My husband and I decided to take the dive into home ownership in late 2020. We were 27 and 26 years old. I am revealing ages and dates for this post to be relevant for anyone chancing by it.
Facts:
- First time home owners, and immigrants with no immediate family in the US (read, no generational wealth or home market knowledge)
- Very basic knowledge of the US housing market, thanks to a couple of our friends buying homes
- Were at the brink of a heavily contested election
- In the middle of a global pandemic
We decided to start our home search process in January 2021 (bad decision, because the election had no bearing at how the market turned out!). Little did we know, we were in for a ride! I am going to give a very brief overview of our journey and list out some must dos for anyone planning to get into realty.
We started with a budget in mind and some must haves and nice to haves in terms of design. We spoke to a realtor (who was referred to by our friends) and then a lender to get pre-qualified. Thus, began our process. We saw about 10 houses without knowing that school rating was one thing we had to check! We were stuck in a market which was completely favored for sellers. We were in bidding wars, houses going under contract within 24 hours and inventory just not enough for coming-of-age millennials, all trying to get to the "next step" in life.
Long story short, we were in the market for 9.5 months, wrote 14+ offer letters, got rejected 14 times, pivoted from searching for single family homes to new construction to townhouses. We eventually decided to go all in on a beautiful new construction townhouse to call ours! This post will give you the basics you need to consider before buying a house. I'll delve deeper into my experiences in future posts :)
The to-do list for a first time buyer:
Create a list of must-haves and nice-to haves for your future home For example, must have: backyard, 2 car garage, 3 bedrooms, good school district; nice-to have: two story ceiling living room, hardwood flooring, HOA no renting restriction, basement. Give thought to what you want this house to be, i.e., a starter home of 5-7 years or your forever home. Keep this list organic knowing you might have to compromise or add new things as you tour houses. Your idea of what you need vs want will evolve as you see houses and consider putting an offer.
Evaluate the budget of your new house. Consider home insurance, termite policy, HOA fees and property taxes into the calculation. Good start is to use a mortgage calculator online (google, bankrate, nerdwallet are some good ones). Use Zillow or RedFin to get property tax and HOA fee details of a house in the area. Err on the side of caution and budget on the higher side of any range. Once you have an estimate in terms of mortgage payment, budget in your current monthly expenses. Don't forget eating out, vacations, shopping, gym memberships and cleaning services while drawing up the budget. With these written out, you now know what your home shopping budget is. Now add 10-20% to it, as most sellers would want a more than asking price offer.
Contact a realtor and set expectations Realtors are like doctors and lawyers, effective only if they have all the information. Be transparent with your realtor about your house goals, show pictures if you have some saved, discuss budget, area where you want to limit your search and then trust them. If you have a friend/relative who can recommend one, that would be the best way to alleviate any discomfort you might have about their credibility. Also note that a buyer does not have to shell out any money to hire a realtor, lender or lawyer in the process. Most of these expenses come from the seller during closing the house.
Contact a lending service to get a pre-qualification letter Do not begin touring houses without this step done! Contact a lender (most realtors would know a trusted one) and be ready with all your financial information. The lending agent will run your numbers to provide a pre-qualification letter for the housing budget you target, if you qualify. Savings and checking account with balances, credit cards with balances, other loans and social security details are some information they need to run this report.
Do not plan any big purchases until the closing of your house You would think this was obvious but do not plan to purchase anything out of the norm until your house is closed. Expect to get your credit score checked at least twice during the lending process, leaving you with very little room for any more checks. A credit check can affect your score anywhere from 5 points to 30 points. It takes about 3-4 months for the score to recover assuming you have timely payments and a healthy credit line.
Keep down payment amount liquid and ready Your house search process can be anything from a week long or more. If you do put an offer on the first home you tour, you'd want to be prepared to move forward with that transaction. Most buyers offer 1% earnest money and about 10% in down payment. Closing costs can amount to at least 2%. So for a $400,000 house, you'd need $52,000 in your accounts for a timely transaction. Plan ahead to have this in your savings account easily transferable through a wire transfer or a physical check.
Clear your schedule House search process is a time consuming one. Plan to spend about 30 minutes each morning going through listings and another 20 minutes in the evening. Thursdays are especially busy ones with most houses coming on the market (in my experience!). Expect to have showings on Thursdays, Fridays and the weekends and if you decide to put an offer on a house, another 2 hours that day.
Comments