How to Buy a House – Part 2 (Using a Real Estate Agent)

Posted on February 21, 2012 by jdpohl

 Note: This is the second of a multi-part series about buying a house.  Read Part 1 before this post.

So now you’ve figured out how much house you can afford, and have saved at least 20% of that amount.  You might think this is the time to find a real estate agent and have them show you some houses, right?  WRONG!  Don’t get an agent just yet.

First you’ll need to decide if you even need a real estate agent.  An agent can be helpful in finding you a house, but all agents work on commission.  If you play your cards right (and you’re willing to do a little homework), you can get the house cheaper without a real estate agent.  Instead of paying them a commission, you get to take that price off the purchase price of the house.

That being said, choosing an agent does have its advantages.  They will look up houses that fit your criteria, and can sometimes find them quicker than you can on your own.  Most agents have a strong network of other agents built up to where they can find out about properties before they even hit the MLS, which is all you have access to on your own.  They also do a lot of work at closing for you, which makes the process go much smoother.

If you end up working with a real estate agent, and they show you multiple houses and do a lot of work for you, don’t take their advice and cut them out of the equation.  This is how they earn their living, so if you go down the road of using an agent, include them the whole way (including closing).  Don’t take their advice, have them find and show you several properties, then go behind their back and buy without them.  If you use them as a resource, pay them for that advice.  That’s the service they provide.

Ok, back to the subject at hand.  Now you’re at the step of starting the process of trying to find your new home.  This is the fun part!  Start at sites like Zillow (my favorite), Realtor.com, and Trulia to try to find homes that fit your location/criteria.  Find a few that you like, and contact the realtor for that property.  Simply ask them if they can show you the property.  You still need a real estate agent to walk you through the property, but they aren’t doing much work for you at this point in time.  When you go through the house, get a feel for the property and the real estate agent.  Once you’re done, get the agent’s card, and take some notes about the pluses/minuses about the house.  It’s always a good idea to take a camera and take some pictures too, so you can refer to them later.

Continue that process for a while, so you get a good feel of the houses in your price ranges and the real estate agents you can work with.  When choosing a real estate agent, look for both the personality and how you feel they will do in getting you the best deal on the house.  Ask them for some references, and try to find some reviews online (just type the agents name and the word reviews after it in any search engine). 

If you find an agent that you like more than the others, and decide to use a realtor, start contacting that person to show you the houses.  Tell them what you’re looking for, and they’ll help you find even more houses to walk through.  Keep looking online though, because you might find something your realtor could miss.

If you decide you aren’t going to use a realtor, just keep contacting the person for each house listed on the online site.  This way, you won’t waste much of their time.  You can even mention that you are not using a realtor, and you appreciate them simply showing you the house.

Once you find a house you want to actually make an offer on, remember to not get your heart set on it.  There are plenty of houses out there that will be a good fit for you, and you will most likely end up getting a bad deal if you get set on just one house.

If you choose to go with an agent, this is the time where they will really provide you with the biggest benefit.  They will do a lot of homework to find a fair price for the house, and work with you on what offer you can make.  Take all the information in, and make the best informed decision you can.  Remember, you can still offer whatever you want on the house, even if your agent doesn’t agree with you.  But they are the experts here, and have a good idea of what the house is probably worth in your particular area, so I’d recommend listening to their advice.  And remember, if you don’t get this house, there’s plenty of other options out there.  It’ll just take some more time to find them.

If you decided the agent’s not for you, I’ll cover the work you need to do to find out the fair market value for the property in Part 3.

No matter what you decide, always make sure to get a home inspection done.  I’ll cover that in Part 4.

See, now aren’t you learning a lot about buying a home?  There’s a lot more info to come, so stay tuned.

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How to Buy a House – Part 1 (Figure Out What You Can Afford)

Posted on February 13, 2012 by jdpohl

This is the first in a multi-part blog about buying a house.  Buying a house is most likely the largest expense you will incur in your lifetime, so you want to make sure you get the best deal possible.  Buying a house just to live there for 3-4 years is not a good idea, so you should only buy if you’re planning on staying there a while (especially in today’s market). 

The first thing you need to do is figure out how much home you can afford.  Go to a site like www.mortgagecalculator.org (that’s my favorite) to see what you can afford.  Put in the price you plan on paying for a house for the Home Value field, and subtract your down payment to put in the Loan Amount field.  If you’re not sure what you can afford, you should ballpark something with a mortgage of less than 2.5 times your household income.  You can always adjust it later.

Note: I’d strongly recommend putting 20% down, as that will avoid you paying any PMI on your home.  If you don’t have 20% to put down, rent someplace as cheap as possible, and stock money away until you hit that 20% level.  Don’t even start looking until you hit that level, or you’ll be too tempted to buy. 

To find an interest rate to use, go to www.bankrate.com.  I’d strongly recommend a 15 year loan.  You get a better interest rate on a 15 year compared to a 30 year, and you build equity much quicker.  On a 30 year loan, you pay basically nothing but interest for about 10 years, so you end up paying a lot more for the same house over time.  A 15 year loan is always much, much cheaper in the long run.  For the actual number to use in the calculator, take an average of what you find on Bank Rate’s website.  Don’t take the lowest number, because you realistically won’t get that number.  The average is probably closer to what you’ll find. 

Find out what your property taxes are for the area you’ll be looking.  You can go to zillow.com, look at some recently sold properties in the range you think you can afford, and find out what tax rates were paid over the past year are on a handful.  Then take the taxes paid divided by the sale price of the home, and you have your tax rate.  Average out the tax rate for all 5 properties, and you should have a good idea of what to use in this field.

This next box (PMI) is why I wouldn’t buy a house unless you have 20% down.  You can ignore it altogether, as it only applies to the first 20% of equity you build up in the house. In case you don’t know, PMI (or Private Mortgage Insurance) is a huge ripoff designed to be used by people who buy more house than they can afford.  It’s like paying rent on top of your house payment, as it goes to the bank to hold on to your money.  You never get any of it back, and it goes toward nothing.  Avoid it like the plague (I’m speaking from experience here, but that’s a whole other post). 

If you can’t afford the monthly payment for the price of the house you filled out above based on having at least 20% down, and on a 15 year loan, you can’t afford that much house.  You’ll either need to save more, or adjust your expectations on what type of a house you can afford (in other words, lower the price of the house you can afford).

Mortgage calculators can be used as a planning tool early in the house-buying process.  They can help you figure out what goals you need to hit before you start looking to buy a house.  You’ll regret it if you don’t do this step.

In Part 2, I’ll cover what to do once you save that 20% down payment.

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New Year’s Goals – 2012

Posted on February 3, 2012 by jdpohl

Ok, I know it’s February, but January was a really busy month for me.  I didn’t have time to make a post about my New Year’s Goals, but I still have them.  So now that it’s time for the February update, I thought I’d post what they were.  I have decided that 2012 will be the year of getting things done.  Here’s my goals for this year:

  1. Reduce house debt by 44.11%.  Due to the refinance of our house last year, and the added expenses of an additional household member, this number isn’t too much different from last year.  But we are making progress, and that’s the key.
  2. Run a 5k.
  3. Work out at least 2 times per week.
  4. Put up at least 2 products per month on my online store: www.archwayhometheateraccessories.com.
  5. Make our home  more energy efficient.  There’s lots of things I want to do that will save us some money once they are done, including adding more insulation (and insulating the garage), sealing and insulating the rim joists in the basement, replacing light bulbs with CFL or LED, and installing a water softener (to save money in the long run, on both faucets, shower heads, water heater, and soaps/shampoos, etc.).
  6. Participate in at least one bike race.

My goals last year were a little too difficult to obtain, so hopefully these will be a little more realistic. 

And since it’s February, I’ll provide an update already.

  1. Goal: 3.68%, Actual: 9.78%.  We’ve actually done quite well in this category so far, but I fully expected that to happen.  I had three paychecks in December (which go toward our January bills), so we got to put extra toward our debt.  Next month should be good as well, as I got a bonus in January.  Starting in March, it will be more difficult though.
  2. Not yet.
  3. I’ve only worked out once.  So it’s not a good start just yet, but it’s only January.  Plus, it’s cold out, and I like to run outside. 
  4. I actually put up 6 products this month, so I’m doing good.  If you count the different sizes, I put up 16.
  5. I’ve already replaced almost all of our light bulbs in our house.  I replaced most of them with CFLs, but added some LEDs to the kitchen (that only use 3W a piece, I might add).  I also added a water softener last weekend, which I will review in another post.
  6. Not yet.

So far, I’ve been doing pretty good with my goals.  Once I start working out, I’ll be in really good shape.  Hopefully the rest of the year goes like that as well.  What new goals have you set for 2012?

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Buying a Third Car – Savings After Six Months

Posted on January 9, 2012 by jdpohl

I thought now would be a good time to follow up on my post about buying a third car, since it’s been 6 months since I made that purchase.  I have done most of the things I needed to do when I bought the car, but I still have a couple little things left to do once I get to them.  So far, I’ve spent money in the following areas:

  • Replaced spark plugs, two oil changes, fuel injection cleaner, and leak preventative: $153.48
  • Muffler: $63.44
  • Parts for new radio (old radio volume quit working properly): $50.32
  • New air filter: $13.15
  • Haynes manual: $13.98
  • New manual (car did not come with one): $6.94
  • Sun visors (got from junkyard.  Old one on driver side was destroyed): $6

I still have a few other things to fix:

  • Driver’s side window gets off track.  This could be as simple as adjusting something, or replacing a part that could cost up to $80.  I’ll find out once I take it all apart.
  • Worn gasket.  In order to get to the gasket, I need to take apart half the engine.  Since I’ll have it all apart anyway, I’ll replace the timing belt, along with the other belts.  I looked through the service records, and didn’t see anything about the belts being replaced, so I figure I might as well do it while I’ve got it all apart.  This could easily cost me $500+ to pay to get it fixed, but it’ll end up costing me around $50 to do it myself.
  • Bad strut.  I haven’t looked into this, but it sounds like there might be a bad strut.  The previous owner mentioned it, but it doesn’t sound too bad right now.  I might just leave it the way it is for now.
  • SRS light on.  The previous owner said it’s been on as long as he’s had it, and it passes all inspections.  I like to have everything fixed, but this is my lowest priority.  It’s just for me to drive back and forth to work, so I might not fix it.

Now on to the savings.  I am actually saving more than I figured.  I originally thought I’d save $29.77/mo, but so far I’ve averaged $39.39/mo savings.  I did end up underestimating the monthly maintenance, but that’s because I’m getting the car in better shape than the previous owner had it.  I originally thought I’d spend $28.33/mo, but I’ve actually averaged $51.22/mo, based on the bullet points above.  The good news is that the car is actually worth $77 more than I paid for it 6 months ago, and the insurance is a little cheaper.  I’ve gone 8471 miles in the past 6 months, and my savings in gas is pretty much spot on with gas averaging $3.20/gallon during those 6 months.  Gas was cheaper, but I’ve averaged a higher mpg to balance it out.

Obviously I don’t expect the value of the car to increase over time, but the monthly maintenance should drop off once I finish the above items, which should pretty much balance out the depreciation changes.  Here’s how the actual costs have broken down for the first 6 months of owning the car:

truck civic
mpg 20 37.5
added insurance/mo 19.39
added maintenance/mo 51.22
added license plates/mo 8.25
depreciation costs/mo -12.83
gas cost/mo 225.89 120.48
savings in gas 105.42
total cost/mo 225.89 186.51
total savings/mo 39.39

Here’s the original estimate I made when I purchased the vehicle 6 months ago, just so you can compare both of them side by side:

truck civic
mpg 20 35
added insurance/mo 20.83
added maintenance/mo 28.33
added license plates/mo 8.25
depreciation costs/mo 16.67
gas cost/mo 242.33 138.47
savings in gas 103.85
total cost/mo 242.33 212.55
total savings/mo 29.77

So I have come out better than I planned, which I thought might happen.  Doing all the work myself on the car makes it pay off.  Otherwise, I would have paid more to get some items fixed with it.  Run the numbers yourself before deciding to buy a third car, but it might just save you some money if you have a similar situation as me.

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2011 New Year’s Goals – Final Update

Posted on January 4, 2012 by jdpohl

With my revised New Year’s Goals, we are trying to reduce our non-house debt by 33.33%.  Due to our refinance, we didn’t hit this goal either.  We ended up eliminating 30.47% of our non-house debt.  That means I didn’t hit any of my 2011 New Year’s Goals.

I think I might have made them a little aggressive.  This year, I’m going to try to work on something more realistic.  That being said, we still got rid of a good chunk of debt.

How did you do on your 2011 New Year goals?  Did you reach them, or fall short like I did?  What information did you gain from your goals and how you ended up?  Leave a comment to discuss it.

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2011 Year in Review

Posted on December 21, 2011 by jdpohl

Every year, we get a Christmas card from a friend of mine that gives a full one-page summary of their year.  I look forward to getting their card every year, as I don’t get a chance to see or talk to them much.  This is my way of keeping up with what they are doing as time goes on.  I thought maybe I should do something similar on here, in case anyone else is interested in our personal life.

2011 had a lot of changes for us.  At the end of July, we had a baby girl, and named her Brooke.  She has changed our entire lives.  Everything revolves around her now.  I can’t wait to get home to see her every day after work.  We don’t go out of the house as much as we used to, because it’s much simpler to stay in with a newborn.  She makes my day when she gives that huge smile she does, but frustrates me to no end when she screams her lungs out and there’s nothing we can do to get her to stop.  She is the greatest thing to happen to us this year, and I wouldn’t change it for the world.

Every winter I need a project to work on, and this past January I decided I would start my own business.  I put in a ton of work, had a good friend of mine design the site, and eventually opened it for business.  I had been working on a business plan for the past few years, and finally thought the time was right to start it up.  I knew I wouldn’t have quite as much time to do all the up front work once the baby was born, and felt I was at a stable job to help handle any financial downfalls that could occur.  I’m still adding products to the site in my “free time,” but I’ve been getting quite a few sales.  Last month I actually came out in the black for the first time.

Last winter, I also decided to start this blog.  I’ve continued it as the year went on, but haven’t written as much as I did last winter (see above about baby taking up a lot of time).  I still plan on continuing this blog, even though it’ll probably be more like one post every couple weeks.

I took up running for the first time in my life, and did pretty good until Brooke was born.  I was up to running 3 miles at a time with no issues, and I even hit 4 miles once.  I hope to pick this up again soon.

We made more progress paying off debt this year than ever before.  My wife graduated from college last year, and started working late in the year.  This was our first full year with two incomes, and we’ve been paying off student loans like crazy.  We refinanced the house to a 15 year loan as well, which will help us become completely debt free much quicker than before.  Refinancing to a shorter term means less money to go toward other debt, but we will still be able to be debt free except for the house in just a few years.

Megan started a new job right across the street, so she doesn’t have to make the long drive she was doing last year.  She enjoys her job a lot, and gets to pick up our daughter at a decent time every day.  She is also off Fridays, so she can spent more time with Brooke.

Not everything has been positive this year though.  We had a good friend of ours who was involved in a boating accident in August, and his body still has not been found.  We think about him a lot, and pray that his fiance can find peace.

My grandpa took a turn for the worse this year as well.  He seemed to be a perfectly healthy 85 year old in September, but got rushed to the hospital because of low blood platelets.  Other complications came up, and he fought for three months, going in and out of the hospital, and eventually back and forth between the hospital and nursing home.  He got so weak after fighting for so long, and ended up losing the fight on December 14th.  He had a terrific 85 years, and was about as nice of an individual as you could ever meet.  He was a terrific baker, an accordian player, a volunteer firefighter, a grocery store owner, a meat inspector, and served in the US Navy during World War II.  I’m glad he got to meet our daughter before he passed away, and will miss him a lot.  I have a ton of great memories about him.

We’ve had a lot of things happen to us this year, and we are set to continue making forward progress in the future. 

What have been your biggest life moments of 2011?  Leave a comment letting me know how things are going in your life.

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Thankful for Being on a Budget

Posted on December 7, 2011 by jdpohl

Listening to other people talk about finances makes me happy we’re on a written budget, living on last month’s income.  Sometimes we just take it for granted on how easy it is compared to most people.

Earlier this week, I had a conversation with someone about paying bills.  They said they sometimes get in trouble with their bill payment because their spouse wants to pay off some debt, which means they don’t have enough to pay off their bills (resulting in late fees).  This individual was frustrated by it, as it happened recently.

I immediately thought of how this would never happen to us, due to the system we have in place.  Since we live on last month’s income, we always have a cushion in the bank.  We also know exactly how much we are putting toward debt at the very beginning of the month (again due to living on last month’s income).  We know exactly how much money we will spend for the month at the beginning, since we know exactly how much income we have to allocate.

They also mentioned that they checked the balance of their checking account to see how much money was available to spend.  I rarely look at my checking balances, because we don’t base our spending off of what’s in our account.  That’s just a bucket of money being held that’s already allocated for something.  I look in our budget to see what’s available to spend for that particular item.  This is much, much more peaceful.

So, if you’re not living on a budget, you should create one.  Make sure you get to the point of living on last month’s expenses, as it is a huge difference for your peace of mind.  If you’ve read most of my other posts, you’ll know that I’m a huge fan of YNAB, but any budgeting tool should work.  Get to work on your budget, and solidify your financial situation.  There’s no better time to start than right now.

Posted in Personal Finance, You Need A Budget (YNAB) | Leave a comment

New Year’s Goals – Progress Update – Eleven Months

Posted on December 3, 2011 by jdpohl

With my revised New Year’s Goals, we are trying to reduce our non-house debt by 33.33%.  This month was tight, because we ended up refinancing our house to save more money in the long run, so we didn’t add anything extra toward debt.  This caused us to dip below our targeted amount (the green line below).

According to my revised plan, we should have reduced our debt by 30.58% by now.  We have actually reduced it by 29.19%, which shows in the chart below.

We have one month to get back to our targeted amount, and we are putting just a little extra toward debt this month, so hopefully it’ll be enough.  We had to recoup part of our emergency fund as well as paying down debt, so we can’t put quite as much as I’d like toward it next month.  We’ll just have to wait and see if we hit it after the end of the year.  It’s gonna be so close; I can’t wait to see if we hit it!

Here’s the graph:

 

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New Year’s Goals – Progress Update – Ten Months

Posted on November 1, 2011 by jdpohl

I’m not going to hit my workout goals this year, as stated in my New Year’s Goals, so I am not going to include them going forward. I would like to start working out again, but Brooke just takes up too much of that part of my day.  Maybe we could adjust her schedule starting in the spring when it warms up outside.

I will still cover the debt reduction though, as we are still on track to hit that goal.  Our debt reduction will be less going forward, as far as this chart goes, but that’s just because we are refinancing our house to a 15 year mortgage. So we will be out of debt quicker in the long run, but it’ll take us longer to get out of our non-house debt.

Reduce non-house debt by 47.57%. This was our month with no income, but I did take some money from our emergency fund to pay off one of our student loans.  It was so close to being paid off, and it would sit there for another month, so I just paid it off.  Reduced by 28.12% so far, where we should be more like 39.65%.  We are above the revised goal (27.8%) though.

  1. Here’s a graph of how we’re doing.

 

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Creating a Long Term Financial Plan

Posted on October 25, 2011 by jdpohl

As part of refinancing our house to a 15 year loan, I went through the process of reworking our budget with the new house payment involved.  By having a detailed budget for every month, I knew exactly where we were spending our money.  I looked at how much we typically budget per month and compared it to where we actually spent our money within each category over the past year.

Using our new house payment, I created a new template for our monthly budget starting point (no month is ever really the same, but I like to have a starting point as a guide), making sure that we can still pay off debt quicker than the minimum payments.  I found out that we still have some extra to put toward debt, but it will be about half of what we were currently allocating to debt reduction.

I wanted to know when we’d be out of debt (except for the house), so I plugged the monthly additional payment into my adjusted debt snowball spreadsheet I got from a user in the YNAB forums (I don’t remember their name, as it was years ago, but Thank You!), and found out that we can still be out of debt within 4 years instead of 2.  Within this spreadsheet, you can put how much extra you plan on paying each and every month.  I put the number I came up with from our new budget in for most months, but then added most of an extra paycheck I would receive within a month twice a year.  That’s the benefit of budgeting on a monthly basis; you essentially get a bonus paycheck every 6 months (assuming you get paid every two weeks).

I cut back the extra we’d be paying once we get out of non-house debt, but we’d still snowball our original debt payment into the house payment, and be paid off within 12 years instead of the 15 years on the note.  I’ve gone back to this spreadsheet several times in the past few years to see how different scenarios would affect us.  Here’s a graphical representation of the timeline of when we plan on paying off our non-house debt (available in the second tab of the spreadsheet):Once I got all the numbers figured out, I ran it by my wife.  She is on board, so we have a goal of how much to put toward debt with the new budget every month.  Don’t skip out on this step; it’s very important to get your spouse’s buy in on all your financial plans.

Want to run the numbers for yourself?  Get the template of the debt snowball spreadsheet I used here.  Just change the blue cells to fit your situation.  Leave a comment to see how this spreadsheet helps with your debt reduction.

 

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