- 3 years ago
- Wedding: November 2015
I’ve seen a couple of posts lately from Bees looking for advice regarding the home buying process. My (now) FI and I went through this process ourselves over the summer, so I figured I would share how we went about buying our first place. Hopefully this will be helpful to someone!
What we bought:
Originally, we both wanted a single family home. We liked the fact that we wouldn’t have to move unless it was necessary and we really liked that we would get a good amount of privacy.
After looking at the options available for our chosen town and price range we realized that a condo would be a better fit for us. It was a way to kind of dip our toes into the housing world without biting off too much all at once. We are responsible for everything in the walls and our HOA is responsible for everything outside; that means they take care of repairs to the buildings, landscaping, and clearing the roads during snow storms (all for less then $200/month).
Getting a condo also meant we would get things important to us like Central Air. We could have spent more then we did – he was approved for close to 350K – but we didn’t want to be house poor so we stuck with our original limit of 225K. This helped ensure that we would have more then enough money to pay the bills each and every month on his income alone.
We wound up getting a beautiful 2 bed and 1.5 bath end-unit condo in a good area of town. Our mortgage payments are less than $1100.00 a month, which is about the same you would pay in rent for a 1 bedroom/1 bathroom apartment.
Lesson 1: Be open-minded and realistic about what you are looking for and what you can afford. You may want the beautiful ocean-front property with private gardens, a gourmet kitchen, and spa ensuite. . . but you aren’t likely to get it a modest budget.
How much did we put down for our condo?
20% or for our condo a little less than 40K. It seemed smart for us to do that because it made us look less risky to lenders. Secondly, it helped to ensure that his mortgage payments would be just about $1,000.00; that is about the same amount you would pay in rent for a 1-bedroom and 1-bathroom apartment in our area, but we pay it for our 2-bedroom and 1.5-bath condo. Finally, we don’t have to have PMI or anything like that, which saves us a good amount of money in the long run.
Lesson 2: Paying more at first can help save you more later. If it sounds too good to be true, it usually is.
How did we save up for our down payment?
By living with our parents after college. He graduated in 2009 and had already finished Grad School when he was hired as an Accountant in January 2010 (he now is a CPA as well). He spent the past three or so years saving as much money as he could every month so that we would have more then enough money for a down payment; he did so well that three months after we moved-in he has about 23K in his savings account. . . and this is after the down payment, closing fees, lawyer fees, broker fees, buying furniture, and my engagement ring.
Because we spent those years at home, we now have more financial security then if we had immediately jumped into home buying after college (not true for everyone though). We have the money to pay for repairs that may pop up – and trust me, there will be repairs within your first year even if the Inspection came back clear. Make sure you are prepared for that and for expenses like furniture so you don’t need to borrow more money to pay for them.
Lesson 3: Focus on the big picture. It sucks when you see or hear about people taking amazing vacations or partying every weekend, but you need to do what is necessary in order to save up a down payment and have enough of a monetary cushion to keep you afloat when surprises pop up – and they will pop up.
Why did we choose the town we did?
We choose our town because the mill rate was lower then in other areas. Mill rate (combined with the appraised value of your home) decides how much you pay in property tax, so the lower they are the less you pay each year – and the lower the mill rate the less you pay in taxes for things like cars (at least in my state, other states may not have a car tax). Additionally, our town has it’s own power company and our electric rates are half what everyone else in the state pays, which also saves a good amount of money. Plus, our condo has natural gas heating (the only thing that isn’t run on electricity) and that saves money as well.
Looking at taxes is just as important as whether the town has a good school system. And you definitely need to factor in costs like electricity, water, gas for your work commute, heating, TV, internet, and all those other fun things.
Lesson 4: Buying a house is about more then just the mortgage payment and down payment. A lot of people don’t consider everything that goes along with owning a home when they draw up their initial budget and start looking. This is a rookie mistake and could cost you a whole lot of money in the long run.
How did we decide how much to spend?
We came up with a budget for our expenses at the time. This was relatively low because we were living with our parents, although a huge chunk of my income went towards my student loans (this was a deal we made; he focused on getting a home for us while I focused on paying off as much of my loans as possible before moving – I currently have about 7.9K left to pay out of 21K). After we did that we adjusted our spending habits so we weren’t wasting as much money.
Then we looked online at sites like Trulia and Realtor to get an idea of what was available in our area. We also looked up the mill rates on the state website to get an idea of what we would be paying for property taxes. In addition to this, we did our best to estimate what the other bills would be as well. When we were done, we had a pretty good idea of what everything would cost and what price range we should focus on.
Lesson 5: Budgeting is your friend! Check your spending and saving habits on a regular basis to stay on track. You can always adjust every so often if you find you can save more or if an emergency pops up and you need to pay for something.
Who to work with?
We met our Real Estate agent at an open house in the town we eventually moved to. She was the 3rd we met that day, but she made us feel the most comfortable because she did a good job explaining things about the condo and she knew a lot about the area. Additionally, she didn’t try to explain away or hide issues with the condo we were looking at (water in the basement). We liked her honesty, so we wound up working with her.
She, in turn, gave us a list of referrals for a Mortgage Broker and lawyers (my Grandpa is an Engineer and did our Inspection for us). Both choices were extremely professional, answered our questions and concerns quickly, and did a phenomenal job.
Lesson 6: Find people you trust, but remember they aren’t your friends. They are working for you, but they’re also working for a commission. We had a great experience, but that doesn’t mean everyone in real estate will be a good choice. Don’t be afraid to switch Real Estate agents if you feel your’s isn’t the best option for you.
What about the Home Inspection?
I highly recommend having a Home Inspection done before you close on the property. It won’t reveal everything wrong about the house (they can’t, for instance, knock down walls to see where wires and plumbing run), but it can wind up catching a good amount of stuff. If your Inspector catches anything you can always ask the seller for a credit or to pay for the repairs. . . and if they refuse to fix or pay for a major safety issue you can always walk away knowing you made a smart choice.
We were fortunate that my Grandpa agreed to do our’s for free. He did an excellent job and we were lucky that there were no major safety issues.
Lesson 7: Get a Home Inspection. It costs money upfront (in most cases), but it is worth the fee to make sure the home you choose is safe to live in.
Why didn’t I help with actually buying the condo?
We had discussed at the start of our search whether I would contribute financially to buying our first place. We both agreed that I would view potential homes and help with research, but that I would not help financially. We decided against it because we weren’t married and because he had slightly higher credit rate then I did (mine was good, but his was great). This meant a few things:
a. If we broke up dividing up the assets would be much easier then if I had a financial stake in our home.
b. We got a much lower interest rate on our mortgage by using only his income.
c. If I wind up losing my job or leaving for some reason we will still be able to stay afloat financially on his income alone.
While he pays the bills and mortgage, I pay him a set amount of money each month for the privilege to live there. I also do my best to take on the bulk of the cooking and cleaning. And I now have a longer commute then he does (we actually switched commute times so he drives about 15 minutes while I drive a little more then 30). I don’t contribute as much as he does, but it’s still something to help out.
Lesson 8: If you aren’t married you should consider having only one person take on the major financial burdens of homeownership. See about working out a budget where both people contribute to the household.
That’s all I have at the moment. To any Bees with questions feel free to post them; and to any Bees with additional tips (or who are able to answer those questions) feel free to post as well!