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Introduction
Buying a house is one of the most mentally challenging things you're ever going to do. When you look at the amount of money that the bank is letting you borrow based on what you make a month, and based on the small down payment that we're putting in, it just really makes your brain want to explode.
Hey guys, my name is Javi, and I have helped thousands of home buyers buy their first house over the last few years. I specialize primarily in people like me, people who didn't have any kind of financial literacy or any kind of education from their parents, because our parents were so busy surviving that they didn't really have time to teach us what to do with real estate or our money or anything like that. Today we're going to talk about the most common mistakes first-time home buyers make so we can avoid them and learn from them, so that we can be empowered to make better real estate decisions.
Mistake #1: Letting Emotions Drive Your Offer
The first one is easier said than done, but it's really important: we allow our emotions to get in the way of getting a good deal. Listen, I hate to break it to you, but this housing market absolutely sucks. Right now, if you are buying a house, you need to make sure that you are buying well under market value to protect your future self. Everybody's on board with this decision, but once you see a house that you absolutely love, that you dream about, that you and your partner are just like, "Oh my gosh, this is it, we're going to raise our children here, we're going to have our dogs and our cats here," that decision just kind of fades away, and it becomes more about what we need to do to get this house.
Let me break it down for you nice and easily. When you look at a house that you like, the first thing you need to do is have your agent reach out to the seller to see what the situation is. If it's a multiple offer situation, then consider whether you even want to engage and do the dance with the seller, because when you're in a multiple offer situation, you're basically in a pissing match with multiple buyers to see who's going to give the seller the most amount of money. A lot of times this means you're going to be buying a house above market value. If you think, "Well, the appraisal is going to be fine," the appraisal usually just happens to magically land at whatever you offer. I'm not implying anything, but it's just interesting how that always works, so don't always rely on the appraisal.
If the seller tells you there are no current offers, the next step is to run some numbers. Don't get all emotional and sentimental yet. Figure out what the comparables are in the neighborhood, figure out what's going on in the zip code, and get a very good idea of what's happening data-wise. Don't look at the house as four walls, a door, and a bucket full of memories; we're not there yet. Just look at it as how much money this house is going to lose you in the next five years. If you think of it like that, you're going to have a very sharp mindset about what you need to offer, because once you figure out what that market value is, you need to do your absolute best to get as much off that market value as possible.
Next, we consider the personal situation of the seller. How many days has the house been on the market? How good of a job did they do marketing it? Do they need to sell for a reason? Are they going to move somewhere else? More importantly, what's their equity position: how much money are they set to make if they sell this house at the list price? If they're making $250K off the house, I'm going to lowball them, because I'm not going to overpay. You're making your money, so why are you complaining?
Mistake #2: Not Knowing When to Walk Away
The second common mistake that first-time home buyers make goes with the first one: they don't know when it's okay to walk away. And when I say walk away, I mean walk away. I have this problem with my daughter. I have a nine-year-old son, a six- or seven-year-old daughter, and a one-year-old baby. My daughter runs my life. Whatever she wants, she gets, and whenever she knows how to play me, it is what it is. Even my little baby, if she does something wrong, she starts doing her little face, and she just starts blowing me kisses. They know how to play me. My daughter, if she's putting on a sales pitch of what she wants or what she needs, "I need this Pokémon card deck or pack or whatever," I just go, "No, this is not going to work." At that point I need to walk away. But if I continue listening to her and I'm like, "Okay, fine," I've eliminated any potential for "yes," and I've given in. For a lot of us, we don't know when that's the right time.
So after we've analyzed the situation, we have a better idea of what we need to offer, and we finally make that offer. Sometimes the seller just isn't going to want to play ball. Sometimes they're just going to be offended by our offer. But I hate to break it to you, there's going to be some resistance, especially when you're trying to get a house under list price and get heavy concessions. It's not going to be easy. If we wanted it to be easy, we could just give these sellers list price, but it's not 2021 anymore, and we can't be doing that. So there is going to be some resistance, and a lot of times the sellers are going to give us an entire brick wall.
There's a speech by Randy Pausch on YouTube, 16 years ago, called "Achieving Your Childhood Dreams," and it talks about brick walls. Brick walls are not there to keep us out; the brick walls are there to show how badly we want something, because they stop the people who don't want something badly enough. For us, a lot of times that brick wall is going to be a human, the seller, who is just going to say no, "We're not taking your offer, it's too low." Guess what, my friends: don't entertain it. If you've given them the benefit of the doubt and you give them another solid counter and they're still being very stubborn, walk away. Don't be like Javi with his daughter. Walk away, because what's going to end up happening is the emotion of wanting that house is going to keep you involved and hooked, and you're going to give the seller what they want, and the appraisal will come in fine, and you're going to feel fine about the house at that appraised value. No, you need to know when it's okay to walk away.
Surprisingly, two things might happen when you walk away. They might come back and say, "Wait, wait, wait, okay, fine, we'll work with you." Or you keep looking, and you actually move on from the house and keep looking. Who knows, maybe a month later they're still there, and they'll work with you then. Or you might find something, maybe not as good as that house, but maybe a seller who is a lot more willing to work with you.
Mistake #3: Letting Agents and Lenders Lead You
The last common home buyer mistake is one I absolutely wish everyone would take from this video. If there's just one thing you take away, please take this one: you need to look at the people you hire as your team that works for you, not coaches there to guide you. Let me explain. If you want to buy a house, you call up your lender and say, "Hey, what do I qualify for?" They tell you what you qualify for. Then you call your real estate agent: "Hey, I want to buy a house." Surprisingly, you can actually buy a house right now; you actually qualify. Next thing you know, you're buying a house, and you're taking their lead the whole time. They're telling you what to offer, they're telling you what you need to do, they're telling you it's a great time to buy, and surprisingly enough, you're going to buy.
At the end of the day, you need to remember one thing, and I'm telling you this as a fellow real estate agent: our license is not called "real estate consultant," and we're not called "real estate financial advisers." If you look up what our license is called on any directory, it's called a real estate salesperson's license. We are salespeople, and we're there to sell. No matter how hard the situation, we're always going to be overly optimistic about what you can buy and what you can qualify for. The lenders are there to get you into a mortgage. They're not going to tell you what you can afford; they're going to tell you what you qualify for.
Now, this may be repeated ad nauseam, but maybe this is the first time you're watching me and the first time you're hearing this: you need to not buy based on what you can qualify for, or what your real estate agent or your lender is telling you. You need to do your own independent research on what it takes to buy a house and figure out what you can comfortably afford. In the description I'll leave three videos, a combination of videos I've made and videos from friends and others that I find highly valuable, that you need to check out. They'll give you a really good idea of what you need to know as a home buyer before you hire a Realtor, before you hire a lender, or before you ask your uncle Theo, "Hey Theo, what do you think? You own five houses, so you must know a lot. Hey Theo, can I buy a house?" He bought when it was 2011 and houses were super cheap. He doesn't know everything there is to know about real estate. Okay, I'm going to get a few nasty texts from some of the peepas out there, so heads up, you might not hear from me for a week, they might have kidnapped me. But do that independent research yourself.
If you want a quick summary, I can give you one. Lenders usually check what 45% of your gross income is, and that is what they use to qualify you. Yes, they do some more math, like removing what debts you have, but if you make $10,000 gross, meaning before taxes, they will probably qualify you for a monthly payment of around $4,000 to $4,500 if you have low or little debt. That sounds great, and if you talk to that lender first, you're going to call Mom and Dad and say, "Woo, I qualified for a $4,000 house!" and now you're buying yourself a really expensive house, and you're finding yourself in a golden jail. It's beautiful and it's yours, but you're shackled in debt.
But if you did some research, you'd find out that your mortgage payment shouldn't be more than 25 or 30% of your take-home net income, not your gross income. So you go talk to the lender and say, "This is the mortgage payment I need to qualify for, and this is the price that works for me." Then you talk to your agent: "This is the price I need in a house. What neighborhoods do you recommend, or what do you suggest?" Now you're coming in from a place of power. This is your path that you're going to make, and you can take feedback and suggestions, sure, because you're an open-minded person, but you're not going to be led by people whose job it is to sell. You're going to be the one in power here.
Qualifying vs. Affordability (The Real Math)
You can figure out what you can afford with some basic math. Just Google budgeting. If you have an extra $5, I have a Patreon where you can get access to my budget calculator or Excel sheet, where you can plug in some numbers. For example, if you make $10,000 gross and take home, say, $8,800, even though you qualify for up to $5,000 a month, you can only really afford between $2,200 and $2,600. Using forms like this, or calculators like this, or just doing your own independent research, you can find this out on your own. Do the research, do the work, and then go meet with somebody. That way you're in a position of power: you're coming in and hiring a team to assist you, and if they're not living up to your standards, you can let them go, because this is your path and your journey.
Closing Thoughts
I hope this video brought you some value today, friends. As I said, I didn't have the best financial education growing up, and I don't blame my dad and mom. They were busy surviving, and they didn't have the assistance. Now it's our job to break that generational curse and teach our children with better tools and whatnot. If you want to support me, you can hit like and subscribe. If you're looking to buy or sell a house in Phoenix, you can reach out to me; my contact information is below, and of course my Patreon is there if you want access to this and the bonus videos I'll be posting there as well. Thank you guys so much, and see you on the next one.