Hard to believe, but over the last 10 years I’ve rented at 10 different places. The cheapest rent being $150 at a really old house with two friends (post college); the most expensive being $1,295 at the townhouse my wife and I lived in for a year just after getting married. Most of those moves were justified for some reason. Mainly, I just couldn’t settle down into a career. Also, I wasn’t married nor did I have any other responsibilities tying me down.
Reason #1 for buying a house: I finally settled down. By settling down I mean I got married and found a career that I am content with. This career happens to have many job opportunities in the local market, so even if I grow tired of my company, I can always just hop to the next. These two things provided the stability to my life I needed to buy a home the right way.
Reason #2 was financially driven. Once my wife and I were married we wanted to start building equity in real estate by buying a home. In effect, creating savings from the money we were then paying out in rent. We also wanted our financial portfolio to be diversified. At the time, all we had was cash and retirement savings. Of course we could have just started investing in real estate stocks or mutual funds and been just as diversified…but that leads me to the third reason.
Reason #3 was simply that we wanted to have “our” home. We wanted a home we could call our own, not just another place.
What’s the point? There is a right and wrong time to buy a house. Success comes to those who wait.
How We Found Our Home
Our Reasons for Wanting to Buy a Home
Once we decided we wanted to settle down and get our own house, we needed to find it. I’d be lying if I said we did a huge, exhaustive home search with the help of a top notch realtor. We actually determined we loved the neighborhood of townhouse we were currently renting in and decided to buy one of the townhouse being built in the next phase. The neighborhood is close to both of our jobs and the low-maintenance lifestyle if perfect for us right now. After deciding this, however, we did do a few things that gave me comfort we weren’t making a poor decision:
1. A Home We Could Really Afford
Our first move was to think carefully about how much home we could afford. There are plenty of online calculators and formulas out there that will give you a target home price you can reasonably afford based on your income and expenses. While we did use those, we didn’t strictly rely on them. Other factors we considered, which I think are important for deciding what house is affordable:
- We wanted to be able to put 20% downto avoid private mortgage insurance and have a decent amount of equity in the home up front.
- We wanted a home we could afford using a 30 year fixed rate mortgage.
- We wanted to be able to afford the payment based on either of our incomes alone.
- We wanted to leave enough money in our monthly budget to travel well and enjoy life outside of our home without the feelings of “working for our mortgage”.
2. Met with a Trusted Realtor
Since this was our first home, we decided we’d feel more comfortable throughout the offer and loan closing process if we had a professional with us. Something I’d recommend to someone who doesn’t already know a Realtor is to go out to Dave Ramsey’s Endorsed Local Providers page and find one. This is what we did and While we didn’t need them for our home search, they really came in handy come offer time and even made the offer for us (which we got!). We would have felt out of our league without them.
3. Did Our Own Research
Another thing we did was do our own research about the neighborhood. I set up a Google Alert to track any news or sales and rentals listings in our neighborhood. After about a month of searches, I had a spreadsheet filled with sale and rental prices of comparable properties in our neighborhood. I was then able to see that the offer we were making was in fact a great deal for us, and we weren’t paying too much. Let me know if you’d like to see this spreadsheet and I’ll forward it to you.
In addition to sales price research, you should research the best mortgage rates in your area.
I also did some research on townhouses and their resale value and came to the conclusion that we were making the right choice based on location and association fees. Lastly, it didn’t hurt that we were currently living in one of the townhouses that we would be buying. We knew and felt comfortable with the builder’s product and the warranty service.
I ended up reading several books on the home buying process, but probably got the most use from the book Home Buying for Dummies (affiliate link).
How We Picked the Right Mortgage
This was pretty easy for us, as we feel strongly about the use of fixed rate 80% loans over other products. We’ve seen recently the dangers of going with other products. Our main concern was deciding between a 15 and 30 year loan term. We ended up going with a 30 year loan and hope to make extra payments to get rid of the debt quicker. Finally, we needed to decide on a lender. I detailed how we selected a lender in a December 2007 post. Please check that out.
Well, that’s really all I have for now on the topic. You learn a lot from buying your first home and most of it, for me, was an enjoyable experience. While it can be scary at times, you can ease your fears by knowing your stuff and staying within the limits I’ve mentioned above. When all is said and done, please make sure the time is right for you to buy, you buy the house you can afford, and you select an appropriate mortgage product.
Have any home buying tips? Leave them in the comments below.