Buying a home is one of the biggest, if not the biggest, financial decision most Americans will make.
In this clip from the Industry Focus podcast, analyst Michael Douglass shares what he's learned so far in his research about the home-buying process and explains why one of his 2017 resolutions is to learn even more. Find out what you'll want to save up for before making a down payment, the benefits of a good inspector, how homeownership classes might be worth your time and money, and more.
A full transcript follows the video.
This podcast was recorded on Jan. 13, 2017.
Dylan Lewis: So, one of your resolutions that is not mine because it's not the phase in life that I'm at right now --
Michael Douglass: [laughs] Because it's mine.
Lewis: Because it's yours. It's to understand the home-buying process a little bit more.
Douglass: Yes. So, this actually ties in with things like credit score, too, because your credit score is an incredibly important three-digit number for getting a mortgage. My wife and I have been saving for probably about two years now toward buying a house. In the D.C. area, not cheap, not easy. Some time this year, we will hit goal one, which is to get a roughly 20% down payment together, plus closing costs, plus emergency fund, to make sure that we are not heavily leveraged, that we are able to have some play, here, and figure out what makes sense. You definitely don't want to be in a spot where you buy a house, and the next day, somebody rear ends you, and suddenly you're in a cash crunch.
Lewis: So, this is something you've been building to for several years.
Douglass: Yes. So now, what we really need to do is understand beyond that. We're looking at a 20% down payment at some point this year. Now we need to figure out, how does this whole thing actually work? And there are home buying classes that the commonwealth of Virginia offers for free. We're planning to attend one of those maybe later this month, maybe in February. Then we need to talk to mortgage brokers and realtors, maybe Rocket Mortgage.
Lewis: Maybe Rocket Mortgage.
Douglass: And inspectors, and things like that, and figure out what all that looks like. There are some really clear financial benefits to this. I believe that a good realtor is worth a fair amount of money. I threw out a number, which is $10,000, the assumption being that, either in terms of helping negotiate down the cost of the house, or getting folks to throw in, "Oh, well, sure, we'll replace the toilet," that sort of thing. And/or, the benefit of a good inspector, which is maybe some deferred maintenance that you can make sure gets pulled into that price. I think that's worth $10,000. It turns out that many lenders will offer you a slight reduction in your mortgage rate if you take a home-buying class.
Lewis: Makes sense.
Douglass: Yeah. It's a 0.125% reduction on a $350,000 mortgage, which is $5,796 in interest saved over a 30-year period. So, all told, that works out to almost $16,000. I'm estimating it's going to take me about 108 hours or so of research, not including the actual home-buying process. That's just like, "What do you want? Do you want fireplaces? Chimneys?" All that stuff.
Lewis: Do you want fireplaces? Chimneys?
Douglass: You know, I don't really care, to be honest. I think my wife has a lot more opinions on that than I do. I probably will start having opinions, but I'm not there yet. ROI, assuming all those numbers are correct, is $146 per hour spent, which is a lot of money.
Lewis: And that's a resolution that lends itself very well to your ROI and time spent type methodology. You can see the savings much more clearly, particularly when you have a class that is going to reduce the interest rates that you're paying. So, as things lend themselves to that, that becomes a particularly powerful tool to incentivize you.
Douglass: We should keep making plays on words with lend, since mortgage lenders, all that sort of thing.
Lewis: [laughs] Oh, gosh.
Douglass: But yeah, it's something that that I'm actually really excited about. It's a huge financial decision, often one of the largest that most Americans make. So, I want to make sure that I do it careful and methodically and correctly.