We recently had someone in our free facebook community ask the following question:
“We are looking to buy our first home. What tips, hacks, resources, things you’d wish you’d known, etc. do you have to share about buying a home? We are undecided on whether to build or buy an existing home.”
Here were their responses:
From Sean:
“Main ideas summarized kinda badly (I’m traveling so if something here is unclear happy to explain in more detail):
1. You already know about/people here will talk about pros&cons of 30 year vs 15 year. That’ll be personal preference but 30 year provides more flexibility and freedom if you can trust yourself
2. Once you get a mortgage, if you get paid every two weeks pay half of the mortgage payment every paycheck if you are allowed to and can afford to. It makes paying psychologically easier, gives interest less time to compound, and you end up making an extra payment each year (52 weeks, paid every 2 weeks = 26 half payments, or 13 payments)
3. BIG one. Amortization schedules. BIGGEST one people don’t know about. You should be able to find resources but to be concise, save money for a downpayment. This could be 10%, 20%, 30%, whatever. BUT don’t put it all down right away as a down payment. Try and get a 0%, 3.5%, or 5% down loan. Amortization schedules calculate principal owed and interest owed based on your initial amount at a fixed rate for the life of the loan.For example-If you have 20% down saved but only put down 5%, the calculation is made for the life of the mortgage based on that 5%. If you wait 2 months and then put in the other 15% you have saved, it DESTROYS your mortgage payments (in a good way) and eliminates literal years off of the mortgage, meaning it will also save you a lot of money (10,000s of thousands of $$ for most, 100k+ if it’s an expensive area or expensive home). This may sound insane because you technically started with the same amount of money, but play with amortization calculators online and your mind will be blown.Same amount of money, but timed very strategically, and it will literally change your life.”
From Emily:
“Because of the market in NWA when my husband and I were looking, our best bet was to build. I feel like the market has cooled off slightly so you might have a shot at buying but for our needs, building was better and it paid off because the value of our home went sky high very quickly once more homes were built and the area became quickly established. If you are going the building route, avoid RC homes. Their fees and charges aren’t clear and their homes are not quality.”
From Kory:
“As a lender……..avoid big purchases right now or new lines of credit. Look at your approved rate and compare the 15 year vs 30 year. Depending on how long you plan to stay in the house and how aggressive you intend to pay it off. Rates vary per person and each person has their own agenda and goals so this is something to think about and discuss with your lender. Have your funds available for closing (you would be surprised at the people who think they just need 3% and not closing cost)”
From Ben:
“Lenders, realtors, banks make money off of you. They’ll try to convince you that you can afford more than you can with fancy calculations etc. Don’t. Fall. For. It.Always plan on spending 5-6k more than you expect even when you’ve calculated every penny. Things happen.Look at payments, it should be less than 20% of your income. Being house poor is such a hassle.No one cares how nice of a place you have. It’s much better to be financially responsible.”
From Kristen:
“It sounds like you are doing your research. Try to find long term information about the area. What has the housing market looked like for the past 50 years?Viewing your home as an investment: I’m only familiar with my area in Utah county but as we’ve invested in property we look for new builds, first phase, developing areas. You can also watch for areas that are going through renewal. This is a lot more time consuming and requires basic construction skill if you don’t want to pay contractors to do the work for you. We haven’t had time, so we’ve invested in new construction.Plan to stay or rent the home out until you get a good return on your investment. In our area that’s been at least 5 years.”
From Nick:
“For your first home make sure that you do a house hack. It’s the best way to get all the experience.”
From Jeremy:
“Really depends on what your skill set, risk tolerance and cash on hand is like. If you have cash, but no skill/time, I recommend buying a fixer upper (say $200k) and putting $40-$50k into the home to make it what you want, as well as forcing the value higher. Once finished with the remodel, refinance at the new value. You will likely have over 20% equity, then either keep all of the equity in the home and have a lower payment, or recoup some of the cash. Common scenario: purchase $200k + $40k remodel = $280-$300k new value. This allows you to have the work done prior to living in the home. If you don’t have the cash available to do that, you can always buy a livable fixer upper and do the work yourself over time and accomplish a similar goal. The numbers are for example only, but the principle is true. I’ve personally done it and I have Clients that have done it.”
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