Monday, August 5, 2013

Home Buying for the Young Adult

I turned 23 less than two months before I bought my first house.  I dragged my boyfriend (now husband) along for the ride, and learned quite a bit through it all.  I thought I could provide some useful information for those of you looking to navigate the housing market for the first time. I should mention that this post isn't only applicable to young adults, but I figured I would keep with the theme. I should also mention that I am not an expert, these are just examples from my own personal experience.



Before we get started, I thought you might appreciate a few explanations of some common real estate terms that I didn't really understand when I started this process.


And, because I ran out of room on that diagram, let's continue with another:


Step 1: Saving money
I started saving to purchase my house right after high school. I had always dreamed of owning a home (when I was 12 years old, my favorite TV show was House Hunters on HGTV).  Having said that, don't be discouraged if you didn't get such an early start.  It may not take as much money as you think to get into a house.  I went with an FHA loan, because they only required a 3.5% down payment (rather than a traditional loan, which requires a 20% down payment). 

While you're living in your apartment and saving, you likely will still want to make your place feel like home.  I've compiled some ideas for budget friendly decor and making an apartment feel like home that you may find helpful.

Step 2: Establishing Credit
Just as important as savings, if not more so, is your credit score.  If you aren't one of those people whose parents opened up a credit card for you when you were a teenager (I wasn't one of those), you have a couple of options to consider. 

1. Do you own a car?  Even if you had a cosigner, this should get you started towards establishing credit.   

2. Do you have any student loans in your name (not your parents)?  If so, make sure you are paying those babies on time. 

3. Get a credit card.  I recommend starting with something small, because the last thing you want is to get in over your head with credit card debt.   My first credit card had a limit of $500, and I used it for things like gas and groceries.  What you shouldn't do, is use your new credit card for luxuries or splurges.  The quickest way to get in over your head is by feeling entitled to things you can't afford.  Keep in mind that it can take about six months of credit card activity to begin establishing credit.  Get started on this asap.

4. Some lenders will take into consideration your payment history on bills, to boost your credit standing and ensure that you can get approved for a loan.  Make sure you are paying your renter's insurance, cable bill, utilities on time each month.  The more organized and responsible your are with your finances, the better chance you have of getting pre-approved. 

Step 3: Knowing when the time is right
There are several factors to consider when deciding when the time is right for you to buy. How much money you have saved, how secure you are in your employment, and your credit standing are all important factors.  You should also consider how the market is doing.  I got lucky because I was ready to buy when the market was depressed, meaning that house prices were very low.  Every market is different, so you should do your research.  For me, I knew that in the suburbs of Houston, house prices tended to rise in the spring and summer, and dip in the fall and winter.  I think this is because families with children try to move during the summer so they don't have to interrupt the kids school year.  We bought our house at the end of November in 2011. 

Step 4: Getting Pre-Approved
Most people will tell you to get pre-approved for your home loan before you start looking at houses, and they are right.  Except in my case, I didn't know anything at all about lenders or bankers or financing, and had no idea who to contact to get pre-approved.  Do I just walk into the bank and say, excuse me, can I have $150,000 please?  I doubted it.  So, being the responsible barely-an-adult that I was, I skipped this step and went straight to looking at houses.   

Step 5: Finding a Realtor
HAR has this nifty little tool where if you like a house from the pictures posted online, you just click a button to schedule a tour.  Within 24 hours you will be contacted by the realtor working with that property and they will meet you at the house for a showing. There are probably sites like this for most areas in the US, but if not, sites like Zillow and FrontDoor are good resources for all parts of the US.  We scheduled tons of showings this way and met several realtors. Mostly, they were pretty rude to us.  None of them took us seriously. They thought I was just some silly kid wasting their time. I think it was definitely my age that threw them off (I was 22 at the time).  Finally, we were assigned a showing with a woman named Sherri Putt with Prudential. (If you are in the Houston area and looking for a great realtor, you can find her here).  She taught us that realtors are very well connected to lenders, brokers, inspectors, pretty much everybody you need to know to buy a house.  Sherri connected us with a lender and we were able to get pre-approved and start looking for houses in our price range. 

Step 6: The hunting process/knowing what you can afford
This can take time and be discouraging.  There were several houses that we wanted to put offers on that went under contract before we had a chance.  I think this is a normal part of the process and while it can be hard not to get sad when you see "your" house getting snagged up by somebody else, try to keep your chin up.  There are plenty of fish in the sea. Throughout the process of home tours, we learned a few keys points about the finances of home ownership:

1.  You will likely get pre-approved for more than you can really afford.  
The house we ended up purchasing was about $40,000 less than we were pre-approved for, and I'm so glad we decided to go that route.  Had we purchased at the top of our limit, we would have certainly been house poor, and likely would have been forced to sell.  Doesn't sound fun to me.  

2.  If you put down less than 20% of the sale price, you will have to purchase mortgage insurance, which is separate from your home owner's insurance.  

Step 7: The buying process
If I am being honest, this part is a total blur in my memory. After I made the initial offer, the sellers countered, and then I countered, and then they countered, and I accepted. That was an anxiety-riddled afternoon. The most important thing to me was that the sellers agreed to pay the closing costs because I only had enough saved to cover the down payment plus a little wiggle room. Luckily, the sellers agreed to those terms. After my offer was accepted,  all I really remember is exchanging about 10,000 emails with my realtor and filling out 15,000 forms.  The good news is, your realtor will be able to guide you through the entire offering/countering/accepting process, and will hold your hand through all the paperwork and legal mumbo jumbo.  Don't let this part overwhelm you.  It seems like a lot of paperwork, but you don't have to be a real estate or financial genius to figure it out, I promise. 

Step 8: Inspection
In almost all cases, banks will not approve a loan for a mortgage unless the house passes an inspection.  I was required to have a regular home inspection, as well as a pest inspection.  My realtor was able to make recommendations for good companies to hire.  Prepare to fork over about $500 and an afternoon of your time.

I had so much fun at my inspection.  My mom came with me and we got to hang out in the empty house for a few hours. All I could think was "this is all going to be mine"! We explored every room and talked about decor while the inspector guy did his inspector thing and the bug guy did his bug thing. Seriously, so much fun.

Any issues that are found during the home inspection can be renegotiated into the contract with the sellers.  We had a few small things fixed.  

Step 9: Closing
Waking up on closing day was one of the most exciting moments of my life.  I remember it like it was yesterday.  It was a Wednesday, and the sun was shining through the windows, Reid was so excited,  and I had butterflies in my stomach. 
I also remember seeing a text from my sister with some silly poem saying she was excited for me. I think her poem also had a reference to lambs. Or maybe sheep. I never knew the difference. Is there a difference? Anyway, I digress.
 
Closing went smoothly.  There was lots of paperwork, lots of signing, and lots of asking Sherri what the heck this crap means. 

Here is a breakdown of the money we had to bring to the table on closing day: 



So, what is it like to be a homeowner at 23?
After we had the keys to the house, the first thing we had to do was stop by the MUD office to get the water turned on.  We then rushed over to the house, unlocked the door (yes, we took a picture)


danced around the living room (yes, we took another picture)


and then got engaged. (Wait what did that say?) WE GOT ENGAGED. Yup, my boyfriend/fiance/now husband is the smartest, most coolest (I know that isn't grammatically correct, but I think it sounds good) guy ever! He made two of my biggest dreams come true in one day. BEST. DAY. EVER. And we lived happily ever after. So far anyway :)


Please note that we look extremely glamorous and stylish. 
Ok, we totally don't. But we just spent all day buying a house, moving tons of furniture and getting engaged. We were a little too busy to worry about fashion.

Ok, so that was a great day.  But what was it really like to be a home owner at 23?  Pretty awesome, I must say.  I have absolutely no regrets.  There were a few things that snuck up on me, so I'll give you a heads up.  These shouldn't scare you.  None of them are huge, and most of them aren't truly "hidden".  It's just good to keep these in mind, so you don't get caught off guard.
 
 
After a few months, the dust will settle, you'll no longer be surprised that you are now an adult who needs to buy pruning shears, and you'll get into a financial routine.  Here's what our monthly payments consist of. 

 
I can't stress enough the importance of setting up auto pay for your mortgage payment.  From time to time you may slip and be late on your cable bill.  While that isn't exactly advisable, it isn't the end of the world.  But you definitely do not want to be late on your mortgage payments.  Did you know that it only takes 3 months of late or missed mortgage payments to go into foreclosure?  I had no idea it could happen that quickly. 

So, if being a home owner is something you dream of, then you should go for it! I totally believe in you!  If I did it at the age of 23, I know you can do it too! I hope this has been helpful.  Let me know if you have any questions.  

Thanks,
Jesse 






8 comments:

  1. THAT WAS SO HELPFUL. So so so so so helpful. Thank you! I'm 25 and keep going back and forth, and getting encouraged and discouraged and back again, about whether I can buy a condo in the Bay Area. IT'S NUTS. But this was great! I had no idea what all this "escrow" stuff is, and was beginning to freak out about all the "hidden" (aka not actual mortgage) fees that I'll have to pay every month. Now if I could just find a place in my price range...
    And congrats!

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    1. I'm glad to hear it was helpful! The Bay Area is one of my favorite parts of the world, and I am SO jealous that you live there! Good luck with your home hunt! Don't let those high prices get you down :)

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  2. Thank you! We are not as young as you but have yet to buy our first home! We may have an opportunity, due to my husbands job, to relocate and BUY A HOME! So happy that you are able to shed some seriously helpful light on this process and that the two of you are doing well! Thanks for your words of wisdom!!!! Much appreciated!!!

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  3. So happy to see another Houstonian (is that a word? I don't know I've only been here 6 months), I can't wait to buy my first house and this came just in time!

    Also, as a former farm girl, a lamb is just a baby sheep.

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  4. So happy to see another Houstonian (is that a word? I don't know I've only been here 6 months), I can't wait to buy my first house and this came just in time!

    Also, as a former farm girl, a lamb is just a baby sheep.

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  5. This is some good info....also keep in mind, if you qualify for conventional you can put as little as 3.5% down (the interest rates will be higher), or 5% down and the interest rate will be close to the FHA rates at 3.5%. But it does take a little more to qualify for conventional.

    One last thing...if you're thinking of buying a home...DO IT!

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  6. In a few states you don't require a permit to be a home monitor. Home examiners in New Jersey are required to be authorized. home inspection

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  7. Although, some owners opt to install these screens themselves, there are those who let the professionals do the job. http://screen-solutions.com/

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