First Time Home Buying
I want to talk about first time home buying. And maybe even home buying if you’ve decided to move but you haven’t for a really long time. This process can be utterly confusing and I’m going to do a series of posts to explain the process of home buying to help you along the way!
Today’s post will help you decide what you’ll need to save up for before buying a home.
What The Heck I’ve Been Up To
You know, I’ve left you guys hanging for at least a whole month now because we decided to buy a home.. very spontaneously. We had a LOT to do in a very short period of time, that’s for sure.
Long story short we found a condo that seemed absolutely perfect for us. And no, we were not planning on buying at all. We were actually scoping out apartments to rent in the same area, but they were all so tiny and also extremely spendy. So, on a whim, we decided to see the condo.
Then we did something really crazy.
We put an offer in for the place the same day we saw it. That means we gave an offer we were willing to pay to the seller because we wanted to buy the place. The first and only home we’ve looked at… And there you have it. We’re officially homeowners.
It’s A Stressful Process
This process was ridiculously stressful (as you’d expect – it’s generally one of the largest purchases you will make in your life), but I feel like if I had known anything about the process I could’ve been a little more chill. And a little less – frantic, maybe?
Then came the brilliant idea for the blog post series. To hopefully lower the stress levels for you people – you first-time homebuyers – I will be coming out with a series of blog posts talking about how to go about saving your first home, explaining the confusing stuff, financing, emotions, etc. If you have certain topics you’d like to dig in to, let me know.
It Was 100% Worth It
I am thankful we have purchased our home because we are genuinely so happy and it could NOT be more perfect for us. My hope for you is that your home buying experience goes as smooth as possible… I want you to enjoy the process and get excited about it because it’s an extremely exciting and fun time!!
Saving Up For Your First Home
Isn’t it just a down payment? What the heck do I need to save up for other than that? What the heck is a down payment anyway?
There’s a lot of stuff, here. Let’s try to simplify. Here’s the main things you’ll need to be saving for:
- The Down Payment
- Renovations/Unexpected Maintenance (i.e. Emergency Fund)
- A Little Extra, Too
The Down Payment
Probably the largest of all the things you need to save up for!! The preferred down payment is 20% of the entire home price. We’ll go into detail why shortly.
To find out how much that 20% will be, you’ll need to do a few things:
First, you need to search for houses. There’s a ton of places online that have most houses for sale listed. I like Zillow, but you can use whatever site you want with a quick google search. Browsing through pictures and prices can help you really understand what’s out there. Going to open houses can help with this, too! It’s nice to see houses in person, especially if you’re more of a visual person.
Once you’ve really searched around and you have a feel for what you like, it’s time to make a list. The list should include some major things that you really want. Avoid making the list too long or this process is going to be awful… just add some major key points. After that, make another list of things you absolutely do NOT want. Again, keep it short and simple.
Once You’ve Narrowed It Down
Once you have an idea of what you’re looking for, you can start understanding where your price range is and how big of a down payment you’ll need.
If your price is a $300,000 home, your down payment of 20% is $60,000
If your price is $200,000, your down payment of 20% is $40,000
If your price is $180,000, your down payment of 20% is $36,000
And so on.
You can see how large a 20% down payment is. If these numbers sound insane to you, hear me out. This is one of the largest purchases in your life. It will take some time to save up (most likely), but if you’re willing to save up, you’ll have such an easier time with the entire process and you’ll enjoy it that much more.
Find A Price That You Can MORE Than Afford
You want to make sure you can pay for (and preferably afford wayyyy more) than the mortgage payment you will have. What you want to avoid is buying what you think is the home of your dreams and then being barely able to make the mortgage payments each month. That will lead to stress and resentment.
How to figure out how much your monthly mortgage payment will be is actually pretty easy with a mortgage calculator!
Here is an excellent mortgage calculator that includes the down payment, interest, and cost of the home, and it’s great because you can manipulate all of these variables.
Note: the interest rate generally depends on your credit score, among other factors. You will not know the actual interest rate, but just know that it can range anywhere from 3.5% to 7.8%. Be aware that the interest rate also makes a huge difference in your monthly mortgage payment (and how much more you actually end up paying for the home).
Another note: Your monthly mortgage payment is only one thing you’re paying monthly for with your new home. There are taxes, utilities, etc. Just know that this isn’t necessarily the price you’ll be paying, because it could definitely be higher (and usually is).
But Why 20%?
Alright, alright, alright, this is all cool, but why do I have to save up 20%?! Seems like a little much!
20% down usually ensures that you don’t have to pay PMI – or private mortgage insurance.
Most lenders don’t require mortgage insurance if you put 20% down. Mortgage insurance essentially protects the lenders if you can’t make your mortgage payments. This is a monthly cost that’s tacked onto your mortgage payment just because you didn’t put enough money down. Basically, they don’t want to get screwed over lending you this money, so you get to pay them extra.
Obviously, you don’t want to be just straight up losing money for no reason, that’s why it is best to avoid this if at all possible!!
Furniture, Renovations, And Unexpected Maintenance
Now I know some of you are like, whateva, I’ll keep using my crappy smelly couch and cracked dining table and I’ll be happy with that. I thought the same thing. Let me just warn you, it’s not that easy!!!! We’ve been using a tiny patio table since we’ve moved in for our dining table and I’m already about to lose my mind!!
There’s just something different about a nice, new space that’s actually yours. You’ll want to make it beautiful because you know it’s going to last. You’ll want to invest in some pretty things because you know you’re not moving out again in 12 months.
Not only that, but you’re likely gaining a larger space if you’ve been renting and now you’re buying. So you’ll most likely need to add more furniture to your collection regardless.
Even if you have furniture covered, remember the little things. Cleaning supplies, nice towels, plants, etc, etc, there are quite a few things that are different when it’s yours. Do yourself a favor and save up for it before you buy a place – and save some pain for yourself later!
A lot of places can look a whole lot better with some fresh paint and carpet. The home of your dreams may not become the home of your dreams until you do so. Just remember that things like this may be necessary before you move in. Don’t leave these out of the budget or the planning! This could make or break your decision to buy a certain home.
Gone are the days where the lightbulb goes out in the fridge and you call up the maintenance man to fix it (c’mon guys, NO, OF COURSE, I didn’t do that… ).
Now that you’re going to be a big shot homeowner, you’re officially in charge of fixing EVERYTHING now! Dishwasher breaks? Gotta pay for it. Basement leaks? Gotta pay for it… You get the idea.
Make sure you have a hefty size emergency fund so when things need major repair or replacement, you’re not pulling out your credit card. This will be your peace of mind, I promise, when things go wrong. Because they will go wrong!! 🙂
A Little Extra, Too
Since the market is currently nuts, you may find the absolute house of your dreams and be fighting 7 other people for it (like we were). You may want to plan ahead for extra costs – such as closing costs (which can be a couple thousand dollars). I will explore this topic in a post later on down the road, but just know there can be extra costs and things you can offer if you have the money. Your dream house may be worth saving a little extra so you can afford to give a better offer than others!!
It May Seem Like A Lot
All of this saving up for your first home may seem like A LOT! I get it, I know. Just remember this really is one of the largest purchases you will ever make. It’s worth doing it right because it cuts so much stress out of the situation and you’re much more likely to actually find the home of your dreams.
Take your time with it. You got this!!