In December of 2020 my wife, and I purchased our first home. Our goal after graduating college was to eventually become homeowners. However, when we moved to San Diego, we were in for a rude awakening. As young professionals, our finances weren’t necessarily set up to afford a home in the beautiful city of San Diego. We discussed together our financial goals and set realistic timelines. One of them is that we would save up and purchase a home by the time we were 30 years old, which would be by the year 2025.
We started our journey to homeownership, saving up one paycheck at a time. Naturally, some obstacles slowed us down, like our monthly rent that was over $2,300 for a 500 sq. ft. apartment. It was frustrating because when you think about it, we were giving away over $20k a year to someone else. Rather than let that discourage us, it pushed us even more to purchase. At this point in time, it was 2019, my wife and I were newly engaged, and we also had a giant Saint Bernard/English Mastiff puppy, not ideal for a one-bedroom apartment.
2020 arrived and as we already know, it was unpredictable. Millions of people including my wife and I were either furloughed or let go of their positions. At the time, the future was uncertain, and rather continue to struggle month to month in our apartment, we did what we thought would be the most financially sane thing to do. Our lease ended, so we sucked up our pride, packed our bags, and moved in with my parents. It wasn’t what we wanted but it was one of the best decisions we ever made.
Our furlough ended and thankfully we were back to work. As we started to save more money, the question of “Are we ready for homeownership?" lingered in our minds. A big component that opened our eyes was the real estate market. With all-time low interest rates, 2020 soon became the “Year of the First-Time Homebuyer". Affording a home was becoming more and more realistic, and we knew these rates wouldn’t last forever so we pulled the trigger.
We were uncertain about what we could afford so we reached out to a lender to look over our finances and get us pre-approved. We knew overall it was a great time to buy but that didn’t mean it was the right time for us. The pre-approval process took a couple of months but after some clean-up with our finances, we were approved. Getting pre-approved was key, it eliminated any more guessing and allowed us to focus on specific areas when searching for our home. Browsing on third-party sites like Zillow or Realtor.com is fun but without proper guidance, you’ll often get lost or be misled.
Once my wife and I knew the area we could afford, we had to find the right real estate agent to help us. We found a super helpful and friendly agent who had our best interest in mind. With the help of our agent’s guidance, we found the perfect home. We made our offer at purchase price (Extremely rare in today’s market), it got accepted (Also extremely rare), and finally, we opened and closed escrow! We beat our original goal of homeownership by 5 years and although it wasn’t easy, it was the best decision we ever made. Rather than give away that $20k plus a year, we are now putting that money towards something that’s ours.
Every first-time homebuyer’s experience is different, some share similar stories with mine and others may be completely different. That’s okay, the goal of this story is to share with you best practices before you decide to purchase your first home. Take a look at my five tips below that all first-time homebuyers should consider.
- Organize Your Finances
Easily the first thing you should take care of is your finances. Make sure to look over any of your checking’s/savings accounts, credit cards, and loans you may have. It’s important to lower that debt-to-income ratio as much as possible before you decide to get pre-approved. Lowering my debt-to-income ratio played a huge role in the amount my wife and I got pre-approved for. If you have a goal of homeownership, start chipping away at this now so when the time comes to get pre-approved, you won’t be scrambling.
- Talk to Multiple Lenders
The lenders will be the ones who qualify you for a home purchase. You can’t buy a home without getting pre-approved. Now, with that being said, it’s important to take your time before choosing a lender. Interview multiple because each one may offer you different rates, lender fees, and loan terms. After your interviews, compare which one has the best to offer and then make your decision.
- Explore Loan Options
Many people still believe that you need a 20 percent down payment for the purchase of your home. Maybe at one point in time, that was the recommended practice, but times have changed. Most buyers, specifically first-time homebuyers can't afford a 20 percent down payment. This market is an intimidating time for buyers, but don’t worry, you have loan options that can help you. Here are three government-insured loan programs to consider:
- Federal Housing Administration (FHA Loans) – The most common among first-time homebuyers (myself included), this loan allows you to put as little as 3.5 percent down on a home. This loan also allows you to receive “Gift Money” from your family members!
- U.S. Department of Veterans Affairs (VA Loans) – Are you a veteran? If so, you’re in luck because this loan does not require a down payment on a home.
- U.s. Department of Agriculture (USDA Loans) – This loan helps low-income borrowers buy homes in rural areas. There are certain requirements that you must meet before qualifying for this loan but if you qualify, you may not be required to do a down payment on a home.
Make sure to discuss with your lender the loan options above, they will help you.
- Hire A Real Estate Professional
Remember when I mentioned earlier that I purchased my first home at asking price? Believe it or not, thanks to the high buyer demand and low inventory, getting an offer accepted at asking price is almost unheard of right now. This is why you must interview a real estate professional to assist you with this purchase. They have the network, the experience, and the negotiation skills to get you the best offer. If you’re curious about finding a real estate agent, take a look at our CENTURY 21 Award Agents here.
- Making A Decision Based On Emotion
Always make sure you are making the soundest decision when it comes to any large purchase in life. It’s easy to let our emotions get the best of us and influence our decisions. Don’t let this happen to you! Fear of missing out (FOMO) drives a lot of people to make bad financial decisions. Don’t get too attached to a home because that attachment can have you spending more money than what you’re financially comfortable with. Today’s market belongs to the seller, which means that buyers are outbidding each other left and right because of the low inventory. Set your budget and stick to it!