Class is back in session!
In this special ‘Study Hall’ episode, I’m breaking down one of the biggest decisions you’ll ever make––home buying. We’ve packed this episode with some of our best conversations on renting vs. buying—including insights from Ramit Sethi, Kate Wood from NerdWallet, and Redfin’s Chief Economist Daryl Fairweather. Whether you’re trying to decide if homeownership makes sense for you, want to better understand mortgages, or need permission to not buy a house right now, this episode is your comprehensive guide to one of life’s biggest financial moves. Let’s bust some myths, talk strategy, and help you decide what’s right for your real life—not someone else’s version of success.
Key takeaways:
Emotional readiness matters just as much as financial readiness.
Tori shares her near-purchase story, highlighting how she was financially approved to buy a condo but ultimately realized she wasn’t emotionally prepared. Living far from community, facing long commutes, and being disconnected from her desired lifestyle made her recognize that readiness is about more than money—it’s about alignment with your life goals.
Renting is not “throwing money away.”
Both Tori and Ramit Sethi challenge the shame around renting. They emphasize that renting can often be the smarter financial choice—especially in high-cost cities—because it offers flexibility and the ability to invest the difference rather than sink it into a home with hidden costs.
A bad HOA can become a money pit.
Tori’s final dealbreaker was discovering the condo’s dysfunctional HOA. She warns that high HOA fees can drain your finances while providing little to no value, and underscores the importance of thoroughly vetting any HOA before buying a condo.
You need a realtor who’s truly on your side.
Tori reflects on working with a realtor who didn’t advocate for her or understand her needs. The lesson? Don’t work with someone just because they come recommended—choose someone who listens, negotiates, and truly supports your goals.
Homeownership isn’t always a wealth builder.
Ramit Sethi breaks down why buying a home isn’t automatically a good investment. From phantom costs to inflated prices and lifestyle limitations, he argues that for many people, especially in urban areas, renting and investing elsewhere is often the better financial decision.
Know your loan options and plan ahead.
Mortgage expert Kate Wood outlines the different types of loans (conventional, FHA, VA, USDA, jumbo) and stresses the importance of early financial prep—especially for self-employed borrowers. She encourages listeners to clean up credit, document income meticulously, and shop around for the best rates.
Notable quotes
“We very much associate our net worth with our self-worth, and if we haven’t hit a milestone like homeownership by a certain age, we feel like we’ve failed.”
“I was not ready to own a home, and that’s 100% a valid enough reason to not do something. If you don’t want it, don’t do it.”
“The American dream is a white picket fence… but no one ever finishes the sentence about what happens after you buy the house.” – Ramit Sethi
Mentioned in this episode:
What You Need to Know About Mortgages with NerdWallet’s Kate Wood
Will the Housing Market Ever Get Better? with Daryl Fairweather
How to Talk About Money with Your Partner with Ramit Sethi
How to Live Your Rich Life with Ramit Sethi
Special thanks to our sponsors:
Squarespace
Go to www.squarespace.com/FFPOD to save 10% off your first website or domain purchase.
Rocket Money
Stop wasting money on things you don’t use. Cancel your unwanted subscriptions by going to RocketMoney.com/FFPOD.
Quince
For your next trip, treat yourself to the luxe upgrades you deserve from Quince. Go to Quince.com/FFPOD for free shipping on your order and 365-day returns.
Netsuite
Download the CFO’s Guide to AI and Machine Learning at NetSuite.com/FFPOD.
Masterclass
Get an additional 15% off any annual membership at Masterclass.com/FFPOD.
Indeed
Get a $75 sponsored job credit to get your jobs more visibility at Indeed.com/FFPOD.
ResortPass
Visit Resortpass.com and use code FFPOD to get $20 off your first ResortPass experience.
RESOURCES:
Looking for accountability, live coaching, and deeper financial education? Join the $100K Club
Register for our free investing workshop: https://herfirst100k.com/secrets
Feeling Overwhelmed? Start here!
Our HYSA Partner Recommendation (terms apply)
Behind the Scenes and Extended Clips on Youtube
Leave Financial Feminist a Voicemail
Financial Feminist on Instagram
Take our FREE Money Personality Quiz
Transcript:
Tori Dunlap:
This is the biggest purchase you will ever make. Yes, we’re talking home buying today on Financial Feminist. Welcome back to Study Hall. We started the series a while ago to distill some of the best information you can get on the podcast all in one big episode. And because buying a home is one of the biggest financial decisions you’ll ever make, we thought we’d put together an episode compiling all of our best advice around home buying. After a word from our sponsors, we’re kicking off my “almost bought a home, so glad I didn’t” story and why, at the time, I decided against buying house.
So let me tell you the story of how I almost bought a house and then didn’t. I literally was a day from closing on this condominium. And yes, I’m calling it a house because you know what? In 2022, condos are sometimes the only homes that millennials can afford. So yes, I’m calling a condominium my home, but it was a condo. I was literally a day before closing on this condo on this house, and I backed out, and it ended up being, I think, probably one of the best, if not the best, financial decisions I’ve ever made. This is of course contrary to everything you hear, which is that owning a home, owning property is the American dream, that it is necessary and required to own property in order to feel like you’ve made it. And I’ll talk about this a bit, but this narrative that if you’re renting, that you’re throwing away money.
The first reason I was pursuing homeownership was my parents. My very well-intentioned parents were telling me, “Well, rent in Seattle’s very expensive, and if you rent property, you basically are throwing money down the toilet.” And you’ve probably heard this, right? Renting is throwing money away. And so, I felt pressured to buy a home before I was ready because I heard this narrative from my, again, very well-intentioned parents from society that I needed to own property the moment I could. Now, I financially could have purchased this condo. I had been approved. I was a day before closing on this condo, but here’s a couple of reasons why I’m really glad that sale didn’t go through.
The first thing is that in order to be able to purchase property, I had to go an hour outside the city. The average home price in Seattle now is about $850,000, and I imagine it was very similar in 2016, probably around $800,000, your girl could not afford a house or a condo in Seattle as a 22-year-old right out of college, that was not going to happen, could not do it. So what I had to do in order to be able to view properties I could afford is I had to go an hour outside the city to Puyallup, Washington. If you’re from the Pacific Northwest, you know where Puyallup is, but that’s where I grew up. I grew up in Puyallup. I grew up in Puyallup, Tacoma. And the funny thing about being a 22-year-old and living an hour outside of the city where all your friends live and a 15-minute drive from your parents is that that’s not the life you want. That is not the life you want to live. I was too far away from friends.
I was living at home at the time. I lived at home for the first two or three months of my corporate career and I had a two-hour commute one way because it’s an hour drive, but it’s like two hours with traffic. So I was commuting into work about an hour and 45 minutes one way and then an hour and 45 minutes back home, and I would take a bus to a commuter train, take the commuter train, take the light rail into the city and then walk. That was my commute every morning. And so, the only property I could actually afford was the property that was an hour plus outside the city. Now, I love Puyallup. I love Tacoma. These are the places I grew up. I enjoy visiting them. My parents still live there. But again, with all of the love in the world, I didn’t want to be in my early 20s and hanging out with my parents every single weekend.
It would have barred me the opportunity to get to know my coworkers, to be able to have community, and to make friends in the city. As you all know, I’m a huge foodie. It would’ve barred me the opportunity to go to a lot of restaurants that I love and to go out for drinks after work. And I honestly don’t think Her First $100K would’ve been born in the same way because I thrive off the energy of the city. I was making contacts in the city. Our now COO at Her First $100K, I met at a networking event a couple of years later. That shit wouldn’t have happened if I was living in Tacoma, commuting an hour and 45 minutes one way. And again, all the love in the world, but hanging with my parents every weekend or after work, that just was not the life that I wanted as somebody in my early 20s. The life I wanted didn’t match up to the sort of steps I would’ve had to go through in order to afford that property.
The second reason I’m really glad I did not buy a house was that, again, I couldn’t afford a physical house, so I was buying a condo. Now, there’s nothing wrong with condos except most condos come with this fun little thing called HOA, a homeowners’ association. Now, some homeowners’ associations are great. The homeowners’ association’s job, if they’re doing their job correctly, is to maintain typically the outside of your home. Maybe they’re mowing the for you. They’re picking the weeds. They’re planting things. If there’s a pool or a fitness center, they’re taking care of that, so they’re kind of just the general managers of the property/the complex you’re in. Now, if you are a professional who isn’t interested in mowing their own lawn, who doesn’t have time or just wants to not worry about that, not have the costs or the time commitment of a home, a condo with an HOA could be a great option for you.
However, what my experience was with this particular condo and what I’ve heard a lot of people’s experiences, and literally, as we’re recording this, I said the words HOA, and our podcast producer Kristen gave the face with her thumbs all the way down is that you spend a couple hundred, sometimes like five, 600, $700 for an HOA that does jack shit, that is so poorly managed that you get nothing for that money. And so, speaking of throwing away money, really throwing away money for an HOA that actually doesn’t do any of these things. The biggest reason I ended up withdrawing… I almost said withdrawing my candidacy. The biggest reason I ended up withdrawing my offer the day before we closed is because I heard the HOA was a nightmare. I ended up contacting the head of the HOA, and the gutters hadn’t been cleaned in years, and there was all of this drama. It was like an elementary school PTA club, if there was all this drama of people hating people and people not showing up for meetings.
And it was a couple hundred dollars that I was going to have to be spending every month seemingly on keeping my house and my property and the complex looking nice and maintained and safe. But in actuality, that money was going towards basically nothing. So for a lot of people who aren’t able to afford that house, you might be going, “Okay. Well, I can afford a condo.” You have to really make sure that if there is an HOA requirement for that condo, that they are actually managing that money correctly. But as somebody who has never purchased property and as somebody who especially really didn’t understand fully what an HOA’s job was, the more digging I was doing and with the assistance of my parents, the more I realized, “Oh, this HOA was a nightmare,” and it was actually the biggest reason I ended up withdrawing my offer.
The third and most important reason that I’m glad I didn’t purchase a home was that I was just not ready. I was just not ready to be a homeowner, and this is the one… We were talking about this, Ramit and I. Ramit and I on the previous episode, we’re discussing this emotional readiness to own property, and this is the one that kind of gets skirted. It kind of gets pushed under the rug as not a valid enough reason, but really, for me, this is the biggest reason I’m really glad is that I was not ready as somebody fresh out of college to have a commitment to live in one place, especially again, an hour 45, two hours away from my friends, from my community, from the city I wanted to be in. It was just not a smart move for me.
Financially, it may have been, in theory, smarter, but I would’ve been more miserable. So who knows how much that would’ve financially and emotionally costed me? Her First $100K, the business, would not have taken off that way, so actually, it wouldn’t have been a smart financial decision because this business is now the reason where I am financially, and I didn’t want that commitment. I didn’t want to have to stay in a place for 3, 5, 10, 30 years because that’s a 30-year mortgage. I didn’t want to have to stay locked in a place that I felt like I just didn’t want to be. I also didn’t have the tools or the resources to know how to upkeep my house. I would’ve probably been calling my parents, and that would’ve provided its own emotional issues of maybe my parents becoming resentful, or I wouldn’t have had the same independence in that way.
I was just not ready to own a home, and that’s 100% a valid enough reason to not do something just because it maybe makes sense on paper. If you don’t want it, don’t do it. I know that sounds so obvious, but the amount of cajoling that society does with our financial decisions, it’s like, “Oh, well, this is the smart thing, so do it.” And it’s like, “What if I don’t want to do that? What if that doesn’t fit with the lifestyle that I want?” So I wasn’t emotionally ready to own a home, and it wasn’t the life that I had pictured and wanted for myself to be tied to a place that was outside of the city and the community I wanted to be in with a commitment for years, if not decades. It was just not something I was ready to do.
The final reason I’m really glad I didn’t buy a property is because I didn’t have a really good realtor. I didn’t have somebody who was in my corner. The person I ended up working with was just not very supportive of my vision of what I wanted. I remember going and negotiating for the price of this condo and literally having my realtor go, “I don’t think you should negotiate,” and it wasn’t even like, “I don’t think you should negotiate because other people are sending in offers or it’s really competitive.” It was just like, “Why are you negotiating?” And I was like, “Because I negotiate everything. Why wouldn’t I negotiate if I had the opportunity to?” It seemed like he was more interested in his commission than he was in actually getting me the property that felt right for me, and it was somebody that my parents knew.
So again, my well-intentioned parents were like, “Work with this guy,” but he didn’t understand what a 22, 23-year-old woman was looking for in property. He didn’t understand that. I was not his clientele. So if you are going to purchase property, find somebody that is actually going to be receptive to your needs and your wants, who is a go-getter, who is willing to go to bat for you and fight for you and be assertive. I felt like this person was very passive and didn’t really work to understand me and what I wanted. Honestly, a really good realtor would’ve told me, “I don’t think you’re ready. I don’t think you’re ready to buy a property. Come talk to me in three years.” That’s what a really good realtor would’ve done because he knew I wasn’t ready. He knew I wasn’t ready to be a homeowner.
So you might be sitting here thinking, “Okay. Cool, Tori. But that was… Oh, God, was it six years ago? It was six years ago. That was six years ago. Have you bought property now? No, I still have not bought property. I am a multimillionaire. I have a multimillion-dollar business, and I have still not purchased property for many, many reasons. One, Seattle homes are so goddamn, fucking expensive. If you want a nice two bedroom, two bath anywhere, you’re going to spend at least $850,000, probably closer to a million. And almost every single home, especially the ones worth purchasing or the ones worth pursuing, are going for significantly over asking price because everybody gets in bidding wars. I am in the privileged place where I could afford that, but I am frugal at heart.
And something about knowing that there’s like beautiful Victorian mansions in the Midwest that are like $400,000, but yet there’s a two-bedroom, two-bath, little tiny thing in Seattle that’s worth double that, something about that just emotionally grinds my gears. It’s so hard for me emotionally, mentally to commit to spending that much money for so little. Now, granted, do I want to live in the Midwest? If you’re a Midwest listener and you love it, no worries. I don’t want to live in the Midwest. That is not my life. That’s not what I want. So I get it. It’s part of what you’re paying for, but God, it’s so expensive.
The other thing is I just got back from a year of digital nomading. I’ve always wanted to do that. I’ve always wanted to pack up my stuff in storage, live out of suitcases, travel for a while, and I wouldn’t have had the same flexibility to do that if I owned property. And I’m really, really glad I was given that opportunity. I think the third and final thing, and the reason I don’t own is because I still don’t a hundred percent feel ready to do that. I love Seattle. I think I envisioned myself here for a while, but I also don’t know what a post-pandemic Her First $100K looks like. HFK, our business, blew up in 2020, 2021, 2022. We have been riding the rocket ship since the pandemic.
And so, if we end up shooting a TV show, something that’s in the works, am I going to have to live in Los Angeles for a period of time or New York? Is my business going to take me to different places than Seattle? And I’m not saying I want to leave Seattle permanently, but it might not make sense to own property here while also being in a location for half the year. I don’t know. So do I want to own property more than I wanted to when I was 22? Yes, 100%. If the pandemic did anything to me personally, I wanted to nest so hard. Christine, my best friend, Christine and I literally have made a game out of sending Zillow properties to each other, especially four or five, $6 million properties that neither of us can afford, and it’s just fun. And so, if the pandemic has done anything to me, it’s like the urge to nest has never been higher. I want to own a home. I want to design it. I want to paint it. I want to do all of those things.
But I just moved into a house that I’m renting, and this is my first time renting now in a year and first time renting a space that I really feel like is supportive of the life I have now. I have a separate office, I have a really great kitchen, I have a nice patio, and I’m getting the taste of it now. I’m getting to go buy the dining room furniture, and I’m getting to go to the antique stores and finding unique pieces. And so, I’m getting the taste of that nesting now.
So you’ve heard from me on why I continue renting instead of buying, but why ask one financial expert when you can ask two? After the break, we’re hearing from Ramit Sethi where he talks about being another millionaire who also rents and how he negotiates his rent to make sure he’s always getting the best deal possible.
We’ve had Ramit on the show twice, and both of his episodes are so good. Let’s jump in. One of the questions that I know both of us get asked a lot, we are high earners who are renters, “Why do you rent?”
Ramit Sethi:
Lots of reasons. I love renting. I rent because it fits the season of my life. I moved from one coast to another. It required virtually nothing. I just ended my lease, started another one, and that was great. It is a better financial situation for me. Let me say that again because a lot of people think I just switched from English to Martian. Renting is a better financial decision for me. How can that be? Because as I always say, run the numbers, and in high cost of living areas, for example, Manhattan, LA, et cetera, if you run the numbers, you will discover that renting is often a better financial situation than buying. Here’s how that can work. If you rent, it’s cheaper than buying an equivalent place. For example, when I lived in New York, if I bought the place just next door, same unit, same type of place, it would’ve cost me more than twice as much as I spent renting.
So you know what I did? I took the difference, and I invested it. And over time, you can see in the data that those investments tend to handily outperform real estate. Again, run the numbers because if you’re living in a different city, if you’re living in somewhere in Michigan, for example, it might make better sense to own. And then, just finally, from a lifestyle perspective, I like being able to text someone and have them come and fix any problems. I love that. Yeah. So for everybody listening, I think here are the key messages I would take away. Number one, never be ashamed to rent. Okay? I can afford to buy today, and I don’t.
Tori Dunlap:
Ramit, can you say that one more time? Because I felt shame when I first started because I was told you need to buy a house and that you’re not financially stable until you buy a house.
Ramit Sethi:
You were told as so many people that the American dream is a white picket fence where you own a house in the suburbs, where you have to drive everywhere, where you can’t see your friends unless you drive 45 minutes, and you need more space for your dog, which in turn produces you feeling lonely, low social contact, high maintenance, phantom costs that you never considered, and then somehow, one day, some day, you will magically sell this house for a profit. And then, what? No one ever finishes that sentence. How are you going to actually make money from this? Oh, you’re going to move to Florida, downsize, get sun for the remaining days, and then die. That was not my rich life. So instead, my message is never feel ashamed for renting. You can choose whether you want to buy or not. You should run the numbers. Sometimes it does not make financial sense to buy.
And I’ll also say this, I have nothing against owning. I will own a house one day. I already have the money set aside, and when I buy this house, it will be the biggest luxury purchase I ever make. It will not be an investment. In fact, it’ll be the worst financial decision of my life. I can tell you that right now. Imagine buying a luxury car or a luxury handbag times a hundred or a thousand. That’s what this house will be, and I’ll be totally fine with it. But that is the way I think about real estate, and my investments are totally separate.
Tori Dunlap:
I’ve taken the exact same approach. People have asked me all the time, “Why don’t you own?” And I’m like, “Because the houses in Seattle for a two bedroom, two bath are going to cost you $900,000 and then you’ll be in a bidding war where you’ll have to increase your offer by another 300K in order to get it.”
Ramit Sethi:
You know, it’s funny when you talk about it, and you start to pull on these threads of people’s beliefs in real estate because it’s so fascinating, the only time that you will hear words like generational wealth thrown around is tied with real estate. Why is that? Why is that? Now, real estate has been a good source of generational wealth, but there are other ways to pass on generational wealth such as a large portfolio. That’s one way to do it. You’ll also hear people saying things like, “Well, what about when you get old and you stop working? At least you’ll have a paid off house.” That is true. That’s one way to go. Another way to go would be to have a large portfolio that can pay any rent or even pay for a house in cash in perpetuity. Again, what you’ll find is that people who have bought into this message typically propagated by the National Association of Realtors, one of the groups that I will meet in hell. They have basically taught people that buying a house is the only way to become financially successful.
And because of various structural reasons, housing has gone up in price. That doesn’t necessarily mean it’s a good investment. You can buy a house for 200K, and everyone knows the story about Grandma bought it for 200K somewhere in West Texas, and then 70 years later, she sold it for 500K. Everybody goes, “Oh my God. She made a killing. She made 300K,” but they never really factor in the phantom costs, the taxes, the interest, inflation, opportunity cost of what you could have made in a simple index fund. And so, all I call on for people to do is to get a little savvier about the biggest purchase of your life. That’s the way to look at it.
Tori Dunlap:
Yep, I love that. And for listeners, when he says portfolio, investments, right? Opening either a 401k and IRA, a regular individual investment account, and then contributing money through that or to that over time. And yeah, the way I’ve gone is I’m like, “I can make more money investing and growing my wealth that way. Then, I could be when my roof leaks and I need a new roof.” Speaking of renting, you negotiated your rent in New York City. I don’t think a lot of people realize that you can negotiate your rent.
Ramit Sethi:
I loved it.
Tori Dunlap:
Can you take us through how you approach that negotiation?
Ramit Sethi:
I love negotiating. So I teach people how to negotiate their salaries and how to negotiate fees from their credit cards and bank accounts. So rent is just a natural one because for most people, rent is their largest single expense. It’s a high leverage point, and this is just a typical way that Americans believe that they simply have to accept what’s handed to them, right? Oh, my bank leveraged a $37 late fee on them. Well, your bank works for you. Why don’t you call them up and ask for them to negotiate that? And they will, chapter one of my book. Well, I did the same thing with rent. You don’t simply accept a rent increase. You want to understand the context around it. So my building was quite aggressive. They would always try to raise rent. Of course, they would. It’s a capitalist system. Of course, they’re going to try to maximize their profit.
I get that. No hard feelings, but you need to know that I’m going to maximize my opportunity as well. So I would always have my eye on articles on New York City rent, and I would just file them away. I would tag them, and then when time came for my lease, we’d have a meeting, and they would say something like, “We want to raise your rent X dollars.” So first, I would understand the power dynamic. At a time like this right now, tenants have very low power. Okay, very low. So you try to negotiate your rent. You have low power because there’s a housing shortage and there’s more demand. That’s why prices are going up, simple supply and demand. Sometimes, especially during the 10 plus years I lived in New York, prices were going down. So I would go in there, and I would use my briefcase technique, and that is a whole procedure of how you can present to clients or a boss, and you can negotiate 10, 20, $30,000 raises.
I would say, “I appreciate you. Tell me where you came up with that number,” and they would give me some bullshit. I would say, “Okay, thanks. Now, let me show you my research,” and I would show them that the comps in the neighborhood were down 6% sometimes or flat. And I would say, “So that rent increase isn’t going to work for me. In fact, I would like to discuss a decrease.” Now, landlords will almost never decrease your rent. They play lots of games. If they decrease it, it has to show. So what they would do instead, they would say, “We’ll give you a couple of months free.” I said, “Great, I will take it.” And of course, I took that money, and I flowed it through my chapter five automation system. Some of it got invested, some of it got saved, and some of it got spent on guilt-free spending. This is going to shock people. Over 10 years, I essentially paid the same amount in rent at the beginning and at the end. Let me say that again for… It’s crazy. My rent went up and down.
Tori Dunlap:
That’s incredible. Yeah.
Ramit Sethi:
And that is how rent works. Everybody, listen. Rent does not just go up. Rent is subject to the laws of supply and demand just like chicken. So if chicken prices go up and down and gas prices go up and down, so does housing. The key is you have to ask. My rent went up sometimes, and I accepted it. I would try, but negotiation is a dance, and sometimes it stayed flat and that was fine, and sometimes it went down and I took the win. Over the course of 10 years, it went up and down, up and down, but essentially, it ended up with a slight increase, basically flat.
Tori Dunlap:
Yep. I did the same thing with my apartment. I was at my apartment for almost four years, and in the pandemic, she was telling me she was going to increase my rent. Actually, I did not know it, but basically used the same technique, which I was like, “I have paid on time. I have been a loyal renter. I have been very responsible. And here’s this article and this article that says that rents are decreasing in Seattle, so I would like to maintain my same rent price.” And she was like, “Done.”
Ramit Sethi:
Love that. And that’s a huge win, right? $2,400 a year. There’s a lot of reasons that landlords will negotiate. So one, they like a good tenant, and even one month of vacancy can wipe out an entire year of profit for a small landlord.
Tori Dunlap:
Or trying to replace the on-time, reliable, doesn’t throw a party till 4:00 AM, and trash the place renter that they have right now.
Ramit Sethi:
Yep. And then, you as a tenant have also lots of options. You can offer to prepay in advance. You can sign an extended lease. There are a variety of different things you can do. So again, treat this like you would treat any other negotiation and use some of the techniques that I cover in the book and on my site that will allow you to take this huge part of your monthly expenses and potentially negotiate it.
Tori Dunlap:
Right. And I appreciate that because we talk at Her First $100K when you’re negotiating salaries too is it’s not just the dollar amount or the salary, it’s PTO or flexible time off or an education stipend or a better title. There’s a bunch of things you can negotiate besides salary, same thing with your rent-
Ramit Sethi:
Love it.
Tori Dunlap:
… are those ways that you can get creative in terms of that negotiation. I think that’s really smart.
Now that we’ve talked about the thought process between buying a home versus renting, we wanted to share some information from our episode with Kate Wood, who’s a lead writer at NerdWallet. She specializes in mortgages and other loans, and she’s here to give us the TLDR on everything home buying and the logistics of how to do it.
Can you break down different types of mortgages a listener may get and then a brief summation of what they are and why someone would maybe choose one over the other?
Kate Wood:
Sure. There are a lot of different mortgage types, but sort of like TLDR, almost everyone gets a conventional loan. A conventional 30-year mortgage is by far the most common home loan type in the United States. It’s something like 97% of the purchase loan market, so conventional loans are really common. They’re sort of hard to explain because they’re just like it’s the boring regular one. You can say what it’s not, but it’s hard to say kind of what it is. These are loans that mortgage lenders make. They’re packaged and then resold to Fannie Mae and Freddie Mac who set standards around lending. And so, they can have potentially stricter qualifications because of that need to be resold to these government sponsored enterprises. But if you do qualify, down payment amounts are as low as 3%, and they tend to have attractive interest rates. There are a lot of reasons why conventional loans are the most popular in addition to just their sort of default.
If a lender offers mortgages, they definitely offer conventional loans. It’s just that’s kind of how it is. There are a bunch of different options of government-backed loans though that depending on your priorities and your background and where you’re looking to buy might work for you. FHA loans are backed by the Federal Housing Administration, and so because they have that assurance of this government agency backing them up, the lending standards can be potentially a little bit more lenient. It’s not always the case since even though HUD sets the guidelines, individual mortgage lenders get to say, “We’ll lend to you or not.” But in theory, you can qualify for an FHA loan with a lower credit score, and depending on your credit score, you can potentially make a down payment as low as 3.5%.
VA loans are backed by the Department of Veterans Affairs, so these loans have excellent terms. There’s no down payment required, there’s no mortgage insurance required, but they are not open to everybody. You need to be a current or former service member or a spouse. So if you have a military affiliation, these could be a really good option, but if you don’t, no one’s probably going to enlist just to get a VA loan. There are other choices out there. Another one that’s pretty uncommon, but I think mostly because a lot of people don’t know about it and they can be a little bit harder to find, not a ton of lenders offer them, the USDA, the U.S. Department of Agriculture also does home loans. So they insure some home loans, and then they actually give some home loans that are made directly by them, and they generally have geographic requirements that it needs to be in a rural area, but if you use the zip code lookup on their site, you might be surprised what qualifies as a rural area.
You can be pretty suburban or exurban, and it’ll be like, “Yeah, it’s a rural area. That counts.” They can also have income restrictions depending on the type of loan that you’re looking for. And then, I would say the other sort of biggest type to know about just that are out there are jumbo loans. They’re pretty much what they sound like. Fannie Mae and Freddie Mac set limits on conventional loan sizes. If, for whatever reason, you need a larger loan than that, either because you are just purchasing a really expensive property or you’re in a place where purchasing a really expensive property is your option, regardless of its size, you might need a loan that is bigger than their underwriting standards. And so, then you need to look for a lender who will do a jumbo loan. There’s stricter lending standards for that just because it’s a lot of money to deal with. They usually ask for a bigger down payment. It varies. There’s not a rule, but it’s generally more like a 10% down payment.
Tori Dunlap:
Okay. So can we break down even further for a listener who’s like, “I’ve heard what a conventional loan means,” but when we say a conventional loan, you and I know 30 years, but can we break down what that means? So if you buy a house today, what does that process look like with a conventional loan?
Kate Wood:
Well, so one thing to know, so 30-year conventional is the most common, but it doesn’t have to be a 30-year loan to be a conventional loan. 30 years is the most common term just because it’s generally a loan for a very large amount of money. You’re buying a house, and so splitting it out over the longest possible period of time. Right now, in the United States, 30 years is the longest term you can get, and that’s what most people go for. But you can, depending on the lender and depending on what you need, you’ll see 20-year, you’ll see 15-year, you’ll even see 10-year.
Tori Dunlap:
My parents did 15 on their house. I remember them telling me that because they tried to pay it off sooner. They either, I think, started with a 30 and then refinanced, I think, to a 15, or they started right off the bat at 15 and were just like, “You know what? We’re going to try to pay this off as soon as we can.”
Kate Wood:
Yeah, I mean, depending on your priorities, particularly also if you’re older and you’re looking toward retirement, you might really be prioritizing not having a mortgage once you’re retired, which I totally get that. That makes sense. So there are different reasons that you might want to do different things in terms of choosing your loan’s term, but in general, 30-year conventional is by far the most common. In terms of steps to getting a mortgage, so for me, the first thing would be really backtracking to you’ve decided that you want to become a homeowner, right? You’ve decided that that’s in your future, that’s part of your plan, and it’s not necessarily right now, it’s in a year or two or even five. That’s a really good place to get started because before you’re taking it to that level of, “I’m looking at houses and I’m talking lenders and this and that,” you want to make sure that your financial house is in order, your metaphorical financial house.
So if you’ve got anything going on on your credit reports, if there’s something incorrect in your credit reports that you need to fix, if there’s something that you can improve, do it. Go ahead and do it. If you’ve got debts that you can pay down, go for it. If that’s possible. Try not to take on new debt. If you finish paying off your car, just keep driving it instead of getting a new one. Try to avoid opening new lines of credit. Really, just kind of get yourself in shape where then when you’re actually going to a lender, you’re a really well-qualified candidate and you’re someone where they’re like, “I want to lend her money.” So that’s sort of your ideal scenario because when you are ready to start looking at homes, your first step, and I’m sorry, because I know looking at homes is really fun, not even in person, just recreational online home browsing.
Tori Dunlap:
That’s been my hobby/activity during quarantine for the past two years is my best friend and I have sent Zillow listings back and forth to each other, and especially for the $10 million houses we cannot afford, it’s just very exciting.
Kate Wood:
Oh, yeah. No, it’s fun to creep on people’s houses, right? So I’m sorry that this is not the next step. The next step when you are really serious and you’re actually going to buy a home is to start talking to lenders and look into mortgage pre-approval. And that hasn’t always been the case. It used to be. Once upon a time, yes, you would go and look at a house and be like, “I like this. Now, I’m going to figure out the money.” These days, all the money stuff really needs to be kind of sorted and settled before you even start looking. A lot of times, real estate agents won’t take you to view houses if you don’t have a pre-approval in hand. Sometimes sellers and sellers’ agents will ask for that as well. If you’re a financed buyer as opposed to a cash buyer, they want to see proof that you could be able to buy their home, so-
Tori Dunlap:
Well, that’s happening so quickly now too, right? That’s the other thing because I’ve started to tiptoe into talking to a realtor, and he’s sending me listings, and I haven’t done any of the paperwork yet because I’m not super serious yet. But in that conversation, he’s like, “Okay, if we’re buying, you need to have,” because I live in Seattle, “you need to have your stuff together because if you like a house, you have to make an offer on it the moment you like it, and then you’ll have to fight six other people for it.” But that’s the idea, so if you don’t have all your paperwork together and you’re spending at least another, I guess, week or so week in the best case scenario, getting all of that together, you’ve lost the house easily.
Kate Wood:
Yeah. Yeah. You want to have that pre-approval in hand, ready to go to say, “Yes. Hello, home seller. I am making you this offer, and I am good for it. right? This sale, should you accept my offer, this sale would close. I am qualified to borrow at least this much money.” And you can get a pre-approval from more than one lender. It often makes sense to get pre-approvals from more than one lender because you’re not seeing the interest rate that you will be offered or that you will get when you actually apply. But you’ll have an idea kind of of relative to one another what the interest rates might be. And also, different lenders might qualify you to borrow different amounts with that pre-approval. So some of them might be like, “You look a little risky to me. Here’s what you can borrow,” and another one might be like, “Oh, no, I understand what’s going on with you. Here. Here’s this. You can borrow more.” So it’s worthwhile to do that.
And also, another thing that’s important to know with pre-approval is that you are giving the lender not free rein to go through your stuff. You were giving them some permission to look through your finances and actually verify the things that you’re telling them. So this is different than if you see mortgage pre-qualification where it’s like, “Oh, pre-qualify in minutes.” Yes, you can pre-qualify in minutes because you’re just typing in some numbers and then they’re spitting a number back at you, but you could have put in whatever numbers you want, no one’s checking. So a pre-qualification isn’t really meaningful.
With a pre-approval, you’re actually showing proof of income. They’ve got your social security number. They’re going to do a hard credit poll, and so that is going to ding your credit score. But if you do all of them within 14 to, on the outside, 45 days, but really, kind of once you’re on a roll with doing it, it’s like, “Oh, bing, bang, boom. Just keep doing pre-approval applications.” The credit bureaus can tell that you’re shopping, and so they’ll just count it as one inquiry instead of five inquiries. So clump it together, and that’s helpful for you.
Tori Dunlap:
When we come back, we’re finishing out our episode with more great information from Kate and a piece from our interview with Redfin’s chief economist. Stay tuned.
Let’s talk about income. Because I am a self-employed person, I think a lot of people who listen to our podcast are self-employed or 1099s, I think generally, mortgage lenders have seen W-2 income as quote, unquote, “more reliable.” But if I want to buy a house, what are the sort of hoops you have to jump through as a self-employed person? Is there a different kind of preparation? What options do we have as self-employed people?
Kate Wood:
So actually, it’s not incredibly different if you’re working with 1099 income versus W-2s. It’s not like, “Oh, there’s a different type of mortgage for you or there’s something else you need to go for.” The exception would be if you were someone who’s really just starting out, you’re like 19, 20, and so you don’t have a long credit history or if maybe you just came to the U.S. and so you have a really thin credit file. That would kind of be the exception, and that’s really a different situation than just, “Oh, I’m self-employed,” rather than employed by someone else. Generally, if you are looking to buy a home as a self-employed borrower, you want to have been steadily self-employed for at least two years. Lenders can put different minimums on that. Usually, the bare minimum is 12 consecutive months, but having two years of solid reliable income is better.
But more broadly, I’m just making jokes about birthday checks and stuff like that, if you are self-employed, you want to document everything, every single aspect of your business, all your business expenses because that can affect every part of your application. So to whatever extent that you can keep your business expenses separate, that can be helpful because it makes underwriting easier that they can see, “Oh, okay, this is you doing something versus this is the business doing something.” So maybe having a credit card that you only use for business expenses and all the business expenses are the ones from that card, that can be helpful because then, the lender’s not like, “Oh, what’s this versus what’s that?”
Tori Dunlap:
You’re spending $30,000 a month? I’m like, “No, the business is.” Right?
Kate Wood:
Yeah, no, the business is spending it, right? Right. But I mean, that’s because they’re looking at things like your credit utilization, and so you want to be able to be really clear about that. And so, it’s really being assiduous about having not just your 1099s, but paperwork for everything, whether it’s like profit and loss statements, your business license, business insurance. If you have a CPA or anyone who helps you manage your business finances, they might want something as simple as a letter from them, which you then have to go get. But basically, if you have documentation of it, save it. You are probably going to need to share it with your lender.
Tori Dunlap:
I’ve heard about the three-year rule. Is that a myth that you have to have been self-employed for three years in order to qualify for a mortgage?
Kate Wood:
So usually two like having two continuous profitable is helpful. Where it gets trickier is if they start asking you to try to predict the future. So if they start being like, “Well, you’ve had solid employment these past two years, but is there going to continue to be a market for this,” and that’s-
Tori Dunlap:
You’re like, “I hope so.”
Kate Wood:
Right? Yeah, you obviously hope so, but that can get extremely subjective. And in that kind of case, that might be why. So if you are self-employed, look for lenders who specialize in helping self-employed borrowers once you actually go to the trouble to advertise that fact or if you’re looking like… Depending on the lender, sometimes you just kind of get thrown onto whoever, but sometimes you can choose your loan officers. Loan officers will often specify if they have any kind of expertise or experience working with self-employed borrowers. So being on the lookout for that because that means that it can potentially go faster, not just because they’ve seen this stuff before, but also they can look at what you have and alert you to like, “Oh, you know what, if you want to get approved, you should probably get this thing too,” and that can be really helpful.
Tori Dunlap:
We know that home buying is so much more than a practical purchase. It’s also an emotional one. In our final clip, we’re talking to Daryl Fairweather. She is Redfin’s chief economist, and we’re talking about home buying in this new era.
You’ve had some articles talking about how do we think about home buying in this new era. So if somebody does want to buy in the next few years, how do we get them in a place where they can even think about that? But also, what are the steps that they need to take to actually make that happen?
Daryl Fairweather:
I mean, I think the first step is to do some financial planning in a broader sense and think about what is important to you when it comes to homeownership. Even if you are at a place where you’re not earning enough money to own a home in your dream neighborhood, if owning a home is something that’s important to you, you might want to consider just more geographic areas. There are places in the country still where you can get a cheap home, so I think expanding your mind in terms of the geography can be a way to get into the housing market sooner. But also, another way to get into the housing market to think about it more big picture is to think about, well, how much money would you need to earn to be able to afford that house that you want, even counting for how that home might go up in value, and then what do you need to accomplish in your career to get to a point where you’re making that much money?
And then, being actually realistic, well, if you were making that much money, would you even still want that home, or is that the point where you decide, “I don’t need to live in the city anymore. I can actually move somewhere much more affordable because I’m at this point in my career”? So I think people can get really down on themselves because they can’t afford a home, but they wanted at this very moment in their life. But I think if people start to expand their mind in terms of where they would want to live or what point homeownership would make sense for them or what’s more important to them, living somewhere where they could earn a really high wage versus living somewhere where they could have a really affordable home, thinking about that more big picture might help people feel more certain with what they’re deciding.
Tori Dunlap:
Yeah, I’ve done many, many episodes on this show of I’m infamously a multimillionaire who rents, and I’ve talked about that. Homeownership is not just about the financial choice or if it makes sense financially. It’s also about does that align with where you’re at in your life and what you actually want. I keep picking on Seattle, but the only home I could afford for a long time was in Tacoma or was in Auburn, which is an hour outside of Seattle. When I was in my 20s, that was not the vibe I wanted. I didn’t want to visit my parents every weekend.
And so, yeah, it’s not just about your financial choices. It’s also about how is this going to affect your friendships and your social life and where you want to be, and I don’t think I would’ve started my business had I not lived in the city where there was networking events and where there was other people doing similar things to inspire me. And so, there’s just a lot more that goes into the home buying process and determining whether or not you want to be a homeowner than does the math make sense or can I make the math work.
Daryl Fairweather:
Yeah, absolutely. I agree with that. One of the biggest things is just, do you actually expect to be in the same place for the next five years? If you want to be open to a new job in a new city or, I don’t know, moving in with a partner in a new city or whatever it may be, you probably aren’t ready to buy a home because usually, the math only works out for it to be financially beneficial if you are going to stay in the same place for five years. So I think that’s the first question is just do you even want to lay down roots in that way at this moment?
Tori Dunlap:
Yeah. You mentioned something that we encounter a lot in our community and I think is actually the number one thing financially that holds people back is this attachment of like, “If I haven’t met X goal by a certain age, I feel like I failed.” We very much associate our net worth with our self-worth if we are not as financially well off as we think we should be. It’s very easy to feel like a failure. And I think especially with homeownership and especially in America, there is just this idea of you’re not an adult unless you own a house, or you haven’t made it unless you’re a homeowner. But for most people right now, that’s completely out of reach. So can we maybe talk about a bit of the psychology or a bit of the emotional stuff that’s going on when you are trying to purchase a home, but you’re thinking to yourself, “Gosh, I don’t think I can afford this. Have I failed? I’m such a failure”?
Daryl Fairweather:
Right. I mean, that’s a very deep thing to unpack. I think what is kind of at the heart of what you’re getting at is people expecting to meet these external markers of what success is, and I would encourage people to look internally and think more about what they actually value and whether they’re hitting the things that are important for them. I think the dream of homeownership is a very American dream and something that most likely is coming from societal pressure or family pressure. So I think kind of dividing that pressure or acknowledging it and then thinking about, “Well, are you hitting the other goals in your life that you set for you? And if you really had to choose between, say, I don’t know, being a homeowner or accomplishing whatever other thing that you are prioritizing in your life, which one is more important to you?”
I think usually, people will find that the reason they haven’t bought a home yet is because it’s actually not that important to them yet or at least not important enough to spend as much money as it costs, which is the reality. It’s not like you live in the world that your parents lived in where homes were lower priced. I mean, they had different challenges obviously, but home prices have gotten really expensive in major metropolitan areas, which is a real barrier. If you’re trying to advance your career in one of those major metropolitan areas, you don’t really have much of a choice of where to live.
Tori Dunlap:
Thanks for being here as always, Financial Feminists. Do you feel smarter? Do you have more questions about home buying? We would love to hear from you. You can leave us a voicemail at speakpipe.com/financialfeminist, and if you’re listening on Spotify, you can drop a comment below. Thank you as always for being here. Thank you for supporting feminist media. Feel free to leave us a review. Rate us five stars. Share this podcast with somebody who needs it. It’s the easiest way to continue supporting this free resource. We’ll see you back here soon. Thank you so much. Bye.
Thank you for listening to Financial Feminist, a Her First 100K Podcast. For more information about Financial Feminist, Her First 100K, our guests and episode show notes, visit financialfeministpodcast.com. If you’re confused about your personal finances and you’re wondering where to start, go to herfirst100k.com/quiz for a free personalized money plan.
Financial Feminist is hosted by me, Tori Dunlap. Produced by Kristen Fields and Tamisha Grant. Research by Sarah Sciortino. Audio and video engineering by Alyssa Midcalf. Marketing and Operations by Karina Patel and Amanda Leffew. Special thanks to our team at Her First 100K, Kailyn Sprinkle, Masha Bakhmetyeva, Sasha Bonar, Rae Wong, Elizabeth McCumber, Daryl Ann Ingman, Shelby Duclos, Meghan Walker, and Jess Hawks. Promotional graphics by Mary Stratton, photography by Sarah Wolfe, and theme music by Jonah Cohen Sound. A huge thanks to the entire Her First 100K community for supporting our show.
Tori Dunlap
Tori Dunlap is an internationally-recognized money and career expert. After saving $100,000 at age 25, Tori quit her corporate job in marketing and founded Her First $100K to fight financial inequality by giving women actionable resources to better their money. She has helped over five million women negotiate salaries, pay off debt, build savings, and invest.
Tori’s work has been featured on Good Morning America, the New York Times, BBC, TIME, PEOPLE, CNN, New York Magazine, Forbes, CNBC, BuzzFeed, and more.
With a dedicated following of over 2.1 million on Instagram and 2.4 million on TikTok —and multiple instances of her story going viral—Tori’s unique take on financial advice has made her the go-to voice for ambitious millennial women. CNBC called Tori “the voice of financial confidence for women.”
An honors graduate of the University of Portland, Tori currently lives in Seattle, where she enjoys eating fried chicken, going to barre classes, and attempting to naturally work John Mulaney bits into conversation.
