Dave Ramsey’s Financial Peace University: Week 12 – Real Estate and Mortgages

Week 12 in our FPU class focused on the subject of real estate and mortgages

1. When selling a home, think like a retailer.
2. When buying a home, think like an investor.
3. Never get more than a 15-year fixed mortgage. Don’t tie up more than 25% of your income in house payments

So where to start – how about selling a home?

photo credit: TheTruthAboutMortgage.com

Selling a home – think like a retailer

My wife and I bought a townhouse after we were married, and 2 years ago we went through the process of selling the home after living there for 4-5 years.  Selling a home can be a stressful prospect, especially when you’re having to sell under the gun – in order to pay for a new house, or when you’re in the middle of a move.   In our case we were able to sell at the price we were looking for, and luckily we sold right before the real estate bubble burst.   If you haven’t been as lucky, here are some things you can do to help in selling your house:

1. Present your house in a positive light: If you’re selling your house  you need to think about how to best present your house in order to make someone fall in love with it.  This means doing things like fixing up your front yard,  removing clutter from the house,  making sure the house is always clean when there are showings, finishing up those small projects that may make the house look bad (like painting that bright pink bedroom to a more neutral color, and removing un-needed  objects from the house to make the house feel bigger.)
2. Stage the house: One thing that a lot of sellers neglect to do is stage the house.  To do that they need to arrange the house in such a way as to set the stage for the buyer to imagine themselves living there.   That means removing personal items from the house like wedding photographs and baby pictures, and putting up more neutral nature scenery.  Or it might mean removing big or excess pieces of furniture and replacing them with fewer and smaller pieces of decor.   You want the buyer to feel relaxed and calm in your home, and not feel like they’re being crowded out by clutter.  You might even consider hiring a professional stager if you think your house is especially bad.
3. Find a good agent: Find a good agent who will market your house for you, and that doesn’t mean your brother or a high school friend (unless they’re good).   Find someone who knows the market, who knows how to find prospective buyers in your house’s market (both in traditional and new media) and follow up with them to make sure they’re working hard on selling your property.
4. Remember, your house is only worth what someone else will pay for it: Often you can become attached to a house, and have an inflated notion of how much it is worth.   Remember to set a fair selling price, and that the house is only worth what someone will pay for it!

Buying a house – think like an investor

When buying your house Ramsey strongly suggests never getting yourself into a house payment that is more than 25% of your  income.  Any more that and you can be getting yourself into a mountain of debt that can take over your life.  This isn’t a piece of advice that we followed, but we bought our house before getting into the Dave Ramsey paradigm.  Our house is closer to 30%, but it is also our only debt that we have to worry about.   Make sure to buy a house that fits within your budget, and that isn’t going to take over your life.  Don ‘t become house poor!

One of the biggest things Ramsey suggests doing when buying a house is using a real estate agent who knows what they’re doing.   They know what is a fair price in a given area, they have a heart of a teacher and will help you navigate the process of buying a new home.  Buying a home can be both a joyful and a stressful time, but make sure you’re covering yourself by having a good agent on your team. Some other tips to help in buying your new home:

1. Know what you need before you buy:  Dave says that people will often look for two different houses when they shop – the house that they need, and the house that they desire.  Make sure you know the difference, and if you can, try to find a house that fulfills both your needs and desires.  But if you can’t, don’t buy a house for the wrong reason – know what’s important to you, and buy for the right reasons. Satisfy your needs first.
2. Find out if your  agent offers a buyer profile service: Many agents will offer to send you listings based upon your needs – and only ones that are in  your price range.  This can help you in avoiding homes that may seem like something you’d want, when actually they aren’t what you need.
3. Don’t bid blind: Know what houses in an area are selling for so that you can make an informed bid.  If you don’t have this basic information, you can way overbid for a house.
4. Get an inspection: Get an inspection on the home you’re thinking about buying because this can often disclose unknown problems that will need to be fixed by you or the owner. Make the purchase contingent on the problems being fixed – or the sale contingent on the inspection giving the house a clean bill of health.
5. Get pre-approved for your mortgage: Get pre-approved before you start home shopping so that you know the money is there when you find the home of your dreams.
6. Understand home buying fees in advance: Walk through the various home buying fees that you’ll have to pay with your real estate agent.  Often people don’t plan for those charges, and then are surprised at the closing.
7. Don’t rush the closing: Make sure you know what you’re getting into , what the terms of the sale are, and that all the contingencies of the deal have been fulfilled.  Ask to have the paperwork a day before the closing so that you can peruse the documents at your leisure.  If there is something that is a deal breaker, bring it up or you may be out of luck!

Getting a mortgage – what kind should you get?

photo credit: Tracy O

Dave Ramsey talks about how he thinks you should never get into a home loan that is for over 15 years – at a fixed rate.  The shorter the loan term – the less interest you’re going to pay.  So once again, get a 15 year loan, never for more than 25% of your income.

So does that mean you should refinance if you’re in a 30 year loan?  Not necessarily. Dave talks with a caller about when it makes sense, and when not to:

Audio clip: Adobe Flash Player (version 9 or above) is required to play this audio clip. Download the latest version here. You also need to have JavaScript enabled in your browser.

More home buying and selling tips

Find more home buying and selling tips at Dave Ramsey’s Real Estate Center.

Next Week

Next week is the last lesson of Financial Peace University, and it’s a lesson called “The Great Misunderstanding”.  In it Dave talks about the importance of giving and being good managers of what we’ve been given by God.

Share this post: SU | Reddit | Digg | PFBuzz | Del.icio.us | Tip'd | Facebook