Episode Transcript
It's still kind of shocking sometimes to know that I own a house.
But you do.
But I do.
Could you have afforded this house by yourself?
No. This house? No, absolutely not.
It does seem like such a big mountain to climb, to save enough to buy a house. Where
should folks start?
Do your research. It's an investment of time, but it can really pay off.
If you want something bad enough, you'll figure out a way to do it.
[MUSIC PLAYING]
Figuring out a way to buy that house is hard, especially in this market. That's why we have an
awesome guest for you today who really maps out how to get that first home, or if you're
looking to move. I'm Ally Donnelly and this is Money Unscripted, a podcast from Fidelity
Investments.
We're talking life and money, part personal stories, part professional insights, jargon and
judgment free. When it comes to buying a home, I wish I had Meredith Stoddard to walk me
through it all. She's got great tips on how to get started, figuring out what you can afford,
and how much you may really need for that down payment. But before we get to those
strategies, we want to share a pretty unique house-hunting story with you. Yes, it includes
rejected offers, endless open houses, frustration and financial concerns, but a chance
meeting and a little creativity led to an unexpected plot twist.
I'm Shanay Walker. I am 32 years old and I didn't ever think I would be a homeowner.
My name is Maria Castillo. I'm 56 years old and I was in the process of getting a divorce. I
wanted to own my own home again.
Things that were not negotiable, I would say a bathtub was my biggest thing.
I wanted a bathtub.
I wanted a yard for my dog.
I needed a little bit of room for the dogs.
What was that hunt like?
It was chaotic.
Disappointing.
Time consuming, stressful.
Did you ever worry you'd never find a house?
There were several times where I was like, it's not going to happen.
Two dog lovers on the hunt for a house. But remember that plot twist we mentioned? Well,
these two met at a Greek festival, and then as brand new friends, decided to shop for their
dream home together.
It's a pretty big leap to go from spanakopita and bowling to buying a house together. How
did that happen?
That's a great question.
[LAUGHTER]
It was something that someone suggested to us and we were like, that's crazy. You're being
ridiculous. And then we kind of thought about it and we're like, but is this really ridiculous?
It is a big leap. It's a leap of faith. It's a financial leap.
The single-family real estate market was not something I would have been able to navigate
on my own. So adding somebody else to the mix, to help with monthly payments and things
like that, was really, after some soul searching and some online searching, I realized that, that
was how it was going to happen.
Maria had the money for the down payment.
It's nice. It's not huge, but it's enough.
And Shanay's income helped the duo afford the two-family they wanted.
I put in an amount of money that can be memorialized. So were anything to happen, that
money is still mine, yet going forward, everything is 50/50. The equity that's being built in the
property is 50/50.
What happens if you want to move?
If life changes and I want to move or Maria wants to move, we just will rent out that unit.
So if one of us decides this isn't the right fit anymore, it's OK. It's still an investment.
The dog has his own room?
If he didn't have his own room, he would be chaos.
[DOG BARKING]
Enough said and enough room for Donovan the Dalmatian, inside and out. Both friends got
their bathtubs and the basement is now Shanay's woodworking shop. Maria and Shanay,
finding a way to carve their own creative path to home ownership.
Was it worth it in the end?
Yes.
How come?
It's mine, ours. It's actually a sense of accomplishment. Every day I'm learning something
new about myself, how strong I am. I've gotten back a part of my life that I didn't have before
this house, and quite frankly, Shanay's friendship came into it, because one led to the other.
She's the reason that I could do this. I own this and it's been really surreal and kind of
amazing.
Man down. Man down.
[LAUGHTER]
What are you doing?
It's cool to see how Maria and Shanay came together and got creative to buy their home, but
that might not necessarily be for everyone. I'm going to bring in Meredith Stoddard. Her job
here at Fidelity is to talk about major life events, like buying that first home, or any home.
Meredith, welcome.
Thank you so much for having me here.
So let's talk about, I mean, we say they got creative, which they did, right? But what are some
watch outs if you're going to try and do something like that.
Well, first, I want to commend their creativity, because honestly, you really have to be when
the markets are tough, and that's a great way to create a win-win. I'd say the watch outs in
that kind of a scenario is that you want to document, document, document everything that
you've said, talked about, agreed to in writing. So what happens if you need a major roof
repair and one of you has the money and the other doesn't? What happens if one of you
gets married and then divorced? What happens?
So think through those contingencies and make sure that you document. What if one person
wants to get their equity out of the house and the other person can't afford to buy them out?
So the more upfront work that you do to have those difficult conversations and anticipate
things, the better off you're going to be in having long-term harmony with a decision like
that.
Yeah, interesting. It does seem like such a big mountain to climb, to save enough to buy a
house. Where should folks start?
It's daunting, it really is. And I think the key is to just start. So it might be starting small. I
remember reviewing all my subscriptions and I realized I was spending $200 a month I didn't
need to.
So even if it's $200 a month, get that going. If you can do more than that, then great, but
start. And even if you still feel like it's out of reach, those years, those savings will start to
accumulate, and over time, you'll be so glad that you did.
OK, so you're saving, but you definitely want to have a goal, something to reach for. So how
do you figure out how much you can afford?
I think there's a couple of ways to get started. So one is you might want to look in the area
that you're looking to buy and see what the houses are and see what's in your realm and set
that target. The other way to look at it is you can look at your income in a multiple of your
income. So if you're fortunate enough to have no debt, no other obligations, then you can go
up to five times your income. If you are saddled with debt, then three times might be more
realistic, and depending on the variation, and a lot of people find themselves somewhere in
between.
OK. So 20% down, 20% down, that's all I heard when my husband and I were buying our first
house many years ago. But fast forward to this market, 20% down can feel impossible for
some people. But I heard an interesting stat a bit ago about how much that actually happens.
I think some people will be reassured to find that the average down payment is about 13.8%,
and so you don't have to reach that before you can take a step forward. So yes, some people
do, but a lot of people don't. Some lenders will lend to you if you have as little as 10% down,
and then you want to look into other options. So there could be things like the Federal
Housing Administration, FHA.gov has some great programs.
The Veterans Administration, the VA, has some VA loans. Some people do bridge loans, so
that's a good example if you want to, say, sell a condo and that hasn't sold and you need to
come up with a down payment. So that can be a great way to do it. So there are options and
I'd just say do your research and look into what option might be a good bet for you.
Let's dig in there. If you don't have the 20%, you could consider PMI, private mortgage
insurance, or maybe a piggyback loan. Map out what that means and how it factors in.
PMI is private mortgage insurance. It protects your lender against you defaulting. And so
what that does is that you end up, until your equity reaches that 80% value, you have to pay a
little bit extra every month for that insurance. You can get that insurance removed after a
certain point, and so you do want to look into that.
There are different guidelines around that. The other piece is a piggyback loan. So piggyback
loans are when you take out a loan for the house, or the property you're buying, plus a loan
to cover that down payment. So a lot of times, that can be something like a bridge loan.
So if you're selling a property and you're not going to have the down payment, but you need
a place to live, so you can use that as a bridge loan. Another way is just you might know you
have a big bonus coming, and so you might take an additional loan to get that down
payment, knowing you're going to pay it off. So every situation is a little bit unique, so you do
want to look into the options and see what's going to work for you.
Work for you, right? So you think about this market, there's that push, pull. It can be nerve
wracking to feel like you should jump into real estate, maybe it's just safer to hold off, or it
could be terrifying not to jump in. So what are the best strategies to figure that out for
yourself?
I'd say, don't let the headlines drive your life and your decisions to a large degree. You really
want to take it down and do the research for you specifically. Also remember that real estate,
like the stock market, has cycles. And so there are going to be times when interest rates are
higher, prices are higher, both are higher.
And then over time, it corrects itself to a degree. And so like the stock market, you don't
necessarily want to make timing your number one factor. You want to get your preparation,
your down payment, your bank approvals, and then you're going to be ready to make a
move when it's time. And so I would say, don't let a good deal pass you by because the
headline says it's the wrong time.
OK. OK, good advice. So we're taking the plunge. We've figured out how much we can
afford and we want to actually buy. We're ready. What should be our first steps?
So first step is you're going to want to work with your bank to get a pre-approval. So that's
different than a pre-qualification, because pre-qualification just gives you the ballpark to look
in. A pre-approval is the bank saying, yes, we will lend to this person. So when you put down
the offer on the property that you want to buy, then the seller is going to take it more
seriously because they know that you have a bank commitment. You're going to want to be
checking your credit score and make sure that it's up to snuff.
So that means you make on-time payments, that means that you don't have anything that's
not yours on your credit report. So there are many, many options to pull your credit report
and get ahead of that. So make sure that you beef that up. If you don't have a lot of credit
experience, you may want to open up a line of credit, a credit card. Make sure you pay it off
promptly every month in order to build that score up, but there are steps that you can take.
As you talk about credit score and you're really ready to move forward, what are some watch
outs there?
You have to remember that if you've got your credit score buttoned up, you're preapproved, you don't want to go buy a $50,000 car all of a sudden, because that is going to
affect the numbers. The other thing is, is if you have an accepted offer on a place, do not go
charging your furniture on a credit card right before closing. So you do want to keep an eye
on that and not make any big decisions without thinking it through.
What about when you start approaching lenders?
Yeah, so you do want to shop around a little bit to find out what the rates are. It does involve
a lot of paperwork. I will say it's a lot more daunting the first time, but once you've got
everything pulled together, it's not that hard to shop around a little bit.
And that 1/2 a percentage point, a 1/4 percentage point can really make a big difference
over the long term. So do your research. Some of them have different lending criteria and so
you do want to get a couple of different options. It's an investment of time, but it can really
pay off.
So let's dig into some numbers. I want to check my notes. The median cost to buy a home in
the US is over $400,000, and depending on where you live, it could be even higher. So let's
say I'm looking to buy a home around $450,000. Brass tacks, how do you make that a doable
reality for yourself?
Piece by piece and step by step. If you're going to aim for the 20%, for example, $90,000 is
20% of $450,000. If you do $1,500 a month set aside, then that'll get you to your $90,000 in 5
years. If that number terrifies you and you're aiming for the 10%, then you can do $750 a
month.
Everyone's going to have a different situation and don't forget to change it over time. So if
you get a promotion, don't spend that on more dinners out. Make sure you up the numbers
for yourself and that'll put you in as good a position as you can be. Do the upfront research
now.
So sign up for alerts in the communities that you want to buy. And then you can start to see,
are these properties going for above what they're asking, below what they're asking? And
that helps to give you a real gauge on the market so that when it comes time to buy, you're
not hitting a panic where you're going, wait a minute. Am I selling myself short?
Am I offering enough? Am I offering too much? So get that upfront research so you're really
prepared when it's time to move.
Yeah. I think also too, being your own best advocate. We always waited for the realtor to tell
us something, when you could do it yourself. Some people, when they think about that big
chunk, they look to their retirement accounts to fund some of that. How do if that's the right
move, the wrong move? What's the deal there?
As with everything else, there's no one-size-fits-all and a universal answer. What I would say
is that some people do look to their retirement accounts for the money. The big watch out
there is that if you leave that company, a lot of companies do want you to repay that loan
immediately when you leave.
So that could be a really big challenge if you got laid off and then suddenly had to pay it back
in one lump sum. So if you go in with your eyes wide open, it's not a never, it's something
that I would definitely look into all of your options before going there. And if that ends up
being your best option, then you certainly can do that.
OK. All right, so you've set your budget, you've got your timeline, and you want to find your
dream home. I know for me, my husband didn't do this but I did, we'd look at a house, it was
great. It had all the things we wanted so I would say, oh, we could probably afford just a little
bit more. We could do that. So how do you make sure you get the house you want, without
blowing the budget and the bank?
I like to dispel this notion of dream home, because the reality is, is very few people can buy
their dream home the first time, or frankly, ever. That said, you do want to set your sights on
something that's going to work for you. So maybe it's a location.
Maybe you haven't had children and you can start small and then plan on adding it on over
time. But you're going to have to compromise something. I mean, I think about the first place
I ever bought. It had a maroon carpet, knotty pine behind the fireplace.
Nice.
Laminate countertops and laminate flooring. It was not pretty--
But easy to clean.
Exactly. Exactly. I didn't feel too badly if someone spilled a little. But the reality is, is that
enabled me to buy equity and then buy the next place, which also had a lot of compromises.
And over time, I was so glad that I did. Even when my mom or someone else was like, oh, are
you sure this is the right one? And I don't blame them.
But the reality is, is that it was very different when they bought a place in the 1960s or '70s
than it is 20 or 30 years ago, or today. So you've got to trust yourself. Get prepared, and
that's going to put you in the best position possible.
OK, so if we're leaving folks with one overarching or final thought, what would you want that
to be?
I would say that don't let fear paralyze you. So do your research. Make sure that you
understand what is it going to take? What are your options?
And inaction can be your enemy. Because let's say there's a big market crash and a place
you've been driving by and looking at is available, if you haven't done any of those steps, you
can't seize the moment. And so take the time to do it. Don't let fear drive your decisions and
you're going to be much more confident if you're ready.
Awesome. Meredith Stoddard, thank you so much.
And thanks for your time.
And we have even more resources for you on Fidelity.com/MoneyUnscripted, like tips on
making or accepting an offer and figuring out which type of mortgage might be right for you.
Be sure to like, follow, subscribe to the podcast, and we'll see you next time on Money
Unscripted. It's your life, get your money's worth.
[MUSIC PLAYING]
Footnotes and disclosures
National Association of Realtors, February 2023
Federal Reserve Bank of St. Louis, Q4, 2023
Information presented herein is for discussion and illustrative purposes only and is not a
recommendation or an offer or solicitation to buy or sell any securities. The views and
opinions expressed by the Fidelity speaker are his or her own as of the date of the recording
and do not necessarily represent the views of Fidelity Investments or its affiliates. Any such
views are subject to change at any time based on market or other conditions, and Fidelity
disclaims any responsibility to update such views. These views should not be relied on as
investment advice and, because investment decisions are based on numerous factors, may
not be relied on as an indication of trading intent on behalf of any Fidelity product. Neither
Fidelity nor the Fidelity speaker can be held responsible for any direct or incidental loss
incurred by applying any of the information offered. Please consult your tax or financial
advisor for additional information concerning your specific situation.
This podcast is intended for U.S. persons only and is not a solicitation for any Fidelity product
or service.
This podcast is provided for your personal noncommercial use and is the copyrighted work
of FMR LLC. You may not reproduce this podcast, in whole or in part, in any form without the
permission of FMR LLC.
Maria Castillo is not employed by Fidelity and did not receive compensation for their
services.
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