First Time Home Buyer

First Time Home Buyer

A first time home purchase is an exciting but daunting event for a lot of young people, luckily there are a lot of resources out there to use as a guide to a successful first time home purchase. The largest issue with these resources is… where to start?!?!

My wife and I just closed on our first home so I’d like to share some of the steps and pitfalls to watch out for when you are purchasing your first home! We started our process 4 years ago (I know that’s a long time ago) with a sit down meeting to review our finances, agree on and set goals for the next 5 years, and consolidate our assets into one place. This step I would advise meeting with a financial planner and walking through this process with them… trust me it is worth it. Our goal was simple: Set a savings rate so that we would have 20% to put down on our first home purchase in 5 years. At the time it seemed like an impossible number with so many variables and life changes that could and did occur, but alas we broke it down into small chunks and it became more and more manageable. So what was our checklist for phase 1?

1.) Pay off all Credit Card Balances and other manageable debts

2.) Save an emergency fund of 3 months living expenses

(Things break in new homes, this is crucial to have so you avoid being house poor)

3.) Set a savings rate monthly to get to 20% down on the home.

This will help you avoid PMI and allow you to put more towards the principal each month. Don’t forget to include closing costs (5-10k). Many people will put less than 20% down on the home and justify it by saying “It’s less than I pay in rent!” but they fail to consider the additional expenses that come into play with home OWNERSHIP. The owner pays for upkeep, landscaping, maintenance, replacing appliances, blown water heaters etc etc. If you think all that plus PMI is cheaper than renting for a short time I’d like to sell you a bag of magic beans.

4.) Once you are at about 15-18% saved, aim to get approved for a mortgage.

Many dream homes are lost to financing falling through. Find a good local representative through your chamber of commerce that will take you through the process. The big lenders are fine, but often do not provide the service and education you will need for your first rodeo.

5.) At the same time you are getting approved for financing begin “Pre-Looking”.

This is where you stalk the real estate apps and sites and look for qualities you like in a home. You may even go to a few open houses or set up viewings so you and your partner can compile a checklist of must haves and wants for the home of your dreams. You may need to make sacrifices here and there, but you want to get 80% of your list. Currently there is a high rate of Buyer’s remorse amongst first time home buyers, reaching as high as 68% this past summer. Don’t be one of these remorseful purchasers and do your homework!

6.) The last step is to turn the hunting switch on! You should have all your ducks in a row.

Link up with a local realtor who knows the market well, make sure they have a Title person they use, and hunt away. This part takes even more patience. It took my wife and I 18 months to find our perfect starter home and our realtor told us that was quick! Find what will work for you and be ready to move on it quickly! Once you find your home get a property insurance quote and an inspection. Calculate cost of repairs and see if you can negotiate the seller to cover some of those costs. Often if you are purchasing later in the year the seller will be more flexible as most sellers do not want a property to sit all winter long.

Congratulations, you are ready to buy a new house!!!

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