The number one question that I get on Instagram is: how did you guys buy a house?
At the time, we were the first out of our friend group to purchase a home, which meant we couldn’t turn to them for tips. Our parents bought homes years ago so their advice was dated. To be honest, we were somewhat naïve about the entire situation and just jumped right in, but this eager beaver attitude blinded us to ways we could have done things better.
In five years, we’ve learned a ton about owning a home from refinancing our mortgage to preparing for a massive six figure renovation. Here’s what I wish someone told us before we took the home-owner plunge:
Know Your Buying Power
Next, find a mortgage lender so they can provide you with a pre-approval letter. Most realtors today won’t even look at you until this action is taken. A pre-approval letter is a rough estimate of how much you can afford to spend on a home and it also means you’ve been checked out by a lender aka, you’re a serious buyer. Pre-approval letters last for about 90 days and are typically free since the bank assumes you’re ultimately going to buy your house through them. You can find a mortgage lender in one of two ways: first, good ol’ Google and then calling/interviewing banks until you find someone you like or my favorite way, through referrals (we received a list of banks from our realtor).
The Down Payment
Prior to buying a house, we always believed that you needed to put down 20% of the total value of the home. Which is a significant sum of money a big factor in why most people believe they will never own a home. We actually put down 5% on our home using a type of mortgage that came with private mortgage insurance, or PMI. PMI is a tax you pay that is added to your monthly mortgage for not putting the full 20% down. While it does increase your monthly payment, it helps avoid having to save up a ton of money before buying a home. Of course, your goal should always be to try and strive to place 20% down but if that isn’t realistic, you have other options. A note about PMI: we got rid of our PMI payments by refinancing our home two years later, which brought our mortgage down by $300. This option is no longer available thanks to new real estate laws, so if you go the PMI route, I highly recommend discussing with your lender — ahead of purchasing — ways to get rid of your PMI payment and then, making a plan to do just that.
Act Like You Already Own A Home
Owning a home is so much more than just your mortgage. You have to budget for things like repairs, landscaping, furniture to fill your new space and remodels, both big and small. For example, there is a section of our basement floods every year thanks to 70-year-old sewer pipes. This repair costs us $250 annually until we decide to just bite the bullet and replace all pipes to our home. And by the end of 2019, we would have spent over $7,000 just cutting down trees on our property that were dying and in danger of collapsing on us. There’s always something to pay for so I like to tell my friends to set aside what would be the mortgage plus money for incidentals, home décor shopping and emergencies.
Get Rid Of Your Broke Ass Friends
Or friends with “broke” mentality. If you’re serious about purchasing a home, it involves a lifestyle and financial mindset change. You can still have a life but if you have friends that know you’re trying to purchase a home and they constantly invite you out for $100-dinners, or encourage you to buy the $4,000 (old) Céline bag, ditch them. They don’t respect you or your goals. They may disappear anyway once you cross over to the dark side and start bragging about the new leaf blower you bought, or how you “DI-Why the hell didn’t you pay someone” a few new holes after a gallery wall gone wrong.
More seriously, buying a home doesn’t have to be scary! It’s all about education and preparedness. Five years ago, we were making significantly less money than we do now. In fact, it’s a miracle we were able to secure our home because at that time the mortgage was a stretch — I was saddled with student loan debt and we were utterly clueless. If you’re where we were, don’t worry, you can do this! Hopefully, these tips get you a few steps closer to achieving your goal.
Tell me, are you in the process of buying a home? Or plan to in the next 2-5 years? How are you preparing for it?