pay for what you want, tell us on Twitter @UnmarriedMedia. I am Daniel.
Danielle
0:43:15–0:43:16
And I'm Danielle.
Daniel
0:43:16–0:43:17
And we are Happily Unmarried.

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