It wasn’t that many years ago, but long before I started my career in real estate, that I found myself buying my first home in rural Upstate NY. It was one of the most exciting events of my early post college years but to be honest, I was naïve and completely ignorant about the buying process in general.
I had chosen a lender and a real estate agent who got me through the process successfully but reflecting back on the event now, I realize three things: 1) I was lucky that I completed the buying process without any major issues, 2) I couldn’t make any sense of all the paperwork and process; I was signing whatever my agent put under my nose and 3) while I had a decent team on my side, I wish I’d picked a real estate agent who’d have taken the extra care required when assisting those buying a house for the very first time.
It was this personal experience that makes me love working with first time home buyers as a professional. I enjoy spending the extra time sitting down and educating clients on the process and making them feel comfortable so that when they finally decide to commit, they feel great about their decision to buy!
So here are a few lessons learned from both my personal and professional experience in real estate:
Lesson #1: Identify a key location
When first-time homebuyers are shopping for their first place, they’re often faced with a tough decision: Buy a small home closer in their preferred city/location or buy a larger home further outside their desired area? This decision should be considered up front and not taken lightly. The worst time to be making this decision is after you’ve seen a great house and need to decide in the next few hours whether or not to make an offer.
While having a large home may seem ideal, one of the most common first timer mistakes is not putting enough focus on location. Before shopping for a home, it’s important to set your priorities and decide which is more important to you: space or location. If you settle on this in advance, you can formulate well thought out decisions early during the home-buying process and avoid the unsettling feeling of buyer’s remorse.
Lesson #2 Don’t commit before you are ready
Before buying a home, make sure you know exactly what you’re getting into so you can decide if you’re financially and personally ready for such a large commitment.
Don’t get rushed into feeling like you have to find the right house immediately. Take your time and make sure the decision you make is sound. If you’re unsure, then it’s not right – move on and keep looking.
Lesson #3: Get a sense of what you can afford before starting the search
Simultaneous with finding a Realtor that you want to work with, you should also be talking to lenders and getting prequalified for financing. This is an important early step to understand what you can afford before getting heavily invested into the home search. In fact, many real estate agents will request that you get prequalified before starting home tours.
Keep in mind you’ll need the following:
- Enough money to make the mortgage payment
- Enough income to pay the property taxes and homeowner’s insurance
- The ability to maintain the property
- A decent credit record and score
A down payment and cash for closing will also be needed but you should talk to your lender about options and even potential down payment assistance programs.
Lesson #4: Investigate financing options and down payment assistance
Many first time home buyers believe they can’t afford to buy right now because they don’t have a mountain of cash stashed away for the down payment. While nobody will argue that a larger down payment is great, it isn’t always necessary. In fact, buying sooner with a smaller down payment may be more advantageous to your long term finances vs. continuing to rent.
Do some online research and talk to lenders about the wide variety of loan programs and options that are available in your market. There are loans available with lower down payments than the conventional 20% down that most people know. Additionally, there are federal/state/local programs that can help with down payment assistance if you qualify.
Another critical item first timer homebuyers should ask about is a federal program called the Mortgage Credit Certificate program (MCC). It’s a tax credit that puts extra cash in your pocket each month so that you can more easily afford a house payment. It does have some rules and regulations tied to income levels, etc. but it’s worth asking about if your lender isn’t asking you. (Let’s hope they are asking you!)
These programs are great but they do have some confusing requirements and paperwork. Additionally most of these programs require you to attend a free new homebuyer education class, your Realtor can help you find one to attend. It’s best to talk to a well informed lender who can easily determine whether or not you qualify and guide you appropriately. Be sure that your lender specializes in first time home buyers so that they are both aware of and authorized to provide these programs.
Lesson #5: Don’t spend every dollar you qualify for
The lender will tell you how much they believe you can afford but their formula doesn’t include all your expenses. You need to consider how much you’re spending on expenses like cell phone, cable, entertainment, food, etc. and factor that into the equation to determine what you can actually afford.
While your new home will undoubtedly be great, you don’t want to be “house poor.” Having to cut out all discretionary spending in order to pay the mortgage is not fun or, a place you want to find yourself two months after the transaction closes.
Lesson #6: Reserve some cash for home improvements
We’ve already mentioned this but it’s worth saying again. Whether you buy brand-new construction or a fixer-upper, your home will need repairs and improvements on a fairly regular basis. To budget appropriately for this expense, one popular rule of thumb is to budget/save $2 per square foot per year. So if you purchase a 1200 square foot starter home, expect to average about $2400/year in maintenance expenses – some years maybe more, some less but it’s a good general average.
Lesson #7: Consider resale value
Your first home is certainly a major milestone in your life and something you aren’t likely to forget. Keep in mind it’s also an investment – as you pay down your mortgage, you’ll be building more and more equity in your new purchase.
Even though you’ll likely not be thinking about it for some time, a point will come in the future where you’ll want to sell your first home – maybe it’s time for an upgrade due to lifestyle changes, a new job, a growing family, etc. Most first time homebuyers stay in their first home for just about 10 years on average (much less in some areas of the country like Seattle.)
If you’ve considered the resale potential at purchase and along the way during upgrades, you might well find yourself in a position to make some profit on the investment and use it for the down payment of your next home.
Lesson #8: Dig deep during the inspection
During the home inspection portion of your purchase process you’ll be selecting a home inspector. Be sure to get referrals, talk to trusted friends/colleagues, read reviews online, etc. to select your inspector. A good inspector will do an extremely thorough inspection of the home and all major systems to identify potential issues. Expect most inspections to take anywhere between 2-5 hours to complete depending on the size and condition of the home.
During the inspection, I recommend that the buyer always be present for the process. It’s obviously a major time investment but it’s an important one as want to know as much as you can about your new house. Feel comfortable asking the inspector any questions about things you see that don’t seem quite right or that you’re unsure about. Generally, once the inspector finishes the inspection process, they are more than willing to do a walkthrough with you, verbally explain their findings/concerns (the written report comes a day or two later), and answer any/all questions you have.
Keep in mind the inspection is designed to uncover major issues and point out potential problem areas but inspectors are not (nor should you expect them to be) capable of finding every possible issue every time. If you’ve picked an inspector who you feel has done a thorough job though, you should feel confident that you’re in a much better spot in terms of knowledge about the home than you were before the process began.
Lesson #9: Do-it-yourself is empowering but be reasonable
If you’re at all like me, you’ve probably watched a few of those do-it-yourself (DIY) shows and thought to yourself, “That doesn’t look so hard – I can do that!” It’s true that if you’re a bit handy and willing to take on some projects yourself, you can see great results, save some money and increase the value of your home and property from the “sweat equity” that you invest.
I’ve also seen homebuyers who attempt to tackle a major house project and end up in way over their head in terms of skill and ability to pay for the upgrades. The name of the game to be successful is to be realistic. Unless you’re the master of all things construction (or have some handy friends) you may want to leave a major kitchen/bath remodel to the pros.
I also advise new home buyers to consider the home they’re buying, the condition, and their financial situation carefully before making the purchase. While that fixer-up might be a great deal, it’s probably not a great deal for you if you aren’t going to have the free money in your budget to afford the upgrades and repairs. In cases like that, it may be worth financing a bit more into a mortgage to get a house that’s already improved and won’t require the extra investment.
Lesson #10: There will never be a perfect time – go for it!
Many first time are apprehensive to start the process. They want to wait until the market is perfect or they have more downtime to focus on the process. In my experience, it’s impossible to time things perfectly. My suggestion is to get out there and find the home that is right for you. Waiting may cause you to miss out on lower rates, lower home prices, or both.
Buying your first home can be extremely exciting but also a bit of a challenge. In fact, there may be moments in the process where it may seem daunting to the point where you may be considering forgetting the idea all together or feel the urge to settle for the very first house you see. The key is educating yourself and getting the right professionals on your team to assist you. Doing so will help to ensure success and satisfaction with the experience! What are you waiting for? Stop wasting money on rent and start earning equity today!
If you’re considering buying your first home in the Seattle, WA area, our team at Approach Realty specializes in first time home buyers. Please feel free to reach out to us with any questions – we’re here to help!
If you’re not in the Seattle housing market, please feel free to reach out to us regardless. We’re still likely to be able to answer many of your questions or can refer you to a Realtor in your area that specializes in first time buyers.