Editor’s note: This is Part 2 of a four-part series.
In this, the second in a series on how to maximize the advantage you can get from resetting your personal approach to real estate decision-making, I want to spend some time talking about work.
I hate to sound like a disgruntled, hairy-nosed old goat, but the honest-to-goodness truth is that the kids these days (age range: 15-75) just don’t have the work ethic they used to.
Everyone is looking for (and I confess, I sometimes pander, by providing) simple steps and quick tricks and workarounds and shortcuts; easy ways to overcome real estate challenges; insider secrets for solving mortgage problems; and lists of four or seven tips for resolving personal finance dilemmas that can be read in 10 minutes or less — the stuff of which the biggest and best blogs, gurus and pundits are made of, myself included.
And there’s certainly a place for this. There’s no earthly justification for today’s real estate and mortgage consumers to make decisions in a state of mystification, confusion and/or a foggy understanding of what they’re getting themselves into — or even a state of utter dependence on their professional advisers to clear things up for them.
This was the norm, in generations past, mostly because consumers had virtually zero access to demystifying information or the basic education that promotes wise decision-making outside of that provided to them by their real estate or mortgage pros.
These days, though, the Web makes all information possible, to all, all the time. And to the extent that the quick tips lists are the ones that get read, there’s a place for them.
The problem is that these pithy pieces of Internet advice create at least two types of fallacious thinking that lead to a bigger danger than the confused floundering of yesteryear. The danger? People who think they are very well-informed, making big mortgage, money and real estate decisions who actually still lack critical chunks of the information they should be taking into consideration. The fallacies?
1. That these uber-simplified tips, lists and short articles online can truly cover the nuances involved in the subject matter they do their best to cover.
2. That decisions like when to buy, what sort of mortgage to choose, and what price to list your home at are simple and/or easy to make, well, on a do-it-yourself basis — with no input needed from a professional, and little or no math beyond a few mental calculations.
In fact, choosing a home that will serve your family’s needs well over the long run, committing to mortgage obligations that will be sustainable over time and are unlikely to convert your dream home into the most toxic of assets, even qualifying for a mortgage on today’s market (even with a great income and great credit) — this stuff just ain’t that easy. To do them, and to do them well, takes that most dreaded of concepts: work.
If I could prescribe two particular items of "home"-work, pardon the pun, I’d boil them down to this: reading and ‘rithmetic.
Read up — on your local market and local economy — including job and population growth. Read up on changing mortgage guidelines and learn about the individual consumer decisions that frequently resulted in foreclosure in years past, to avoid repeating those mistakes. And, please, people — in the name of all that is precious to you and to us as a nation: Read. Your. Mortgage. Documents.
I’ve said it before, and I’ll say it again — the time to read your mortgage note and deed of trust is not at the closing table where you’re faced with signing them. The time to read them is a day or so before that.
Press your mortgage broker or banker to get you a copy in advance so that you can read them in your own home or office, with time to point out any errors and get the documents corrected, or ask and get answers to any questions you have before you are at the closing table, which is laden with all the timing pressures that nudge people to sign even documents they feel do not reflect the loan terms they were promised.
The other must-do homework is the topic that makes grown men and women cringe and shudder while they curl into the fetal position: math. I know people have a visceral, truly gut-level reaction to math in the context of their personal finances, for a variety of reasons: some sprouting from trauma inflicted in childhood by bad math teachers (or, more often, the absence of a good math teacher), others arising from their own financial fears and warped relationship with money.
Saving that for another column (or 12), hear this: When it comes to buying a home, do the math. No matter what.
- Specifically, get clear on: your personal income and expenses on a monthly basis and how you see them changing (increasing or decreasing) over time, and when.
- Specifically, understand what you can afford to spend monthly on housing and housing-related expenses.
- Specifically, do the math on exactly how much cash you can afford to put into the deal, total.
- Specifically, tell your mortgage professional and real estate representative what you can afford in terms of down payment and closing costs (one number) and monthly payment (another number) — and then ask them to tell you what that translates to in terms of a maximum purchase price for your home.
Unless you are in the very rare position of being able to reliably predict a quantifiable increase in your income over time, get a mortgage that has payments that will stay constant over time — today’s market is just too volatile and unpredictable to plan for appreciation to power your ability to refinance in any short-term time frame.
And then come back next week, when we’ll cover the next to last of my moral imperatives for resetting your approach to real estate.