Episode 4: Champagne Tastes on a Soda (or Water) Budget

Dated: 05/12/2020

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To experience this episode of the podcast, take a listen here:

Welcome to Ya Don't Know What Ya Don't Know, I'm your host, Desiree Merriweather. Thanks for stopping in and listening today. I just want to have a quick conversation with you about having reasonable expectations when you start your home search. I know we've all probably heard the phrase, 'having champagne tastes on a water budget.'

But there's some truth to that conversation. So many times we enter our home buying processes and we have expectations of what we want, what our house needs to have, and then slightly unrealistic expectations about what money it's going to take to get us there. More than likely, you've had a friend or family member who purchased a home in the past. And I'm sure they were very eager through the process to share with you the successes or what they considered the failures as they were working their way towards home ownership. But I want you to know, rules for purchasing a home have changed significantly in the past six years.

I mean, honestly, they've changed in the past 60 days and what's required for the process for them is very different than what you're going to have to deal with in your process. The first thing I want you to know is that your money and your credit situation is 185% different than anyone else's and that more than anything is going to drive your process towards buying a home versus anyone else that you've ever talked with.

Your first home doesn't have to be your last or your forever home. Many times my clients will buy homes and tell me their intentions are to never move; this is where they're going to be for the rest of their lives. And I'm usually not surprised when I get that phone call two or three years later when their life or their circumstances have changed and they say, 'Hey, Dez. We need to sell our house, we need to upgrade, or I've got a new job and I'm moving and I need to sell my home.

So when you're looking for your home, you want to prioritize between your current needs and your current wants.  Focus on the house that provides those things that you have to have and those items that are hard to find in the house itself.  It's very easy to change, items like color of walls, change your flooring. But it's difficult to make a fourth bedroom out of a house that only has space for three bedrooms. It's very difficult to add a garage to a house that doesn't have the space or the land to add a garage. So if you need, four bedrooms. that's where we need to start focusing our search. If your house has to have a garage, we need to find a house that has a garage, because those are items that are difficult, if not impossible to add to a home after the fact.

Homes nowadays cost a little bit more money to build than they did, even as recently as one year ago. So that's one of the first factors that's going to determine how much you can actually pay for your home.

The second factor is going to be the construction or the features of a home. Brick homes are more expensive than vinyl homes. Vinyl homes and wood homes are differently priced, so that's a second factor that's going to change the cost of the home you're looking for.

And of course that old adage,' location, location, location.' Where the home that you're looking for is located is going to determine what you pay for that home. Houses that may be near commercial or high traffic areas are going to have a different price point than a house that's set in the country way down in a dirt road away from a lot of the common amenities that some folks want.

Houses that are in higher tax zones, which typically are found closer to schools and closer to commercial areas are going to have higher taxes. And those higher taxes are going to make it: one- more expensive to have that house built where it is. And two, it's going to give you a higher tax bill, which in turn is going to increase the cost of your mortgage.

So when you look at all of these differing factors and you realize and you're very honest with yourself and you say, yup, I really do have champagne tastes, and right now I'm working on a soda or water budget, what can I do to bring those two facets closer together? Well, it's very simple. If you want to increase your purchasing power and you're operating on your soda or your water budget right now.

The most obvious one is to have more money. If you've got more money in the bank, you can use more money to spend on your housing. If you have less debt, that increases your credit, which in turn increases your buying power, which allows you to spend more. At its simplest, better credit is going to help you have a lower interest rate and possibly lower debt, which means you will spend less on a monthly basis to get the home you want, or a combination of all three of those factors.

In an ideal world, if you have more money in the bank, you have less debt and you have better credit, the world is your oyster. You can buy what you want because you've got that trifecta of everything that you need to buy a house. But for most folks, if they had all three of those things going on at the same time, their purchasing power and increasing their purchasing power, isn't really going to be an issue.

Remember, your preapproval is a guideline, just like a credit card. It's an indication of the max amount or the cap you could spend when purchasing a home. So just like that credit card, you don't have to max out your home purchase. If you're given a preapproval for $180,000 but you're more comfortable with the payment that 130,000 will bring you, then that's what you spend. Remember you had a life before you had a house, so you're probably going to want to enjoy the same activities you enjoyed prior to purchasing a home. You’ll want to think about that when you're planning your purchase.

If you liked traveling before you purchased a home, you might want to continue to travel. If you liked to eat out, if you liked to go to concerts, if you liked to buy beautiful pieces of art. If you still want to continue to do those things, you need to think about those things when you're considering your purchase and your purchasing power. If you spend at the max of your budget, you're telling us that you're wanting all of your additional income or disposable income to go to the house, which means you're pulling them away from those activities that you did prior to owning a house.

When you purchase a house, you effectively have more debt, and in most cases, your income may not have changed. So when you're planning your budget, when you're planning your activities, when you're planning your purchase, you want to have a firm grip on where your money is going, how you're choosing to spend it. Even before you buy so that when you buy, you know you're capable of not only paying your new mortgage payment, but still being able to enjoy those various aspects of your life that you enjoyed before your house. My mother used to say, you don't want to be house poor. Which if you'd have never heard that before, it just simply means you don't want all of your money to be going to maintaining and paying for your house. And you cannot enjoy any of the wonderful blessings and things that can occur outside of the house because all of your money is tied up in the house.

While you're trying to differentiate between your needs and your wants and whether or not you're in budget or out of budget. Don't forget that you're not going through this process alone. You have an agent, or at least I hope you have an agent, but if you have an agent, trust your agent, trust the process.

You've selected someone to guide you through this process. Who, has a firm grip and understanding on the financing aspects who will have a firm grip and understanding on how to budget. They are listening to what you say you need and want, and more importantly, they know the market. They know which areas and sides of town are going to have the homes that fit your needs.

You need to trust them. You need to be honest about your requirements and your wants because you guys are traveling this path together. You're communicating with them and they're taking what you share and turning that into options and possibilities for you when it comes to finding a house.

Understand this, not all homes are going to work with your approved loan type, and there's not a single house out there that is going to 100% meet every need, want, wish, and hope that you would want to find in your home. You're going to have to compromise. And that's not a bad thing. Cause remember I said earlier, this more than likely will not be your forever home. So whatever this home doesn't have in it now, when you purchase your next home and you will, you can fine tune your list and have more of what you want, the second time. But maybe your needs and wants change and so you're looking for something different. You will not be able to have it all unless you can afford it all.

There's nothing wrong with having champagne tastes, and there's nothing wrong with having a champagne budget. And as a matter of fact, there's nothing wrong with having a soda or a water budget. And to be honest, sometimes water is actually healthier for you.  Just be sure that regardless of what your budget may be, that you're going about the process the right way, you're using the tools and resources that are put in front of you based on your own research or that of your agent.

Trust your Realtor®. Be realistic in your expectations and enjoy the process. Thanks for listening. I'll be talking with you again next week.


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C. Desiree Merriweather

With 17+ years of real estate experience, my career has given me more than the ability to take care of my family. It has given me an awesome opportunity to assist anyone who wishes to have a piece of ....

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