Are you getting house fever? Read about our first-time home buyer mistake before you consider jumping into home ownership. You may benefit from our mistake and avoid making it yourself!
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If you don’t know it yet, I have a type A personality with some perfectionist tendencies to boot. I am a #1 on the enneagram test if that tells you anything.
Needless to say, I like to do things the “right way” the first time. I get frustrated when I make mistakes that could have been avoided. As we all know though, it’s impossible to avoid mistakes and I’ve certainly made my fair share.
With the booming housing market here in Richmond, Virginia, I’ve been thinking back to our experience as a first-time home buyer. I don’t tend to live in regret, but man, I would do some things a little differently if I could!
Thankfully, our mistakes were not so enormous that they crippled us. We’ve decided to give ourselves grace, learn from what we did wrong, and try to avoid making the same mistakes again.
Our Story
In fall 2004, Kevin and I moved from Lynchburg, Virginia to Richmond. We were newlyweds, young college graduates, and trying to get “real” jobs. We moved in with my grandmother as we get new jobs and got settled.
By spring 2005, we got the itch to move out on our own again. As we started researching apartments in the area where we wanted to live, we saw that rent was not as affordable as it was in our previous small town.
The $400 rent we paid in Lynchburg was not going to go far in our area of Richmond. As we discussed our options with family and friends, someone mentioned the idea of buying a small home or condo.
Buying a home was nowhere on our radar at the time, but we gave it some thought and consideration. Once we realized that mortgage prices on small homes were similar to rent, we began to look at houses and we never turned back!
Finding a Home
After some contracts fell through, we found a home and moved ahead with an offer. The process went smoothly and a month later, we were homeowners!
We dove right into making all sorts of cosmetic changes. There were no major issues with the home, but we built a lot of “sweat equity.” As our incomes increased, we hired out the more costly upgrades.
Getting Our Finances In Order
Along the way, I was introduced to Dave Ramsey and The Total Money Makeover. I read the book in a day and was hooked! Kevin was a little less enthused, but I did my best to explain Dave’s Baby Steps and get him on board. He followed along, but not nearly as gazelle as I was.
As I learned more about how to build wealth, I wondered whether we were a little “house poor.” Our incomes were slowly increasing, but we wanted to have kids. I had always dreamt of staying at home to raise them full-time.
We didn’t want to move (or think we needed to), but I was determined to reduce our mortgage payment. We switched our homeowner’s company and then refinanced to a lower interest rate. All of those things helped.
Eventually, we had a child and I was able to quit my full-time job as I had desired. We were doing okay, but our financial progress came to a screeching halt. Our income was cut in half and it took a few years to figure out how to keep making progress financially while living on Kevin’s teaching salary alone.
We wanted to continue working on the Baby Steps, but we were living paycheck to paycheck even after our debt was paid off. We were making it, but were very discouraged about our finances.
Our First-Time Home Buyer Mistake
At this point, you may be wondering where the mistake is in all this.
We were out of debt, could pay our bills, had some money in savings, and were saving a little bit for retirement each month. Not terrible.
In the moment, I’m not sure I would have said any of it was a mistake, but hindsight is 20/20, right? Even though it all worked out in the end, I strongly believe that our mistake as a first-time home buyer was buying too soon.
Don’t buy a home until you are ready financially.
We stayed in that house for 7 years. It was a great starter home and we made a lot of mistakes, but also learned a lot. I don’t want to live in the past, but I would definitely do some things differently.
How to Avoid Our First-Time Home Buyer Mistake
Even though I don’t live in regret, here are some tips that might help you to know whether or not you are ready. Buying and owning a home should be a blessing, so don’t rush such an enormous decision.
1. Be on a written budget
You should know where your money is going before you buy a home. I’m not sure it’s even possible to know what you can truly afford if you don’t have a budget and know where your money is going each month.
Even though I’m the budget nerd now, we did not have an organized budget when we bought our first home. We were just getting started financially and did not have a good grasp on where our money was actually going.
I love the EveryDollar app. I have been using the free version for months now!
2. Be out of debt and have an emergency fund
One of the reasons we decided to look for our first home was because rent was about the same as mortgages at the time. At first glance, rent and home ownership can appear to cost the same. That is simply not true.
It is expensive to maintain a home. Things will pop up and you won’t be able to call your landlord to fix them. Those repairs will be on you!
If you are in debt, then you have less money in your own wallet to help cover the cost of those repairs. And if you don’t have an emergency fund (of 3-6 months of living expenses), then you’ll end up using debt to pay for them!
We had a small student loan debt and only a little bit of money in savings at the time. Looking back, we had no business purchasing a home.
3. Save a 20% down payment
We did have a down payment, but it was less than 10%. We purchased right at the peek of the housing market in 2005. At that time, they did anything to get people into homes, so we did not have to pay PMI despite our small down payment.
You’ll need a 20% down payment in order to avoid PMI, plus it also reduces the overall price of the mortgage. Less debt on the mortgage means less interest! Yay!
4. The payment is 25% of your take home pay on a 15-year fixed rate mortgage
The 25% range will prevent you from having too much money tied up in your home. You’ll need that other money for other things!
We were fairly close to that 25% payment range, but a 15-year mortgage was nowhere on our radar. Now that we’re itching to get our current home paid off early, I really wish we had gotten a 15 year-mortgage. We still plan to pay our house off early, but it’s going to take more intentional effort.
5. Do your research about the financial aspects
Looking back, we were clueless about what we were doing and we could have gotten into a huge mess! At that time, the bank was willing to loan us double what we purchased, so we could have ended up buying way over our heads.
Thankfully, we had some common sense, but we had not researched much at all. We decided to “look at a few houses” and then next thing we know, we were swept up into house fever.
We should have researched more as a first-time home buyer, so we were more prepared financially and understood every single expense during the purchasing process.
Home ownership is a wonderful investment. It’s something that most all of us desire and it can have so many good financial benefits, despite the costs involved.
Even still, if you find yourself getting house fever, throw some cold water on yourself and slow down! You want your home to be a blessing to you financially, so take your time and buy when you and your wallet are ready.
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If you are interested in more about budgeting or family finances, you can check out some of these posts:
