It may sound strange but sometimes I find that working backwards actually sets us up best for success. When I used to compete with my horse in dressage competitions, I learned exactly how to work backwards. In dressage the show office gives you a precise time of when you are expected to ride, such as 9:23 am. That means you need to be ready and in front of the ring at 9:21 or 9:22 and checked in with the warmup volunteer person that is coordinating the riders entering and exiting the ring. For every ride it is necessary to figure out exactly how long it takes you to do things before the actual ride time. For example, if I ride at 9:23 am, I need a 20-minute riding warm up plus 5 minutes to brush him off and wipe my boots before going in the ring. The warmup ride happens after it takes me 10 minutes to tack up my horse and walk him down to the warmup ring. Before I tack up the horse it takes me 10 minutes to get changed into my show clothes, which I’ll do after it takes me 35 minutes to braid and clean up my horse in his stall. I would braid him after he had a short walk and lunging session to stretch his legs which also takes 20 minutes and I need to allow 15 minutes to clean my tack after that lunging session. In total I need 115 minutes before that 9:23 ride time to start getting him ready to ride and show. That means I must be in front of his stall ready to get him started at 7:18 am.  This may sound strangely precise, but it works this way and also why I really like the sport of dressage is all about precision even when you aren’t in the ring.  

There’s two big ways I think we can work backwards and precisely like this when it comes to the home buying process and that is with the preapproval amount and the timing of your purchase.  The first is when we are working with a lender to determine the pre-approval amount. Although you may be qualified to purchase a $700,000 home, that doesn’t mean you should. Together with a good loan officer you can work backwards to determine an estimated amount for the purchase price. The same way I factored in times for braiding the horse and cleaning him off, you should factor in your expenses like car payments, groceries and things that you spend money on, so you can continue to do those things. The other thing to estimate besides just the monthly mortgage payment, are the expenses for taxes and insurance if you plan to put those in escrow. Other things to consider would be any sort of HOA fees for a condo or neighborhood that would also cause an expense. So let’s work backwards here and estimate your monthly car payment and insurance is $500 per month, groceries average about $300 per month, eating out comes to $250 per month, pet expenses if you had to average would be about $100 per month, gym membership and fitness is $100 per month, gas costs $300 per month, phone/cable/internet is $125 per month, utilities like gas and electric comes to about $30 per month, and you spend approximately $150 per month on entertainment with friends and family. This total comes to $1,855 per month, before we ever factor in rent or a mortgage payment. An estimate for a $500,000 home with taxes, insurance with 10% down and a 6.5% interest rate comes to about $3,360 per month. A $700,000 with the same 10% down and 6.5% interest rate with taxes and insurance would be approximately $5,100.00 per month. The difference in these two amounts is almost the amount of the total sum of monthly expenses we estimated. This is how people can become “house poor” and purchase a house but can’t afford to do their everyday things or activities. While you may be preapproved to purchase a home for $700,000 if you still want to do the things that you currently do, it is best to work backwards to determine what you can actually afford monthly with your current lifestyle. 

Trying to time the market in real estate to get the best deal is nearly impossible. If you need to move or want to move and can afford the price you are paying monthly or plan to pay monthly, plan to be settled there for several years, it is a good time to buy versus rent. However, several clients of mine have rental leases to try and keep in mind throughout the buying process, this is where it is important to work backwards and determine the best time to start the process. The good thing is that you could close on a house in August and not make a payment until October first, but that means you need to be under contract in July. Depending on how picky or flexible you are that will help drive how long you need to look for the right house. My most motivated clients typically take a month or two to find the right house, clients at a slower pace take longer. Another thing to remember is possession of the actual home, if the home is empty then possession can be at close, but it is more common for sellers in West Michigan to need 30 or sometimes 60 days after the close to move out, which can be helpful if you have the ability to be flexible and offer the sellers the time needed. The preapproval process itself doesn’t take long, typically a day or two, but sometimes if you need to update or pay something off for a rescore or to update how things are reporting that could take 30 days. So, here’s where we count backwards if a lease is up August 1, we need to start shopping by May 1. We’ll use the example of 30 days possession needed by the seller (so closing approximately July 1), 30 days for inspections, appraisal and underwriting of the loan (the offer should be accepted June 1), 30 days to shop which would be the month of May if the buyer is flexible and motivated. Another thing to remember is that you likely are not the only person searching for a home, and that means we might lose on an offer or two, or six or seven. As difficult as it can be, it is part of the process and the market that we are in. 

Working backwards this way helps you get the right house at the right time even if it means losing an offer along the way or not purchasing a home at your maximum approval amount. Helping people get into homes they can afford while still having their best lifestyle outside of the home is one of the many reasons I love being a realtor. 

Posted by Ariel Christy on
Email Send a link to post via Email

Leave A Comment

Please note that your email address is kept private upon posting.