What Should You Consider When Buying a New Home?

MARK RIEPE: I'm Mark Riepe. I head up the Schwab Center for Financial Research, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.

Today we're going to be talking about one of the biggest, if not the biggest, financial decision many people make in their lives, buying a house. To take us on a deeper dive into home buying, Rob Williams is in the guest seat. Rob is a managing director and head of wealth management research at the Schwab Center for Financial Research. He and his team develop and deliver research commentary and advice on financial planning, income planning, and wealth management. You can see Rob's work in Schwab's Onward magazine and on the Schwab.com website.

He's been quoted in financial media, including The Wall Street Journal, MoneyWatch, and Kiplinger's, to name a few. He has an MBA and is a CERTIFIED FINANCIAL PLANNER™ professional and holds the Retirement Income Certified Professional® and Certified Private Wealth Advisor® designations.

Rob Williams, welcome to the show.

ROB WILLIAMS: Great to be here. Thanks, Mark.

MARK: Let's just start with the basics, Rob. What are the major steps and financial touchpoints that someone should expect when buying a home?

ROB: I mean, first off, planning to buy and then owning your own home, it's a really exciting goal for anyone. But I think it's important to know that it's a bit like a relay race. There's one step to the next and the next, and there's handoffs. But I like to really have steps for complex financial topics. Buying a home is certainly one. So it's a good place to start. And really, the first big touchpoint is going to be decide, is this really a goal for you? This is not meant to discourage, but it isn't for everyone. And the timing is really important, more at a personal level in terms of your finances, I'd say, than in trying to time the real estate market. Real estate, after all, it doesn't seem to be getting any cheaper, but is it the right time for you? So that's really step one. And this leads to the second, which is your finances. How is your financial situation, your credit?

Now, almost everyone is going need to borrow for this kind of a purchase. It's a large purchase, but do you have savings to handle emergencies? Also the down payment. What's your income? What are you earning? What are your expenses? How will your mortgage fit in? So that's step two. And then third often is borrowing. Unless you've sort of suddenly inherited a fortune, which isn't most of us, and are planning to pay cash, congratulations, I suppose, to you if you can do that.

But for the rest of us, you're going need to borrow some money. That's just part of the game and to be expected. So navigating that is important. And then really the fun part, let's be honest, the most stressful, is finding the home. Making an offer, negotiating a price, settling the terms, etc. And then closing. That's really the last step. It's the final, really exciting moment. You're going to close either with your agents, and the broker's going to hand you the keys. I'll say I've been through that a few times myself in my life, and it's always exciting. It's the start of a new chapter, but it's definitely not the end of the race.

MARK: Yeah, Rob, I don't think I've purchased as many homes as you have. One thing that's always surprised me is just the sheer number of people who are involved in doing this. So maybe tell me a little bit about who are the key players? How do their roles affect both the experience of just getting through the process, as you just described, but also the final cost?

ROB: It's like a relay where there's a lot of professionals that jump into the story at different milestones along the way. They're running along your side, helping you get to the finish. The key players, really, you've got to start with yourself, if relevant, your spouse and family. That may seem obvious, but you're going to have, ideally, a financial planner or an advisor. Hopefully, they're involved. They're helping you sort of walk through the affordability, etc. The home is just a part of your financial life.

And then the big sort of partner is going to be your buyer's broker. That's really the agent who's there to help represent you, help you along. There's some other players like a bank or mortgage broker who's going to help pre-approve, finalize loans, help pay the cost. And then the other big one is the seller's agent. And that's the agent that's going to represent the seller when you're purchasing a home. There's a lot of other minor but important players along the way. You're going to have a home inspector, an insurance agent, bank specialist to help with the paperwork, a closing agent, and that person actually gets probably the best job. They get to hand you a big stack of large papers that you've signed that say you own a home you can take home with you and the keys. That closing agent gets a nice job in this process as well.

MARK: Rob, one of the things you just mentioned was pre-approval. That's a pretty important process, especially in today's market. Tell me a little bit about what does pre-approval actually mean, and what are lenders really doing when they issue to you a pre-approval for a mortgage?

ROB: Yeah, it's a competitive market. It's a competitive process. Preapproval just means being as ready as you can ahead of time, mostly for borrowing, for a mortgage. In most markets these days, there's more potential buyers out there than there are homes, so you want to be ready. You want to be able to act fast. Getting preapproved for a mortgage is key to that. So how do you do that? You have to have your income statements, have the basics of your finances.

It may not be all the details to close your loan, but working with or finding first a mortgage broker or a bank who can walk you through those steps really to help you with what you can afford. And they will provide a letter that says, "Based on what we've seen so far in your financial life, this is what you can afford." And that's going to be part of your offer that you're going to provide when you make an offer on a home. 

Now, this is really a key point, though, is a pre-approval isn't a recommendation from someone who's focused on your whole financial life to tell you how much you should borrow. It's the maximum. It doesn't mean you really should borrow that much. It's what a lender is going to be willing to lend to you. So take that with a grain of salt. Work with a planner. Really look honestly at your own income, expenses, budget. Determine how much you can really confidently afford. But going through those steps with a mortgage broker is really important in terms of being prepared. When you do find that house you want, you can move forward quickly and know how much you'll be able to borrow in the meantime.

MARK: And one of those key data points that will determine that borrowing amount is the down payment. So explain how much is typically required for a down payment, and what are the trade-offs in terms of making a larger down payment versus a smaller down payment?

ROB: Yeah, there was a day and there were times where you could see that the lender might require a small or even a 0% down payment. I would definitely not recommend that as basic financial hygiene. A 20% down payment is typically a good, prudent amount when buying a home and making sure you've saved enough to have that amount. The bank may require less, but again, some of these we're trying to educate and help provide guidelines on good, prudent financial behavior.

And that 20% down payment is kind of a guide of how much a home you can afford and also provide some cushion in your equity. Meaning you've got some stake in the loan. Wouldn't expect it, but in case it happens, the value of the home or the local market falls. That equity is your stake in the home. It provides some cushion and either that, along with you paying the mortgage, those are really the financial things that you want to have in place and make sure you have the financial situation to be able to afford. 

MARK: Somewhat smaller in the grand scheme of things in terms of financial costs are the closing costs, but they're still large enough to matter, though, and they feel a little bit, at least to me, about … they feel a little bit like a black box. So what exactly are buyers paying for at the closing, and how much realistically should they be expecting to set aside for those?

ROB: Yeah, those can be pretty confusing. And I do think it's really important to know that you're going to have closing costs. And there are a closing statement that your mortgage broker and your agent are trained, they're required, really to explain each in detail to you. So take advantage of that. You may have questions. Do I really have to pay that? What is that for? And navigating through that is really their job.

Make sure you understand those, talk through all those. There'll be time well in advance of the closing date to get an understanding of those. But really, let's break them into categories. There are document fees. There's brokers commissions. There's title insurance, which is insurance on your… that your ownership title on the property is secure. And there's some escrowed or prepaid taxes or insurance.

Now everything except those broker commissions, you can probably, a general guideline, I think, would be between 2%, maybe up to 4, 5%, that would be quite high of the purchase price for closing costs. Now here's one sort of caveat to that, that some of those fees are going to be prepaid costs, such as two to six months of property tax and insurance. So a mortgage broker is generally required that you prepay some of those. So you would need to pay those anyway, but you're just paying a lump sum and need to have that money upfront. So the broker commission, there's been some changes in this recently in the way brokers commissions work, but it's, over history, 6% or so commission divided by your agent and the seller's agent has been somewhat customary, but that's much more negotiable now in the last couple of years. So ask how that's going to be handled as you discuss with your agent, your buyer's agent, when you pick a buyer's agent, but also when you're making an offer on a home, what's the amount that you'll need to budget for commission is an important expense to consider.

MARK: So after all those components are settled, or you've made the decisions, it's time to come up with the money. And certainly what a lot of people do is they just start grabbing all the liquid assets they have to make up … that's going to be the source of funds for the, for example, the down payment. So some people are using their emergency funds for that. What do you think about that? Is that a good idea, or is that kind of abusing and getting away from the purpose of having an emergency fund to begin with?

ROB: Yeah, I mean, an emergency fund is there for emergencies. And if it's gone, where are you going to turn for funds if you're faced with other unexpected costs? So I really suggest having an emergency fund first. I mean, you're going to really need it when you purchase a home. There may be unexpected costs, maintenance, etc. Then save for the down payment, and treat those as separate funds in different parts of your life. I want to go back real quickly to the commission costs. I mentioned the 6%.

One issue with that, just on the expenses, is that the seller often pays a portion of that. So that's important caveat to mention. You may not be paying that 6%, or it may be part of … sort of embedded in your offer price. So those first costs we were talking about, you may need to pay the commission. Make sure you talk to your agent to understand how that works as a buyer and what you may expect in terms of that cost.

MARK: Yeah, and negotiate if you don't like it. That's certainly one of the changes that you mentioned earlier is that these are no longer fixed. They can negotiate, or buyers and sellers can negotiate. 

ROB: That's right, yes

MARK: Just kind of personal experience with friends and family, one of the more stressful times is when people, they're simultaneously trying to sell a home and buy a new one. You're doubling the complexity. So what's the smartest way to manage that financially? What are the risks involved when you when you try to do that, which, let's face it, sometimes it's not avoidable?

ROB: Yeah, I mean, that's a tightrope walk that's a bit stressful to navigate, but as you say, it's often unavoidable. I mean, the most conservative approach, I suppose, is to sell first, then buy, but that may not always be possible. You where are you going to live in the interim? And buying first and then selling is more aggressive, but it requires more flexibility with your resources. You're going to need to potentially carry two mortgages for a period.

You'll likely be able to afford less potentially in the second home. You need to feel fairly confident that your house is ready and positioned to sell quite quickly and that you're prepared to sell it to make sure that you have that limited amount of time between ownership of the two homes. I mean, there's some other strategies like making an offer saying that it's contingent on you selling an existing home first. And most buyers aren't going to like that approach very much, especially if it's a competitive market.

There's potential buyers that are making offers that don't have that requirement. You're almost certainly going to have a seller choose them before they choose you in a competitive situation. So if you do have to do this where you're buying them close to simultaneously, do as much advanced work as possible to stage the house price competitively, talking with your seller's agent to make sure that you can realistically move the house as quickly as possible. You may not get every dollar that you feel like you might want to get, but in this situation, it's urgent to be able to have the transaction occur quickly.

MARK: I'll get back to Rob in a moment. Right now I want to talk about an intriguing aspect of home buying. And that is the influence of demographic changes on home prices. 

One study[1] asked 3,600 Americans the ideal age to have gone through various lifestyle milestones. And one of those was to buy a house. 50% of respondents said there was no single best age or age range. That, by the way, is the right answer in my opinion. Of those who did pick an age, 18% said 30 to 34 was the best age range. And that was the most popular choice. There are a couple of interesting things about this number.

First, according to the National Association of REALTORS®, the median age of first-time home buyers is 38.[2] The gap is interesting because it corresponds to the perception that many of us have that buying a home sooner is desirable, but not possible given prices. Second, a study was just published in the prestigious Journal of Finance.[3] That's an academic journal. The study measured over centuries how demographic changes in Amsterdam and Paris influenced home prices.

The hypothesis they tested was that people buy houses in their late 20s and 30s because they're having children and tend to sell them when they're older, the kids have moved out, or when they pass away. That part isn't terribly surprising, but the best part of the study was to look at variations in how fertility and mortality play out over time. Over the centuries, there are large variations.

People living longer implies more people will own houses for longer, and fewer homes will be for sale. In other words, a lower demand of housing. Also, as children are born, there's a desire to get into a house with more room, and that's an increase in demand. One of the empirical results was that as birth rates increase, house prices also increase in that timeframe. The opposite is also true. As birth rates decrease, so did home prices.

Overall, the study found that countries with a rapidly aging population should have cheaper houses as Baby Boomers retire and pass away. But where there are large populations of young adults, house prices will probably go up. The situation in the U.S. right now is interesting. We've got a big group of Baby Boomers who are living quite a long time and hanging on to their houses, which constrains the supply. We also have younger generations who would like to become homeowners, but the birth rates are near historical lows, which puts a lid on demand.

There are many other factors that influence home prices, though, so demographics, while appearing to be a factor, is far from the only factor. Now let's get back to my conversation with Rob Williams.

Rob, we spent a lot of time talking about, just from a foundational standpoint, you've got to understand the mechanics and have an understanding of the market whenever you're going to be making a financial decision. So what are some of the biggest misconceptions from your perspective that people have about how the housing market works? Wouldn't surprise me if first-time home buyers are probably the most prone to some of these.

ROB: Yeah, no doubt. I mean the first is, I think, to assume that you're going to be able to buy the home of your dreams on the first go, or that you won't have competition. It's a very competitive market. It certainly varies, and the markets change. But at the time of us taping this podcast, there's certainly a lot of competition for homes.

And there are compromises involved, and just being prepared for that, and it is very emotional, and be prepared for that as well. These are very human and very, this is where you're going to live. So you can get swept up in the emotions pretty quickly, and especially if you can't find or don't get accepted for the home exactly of your dreams right off the bat. Not to say you shouldn't try, but just a misconception. 

Underestimating the cost of owning and maintaining the home, I think, is something people may not appreciate. It's not the same as renting. There are expenses that come up. Insurance costs have risen. And then ultimately, you also have to pay a mortgage. This isn't a flexible expense. You have to be able to commit to it. It's a big and critical decision. So if you're going into it, not to be dissuading folks to do so, do so with full awareness, knowing that you're going to have a considerable amount of excitement and emotion involved in buying the home as well. And that's fine and that's good, but there's a math and an emotion to this purchase as well.

MARK: Well, every monthly payment you make, assuming you get a mortgage, which is the situation with the vast majority of people, part of that payment is going towards the principal of the loan, and part is going towards the interest that is being charged. So how should prospective buyers think about interest rate changes when deciding whether now is the right time to buy, versus maybe putting it off when maybe the interest rate environment is more favorable?

ROB: That's what we're hearing so often. It's so hard to time markets, interest rates or stock market, any market really. And prevailing interest rates on mortgages really drive home affordability. And just because the Federal Reserve is dropping short-term interest rates doesn't mean, or whatever their policy is at the moment, doesn't mean that mortgage rates are moving in lockstep with them. So mortgage rates affect how much interest you're going to pay. 

The higher the rate, the less mortgage someone can afford, all else equal. Timing them is difficult. Right now, as of this taping, the average national 30-year mortgage rate is above 6% or so. That's not particularly high by historical standards, but it's higher certainly than it's been in recent memory, where we saw rates as low as 3% as recently as 2021 and as high as 18% back in the 1980s. I didn't own a home then, but certainly that's the lore of just how high rates were. 

So both are extremes. And really, plan for and budget for a mortgage rate, I'd say, in the 6.5% range or so as of now, or whatever the prevailing market is. I don't think making a decision to buy a home necessarily based on trying to time mortgage rates … the mortgage rates also change the sort of relative pricing of homes in the market. So just waiting for rates to drop may actually drive the prices of homes up. So budget this. Be prepared for it. But yes, interest rates are a major part of the equation.

MARK: And as you mentioned, the price of the home itself is fluctuating over time. And that causes some people to think about that home purchase is really doing two things. Number one, as you've mentioned, it's a place to live, but it's also an investment. And sometimes that's a good investment. So tell me a little bit about how you think about the investment component. Is real estate always a good investment? And should someone think about that investment property versus home? Does that change if they're talking about, let's say, a primary residence versus maybe a secondary residence?

ROB: I've bought a few homes over the years, and some have been good investments, and some you could call more of a liability, potentially, expense. But, like anything, there are few, if any, always true statements in finance. So real estate can be, but it's not always going to end up being, a great investment. As always, it depends. But first and foremost, Mark, you mentioned this.

Your first home is a place to live. It's important. It's a home you can afford that you want to live in, not just an investment. After that, there are some benefits, as you mentioned, that a mortgage is actually a way to force yourself to save. Every mortgage payment is you paying down the principal on the mortgage, and that becomes equity in your home. A portion of the payment is interest, and a portion of the payment is a little bit like you're putting your money in your equity piggy bank. 

That can be a nice way to save and build up equity in a home over time in your life that, when you sell, you can have, or when you move to a new home. But appreciation is the value of home when you sell, which certainly isn't guaranteed. The price of homes have generally consistently, like a lot of assets, moves up. But over time, we know that in many markets that may not be the case over short time period. Place to live first, maybe investment second.

MARK: I think another interesting thing is, if I want exposure to the stock market, I can, with a very small amount of money, buy all 500 stocks in the S&P 500®. It's hard to get that diversification with residential real estate, right?

ROB: Yeah, it's spot on. The two things with real estate, it's not liquid. You can't sell the home quickly and get access to that money. So it's tied up in the home. But also, you're quite concentrated in one investment in one location. And that is not like a diversified investment in the stock market, where you're buying ownership in hundreds of companies, potentially, where you can sell as soon as you need to.

It may not just be the return on capital necessarily. It's the risk. Not to say that buying a home is riskier. You're concentrated in one property, in one location. But that liquidity, not being able to easily get access to that equity, when you could in the stock market, is certainly something to consider as well. Not to, again, dissuade people from owning a home, just a side-by-side comparison of other opportunities for investment.

MARK: Let's drill down a little bit more on the emotional side of this decision versus, let's say, the cognitive side. What are some of the behavioral biases you've seen kind of play out in people's home-buying decisions or even in your younger self, maybe in the younger Rob Williams, some of the emotional decisions as you've been on your home-buying journey through your life?

ROB: Wow, you just opened that up to … the older Rob is probably more emotional than the younger one. The younger one living in California certainly broke every rule in terms of don't borrow more than 33% of your income or whatever to buy a home. Please don't take this as a recommendation. But 50% or more, I think my mother actually cried when she heard that that happened.

The housing in that market was expensive. I wanted to get into the market. It needed some work, for sure, which took many years to finish. But yeah, that was just the enthusiasm of youth. I think that there's so much emotion in picturing and owning property. Owning a piece of tangible real estate has its other emotional aspects of it. Picturing yourself living there, picturing your furniture, all of those things are part of the equation. And those are normal. Those are natural.

In terms of biases, Mark, you're really the expert in the behavioral finances. I mean, mine is don't let the emotions override the math, but in the end, you do have to have a place to live. So all I can say is that, you know, it's normal to be emotional about this, navigating it wisely, but also understanding that life is a journey.

MARK: Yeah, I think a couple things come to mind when I was thinking about that. One is I think people underestimate the compounding effect of paying interest. And so you're going to end up paying a lot of interest on your mortgage. And so you should think about, OK, I'm going to buy the house for, I don't know, pull out a number, $500,000. But in addition to that, you're going be paying a few hundred thousand dollars' worth of interest, depending on the type of loan. And it's easy for people to underestimate that due to the, I think it's called the exponential growth bias, where people underestimate the compounding effects, which is something to pay attention to. 

Another thing I … I'm not sure if this one has a name but … that people, and I certainly fall prey to this, people are pretty good at estimating their day-to-day expenses from a budgeting standpoint. But those infrequent expenses that are kind of higher ticket, it's very easy to underestimate those because they just don't come around very often. And certainly in homeownership, there's always something, you know, that needs to be done. And so again, as you were saying before, that's not a reason not to do something. It's not to be you shouldn't, because of that, not become a homeowner. But you got to think about that, that those expenses exist. And you know, the landlord is not going to take care of it. You've got to take care of it.

ROB: Yeah, I think those are great ones. And I would add that on the interest payment one, if you are into the math, a 6% interest rate results in a lot more interest over 30 years than a 3% interest rate. And I don't think we're necessarily going back to that, but interest expenses are a large part of the mortgage payment, especially in the earlier years. Again, just to know. But also, I agree, in financial planning, we always talk about, we often talk about, budgeting. What's hardest to budget for are those unknown one-time large expenses, and they will happen. And when you own a home, you know, more often maybe than you expect. And the third, I don't know if it's, maybe this is a form of endowment effect, or maybe the opposite of it. We want to own. We want to possess the thing and buy it. And well, then once you do, you do have to take care of it. 

Or maybe you want to move, and it isn't that easy to suddenly buy a house and move on. These all sound like negative things, but biases, I think, are just things that aren't necessarily things we have to say or just means we can't make sound decisions. They're just things to be aware of so we can make smarter decisions with awareness that these might be the case.

MARK: So give me some sense as to what are the types of decision in this kind of realm of home buying that lead people in the future then to regret them. What are the sort of the regrettable mistakes, if you have some sense of that.

ROB: Well, the first is buying more than you can afford. Certainly that seems obvious, I think, but buying in a place that they don't end up wanting to stay. Those are the biggest. This wasn't the case of me buying a home when I was in my 20s, but I remember living in a town that I will not name that had mountains above it and decided suddenly that it would be very romantic to live up in the hills above this town and then realized it took 20 minutes to drive down from the town into the local grocery store, and I was 24 years old, and that was a bit of a mistake. Thankfully I didn't buy that piece of property. But making sure that you could afford it but also it's in a place that's close and convenient to your life, and that's perhaps may seem obvious but sometimes we're moving, buying a house in places that are more affordable, maybe further away from your life. So just make sure you keep that in mind when you're purchasing as well.

MARK: So how would you wrap this up in terms of balancing these emotional factors versus the financial factors?

ROB: Yeah, I mean, I think in the end that it's a balance, and you have to be able to afford the home. The finances are important, but wealth and finances are a lot more than money. That's something we learn, we talk about, we see all the time on our discussions with investors and financial planning. So a home is definitely an emotional, and rightfully so, an important decision.

And aligning that with the going into it informed, with as much education as you can have, with good partners, with a good sense of what's going to be a reasonable amount for, you know, those things in balance are really what I would suggest. Each needs to sort of work together. Neither overrides the other, but they're partners in this decision that you're making that will be important for your financial as well as your emotional life.

MARK: So last question, Rob, I always like the idea of a nice good checklist with some short questions that people can ask themselves to help kind of drive them toward a good spot, a good decision. So whether these questions are financial or personal, I'll let you decide. But what are those handful of questions that people really need to think through hard before they decide whether to buy a home?

ROB: I agree. I think lists are great. So let's just start with a couple. Be ready to settle in a spot for two to three years at minimum and probably closer to five or more because that's about the period of time that you really should be able to commit to a home to make it financially viable. You know, again, it's not a liquid asset that you can sell quickly. You know, maybe you might plan to rent or something if you move quickly, but ideally that's the first step before buying.

The second is make sure you can afford it, not just the mortgage, but the cushion to pay for the inevitable maintenance costs, the yard, if you have grass, to be able to manage all those, not just financial expenses, but the time that's required. And then the location, I think. How does it fit into your current life and where you are in your life in terms of work, family, convenience, especially younger ages? We're often at that point where we're working, human capital, and building as much in our work is important. And so making sure that buying a home isn't going to detract from the rest of your life, your work, your job, etc. So if you've got all those in place, then maybe that's a good checklist to help you start.

MARK: Rob Williams is a managing director here at the Schwab Center for Financial Research, and he's head of the wealth management research function. So Rob, thanks for being here.

ROB: Thank you.

MARK: That's our show today. We've covered a lot about housing, but not everything. If you go to schwab.com/learn, we've got a few more housing-related articles posted under the "Financial Planning" tab. Lots of good stuff, and you can find links to them in the show notes. I'll be back in a couple of weeks. If you'd like to hear more from me, you can follow me on my LinkedIn page or at X @MarkRiepe. That's M-A-R-K-R-I-E-P-E. 

And if you like the show, please consider leaving us a rating or review on Apple Podcasts or comment on the show if you listen to it on Spotify. We always like new listeners. So if you know someone who might like the show, please tell them about it and how they can follow us for free in their favorite podcasting app. Thanks for listening.

For important disclosures, see the show notes and schwab.com/FinancialDecoder.

[1] Lippert, Jordan and Fetterolf, Janell, "Best Age to Get Married, Have a Child, Buy a Home, and Retire? Here's What Americans Say," Pew Research Center, March 19, 2025, https://www.pewresearch.org/short-reads/2025/03/19/best-age-to-get-married-have-a-child-buy-a-home-and-retire-heres-what-americans-say/.

[2] "Highlights From the Profile of Home Buyers and Sellers," National Association of Realtors, accessed October 10, 2025, https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home-buyers-and-sellers.

[3] Francke, Marc and Korevarr, Matthijs, "Baby Booms and Asset Booms: Demographic Change and the Housing Market," The Journal of the American Finance Association, Vol. LXXX, No. 5, October 2025.