How to Spend $3.5 Trillion in one Year

In order to spend $3.5 trillion you first need to be able to get your mind around how much money it actually is. It’s almost as difficult to comprehend this quantity of money as it is to comprehend infinity. Prepare your mind. I recommend doing some stretches. Perhaps a quick run through the New York Times Sunday Crossword followed by a speed read of Ulysses. Excellent, let’s get started.

How much is $3.5 trillion and how to spend it?

1. According to the Federal Reserve Bank of New York there is only about $829 Billion dollars of U.S. Currency in circulation in the United States. So unless you have a really high limit on your credit card (or can sell U.S. Bonds to China), you will need to spend all of the money in circulation every 86.45 days in order to spend $3.5 Trillion dollars in one year. You should spend some of it to pay people to go get it back for you to spend again. You could call them the IRS or something like that.

2. A dollar bill is approximately .0043 inches thick. If there was enough one dollar bills to put together 3.5 Trillion of them, you could stack them to the moon and have 11,974 miles left over to check out the “Dark side” if you wanted*. If you stacked them end to end, you could make it to the sun, and back, and back to the sun again and still have enough left over to fund health care. “Yikes!”

3. There have been approximately 63,429,421,260 seconds since year zero (that’s a little over 63 Billion for the speed readers). If you started in year zero, you could spend $55 every second until 2010. You’d be pretty fun to hang with, look me up on your trip.

4. You could give every man, woman and child on the planet $515.56. I subtracted for postage. Hey, that might actually be enough to save the post office.

5. It’s been estimated that the total value of residential real estate in the US is between $25 Trillion and $31 Trillion, so if you decided to buy it all, you would have about a 10% down payment and still be able to pay for your closing costs on the loan. I hope you have a good job, because your payment on a $25 Trillion mortgage at 5% amortized over 30 years would be $13.4 billion per month (please note this doesn’t include Taxes, Insurance, and PMI). That might stretch your debt to income ratios. I would recommend getting a fixed rate if I were you.

The sad truth about spending $3.5 trillion dollars in a year is that all you have to do is be the government of the United States of America. If you are one of her citizens, you are lucky, because we live in a country that has freedoms the likes of which the world has never seen. Sadly, we have used these freedoms to dig ourselves into a hole, and it isn’t looking like we are very interested in climbing out of that hole any time soon. I certainly hope that changes, but until then you and every other man, woman, and child in the United States is on the hook for $11,667 per year, and that’s not counting paying off the deficit. I guess the bright side of this is that if we dig the hole deep enough we will reach China, and they have all of our money.


*I utilized the distance to the moon when it is closest to the Earth.

The Home Buying Process - What are the steps?

Buying a home is not something the average person does every day. If you have never purchased a home, then you may feel like you are entering the “Great Unknown” and will most likely depend on family, friends, and the internet to determine the process you should go through. If you have been through this before, then you have some semblance of an idea of what to expect, but a lot of the rules have changed since you last purchased a home (even if you just purchased last year), so you may need a refresher course on the process. These steps listed below are designed to give you an outline that you can follow to help remove surprises from process. As I always say, “Surprises are great for birthdays, but they are no fun when you are buying a home.”

Step 1: Should you move?

Here are some questions you should ask yourself before pulling the trigger. If you have a home to sell, can you sell it? Do you need to sell it in order to purchase the next home? If you do not have to sell it before purchasing the next one, do you want to assume the risks of owning both homes at one time? If you do move, how long do you plan on staying in the next home? Is that time horizon long enough to enable you to have a high likelihood of garnering enough appreciation to sell the home when the time comes?

Step 2: Finding a Realtor

Realtors are your number one resource for information about homes, mortgages, and a multitude of other transactional necessities. You should interview more than one realtor in order to get an idea of what each realtor can and will do for you, and how they compare. Your Realtor should be knowledgeable about your area of interest, programs available to you as a buyer, and homes in your price range of interest. Your Realtor should also be willing to accommodate your schedule, help you with advice on the homes you are interested in touring, and put the extra effort into protecting your investment by researching the homes you are interested in purchasing. In my state of Indiana, the Realtor’s fees are almost always paid by the seller. So the benefits of using a realtor to you, as a buyer, infinitely outweigh the expense.

Step 3: Pre-Approval

You need to get pre-approved for a mortgage, unless, of course, you can pay cash for the home. Your pre-approval is your license to buy. With the new laws enacted your pre-approval also gives you a very accurate Good Faith Estimate of the costs you will be facing as a buyer. If you want to shop around for lenders, be sure that you are comparing apples to apples by using each individual lender’s good faith estimate and APR.

One pitfall to note is that quoted rates are subject to change up until the time you lock them in with your lender, and you cannot normally lock into a rate until you have an accepted purchase agreement. Some lenders may quote you a much better rate than another only to change them dramatically when you “lock-in” your rate. It is often a good idea to check with your Realtor and get a lender recommendation from them as well. It is in your and the Realtor’s best interest to use a lender that will make the transaction go smoothly and affordably.

Step 4: Out-of-Pocket Expenses

A lot of the money questions will be answered in the previous step, but the timeline for the out lays of money can be a surprise for many purchasers. For my clients in the central Indiana real estate market as a general rule of thumb the outlays will go as follows:

1. Earnest Money – This can be any amount of money and can, in fact, be zero. Earnest Money is a deposit paid at the time of an offer’s writing by the buyer to demonstrate intention to complete the purchase as agreed to in the contract. If the offer is accepted this money will be deposited in the listing agent’s escrow account and held there until closing (assuming, of course, that the home is listed with a Realtor). At the time of closing it will be credited back to the buyer on their side of the closing statement. If the transaction runs into trouble, this money is subject to forfeiture if the purchaser backs out of the agreement through no legal cause.

2. Lender application fees – This is money that some lenders require at the time of the application. Often times this is used to pay for the appraisal and credit check. The amount can vary dramatically and should be known to you after step 3.

3. Inspection Fees – A home inspection is a vital part of the purchase process. We recommend to all of our clients that they should have a home inspection completed. This money is almost always due at the time of the inspection. You should shop around and find and inspector that fits your needs and your budget. You should also make sure that the inspector you choose is reputable.

4. Home owner’s insurance- Most loans require that the purchaser have their taxes, insurance and private mortgage insurance escrowed and thereby included in their house payment. When this is the case, you will be required to have the first year’s home owner’s insurance paid in full before closing. The amount of this insurance can vary dramatically from state to state and from company to company. You may receive a discount on your car insurance if you have your home insurance with the same company. Shopping around is a must.

5. The closing - This is where the rubber meets the road. At the closing table you will need to have the remainder of the monies due. This includes your down payment and closing costs.

Step5: Finding your home

This step is where the fun begins, and for a lot of people the stress. There are a few things you can do to help make this part of the process easier. The first thing you need to do is choose a specific location you want to live. You need to do this in order to make sure you are comparing homes to each other properly. Prices can vary dramatically from location to location within the same city. For example, in the Indianapolis real estate market prices in Broad Ripple can be significantly higher than prices of homes in Lawrence for a similar square footage home, even though the properties are only four miles apart.

Once you have narrowed down your search to the location you want to live, you should have your Realtor put together a search of homes that meet your specific criteria and email them to you. At this time you will be able to put together a list of your favorites and set a time to tour these homes. As a general rule, I find it is best to tour between four and eight homes at a time if you can fit the amount o f time required into your schedule. If you want to tour more in one session, I recommend being very critical of the homes and leaving one as soon as you know that it is a “no”. This will help prevent you from getting your mind cluttered with properties that you do not have interest in purchasing.

Another good tactic for touring homes is to rank them from 1 to 10 as you like them. If a home scores less than a 7, in my experience, it is a “no.” If you find one that you really like, do not be afraid to make an offer on it (See step 6). One of the saddest feelings you can have is not making an offer on a home, because you want to see what else is available; and then coming back to that home a few days later and finding out someone else has taken it off the market. That home was in your first group of homes to tour for a reason. It will have a much higher probability of being one you like than ones in the next group will have; of course, this statement excludes any new listings that were to come on the market after your initial search.

Step 6: Making an offer

Once you have narrowed down the homes to the one you want to pursue, you should make an offer on it. When making an offer you should first determine what the home is worth to you. You also should have your realtor complete a competitive market analysis on the home to determine if it is priced properly and likely to appraise for the amount you want to pay for the home. In today’s market it is entirely possible that a home may have difficulty appraising for the amount you offer. If this happens, there are a fairly limited amount of options that will be available to you and to the sellers. The first option is that the seller will sell you the home for the amount of the appraisal number; this will make the seller net less than they first anticipated and have a high likelihood of not being an option. The second option is that you make up the difference between the appraisal amount and your offer amount with cash. Often times this is not an option either. The third option is that the deal falls apart, and you no longer purchase that particular property. You will lose your appraisal fee; and, most probably, your inspection fee as well, since it is often completed before the appraisal is completed. Hopefully, this reveals to you the importance of having a realtor and having one that will complete a market analysis to help hedge your bets against this happening to you. Completing a CMA by no means guarantees against this happening, but it will give you an idea of the risks associated with the appraisal.

The offer process is a negotiation. Your goal should be to get the home for the lowest amount possible, and the seller wants to get the most out of the home as possible. I do not recommend playing games during this step. Straightforward negotiation during this point in the process will help you in the next step when dealing with inspections and their results. Your realtor should be able to help you with a negotiation strategy.

Step 7: Inspections

This is a crucial part of the buying process. This is where you learn about any issues the home may have and have the opportunity to ask the seller to repair any “major” defects with the home. Unfortunately, the word “major” is very subjective and may lead to disagreements and difficulties. If there are obvious problems with the home, and you noted these during your tours of the home, I find that it is often better to deal with these issues during the time of the offer negotiation. By doing this you can prevent issues from arising during the inspection response period, and, potentially save yourself the expense of an inspection by having the deal fall apart over these issues before you have completed an inspection.

Most of the time the defects with a home are not known before the inspection is completed, and even if you did know about defects before this period and negotiated those in your offer, we recommend that you still have inspections completed. There may be more problems with the home that you will need to address. You should shop around and find a reputable inspector and decide what items you want to have inspected in the home. At a minimum I would recommend having a whole house inspection, termite inspection and radon inspection. There are a lot of other inspections available to you, and you should decide which of those, if any, you would also like to have completed on the home.

Once the inspections are completed, you will have a report detailing the findings. This report is what you will use to determine what items you will ask the seller to have repaired. You will have your Realtor write up the inspection response, sign it, and deliver it to the seller. The seller will usually want a copy of your inspection report with this response. They will then respond with what they are willing to complete of the items you have asked them to do. This step will often go smoothly, but there are times where this step can cause issues. You should rely on the experience of your Realtor to help you through any issues that arise.

Step 8: The closing

The closing is where you will sign all of the final documents for purchasing the home. This is also where the money involved in the transaction will change hands. It is important to have the opportunity to examine the closing documents before the actual closing date. Unfortunately, this is not always possible due to bank processing issues and last minute changes to closing statements and other potential “slow-downs”. You should be able to have the bank or closing agent deliver to you via email a majority of the documents you will be signing before closing and have time to read through them. You will be signing a large number of documents at closing and will not have time to read through them thoroughly without causing the closing to be heroically long, so do yourself and your closer a favor and ask for these documents to be delivered to you at an earlier time so you can get comfortable with signing them.

The most important document will be the closing statement. This is where the costs of closing are itemized and show you a depiction of how your money is being spent. Be sure to have your Realtor go over this document before the closing to determine that everything is allocated as agreed to in the purchase agreement. Once these documents are signed and the loan/cash has changed hands, you are now the proud owner of this home. You will have dealt with possession times in your offer, but the closing is a good time to determine how the keys will be exchanged. Congratulations on your new home!