First-Time Home Buyers On: The Finances
How long do you need to save up for a down payment? How long does it take to get approved for a mortgage? Buying a home—especially for the first time—is a learning process, made all the more intense thanks to the fact that large sums of money are also involved. So I asked real-life first-time home buyers Tiffany and Alan Goldstein to help illuminate some of the money-related concerns of buying a home.
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→ Saving starts with getting a grasp on what you’re making and what you’re spending.
Early on in our marriage, we made a habit of sitting down and making a budget. How much are we going to make each month after taxes? What known expenses do we have (i.e. rent, car payments, charitable giving etc.)? What is our targeted spend for things like groceries, clothing, eating out, and various luxuries? Everything after that would go towards savings and a down payment. After a few tweaks, we had a plan to have an “emergency fund” and a targeted down payment in about three years.
The next step was following through, but also reevaluating and adjusting as we went along. Want to take a trip? That’s fine — we would go add the expense to our plan and see how much longer it would take for us to meet our home ownership goal and decide if we were comfortable with that.
Spend less going out to eat or pass on that awesome shoe sale? At the end of the month we could see how much closer those decisions brought us to meeting our goal. Getting organized put us in control and took the fear out of making decisions. Ultimately, we compared ourselves to our plan each month and were able to stay on track.
→ Where you put your savings is just as important
On a side-note, it was equally important to decide where we wanted to put our savings. We decided to put the money for our down payment in a high interest savings account through a different bank than the one we used for our checking account. This gave us better growth prospects than a checking account, took away the risk that it would drop with the stock market the day before closing, and put it out of sight while still leaving it accessible in case of a major emergency. We also took advantage of a credit card that provided 2% cash back on all purchases. Since we were closely monitoring our expenses and paying off our card each month, these became ways to reach our down payment goal faster at no additional cost.
→ Get pre-approved
We did get pre-approved for a loan long before we were even serious about looking for a home. As we considered getting pre-approval, we were nervous about how the whole financing process worked. We asked around and were recommended a mortgage loan officer who met us on the weekend, talked through the entire process, and gave us advice about what we should be doing in anticipation of getting serious. When we finally made the decision to buy this house, we went back to him and he actually recommended we reach out to other people to test his rates. He ultimately matched the best offer we found.
→ Be ready to move quickly depending on the housing market
The Austin housing market is pretty aggressive right now with finite inventory and a lot of demand. This doesn’t leave a lot of wiggle room to negotiate. Our offer was accepted two days after we put it in. The house had only been listed for four days and there wound up being three backup bids after they accepted ours. That said, we did go through a process with our realtor to develop a list of post-close items we would need to address with the house and asked the seller for related concessions off of the purchase price. They were amenable, so it was definitely worth the exercise.
→ Between the offer being accepted and closing, there’s still a lot to do
The offer was accepted in late December and we closed in February, so the overall process took about two months. To be honest, we spent most of that time focused on scheduling the necessary vendors required for closing (inspector, bank appraiser, etc.), as well as looking for a contractor, budgeting renovations, and aggregating furniture and accessory lists. Overall, it was more along the lines of dreaming about paint colors…and doors…and light fixtures…in the middle of the work week.
Thanks Tiffany and Alan!
MORE INSIDER TIPS TO BUYING YOUR FIRST HOME
*This interview has been edited for clarity and length.