Unsexy but practical things to do before buying a house together

After hundreds of transactions working with couples, we've noticed a pattern. The ones who do these 7 things before buying? They love their home years later. The ones who skip them? They're calling us back within 6-12 months wanting out.

In this episode, we're breaking down the unsexy but critical conversations every couple needs to have before making the biggest financial decision of their lives together. We're talking credit surprises, the most awkward conversation you'll ever have with your partner, why the bank's approval number can actually hurt you, and the real story of a family who turned a $270K starter home into their forever property.

If you're even thinking about buying a house with someone, listen to this one first.

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Transcript

Rachael Novak:

[0:41] Welcome back to another episode of the Growth Drivers Podcast. We've got an interesting

one for you today. There have been so many times that we've sat down with couples when they are

looking to purchase a house for the first time together, both married and unmarried, and there's a

lot of discussion that hasn't happened by the time we are conversing with them about it. So these

are unsexy, but practical things to do before buying a house together.

Mike Novak:

[1:15] And I think the reason that people don't have those conversations is because they get caught

up in the fairy tale of buying a house.

Rachael Novak:

[1:21] Of course.

Mike Novak:

[1:22] Like buying a house, like that idea. Is very, very fun. And so it's very normal when you're

going through something that is fun to not consider like, you know, one of the downsides, the reality

is the risks that I'm taking as I'm doing this. And so I think our goal is to kind of shine some light

from that perspective, right?

Rachael Novak:

[1:39] Absolutely. And again, like, that's why we're calling them unsexy, but practical things to do,

because whether or not you're married, you're unmarried and purchasing property together, all of

these are super critical. And so, you know, here's what we've seen, hundreds and hundreds of

transactions, hundreds and hundreds of couples that we've worked with, the couples who do these

things up front, like do the work up front, have these hard conversations, address these really

practical and unsexy things, they end up loving the house. The expectations are set. They have

done a great job kind of having mutual expectations on both sides. So we talked to them years later

and they're super happy. They're excited. They were loving their property. And then the ones who

skip it or the ones who, you know, don't have these conversations, don't nail down these things, we

get a call like six months, 12 months later, because one of them compromised, didn't speak up

during the planning process, absolutely hates the house or hates this part of the neighborhood orwhatever it is. And they can't stand living there anymore. And that's what we try to avoid, right? Like

the goal is to get people into a house that works for both of them. The compromises that you make

are.

Rachael Novak:

[2:46] Understandable and good compromises in the way of like, okay, I can live with that. So, you

know, we've seen people sit down and discuss the must-haves, of course. We've talked about

these before. The nice-to-haves. And what we see sometimes as people sit down is they haven't

talked about it at all. The wife is absolutely hellbent on this particular feature of the house or

laundry on the upstairs floor. Husband hasn't even thought about that at all. Or this spouse is like, I

absolutely want neighbors. I want neighbors really close by because when we have kids, this and

that, and the husband's been thinking the whole time, I want acreage, I want space, I don't want to

live by anybody, right? So when you have these like polar opposite visions, it's really important to

get on the same page with those, what can compromise, who will compromise what in order to find

a mutually beneficial property.

Mike Novak:

[3:37] Yeah, how do we reconcile these two things and how can we create, An environment of

honesty where, you know, both people are comfortable speaking up on what they like and dislike

and want and things like that, too.

Rachael Novak:

[3:48] Exactly. Yeah. So let's just get into these. These are seven things that we recommend every

single couple does before buying a house together. Again, married or unmarried. So number one,

pull both of your credit reports and actually look at them together. there. I have literally been in a

situation where the husband, once we meet, we talk about things, they're telling me their financials,

everything sounds okay. They go meet up with the mortgage lender. They pull their credit reports.

Oh, husband had a credit card that he didn't tell the wife about. The wife had no idea. And they

actually are in $15,000 more debt than they thought, which takes a huge ding out of their purchase

price.

Mike Novak:

[4:28] Yeah.

Rachael Novak:

[4:29] So like, look, there should be no surprises. There should be no secrets. If you are literally

talking about making the biggest financial decision of your entire life and purchasing a property with

this person, you have to be completely open and honest with your financials. That is an absolute

must. If there's bad news in one of your credit reports, if there's another one that I experienced, the

wife had a Nordstrom card from when she was in her early 20s, totally forgot about it, had like

$6,000 or $7,000 of debt that was now in collections for a couple of years. So it completely trashed

her credit. So like these things are recoverable, of course, but if you don't know about them up front

and you're like gung ho excited about purchasing a house and now you're set back six months,

that's really disappointing. So this is something to do, get on the same page about, understandwhat you're looking at, the scope of the financial situation, deal with it now so that it doesn't come

up when you're actually going to be searching for a house. Yeah.

Mike Novak:

[5:22] And I would like add additional caveat to that, but you have a lender do this and there's a

couple of reasons that you want to have a lender do it and don't do it yourself. The first one is that

the algorithm used to determine a mortgage credit score is actually very different than the one that

you see in like. You know, credit karma or something like that. So I've seen that change as much as

30 to 50 points. And that could be the difference between being approved and not being approved.

So the mortgage algorithm is just different. You have to understand that than what you see as a

consumer. And it could be wildly different. The second thing is that most lenders will help you build

your credit fast and they can use what's called a simulator to determine what if scenarios and what

if scenario could look like, Hey, what if I pay my credit card down to 20% of the balance from 80%.

Oh, shoot, that might move my credit score up 40 points immediately. I could do that right now. So

like they have the ability to give you those tools and those insights. So you're making strategic

moves instead of just kind of like going solo on that. Yeah.

Rachael Novak:

[6:18] Yeah. Great points. Absolutely. Number two. Now, this is the most awkward one. Prepare

yourself. You need to have the what if we break up conversation. Is it uncomfortable to have? Of

course. But is it necessary? Absolutely. Especially, obviously, for those who are unmarried. Like, if

you're not legally tied to the person, but now you're becoming potentially legally tied to a property

together, you need to really have that conversation about, like, what if? And that sucks. It sucks to

have. You don't want to think that way. But again, that's a really necessary part. You've got to

decide how the house to be handled. How would the assets be handled? How would the equity in

the home be handled? Would one of you stay there and buy the other person out? Would you sell

and split the equity evenly, right? You've got to kind of have a scenario in mind, not just assume

what in your mind, what would happen. Because again, we've seen this, unfortunately, you know,

we've seen it happen, both with married and unmarried couples, purchase a house, and then it's a

huge fight. Because if the home has appreciated over a couple of years, that's a lot of money on

the line. So if you haven't already worked out or have in writing kind of what what the plan would

be, if something were to happen and you were to break up, you've got to know.

Mike Novak:

[7:31] Yeah, and there's a lot that goes into that. You know, there's obviously like a big legal

perspective there. Could have an attorney draft up a quick agreement just with these like what if

scenarios so like it could be like a list of exit options um we did that on our montana property when

we bought it with another family like we planned what how each family could get out which was

really smart because it kind of had those we had those hard conversations up front like thinking

about the exit before i actually got into the purchase but if you're married it's obviously totally

different because there's the law involved and each of you own half of the house and that's going to

be hammered out legally so we never had this conversation before we bought properties together

just to be honest i mean yeah 20.Rachael Novak:

[8:10] Years later in.

Mike Novak:

[8:11] Hindsight we're like oh i owned a few homes you moved into them and then later on in life we

started owning homes together well.

Rachael Novak:

[8:19] We haven't broken up yet so i think we're good.

Mike Novak:

[8:20] 20 years i think we need to have this conversation.

Rachael Novak:

[8:24] Look anyways back to the back to the points so have that conversation before all right that's

number two. Number three, this is kind of goes with number one, but you've got to get crystal clear

on your actual budget, okay? Not what the lender says that you are approved for, not what on

paper it says that you can afford. What can you actually afford month to month while still living the

life that you want? And this is something that people do not really think about. And I think a lot of

agents skip over this as well in the beginning part of the planning process is like, okay, great. So,

you know, you're, you're both approved and you could spend up to $7,000 a month on a mortgage.

Great. Well, that might be fine on paper, right? Cause a mortgage will be up to what? 45, 50, 55%

of, of your income.

Mike Novak:

[9:12] Yeah.

Rachael Novak:

[9:13] So like this, but that's, over half potentially of your income going to your mortgage. So is that

still going to allow you to enjoy the subscriptions or the go to the games or get the tickets or do the

travel or do the shop, whatever it is else that you want to do? Are you not going to be able to go out

to eat as much? Are you not going to be able to get morning coffees as much? Like you have to

think about the actual lifestyle that you want to live, both of you, and then really decide if that

budget actually works for you.

Mike Novak:

[9:40] Yeah, you got to ask yourself, like, what's the lifestyle I want? Because some people are

comfortable not spending any of the money but on their house. They just want a badass house and

they want to put everything they have into it. They are homebodies. They don't travel. This is all

they do. And so the answer to this question is extremely personalized, right?

Rachael Novak:

[9:57] Yes, very personal.

Mike Novak:

[9:57] And so there's a couple of things taken into consideration. The first thing is how old you are,right? And just to back up a little bit, let's explain debt to income because we just kind of threw that

around without really framing that. Debt to income ratio is a ratio that lenders use to calculate the

totality of your monthly expenses in relationship to your gross income. And gross income is before

taxes come out, to be clear. So let's say for a round of numbers that you make $10,000 a month in

gross income and your expenses are $4,000. And when I say expenses, I mean debt payments.

Okay. So that's going to be credit cards. It should be car payments, student loans, and yes, your

theoretical mortgage payment as well. So if it was, if all those together equal to $4,000, that'd be

40%, right? Just for like a very clear example. Like you said, most lenders will approve you for 55

to 60% debt to income ratio. When you're younger, most people are on the upward trajectory of

making money, right? Like you, if you're like 25, 30 years old, the odds are very likely, depending

on what line of work you're in, that you're going to make a lot more money when you're 40 or 45.

Those kinds of people are typically more comfortable having a higher debt to income ratio because

it's temporary, right?

Rachael Novak:

[11:02] Exactly.

Mike Novak:

[11:02] So when you're older, you're like 50 or 55 years old, your career may be going down

actually, like, or you may be retiring since you may have a different perspective and want to keep

that ratio much, much slower. Kind of like the boilerplate number that I give people, if I know they

want to have a balanced life and not just be like house rich cash poor is 40%. Like 40% is a nice

conservative number. It's not always possible, but if you have a 40% debt to income ratio, including

your mortgage payment, you're going to have a lot of flexibility still.

Rachael Novak:

[11:30] Yeah. Such a great point. And, and it's so true Because if you think about a 25-year-old,

there are those, and I say kids now because we're 40s, but those younger adults who are okay with

a little bit higher payment, who understand the discipline and the sacrifice that they're making right

now. Because again, they know in five years, in 10 years, I'll probably be getting raises. I'll probably

be making more money. My payment's staying the exact same. Right. Whereas, like you said, the

opposite is an older person. Well, maybe maybe they're going into retirement. Maybe they're on a

fixed income like they can't risk, you know, spending that much every month. So, again, just

between you and your partner or your spouse, get crystal clear on your actual budget. Right. Again,

not what the bank approves you for.

Mike Novak:

[12:14] Yeah, and also keep in mind that very few people buy houses based off the purchase price.

They base it off of a monthly payment. So just keep that in the back of your mind as well.

Rachael Novak:

[12:23] Exactly right. Yep, great point. Number four, agree on who pays what. If you are a couple

who just pools all their money together and then you just pay all the bills out of one account, you

know, maybe this isn't as much of a conversation. But when you are in a partnership and maybe

you know you pay your car payment and the these couple utility bills and then the other partnerpays these utility bills and the mortgage and insurance or something like that like you've got to get

really clear on who pays what is it going to be everything 50 50 are you just going to throw into a

pot and pay everything out of that account like again have this hard conversation about who's

paying what is it based on like the income right so like If I make 10% less than you, then we're

going to base the payments off of the percentage of income that we each make, however that

works, right? So make sure to write this down, understand it, you know, for both of you, because

again, this plays into the lifestyle that you want. And that is one of the fastest ways to build

resentment in a relationship is for one person to be carrying more of the weight when the

agreement maybe was a 50-50 split or something like that. So again, whatever works for you works

for you, right? Mike and I, we were the type that pool our money together. We pay everything

together. It's all ours. That's how we work. Not every couple is that way. And that's totally okay.

Mike Novak:

[13:41] Yeah. Really important if you're not married.

Rachael Novak:

[13:43] 100%. Exactly.

Mike Novak:

[13:45] You know, like, are you just going to split these or what's the plan?

Rachael Novak:

[13:47] Exactly. Yeah. I don't make assumptions on these things for sure. Number five. Now, this is

where it gets fun when it gets to actually like talking about the property, dreaming about the home,

dreaming about where what you're wanting to purchase. And that is discussion, discussing the non-

negotiables versus the nice to haves. OK, so Mike and I have bought a couple of homes. We've

built now a couple of homes. And so he and I both will sit down and say, okay, these are like

absolute must-haves for me. And some of those things Mike could care less about. He's like, okay,

that's really important to you. I understand. Whatever. That's fine. I don't care. I'm impartial.

Mike Novak:

[14:21] Not in the yoga room.

Rachael Novak:

[14:22] Yeah. I don't want to yoga. Anyway. And some things are like, you know, he's like, oh, it's

non-negotiable. I have to have this. Like, I have to have my cardio room and my whatever. Okay,

great. So we know the other person's absolute non-negotiables. Maybe it's location, maybe it's

layout, maybe it's no step, whatever it is, right? Maybe it's the layout of the living room, maybe it's

whatever it is.

Mike Novak:

[14:46] The perfect protein supplement shelf.

Rachael Novak:

[14:47] That's absolutely, yeah, the perfect wall in the pantry for all your protein supplements. That's

exactly what you want. But discuss these. Do you really know what is absolutely super, superimportant to your partner? Do you know what for them would be great to have, but they're actually

willing to compromise on? Like, these are things you absolutely need to nail down because when

you get to the point of actually looking at homes, if you know, hey, you said that this is a non-

negotiable and this home doesn't have it. So why are we even considering it? Right. That allows

you to keep each other accountable to what you said you wanted and also room for evolution.

Right. If it's a nice to have great, it doesn't have it. But I'm willing to compromise if it has this kind of

a thing.

Mike Novak:

[15:27] I always know that my best clients, like it's pretty rare that this happens. I'd say it happens

like 15, 20% of the time, but they roll into our buyer consultation and it's usually the wife has a list

of the best of the must haves. And I always send out a video to pre-frame our meeting before we

have it. So they know what to expect at that meeting. And I introduced this concept of must haves

and nice to haves. And she usually has it broken down. Must haves on the left, nice to haves on the

right. They've already reconciled. Here you go, Mike. This is what we're looking for. I'm like, perfect,

we've got a mission. We are crystal clear on what's happening. But some other people haven't put

that level of thought into this, but it's really, really important that you do slow down and do this. A lot

of people, the way that they go about buying a house is like the complete opposite way you should

do it. And they just start, like, they see a home pop on Zillow and they're like, shit, I want to go see

this house.

Rachael Novak:

[16:13] They like to cover the front door.

Mike Novak:

[16:13] Yeah. And they run out and go look at it. Like, whoa, we don't even know what we're looking

for or why we're looking for it or what locations we want. Like, that's how you make a huge, huge

six-figure mistake in real estate.

Rachael Novak:

[16:24] Exactly. Yeah. Same exact thing happened the other day with a couple of clients. We're

going to be listing their house today, actually. And they're going to be purchasing later this spring.

And they had, I mean, very detailed list for me of exactly what they were looking for. and then

exactly what like nice to haves, but they'll win the compromise on. And that is so incredibly helpful

because if I'm trying to help them find the perfect property, they've already discussed these things

like we had talked about. And now I'm able to set up a search. I'm able to keep my eyes peeled for

the specific things that they're looking for. That makes my job so much more relevant to them,

right? So when I'm sending them things, they're already like, yeah, this would actually be perfect,

right? So again, this is how you go through the process with eyes wide open, knowing what the

other person wants without wasting any of your time or your agent's time or the seller's time of

homes that you're just looking in.

Mike Novak:

[17:13] Yeah. And sometimes the non-negotiables, like I have to negotiate those. Like I'm like, Hey,tell me more, like your budget's $500,000. You're not going to get 2000 square feet in four

bedrooms or a shop. Yeah.

Rachael Novak:

[17:25] Like we.

Mike Novak:

[17:25] Need to either change the budget or we need to change the expectations because those two

things are out of alignment or oftentimes you know hey you can get these features but only in these

locations at that price point.

Rachael Novak:

[17:36] You know what i mean so it's.

Mike Novak:

[17:37] Like the location price features triangle becomes the conversation.

Rachael Novak:

[17:41] And that's such a great point and you know if you're an agent listening to this if you're if

you're somebody who works with buyers and sellers like that is something that you need to do like

you if they come with this must have and it's nice to have list that's awesome but if you know for a

fact that that must have and that location is not there's not going to meet the, budget that they

have, it is your responsibility to tell them that.

Mike Novak:

[18:04] Yeah. And most agents won't do that. They're like, oh, I don't want to be like the bearer of

bad news.

Rachael Novak:

[18:08] Guess what?

Mike Novak:

[18:09] Yeah.

Rachael Novak:

[18:09] That's what you are.

Mike Novak:

[18:10] Well, you're going to waste a lot of your time and your client's time. And you're also not

doing, you're not coming from a position of integrity.

Rachael Novak:

[18:16] Yeah, exactly.

Mike Novak:

[18:16] Like, you know, something is not realistic and you're kind of building up false hope.Rachael Novak:

[18:21] Yep. Absolutely agree. Great point, Sunny. Number six, you've got to build your emergency

fund first. There are so many people that come to us and they've built up a pretty decent nest egg.

They've got a down payment money ready. They've been preparing for this, which is absolutely

incredible. But very, very important that you're, as an agent, helping explain to the buyers not just

what costs are involved with the actual transaction of purchasing a house, but then also do you

have money left over? Or are you walking into that home absolutely so cash broke that if the water

heater took a dump that day, you wouldn't even have the credit card space to fix it, right? Like,

you've got to have emergency funds available. Jobs get lost. Repairs happen very quickly after,

you know, homes sell so having that like ideally three to six months of living expenses in the bank

would be ideal for.

Mike Novak:

[19:19] Yeah to move in i i frequently will have this conversation and i'm very direct about this you

know as your agent i need to know how much cash we have available to do this and my follow-up

question once they answer that is oh it's okay is that all the money you have available or is that just

the amount of money you've got dedicated towards this house yes and we have that exact

conversation. Oftentimes I will shift people from like putting 10% down to putting 5% down or

building in their closing costs or whatever else. So they hold on to that money. Like you, you don't

want to move into that house dead broke. You're exactly right. Cause things come up, moving is

expensive. Appliances are expensive. You're going to need new furniture. Oftentimes when you

buy in your house, there's just all these things that come up that you don't expect. And that's all

assuming that your job stays consistent, nothing, no medical emergencies happen, anything like

that. Life happens, as we know. So four to six months, great rule of thumb on your expenses, you

know?

Rachael Novak:

[20:10] Exactly right. And number seven, you've got to talk about the future plan. Five years, seven

years, 10 years. Are you guys staying put in that house? Are you planning for kids potentially? Are

you potentially talking about a career change in the next few years? Are you working your way up

in the corporate ladder? Are you working your way out of corporate and into entrepreneurship? It's

really important that the house that you buy fits where you're going.

Rachael Novak:

[20:36] Not just where you're at, right? One of my favorite examples are some clients of ours that

believe you sold a house to them in 2017. And I want to say the sale price of the house was like

$270,000 way back in the day. And this family had, what, four kids, five kids, something like that, all

very, very small kids. And they moved into this house fully knowing that it was going to be like a

transition house for them, right? They moved in, they were like, this house is not going to fit us all

when these kids are all teenagers. It's fine when they're little, they can share rooms, they can share

space, that's fine. But they knew going into it that the short-term sacrifice was going to help them

build the equity they needed to get that forever property. And sure as shit, what, five years later,

they came to us and said, okay, we've owned this house for five years, just like you told us. What

can we sell for? What can we buy? And we sold their house for a lot more than $270,000. Theywere able to go buy property with plenty of bedrooms, I think on acreage, the husband has a shop

now, like they were able to use the house for where they were going, knowing it was a transition to

the next house, right? And so that's a really important part of the conversation with your spouse or

with your partner is, is this house going to work for this season that we're going to be in, that we're

going into? Is this something that we're planning on staying in five to seven years and then selling

to buy something new? or is this like, no, I want, this is the house that I want to make work for the

rest of my life, right? These are all conversations you really should have.

Mike Novak:

[22:05] And I mean, it's, it's a great point that so many buyers make the mistake of holding out to

buy until they get what they would consider like their forever home. And the much smarter thing is

like exactly what my clients did. They, they bought something that worked that was going to get

tight within about five years, but, but they could suck it up And they like, you know, they built in

about $200,000 of appreciation very quickly over that five-year period. Their timing was fantastic.

They were super coachable. And so you're always going to be better off if you're renting to go

ahead and buy a house and have it be tight for a while, you know, but, but do think about five years

because five years, a lot of life can happen. Like if you've got no kids now and you're thinking

you're going to have like two, three kids in the next five years, that one bathroom or one toilet might

be a little bit of an issue. So maybe you say like, Hey, I actually need one and a half bathrooms, but

I can, I can give on the square footage or something like that. But if you're a first-time buyer and

you're renting, you should not be looking to buy the dream house. You should be looking to enter

the market and to start building appreciation.

Rachael Novak:

[23:01] Well, like we like to say, it's like that first house will typically be a down payment on your

potential forever house, right? Like for those clients.

Mike Novak:

[23:10] That's how you get to 20% down. It's like you live in the house for a while.

Rachael Novak:

[23:13] Like those particular clients, without doing anything else, while sacrificing living in this small

house with their five kids for five years. We all know how fast five years goes. By living in this small

house for five years, their payment didn't change. They were able to save some money, but their

home appreciated almost $200,000. That's a lot of money for them to be able to put into the next

property, keep their payment low. That was a game changer for that family. So that is what we

recommend doing, especially if this is your first house, if your first purchase, first property, get

something that works right now, but know what the plan is looking forward five, seven years.

Mike Novak:

[23:49] Exactly.

Rachael Novak:

[23:50] All right. Well, guys, that is our seven tips that are unsexy, but practical things that you really

should do before purchasing a house together. And remember, real estate is the biggest purchasethat you'll ever make. It's the biggest financial decision you'll ever make with your partner,

especially. So treat it like one.

Mike Novak:

[24:08] Yeah. And if you go to meetthenovacs.com, that's Novacs with a K, and you go to the buying

tab, you can watch some of our videos where we explain what to expect through this process which

is like a really good first step you know and goes a lot deeper into some of the stuff that we're

talking about today and of course if you're thinking about buying you know in the next like six

months or so reach out to us and we can have a conversation see if we're good fit to help you

yeah.

Rachael Novak:

[24:29] Hit us up on instagram we're both there pretty active i'm at rachel novak.

Mike Novak:

[24:32] At the real mike novak all.

Rachael Novak:

[24:34] Right guys we'll see you next time.

Mike Novak:

[24:35] See you next week.