A little over a year ago, Evan and I set out to buy our first home. It was the day after Memorial Day to be exact. We were very strongly encouraged by one of our best friends to “quit saying ‘someday’ and just do it”. At the time, it felt impossible. I, for sure thought that the real estate agent would laugh at us and tell us to keep dreaming. But through a lot of sweat, tears and grit, we managed to make our dream a reality on August 7th, 2017.
I cannot even begin to express how happy we are. This has always been our dream, and I am so proud of us for accomplishing it so soon. Our house is everything we could have ever wanted in a home, and we are SO ready to embark on this new adventure together (and be done renting! Woo!)
One year after the search, I thought it would be appropriate to share what we learned, and reflect on what an adventure it was.
Before getting into it though, I think it’s important to bring to light and remember that Evan and I are incredibly lucky and privileged to have been able to buy a home this early on in life. Not everyone has access to the same opportunities as everyone else, and a lot of systemic bias, poverty and injustice keeps many people from owning a home. Hopefully this reminder serves as motivation to keep fighting the good fight for socioeconomic equality and opportunity for all.
Everyone’s situation is different. While these are the lessons we learned, they are unique to our experience, and might not be helpful for everyone’s unique situation. Without further ado, below are some of the things we learned when buying our first home.
Please note–we are not financial experts, or real estate agents, or anything of the sort. Your financial decisions should be consulted with a professional. These are just our shared experiences and what we learned along the way. Always check with a pro!
Down Payment: Start saving. Now.
We all know that in order to buy a home, you need a down payment. A down payment is a percentage of the cost of the home that you pay at closing–but you’ll want to make sure that your down payment is ready to go, or “liquid” before you start your home search. You’ll also want to make sure you have a good 1-2% of the cost of your home saved up and in your checking account. This smaller percentage is called “Earnest Money”, and we’ll talk about it a little further down, but I have to admit, it was a surprise to me. I had always been told “Down payment, down payment, down payment”, and had never heard of an Earnest Money check. It’ll go towards your overall downpayment, which is great, but again, you’ll need to have it liquid and ready to go the day you put an offer in, which, in a seller’s market, can be a split second, “holy shit, go-go-go” situation.
Back to the down payment: The minimum that you need to put down nowadays is 3%, but it’s entirely up to you how much you want to put down. The more you put down, the less your monthly payments will be, because math. If you are able, putting 20% down is the best because you avoid having to pay PMI on your loan, which is mortgage insurance. Mortgage Insurance can range from $80-$150/month, and the simplest way to look at it is you making small payments towards the “risk” that the Lender is taking on by giving you a loan with a down payment that is less than the market fluctuation (which is happens to be 20%, neat, right?).
Two words: Credit. Score.
Credit score. The BFF of the down payment. Your credit score and your down payment are the two most important parts of getting a home loan. Your credit score is how you show your trustworthiness to lenders. I also love how Evan puts it: “It shows how good you are at being in debt.”
We would definitely recommend signing up for a Credit Karma account to help you get your Credit Score in a good place prior to purchasing a home. Credit Karma is freaking awesome. It really helped both of us feel more empowered to take control of our Credit Scores and not be intimidated by it. Let’s face it, the term “Credit Score” is seriously cringeworthy. It’s up there with Root Canals, Taxes and Enemas. But Credit Karma enables you break it all down, helps you figure out how to improve a bad score, and will monitor your Credit to make sure nothing crazy happens. And it’s FREAKING FREE!
Without getting too far down the credit rabbit hole, you should try to get your score close to 700 or higher before you go to get prequalified. As a young person, this can be tough, because a big factor in your credit score is the age of your credit…and if you only opened your first card when you turned 18, then your credit is naturally just going to be “young”. The reason the age of your credit is important is because the more years you have under your belt is more “proof” of a solid credit history. If you haven’t been at the credit game for long, your 5 year history doesn’t mean much to lenders, unfortunately.
A cool tip for getting around this is by asking a parent or guardian to add you to one of their older, existing credit cards*. Amazingly, the age of their card will contribute to the age of your score, which is awesome. Of course, this is a personal decision between you and your family member, but you can even set it up so that you never have access to the credit card, but merely reap the benefits of having an “older” credit history. It’s another way to show the Lender that you are trustworthy, because someone with an older credit history is essentially vouching for you.
*Remember, the age of your credit is calculated by sum of the total age of all Credit Lines divided by the number of Credit Lines. So when you get another card or get added onto a family member’s card, it won’t just make your number go up magically. For instance, if you have a current Credit Age of 5 years with just one line of credit, and then you get added to a credit card your family member has had for 25 years, your new Credit Age will be 15 years, not 30. Still better than 5 though! You can read more about how Credit Age is calculated here.
Get your shit together.
There will be so. much. paperwork, guys. So much. You will be digging for tax returns, pay stubs, account statements, etc etc for what will feel like an eternity. Searching for a home is a long, slow process, but once you make an offer, it goes lightning fast.
Use the time when you are still searching to do some paper pushing to save you tons of headaches later on. Make it easier on yourself and try to gather some of the paperwork ahead of time, or at least have it organized so you know where to access it. Whether that is a filing cabinet, or by logging into your account online and downloading the statement digitally, make sure you can access your information easily and quickly.
Set a Budget and stick to it. No seriously, stick to it.
It almost goes without saying that about a year or two before you want to make your purchase, you should sit down and evaluate your spending and create a budget for your life in general. When you get into the actual home purchasing process, there will be lots of financial questions, and you want to make sure you are prepared to answer them.
Setting a budget really helped Evan and I have a clear picture of not just how much we could afford with a mortgage, but what kind of lifestyle we wanted to live while being homeowners. Having a clear picture of how much we spend on groceries, going out to eat, travel, etc. helped us be more realistic about our mortgage. Lenders, in my opinion, tend to approve you for more than you can afford. According to our PreQual letter, Evan and I would have been approved to afford a home almost $90,000 more than we ended up spending. But that would have been a difference in hundreds of dollars a month that we would rather save towards making improvements on our home, traveling, etc. We bought a home for far less than we qualified for, and in exchange, we are able to live comfortably without being “House Poor”.
The budgeting app we used and continue to use is Mint. We highly recommend it to help get your financial house in order!
Make “The List” (Must-haves, nice-to-haves)
One thing Evan and I did early on in the process was make a simple list of the things we wanted in a home, and then rated them by “Deal-breaker”, “Must-have”, “Nice-to-have”. We nicknamed it “The List” (so original, right?). The List helped keep us grounded when searching. It really came in handy actually when we found a home that we almost made an offer on. It was at the top of our budget, but it had a lot of things we liked, so we thought it was the right choice. However, we checked the list, and while it had a lot of “Nice to Haves” it didn’t have a lot of our “Must Haves”, and we ultimately didn’t make an offer. We think that weird, “I don’t know…” feeling we had was the sign that the house wasn’t meeting the “Must-Have” criteria on our List, and helped keep us grounded so we waited until we found the right house.
Side note: The house that we DID end up buying had all but one of our “must-haves” and almost all of our “nice-to-haves”! (It doesn’t have a fireplace…boo. BUT we can always add one later.)
Get yourself an amazing team
Evan and I were incredibly lucky to have built our team based on recommendations from our best friends who had bought their home in the same neighborhood we were looking in. Do your research and really be critical about who you “hire” to work with you. While of course you don’t pay for your Agent or Lender’s services, you do have to work with them for a few months and throughout the very stressful process of actually purchasing the home.
Pay attention to some of the initial searches potential agents give you. If they are sending you homes that are outside of your budget, that’s a big red flag in my opinion. You want someone who respects your budget and wishes, and isn’t solely concerned about their bottom line. You are the one that has to make that mortgage payment every month. Find someone who wants to help you find the best fit for you.
Search. Cry. Repeat.
Evan and I only searched for about a month before we found our home. Some people search for over a year, and some people find their place the first weekend they go out to look. There isn’t a magic number, but regardless, it will always feel 3x longer than it actually is. Every week that we searched felt AGONIZING. It is frustrating and downright discouraging sometimes. Searching in a Seller’s Market is a double suckerpunch to the gut. The only advice I have is the same infuriating advice we received: Be patient. The right house will come sooner than you know. And trust me, it will.
Don’t rush into anything that isn’t as close to exactly-what-you-want as possible. That is where “The List” comes in handy–to keep you grounded. Because trust me, when you are at your wit’s end and feeling helpless, you might get to the point where you say “Fuck it I’ll buy the next one that comes along.” and you might end up with a big responsibility that you’re not thrilled with.
Your Agent will be your biggest asset to helping you find your home. But you can also take the wheel! Don’t be afraid to Zillow/Trulia stalk, or even go for a drive and look for signs! You never know how you’ll stumble across your home. It’s all a part of the process.
Find Your Home. Jump for Joy. Check the Budget. Check The List.
Once you’ve found the right one, FREAK OUT!!!!!!!
ISN’T THIS AWESOME AND EXCITING?!?! HOLY SHIT YOU ARE GOING TO BUY A HOUSE AHHHHHH!!!!
Okay. Back to adulting. Check your budget. Are you sure you can afford it, with your lifestyle considered? Evaluate the financial impact the mortgage will be in addition to your rent. Don’t forget to factor in property taxes, home owner’s insurance, alarm systems, etc.
Check “The List”. How does this house measure up? Make sure you are not sacrificing anything “big”. You can’t just give up on this after one year like you can with a lease on an apartment. Make sure you freaking love this house.
So yea. Earnest Money. Wtf is that?! You mean I have to have like…$2500 just chillin ready to go right away?
“Earnest Money” refers to a check that you write as soon as you put an offer in on the house. The amount depends on the total asking/offer price of the home; it is a percentage of the asking price, usually around 1-3%. It ultimately goes towards your down payment, and it’s kind of a “bargaining chip” so to speak with the Sellers. It’s money that, if you walk away after signing your contract (and after Due Diligence), the Sellers get to keep. Providing more Earnest Money when you make your offer helps your offer look “stronger” compared to other offers. It’s your way of saying “I really want this place, I am invested. I am not going to just walk away from $2500 (or more) for no good reason”.
Closing Costs, & Interest Rates
Closing Costs (CC) are a bunch of tricky little fees that you don’t think about when calculating the cost of buying a home. There’s random lawyer fees, title fees, 1st month interest, etc. etc. The cost can range anywhere from 3-5% of the total cost of the home. Navigating Closing Costs are definitely something to discuss with your Lender, but something you can ask about is “rolling” the CC into your loan. Most of us don’t have an extra $10,000+ lying around, so rolling the costs in can be a great option for some, but sometimes a Lender will increase your Interest Rate if you go that route. You can also negotiate for the Seller to cover the CC for you, which is the best.
Your Interest Rate on your loan is SUPER important. Sure it sounds harmless “3-4%”, but if you use an Amortization Calculator and see just how much of your mortgage payment is INTEREST, then you’ll see why your older, wiser family members drone on and on about it. You really want to try and do everything you can to get a low interest rate, which is why having a great Credit Score is so important. The better your score, the more likely you are to qualify for a good interest rate.
You can shop around with Lenders to see who will offer you the best score, but shoot for only 1-3 options, otherwise you’ll hit up your Credit Report with a lot of hard inquiries.
Have your Nest Egg ready & Prepare for Inspection (s)
A BIG Lesson Learned from buying our home is to make sure you have about 1% of the total cost of your home saved up separate from the rest of your Home Savings. Everyone should have a Nest Egg, but for good reason: Ours definitely took a hit when we bought our home. There were random things that needed to be fixed right away but weren’t a big enough deal to be a “deal breaker” on the house. There was the cost of the Inspection, which quickly turned into Inspections.
Since we bought an older home, there were random things all over the house that we wanted to get second opinions on outside of the original Inspection. Plan to pay a good $400-600 on your initial Inspection, but also plan to potentially pay more. For instance, Radon Testing. While it is optional, we wanted to be sure that our home was Radiation free, and that was an extra $165 on top of our initial Inspection.
Be Competitive (Letter, closing fast, etc.)
Finally, when it comes to making your offer, all bets are off. In a Seller’s Market, you really have to put all of your cards on the table and be as genuine as possible and really show how much you want the house.
Part of being competitive in a Seller’s Market is writing a heartfelt letter to the Seller with your offer to explain what you love about the house and why you want to purchase it. You usually have to write fast, because, if buying in a Seller’s Market, every hour counts. We made our offer about 6 hours after touring it for the first time. That’s how fast you have to move.
While we didn’t write a draft of our letter in advance, so if you find that you usually need more time to write, we would definitely recommend writing up some bullet points that can help you write your final letter. Of course, the letter will be different for every house, but you can at least get your opening and closing written up to speed things up.
When I wrote our letter, I made sure to include some thoughtful details about the home that we loved. As an example, you can read our letter here. Being Type A, I am STILL editing this letter in my head, weeks after actually moving into the house, but hey, it worked!
This is gonna be great. You got dis.
That’s pretty much everything we learned! Of course, there is much more to buying a house than what we shared here, so ALWAYS consult a pro first! But I hope by sharing this, it will help you feel more prepared if/when you decide to buy your first home!
Again, we would do it all over again in a heartbeat. 🙂
If you have already gone through this process, what are some of the things you learned? Any fun stories to share? Let me know in the comments!