A Guide to Maybe, Someday Buying a Home
When I jumped into the always lucrative field of journalism in my mid-20s, I made a pact with myself that I’d get my financial act together at age 30.
Well, I swear I blinked and next thing I know, the milestone birthday was upon me. Over the past few months I’ve drastically reduced my rent by moving into a less trendy neighborhood and getting a roommate for the first time in years. I’ve also bumped up my 401(k) contributions, and figured it’s time to consider, what would be involved in one day buying my own place.
The process of buying a home can seem overwhelming to those of us who haven’t gone through it before. So as any good millennial would do, I decided the first place to start my investigation would be with some good, old-fashioned crowdsourcing. I asked more than a dozen friends who’ve made the plunge in the past couple years about where to get started.
Here’s what I learned:
Decide why you’re buying. First and foremost, it’s important to think long and hard about your motivations for getting your own home. (I’m not sure “shit, I’ve turned 30 and everybody I know is doing it” is a good enough reason, which is why my foray into home buying is purely theoretical at this stage.)
Is this an investment—a place you hope to rent out someday? Do you want to raise kids here? Do you reasonably expect to live in the same area for a minimum of several years? These are all questions worth asking before you jump into the process.
Several folks also mentioned this fantastic New York Times calculator, which helps you game out a number of scenarios based on home price, mortgage terms and how long you’ll stay to see if it’s actually worth buying over renting. It’s really comprehensive.
You might also consider checking out a workshop for first-time homebuyers, offered by local realtors and even non-profits. From what I heard, the seminars can be hit-or-miss, but they tend to be free, so all you’re potentially losing is a little time.
Take stock. This surprised me a bit, but my friends were somewhat divided in terms of where to start. Some focused solely on the money and what they could afford, while others thought about their wants and took a considered view of the market first.
One person suggested taking a lazy Saturday to wander through some open houses in neighborhoods you might be considering. It gives you a chance to see how large different spaces end up feeling and what kinds of amenities are on offer in different prices ranges. Plus, it sounds potentially fun if you’re into that kind of thing.
Possible buyers should also scope out listings online—Redfin was a fan favorite, though others mentioned Zillow, Trulia and realtor.com.
As you’re thinking about different neighborhoods, don’t forget to consider related priorities and factors. Is there public transportation? Is traffic a nightmare? What is your comfort level in terms of safety? Take a look at pending development plans for the area, which could drastically raise the value of your place in the future.
If you’re a numbers geek and want to think more seriously about the value of your future home rather than just the absolute price, do some research on comparable homes that have recently sold in areas you’re considering. You’ll want to focus on those that are roughly the same size and in the same condition—these are known as “comps” in the biz.
One friend also mentioned price per square foot as another metric for evaluating places, though that figure is going to vary a lot by neighborhood.
Get your financial house in order. Of course, the biggest hurdle to becoming a homeowner—and the biggest consideration—remains your finances.
Do a free credit score check and consider meeting with a bank or credit union to discuss your situation. Getting a pre-approval letter from a bank gives you a sense of how much debt you can take on, and could make you more competitive in a bidding situation.
Meeting with money-types early on also gives you a chance to see if there are any financial weaknesses you need to shore up before you consider seriously looking. A lender can walk you through any trouble spots in your credit profile or debts you need to spend down and may have tips for raising your credit score. One pal described the pre-approval as essentially a report card from the bank.
At the same time, you need to stay cognizant of how many times different parties are pulling your credit report. Too many checks can actually drop your score slightly and end up costing you money. Several people complained about this.
You also, of course, need to start thinking about saving up for a downpayment if you haven’t already. Putting 20% down when you buy reduces the size of your monthly mortgage payments and eliminates the need for private mortgage insurance. But it can admittedly be difficult to save that much in a reasonable amount of time without a six-figure job or generous parents.
I didn’t go down the rabbit hole of specific financing options with people, but it’s probably worth getting familiar with different types of loans and possible tax credits—local and federal—that might be available.
For example, you can put much less down if you qualify for a Federal Housing Administration loan, but there may be other fees, including pricey mortgage insurance, that could offset any savings compared to a “conventional” loan. Get familiar with some of the terminology involved, and know what kinds of decisions you’re going to have to make down the line.
Budget wisely. Make sure to consider all of the additional costs that will go into buying a home, beyond the mortgage itself. This was one of the most common suggestions I got—and for good reason.
There are property taxes, closing costs and condo fees to consider. That’s in addition to maintenance costs and any decorating you’ll want to do when you move in. Basically, you don’t want to be sitting in your big empty house with the lights off, sweating because you have a busted air conditioner and you’re totally tapped out. A hefty slush fund is crucial.
The NYT calculator does a good job of laying out some of these additional costs to help you consider the bigger picture when you’re weighing whether to rent or buy.
Be ready to advocate for yourself. Several friends came away from their experiences somewhat skeptical of the industry. There have been considerable reforms to the housing market since the financial crisis, but the incentives still aren’t necessarily aligned in favor of the buyer.
Ultimately, I’ve come to realize, it’s the Hunger Games—real estate edition. You make alliances with different people along the way to navigate the course, but in the end, everybody’s looking out for herself.
Of course, there are professional ethics and standards that people are expected to meet, and the majority of friends I spoke with felt generally positive about their experiences. All of them seemed happy with their decision to buy. But it’s worth remembering that you must be your own number one advocate throughout the entire process.
Be proactive in looking for places online beyond the listings your agent is sending you. Don’t be wooed by professionally staged showings. Work with people you trust. Go in prepared and ask lots of questions. Don’t be afraid to negotiate with different lenders and always read the fine print.
Particularly important: choose your realtor carefully. She is your guide through the process and will help you through bidding, inspection, appraisal and securing a loan, so it’s worth getting right. You want somebody who has your back. Feel free to interview several candidates before you settle on one. And tap your friends for recommendations—if there’s anything I’ve learned from this project, it’s that they’ve got some pretty great advice.
Tori lives in D.C., where she writes about banks and Congress.
Photo: Ben Salter
Previously on The Billfold
Also, you have to budget in about $100 a month for “random maintenance sh!t.” For the first year or two that you own a house, whenever you need to do even the smallest thing, it will cost you at least $100 cuz you don’t have the tools and stuff to do it. Need to put in a new smoke detector? OK – that’s only $20 or so, but do you have a ladder to get up there? Need to trim some bushes? Well, now you need trimmers, gloves, etc. It adds up quickly.
@JaneA — as a homeowner for over a decade I would say that amount is even higher. My house (now a rental) is in a relatively affordable market and it’s not especially old and maintenance is in the thousands a year. Sump pumps, heaters, water heaters, windows, A/C units, kitchen appliances… All of these things are decaying at all times and will give out. So your $100/month is probably a good starting point for maintenance, but the reality is much more expensive.
My advice, for what it’s worth, for first time buyers is don’t rush it. If you aren’t trying to sell a home and buy at the same time, you probably have a lot more leverage and time than you realize. My husband and I were renting month-to-month when we bought our home, and we were so eager to get into it that we settled for some things we really shouldn’t have. On our final walk through there were still things wrong that were supposed to have been fixed according to our agreements, and there had been a leak from the kitchen through to the finished basement. They were patching it up, but even when we closed it wasn’t done.
There was a lot of pressure from the bank and realtors to close on time, but holding out would have been our only leverage. Luckily we haven’t had any problems with the leak repairs in the 4 years we’ve been here, but it took us over a year to fix some of the other stuff, and in the end we had to spend the time and money to do it. The sellers and their realtor no longer had any reason to do it once they had the money. Now I really wish I had been brave enough to make waves and put my foot down to insist these things were fixed before we closed.
@BornSecular — Fantastic advice. If you’re a first-time homebuyer you are probably the person with the most leverage. The seller needs money that’s tied up in the house (possibly to buy another place). You may not have a lot of information (since it’s your first time buying a home) but you definitely have time on your side.
If there is something that is wrong that cannot be fixed before closing (due to timing), find a way to get it in writing that it will be done, preferably with money held in escrow aside for those specific repairs. Or find a contractor you trust, have him give you an estimate, and have that money credited to you at closing. Have it in writing AND have money (from the seller), otherwise it won’t get done.
These are both great additional points and things to consider!
All of the parameters (eg.”Decide why you’re buying.”, “Budget wisely.” etc..) are true. Why are they true?
- Well because the market functions this way and these “parameters” sort of speaking are the pillars of the market. If you don’t believe me – ask a Real Estate Developer
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