Home Buying 101: Part I

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Hey all, in today’s Briefcase we’re going through a broad overview of what goes into buying a home in America. This article assumes you know nothing about the home-buying process. One particular part that was frustrating for me when I was in the process of buying a rental property last year (the deal ultimately fell through) was the Pre-Approval letter. Even though I had gotten the Pre-Approval letter, my letter in my case was generated by a lender who just interviewed me over the phone without actually confirming information with the banks. Even though my salary was great, I ended up not being able to qualify for a loan because I didn’t have two full years of income taxes filed for my S-Corp for my social media business. This was embarrassing + a waste of time as I had already made an offer on a house and got it accepted. Lesson learned.

Another valuable part of this guide in particular is the Debt-to-Income graphic - which I think you should review if you currently have some debt and are thinking of purchasing a property. With mortgage rates this high though, it may not be a good time to buy a home, but it’s still good to get a great understanding of how home-buying works so that when rates do come down, we’re prepared.

This is part 1 of a multi-article series where we’ll dive into the entire home-buying process. This article in particular will walk you through the planning stages of buying a home.

Home Buying 101: Part 1

Buying a home is a significant milestone that marks a new chapter in your life. It’s considered one of the most significant financial decisions a person can make, and it requires careful planning, research, and financial preparation. For most people, buying a home is a long-term investment that provides stability, security, and a sense of pride. The home-buying process can also be overwhelming, with many factors to consider (location, budget, and financing, to name a few).

Owning vs. Renting: What’s Best for You?

If you’re a first-time homebuyer, you may be wondering if it’s worth it to continue renting, or if you should make the leap to own property. There are many factors to consider, and it all comes down to your situation and goals. 

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Owning a home can give you stability and the potential for long-term financial gain. Real estate is an industry that generally weathers inflation, meaning that as prices (of everything) go up in your area, your home value will likely increase over time too. Home values fluctuate depending on the market though, so you need to consider that when you’re deciding to buy/sell. If you’re thinking about buying or selling during an unstable economic time, it may be a good idea to wait until the market evens out again.

Another plus about owning a home is that you can build equity.

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Equity is one reason why real estate is generally a secure long-term investment. As you make payments to chip away at your loan, the amount that you pay off is your equity. Your down payment, which takes a chunk off your mortgage, is also equity. If your home increases in value over time (appreciates), that gain is equity too! The more equity you have in your home, the more profit you’ll get when you sell. You can even rent out part of your home to help pay down the mortgage (there’s that ‘e’ word again!) or earn some passive income. On the other hand, when you rent, you don’t gain equity. You’re essentially paying your landlord’s mortgage plus adding some extra money to their pocket. Ultimately, the decision to own or rent a home depends on your financial situation, long-term goals, and personal preferences.

Choosing to buy a home is a great long-term investment, but it comes with a hefty upfront cost. It’s important to understand how much house you can afford and save up enough for a down payment, closing costs, and moving expenses. The home-buying process should start long before you actually look at homes for sale!

How Much House Can You Afford?