When I bought my house, I had no idea what I was doing.
I didn’t work with a buyer’s agent, never negotiated the price, and didn’t shop around for the best mortgage offer. So I felt lost throughout the process.
I also didn’t have a functioning budget, emergency fund, or any discernible plan for my future outside of “eh, I guess I should buy a house.” Looking back, I had no business owning a home.
One thing I did right: I managed to buy a house with a salary under $30,000 a year for only around $1,200 out of pocket by taking advantage of a couple of first-time homebuyers assistance programs. Those programs helped cover about $17,000 of my upfront costs.
During the six years I was a homeowner, it was a better move for me than renting. In the end I made only a $200 profit when I sold, but I did qualify for an $8,000 tax credit (in addition to the homebuyer assistance programs) when I bought the home.
I may not have come out of my first go at homeownership on the fast path to early retirement, but I learned a lot. Just like with most things in life, you don’t have to get everything perfect for it to work out.
What I Wish I Knew When I Purchased My First Home
I bought my home in 2010 when the economy was just starting to work its way out of the Great Recession. Average 30-year mortgage rates were higher than they are right now, and there wasn’t as much competition for homes as what there is today, which made it much easier for me as a first-time buyer.
Even though today’s real estate market is completely different, much of what I learned while bumbling through homeownership is still applicable for today, or whenever you’re ready to become a homeowner. And even though the tax credit I received is no longer available, the Biden administration has an interest in bringing it back, and it could be worth much more this time around.
1. Your monthly payment matters more than your home’s value
I never negotiated the sale price of the home, and when I sold it six years later, I walked away with only a little more than $200 in profit. Either the home dropped in value or I overpaid.
Honestly, I wouldn’t be surprised if I somehow managed to perfectly execute the real estate double doink — overpaying in a declining market. And while it would’ve been best to negotiate for a lower price, overpaying wasn’t the crushing blow I would’ve thought it would be.
I ended up with a 30-year USDA mortgage with a balance of $119,000 and a 4.5% mortgage interest rate. My monthly payment, including property taxes and insurance, was $800 a month, which I thought was reasonable.
As an example, let’s say I was able to negotiate a $5,000 discount on the price of the home. How far would my monthly payment drop?
That’s it. I’m not saying $25 a month is nothing and it certainly adds up over time, and it would have been amazing to pocket $5,000 when I sold. But at the time it wasn’t the difference between renting for another year or buying a home.
You can use Nextadvisor’s mortgage calculator to easily calculate how your mortgage loan’s balance will impact your monthly payments.
2. First-time home buyer programs and loans are amazing … except when they’re not
Down payment assistance programs open a pathway to homeownership to those who wouldn’t otherwise be able to afford it. This can be especially helpful to first-time home buyers. I received $13,000 in down payment assistance, roughly $4,000 toward my closing costs, and an $8,000 tax credit. The money was available through both programs as 5-year forgivable loans. So I made no payments and paid no interest on that money, and because I kept the home for over five years I never had to pay any of it back. The $8,000 tax credit was mine to keep as long as I lived in the home for at least three years.
There are also several types of government-backed loans that are useful for first-time home buyers because they can be much easier to qualify for and require little or no down payment, such as FHA loans, VA loans, and USDA loans.
The amount of money potentially available to you is incredible, but there are a lot of hoops to jump through with these programs. This increases the likelihood that closing will take longer. Be prepared for paperwork, too. I had to not only manage the paperwork for my USDA mortgage, but also applications for two assistance programs. On top of that, I needed to take a first-time homebuyer course as a stipulation for receiving the assistance.
When you’re navigating the home buying process for the first time, you may not fully understand what’s going on. Receiving assistance from a third-party organization and navigating the complexities of a government loan increases the possibility for something to go wrong. For example, many first-time homebuyer programs have limited funds, which can run out. The closing cost assistance I applied for nearly ran out before I closed on the home.
From what I can recall, I was the last person to get closing cost assistance that year, with that program and I closed in June. If I’d been unable to get the assistance, the deal could have easily fallen through. Not only that, but in order to qualify for the tax credit, I needed to close on my home no later than June 30, 2010. I closed in mid-June, only weeks before the deadline.
In a buyers market, where sellers are having trouble getting offers, first-time homebuyer programs aren’t as big of a hurdle to getting an offer accepted. But that’s not the current market.
Right now fewer homes for sale, and record low mortgage rates are keeping buyers active. For first-time buyers taking advantage of government loans with more strict appraisal standards or navigating a down payment assistance program, it can be incredibly difficult to get a seller to consider your offer when they have five others to choose from that, from their perspective, seem more likely to close. But, there are ways to improve your chances of getting an offer accepted, like increasing your earnest money deposit.
3. What makes the home cheaper can also make it harder to sell
There are a lot of factors that play into selling a home: the housing market, the price, and the type of home. In my case, let’s just say these three things weren’t exactly in ideal shape.
When I decided to list my home, it took about nine months to sell.
It was a three bedroom, 1.5 bath house, which I thought was close enough to the sweet spot for all those families looking for their first home. But at the end of the day, it was undersized, and underwhelming for a family and more suited for a young couple.
I also failed to grasp how important even a minor difference in location was, even within the same city and neighborhood. The town was an ideal location for shipping and lots of major companies have warehouses in the area. I had the foresight to purchase a home on one of the more convenient routes for the local truckers. So a busy street may not be the end of the world, but if the house had been tucked a few hundred feet away on a quiet side street there likely would have been more interested buyers.
4. Expect the unexpected, but don’t let it scare you off
I purchased a home that was over 90 years old, but had just been newly remodeled. So I expected to have no major maintenance issues, and for the most part I didn’t.
In my case, I had issues with the furnace. Home appraisers and inspectors will check the property’s furnace and air conditioning units to ensure they’re working properly. However, I purchased the house during the summer, so checking the furnace was simply a matter of turning it on to see that it would run; there was no practical way of seeing what would happen when the furnace was running for days on end. The problem was that the furnace was installed incorrectly, and the condensation didn’t drain properly. During winter, when the unit was running all day long the moisture build-up caused the furnace to stop working.
So even with newly built or remodeled homes, there’s a potential for hiccups along the way. The repairs were covered by my warranty, but even if they hadn’t been, they were minor. So while you should expect to have to invest some money in minor repairs or improvements, huge surprises aren’t normal. A home inspection and appraisal will catch most, if not all, of the potential major problems, like foundation issues or a roof that needs replaced.
So do your due diligence before buying a home. And if you’ve decided it’s the right time to buy a house, don’t let the horror stories scare you off.