by Hey guys – I started an educational post series with Beazer Homes this year to help people our age that are purchasing new homes! Coral and I are s l o w l y treading into the home buying scene, so I thought it would be cool to outline the building/purchasing process. If you are considering building or buying a home, this post is for you. ~ M$M
One thing I had no idea about before I started my own business is that you have to have two years of income history before you can get a mortgage. We are renting right now, but as soon as we hit that two year mark (basically a year from now) we are going to make the jump!
We are considering two home buying options right now:
- Buying an existing home close to the water
- Building a new home (…still pretty close to the water)
I guess you can see where our priorities are! 🙂
Here's a quick overview of the steps in the home building process:
Finding the home
Obviously the first thing you need to figure out is where you actually want to live! For us, we are looking for something that would be a good place to *GASP* raise a kid when we do eventually go that route. My mom is probably freaking out that I mentioned that just now haha.
We also want to stay in our first home for a while (we HATE moving), so good schools and a little more “developed” area in terms of grocery stores and restaurants/fun stuff is what we are looking for. Moving somewhere with other people our age would also be nice, but it's definitely not a deal breaker for us!
Lastly, we are water people (as noted above), so we want a place that's at least 10-15 minutes away from the water if not right by it.
Figuring out financing and signing a contract
This is the nitty-gritty part of the home buying experience. The $$$ stuff of course! While I'm certainly not looking forward to having a mortgage, the truth is we don't plan on having one for too long. We will be VERY aggressive with paying it down, just like I was with my student loans. 🙂
One of the silver linings for a money nerd like me is that you do get to crunch a lot of numbers during this process. (Here's a great calculator for doing that) Coral and I want to stay in the middle ground between what we qualify for and the cheapest home possible. We definitely don't want a fixer-upper, but we don't need a freaking palace either!
That's one reason we are considering building so we don't have to hemorrhage money fixing stuff in the first few months. That's part of the balancing game with this process…I'd love to hear your thoughts on that in the comment section.
Just FYI – every single person I know that has built or bought a home says that you need to be REALLY organized with your financial statements during this part of the process. Just a heads up.
Choose the options
I'm imagining that this would be the second best part of the process after moving in. Beazer is pretty cool in that they allow you to personalize your floor plan quite a bit within the framework of their home designs with their “Choice Plans.” Basically, every floor plan has different options that you can choose from (like an office and a bedroom instead of two bedrooms for example) to fit your lifestyle.
This is also where you would select all of your tile, floors, faucets, etc. If we go the building route I would imagine that I'll have no say in this part at all. Coral is definitely the “designer” out of the two of us and would easily make better choices than me!
Construction
Ah yes, the part where you can share the picture of yourself standing in front of a slab on Facebook. (I actually enjoy those pictures much more than new cars if you were wondering). Believe it or not this is actually a pretty in-depth process that you should actively participate in.
Remember – you are spending good money on your home that's being built, so you should definitely provide your input to the builder throughout the process to make sure everyone is on the same page and happy with the final product. You'll have several opportunities to walk through the home with your builder and discuss anything you'd like during this part of the process.
Closing and moving in!
After everything is done to your satisfaction, you tie up all the loose ends on the financial side and get the keys to your new crib! Here are a few things you will need upon closing:
- Valid photo ID for each borrower, including spouses, on your loan
- Certified funds for down payment/closing costs (your Closing Coordinator can give you more details on the acceptable forms of payment)
- Any conditions/documents your lender may have required that you provide at closing
- All listed borrowers on the loan and the spouses of those who are legally married must be present
You'll also get your keys, warranty acknowledgements, and copies of your signed closing documents! Now you can start doubling your principal payment every month to pay off your house twice as fast. 🙂
Final thoughts
Obviously, this is just an overview of the home building process. There is a lot to it, but the cool thing is that we are millennials and are good at researching stuff on the interwebz. Here's a checklist Beazer put together that's pretty simple! We'll keep everyone posted on what we do as we get closer to that two-year mark of self employment!
Live differently. Your bank accounts will thank me later. ~M$M
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt.
Comments
The Green Swan
We had a similar mindset as you when we bought our house a few years ago. We didn’t want a complete fixer-upper, but didn’t mind a few DIY projects either. We bought a home well within our means with the mortgage payments less than 20% of our income at the time of purchase.
While I commend you for wanting to pay down the mortgage ASAP, we’ve had a more laid back approach. We make 13 payments / year so we are paying it off ahead of schedule, but with the interest rates so low it is hard to justify paying it off any faster. We favor putting that money to work in the market to get a better return.
Thanks for the post!
Millennial Money Man
A lot of it will depend on how much we decide to spend and where my business income is. I’m sure I’ll write a post on it when the time comes!
Apathy Ends
We built our home last year, a few things we went through:
-if you need a construction loan try to get your builder to pay for the closing costs (or work with one that does)
-Make sure you know what comes standard and what is an upgrade through every step of the process
We would definetely build again! Getting a house the way you want it is awesome
Millennial Money Man
Great tips – that helps!!!
Matt @ Distilled Dollar
I had a neighbor growing up who would build and move into a new home every 3-5 years. They often moved only a block or two, and one time they only moved about 35 feet. For them, they LOVED the process of constructing a new home and designing every aspect of it. It sounds like a perfect solution if you can do it.
That family mentioned the same thing, you need to be highly organized.
I’ve also seen people online mentioning how you can expect many contracts to go over budget by 10-30%. I’m not sure if there’s an easy way to offset it besides asking the contractor to build X for $Y amount. Even then, I’m sure they can still ask for more $ once the job is 90% done.
I’m looking forward to hearing more about your decision process! We are in the same boat between renting and buying, but I think 2016 has been the year where we leaned away from homeownership…for now. Living in Chicago means we’d be buying a small condo and we’re not 100% sure if we’ll be living in our current neighborhood in 5-10+ years.
Millennial Money Man
For sure, we will chronicle the whole thing on the site I’m sure. There’s not much about my life that I don’t put on here now haha! Location is a big deal to us – we have to be close to the water, no exceptions. We just spend too much of our free time on it to be anywhere else!
Jonathan Medeiros
Thank you for this post. My wife and I built our house 3 years ago and are refinancing now in the low interest rate environment. Here are some tips from our experience:
– The process can be a long one (think anywhere from 3-6 months depending how quickly the builder moves), so use this time to get in order financially – pay off credit cards, don’t take on any new debt, make sure there is cash in the bank, etc. Pay attention to debt-to-income ratios and credit history, which the lenders would be on the lookout for when you close.
– Stay on top of the builders every day/week/month – pay attention to quality of the work and whether they’re doing what you actually asked for, and not cutting corners.
– Take advantage of the ability to customize – rather than use the underwhelming allowances for things like faucets (think $30 builder-grade stuff), we had them take those allowances off the price of the house so we could go to Home Depot or Lowe’s and buy the exact things we wanted (faucets for kitchen and bathrooms, shower heads, backsplash, tile). Then we just handed these things over to the builder for them to install as part of construction.
– Landscaping after new construction can turn into a lifelong struggle – be prepared for a beautiful new house surrounded by… rocky, construction dirt. The cost of proper landscaping can become seriously expensive (irrigation systems, regular visits from a landscaper to aerate, drop seed, fertilize, and so on), so keep this in mind when you decide to build.
– Lastly, try not to get roped into additions you don’t necessarily need, as they can add up very quickly – think hard about whether you want the gas fireplace instead of wood-burning, or the fancy jetted tubs in the master bath rather than just the regular tub.
Hopefully this helps, and good luck to those who are building!
Millennial Money Man
Wow Jonathan – thanks so much for the great tips!!!!! I LOVE the Home Depot/Lowes one. I can definitely see how the landscaping would be an issue until the neighborhood is completed. It seems like once everything is settled down it probably gets much easier.
Amanda @ centsiblyrich
Jonathan has great tips here! We built 2 years ago and I second the landscaping info. We have an acre and the builder seeded the lot, but we decided we would do our own landscaping. This was a ton of work and took a ton of money, even though we did it ourselves. We do have a big lot, but trees and other landscaping materials are expensive.
Also, don’t forget you will need to buy window coverings (these add up quickly)!
Millennial Money Man
I think you are the second person so far that has mentioned window coverings…they must be way more expensive than they sound! I agree – Jonathan’s tips are solid! Actually, a lot of the comments on this post are crazy good. 🙂
Christa Szabo
Not if you make your own. My mom made all of the curtains for our 11 cabins and it was dirt cheap. She used twin top sheets because there’s no seeing involved. All the hems are pretty much done, all you might have to do is adjust the length. If you need to begotten them, chop them off and buy Stitch Witch, which is an iron on seam, no sewing skills needed. Longer, use extra long sheets made for college dorm beds. Get creative and attach a panel to make it look intentional. No colors or patterns you like? Dye it yourself for find a local fabric person or go on Etsy. The possibilities are endless. I like that because it ensures I get EXACTLY what I want without spending thousands of dollars
geckovision
my friend did a custom build for her home expecting the “…we don’t have to hemorrhage money fixing stuff in the first few months.” ROFL didn’t pan out. in the last few years she has replaced her floors, fixed every nail on the Sheetrock (cuz of popping), and had to completely renovate a bathroom because they completely messed up the walls and mold was growing everywhere. pretty sure there was more i just can’t remember.
Millennial Money Man
Dang that sucks – that’s why every person I’ve talked to about this so far says that you need to communicate EVERYTHING to the builder that you can during the process and make sure it’s right before you decide to close. Don’t get me wrong – I know we’ll hemorrhage money regardless haha
Christa Szabo
Great information!! I’ve been so focused on figuring out how to acquire rental properties, that I forgot all about my fiance and I will live! And when you crunch the numbers, building very well could be cheaper than buying ( especially when you can find an acre of land for $5,000 and know the local construction workers lol). But just knowing about these options are great! And maybe, one day it will be too small or you decide to move elsewhere, you can still turn it into a rental property giving you passive income. It’s absolutely a world of endless wonder! Thanks so much for another great article!
Millennial Money Man
No problem Christa! I have a feeling that a lot of people are like Coral and I trying to make the “right” choice on all of this home stuff. Both options seem to have their advantages. We’ll be sure to update everyone as we figure it all out!
Marcia
I have had two homes built and bought several previously owned homes. The advice from Johnathan above is on target. Especially on watching them build the home. Visit every day! You will find strange things. I have pulled McDonald’s bags out of my vents and found soda cans under the fireplace….got them out right before they bricked it over. And not to mention how many things I saw wrong and had to track the foreman down to make them redo it. Once they had the sidewalk to the front door going up to the right of the door instead of centered. I made them tear it out and redo it. I was called some not so pretty names. Too bad, it is your money and they are doing a service for you, so speak up!!!!
Here are some more points:
Advantage to buying previously owned is that there may be drapes/blinds already on the windows, and a new home you must add those items into your budget. Likewise, with a landscape and irrigation, as I go into more below. Also, if you like your mail brought to your home and not share a community mailbox, you need to buy an older home. Most all newer homes have those community mail boxes which I find are not too secure, plus a pain to go get your mail. An older home may have some problems, but even new homes have issues. Just like a new car versus a used car.
Another thing to note is when the builder or realtor talk money, they usually only talk about the actual mortgage note, the price of the home itself. You MUST remember that you will either have an escrow account for the taxes and insurance, or in rare cases you pay for those yourself, which means you must save lots of money each month to make the payment at the end of the year. Property taxes and school taxes are dependent on where you live. Each county has a different property tax, and each area has different rates for school tax….the more affluent the area, the higher the school tax. Insurance is high! Get a quote from an agent so you will not be surprised at the added cost to your mortgage note. For example, our home is @$250,000. Our property taxes, school taxes, and insurance add an additional $9000.00 a year to our note. So when you figure your monthly note, do not just figure that nice $1800.00 the builder talks about. You have to add your escrow in, so that $1800.00 may turn into $2000.00. And since property taxes, school taxes, and insurance go up in price each year or so, you must have some fudge room built into your budget for your home. So add that to the price of the home along with a budget for repairs and buying items like drapes, blinds, rugs, etc.
Let’s talk landscaping, as mentioned above. As an owner of a landscape company, I can tell you people always think that landscape and irrigation are cheap. THEY ARE NOT!!!!! Some builders provide a cheap crap front landscape that consists of the cheapest plants they can find in quantity. We do not do builders’ landscapes because the builder pays too little. I can’t tell you how many times we redid a new landscape because the plants were not the right ones for the front of a home. Then you have to budget in to have the sod put in the backyard. Some builders provide that, some don’t. Another advantage to buying an established home….the landscape is done, and hopefully they have irrigation. And if you don’t have irrigation, you better figure on putting it in, or here in Texas you will be dragging hoses around a lot! Irrigation is not cheap…an average home could be around $4000.00 to put a proper system in. Another thing to put in your home budget….higher water bill to water those lovely plants!
There are so many surprises on your first home, play it safe and come in way under your budget for a home so you have that wiggle room when something goes wrong. Even a new home can incur damage. And that pricey insurance? You will have a deductible that is usually 2% of the home’s worth. So in my case, if a tree fell on my garage and I needed to rebuild it, I would incur a $5000.00 deductible.
That’s all I can think of right now. If I come up with anything else I’ll let you know!!! And I prefer a used home to a new one…..I’ve done it both ways, and the less stress is the previously owned home.
Millennial Money Man
Wow Marcia – thanks so much!!!!! That’s a ton of killer information for people like us. You definitely win the comment award for this week 🙂
Christa Szabo
That. Was. Amazing!!! @M$M, I think you just found your next guest writer lol
Millennial Money Man
Hehe I think you might be right!
MattJAllDay
I purchased an older home about a year ago. One point to talk on regardless of whether you double your payments or pay the minimum is that a lot of lending agencies give you the option to pay every two weeks instead of once a month. For someone with a job that pays every two weeks this is definitely a great option because you can budget your paycheck to get a few additional payments in per year and it really doesn’t feel like you’re paying anything more above the base rate.
As a single guy I also have two roommates who pay me rent which is a win-win for both parties. They get a reduced rent location that they can’t really beat elsewhere and my mortgage is paid by them every month. That means since I budgeted my own paycheck to pay for the house I can apply twice as much towards the loan OR use that money for repairs/renovations that I want to complete!
Millennial Money Man
Dude nice Matt! Great tip – thanks for sharing. Sounds like you are freaking KILLING it with the house hacking 🙂
Emily @ Accidental Hippies
We bought our first house in 2010 at the bottom of the recession. It was a foreclosure with great bones but a LOT of work to make it nice. We did our own aesthetic touch ups in addition to bigger things like rewiring the entire house (1960’s aluminum wiring wooooo!!) building a new shower to replace the old cracked one, and replacing the sewer line from the house to the main. Aside from replacing the sewer line, we did ALL of the work ourselves and didn’t hire it out (sweat equity!!), so that’s something new buyers may need to consider is how confident they feel working on certain things versus hiring it out. We often pay a premium for our lack of knowledge and homeownership can highlight a big knowledge gap for lots of people.
We were able to take what we’d learned and researched while we lived in that house and apply it to our current building project. We sold the house in 2015 for well over what we owed on it and used that money to put a downpayment on 16 acres of land with a 15 year note, plus have a nest egg to start the building. We’ll have the house finished PAYING CASH as we go within the next year and will pay off the land loan as early as possible. My best estimates are 2-4 years, but it’s a 15 year loan so at least it won’t take any longer than that. If we can keep our savings rate and income similar and pay off our land loan in the schedule we want, we can be totally debt free by 33 and have enough savings to “retire” by 40. And if we can’t for some reason, our frugal budget and lack of debt means that we still won’t need to make a ton of money to live well. Our housing and location choices were very deliberate to ensure that we could live inexpensively.
Our “savings” rate is at 50% right now, but I say “savings” because that is all going to the building project. Once we finish that, we’ll be able to throw 50% of our income towards paying off our house early and investing. I’ve been blogging about the experience and it’s been fun to share the ups and downs. There’s a lot that goes into building a house with your own hands that goes well beyond the options you choose when you work with a builder. I figure we’ll know every nook and cranny of our house and I love that we won’t be held down with the ball and chain of debt. Anyway, I love the message of your site! Rock on!
Millennial Money Man
Hey that’s incredible – I wish we had been in a place to buy back when the recession hit! Sounds like you capitalized big time! 🙂
Congrats on getting your expenses so low. My wife and I are in a similar situation. It definitely allowed me to leave my job and work for myself!
Jim
So much to say and so little time, So here goes,
First. New or used buy a “B” house in an “A” neighborhood. Never buy the biggest house in the neighborhood.
Secondly. If you buy new, contract only the base price of the house, pay any upgrades in cash. That way only the base price will be reported to the tax authority, not the total cost of the house. That will lower your property tax and you will not have to pay interest on the upgrades for the next 15 or 30 years.
Sign a 30 year loan, but pay on it as if the loan was a 15 year loan. That way if you run into hard times, you can always pay the lower house payment until you can get back on your feet. Pay off the house ASAP. not only will it free you from the payment but it will shelter a huge part of your wealth from lawsuits as home steads can not be included in a judgement.( at least in Texas)
By paying 20% down, or more, this should avoid PMI insurance and eliminate an escrow account. That way you can “flip flop”personal property taxes on your personal income tax return.
In other words, pay two years of property tax in one year and take the standard deduction in the ” off” years.(the year you pay no property tax) This method should save a butt load in the long run.
This is without a doubt the best method to buy a house, now the kicker.
Most people can’t. Because: not enough money, poor record keeping ,and the lack of self discipline to plan and think ahead.
Third. You WILL hemorrhage money the first few years. You will need way more stuff than you can even think of now.
And finally. Don’t think that this will be the only house you will ever buy. It won’t be, you will buy others as your needs change…
Millennial Money Man
Wow – great comment! I don’t have much to follow up with, so I’ll just do this: *mic drop*