Have questions about how to buy a home in this crazy market, ways to beat the system, and common mistakes home buyers make? Check out our Money Guy Guide to Buying a House!

1. I would definitely use a mortgage broker again.

A good mortgage broker may be able to get you much better rates than you would otherwise qualify for. The broker we used was phenomenal and scored us an interest rate about 0.50% lower than typical rates at the time (looking at rates, we essentially got the rate of a 15-year mortgage but for a 30-year mortgage). With mortgage rates higher than they’ve been in decades, it’s especially important to save money where you can and get as low of a rate as possible.

Working with our broker was a breeze; he is local and works for a small family-run business and I knew I could always pick up the phone and ask him any questions I had about the process. By using a broker, we essentially got the super-competitive rate of a large national bank, or even better, and the service of a local family-run business.

2. I’m glad we didn’t cut corners on the inspection.

I’ve heard before of home buyers purchasing homes and waiving the inspection (primarily during the housing frenzy that occurred between 2021-2023), but I never realized how crazy that was until we purchased our home. Our real estate agent recommended an awesome inspector who went above and beyond inspecting the property and alerting us to issues we didn’t know about. The inspection was so cheap compared to all the other costs associated with buying a home that I can’t imagine why someone would want to save money and skip the inspection (unless they are buying a new construction, potentially).

For reference, our home is 20 years old so it is definitely not ancient and falling apart. The inspector uncovered some minor and moderate issues with the house that helped us negotiate with the seller and, by being made aware of and fixing these issues now, so they did not become big headaches in the future.

3. I would never buy a home without an agent.

I will not judge you if you are experienced in buying houses and don’t want to use an agent, but as someone that had never been a part of a real estate transaction before, I am so glad we used an agent. Our agent was intimately familiar with the local market and was able to use that knowledge to help us get into an amazing home at an amazing price. I know for a fact we would be spending substantially more on a home if we had not found a great agent to help us along the way.

4. If I could do it differently, I wouldn’t get so attached to the first home I fell in love with.

When you find a home you really love, it can be difficult to move on if you don’t get the home. The home I first fell in love with sold to someone else, but we ended up finding an even better home, in the same neighborhood, for a better price. I would caution potential buyers about becoming laser-focused on one home. Your offer might not get accepted or issues could come up during the inspection that cause you to back out. It’s easy to imagine yourself in homes you really like, but always keep your options open until you are under contract on a house. Like most big issues in finance, our emotions can betray us so it is important to keep an open mind and to be well grounded in knowing what you are looking for based on a solid list of must and nice to haves.

5. No home is perfect, and you will have to make sacrifices.

Unless you can build the home of your dreams from the ground up, you will probably have to make sacrifices when buying your home. Our home? The roof is old, there are rats in the crawlspace (working on it), the HVAC will need to be replaced soon, the yard is very sloped and has drainage issues, and I could go on. But our home is in a great neighborhood, we love the layout and the amount of space, we have hardwood floors (this was mostly a big deal for me and not my wife; I just hate fake hardwood floors), the landscaping is beautiful, I have room for a vegetable garden, the appliances are modern and updated, and it’s setup to a great place to create blossoming memories for my family.

When you buy a home, you need to figure out what is most important to you and what you are willing to sacrifice on. Chances are you will have to make sacrifices, but that’s okay.

6. Interest rates may not go back to 2020 levels anytime soon (and home prices may never return to 2020 levels).

We are fortunate to have found a home we can afford, but this was still a tough pill to swallow. At interest rates four years ago, or at home prices four years ago, we could buy so much more home. It hurts to think about what could have been if we had bought a house back in 2020 – until I think about how unprepared we were to buy a house back then. We were both at different points in our careers, we didn’t have much saved for a house or retirement, and weren’t ready to buy a home by any measure.

We bought a home that fit in our budget at current rates. We could have stretched and bought more home, but we want a home we can afford now, not a home we can theoretically afford if interest rates drop by a certain amount.

7. I’m glad we didn’t wait until we were able to put 20% down.

Who are these people buying their first home with 20% down and what is their secret? With prices rising like they have, we would have had to make tremendous sacrifices even to consider purchasing a home if we had to put 20% down. If we wanted to buy anytime soon, saving for retirement would not be happening. If we wanted to save for retirement and put 20% down on a house, it could be years or longer before we could buy.

Putting less than 20% down on a home is riskier since you start with less equity and more expensive since you pay PMI. The alternative, though, is much worse for many first-time buyers. Prices could continue to climb and run away from you or you may only have margin to save for a home and nothing else.

Buying your first home is never easy, especially right now. If you are looking to buy soon or in the future, I hope my personal experience can make it a little bit easier when it’s time to buy.

Real estate investing isn’t for everyone. It is not a passive activity, if you are managing property, and your returns can be impacted by the housing market, the quality of your tenants, the property itself, and much more. Here’s why you might consider investing in real estate anyway. Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

With the sharp rise in mortgage rates, many potential buyers are looking for options other than financing a home at nearly 8%. Adjustable-rate mortgages, or ARMs, haven’t been popular in quite some time. When fixed mortgage rates were extremely low, choosing an adjustable rate did not make sense. In 2020, just 3% of all mortgages were ARMs. That number has now increased to 13% as buyers look for alternatives to locking in a rate near 8%. Are ARMs worth considering or are there potential pitfalls you need to be aware of?

What is an adjustable-rate mortgage (ARM)?

An adjustable-rate mortgage is just what it sounds like, a mortgage where the rate changes periodically. ARMs usually have a lower initial rate than fixed-rate mortgages, so when mortgage rates are high and may drop in the future, choosing an adjustable rate could be worth considering. The initial rate is fixed for a period of time, most commonly five years, seven years, or ten years. After that period, the initial rate may change, or adjust, and likely will continue to adjust on the agreed-upon period of time (as frequently as monthly to annually).

ARMs usually have caps on how much the interest rate or payments can rise over the life of the loan. There are three kinds of caps, an initial adjustment cap, subsequent adjustment cap, and lifetime adjustment cap. The initial cap is typically 2% or 5%. For example, if you choose a 5-year ARM at 7%, after the five years are up, your rate may be capped at 9% or 12%, depending on the terms of your loan. The subsequent adjustment cap is a limit on how much the interest rate can increase in each subsequent adjustment period, and is usually limited to 2%. The lifetime adjustment cap, or total limit on interest rate increases, is usually 5%. That means if you lock in an ARM at 7%, your rate will usually not ever exceed 12%.

When does it make sense to use an ARM?

It may make sense to consider an ARM when interest rates are high and are expected to drop no later than the conclusion of your initial ARM term. There is a problem with this statement. How do you know when interest rates are at their highest? At the beginning of 2022, rates seemed high when they reached 5%.

Over the last 50 years, average 30-year mortgage rates have been as high as 18%. It’s hard to know if mortgage rates are currently “high” when they could be higher in one year, three years, or even five years. There is a ton of uncertainty about which direction interest rates are headed. If you had surveyed 1,000 real estate experts five years ago, I doubt many, if any, would have predicted fixed 30-year rates to be at 8% by 2023. While many are predicting lower mortgage rates in five years, we have no way of knowing for sure.

With so much fuzziness in the decision process, you have to take a “measure twice and cut once” approach. First, determine the spread between the fixed and variable options, and make sure to read the fine print to know how much the rate can adjust and how that ties into your life timeline. How confident are you in the direction of where rates are headed in the term of your loan? As you can see, there are quite a few variables that will vary for everyone, which makes this decision very personalized.

What are the downsides of an adjustable-rate mortgage (ARM)?

In a rising interest rate environment, ARMs are very risky. Choosing an adjustable rate when you could lock-in a fixed rate may be a decision with enormous financial consequences later down the road. Let’s look at the upside of an ARM: best case scenario, you get an interest rate that is less than 1% lower than 30-year fixed rates for a short period of time. If rates continue to rise, and are higher when your rate adjusts, you made a poor decision: it would have been much better to lock in a fixed interest rate.

If rates drop, you will have the opportunity to refinance your ARM if it makes sense. However, you would also have the opportunity to refinance if you locked in a fixed 30-year rate. This is why answering the questions above will bear fruit and help you fine-tune your analysis between fixed and adjustable mortgages. If the current discount and the limitations on rate increases works out that it extends your “interest rates will come down” window, you can feel more comfortable choosing the adjustable rate over the safer locked in rate. However, many will not feel comfortable taking on the additional risk and complications of going through this analysis. This is why, for many, the benefit of an ARM is simply not great enough to move away from the comfort, ease, and safety of fixed rate mortgages.

Adjustable-rate mortgages may seem great on paper, especially right now since rates are lower than fixed-rate mortgages. However, the risk of rates continuing to rise cannot be overlooked. If the potential savings from an adjustable rate mortgage are too big to ignore, please make sure you do not skip your homework to understand both the exposure and opportunity. It is worth repeating that buying a home is a big life decision and one that should be a “measure twice and cut once” decision where emotional impulses should be ignored and prudent planning is rewarded.

7 out of 10 home buyers under 30 are getting help from family with the down payment. How should you think about helping your children out, if at all? Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

Home prices have gone up significantly over the last few years, but in the first quarter of 2023 home prices were down 9%. Is now a good time to buy a home? What do you need to think about before buying a home? For more information, check out our Home Buying Checklist!

If you’re saving for a second house with a timeline of seven to ten years, a balanced approach of investing part of the money in low-cost index funds and keeping the rest in a high-yield savings account may be a suitable strategy to achieve your goal. However, consider factors such as flexibility in the timeline, real estate market conditions, and the potential challenges of owning a second property.

Want to know what to do with your next dollar? You need this free download: the Financial Order of Operations. It’s our nine tried-and-true steps that will help you secure your financial future.

In this highlight, we discuss what factors you should consider before buying a home and which pitfalls to avoid during the process.

When purchasing a home, make sure to check out our free Home Buying Checklist deliverable to help you on your home-buying journey.

Paying down your debt as quickly as possible seems like a great idea, but the opportunity cost, especially for young investors, can be enormous. Let’s unpack this.

If you have a low-interest rate mortgage and are under the age of 45, you should generally consider investing more for retirement rather than paying off your mortgage early. It simply doesn’t make mathematical sense for younger investors to put scarce and precious resources towards low-interest mortgage debt when the expected return of investing for retirement is significantly higher.

What if I’m older?

Prepaying low-interest debt is Step 9 of the Financial Order of Operations. Once you reach Step 9 and are 45 or older, you can consider prepaying your mortgage. The opportunity cost of not investing the difference is no longer as great, and at this point in your financial journey your focus begins to shift from accumulation to protection. You should aim to be completely debt-free by the time you reach retirement or financial independence.

We give a mathematical breakdown of why younger investors should think twice about prepaying their mortgage, and discuss other pitfalls of prepaying your mortgage, in this episode of The Money Guy Show:

Video: The BIG Danger of Paying Down Your House!

Video: I Feel Bad After Paying Off My House Early