The process of buying a home for the first time will be different for everyone. Each person will have a their own motivation and a different “why” that will account for the reason he or she is choosing to make the leap into homeownership. Whether you are using the property as an investment or as a place to start a family, becoming a first-time homebuyer is guaranteed to be stressful, but also very rewarding.
Regardless of the reason for why you are choosing to become a first-time homebuyer, there are several universal benefits that accompany owning a home:
Benefits Of Becoming A First-Time Homebuyer
Tax Incentives. As a homeowner, the U.S. Tax Code allows you to deduct the interest you pay on your mortgage, your property taxes, and other miscellaneous costs that come with purchasing a home.
Appreciation. According to a study conducted by The National Association of Realtors, the median sale price of a single-family home has increased, on average, 5.2 percent in value each year since 1972; proving that historically, real estate has had stable long-term growth. In the same study, experts expect the number of U.S. households to rise 10 to 15 percent over the next decade, which will continue the high demand there is for housing. Therefore, it is safe to say that investing in a home is a smart and lucrative decision.
Equity. While there are definitely benefits that come with renting, a disadvantage is that you are essentially paying off someone else’s mortgage. The money you pay your landlord in rent each month could be a mortgage payment on your new home that would allow you to build equity.
Predictability. Your rent payment is subject to change based on market conditions. Unlike rent, your fixed-rate 30 year mortgage will never increase and may actually decline the longer you own your home.
Freedom And Stability. When you own your home, you are free to do anything you want to it. Decorate it how you like, upgrade to the amenities you want, and even renovate the entire structure, if you so choose. Additionally, residing in one location for a longer period of time allows you – and your family – to create relationships within the community.
What You Can Learn From Other First-Time Homebuyers
So that you don’t have to make the same mistakes other people made during the process of buying their first homes, my partners at CT Homes and I interviewed 3 different sets of first-time homebuyers to ask for some advice.
The people interviewed are all in different stages of their lives and are all buying homes for different reasons. Steal some of their hints and take their advice so when you are ready to buy your first home, the process will run smoothly.
1. Remy Kennedy, 25, San Diego CA
Remy is a recent college grad who decided to purchase her first home as an investment opportunity. Residing in the beautiful San Diego, CA, Kennedy was tired of wasting her money on rent and went looking for a property close to the water but that was still in her price range. After some ups and downs, Remy couldn’t be happier in her new home.
Q: What were the biggest obstacles you faced when buying your first home and how did you overcome them?
A: “One of the biggest obstacles I faced going into the home buying process was deciding on the price range for my home.”
Remy explained how when she first went to prequalify for a home loan – which should be a first priority for all first-time buyers – the largest loan she could get approved for qualified her for a $400,000 home.
“This really limited my search in my market (North County, San Diego) strictly to condos or less desirable areas”
Remy overcame this obstacle by asking her parents to co-sign on a loan with her, which allowed her to qualify for a higher loan and ultimately gave her the ability to search for homes in her desired price range of $500,000 to $600,000. Remy recommends this option to anyone who has the opportunity. Another possibility given to first-time homebuyers is that you are allowed to receive a cash gift of up to $14,000 per year from each parent without triggering a gift tax.
“My parents knew I could cover the monthly mortgage payments by renting out a room in my new home. They also understood the benefits of homeownership and were therefore happy to help.”
What You Can Learn From Kennedy: Owning a home has long term value that cannot be ignored. If you plan to stay in the home for 10 years or more, it is sometimes worth it to up your budget. Increasing your budget slightly will hardly affect a 30 year fixed-rate mortgage. It is also important to explore all of your options – like reaching out to family – before determining a final game plan.
2. Matt and Angela McQuade, 33 and 32, Los Angeles CA
The McQuade’s are newlyweds looking for their first home to start a family. They both have lived in Los Angeles County all their lives and were hoping to stay in the same area. The Mcquade’s had some disagreements when it came to their “non-negotiables” – amenities or other features they considered “must-haves” – but ultimately agreed on the whatever would be best for their future children.
Q: What is the biggest take away/thing you learned from your first-time home buying experience?
A: “Our biggest ‘aha’ moment occurred when we were deciding between a townhouse, a condo, and a single-family home.” -Angela
Many of the condos the Mcquade’s were looking at were in more desirable areas and were generally newer builds with better upgrades. However, the single-family homes had more square footage and larger yards.
“In the end, the deciding factor was the equity. Once we realized that the money we would be wasting on HOA fees every month with a condo could be utilized instead as equity – if we were to use that money to pay for a higher priced home and monthly mortgage – the decision was easy!” -Matt
“We also realized that a bigger yard would be ideal for our soon-to-be daughter.” -Angela
Q: What is one piece of advice you would give to a first-time homebuyer, based on your buying experience?
A: “My biggest piece of advice, would be to keep an open mind and do a lot of research when choosing a neighborhood.” -Angela
When the McQuade’s first began their search, they were initially only looking at the more desirable areas. “We wanted the fancy grocery stores, trendy gyms, and fresh paved roads”, Angela explained. But again, that limited their search to smaller square footages and higher payments. When they started doing some research on the next up-and-coming markets, they realized they could live adjacent to their desired communities while paying far less. This discovery is one that all first-time homebuyers should keep in mind because those up-and-coming neighborhoods are the ones most likely to spike in property value, therefore giving you a higher chance of increased equity.
“We decided to rent an AirBnB in a few of the neighborhoods we were considering. It felt like test-driving a new car”, said Angela, which helped them tremendously when it came down to making their final choice.
“You never know, the house your heart will finally call home, may surprise you” -Angela
What You Can Learn From The McQuade’s: The real estate industry is changing with all the advances in technology, making it easier than ever for consumers to do their due diligence before ever even reaching out to an agent. If you have yet to determine your desired neighborhood, follow the path of the McQuade’s and utilize sites like AirBnB or VRBO to help make up your mind. It is also important to keep your eyes on the big picture when you are searching for your first home, as it is one of the bigger commitments you will make in your lifetime. You need to agree on the non-negotiables with your spouse before signing a contract or it may cause problems later on down the line.
3. Paul and Danielle Potts, 55 and 56, Houston TX
Paul and Danielle have been married for 30 years and their last of 3 children just moved away for school. The Potts’ rented their first apartment after getting married in their early twenties and rented out a larger condo after their first child was born and have lived there ever since. Their rent increased several times during their stay in the condo, but the couple never felt ready to own due to job instability. After a long search, Paul and Danielle finally moved into a small home that met all of their needs.
Q: Do you have any regrets or mistakes you made during the process of buying your first home? If so, what would you have done differently?
A: “We have no regrets, we love our home. However, there were a few bumps we could have handled differently.”
The Potts’ were offered a $20,000 credit taken off the sale price of their home due to problems with the foundation, which the seller was upfront about needing repairs. The Potts’ got multiple quotes to repair the foundation, which needed re-leveling due to sloping in some areas. However, what they failed to accurately quote was the additional damages leveling the home created.
“The seller’s credit covered the cost of the foundation contractor, but after that work was finished, we still had $15,000 left in repairs for the drywall, stucco, roof repair, fireplace masonry, and paint.” -Danielle
“Looking back, I wish we would have known about this extra work and asked the seller for a larger credit. I would advise any first-time homebuyer to have a regular contractor give you a quote for all work included in a project, rather than just a subcontractor for a specific job; because they tend to overlook and underestimate additional repair costs.” -Paul
What You Can Learn From The Potts’: There are often going to be a lot of small repairs that are actually follow-ups to larger projects that might get overlooked during an initial inspection; and those projects can add up. Keep in mind the Potts’ experience and make sure to be present at, and ask detailed questions, during each phase of the inspection process. It is also important to be clear with your seller and request the necessary credits you deserve based on the condition of the property.
Be mindful of the experiences these homeowners faced when making the decision to purchase your first home and hopefully you can avoid the same mistakes.