Episode #50: What to Know Before You Buy Your First Home with Craig Pothier

In this episode, my husband Craig and I discuss the various fees associated with buying a home. As a Certified Financial Planner and money coach, I provide insights on the financial aspects, while Craig, a local real estate agent, shares his expertise on the home buying process. We cover fees such as the option period, earnest money deposit, appraisal fees, lender fees, title insurance premiums, and property taxes. We also discuss negotiating strategies and the impact of interest rates on mortgage payments. Tune in to learn more about the costs involved in buying a home and how to navigate the process effectively.

Key Highlights
00:00:03: Intro
00:01:33: Option Period and its cost.
00:02:30: Earnest money deposit and its purpose.
00:03:03: Home inspection and potential costs.
00:03:33: Appraisal, cost and its significance.
00:03:49: Lender fees, including origination fees and application fees.
00:04:19: Title insurance premiums and their purpose.
00:05:32: Cost of title fees and average cost of homeowner's insurance.
00:06:13: PMI: Private mortgage insurance for those who don't put 20% down.
00:08:23: Survey fees and their negotiability.
00:08:25: Recording fees for public record.
00:08:46: Property taxes and their impact on mortgage payments.
00:11:18: Interest rates and their impact on the housing market.
00:13:30: Negotiating fees with lenders and realtors.
00:15:10: Financing options for the various fees.

Notable Quotes
"There's a lot more to buying a home than just the price listed on Zillow."
"The option period is a prime time for you to do your homework and research to ensure you're making a good deal."
"The earnest money deposit shows the seller that you're serious about the deal and not just a random investor."
"Get a home inspection to uncover any potential issues like foundation or roof problems."
"Title insurance ensures a clean history and covers any uncovered issues in the future."
"Negotiate with lenders for fees and credits to reduce your closing costs."
"Interest rates may be high now, but it's still a good time to invest before prices skyrocket when rat

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Transcript

0:01

Hello and welcome to the Holistic Money Podcast. I'm your host, certified financial planner and money mindset coach, Whitney Morrison. Over the past seven years, I've taken myself from credit card debt and no savings to a seven figure net worth. I did this without a budget or a restrictive money plan, but instead smart, sustainable wealth building strategies combined with changing my relationship with money. In this podcast, you'll learn the ins and outs of my no budget philosophy, practical wealth building strategies, and key mindset shifts to make it happen. There is no shortage of information out there to tell you what to do with money, but teaching you how to think and feel about money, that's my secret sauce. If you've been waiting for a podcast that gives you actionable strategies to not only build wealth, but also feel really good while you're doing it, then you're in the right place. Let's get started. Hello, and welcome back to the holistic money podcast. Y'all I am officially two weeks postpartum. I had my son, Louie bear. Pothier. On Halloween. And if you know me, you know, that that is a dream come true because Halloween is my favorite holiday. I've had a dream to have an epic Halloween party on my land out here in Wimberley, Texas with haunted hay rides, with smoke machines, with uplighting, with big inflatable, which is, and bonfires and roasting marshmallows. I have an amazing vision for a Halloween party in my head. And now I have quite the excuse to do this. It's my baby's birthday and I really, really hope that he likes Halloween as much as I do. The past two weeks have been quite the roller coaster. I will say I have so much respect for parents. I had no idea the emotional and physical energy that goes into raising a child it has been super fulfilling, super challenging. We're running on very little sleep. But we are so in love with our son and overall are having a wonderful experience postpartum. Today's episode is an episode that I actually recorded with my husband, Craig a couple months ago on breaking down the home buying process. The first time Craig and I bought a home, I was so surprised at all the fees and all the steps. That went into buying a home. And so I decided to partner with my husband, Craig. To record this episode to give you all an overview of the steps that go into the home buying process and the additional fees, because a lot of people think it's just that down payment that you need to save up for when you're buying a home. But there's actually a lot of additional fees that you want to be aware of. So that you can be financially prepared. So this episode breaks on the fees, Craig and I talk through what we think. About buying a home right now In today's high interest rate environment. We also talk through opportunities for negotiation when you're buying a home. So I think there's an episode just gives a great big picture. Look at the home buying process as well as the fees that are associated. So that's what I have for you today. I hope you enjoy. I will see you next week. Hi, I'm Whitney. Hey, I'm Craig. So a little bit about me. I am a certified financial planner and a money coach. I am a local real estate agent here in the Austin, Texas area. And today we decided to create an episode on how to help you more powerfully navigate. The home buying process. So Craig and I have done multiple real estate deals together, and we want to help you learn how to make a really great and informed decision on one of the biggest financial purchases you'll ever make in your life. Absolutely. You know, I think when we think about home buying. We often think about going to Zillow and we look at our price and we think that's it. But there's a lot more to that. There's some hidden fees that we have to take a look at and we think about that. We're going to take a deep dive into all those different fees. And so you know exactly what you can expect to pay at the closing table. Yeah, and this is going to help you make an informed financial decision, like I said, on one of the most important purchases that you will ever make. So, Craig, tell us. What are outside of the listing? So we know a house may cost 200, 500, 000. What are additional fees that are associated with buying a home? let's start from the beginning. So you're interested in a house. Let's say 300, 000. You put your offer in and the sellers accept that. And you're like, yeah, we're going to buy a house for 300, 000. But now, okay, well, what's next? So the first thing is you're going to want to pay for an option period. This is on average about 250 what you're doing here is you're buying a set amount of time that you can back out of this contract for whatever reason you want. So let's say you spend 250 and you say, I want seven days. Option period and the seller accepts that then you have seven days to bring a home inspector to bring any Inspector for that matter and to see if they can find anything wrong with the house that you may want to negotiate This is definitely something that I am very happy to pay for in every home purchase. That seven day option period is a really prime time for you to really do your homework and research and make sure that even the deal that you're going after is actually a good deal. So we love option period. So happy to pay this 250. What happens after that? After that, you're going to pay an earnest money deposit. This is a typically about 1%. Of the purchase price that you're offering. And this is just to show good faith that this offer is super serious. So given that, you know, you can pay the option period and get out in seven days, the earnest monies shows the seller that you're really serious about this deal. And you're not just Some random investor that's going to back out of every deal. So if you decide to back out within the seven days of your option period, you will get your earnest money back. Okay. So what comes next after we've paid this earnest money? First thing I recommend highly is getting a home inspection. That's going to be out of your pocket and you will definitely want that because there's things that will pop up that you don't know about. Foundation is a big one. Roof. Uh, those are all expensive items that you want to figure out if those things are okay. Because foundations can be really expensive to fix if they start sagging or roofs can be tens of thousands of dollars these days. So you want to make sure that these big items are in good shape. Okay. And how much is an appraisal? Uh, an appraisal is going to run you probably somewhere between 600 to 1, 500 depending on the property. So we have the earnest money We have the option period money, and then now we have an appraisal fee. What else? Other things that will come up is, lender fees. So these are, uh, origination fees. It's going to be the cost that the lender charges you to process this loan, excuse me. And this is typically about 1%. Of what you're going to buy the home for. So if you're buying a home for 300, 000 in this case, it's going to be about 3, 000 for the origination fee. There's also going to be an application fee, and this is just to apply for the loan. This is not a whole lot of money. It's usually about 75 or so. Other than that, you have title insurance premiums. So what title insurance is. If the previous owners haven't paid their property taxes, they're going to have a lien on the home. And the title search is going to look for, if there's any liens on that property that are outstanding, because if there are some, those need to be paid for before that sale can proceed. So they have to be paid for. So that's what title search, it ensures a clean history, and the insurance essentially covers you that if something is uncovered later on It's it'll be handled by the insurance. So you don't have to worry about that I have a question really quick. So on the Closing costs for the loan. Can you find loan companies that will waive closing costs for their loans? Or is that pretty atypical to have that happen? So I think you can definitely negotiate with a finance or lender companies. They'll all have their own deals. Let's say some will waive our origination fees. Some will give you a credit, but there there's nothing's for free these days. You're going to have to pay something, but yeah, they can definitely help you out. Okay. Especially because you can shop for, for different companies. You can negotiate with them and say, Hey, well, this company is offering me this. And then you can see what they'll do for you. And how much is title and insurance? Title fees are 0. 5 to 0. 75 percent of the home purchase price. Okay. And, uh, what about the insurance? The insurance on average, uh, for the country, um, although it depends where you live, but right now we're sitting at about 1, 600 per year. And that's roughly what we're paying for here, uh, in Austin, Texas. I think all our properties are around that area between 1, 600 to about 2, 000. Oh, okay. So when you say interest insurance, you're talking about like homeowner's insurance, like that insurance that we all have to have to make sure that somebody else pays for our house if it burns down or whatever. Correct. Now you bring that up because there also is a mortgage insurance. So that is another insurance that you have to pay. If you do not put 20 percent down as a down payment, you get charged this PMI, this private mortgage insurance. So it depends what type of loan you get, but for conventionals, I think it's between three to five percent, of your loan, your total loan costs. And that's what you'll be paying, uh, on a monthly basis. FHA loans are even more expensive. I think you're looking at more like 0. 5 percent. Okay. So far, I'm just going to do a recap of all of our fees. Sure. So, we have the option period fee, we have the escrow fee, we have the closing costs, or loan origination fee, that's the same thing, right? Well, closing costs are a bundled, amount, so, closing costs encompass, your down payments, your origination fees, your appraisal fees, your recording fees, your surveys. Oh, there's so many fees we haven't gotten to yet. See, y'all, this is why you need to know how much it really costs to buy a home. Okay, so it's loan origination fees, appraisal fees. We've talked about, uh, mortgage insurance. And, we've also talked about title fees. Title fees, correct. So, you just named a lot more. I did. so we have surveys. So there are survey fees. In order to close you need a survey and so the title company will ask for you to provide a survey. So usually the seller will have a survey on hand. If they don't, that means you're going to have to pay for a new survey. You have to pay for it or will the seller pay for it? It's negotiable. Okay, I'd be negotiating that. I believe we had to pay for, for one on one of our properties that we, yeah, uh, it depends on the market that you're in the market we were just in, in 2020, 2021, the buyer was definitely paying for that survey. Um, so it's, it's definitely negotiable, but that can run, on average 600, uh, is usually what you'll, you'll find yourself paying for a new survey. Yeah. Unless like for our land, we just bought 10 acres, not just bought, but a couple of years ago, bought 10 acres out in Wimberley. In which case I think our survey was like 1500. Correct. It was a lot more expensive, the larger the property that you have. Okay. So survey fees, what else do we have to pay? Let's see here. There's the recording fee. That is a small amount, but it's, it's still a fee. It's like 30, 50 bucks. Um, and that's what you pay to the county, so that they can record the new owner of the property. And so that's in public record and they charge you for that. Okay. Okay. What else? Okay. The next big, uh, item that we have on the list here is property taxes. That is a big one. here in Texas, property taxes are, it's based on appraisal fees. So every year. The appraisal district, they appraise each house and they basically set how much this house is worth. Each county has a percentage for property taxes. So I think here in Hayes County, it is 2. 3 percent in Travis. I was looking at it today. It is 1. 9 percent and you pay that percentage of the appraisal fee. And so if it's a 300, 000 house, you're paying 2. 3%. That really is dependent on the state that you live in, right? In Texas is sure we don't have state income tax, but we do have high property tax rates, which is why we pay so much in property tax. But you go somewhere like California, Colorado, their property tax rate is about like what half percent, 1%, something along those lines. I don't know exactly what it is, but it's definitely lower than two, 2. 2, 2. 3, which is what we pay here in Texas. So that's one thing you really want to consider because property taxes can be a significant amount of money in addition to your mortgage each year. They are a lot and they can affect your mortgage on a monthly basis. So I think we can, would you like to share the story of Lott? Sure. Lott house. So we purchased that and it was a full rebuilt home. So the original taxes on that house, the appraisal wasn't very high because it was a really old home. And so they were praising that house at a really low amount. I can't remember what it was. So when we bought the house, we were still paying taxes based on that appraisal. However, the next year we were surprised that when they saw that we had a full new rebuild with a back house, our property taxes increased our monthly payment by 1, 100. And this was an investment in property for us. And even if it's not an investment property, even if it's a primary, It's still a lot of money, but we had intentionally bought this house as an investment to make positive cashflow each month. Thankfully, we had designed a pretty good cashflow for that property. So we still are making money, not as much as we were previously, but we're still are making money on that house every single month. But you can just see how one change in property taxes can significantly impact your mortgage payment each month. So one thing you didn't mention that I want to talk about is interest rate, because this is a really big fee that people need to be aware of. And I think a lot of us are aware of right now in this high interest rate environment, the interest rates that are associated with your mortgage. So can you tell us what that is? And also, I'd be curious to hear your opinion on given the interest rates. Are so much higher than they used to be if you still think it's a good time to invest. Sure. Okay. So interest rates. this is how the banks make money. They charge you to lend you money. So essentially right now, I think, uh, at September 19th, 2023, we're looking at interest rates at about 6. 5%, roughly give or take, and that's for conventional loans. If you borrow 300, 000 for a home, they're going to charge you 6. 5 percent of that 300, 000 per year. And that's how much you're going to pay on top of that 300, 000. Okay. And so what do you think about a six and a half? Percent interest rate. Like, do you think that's relatively high, relatively low? Should buyers be afraid of an interest rate that high right now? You know, I, I think given the market, I think looking at it, there's still not a lot of supply, which keeps the home prices high. And what I can see is that there is a lot of money on the sidelines waiting to come in. And what that tells me is that as soon as these interest rates go down, the prices are going to skyrocket again, because there's going to be a lot of. Demand. A lot of demand. Yep. There's still not a lot of supply on the market. Sure. And so, yeah, I do think it's a good time to invest, because you can always refinance later. Yep. And get that interest rate lower. And, what's the interest rate on rent? Uh, what? It's a hundred percent. Oh, that must be some kind of realtor joke, right? That is totally a realtor joke. It's like interest rate on rent. If you think about it this way, if you're paying rent, you're paying your landlord's mortgage. Yeah, totally. So your, your opinion is, look, interest rates are high. But once they drop, be prepared for everyone to start selling their homes because they want to buy a new home at a new interest rate. And a lot of people that are wanting to buy homes are going to get into the market because interest rates have finally dropped, which is going to skyrocket home prices. And another thing that you mentioned is like the negotiating power has really increased. Over the past year. So there are costs that can be negotiated right now that maybe in two or three years Whenever interest rates drop who knows when that will actually be you won't be able to negotiate anymore I think one of the most important pieces of information that if you're interested in buying a house There is something called a rate buy down, and you can essentially pay the mortgage company a certain percentage to drop your interest rate. And a lot of the times that is about 1 percent of the price per percent that you want to drop the interest rate. You can get that paid for by the sellers these days. Cool. So that can be a really great strategy to actually get that interest rate down to actually buy a house. Yep. What do you consider the fees, the top fees that homeowners or potential home homeowners should try to negotiate in today's market? Yeah, great question. You can definitely, negotiate a lot right now. So we just spoke about the rate buy down. That's the biggest one. You can also negotiate a lot of repairs that you want done to the house. You can just ask for them and they can contribute to your closing costs. Oh, and also shopping for lenders. Um, you can negotiate fees with your lenders. So like origination fees, get lender credits, which will, you know, knock down how much you have to pay at the closing table as well. Okay. And another one of the things that you haven't talked about is realtor fees. You got to pay guys like you, right? So like, how does that work? Somebody has to pay. Yeah. Uh, so the way it works today is it's standard. Realtor fees are all negotiable. The seller pays, generally pays a certain amount, um, and then that gets split up between the seller's, agent and the buyer's agent. And that's usually how it is. It doesn't have to be like that, but that's just how it's been for the last few years. How much money are we talking here? 3 percent per side. Okay, and the seller will pay 6 percent total, and they pay 3 percent to the buyer and 3 percent to the seller. That, that's been statistically what's been happening. The most average, but there's a lot of different ways that you can slice that. But still, that's for a seller of a home, that can be another 6 percent fee. So All of these fees that we're talking about, do people need to make sure that they have money sitting in cash to pay for all of these things? Or can they roll them up into the loan? Like, how can people finance this if they've already had to save for a down payment and now you're telling us that we have 6%, 1%, like all of these fees are adding up to a significant amount of money. I think the easiest way that you can think about this is you can put two to three percent of your purchase price and that'll be your closing costs on top of your down payment, which is whatever you decide to do, which we generally do five percent. Sure. And with, when you say closing costs, what you're talking about is the bundle of cost that we just talked through. Correct. So things like appraisal fees, survey fees, title insurance, credit check, origination fees. All of that good stuff. Okay. All right. So, Craig, I think that was a pretty good overview of There's a lot there. I mean, there is a lot there. we can do some more episodes. If you all have any questions specifically on these costs, want realized examples, put them in the comments below. It was so fun to be here. Did you enjoy doing this? I loved it. Yeah. Thank you so much for having me. Yeah, of course. You family, babe. All right, y'all have a great week. We will see you in the next episode. Have you ever built a budget, but within weeks felt exhausted by the spreadsheets, the upkeep, or the restrictive spending categories? If so, you are not alone. Budgeting has never worked for me, so I created a new way, money mapping. Money mapping has all of the things you need to be successful in your wealth building journey. It's simple, organized, and automated, but most importantly, it offers a completely new way to relate to money and manage it in your life. If you're ready to kick off your no budget strategy for building wealth, sign up for my free money map training at www. holistic money. com forward slash money map. Here's to building wealth with ease.