When you’re broke, and spend your free time dreaming the American Dream of homeownership, the idea of closing on a house seems about as real as an oasis in the desert.
So you continue to daydream about the future while wasting money decorating your rental, buying nice clothes and eating out several times a week. You feel better about where and how you’re living today, because you’ve created a nice-looking home for yourself.
But if your real goal is to become part of the “ownership society,” and buy a place of your own, your ship is turned in the wrong direction. You’re actually moving further away from homeownership.
Feathering someone else’s nest is often misplaced money management. And it happens so quickly, and so silently, that most wannabe home buyers aren’t even aware that they’re moving backward instead of forward.
How do you right the ship and turn around yourself around? You have to bring the “future to the present.”
Bringing the “future to the present” is a phrase my friend Michael Alter likes to use when working on closing a sale in business. Alter, who is president of a fast-growing online payroll company called SurePayroll (www.surepayroll.com), likes to lay out the path, so he knows what steps have to be taken to get the deal done, which hurdles have to be overcome, and who the real decision maker is in any business deal.
The methodology involves asking a lot of pointed questions that begin with “If this happens” and end with “Then what.”
Buying a house requires home buyers to ask a lot of these kinds of “If-then-what” questions. For example, let’s say you have a $15,000 car loan and $2,000 of credit card debt, and you apply to get preapproved for a mortgage. The lender says that your debt-to-income ratios are a bit out of whack. In other words, the monthly debt service on what you want to buy is more than you can afford a common obstacle for first-time home buyers.
If you’re using “future to the present” logic, you might say to a mortgage lender, “If I can pay off the $2,000 of debt, then what will you need to approve me for the loan?”
The lender might say nothing more is needed, or he or she might suggest that you beef up your cash reserves. At which point you would say, “And if I bring up my cash reserves, then will you be ready to approve me for the loan?” And so on, until the lender says there’s nothing left to do and the loan is approved.
Bringing the future to the present allows home buyers to eliminate potential obstacles to a deal and get it done. It allows pre-buyers, those who are still in the dreaming stage, to organize their thinking and figure out what kinds of steps they need to take to achieve their goal of homeownership.
Which is what Sandra, 26, needs to do. Sandra works full-time in Portland, OR and wants to buy her first house. Housing prices in the metro area are affordable, but she wasn’t sure how to begin thinking about buying a house when even modest 2-bedroom bungalows seem out of her price range.
So instead of taking actual steps toward achieving her goal, Sandra started sending friends and family links to various homes for sale in different neighborhoods.
In bringing the future to the present, Sandra has to think about how she can translate her rent payment into a mortgage/taxes/insurance payment. She also has to work out how she is going to reduce her credit card debt enough so that she can take on as large a mortgage as possible.
She also has to think about maintenance and upkeep, which neighborhoods are going to provide good price appreciation but allow her to feel safe at night, and whether her next career move (either up the ladder or off to graduate school) will allow her to keep afloat financially.
Where should she, or any first-time buyer, start? If you have debts that you cannot pay off today, you should probably sit with a credit counselor for a free budgeting session. The counselor will go over your monthly expenses, and show you places you may be able to cut back. Then, you should start paying down your revolving debts with the savings.
Once your debt load is under control, find an honest mortgage lender who can work with you to maximize your earning power. Work with the lender step-by-step in order to resolve each issue before it becomes overwhelming.
The next step is finding the right house, resolving all of those issues that come up, building the best home-buying team and ultimately closing on the property.
Bringing the future to the present isn’t a magic answer. You won’t buy your dream house overnight. It may take weeks, months or even a year, depending on how complicated your life is today.
But focusing on the step you’re standing on and what has to be done to get you to the next step will get you turned in the right direction.
And that’s the first step toward achieving your dreams.