Bringing It Home: The Process of Buying a House
This is The Process of Buying a House
How do you make a game plan when the stakes are high? My biggest forced fan (AKA the wifey), Dr. Taylor Inman, recently had to answer that question. We chose to rise to a high stress challenge when we moved our family from Las Vegas, Nevada to San Diego, California. My wife and I relocated our children to a new city, home, and new environment. In another facet to this situation, Tay was considering a job offer. Many of you may have a similar experience in your future. Do you understand what is involved in the process of buying a house?
Is there a way to preserve your sanity?
Listen to our interview for some inspiration!
House Buying: Las Vegas VS. San Diego
For Financial Residency, I’ve done a couple of podcasts in the past year touching on the anxiety of buying a first home. In one of the earliest episodes, we did a step-by-step process to buying a house with Mindy Jensen. Behind the scenes with Tay and I in the home buying process, we compare the differences between two houses in different cities, we address what we were looking for in a new home and what we were concerned about within the new home buying process.
Let’s set the scene.
To start off, Tay and I lived in San Diego before. Back then, I had an hour commute for only six miles. Taylor was determined to prevent a lengthy commute to derail our work/life balance. Coming from Las Vegas where real estate is cheaper than California, we knew an adjustment in our expectations was necessary, since San Diego is a lot more expensive. That meant we would have to choose a smaller and older house there, compared to what we would get for the same price range in Las Vegas.
Taylor points out that in San Diego, location is very important, it affects the quality of housing and the potential price. For you to wrap your head around the differences, I compared how a newer, bigger house in Las Vegas is 25% cheaper than San Diego. Here are a few numbers to mull over:
- House built in 2016
- 3,500 square feet
- 12,000 square foot lot
- House built in 1960s
- 1,700 square feet
- Slightly smaller lot than 12,000 square foot lot
The next important thing to factor in was the location. Taylor knew she wanted a good work life balance. That meant no wasted time sitting in traffic on a long commute. It was also important that the house had a nice, grassy yard for the children, and the family’s two dogs. Since this was a long-term move, we also wanted a safe neighborhood, and good schools for our children. Let’s look at what schools mean to real estate.
Our children at ages two and three are enrolled in a private school; however, we plan to transition them to a quality public school when they start kindergarten. The areas with top-notch public schools tend to be more expensive. We considered the cost of public versus private schools. We realized we had some overlap in cost in the short-term, but wanted an area where we would feel at home for a long time. After all, this was to be the backdrop to some of the most important years of our young family!
Financing & Approval
Taylor felt like a seasoned veteran of this process. We’ve bought and sold a couple of houses in the past, and she has listened to all of my podcasts (haha). She was in shock, because the process for getting approved for the home loan was more difficult than getting credentials at a hospital!
There were the usual requests for pay stubs and tax information, and then documentation for her locums work.
Also, she had a job offer on the table. They were asking for documents regarding the new job offer that she didn’t have and couldn’t get!
In the process of buying a house, what we went through was different than a physician mortgage, which was covered in an episode with Doug Crouse. In a future episode, we will talk in depth about financing—and will go into all the different pieces to it. An important step is getting pre-approved, which I mentioned is a mini-underwriting of your financial life. This is basically the proof of your financial stability, with documents to prove your claims. We are looking for potential red-flags in your ability to make payments. The bank determines how much you can borrow, which is determined by your finances. You are not obligated to take out the full amount!
[bctt tweet=”When buying a house, the bank determines how much you can borrow. You are NOT obligated to take out the full amount. ” username=”physicianwealth”]
I created an initial house hunting budget. As my wife playfully pointed out, if we stayed within that budget our other priorities would have been derailed. I admitted I was outgunned and adjusted the budget. Our compromise allowed us to find a home that would shorten the commute and allowed us to meet other long-term family goals. We came in under the final budget by $5,000! I definitely know the secret to marriage: happy wife, happy life!
Your Offer Has Been Accepted. Now What?
You’ve found several houses that you like. You’ve put in multiple offers on these houses. You’ve been optimistic, pessimistic, and excited. Finally, you hear your offer was accepted. This is when the work begins! A home inspection is needed for your peace of mind. In Tay’s and my case, a home inspection revealed several serious potential problem areas.
- Electrical issues
- Aluminum wiring
- Air conditioning
- Major sewer line problems
- Ducts with holes and forcing air into the attic
The home inspection is an overview of problem areas. It is up to the home buyer to understand the report. The home buyer must find someone who specializes in those areas. An example of this was when I insisted finding out the root cause of the sewer line problems. It turns out this could have been an extremely costly issue in the future, to the tune of approximately $20,000 to $30,000! The repairs could then be added to the seller’s costs.
Taylor had a trustworthy, professional electrician read through the inspection: her brother. He was able to explain what changes needed to be made. It turned out that the aluminum wiring was a fire hazard, and the electrical outlets were outdated. That all had to be replaced. We had a licensed electrician come out to look at the home inspection and we set the meeting up as a bid for the work.
The AC/heating system was also an issue because it was from 1972! Taylor mentioned that it wasn’t that hot when we moved in to our new home. We mainly turned on the air-conditioner at night to cool the bedrooms. Then the first electric bill came. Talk about sticker shock. The bill covered the first three weeks living in our new home. Keep in mind, our electric was used sparingly and for limited time. The bill was for $500! It was discovered there were holes in the ducts and the air was being pushed into the attic, none of it to the bedrooms, where it was needed!
This is a time to pick and choose your battles. There are some things that you need ask the seller to fix, such as the sewer line. It needed to be fixed before closing, just in case any further damage happened during the repairs. Then there were smaller items that needed to be addressed. The water heater needed a replacement. The money for the replacement was requested at closing. If it were up to the seller, well let’s just say, he might not have chosen a quality appliance. It is much better to get cash upfront and choose for yourself!
Tay and I had to hire painters. Everything was painted in a drab color—including hinges, trim, doors, and vents. We didn’t expect the painting process to take as long as it did. We were quoted three days; however, it took longer. Taylor remarked we had “the slowest painters ever”! We said the painters bounced from area to area, instead of sticking to one area and finishing it. We expected several painters, yet sometimes only one person would paint. We also wanted to get new flooring in the bedrooms, which we did after they moved into the house. Taylor regrets waiting to start arranging for flooring until the painting was completed. This was another lengthy process of waiting for quotes, waiting for the order, and then the installation process.
- Finding reputable vendors to do the work.
- The vendors must come out and give you a bid.
- You choose which company to use.
- The vendors are reluctant to overlap appointments with other vendors which can create problems.
- Then making an appointment for your selected vendor to come to the house and do the work.
- Then there is the time it takes to complete the updates.
Taylor suggests doing as much as possible before you move in. I made the following suggestions for when you interview vendors:
- Check reviews and references of vendors
- Make sure there is a set deadline
- Insist the vendors behave professionally with each other
These are some things that will hopefully cut down on the hassle of moving. Who needs additional stress added to the lengthy and nerve-wracking process of buying a home?
There were things that Tay and I admit we didn’t notice during our initial visit to the house. We went to see the house during the daytime. There was plenty of natural light at that time, but after we moved in, the lack of light fixtures became apparent. We didn’t check closet space, so we were unsure how much closet space we had. Neither of us noticed the fence was in desperate need of repair. By discussing some possible issues we overlooked, we hope this will help you to think creatively when evaluating a house for the first time. As I pointed out, it’s easy to notice the big things, it’s the little things that add up!
The usual practice after closing is for the seller to leave the gas and electric on for a few days. In our case the seller turned them off four days early. We moved our young children into a house without hot water. This was a surprise to me! In my previous moves, it had never happened. I have learned to clarify when the utilities will transfer—just to be on the safe side!
Taylor loves our new home. She likes that it is smaller, and our children are closer to us. She feels like it will be a great long-term home for our family, and although it needed quite a bit of updating, it is still a better-quality home when compared to the newer house we had in Las Vegas.
One example she gives was the baseboards. If something fell on the baseboards, they would crumble. She suspected they were made from foam. She is also content with a smaller house which requires less cleaning. She also urges our listeners to not be deceived by new homes or things that “look” pretty. Quality is where it is at.
Along those lines, Tay urges his listeners to take the home inspection seriously. That is equally true for new homes, as well as older homes.
An Exciting Journey
Choosing a new home can be an adventure. A potentially stressful adventure, to be sure. However, Tay and I are here to help smooth the process of buying a home for you—the prior episodes mentioned above, as well as this one, and a future episode that will delve into the specifics of financing your new home. If you take time to understand the process of buying a house, you will be able to make better long-term decisions. It will ensure that you move confidently through the home buying process and successfully find your dream home!
Journal Club: DrCorySFawcett.com
I thought this was a timely and relevant post to our home buying experience, so I wanted to highlight it here. Some of you may also recognize the name as I had Dr. Fawcett on the show back in March where we talked about how he eliminated $500,000 in debt and public service loan forgiveness. Go back and check out that show, it was a great one.
In this article, Dr. Fawcett discusses the 8 ways his life was changed by paying off his mortgage.
I’m going to quote each one.
The first was that his stress level had decreased. He did not understand the full effect the debt was having on his level of stress until after the debt burden was lifted. No more debt = no more drive to pay off the debt.
Second, was he was able to improve his medical practice. Once he became debt-free, the drive to keep his production high at the office decreased. Since he no longer worried about making the house payment if his production dropped, he was now willing to make some changes to make my practice more enjoyable.
Third and Fourth go together. They paid cash for a new motor home and he bought a sports car, my guess probably not at the same time or he would be back in debt! He had wanted a new motor home and sports car for some time, but becoming debt-free was his priority, so it had to wait. I take it as, they were able to focus their hard earned cash into something that truly made them happy vs. buying everything on credit and feeling the squeeze of having to work to pay the bills.
Fifth, they invested in real estate. Once you become debt free, all the money that was going to pay down debt is now available to use elsewhere. They decided that they would invest it in real estate. Over the next six years they purchased five apartment complexes and twelve years after their first purchase, the cash flow from the apartments exceeded their household expenses. They became financially independent much earlier than if they would have made minimum payments on their debts.
Sixth, they used the cash flow to pay for kids’ college. This is somewhat unique as the cost of college for both didn’t exceed the cost of the mortgage. Without debt taking our monthly income, they had plenty to pay for college without touching our savings. This might be hard to do now with the cost of college tuition so high, but I like the principle of it. I still encourage clients to save in a 529 though, just like my wife and I do for our kiddos. Go back and listen to the episode with Abby Chao from collegebacker if you want to learn more about 529s and the best way to save for your kids college.
Seventh, they needed less for retirement. He found that if they had a mortgage in retirement, they would have needed almost a million more saved up in their nest-egg to cover a mortgage. Debt in retirement is a horrible idea, and his example is one reason why.
Last, but not least, his giving increased. Without debt, they were more inclined to give to others. I love that idea!
What I like really about this article is that it shows how powerful yet devastating debt can be to ones retirement. He outlined 8 perks that were very realistic to how it would feel to be debt free.
We have yet to hit the debt free mark as we still have a mortgage, but I can image how great it must feel and this article gives me a sense on how that will actually feel when we hit it.
In my experience, I see a lot around how a home is good debt or a good investment. Yes, there are ways to make money from real estate, even a primary residence, but all that income comes from the gain on sale. A home is NOT a good investment as it doesn’t produce cash flow and usually ends up costing quite a bit of money to keep in good condition. I’m a huge fan of real estate, but the idea that you must keep debt on your primary residence is not for everyone, especially as you near retirement. If you are trying to retire early, the debt needs to be extinguished before you leave your career.
Dr. Fawcett, thanks for another great article and showing us how it will feel when we all become debt free.