Money Donuts® Episode 2: Home Loans Are Easy

James:
Welcome back. Welcome back. Welcome back to the second episode of Money Donuts from Royal Credit Union. I'm James, and with me is Cooper and Steve. Today, we're going to talk about something completely different than what we talked about last time.

Steve:
Donuts?

James:
Home loans. Before we get started, though, I need to talk about the donut that goes along with home loans. This is a donut that's near and dear to my heart, something that if you had to choose just one donut, this would be a top contender for me. It is the jelly donut. Why is it the jelly donut?

Steve:
Jelly.

James:
Jelly donuts and mortgage loans are exactly alike.

Steve:
You live in both of them. Why are they alike?

James:
There's this feeling that the process of getting a mortgage or a home loan can be so messy you'll end up with pieces flying everywhere. There's so much information you need to gather. There's a bunch of steps to the process. But the reality is, at the end of the day, it's good stuff. It's easy. It's not that hard. And it's delicious. To go along with that, let's take a minute and just talk about the home loan process at Royal. Is it easy? Is it hard? Do you actually have to do a lot of stuff?

Cooper:
As far as I'm concerned, I'm pretty sure it's a pretty easy process. You go in online, make an appointment at an office, give them some information, and Royal takes it from there.

Steve:
Also, the nice thing is you can apply online.

James:
Yeah. Without ever talking to someone in person, it's cool to be able to do it at your own pace, read up as much as you want. Because there's so many other online resources about home loans this and home loans that. To really the very first step to the process is doing your application with Royal Credit Union. You can do it in person, or you can do it online from rcu.org. There's a lot of different ways to complete the application. And then once you submit your application, we can help you get pre-approved.

Steve:
If you apply online one of the things you have to do is upload some documentation to verify your income.

James:
That'll Help you know your budget so you're not looking at homes that you can't even afford. Then comes the fun part.

Cooper:
Home shopping. It's like the best part of getting mortgage, right?

James:
Yeah. And then once you do find that perfect spot or maybe not so perfect spot that you want to fix up, make a perfect spot. Then it's just a matter of putting in an offer, getting an accepted offer from the seller on that. Then that kicks off all of the behind the scenes work at Royal. You're hands off and you just get to reap the rewards at the end of the day, but there's a lot of loan processing steps that happen after your offer is accepted and you decide to move forward with the loan.

Steve:
We try to make it easy on you.

James:
You get to lock your rate in. You get to review your down payment. You get to work out your exact closing costs. Royal does all these cool things like a title report, flood certification, income and asset review, et cetera, et cetera. Make sure that everything is on the up and up, sit down and have a closing meeting. The end of the day, you get the keys to the house and you're good to go.

Steve:
And once you have your home loan and things change and rates drop. You could always look at refinancing.

James:
Yeah, I think people sometimes forget about that. Even after you sign everything, you have the option to refinance your loan. You can sometimes change the mortgage term, like how long you're making payments for it to adjust your payments. Just know that you're not necessarily set up with it for the next 30 years or whatever. If the rate changes, you can definitely refinance to your advantage sometimes.

Cooper:
Absolutely. It's definitely always worth reaching out to your mortgage loan officer to reevaluate that situation. We always want to reevaluate our finances and making sure we're making smart choices, saving ourself money. Staying on top of that, remembering, can pay off in the long run.

James:
Have you thought about refinancing lately? I know that Steve has. Steve?

Steve:
I have, because we just did. And it was very easy. We were able to do everything online and I was able to just talk with the mortgage lender through email and through the phone and ask my questions that way. And with the market being the way it is and rates being where they're at, it was just a perfect time for us to take a look. And we went from a 30 year loan to a 20 year loan. We cut off some time and our payments are actually less. It really worked out in our favor.

James:
That makes me feel like I should check what my rate even is. I have not thought about my home loan for... It's not something you talk about on a regular basis. It's more of a set and forget type thing. I wonder... I'll have to look in the app and find my loan rate, I think.

Steve:
Today we have a special guest with us, a first time home buyer, Chelsea. First questions first, what's your favorite donut?

Chelsea:
I'd have to go with a glazed donut. You can't go wrong with a glazed donut.

Steve:
It's a classic. All right, I'll give you a real first question of, what motivated you in the first place to become a homeowner?

Chelsea:
I guess it was time. It was time to own a home for my fiance and I. We had been renting for over a year and we really wanted to own our own piece of property and start building equities, so we took that step and bought our first home.

Steve:
Were you hesitant going into the process? What were some of the worries that you had in the back of your head?

Chelsea:
I wasn't too hesitant. I mean, I heard some people have pretty different experiences. I was pretty confident that it would be an easy process and it ended up being an easy process.

Steve:
Can you walk me through a little bit of what the process was like for you?

Chelsea:
We actually applied to get pre-approved online, so through the website. And Sam had filled out the application and within a few days we got a response back from a loan specialist and she contacted us and just asked us for a little bit more information. And we got that information over to her and there were checkpoints throughout the whole process. And then we began our search.

Steve:
Were you looking at houses before you got pre-approved?

Chelsea:
We were. I would look on Zillow pretty much every night and I would send Sam Zillow listings all the time.

Steve:
Did you have a price in mind or were you looking at a whole range of different houses?

Chelsea:
We had a price in mind and it pretty much matched up with what we were approved for.

Steve:
How did you go about thinking what price you wanted to pay for the house?

Chelsea:
Sam and I did walk through a budget together. After we mapped out our budget, we were able to see what we could afford for monthly payments. And what we did is we shared that price with the loan specialist and she then did her magic and got back to us with our pre-approval and it pretty much matched up.

Cooper:
What other key financial steps did you take to be able to buy a house? Do you have any savings tips, anything like that?

Chelsea:
Yes. Let's save, save, save, save. We did save for a while to have that down payment. I would recommend doing that, working that into your budget too.

Cooper:
How did you decide how much you wanted to save for that?

Chelsea:
Basically, we looked at both of our income and we budgeted what our monthly expenses were. And we were able to factor in from that how much we could save each month towards the down payment. We did aim for a goal of 5% down.

Steve:
What do you miss about renting?

Chelsea:
Gosh, nothing. I love just working on my home projects and it's my home. I can update it. I don't know. I don't miss much. Well, I will say I do miss having lawn care provided, now we have to get out there and mow our lawn.

Steve:
And you guys haven't spent a winter in the house yet either. Here comes snow shoveling, right?

Chelsea:
I know we have not yet, but luckily I was gifted a snowblower from my dad. Hopefully we're set up for the winter season.

Steve:
Any interesting stories that you're going through when looking at houses that came up?

Chelsea:
When we closed on the house. The day that we closed on the house, we were handed the keys and immediately went over to the house and couldn't get the front door open. We were like, this is pretty odd, I'm sure we just bought it, the keys should work. We ended up at, well, we actually used the garage key for the front door so that's where we had got that mixed up. But our first night in, after we figured out which key worked, we ended up locking the keys inside the house as well. Sam shimmied up the deck and had to work his way into the deck door and eventually got in. But a good start for our first night in our first home.

Steve:
It's not truly your house until you have to break into it, I think. Was there any tips or tricks that you learned from any of your friends to look for when buying a house or shopping around for a mortgage?

Chelsea:
Yeah. I would say stick to your budget and stick to your wishlist. Don't budge on your wishlist, the house pretty much has to be perfect when you're buying something that big and expensive. You want to get what you want.

James:
You weren't willing to do fixer upper, make any changes after you bought it, you were looking for everything to be move-in ready?

Chelsea:
Pretty much. Yeah.

James:
Yeah. That makes sense. Less work, I guess.

Steve:
When James bought his house, he found that the floors were on a slant.

James:
I don't know that I really thought about it at the time. I was like, oh, it seems good. But later on the kids' toys all rolled downhill to this one spot. It's entertaining, but sad at the same time. I would definitely change some things if I could, but...

Steve:
Was there any other things that you learned along the way that you were maybe surprised about?

Chelsea:
Yeah. I was actually surprised how organized the whole process was. Going into buying your first home, you don't really know what to expect or the types of information that you need to provide. And Royal actually provides a checklist for each milestone. As you get through a milestone, they'll update you with an email and the next step. I knew what to expect through the whole process which was super nice. And I was actually surprised it was easier than I thought.

Steve:
Does it sound like Chelsea did all the right things when buying a house?

Cooper:
Yeah, absolutely. I mean you budgeted, which, oh my gosh, having a budget is first step to anything financial and then you saved, you figured out a savings goal. Did you take any... One thing that we talk about a lot is smart goals, breaking down a goal into baby steps. Did you break it down into any other baby steps besides that 5%, knowing what you could spend? Did you do anything else? Did you cut any... Did you cut out coffee every day? Did you do any of that type of thing?

Chelsea:
I think Sam did more so than I did. I still bought the coffee, but you know what, we got to our goal of the 5% down in the long run. But it's really just mapping out your budget and sticking to your savings goals.

Cooper:
What was the hardest part of your budget to stick to?

Chelsea:
Probably the extras like the fun and entertainment budget. When you're buying a house, you might not necessarily be able to go out to dinner as much as your did and it was hard to stick to, but cooked home cooked meals for a while there and got to where we wanted.

James:
Did you put aside any money for after you moved in, like knowing, okay, we're going to need to get some furniture or anything like that?

Chelsea:
That we did not. That is now one of our budget goals currently. We have pretty much a furniture set for each room, except our second living room or family room. Came after the fact but we are saving for that.

Cooper:
You fully unpacked now? I mean, I know people who buy a house and two years later, they still haven't unpacked.

Chelsea:
It's mostly how I want it. Things are organized within the kitchen and our bedrooms, but I do have one room where there are boxes and boxes that I still have to go through.

James:
I'll say from my own experience, I'm recording in the closet that still has boxes in it from when we moved in seven years ago. Some of those boxes may never get unpacked. Someday you'll get through them, but I have not gotten through all my boxes yet.

Cooper:
You know, I am someone, I still rent. Do you have any advice for someone like me?

Chelsea:
I think just doing your research ahead of time. And really, like I said, creating your budget and mapping things out, even getting to the searching part. Starting our home hunting, just getting that all mapped out ahead of time, it felt good and prepared us for it.

Cooper:
Was there anything in the house, so either in this house or any of the other houses you looked at, that you were just shocked or surprised, or just terrified by? Like a lime green wall or a trap door under the kitchen rug. I don't know. Something like that.

Chelsea:
Yeah. We did tour a house and it had pretty much everything on our wishlist, except the kitchen was as narrow as a hallway. And I was thinking, gosh, this is just not going to work. And I don't know if I want to sacrifice the rest of our wishlist for a kitchen that you can't really move in. That was pretty shocking. But then we found this one and worked out.

Steve:
What was the biggest on the wishlist for you and Sam?

Chelsea:
I would say a finished basement. Sam's pretty handy, but I think tackling a whole basement to refinish is quite the project. Luckily this one had the finished basement.

Steve:
James what was on your wishlist?

James:
My wishlist was a mile long, Steve. You have the, have to have column the nice to have, and then the icing on the top or the cherry on top column, for sure. For me, the garage being attached was in the nice to have column. And then the cherry on top is if it's three or more car. I ended up with a compromise. It's a two and a half-ish and it's definitely attached so that's been very nice in Wisconsin weather.

Steve:
Cooper, what would your top wishlist be when looking for a house?

Cooper:
Ooh, a kitchen. I want a kitchen island, a big one. I like to cook and bake so having a nice kitchen is a big deal for me and a place to actually store stuff. I don't really... I have one cupboard right now in my apartment that I can actually fit plates in that's big enough. And it's an awkward cupboard anyway, so a nice kitchen. Steve, you own a house, did you have any wishlist items? I feel like you might be a compromiser?

Steve:
Why do you say that?

Cooper:
You're just so nice.

Steve:
I must agree with you though. We have a dog, so we wanted to have a sliding door out the back so that we didn't have to walk her out. And it could have been a fence in yard, but we just, we went with that instead. And I wanted a big backyard that the kids could play and we ended up getting a huge backyard. It's fun, tough to mow, but fun to play in. All right, Chelsea, thanks for taking your time and talking with us. And hopefully our listeners got a little bit of information that they can take out and use when they're looking to buy their first home.

Chelsea:
Great. Thanks guys.

Steve:
I want to thank Chelsea again for taking her time and sharing her story with us. Cooper, do you have any tips for our listeners who might be looking at getting a mortgage or looking at refinancing?

Cooper:
Number one financial tip for any type of loan, not just mortgages is, get pre-approved. It is no fun to start shopping and then not be able to spend what you were hoping to spend. It goes for cars, goes for houses, get pre-approved. Figure out what you're working with first.

James:
That's a great tip. I know depends on who you work with. If you're working with a realtor or if you're just looking at houses yourself, but I had the experience... Our realtor started at the very bottom of the available home prices. By the time we got to the middle, we're like, okay, okay, do we need to look any farther? And then luckily we didn't have to look any farther, so that's a good tip. Question that I think comes up a lot is, do you need a big down payment? What am I trading when I trade? When I have that, you always hear the 20% number thrown around a lot. What do I get if I have a 20% down payment versus what do I lose or what am I compromising on if I have less than that?

Cooper:
I mean, the more of a down payment that you put on a mortgage, the less you have to pay, that's golden rules. You're hopefully going to lower your monthly payment a little bit.

Steve:
Yeah. I wouldn't get stuck into the down payment 20%. There is options for lower down payments, even possibly as low as 3% and other options, you just have to talk to your mortgage lender.

Cooper:
And so I would say, don't let that scare you away from getting a mortgage. I think that that can kind be part of that jelly, that is part of our jelly donut, is that down payment. People get a little scared about the whole process when they don't have that.

James:
Yeah. It's not a hard and fast rule. You don't necessarily have to bring that 20% to the table. Because you're, I mean, thinking about all the unanticipated expenses that you would have when you are purchasing a home, like suddenly now you need furniture. Maybe you have to get more... I don't know. One thing I remember, this is dumb, but one thing I remember is, I was like, oh, we need more trash cans because we have more rooms than we had in our apartment, so just stuff like that. I think-

Cooper:
That's a great financial tip though. Really sitting down and figuring out those little things can make a big difference. Great. You're buying a house, but what do you actually need for that house? Can you afford a new couch? Can you afford a second couch for the basement? Figuring out those little things is helpful.

James:
Going along with that, our home inspector actually was giving us thoughts on replacing different things of the home that he could tell were nearing the end of their life expectancy, like the water heater. He's like, oh, you should probably budget for a new water heater at some point, I'm getting that insight into ... Your water heater is old. It's not going to last much longer. You might as well plan on replacing it as soon as it starts to go bad or whatever. That was very valuable to be able to look at that number as well and say, okay, I need to factor that in and start saving for that now.

Cooper:
Budgets are not permanent. We always readjust them. And when making big life changes, like buying a house, it's a really good time to review that budget and readjust, figure things out, cut back a little, spend a little more in one place.

James:
Is there a feature that you don't think is important when it comes to home buying? Garbage disposal? Totally worthless. Why would you ever put anything in your sink? A laundry chute? If you have... I guess it depends on your laundry setup.

Cooper:
Built-in vacuums.

Steve:
Do you think built-in vacuums are a joke or a necessity?

Cooper:
I feel that having a vacuum in your wall is going to cause more problems than just taking out your vacuum cleaner once a week. Or just get a Roomba. I love my Roomba. His name is Ralph.

Steve:
You named a Roomba, Ralph?

Cooper:
Yeah. You have to, when you set them up.

James:
Was he, Wreck-It Ralph, does he get in trouble soever or is he good?

Cooper:
He gets in so much trouble. He really likes to eat socks and pull phone cords out of the wall. And he tends to get his one wheel stuck under my living room chair. And then he yells about it until I help him.

Steve:
Ralph seems like a troublemaker.

Cooper:
He's the closest thing to having a dog. I secretly love him.

James:
That's all we have for this episode. Remember to give us a like, comment, share, review, whatever on your favorite podcast listening platform and we'll see you again. We'll talk to you again. You'll hear from us again soon.

Steve:
Money Donuts.