Taking the First Steps to Buying a Home–Again

In 2020, I never thought I’d buy a home ever again. I sold my house to avoid foreclosure and felt all the feelings. Anger. Embarrassment. Shame. Loneliness.  

And relief when it was all over. 

Buying a home was the last thing on my mind. We were at the beginning stages of the pandemic, and I was concerned about keeping my family safe. I wanted to sell my home, get my cash, make a stash and look forward. No way was I going to buy a home for at least a few years. Or ever again.

I’ve put foreclosure in the past and have only looked forward. And looking forward brought me to a class I took in October last year. I attended a first-time home buying class sponsored by the Washington State Housing Finance Commission. And for the first time in about five years, I (almost) feel comfortable with the idea of buying a home! FYI: If you haven’t owned a home for three years, you’re considered a first-time home buyer and qualify for all the deals, such as down payment assistance, help with financing and a number of programs.

We’re happy in our rental, but my mother is 92 and although her health is pretty good, I worry that she’ll fall as she’s getting into or out of the bathtub. Same with my sister Rebecca, who has a disability. In the near future, they’re going to need a bathroom that’s accessible. It will be easier for them and for anyone who helps them with bathing. 

I’ve leaned toward buying a home and I’ve given myself a two-year deadline. (Also, that’s how long my class certificate is good for!)

Getting Started With the Process

Affordability. The homebuying process can drive you crazy, but there are lots of online resources that can help you. Start with this online calculator to see how much house you can afford. It’ll give you a number based on several factors, such as home price, interest rate and how much you’ll add for the down payment.

DTI. Lenders will look at your DTI (debt-to-income) ratio. This is calculated by dividing debt payments by your gross income. You want to have a DTI of about 35%. The lower the better. You want a higher income in proportion to your debt. Know in advance what your DTI is by using this calculator.

If your DTI is higher than 35%, look for ways to pay down debt and increase your income. This will help you not be so strapped financially. It’ll help improve your credit score and give you a more comfortable cushion.

TIP: Use your net income as a measure for how much you can afford to pay each month. If you make $3000 a month, you’ll have a number of deductions from each paycheck. This means that you don’t actually have $3000 to put toward a mortgage payment. 

Credit scores. Did you know you have more than one credit score? You’ve got scores with FICO and Vantage. The FICO 5 is typically used by lenders. The lender will check your reports from the three major credit bureaus–Equifax, Experian and TransUnion. Your score will determine whether you’re approved for a loan and the interest you’ll pay.

Scores tell lenders the following:

• Amount of debt
• Are payments late or on time?
• Credit history
• Recent accounts
• Credit mix (revolving and installment)

Getting Pre-Qualified and Pre-Approved

To buy a home, you can start by getting pre-qualified. This gives you an idea of how much you can borrow without a ding to your credit.

What’s the difference between being pre-qualification and pre-approval?

Pre-qualification tells you how much house you can afford. The lender will ask how much you make, if you know your credit score, how much house you want and the loan term. Based on that info, they’ll tell you how much house you can afford and how much they could potentially give you. There is no guarantee that you will actually be approved for this amount because you haven’t applied for a loan. This doesn’t affect your credit scores because the lender won’t do a credit check.

Pre-approval means you fill out a loan application and submit a bunch of documents to prove your income, residency and citizenship status, and employment, and allow the lender to check your credit. On approval, you’ll receive a letter that tells you how much the bank will lend you. Once you have this letter, you can really look to buy a home within the 120 day period.

So you’ve been pre-qualified and pre-approved. What do you do now? Start thinking about what location, price and features you want or need in a home. Deborah Savran, the broker who presented this class with a loan officer, said “typically, you can have two out of three. Be willing to compromise.” Don’t ask for the impossible.

Look at the triangle below and choose three things you want or need.

Don’t Touch Retirement Funds

If you’re going to buy a home, one of the first things you’ll wonder is how much down payment you’ll need. Whether you’re a first-time homebuyer or not, you could qualify for a variety of programs to help you with that. A combination of savings, gifts of cash and down payment programs could put you into a home.

During the class, one of the sources of possible down payments that was mentioned was a retirement plan. As a money coach with a big mouth and ADHD, I couldn’t help myself. Using retirement funds for a down payment is a huge NO in my world.

But why not borrow?  

Penalties. Depending on your plan’s rules, you may have to pay a penalty straight off the top. Let’s say that penalty is 5%. You want to take out a loan or a withdrawal for $20,000. Your employer will take 5% off the top of that $20k. That’s $1000. And that’s not even taking into account the IRS and what you need to pay the government.

Taxes. There are exemptions to the 10% penalty for first-time homebuyers. BUT you’ll still pay a tax on the amount. How much depends on your tax bracket. If you’re not a first-time homebuyer, you’ll pay that 10% penalty, reducing that $20k even further.

Opportunity cost. You’re going to lose all the growth that happened all the time you were contributing to your retirement and growing your money.

Whatever you decide, make sure you know the costs of a plan loan or withdrawal.

You need money for your retirement more than you need it to buy a home. There are lots of ways to own real estate and buying a home is just one of them. Explore your options. It’s nice to be able to buy a house, but remember, there’s no financial aid for retirement! 

Down Payment Assistant Programs

To find programs for lower-income families, veterans and disabled people, first go to the website of the U.S. Department of Housing & Urban Development at HUD.gov. At the top of the screen, look for “State Info” on the menu. Use that menu to search for your state. This will take you to your state’s housing commission and programs that are available.

Don’t be afraid that because you don’t have enough for a down payment that home ownership is impossible. Do your research, talk to a housing counselor and take your time.

What I’ll Do Differently This Time 

Besides already taking a class, which explains how to buy a home and the entire process, I’m also going to meet with a financial counselor. Yes, I’m a money coach, but I’m going to meet with a financial HOUSING counselor to make sure I’m doing the right things. I don’t know everything there is to know about buying a home. I can tell you what I want or need (I’ll be using the triangle above). But I want to make sure the finances are in in the right place. Also, money coaches don’t know everything! 

1. I’ll ask about:
   • Age of roof, gutters, furnace, electrical and plumbing
   • Sump pump in the basement
   • Type of heating (solar, electric or gas)
   • Age of insulation
2. Priorities. In the class, we played a priority game. There are 14 categories, and you have a limited number of tokens to place on your priorities. This gives a visual representation of what’s important to you. Play the game yourself using these worksheets from Windermere Real Estate. We used M&M’s for tokens and got to eat them afterwards. If you’re going to buy a home, you’re gonna want to do this. Below are some of my priorities:
   • Walk-in shower
   • Lots of outlets
   • Storage
   • No busy, heavily transited streets (we have cats and my mother likes to go for walks)
   • At least one accessible entry/exit point
   • Easy to get to the University of Washington Medical Center
   • No leaky basements
   • No outdated plumbing and electrical

Know About PMI and Escrow

If your down payment is less than 20% of the purchase price, expect to pay mortgage insurance. This insurance protects the lender in case you’re unable to make your monthly payments.

You won’t pay PMI forever, though. Once you pay down a certain percentage of your mortgage, you can cancel it. The lender may not remind you or suggest you get rid of it, though, so you’ll need to keep an eye on when you’re eligible to remove it. 

Escrow. In some cases, the loan servicer may include your property taxes and homeowners insurance in your monthly payment. They will in turn pay the insurer and your property taxes directly. The benefit of this is that you only have to make one payment. You don’t have to worry about making three payments or setting up savings accounts for the property taxes and insurance.

Alternatively, you can pay these yourself. Open up a HYSA (high-yield savings account) and calculate how much you’ll pay in property taxes annually. Homeowners insurance can be deducted monthly from your checking account or you can pay it twice a year as well. 

Ask if the lender will require an escrow account for property tax and insurance payments. FHA (Federal Housing Administration) loans require escrow accounts. 

Should You Rent or Should You Buy?

You probably know someone who at one point has had a nightmare landlord. Or maybe YOU have had a terrible experience. They’re non-responsive, don’t maintain the property, and so on. I’ve been blessed with amazing landlords. They’re generous and responsive.

Besides having attentive landlords, I love not having to pay for the furnace or new appliances. I don’t pay the property taxes and if there’s a leaky roof, I don’t have to shell out for a replacement.

Bonus: You don’t have to buy a home to build equity. During the past four years that we’ve rented, I’ve saved thousands for my retirement, opened a brokerage account, learned to invest and have emergency savings. My credit score has gone up. I love the freedom of not worrying about repairs and maintenance.

Renting Pros and Cons

• Flexibility to move on lease end 
• Convenience 
• No commitment 
• Can sometimes be more affordable 
• Live in neighborhoods that you can’t buy in 
• No responsibility for maintenance and repairs 
• No property tax payments 
• If the landlord is in foreclosure, you could lose your home 
• Unresponsive landlords 
• No pets rule 
• Not building equity 
• You could be turfed out if the landlord decides to sell

Buying Pros and Cons

What to think about if you want to buy a home. The biggest advantage of owning is that you’re building equity. Homes appreciate about 6% (national average) so while you’re making payments, the house increases in value and your net worth along with it. If you make extra payments toward the principle, you build equity faster and you’ll pay your home off before the end of the loan term.

With buying:

• Responsibility for repairs and maintenance 
• Can have pets
• Build equity
• Leave property to your heirs
• Stability
• Decorate how you want
• May have to pay mortgage insurance
• Pay property taxes
• Need emergency fund for repairs and maintenance 

Avoiding Foreclosure

Scary shit happens. Foreclosure is one of them. One thing I didn’t have was an emergency fund to keep me from missing mortgage payments. I was literally living paycheck to paycheck, and didn’t think to to have an emergency fund.

Follow these tips if you find yourself in that situation:

1. Use your emergency fund to bring your payments current
2. Call or write the loan servicer (bank, lender) immediately. The number will be on the monthly statements. Explain what happened (job, illness, divorce). Keep track of who you talk to, date and time, and what they say
3. Call your state’s housing commission or department for advice
4. Call HUD for a list of approved foreclosure counselors for each state
5. Keep a notebook with all the information you gather
6. Keep making payments or save the money in a separate account. Your servicer may require you to make some sort of large payment to bring you current. I made the mistake of using my income to pay debt instead of saving it
7. If you have ADHD (like me!) it will be hard to GET GOING on these tasks. Talk to someone about body doubling or holding you accountable. My undiagnosed ADHD played a huge role in me getting into this mess and not being able to get out
8. Foreclosure isn’t the end of the world, but it sure as fuck feels like it. I know firsthand how scary it is. Get help from a therapist or a crisis line if things get really bad

In Conclusion

Buying a home is likely the largest purchase you’ll ever make. We’re talking hundreds of thousands of dollars. If you take anything away from what I’ve written here, I hope it’s this: take a homebuying class and sign up to talk to a financial housing counselor. Don’t be pressured because someone says it’s what you should do.

I owned a house for 22 years, and I’ve rented for more than five years. And it’s weird that I’ve learned more about owning and maintaining a home as a renter than I ever knew when I owned a home. Part of that is because of my financial journey.  

Home ownership isn’t for everyone. Renting is a legit way to live. Shaming people for renting instead of owning is shitty because everyone has their reasons for not owning a home. Maybe they lost their home to foreclosure. Or they prefer to invest in real estate through stocks and real estate trusts. Maybe they like the flexibility of renting. I thought I’d never again own a home, and yet, here I am.

This is a personal choice and there definitely is pressure to own a home. In our society, it signals maturity, that you’re taking life seriously. But finding a home for your family to have a roof over their heads is also taking life seriously. We’ve been happy and safe here. The bottom line is that our basic needs are being met.

If you’re feeling guilty about renting, but enjoy it, then ask yourself why you feel this way. Don’t allow anyone to make you feel bad for your choices. You’re making the best choice possible for your life. Not someone else’s.