First Time Home Buyer
Owning your own home is a smart investment. Prices go up. Over the long term, your home will increase in value. Meanwhile, you have to live somewhere, and why pay your landlord’s mortgage when you can pay your own? If you rent for 30 years, at the end of the 30 years you will have nothing. If you own a home for 30 years, at the end of the 30 years you will own the home free and clear and it will have doubled or tripled in value. That’s a retirement plan.
Home owners also enjoy favorable tax breaks like the mortgage interest deduction, and the capital gains exemption.
Here is my advice for Home owners to-be:
Are you ready to buy a home?
Owing a home is a big responsibility. When you are renting you can pick up and move at the drop of a hat. As a homeowner, your living situation is not as flexible. It’s a big hassle to sell and the transaction fees are costly. Before you purchase I recommend to be certain you are going to be staying in the area for at least 3 years. You will also be responsible for property maintenance.
Make sure your finances are in order. If you are carrying a lot of credit card debt or student loans, it may be better to pay off your debt before buying a house. Check your credit score, if its below 680 you will need to work with a credit repair company to raise your credit score in order qualify for a loan. How much money do you have in the bank? For most first time home buyers saving up the down payment is the biggest hurdle. Thankfully there are a lot of low down payment loan programs that make buying your first home easier. Some good loans to be aware of are 10% down, 5% down, and FHA 3.5% down loans– keep in mind that if you are putting less than the traditional 20% down you will have the extra cost for PMI.
In Los Angeles, real estate prices are higher than other parts of the country. For the price you can buy a 1 bedroom condo in Los Angeles, you could buy a new construction two story house in the Midwest. Because prices are high, it is not uncommon for parents to give downpayment help to first time home buyers here. One trend I am seeing with Millennials, is Parents are giving their kids the inheritance early- so they can use it to buy a home. This makes a lot of financial sense, because you can put that money to good use working for you instead of laying dormant in a checking account for ten plus years. I always recommend for first time buyers to talk with their family and ask for help.
Tips for First Time Home Buyers:
If you are like me you want everything right now and hate waiting. The last thing you want to hear when you are trying to buy your first house is that you need to be patient. From my experience, it takes on average three to five years to buy your first house in Los Angeles, from initial planning stages to final purchase. Los Angeles is a big city and has big city prices that are higher than the US national average. Higher prices make home purchase more difficult. Zillow says the average age of first time homebuyer is 31, but in LA I think it’s a little higher because the prices are higher. Another factor, is that in a big city prices fluctuate wildly. Depending on where the market is in the real estate cycle, prices can go up or down as much as 15%-20% in a year. Saving a down payment takes time.
Don’t be Afraid to ask questions
When it’s your first time everything is new. You will have a bazillion questions rolling around in your head. Don’t be afraid to ask, ask, ask. That’s the best way to learn. Don’t just ask your real estate agent or lender either. Ask your friends and family. Watch HGTV. This is an important decision. It’s a good idea to rally the wagons and confer with your trusted circle of advisers.
Buying a house can be SCARY! It is a big commitment and the biggest purchase you’ve ever made in your life. At least one meltdown when buying a home is not unheard of. Even when you feel overwhelmed and stressed out, stick with it, you won’t regret it. I hear way more often from people regret of not buying when they could, then working a little harder, or saving a little more.
Your first home is not your dream home, it’s a stepping stone. Your third or fourth home will be your dream home. Be ready to make some compromises with your first home in order to keep it within your budget. Maybe choose a condo instead of a single family house to keep cost down- if you do decided on a condo you can usually get a better location and security than comparably priced homes but lose privacy and yard. Or: pick a neighborhood that is in transition and up and coming, instead of a neighborhood that is well established. You will get more bang for your buck in a transition neighborhood. Remember you aren’t going to live in your first home forever. Most buyers are very excited to finally buy their first home they forget about all this stuff and just can’t wait to move in.
Owning a home is always more expensive then renting. So your monthly living expenses will be going up if you are coming from a rental. Buying your first home can be a stretch sometimes. But trust me, it’s a good stretch! When you are young you can afford take more risks, and as you get established in your career you will make more money. It’s ok to be ‘mortgage poor’ when you are young because you are willing to rough it. You may feel like you are in college again, surviving on Ramen noodles and Peanut butter (ok maybe that’s stretching too tight!). LA is expensive, I usually recommend for first time buyers to ask a family member(s) for help with down payment when it comes time to buy. Saving up the down payment is usually first time buyer’s biggest challenge. Most of the time, but not always, family members are happy to help their children and nephews buy their first property if they have been responsible. Their Parents probably helped them when they were buying their first house! Another thing to keep in mind when you are stretching, if you feel like you are stretching too tight, you can always rent a room to a friend for some extra income. Many of my clients have done that.
Hire a Great Realtor
Final piece of advice: hire a great realtor. When you are buying your first home, you don’t necessarily need the biggest most successful realtor in your neighborhood either. As a first time buyer you need a lot of time and attention, and very busy realtors may not have the time to devote to you. Look for someone who is hardworking, and does real estate full time, who you get along with.
Do I have to pay a realtor commission?
No, as the buyer in Los Angeles you do not pay any real estate commissions. The seller pays the real estate commissions. Check out this article you’d like to see a breakdown of your buyer closing costs.
Do I need a home inspection?
Emphatically YES. Always get a home inspection. The last thing you need as a first time home buyer when you are stretching is to have some large unexpected expense.
Should I get preapproved?
Yes, I recommend talking to a lender and getting preapproved right away. They will be able to talk with you about different loan programs as I mentioned earlier, and give you an idea of your monthly cost so you know how high you are comfortable looking.
What is the best way to get started?
Best way to get started is to just go out and look at some houses. Sunday open houses are a great- you might meet a great realtor while you are out looking if your friends/family don’t have a referral.