Buying a Home? Here’s What to Do Before Starting Your Search
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This is a special Your Money briefing for Friday, March 31st. I'm J.R. Whalen for The Wall Street Journal. It's finally spring, and for many Americans, the season of renewal means it's the season to begin the search for a new home. We went to an open house last weekend in Denville, New Jersey, where we ran into Nick Bocci. He and his wife have been looking for a home for more than a year.
I was a little surprised to see a 20-person line out front. Of the 20 or so houses I've seen in the last few months, this is definitely the biggest line.
Even with mortgage rates a lot higher now than they were a year ago, Nick says the market is still really competitive.
Hope that it would decrease a little bit, but doesn't seem like it's going to. So hopefully, you know, I think it's just something we gotta live with from now on.
And while the thought of stepping into your new home may be exciting, the process to get there can be endless and frustrating and confusing. But it doesn't have to be. We're launching a five-part home buying series. We'll talk to personal finance and housing experts about finding the best mortgage rate, avoiding common mistakes, and how the quest to buy a home can play with your head. But let's start at the beginning, the very beginning, even before you go scrolling through listings. Ask yourself this, what can I afford?
One of the biggest challenges for people when it comes to home ownership is that they've kind of been taught that it's only about the mortgage payment and that equals affordability when nothing could be further from the truth.
My guest today is Lynette Kalfani-Cox. She's a former financial news journalist, author, and CEO of The Money Coach, a financial education company. Hey, Lynette, thank you for being with us. Thank you for having me. My pleasure.
What should I do before I start looking at home listings?
So Lynette, do people often underestimate the amount of work and preparation that goes into buying a home?
I really do think that the vast majority of Americans underestimate not only the amount of work that it takes to go into buying a home, but what it takes to sustain that house. Because sustainable home ownership is really what it's all about. We've seen, obviously, In recent years, through a number of financial setbacks and recessions that we've had, that foreclosures have hit certain people, whether it's due to job losses, divorce, a whole bunch of factors. And then not to mention the fact that home prices themselves have become so out of reach, frankly, for a lot of folks.
All right, so let's talk about getting your ducks in order before starting the process. Now, obviously, money is going to be a pivotal part of the process, and people might sort through their finances to figure out how much house they can afford, but is there more to it than that?
I do think there's a lot more than the average person considers when it comes to weighing home affordability. Certainly the banks are going to give you an indication of what they think you can afford, but I'm always telling people that that's really not the true barometer that you should use. A bank is going to ask you about your DTI or your debt to income ratio. They're going to assess your overall obligations and then come up with a figure that they think is manageable. But frankly, the bank doesn't know all of the rest of what's going on in your personal life. They don't know, for example, if you plan on maybe going back to school or getting a graduate degree. They don't know if you might be in the middle of a separation or a divorce.
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