10 Things I Wish I Knew Before I Bought My First House
Here are the 10 hard-learned lessons I wish someone told me before I got a mortgage of my own and bought a house:
#1: Your starter home doesn’t need to be your dream home.
You can (and will) move! The average length of time homeowners stay in their first house is just 5 years.
That’s right – if this house (or homeownership in general) isn’t for you, you’re not stuck there. Selling is always an option. After a month, or a decade, if you’d rather just rent, want more space, or need to relocate? You can!
First-time buyers tend to be earlier in their careers with more modest homebuying budgets. Keep that in mind while house hunting and be flexible with your requirements. Compromises are usually made in the buying process, so it's important to identify your needs (usually tied to the "why" behind why you are moving and buying), as opposed to your wants.
For most people, a starter home is a stepping stone toward their forever home.
#2: You’re not stuck with one mortgage forever.
Very few people actually pay off a 30-year mortgage as planned – they refinance or move. It’s always tempting to wait for a better rate, but don’t try to time the market. Rates go up and down.
If rates drop, or if your balance simply gets smaller and you’d rather pay it off sooner, you can trade your current mortgage in for a different rate and term. This happens all the time. In fact, nearly 9 million homeowners refinanced their mortgage over the first 18 months of the pandemic.
If rates go up, you got a great deal and you’ll be happy you bought when you did.
#3: Forget about a 20% down payment.
The average down payment for first-time homebuyers in 2021 was only 6% of the purchase price of the house.
If you wait until you have a 20% down payment to purchase your first home, you’re not being patient and responsible. You’re making a big financial mistake.
Today, for an average first-time homebuyer saving a 20% downpayment, it’ll take almost eight years!
Sure, you’ll need private mortgage insurance (PMI), but that’s relatively inexpensive. Plus, PMI isn’t required forever, and it’s a small price to pay to buy your home sooner.
The sooner you buy, the faster you can stop renting and start building equity in your home.
#4: The sooner you start preparing, the more options you’ll have.
Homeownership isn’t for everyone. Lots of folks are perfectly happy renting for the time being, and in some cases renting forever. To each their own!
What is for everyone? The opportunity to be a homeowner if you would like to be one. Too often, it ends up being some big bank’s call whether we get approved for a mortgage or not.
Control your own destiny. There are concrete steps you can take right now that will set you up for success. For example, open a down payment savings account and check your mortgage credit score.
Best case? You have everything you need to buy on your own schedule and banks will be fighting for your business. You are in the driver’s seat.
Worst case? You eventually decide homeownership isn’t for you, but now you’ve saved a nice nest egg and your credit is in great shape!
#5: Budget based on the monthly mortgage payment.
It may be hard to think about anything other than the down payment you need to save right now, but the most important thing is your ability to both live comfortably and pay your mortgage each month after you move in.
There is no hard and fast rule here, but at a minimum, you already know what you are paying in rent today. Use that as a starting point. Remember, you’ll also need to start paying for homeowners insurance and property taxes when you buy, not just the mortgage. All-in, what amount do you think you could reasonably manage each month?
Check out a mortgage calculator, land on a monthly number (or range), and use that to determine the home prices you should look at.
A lender may pre-approve you for more, and it is tempting to stretch your budget, but you’ll be glad you stayed disciplined when your first mortgage payment comes due.
#6: Your family and friends want to help. Just ask.
One in four homebuyers gets help with their down payment from friends and family.
Four in five homeowner parents say they are “likely” or “very likely” to help their children save for a home.
The fastest way to save up your down payment is to get a little help from your friends. Buying a home after you get married or have kids? Ask for a house fund contribution on your wedding or baby shower registry. You’ll use the house way more than you’d use a waffle-maker, trust me!
#7: The seller pays for your realtor, so find the best one.
Most first-time buyers go with the very first real estate agent they bump into, and there are a lot of agents out there to bump into. In fact, there are over three million in the US.
Your agent will be the most important part of your homebuying team, and the person selling the house is typically responsible for covering the cost of both the seller’s agent and the buyer’s agent.
So, take the time to find someone excellent. A great agent is worth their weight in gold. A bad one can cost you.
#8: Ignore the interest rate when you apply for a mortgage.
Focus on APR. The APR is the effective interest rate including all the fees you will be charged for your mortgage. By law, lenders are required to show you the APR.
Lenders often advertise ultra-low teaser interest rates, but usually, you’ll have to pay substantial fees in order to get that “great” rate. When you factor those fees in, however, the lowest interest rate may actually be the most expensive option. Looking at APR lets you compare everything on an apples-to-apples basis.
Speaking of price shopping, you should get no less than two quotes from different lenders so you can get the best deal – there’s a lot more that goes into finding a great loan (and lender) than just the APR.
#9: The credit score you are tracking is wrong.
Well, it’s not wrong, but the score you get from Credit Karma, Experian, your credit card company, etc. is not the same as the score mortgage lenders use, and in some cases, there can be a big difference between the two.
Your credit score is one of the biggest factors in your mortgage application. Great credit can save you tens of thousands of dollars, but bad credit can mean you don’t qualify at all. It pays to track the right score so you can build credit that will actually help you get a house.
#10: It isn’t easy, but it’s worth it.
You see the Instagram post from your friend popping champagne on the front step of their new house.
You see the headline about how much equity homeowners are building as their homes appreciate in value.
You don’t see the years of saving and preparation a first-time homeowner put in to get there.
Rent is expensive, and so is everything else, including houses. Still, millions of renters buy their first home every year, and while there are no shortcuts, with the right game plan you can too.
BONUS: Your first-time homebuyer concierge, Gravy.
Owning a home is amazing, buying one is terrible, and preparing to buy one is even worse. We started Gravy, a homebuying platform for renters, to make this daunting process simple, and hopefully even fun.
No one dreams of getting a mortgage. We dream about a place of our own to call home – the swing set in the backyard, hosting for the holidays, space for our passions, peace and quiet, community.
Unfortunately, buying a home, and in particular, your first home, has never been harder. It’s the biggest purchase many of us will ever make. And yet, if you are one of the 100 million renters on the path to homeownership, you’re left to navigate it all on your own. We built Gravy for you, because that was us.
Our singular goal is to help renters prepare to buy their first home with confidence and to get the best deal when they’re ready to buy.