Tips for the First Time Homebuyer

With interest rates on the rise many of you may be wondering, “Should I take the leap from renting and purchase a house?” Owning a home certainly has its pros and cons. My husband and I have owned our home for just under 4 years now and we have certainly had our ups and downs with homeownership. Being a first time homebuyer can be overwhelming, so I figured I would share some advice with those going through the process.

Before I share some of the lessons we learned and experiences we had with our first home purchase let me give you a little background. My husband and I purchased our home pretty young, just one year out of college. We put down the majority of our savings to purchase the home with the goal of having a low mortgage payment. We wanted a low mortgage payment for 2 reasons:

  1. The taxes in Westchester County, NY are just plain ridiculous. According to a report from ATTOM Data Solutions, Westchester County ranked #1 in the country for highest property taxes, with a median of $16,500. Fortunately for us, we are lower than the median and pay in the neighborhood of $10k a year in taxes (that’s property and school combined). Since we can’t really lower the taxes, we wanted to get the mortgage payment as low as possible to reduce our monthly cost.
  2. Emergency situation. What does this mean? The other reason we wanted to keep the mortgage low was because we wanted to be prepared for a worst case scenario, which we determined would be one of us losing our jobs. In other words, we wanted to have the mortgage payment low enough so that we could afford both the house and the taxes on just one of our incomes. Using a good chunk of our savings allowed us to get the math to work where we could afford both the mortgage and taxes with just one salary (while cutting back some unnecessary expenses, too, of course).

A few more details about our humble abode: it’s a 3 bedroom, 1.5 bath, approximately 1700 square foot home built in the late 1950s, sitting on a about a ½ acre of property (a.k.a. not even a quarter of a mansion). When we bought it, the home was in decent shape, but it needed a few minor repairs (new faucet and some other cosmetics) and a few major repairs (new roof and basement waterproofing). So we had some work ahead of us, but we knew what we were getting into. Knowing all that and with our savings used as a down payment we signed on the dotted line and took ownership of our first home. Below are a few of the lessons we learned from purchasing our first home.

Live Below Your Means

When people are looking for their first house they typically go to a bank for preapproval or do some research online using mortgage and down payment calculators to see how much they can afford. The banks or the online tools will ask for your annual income and any large outstanding debt you may have so they can calculate the amount of mortgage you can afford.  BE CAREFUL! This is where a lot of people get tripped up. The bank or website will tell you that you can afford a $500k home, for example. You think to yourself “wow, that’s great!” and start looking for homes in the $500k range. While that may seem great at first, you are actually setting yourself up for disaster. Why? If you take the full amount of the mortgage you can afford you are really stretching yourself thin. The banks and online sites don’t consider things like utilities, food, groceries, vacation and really just life. You don’t want to have to cut back on food, seeing friends and going on vacation because you bought a house you couldn’t truly afford. Be smart. Create a budget which accounts for all your expenses and then use the net number (income for the month minus true expenses) to see the amount of mortgage you can afford. This leads me into my next point.

Don’t Forget the Other Costs

Home ownership is great! We love it, but it’s also very expensive. Before you even spend a day in your home, there are additional costs you need to consider. Don’t forget about the closing costs, real estate agent fees, land survey costs and prepaid water and tax bills to name a few. All those costs need to be paid or settled at or before the closing and they are not factored into the price you agreed to with the seller initially. For instance, if you agreed with the seller to buy a home for $400k, these costs may be an additional $5 to $10k on top of that original price. If you don’t plan ahead for this or consider it in your initial offer you will be forced to borrow an additional amount to cover these cost or, even worse, you may need to back out of the deal if you don’t have enough capital to cover the extra costs.

Renovations and Repairs Add Up

One of the most overlooked costs for homebuyers is that of renovations and repairs. Let me tell you that renovating a home is not as easy as it seems on TV shows like HGTV. Renovations are a lot of work and, depending on the project, they can be extremely expensive. First time home buyers may settle on a house that needs some work with the thought of just changing a few things when they get in the new place. That’s not necessarily a bad thing if those things are minor, but if they are planning to redo a kitchen or bathroom those costs could be significant. A few renovation costs to be aware of: staining or coating wood floors, paint (minor for one room, but it adds up quickly), furniture, lighting, fixtures, doorknobs and I could go on forever. Even those people who buy a brand new home or fully renovated home have to consider the cost of repairs. Two years after owning our house we came home from vacation and found that our hot water heater had exploded leaving water all over the fall and even water stains on the ceiling. This is just one example of a home expense or repair that you may encounter in home ownership. If you don’t account for this ahead of time or at least factor these things in when purchasing a home you may need to go into debt to fix these issues. This is where emergency savings accounts sometimes come into play, but unless you’ve got a pretty nice chunk of savings, you may find yourself draining that pretty quickly. I recommend saving for a contingency fund, whether it be combined with emergency savings or not.

The moral of the story here is you cannot rely solely on others to tell you how much you can truly afford when buying a house. Mortgage calculators and preapprovals are a great place to start, but make sure you factor in ALL the costs you can think of from taxes to utilities to furniture to renovations to repairs to closing costs to savings. You also know more than anyone how much you can comfortably afford with the lifestyle you would like to live.

Do any of my fellow homeowners have any other advice they would like to share? What were some of the biggest shocks to you as a first time homebuyer?

10 thoughts on “Tips for the First Time Homebuyer

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  1. Don’t pull the trigger too fast unless you really want the house is a tip I’d give…

    I’ve looked at 5 houses in my life and I’ve made 2 offers and had them both accepted. On the 2nd one, I didn’t necessarily want the house, but I wanted to play the game. I played the game a little too well and nearly got stuck with it!

    Thanks for sharing Courtney

    P.S. looking forward to your freebies you mentioned in your goals post!

    1. My experience is the same too Erik! I definitely recommend first time homeowners to wait and make no haste decisions. I know it’s super exciting to have your own home etc. but this isn’t a winter coat at Macy’s. You can’t return this purchase if was an incorrect “size.”

    2. Haha well I am glad you ended up with just one house and not 2 at the same time (unless of course you wanted to turn one into a rental property!).

      I definitely think that is great advice, though. Sometimes people just can’t wait to get a house, so they settle on one they don’t really love, but you want your home to be somewhere you see yourself long term.

  2. I’d say that you should go around the neighborhood on your own (without the real estate agent), and really get to know the neighborhood. Look at the demographics. Young/old, race, gender, families/singles, upper/middle/lower class, etc. And stay for a full day. Sometimes, seemingly quiet neighborhoods will get really loud during traffic hours if there’s a road that runs between 2 major rads.

    1. That is great advice Troy!

      A friend of mine just shared with me that he had MULTIPLE friends who purchased a home not realizing until they were living there for a while that they could hear all the noise of the highway from their house! Definitely not ideal.

  3. I watch these shows on HGTV like House Hunters and when they disclose their max budget, they end up almost always getting a home at that max price. I wonder how they figure it out and think to myself why use up the whole budget??? Of course the real-estate agent and banks want you to spend all that, but the question is can you maintain your lifestyle with that max-budget home?

    1. I always think the same thing! I’m sure it’s part of the marketing of the show, but it’s giving across the wrong point to viewers and those who are not knowledgeable!

  4. Perfect advice for any person trying to purchase a home! Often times I talk to people who completely forget about the other expenses that come with owning a house! I also agree with Erik that sometimes we just settle for a house. Make sure it’s truly the one you want as you cannot return it!

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