Brian (00:04):
Welcome to “Money and Mindset with Bright and Brian,” where we mix financial advice with positive psychology to help you find joy in leveling up your finances. In each episode, we share practical advice for managing both your money and your outlook. I’m Brian Ford, and I study financial wellness. I’m joined by my friend Bright Dickson, our resident expert in positive psychology. So today we’re taking a deep dive into the crazy housing market. We’ll talk to a special guest about the factors that make buying a house in this moment so hard. And we’ll give you some unexpected tips to help you get financially and mentally prepared to buy a home. Bright, you ready to get this started?
Bright (00:41):
I’m so ready. Let’s do it, Brian.
Brian (00:50):
So today we have a special guest. Evette, we’re so happy to have you here today. Welcome to “Money and Mindset.” You are a retail mortgage loan originator here at Truist, and more than that, you’re an expert in helping people navigate the housing market. Tell us a little bit more about what you do day to day. How do you actually help people navigate the housing market?
Evette (01:10):
Well, Brian, thank you so much for having me today. The way I help potential homebuyers is by helping them to achieve the dream of homeownership each and every day.
Brian (01:21):
That is awesome. I love that. So, last year we saw the demand for houses just explode. And while it’s not as bad now as it was then, a lot of homebuyers are still having trouble finding a home. I mean, how in the world have we gotten to this point, Evette? Can you shed a little bit of light on that?
Evette (01:40):
Well, Brian, there are several reasons that have led to where we are today in the real estate market. Many current homeowners that would normally look for a larger home during this time are choosing to stay put and renovate their current home. The reason being is that the cost of land has increased, coupled with the median prices of homes. They have also increased 17% in some areas.
Evette (02:02):
Many buyers are finding that they have to pay significantly more to get the same square footage as they currently have. As a result, we really have a shortage of available homes and standing inventory sits at about 30 to 45 days. Also, with interest rates remaining low, homebuyers are seeing that the potential mortgage payment is almost the same as the rent that they would pay. So it’s basically a no-brainer.
Bright (02:25):
Yeah, Evette, it seems like there’s a lot coming together to sort of create this moment. How can first-time homebuyers compete in this really challenging real estate market, and what are some of the best practices before beginning the homebuying process?
Evette (02:40):
In my experience, some of the best practices involves how prepared homebuyers are before they make the first offer. This starts with choosing the right realtor who can not only navigate the market, but also set realistic expectations. The right realtor will tell you up front if you’re ready to move forward, based on the amount of due diligence and earnest money that you’ve saved. Keep in mind that the realtor’s the one who is submitting the offers, and then they can also tell you which offers are being accepted.
Evette (03:10):
Another best practice is making sure that the homebuyer is working with a local lender. Many sellers tend to shy away from online lenders or lenders that they’re just not familiar with. Lastly, another best practice is being flexible. Many potential homebuyers are having to reset expectations based on location, age of the home, and distance to work, all because the market is so competitive. Having flexibility with the process and going outside your comfort zone may lead to the homebuyer finding the perfect fixer-upper or newer home in an area that they had not previously considered.
Brian (03:48):
Yeah, I agree, Evette. I think flexibility really is the key here. I like that. So how should first-time homebuyers position themselves to get their offers accepted? I mean, what tips would you recommend?
Evette (03:59):
Well, right now I would say the key is to save, save, save. Because of how competitive the market is right now, sellers are asking for higher deposit amounts; often offers with lower amounts are just cast aside. The other tip is being able to close within a 30-day window. Sellers want the shortest close time as possible. Also keeping in mind that many offers are cash offers. So it’s very hard sometimes for first-time homebuyers to compete in that space. And lastly, making sure that you’re preapproved rather than prequalified is another tip that sellers really want to see. This tells the seller that you’ve taken the extra steps for a lender to review your credit, income, and assets, and that your financing is strong and solid. Preapprovals are a must in this environment.
Bright (04:49):
I think that’s a really important distinction between prequalified and preapproved. And so, another question, Evette, for you: many first-time homebuyers I know are eligible for down payment assistance programs, but how are you seeing sellers view those programs?
Evette (05:04):
Well, Bright, I wish I had good news here for you. Many sellers shy away from down payment assistance right now because of the extra appraisal requirements. Many of the programs require that all major mechanical components of the home, such as the roof, the HVAC, and hot water heater have five years of useful life. If the home is being sold as is, this can be a major obstacle to getting the loan closed.
Evette (05:29):
Also, down payment assistance requires a longer time period. You may need 45 days to close. If the seller wants to close in less than 45 days, and then they run into appraisal issues due to condition, then their offer may not even be readily accepted. Currently, down payment assistance programs work best on new construction or homes that are 10 years or newer. So for the most part, if you’re a homebuyer and you really need these programs in order to qualify, just make sure that it is the right home. And this is where the right realtor can guide you and provide their input.
Brian (06:04):
Yeah. That’s great advice, Evette. Look, we are so glad that you joined us today. Thank you so much for all that great information. I certainly learned a lot. Thank you, Evette.
Evette (06:14):
Thank you so much for having me.
Brian (06:16):
Well, there’s no doubt that buying a home can be difficult. And in our next section, we’ll discuss some practical tips to buy a home in any market, stay with us. So Bright, after the U.S. shut down in March of 2020, it seemed like everyone wanted to buy a home. And it makes sense. We were all confined to our houses. We wanted more living space. And so, I think that was a pretty normal thing, that there was a lot of folks that wanted to move out to the suburbs and so forth. But did you know anyone who actually bought a house or tried to last year?
Bright (06:53):
Yeah, I know several people, some of whom bought a house and had to go through the market, some of whom bought a house half finished and had to go through working with contractors to finish it. I mean, it was really just a lot for them.
Brian (07:07):
Yeah. And, unfortunately for buyers, the market’s still bonkers. So if any of our listeners are first-time homebuyers, they should know that finding a home you want to buy, it’s only half the battle. Then you’ve got to make sure you’re mentally and financially ready to pull the trigger and possibly even navigate a bidding war or two.
Bright (07:25):
Mm-hmm (affirmative). So, Brian, help me get practical here. So, I know a lot of people wonder how much they can actually afford, and every person is in a different situation, but how do we do that math? How do we know how much home we can actually take on?
Brian (07:41):
I get this question a lot. It’s an important one. And I’ve got a simple rule of thumb. It’s called the 30% rule. So, the 30% rule says that you shouldn’t spend more than 30% of your take-home pay on housing costs. And to figure this out, you just simply add up all of your monthly housing costs. Certainly that includes your full mortgage payment, but it also includes utilities, maintenance, possibly a homeowner’s association fee. I mean, that’s everything. And then once you’ve got that total monthly housing cost number, we want to do our best to keep it below 30% of our take-home income.
Brian (08:19):
Now, I’ll say that I’m well aware that in some parts of the country, housing is more expensive and this may be difficult to live by, but that’s why it’s a rule of thumb. And we can just adjust to our local locations. But having said that kind of caveat, I will say that I’ve worked with a lot of individuals who are struggling financially, even though they’re doing almost everything right. They’re budgeting, they’re trying to live within their means, they’re being careful with consumer debt, etc., but they’re still paycheck to paycheck. And they’re wondering what in the world they’re doing wrong. And when I work with these folks, sometimes after taking a closer look, it’s because they’re not living the 30% rule. In essence, they’re house poor. On the other hand, when we live in a home that we can afford, it allows for some breathing room in our budget.
Bright (09:07):
I like that rule of thumb, that 30% rule. And look, I’m no expert in real estate, but I know location is important, right? That whole location, location, location thing. What should we be considering when we think about location?
Brian (09:20):
No doubt location is important. We all know that. But I think the bigger question to ask ourselves may be, is our home an investment or is it just a place to live? You’ve got some experts that say your home, it’s not an investment. And then others say it’s definitely an investment, possibly even the biggest investment we’ll ever make. I happen to think they’re both right. First, I think we should view our home as a place to live our values, raise a family, pursue hobbies, build friendships and memories.
Brian (09:55):
However, we also should be thinking about our home in terms of an investment. In fact, Bright, these two ideas, they’re most likely correlated. This brings us back to your original question about location. The very things that you may be thinking about, as far as location goes and making a good location, like proximity to jobs or good schools, where it’s safe and clean—for my wife, maybe close to shopping—all these things will also help make your home perform well as an investment. So I think we can keep both in mind.
Bright (10:26):
Yeah, there’s no reason you can’t balance both of those things, right? Balancing your needs now, and thinking about future resale and your future in general. I think that’s really smart. Brian, what other tips should we think about when buying a home and making this big decision?
Brian (10:39):
Yeah, a few tips come to mind. When you’re thinking about buying, you may want to watch the market in your area for a few months before you start the actual buying process. And while you’re keeping an eye on the market, as those months roll by, I really want you to start working on building your credit score, raising that credit score.
Brian (10:58):
And it’s tough for me not to pause at this point, Bright, and talk about credit scores, but we may want to have a future episode on how to raise your credit score. But for now, I’ll just say that having a good score is going to help you shop for lenders. And that’s actually another tip is really shopping for lenders and making sure you get a few quotes based on the rates they’ll offer you, but also you want to shop for lenders based on the level of attention they’ll give you during the loan process.
Brian (11:27):
And you only can know that by asking around. You’ve got to ask friends and family, and they can say, “Look, this local lender really did a nice job for me, even though this market’s crazy and competitive, they really helped us through to a timely closing.” So get a few quotes. And as you work with your lender of choice, work to become preapproved.
Brian (11:46):
Evette talked about this earlier. This is really important. It’s almost a must in today’s market. Buyers really want to know that your financing is all lined up and you’re good to go. This will really make you a lot more attractive to sellers. And, Bright, I think the last tip that comes to mind that I’ll mention, it’s a bit counterintuitive. I would recommend that we slow down. And I know that’s difficult to do in a hot market like we find ourselves in today, but a couple things to keep in mind.
Brian (12:14):
One, it’s OK to rent while you’re preparing mentally and financially to buy a home, while you’re keeping your eye on the market. So that’s one thing to keep in mind. I will say, some of the most costly homebuying mistakes are made when we feel rushed or pressured. Second, let’s remember that yes, you may need to act fast to have an offer accepted; however, take your time once the offer is accepted. Do your due diligence. And there’s usually, that timeframe is specified in the agreement itself, but make sure you take the time and you really pay attention to details. Slow down during that part of the buying process. That’s kind of the practical financial side of buying a home, and then there’s the mental side.
Bright (12:56):
And it’s easy to see why buyers, especially first-time buyers, feel overwhelmed. That’s super common. But there are some psychological tricks we can use to make the whole process feel just a little bit better. And that’s exactly what we plan to discuss next. So stay tuned.
Brian (13:22):
All right, Bright, we know buying a home is stressful already. Throw in our current post-COVID environment and it’s no wonder homebuyers are totally overwhelmed.
Bright (13:34):
Yeah. And like post-ish COVID environment, right? And—
Brian (13:38):
Don’t say that, oh my goodness.
Bright (13:40):
It’s true. We got to live in reality. But I think one of the things here is that having a home is a basic necessity, right? Shelter is just a basic necessity for our physical and our mental well-being. We need that shelter to survive, and we need a space that we can enjoy in order to thrive, right, that meets our needs. But when we’re looking for a house in this supercompetitive market, those basic needs can kind of become threatened.
Brian (14:06):
Well, I agree. So how do we deal with the stress that comes with all that?
Bright (14:11):
Yeah, so I think the bottom line here is holding three somewhat opposing goals simultaneously for a long period of time. However long it takes you to complete that process. So, here they are. The first goal is keeping those realistic expectations. The second is purposefully cultivating hope and positive emotion. And the third is learning how to really be in the moment.
Brian (14:38):
All right. You’ve got my attention. I’m looking forward to breaking this down in more detail. Let’s hear about this.
Bright (14:44):
All right. So let’s take the first one first. Let’s talk about realistic expectations and just set some of those up. So, Evette and you, you’ve set us up for this, but in this kind of market, it’s really realistic to expect to face those obstacles and disappointments, right? Possibly many of them, and expect that it will take longer than you want it to, expect to need that professional help from a realtor or a mortgage broker, probably both, and expect to learn new skills and concepts, right? So that old growth mindset thing comes in here too. So, making sure that you’re really clear and you have these expectations at the outset, and if you’re buying a house with your partner or spouse, making sure that you have that kind of conversation together and set those expectations together—that will help you keep yourself optimistic and motivated as you navigate this market.
Bright (15:36):
And I would suggest even writing down your expectations and keeping that list with the rest of all your paperwork so that it’s a part of what you see regularly as you go through this process. And Brian, I want to build on what you talked about earlier in reiterating that preparation is really, really important. So all of the things you explained—knowing your budget, getting preapproved, working with financial and real estate professionals—checking all of those boxes, that process of preparation can help you get realistic and develop expectations that are more specific to your particular situation. And it’s also really important to get very clear about what you want out of a home. So, what are your needs, what are your wants, and what do you want to avoid? For me, I want one extra bedroom if I was going in, but I need a bathtub, right? That’s not a need for everybody, but I need a bathtub. So all of those things, write them down and keep them with you, and also be open to the idea that those things may well change over time.
Brian (16:38):
Yes. Expectations. It’s funny, I always talk to folks about the importance of expectations, and I never really thought about applying it to the homebuying process. I think about it in a lot of different areas of my life, and I always go back and forth between having too high of expectations and having too low of expectations and not... There’s that sweet spot in a lot of different areas of our life. But again, I’ve never really thought about it from a homebuying process. That’s good stuff. Well, look, tell me more, we’ve only gotten to your first of three. What’s the second?
Bright (17:11):
So, equally important is number two, purposefully cultivating hope and positive emotion. One of the things, as I started thinking about this, Brian, the drive to find a home is inherently hopeful, right? It’s inherently optimistic. You’re looking for a place to live your life, right? And you’re going to need to take an active role in keeping that kind of hope alive through the process, especially when you meet with a disappointment. Especially when you found it, you found the perfect house, and then you don’t get it.
Bright (17:42):
So, make a point of doing things that bring you positive emotion. Make sure you’re taking time to care for yourself and the people around you, to relax and rejuvenate. So, do the things that make you happy, and really to connect with the people who are most important to you. Because we can get really wrapped up in the process, but you’ve got to make sure that you’re sort of maintaining your well-being over time, because it could take a while. And it’s a great idea to take breaks.
Bright (18:11):
So, you can ask your realtor to just stop sending me houses for a week. That’s OK. Just take that break, set boundaries around how much time you spend looking online and redesigning the rooms in your mind, right. All of that sort of imagining and dreaming, set some boundaries about that, and ask for support from other people. There are lots of other people who’ve gone through this kind of process. They know it’s hard. Lean on other people during this time. Does that make sense to you? What do you think, Brian?
Brian (18:43):
No, I totally agree. Sometimes in life, we know those areas of our life, the big life events that are stressful, and we’re aware of those—maybe that’s a death in the family, changing jobs, moving. Sometimes the homebuying process gets left out of that, especially in a market like this. So I think it just makes sense to treat this process as a stressful event. We can’t let the homebuying process consume us. I like the idea of cultivating positive emotions as you talked about, as well as time to rejuvenate. Well, Bright, what else can we, or should we, keep in mind as we go through the buying process to stay sane?
Bright (19:22):
Yep. So, number three is staying in the moment. And this is really hard, right? There are people who dedicate their lives to learning how to stay in the moment. So, you’re probably going to face some obstacles. You’re probably going to face some disappointments. It is totally OK to give yourself time and space to be sad or mad if you lose out on a house or probably both, right? You don’t need to bounce back from that immediately. Give yourself a little room to kind of grieve that.
Bright (19:49):
Finding a home is big and important, and you’re likely going to experience some big emotions around it, so give yourself time, take care of yourself—and keep going. It’s not an either/or, it’s a both/and, and so give yourself time for some of those more uncomfortable, unpleasant emotions. And when you do eventually close on your house, celebrate the heck out of that, right? Let people know, give yourself a little party, let yourself feel that joy, because you’ve really, really earned it and there’s more to come.
Brian (20:20):
Nice. I like it, Bright, stay in the moment. Well, that’s it for today. Thanks for tuning in to “Money and Mindset with Bright and Brian.”
Bright (20:35):
If you enjoyed this episode, consider subscribing or share it with someone you care about. We’re looking forward to next time.
Brian (20:41):
Yeah, and speaking of next time, we’re going to focus on entrepreneurship. If you’re starting your own business or side hustle, how do you cope with the mental challenges? Plus, we’ll have financial tips for starting out and from those who’ve been there. It’s going to be a good one. We’ll see you next time.
