Is Buying a House on Your Bucket List?

SPEAKER_01 0:02

Almost a year ago, I had packed in my car and moved across country from South Dakota to Arizona with one goal in mind to own a home in the desert with a big yard for my dog. I had spent every few minutes searching online for the perfect starter house that I could turn into my home. Welcome to the Reach Your Summit Podcast, where we help you navigate the path to a better, more secure future. I’m your host today, Stephanie Brinkman. I’m the marketing administrator at Summit Wealth Group. Jamie Cochran, financial advisor, and Nicole Davis, the Director of Financial Planning Services for Summit Wealth Group, will be joining me. Not everyone dreams about living in the desert, but most people can relate to the desire of owning their own home. Today we will talk about different things that you should consider when buying or selling a house. Nicole, last episode you had mentioned that you and your husband have owned two homes together now. What does owning a home mean to you and your family?

SPEAKER_02 0:57

It means just something to call our own, to be able to kind of do what we want with it. And that is a permanent place for our kids to grow up in.

SPEAKER_01 1:10

I like that. So a sense of security, there’s structure.

SPEAKER_00 1:23

So it’s a lot of up to fine house. I’m don’t really care about my feng shui or anything like that. I, you know, as long as I have a bed and a television and a kitchen and a bathroom, I’m pretty content. But what I really like is our neighbors and just where I live in town and the ability to kick my feet up and be comfortable. Just several weeks ago, I got to go on a trip, stay at a fantastic hotel. It was and I got home, I was like, oh, nothing like being in my bed. And then I thought about, man, but I was just in a luxurious hotel that was probably way better than my home, but nothing beats home. That’s my pontificating on what my home means to me.

SPEAKER_01 2:08

Yeah, I like that. So as the quote unquote American dream has changed over the years, so is the home buying process. And we mentioned the B-word in our previous episodes. For those of you who jumped to episode three, we are referring to the term budget. Nicole, what are some factors that people need to consider when determining how much they can afford?

SPEAKER_02 2:31

Well, they definitely want to take a look at that B-word, look at the cash flow to see what they have. When you’re looking to buy a home, remember it’s not just the mortgage that you have to be able to cover. It’s, you know, the upkeep if something goes wrong, um, you know, a new roof, if there’s a pipe that burst, what happens if you want to remodel something, those types of things. And also you want to make sure you still have money left over to enjoy life and not have to always be at your house. That might sound great for some of you, as you’ve seen through the pandemic, being stuck at home for a long period of time. You get antsy and you can get out. So it’s nice to have those extra funds to be able to do so. Uh, when you apply for a loan, you may get even more than you can actually afford, as far as being able to still have those funds for other things. So, really, just importantly, taking a look at that cash flow, what do you have month to month to put into it? The other thing to consider that a lot of people forget about is taxes. And that’s gonna vary uh tremendously depending on the area that you live in. So that’s something that a lot of times when you’re looking at a mortgage, sometimes they don’t put that in there when you’re looking, especially online, um, to get ideas. Just remember that that that’s gonna vary quite a bit.

SPEAKER_00 3:57

Yeah, I I live in uh Memphis, Tennessee, and I live in Memphis, city limits. But you go just a couple miles outside of the county, property taxes are less. So it’s uh a good point to bring up, Nicole. And taxes, not just as far as property taxes go. We’re not just gonna be talking about buying a home today, but also selling a home. So we have a lot of clients that are continuously, whether it’s buying their first home or maybe upgrading to another home, or for some clients I was just talking to yesterday, they’re retired and they are going to, I guess, downsize their home. So taxes go into every single one of those decisions. And I guess there’s going to be a running theme on every monthly topic that taxes are tied to everything. We can’t really help it, but you know, how are we going to mitigate that and plan for it the best way possible? Um, another thing to consider, other than just your budget when buying a home and the areas, which are obvious things, how long are you planning on living in that home? Nicole, you can definitely identify with that considering that uh your husband’s been in the Air Force.

SPEAKER_02 4:59

We actually, as we moved around, um, we rented because it was just two to three years here and there. But at one point, we did have a home we thought we were going to return to and we rented out. And that’s something else that we could kind of bring up um a little bit later on is the possibility of renting and what that really means and the work involved and renting your whether it’s your house or a vacation house or whatever type of a house it is for you.

SPEAKER_00 5:28

But and you’re saying renting that out for for other people, not renting for you to live there, right?

SPEAKER_02 5:33

That’s right. So we had a home back in Colorado that we rented out for other people because we thought we’d come back to it and um eventually realized that probably wasn’t gonna happen. Um, but it’s a lot of work as you’re we were all the way across country, even if you have a management company, it’s still not all taking care of it for you, especially if you have HOAs you got to deal with. There’s just a lot of stuff. Anytime you go to upgrade anything or or replace anything, it’s a lot of work. I was lucky that I kept going back to for for visits for work and I kept checking on the house.

SPEAKER_00 6:10

But well, it sounds like we could have a whole episode just on renting renting out your house.

SPEAKER_02 6:15

Yeah, it was um it was interesting. I don’t know I would do it again.

SPEAKER_00 6:22

Yep, so some people have the stomach for it, some people have the the gumption really, because it is like another job, but um you know, taking it back to the you know, the American dream of buying and selling the home, you know, that’s what we really want to talk about today, as well as the the main questions that we get. And like I said, just yesterday talking with some clients who were selling their home, just this morning, was talking to a client who’s apparently a new client of mine, and she’s gonna be buying her first home. So, you know, it’s amazing how many of these conversations that we have as financial planners every single week.

SPEAKER_01 6:58

That’s awesome. Um, what kind of budget does someone need to consider when they’re on the flip side of things and they’re selling their house rather than looking to purchase one? How does that conversation go?

SPEAKER_00 7:09

First off, how much equity do they have in the home? What are their plans when they are going to be leaving that house? Are they going to be moving states? Are they how long have they lived in the house? You know, there’s a tax rule where, first off, if you’re a married couple and you live in a home as your main house, what is it, Nicole? I believe it’s longer than five years, you know, any gains that you make under $500,000, you’re not going to get taxed on that. So let’s say my wife and I, we’ve been on our been living on our house for nine years now. And if we sell it and made $200,000 on that home, we’re not paying any taxes. However, if we sold it and made $700,000, that would be pretty sweet. But if we made $700,000 and I’d be moving very quickly, I’d be making that money. But if we sold our home and made $700,000 on that, then we would be paying taxes on the $200,000 we made above that $500,000.

SPEAKER_01 8:04

Okay. I wasn’t aware of that. That’s interesting.

SPEAKER_00 8:07

Uh-huh. And for a single person, that threshold is $250,000.

SPEAKER_01 8:11

Quite a bit of difference between a married couple and a single person.

SPEAKER_00 8:15

Exactly, exactly. And we I may have had a client in the past get married to somebody and sold at home and made a nice little profit. Um, and didn’t have to pay taxes on that. So, you know, just come you know, for for you guys and gals out there with uh maybe cold feet of pull you know, pulling the marriage uh plug. Hey, let’s take take a look at the taxes on there. I’m just I’m just kidding. We don’t need to get married based on taxes, but but it is something that we may have run into in the past before.

SPEAKER_01 8:43

Yeah, that’s definitely something to take into consideration.

SPEAKER_02 8:48

The other thing about selling the home, especially right now, you see an incredible market boom in the housing. I mean, the houses just sell extremely fast and for a pretty penny right now. And one thing just to remember if you’re selling your house, although you may be getting a lot for your house, wherever you’re going is probably going to be more expensive right now, too. So it’s something just to think if that you know, if during those high times in the market, when you go to sell, you also have to think about what you’re buying too. Same goes true for when the pricing’s a little bit lower in housing.

SPEAKER_01 9:25

For sure. That’s a really good point, Nicole. And that definitely applies to right now, the end of 2021, when the market’s crazy high.

SPEAKER_00 9:34

Having realistic goals about when you do sell out and you know, downsize, first off, you’ve made the good point that the market’s still probably going to be really expensive, even in a smaller home. But also, people aren’t going to necessarily go from living in a really nice house to living in a ramshackle shack. Expenses you can save a little bit of money by downsizing. So I’ve never seen anybody say, wow, you know what? I want to go live like I used to live when I was 22 years old. It just doesn’t happen. You get used to a certain lifestyle, a certain level of comfort, even certain types of uh, you know, areas of town where you might feel safer than than others. And that’s completely understandable. So just keeping those expectations realistic uh if you are downsizing from another home.

SPEAKER_01 10:21

Yeah, definitely. Jamie, what advice do you give people who would like to start the home buying process but can’t get approved for a home loan because they have a large amount of student loans?

SPEAKER_00 10:32

Typically, I haven’t run across many clients that have gotten declined because of a large amount of student loans. I mean, I know that probably exists. Uh, most of the clients that I’ve worked with who do have a significant amount of student loans have been people uh who are making a type of income where it’s the bank’s not worried about that, usually because they might have an MD behind their name or a DDS behind their name. Uh, we understand that you have a pretty significant amount of loans. So once again, going back to what we talked about in episode two about getting organized and knowing what your financial position is, before you fall in love with a house and want to make an offer on it, you know, talk to some lenders. Get an idea about what type of loan you can get approved for and what type of interest rates you can be looking at. Um, we want to see that before, like I said, you fall in love with the house and then realize, oh my gosh, it’s gonna be several weeks or a month before I can even get on the list. Meanwhile, it’s been sold to somebody else. So if you are starting to think about looking for a home, go ahead, start talking to some lenders, talk to some banks, uh, have them do a little bit of financial underwriting on you. And once again, that goes back to being organized so that way they can take a look underneath the hood, see what you can uh you can get approved for.

SPEAKER_01 11:44

That’s what I did. I had houses I was in love with. I was like, oh, I can afford this. This is great. And then I was five steps ahead of where I should have been. Um, I hadn’t even talked to anyone to see how much I could get pre-approved for. I had never been to that area of Arizona. It was risky what I was doing. And I learned that I had to walk before I could run a marathon.

SPEAKER_00 12:05

Exactly.

SPEAKER_01 12:05

That’s a process that you should follow.

SPEAKER_00 12:08

Yeah. I mean, you do need to go through that, you know, lending process, see what you can get. But I definitely think that it still is really easy to buy a house. Our financial system in the United States is one that’s set up that it they make it very attainable to own a home. That doesn’t necessarily mean you should always run out and buy one or that you that you really need to get one. Because I’ll have people tell me all the time, man, you know, I’m having a rent. I’m just throwing money away. Well, it rained last night. Were you dry in your nice cozy house that you’re renting? Yeah. Were you able to make a meal? Were you able to take a shower? Yeah, you were. So I always encourage my clients, think about your home as a dwelling first. Like we talked about. It’s your sense of community, it’s where you feel safe, it’s where you know you unwind, where you raise your family. Think about it like that first. Then you can think about an investment second. Um, at least that’s just been my mentality. And I think when you do that, it’s easier to just not sweat every single decision about your house.

SPEAKER_02 13:12

Also, just to be able to enjoy it more.

SPEAKER_00 13:15

Yeah, yeah, exactly. Yeah, you’re not thinking, oh my gosh, I really want to paint my kitchen. Because my wife’s always wanting to paint, you know, a bunch of different rooms and reorganize and do a bunch of stuff. But by owning it, yeah, you can do that. You don’t have to worry about it. And you’re thinking about it as it’s yours first versus oh, what’s gonna what’s that gonna do to the resale value if I have a polka dotted kitchen versus a you know taupe kitchen? Taupe’s a color, right? Yes, okay, all right, all right, or periwinkle or you know, something like that. I don’t know.

SPEAKER_01 13:46

Yes, something extreme.

SPEAKER_00 13:49

So periwinkle kitchen sounds like a punk album.

SPEAKER_01 13:52

Yeah, it does. I feel like you would listen to that.

SPEAKER_00 13:56

I might, I might. Somebody put it out there, I’ll I’ll download it.

SPEAKER_01 14:01

Um, so according to the National Association of Realtors, millennials made up the largest share of home buyers at 37% in 2020. To me, when I was told that I had to have 20% down, it seemed very unrealistic as a millennial. How in the world was I gonna save 20% down? What are some tips or tricks or advice that you guys have? Avoid paying 20% down if possible.

SPEAKER_02 14:27

Well, you don’t always have to do 20% down to avoid what they call you CS PMI, which is basically an insurance on your mortgage. But if you have good credit, um, you are able to get some better deals out there. I experienced this when we were buying the house we currently live in about a year and a half ago, we bought it. And because we had good credit, we didn’t have to put 20% down to avoid that. It is nice that there’s different options and they’re always coming out with different products. That’s why it’s really important a lender who has access to several different companies, different products, and look to see what’s going to fit that budget for you.

SPEAKER_01 15:15

Yeah, for sure. It’s free to just take the time to go talk to someone about it and hear the different options out there.

SPEAKER_00 15:22

I’m close to my parents. I talk to them all the time. I ask their advice about a lot of stuff, but also they’re in their mid-70s. They’re come from a completely different generation. They’ve owned their house for you know 25 years now. So their advice and how things went the last time they bought their last home are a lot different than they are today. So I encourage people for who are first-time home buyers, obviously, yes, please, you know, consult a family members, whether they be parents or siblings who’ve gone through the process, but also think about okay, when was the last time that they did that? Because things might be a little bit different this time. So I love it when clients call me to ask my opinion and ask for some guidance about buying or selling their homes, because I’m just there to say, hey, here’s the facts, here’s what’s going on right now, here’s a couple of different resources to look at. And then also, we if you are going to buy this, here’s how it’s going to affect other things in life that you’re trying to accomplish. Because if you’re really dead set on sending junior to this school or retiring at this age, and then all of a sudden we’ve completely changed a lot of things based on your house payment or your uh net worth based on your home and based on more debt that you might be taking on. Well, that can really make an effect on everything else. So we want to just plug that into seeing, okay, want a new home? Sweet. How’s it going to affect everything else? And then that way somebody can make that decision with some confidence going forward. But but it’s hard to do because home buying is so emotional. It’s one of the most emotional uh financial decisions that you do make because there’s so many shows out there. I mean, it was it was before there were even cable shows about redoing homes and buying homes. And you brought up the gal from the what what channel, Stephanie, yesterday.

SPEAKER_01 17:06

Joanna Gaines, the fixed rupper.

SPEAKER_00 17:08

Yeah, yeah. You know, you see, there’s you know, people were already kind of house crazy before all of that happened. Now it’s even just exacerbated. It and it’s easy because we want our dwelling, we want our home to be great. We want it to be what we want. So, you know, pump the brakes a little bit and slow down a little bit when it comes time to uh buy that house. Not to say that we’re not gonna say do it, because more than often I do tell my clients, heck yeah, after we’ve looked at it and how it affects everything else, heck yeah, go ahead, do it. Let’s get that house that you want.

SPEAKER_01 17:38

I think, Jamie, you brought up a really good point that the process that your parents went through, what they deal with is different than what people nowadays might deal with for the home buying process. It seems like younger generations are more comfortable talking about their finances compared to our parents or grandparents’ generations. So if you have a family member, friend who recently just bought a house, you know, connect with them, see what they went through, ask questions. They might be able to give you some good feedback, but definitely always consult your financial advisor if you have one and include them in the process.

SPEAKER_00 18:12

Definitely. So summing it up, there’s so many things to consider when you’re buying a home, when you’re selling a home, or heck, even if you’re doing a home remodel, so many moving parts, whether it’s getting approved, whether it’s the tax implications of it, whether it’s the implications on other financial decisions that you make. Um, you know, do you have a HELOC already pulled out on your phone? Or some of those people might be saying, what in the world is a HELOC? There’s reverse mortgages that people do. What in the heck is a reverse mortgage? So many different things out there, so much white noise about the real estate and home market that it really does make sense to sit down and talk with somebody to cut through the things that they don’t need to worry about and focus on what you do need to worry about when it comes time to be making such an important financial decision on your life.

SPEAKER_01 19:02

For sure. Those are all great points.

SPEAKER_00 19:04

Yeah. And quite frankly, I mean, we would love some feedback from the listeners if there’s any portion of the home buying process that you want us to talk about further, we’re happy to talk about it. We can even bring in other people from our office or some other experts to talk about uh anything in particular that y’all want to know.

SPEAKER_01 19:22

Our next episode is Life Happens Now What. Thanks for listening to the Reach Your Summit Podcast brought to you by Summit Wealth Group. If you’ve enjoyed this episode and you’d like to help support the podcast, please share it with others and subscribe so you don’t miss an episode. If you have any questions or topics that you’d like us to cover, please email info at summitwealthgroup.com. Thanks again.