Three and a half years ago Mr. Money and I decided that we’d like to settle down and become homeowners. This was back in 2007 when the market was so-so and real estate was a buyers’ market, but not nearly as depressed as we are currently seeing. We decided in our heads an amount we felt comfortable spending, and went from there. We didn’t really sit down and figure out a budget and how a monthly payment would factor into it. While we certainly made some mistakes when it came to our first time purchasing a home, I have enjoyed the time we’ve lived in the house and all the improvements we have done to make it our own. I’m going to share some tips in hopes that it will help someone else who is searching for their first home.
1. Focus on the long term. We decided that we wanted to buy a house to put down some roots and have some stability in our lives. Unfortunately, we live in a state where we don’t have any family. That’s made it hard on us and we’ve wanted to move numerous times. It’s not that easy to move when you own a house! I would say that if you aren’t planning on being in one area for a minimum of 5 years, don’t consider buying a house. Think about your career goals as well- if you live in an area that’s not conducive to your career, you may have to end up moving to find a better job.
2. Think before you take out a first and second mortgage to avoid paying private mortgage insurance (PMI). When you buy a house, if you don’t put 20% down, you have to take out private mortgage insurance. There are a few ways around it though. We ended up doing an 80/15/5, which basically means that 80% of your house’s value is on the first mortgage, there’s a second mortgage for 15%, and then you have to put 5% down. I hated paying two mortgages each month. It was such a headache, and I probably would have been happier if we had just done a first mortgage and paid for PMI.
3. Save for a bigger down payment. I think it’s great if you can save more money for a larger down payment. Of course, if it means that you drain your emergency fund, then I wouldn’t recommend that. We had saved some money and used pretty much all of it when we bought our house, draining our emergency fund. Bad idea!
4. Calculate a budget and over shoot. We didn’t sit down and think about how having a house would really impact our finances. We knew there would be a mortgage payment obviously, but we didn’t think about house maintenance and all the projects we would want to do once we moved in. Even better, the real reason we wanted to buy was because our rent was going up to $700 a month. Our mortgage was about $1125 a month. We felt better because we were “not throwing our money away in rent each month.” Pfft.
5. Don’t buy a fixer upper if you don’t have the time, money, and skills to fix it. Trust me, it is really fun and you feel amazing when you can make home improvements yourself, but when you don’t have the right tools, the money, or the skills, nothing is worse than an unfinished house.
Of course, there are many other tips out there for first time home buyers. These are just a few of my observations in the three and a half years I’ve been a homeowner.
What advice would you give to a first time home buyer? If you don’t own, what’s the best advice you’ve received about purchasing a house?