Buying your first house? Congratulations! Not only for being courageous, for embarking on the exhausting road ahead of you, but for finally deciding on purchasing a home. Buying a home is a smart move. A house is not only a great investment, but it’s probably the biggest investment you will ever own. Buying your first home is a symbolic accomplishment of your arduous work and life’s goals. You will belong to a selective group that has taken a leap of faith and has purchased a home of their own. A house is special, because it will be the place where you will be planning birthday parties, holiday dinners, raising a family, and perhaps retire and grow old with your loved ones. So, how can I buy my first home? You may ask. Well, there are diverse ways of accomplishing that.
To give you some context, I was only a single, 25-year-old, when I first bought my house. Not only was it constructed brand new, but I also saw it being built from the ground up to the last detail. I was very involved in the construction process and I even had the chance to choose the cabinets and floors. I don’t share this to brag, but to emphasize that I was all alone with no rich parents to help me, and no wife to combine incomes with. It was just me, my job, and a goal. So, if I did it, I bet you can too! If I was to give you a time frame from the moment I decided to buy a house until “Signing Day” (officially owning my house), I’d say that it took me a total of 3 years. This includes, working on my credit, saving money for a down payment and closing costs, taking financial seminars, and hunting around for the house. It was 3 long years that I had to be patient, make sacrifices, and educate myself about the housing market and all financial options to make wise decisions.
In this article, as I share my experience, I hope that I will be able to point you in the right direction:
First, check your credit scores. It’s vital for you to find out what your credit scores are. There are three types of scores that summarize your credit as a whole. These three numbers come from the main credit bureaus in the nation. They are: Equifax, Transunion, and Experian. You need to monitor these companies yourself or contact a credit consultant. The credit consultant will get your information and within 72 hours provide you the scores from each bureau. Once you know your three credit scores, the credit broker may make suggestions for you to improve your credit. If you don’t have high credit scores then you need to look for ‘alternative credit’. Alternative credit is simply showing the banks that you pay your bills on time. That can be done via car payments, phone, car insurance, and/or lease agreements. Therefore, it is so important to pay your bills on time! Update: A blog reader gave us a suggestion: “the best place for consumers to find out credit information is at: myFICO.com.” Thanks, Rachel for the suggestion and the update!!
Second, change your life style. If you want to purchase a home, you need to change your daily expenses. Every monetary decision you make, needs to base on you buying a house. When I first decided to buy a house, I remember I had a nice bachelor’s apartment. It had wood floors, stainless-steel kitchen appliances, and access to many amenities like a fire place. The only problem was, I was paying over $800 a month in rent. I knew if I stayed there, I wasn’t going to reach my goal. So, I decided to move in with a family, that allowed me to rent a cheap room for two years.
Third, not saving is not an option. Realtors and mortgage lenders will not even consider talking to you if you don’t have at least $3,000 in savings, for down payment purposes. Credit bureaus report to mortgage lenders how much you have in your savings account. The more you save, the closer you are on buying your house. Home payments should never be more than 30 to 35% of your monthly income. You should be saving at least 30% of your income as you get closer to getting your home to ensure you will be able to make your payments.
Fourth, educate yourself as much as possible. Buying a house, has a lot to do with your mindset. How you think about money matters, and it’s vital for you to understand how credit and the housing market works. Seminars such as Financial Peace University and different programs offered by the State of Florida, like H.A.N.D.S and the University of Florida equipped me with the necessary knowledge to buy my house. In these classes not only, I was able to enroll in an incentive program that granted me $8,000 for closing cost, but I learned about the general contractor that built my house. The GC granted me a deal of $10,000 that I used towards the down payment and some upgrades. I was very privileged not to give any down payment or closing cost. All the money I saved, I used to furnish the house!
Finally, be cautious. There are many people out there trying to rip you off. For example, when I first started looking at houses, my realtor had a broker lender she worked closely with. After running my credit, the broker lender provided us with a ‘pre-approval’ letter for $240,000. Sounds great, right? Well, going back to my financial seminars, I learned that with a salary of about $50,000 a year, a mortgage loan of $240,000 for me was absurd. I knew my pricing range, so I rejected that offer. At the end of the day, bankers and realtors will not be the ones stuck with the loan. You are. Another unpleasant experience I had was that the area code selection. When a specific house got my attention, I called my realtor to go and see it. She expressed to me that there was no problem on us visiting it, but the broker-lender she worked with, wasn’t going to be able to be part of the deal if I purchase the home. When she said that, I noticed that my realtor was only selecting a specific area of town to accommodate her broker-lender, not me. I decided to stop using their services and decided to look on my own.
I hope these short lived experiences give you both encouragement and hope as you embark on the quest of owning a home. Enjoy!
Santos A. O’Neill, a contributor to this blog, is a senior educator and post-graduate student that works with teens and young adults as they equip to go to college. He also works as a high school teacher and an athletic coach.