Step 1: BUY

Buying your first property is daunting, especially in California. My wife and I thought we would never be able to buy a home. 

But I promise you it’s easier than you think and buying real estate is worth your time and attention. Owning real estate is widely considered to be one of the best vehicles to build generational wealth. 

Now, there are three critical pieces you need to understand when looking to buy your first property.

1. Debt -

When buying a home, lenders will decide whether or not you can get a loan based on your debt to income ratio. 

The good news is this is only a ratio so you don’t have to be completely out of debt to buy a home. The required ratio varies by loan type but generally speaking you want to keep it under 50%.

If your debt is under this, you should be good. If not, you’ll need to start here to address your debt. 

You’ve probably heard of Dave Ramsey.

Love him or hate him, I consider him to be one of the best in the world of helping people get out of debt. He shaped my early understanding of money, debt, budgeting, etc. In fact, I used to teach his Financial Peace University (FPU) classes.

With that said, I don’t lean on him for investment advice especially when living and buying real estate in California. That’s a conversation for another day. 

2. Budget - 

When I taught Dave Ramsey’s FPU classes I learned that the majority of people don’t operate on a budget. They have no idea how much money comes into their bank account after taxes and don’t know where all of their money goes by the end of the month. This problem compounds when you add real estate to the equation. 

When I first start working with clients we sit down and outline their budget. 

• How much money do you have coming in each month? 

• Where does it all go?

• How much is left over?

• Is there room to save more?

• Financial goals in the short and long-term

From here, we determine your price range for buying a house, get you pre-approved by a lender, and start shopping!

The final piece is…

3. Savings -

To buy a home you have to have a down payment which typically comes from your savings. The good news is that there are A TON of programs to help first time home buyers. Depending on your specific situation we can find the program that’s right for you and get you into your first home. 

Now, a common question about a down payment is…

How much should you put down?
20 percent? 3.5 percent? or somewhere in between?

Short answer… it depends. Like anything there are pros and cons.

Putting 20% down can help you have a lower monthly payment and avoids the requirement for Private Mortgage Insurance (PMI). 

At the same time, saving for a 20% down payment takes time and can unnecessarily keep you out of the market. A hill I will die on is “time in market is better than timing the market.” If you can get in, don’t wait.

The problem is most people don’t have 20% lying around and while you wait to save up, the property you want to buy might increase in value by $50,000. I’m not exaggerating. I’ve seen it multiple times and it’s hard for you to win against a moving target.

Plus, PMI isn’t always bad. PMI fluctuates depending on your credit score. If you have excellent credit, PMI can be low enough where it’s not a significant factor.

If you have bad credit, your PMI will be higher but there are programs from certain lenders to help offset this added expense. 

Remember, the goal is to get you into the market as soon as possible so you can start building equity and ride the wave of appreciation. Once you have your new home, you’re in. You can take a deep breath.  

• You no longer have rent payments being wasted away. 

• You start building equity in your home. 

• You start experiencing the tax benefits of home ownership and get to write off your interest payments.

After reading this, my wife added one of her favorite benefits… “the control” you get as an owner. You are no longer at the mercy of a landlord who one day decides to sell their property and forces you to move out in a month. 

There are a ton of great benefits as you start your real estate journey. 

Once you’re here, you can be here for as long as you want. It all depends on your goals.

Then when you’re ready, you can move on to Step #2.