MILLENIALS! Read this before buying your first home!

How exciting! If you are reading this you are probably considering your first home, congratulations! Buying a house is a huge step toward settling down and taking on major financial responsibility (although if you are a millennial, we have already taken on around $30,000 of student loan responsibility, am I right?) In this crazy market there is a lot you need to know, and your realtor or loan officer might not be willing to tell you the reality of the situation if they think you might change your mind. However, let me give you some real life advice about buying a house.

My husband and I have been through this process not once, but twice by the time we were 26. Let me tell you, we learned so much and I would not wish our mistakes on anyone. I will give you a bit of background.

Our first home, pictured above, was our dream home. It had tons of windows, a fenced in backyard, a gorgeous kitchen, and three bedrooms for our growing family. We were stretching ourselves financially to stay in there, but we felt comfortable and are pretty frugal spenders, so we didn’t think much of it. Until we needed to replace the carpet. They pulled up the old stuff and surprise! The house was leaking and had destroyed part of the floor. We hired a company to come and replace the leaking wall, and as they started to list off the expenses I started to get more and more panicky. They wanted around $12,000 to replace one wall! At this point we had already been talking about moving to a smaller town with more property, so in a state of sheer desperation I called our previous realtor and explained the problem.

Fortunately our story has a happy ending. Our realtor was able to find a local handyman that was super professional and replaced the wall for us (along with some other minor repairs) and we were able to sell our house for around $75,000 more than we had bought it for.

From our experience we learned a few things that people should watch out for when going to buy a home.

  1. Beware of DIYers. The main issue with our first home was that the previous owners were DIYers that would take on too much. This can cause big (and expensive!) problems later on.
  2. Do the math before buying. People in general are foolishly optimistic about how much house they can afford. The biggest hole you can dig yourself into is being forced to pay a mortgage that you can’t afford. The ideal situation would be paying 25% of your take home income on your monthly payment. Now, I realize that this is not necessarily realistic in the current housing situation, but you should definitely worry if your monthly payments are more than 40% or 50% of your wages. Use a mortgage calculator to predict how much house you can truly afford.
  3. Get pre-approved. In order to act quickly when you find your perfect house, you should definitely get pre-approved before hand. This means that your mortgage lender looks at your finances and determines how much the bank will reasonably loan you. Be warned though, lenders will give you ridiculously large numbers and even Jumbo Loans (just don’t- trust me) so do the math before hand like I mentioned. Know your REAL upper limit to avoid taking on too much. Your lender does not necessarily look at the bigger pictures of expenses.
  4. Your mortgage payments are only half of the story. I think it is hard to realize that your monthly mortgage payment is the least of your worries. When you own a home you are also responsible for garbage, electric, and water, not to mention upkeep and repair. Add another $500 to your monthly payment to get a more accurate idea of how much owning a home will be.
  5. Find a realtor that won’t BS you. You need a realtor that is going to be 100% honest and realistic with you. There are so many good ones out there, but there are also people that will try to oversell you or get to you buy something that you don’t love. Make sure you have a realtor that is willing to call out when a house is not for you and is going to be honest if you can’t afford it. If they are trying to sell you a roach infested nightmare, run the other way.
  6. Look at a LOT of houses before buying. Like, a lot. Look at ones you are not even sure about. Look at ones that cost less than you were expecting to pay, that don’t meet your requirements, that look shady, and that are outside your neighborhood. You never know what might surprise you and every house you look at gives you a better idea of what you do and don’t want.
  7. Be prepared with your downpayment. Yikes! When I think of when we bought our first house, I cringe. We literally used almost every last dollar in our account and were relying on the paycheck from the day we wrote the check. However much you want to put down, make sure you are not going to be down to the wire. I just read a story about a couple that could not afford the downpayment, backed out of a house, and were sued for half a million dollars! Terrifying!
  8. If you can’t afford to pay mortgage insurance, you should not buy a house. Now, as a financial adviser I definitely encourage you to put 20% down on your house and avoid having to pay mortgage insurance. Mortgage insurance is an extra couple hundred dollars a month that you have to pay if you don’t have 20% down since the bank considers you a liability. This can really add up over the years, so like I said, it is good to avoid it. My point is that if you are hoping to save up 20% because you could not afford to pay an extra couple hundred dollars a month, you probably won’t be able to cover the additional costs of owning a home that I mentioned above.
  9. Look in unexpected areas. We originally lived in the Portland metro area and loved it so much. When we were looking to buy a larger property, however, we realized that in order to keep our home cost-efficient we would have to look in a more rural or unpopular city. We are so glad that we did! We adore our new town and our new home! If you can’t seem to make it work where you are, try looking in a different neighborhood or cheaper area nearby.
  10. Use your imagination. Don’t get caught up on the little things if the house is a steal. You can change carpet, paint, or landscape for relatively cheap. Be willing to overlook superficial things and you might just find yourself a true gem that is Before/After Pinterest worthy!
  11. Pay close attention to the inspection report. You need to know ALL of the potential problems before going into a home, so make sure you pay very close attention to the inspection report. Some problems are relatively cheap and easy to fix, while others are going to cost you big time. The last thing you want is to be dropped with a $50,000 emergency right after you have spent all of your hard earned money on a downpayment.
  12. Don’t be afraid to make a deal. The worst thing a seller can say is no! Most likely they will give you a counter offer and you will go back and forth until you are both happy. Your realtor will be able to give you better advice on each situation and whether or not it is smart to negotiate. WARNING: If you live in a volatile market and there are multiple offers on a house, don’t try to make a deal if you really want it. Also be careful not to lowball, which is just rude.
  13. Think about asking for the buyer to pay closing costs. Closing costs are an additional $10,000 to $15,000 dollars to your downpayment. That means if you are expecting to put down $20,000, you will need to have around $35,000 saved up. If you have that, fantastic! But you might want to consider asking the sellers to pay the closing costs. Instead of paying out of pocket, like you will have to do, they will just get that much less back from the sale of the house. If you do this you might want to offer an extra $10,000 to the price of the house to sweeten the deal.
  14. DONT FALL IN LOVE WITH A HOUSE- even the right one! There will always be another perfect house. I know how emotional it can be when you are imagining your kids playing in the backyard and reading on the window seat and throwing parties in the spacious living room, but falling in love with a house is only going to lead to heartbreak. The sellers could always pick another offer or you could find out that it is out of your price range. It is best to be cautiously hopeful when approaching a home.
  15. Get advice from people that you trust. These are your parents, older friends, or realtors. If everyone around you is saying no, don’t do it. We even had our parents come through our house with us the second time to get their opinion, and we are so glad that we did. They were able to talk us out of a bad situation.
  16. Be honest about your time and skill level. Even though a fixer sounds like a dream and you feel pretty confident with your renovation skills, I would advise you to take an honest look at your free time and resources. Do you really want to be spending every spare second on projects? Not to mention that some projects take more than one person, and the materials themselves can be expensive. We spent several hundred dollars just updating our chicken coop! 
  17. Be willing to make a long term commitment. This sounds pretty obvious, but with the new tax requirements you need to live in your house for five years before selling it to avoid paying taxes on your sale. This is actually a big deal, since you could be stuck paying $40,000 or $50,000 dollars when selling your house! For example, if you bought your house for $200,000 and sold it for $250,000, you would owe about $25,000 in taxes. You just really don’t want to deal with that mess. Life is always going to happen, but try to make sure you are settled (and are ready to live in your chosen home) for a while.
  18. Strike fast and furious. When you have found the right one, be prepared to strike! The best buyers are the ones who know the market, know what they want, and are ready to pounce. Don’t rush into a decision, but don’t wait forever and hope that it is still there. Good luck, and happy home buying!

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