Monday, September 11, 2017

The 1-2-3-4's of Home Buying

What a simpler world it would be if Greenwich home buying could be reduced to a simple 4-Step process. Even better if those were four easy steps. Actually, without coming out and saying so, that’s the tantalizing prospect hinted at on radio financial guru Dave Ramsey’s website’s “Home Buying Process Made Easy.”   Ramsey is the likable media expert in household budgeting and financial planning. A good deal of his guidance could be summed up in just 2 steps:

1) Get out of debt (except for mortgage debt) as soon as humanly possible; then, 
2) Stay out.

203 Clapboard Ridge Farmhouse with Modern Addition
Since that’s not bad advice, the promise of home buying in 4 steps seems almost reasonable. After all, his millions of listeners have undoubtedly benefitted greatly through the years (once they’ve figured out a way to act on the advice).  And in fact, his 4 home buying steps are actually not far off-target—although I think they’re out of order:

1. Put your finances in order before home buying-- which should lead you to know what you can afford.
2. Do the cash flow math. Ramsey thinks your Greenwich home’s monthly mortgage payments should be no more than a quarter of your net income.
3. Get a home loan. Make this a 15-year fixed rate mortgage to minimize total interest paid.
4. Use a good real estate agent-  To make sure you are paying at or below fair market value and deal with any “unexpected home buying hurdles.”

Realistically, Greenwich home buying has a bit more involvement than these 4 steps and Step 4 should actually come after Step 2, and Step 3 (getting a mortgage) should come after you have zeroed in on your target Greenwich  home.

On a practical note: the 15-year mortgage structure automatically results in a higher monthly payment that, when combined with a 25% of net income budget cap, could yield an unrealistically limited budget target. Being financially conservative also means being realistic. A growing family, for instance, might find that they have wasted money if they have to move to a larger home after only a few years. 

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