Home Buying Tips for your 20's

Jake and I bought our home a over a year ago now. We were both 21 at the time. This never seemed strange to me as we had been in the market and playing with the idea of purchasing a home long before this. However, after we signed, I heard a lot of feedback regarding our age, and the responsibility of home ownership. We also got a lot of questions on how we were able to buy at this time. So we have some advice for anyone our age interested in looking. These also include factors for deciding on purchasing vs. renting.

Take whatever advice you find useful, but remember that we are nothing near experts. We've just been through the process is all.

This picture is after we realized all we were getting ourselves into. :)

• Shop based on your monthly budget, not a purchase price

Start with how much you can afford each month. Now take out how much of that will be Mortgage insurance, home insurance, HOA, and other added costs. Once you determine how much your principle and interest will be each month only, then determine how much house you can afford for that amount.

• Don't be stuck on finding a "move in ready" home

When we first started looking, we were determined to find a home that was updated, clean, and ready for us to move into it, without us lifting a finger. We passed up so many opportunities because we didn't want to replace the carpet, and we didn't want to fix up the yard. In our budget we were looking at older home, or new townhouses. We had already decided we didn't want a townhouse, so that limited us to only fixer-uppers. Now the first homes we passed up may have just not seemed worth the price for the amount of work that needed to be done. When we found ours we knew. It had WAY more work to be done than any other home we'd seen, but for half the price.

With the money we saved by buying a fixer-upper, we were able to remodel the ENTIRE home, AND have money left over.

• BUDGET!

By this I mean ALL your expenses. Don't live out of your means. If you really want a home, you are going to have to put a lot of money up front. Save like crazy and spend frugally. It will cost you money, and you're going to be hurting if you don't have some money set aside in a savings account.

• Determine where you will be in your future and how long you will be there

A house is a commitment. If you know you're going to be moving away in a year, you might want to rethink your decision. If something comes up, you can always sell your home and move on. But don't put yourself through paying the costs of purchasing (and selling) a home if you're not going to be there long enough to reap the rewards.

When we bought, I was done with college and accepted to grad school close by. Jake was going to school close by. We both had established jobs and family nearby. There are also many opportunities in Jake's field so close to this home. We were pretty set that we'd be staying. There is still a chance that Jake will get work somewhere else, but for now, it's perfect.

There are more options however. If you want to buy for the equity and are willing to rent out your place in the future as well.

• Never base your house shopping on paint color!

Exhibit A; Our walls looked like this when we first saw our home.

Yes, that is blue on one side, white on the other, and not pictured, the back wall is bright pink. I'm sure the previous owners had fun... but we got rid of it immediately. The point being; wall color is the absolute easiest thing to change in your home. Don't stress if it's not what you like. 

Oh and if you haven't seen any of my previous posts on our home. We did remodel it completely. It doesn't all look like this still. The fireplace remodel is shown here. Any other projects that I've actually taken the time to blog about can be found under the "Our Projects" tab.

• Be ready to work HARD

I don't just mean to make your home move in ready. The work on your house NEVER ends. Never. Don't forget you now have a yard to take care of, appliances to maintain, the home to upkeep. The list goes on and on. The thing is, it's worth it because it's yours. Just be prepared to put in A LOT of time and energy into making your home comfortable and just how you want it.

• Budget in expenses you wouldn't have were you to rent

Example; with most rentals you will be provided with laundry facilities and kitchen appliances. This may not be the case when you are buying a home. Take into account the fact that you may need to put more down for these expenses. 

• Shop around for interest rates

Don't swoon over the first quote you receive. Don't go with your bank because you've done a lot of business with them, or because they'll give you and I-Pod touch for signing with them. One of the biggest factors determining your mortgage is going to be your interest rate. Sign the best rate. This factor alone can save or cost you hundreds of dollars monthly.

The best bid we got happened to be through an outside agency who sold our loan to a bank after we signed. We dealt with the agency during closing and made all our agreements with them. After we closed, they sold the loan to a bank, who then had to abide by all the terms. I thought this was great way of doing it. But again, I would have gone through someone else had we gotten a better interest rate.

• Try to put down the 20% where possible

The standard downpayment when buying a home is 20%. It's important that if you can put this down, you do it. Without 20% you are required to now pay mortgage insurance premium. We didn't put down 20 and our mortgage insurance is about an extra $110 a month. Yes, an extra $1320 a year, and an extra $39600 for the life of our loan. 

However, keep in mind. You can get rid of your mortgage insurance, BUT to do so you must; have paid it for at least 5 years AND paid down 20% of your initial loan amount. Once you sign for your house you are promising to pay that 5 years. It doesn't matter if you pay the 20% the next day. You still must pay it for 5 years. For us, that's a guaranteed $6600. It might be worth it depending on your situation. That's what we had to do.

After 5 years if you are ready, and would like to get rid of the mortgage insurance, you must refinance your loan to do so. For us that will probably mean a higher interest rate. We were lucky enough to get an interest rate of 3.5%. I'm pretty sure 4 years from now, the rates will be higher.

• Take into account the additional costs onto your mortgage

I mentioned this before when you are determining how much you can afford each month. When doing this, you're going to have to consider all the monthly costs of your loan and owning a home. 

These include; the principle and interest, mortgage insurance, home insurance, HOA fees, property tax and any other costs. 

We used those online calculators to determine how much home we could afford. Those didn't include everything though. On average we found that we were really going to be paying about $200 a month more than what it would calculate. Just keep in mind that you have more to pay for. 

• Determine what you're willing to pay for

I only have one example of what this meant for us. That is, we weren't willing to pay any HOA fee. HOA stands for Home Owners Association and is usually an added fee in communities of houses with a park, pool, yard upkeep, etc. This fee just pays for the upkeep of public areas in the community. It would be great to have someone taking care of our yard, but we decided we could do it ourselves for a lot less than the fee. It's also cheaper for us to buy passes to our city rec center for the pool, gym and tennis courts than paying this. Our neighborhood also has a park that is up-kept by the church rather than the home owners. You might be able to find some neighborhoods like this.

Some HOA fees pay to have your community gated, or for security. This may be worth it for some of you, but really it's completely up to your discretion.  In the future I don't think we would mind having a pool in walking distance and whatnot. But when we were shopping we preferred to spend that $100-200 dollars a month on our home rather than the neighborhood amenities.

• Don't be afraid to make a big purchase!

If done right, a home is equity that you will always have. You are making a huge investment, but also gaining lots of equity and property that you own in the mean time.

• Don't Skip the Home Inspection

Just from the horror stories we've heard, don't try to rush the process by skipping the inspection. You'll feel a lot more secure with your purchase and have some peace of mind. It can also save you a great deal of stress and money.

• Be patient

Be patient in the fact that, you're probably going to have to look at TONS of homes. I kid you not, we looked at over 100 easy. You are looking for YOUR home. Don't take that lightly, and shop around.

You will also have to be patient in the fact that, some of the most incredible, you can't pass that up, deals come in the form of a short sale. Despite it's name, short sales can take sometimes years to close on. The deals are so great though and sometimes that time is so worth it.

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So how did this all work out for us? I will be the first to admit that Jake and I got EXTREMELY lucky. Our house was a HUD home in the Salt Lake Valley that we purchased for $100,000. Yes. $100,000. Our monthly payment looks something like this.

• $470- principle and interest
• $110- property tax
• $110- mortgage insurance premium
• $50- home insurance
• -----------Grand TOTAL of $740 a month

Yes, this is cheaper than what we could find most 1 bedroom apartments to rent. When we bought the home there was SO much work to be done, but suddenly, we could put as much into the house as we wanted because we had the budget for it. $740 is a lot cheaper than what we had planned on paying monthly when we started shopping. But again, our patience paid off when we saw our home. We also had a general idea of how much it was worth because we had seen so many homes before the one.

We purchased the house and ended up remodeling the entire thing (like I said earlier). We put in about $20,000 and we now have over $90,000 of equity in our house. Meaning, if we sold right now, we could pocket an extra $90,000 of cash after we paid off the loan. We love owning a home and the benefits have been so amazing.