Are you looking to buy your first home? The process can be intimidating, especially if you’ve never done it before. As a financial wellness coach, I want to help you navigate the ins and outs of this exciting decision in your life.
A few years ago, I was also a first-time home-buyer! My husband and I saved up for our wedding at the same time as our first home. After a lot of time spent deliberating and searching for the best home, we came to the conclusion of a few home ownership must-haves:
1. Great Neighborhood
The trick here is to find a neighborhood that is in the middle of up and coming and established. That way, you can get your home for a better price while still reaping in the benefits of a quality neighborhood.
2. Not Too Far from Work
If you settle for a nicer but also cheaper house that is very far from you work, you may not be saving as much money as you think. Gas money for travel to and from work can cut deep into your expenses, not to mention the time it takes.
Being able to easily get to and from grocery stores, drugstores, and other areas is important, especially for those like my husband and I who did not have much spare time.
How We Saved
Building Emergency Funds
Our original goal was never really to buy a house. At first, we were just trying to build up our emergency funds. Once we had 6 months-worth of emergency funds, we reduced the saving to 3 months and invested the rest. We then started saving back up to 6 months then repeated.
Investing in an Index Fund
Investing in an index fund is a great way to grow your savings even more. After building up our emergency fund, my husband decided to take 3 months-worth of savings (about $10k) and invest in an index fund. He liked the idea of electric cars with oil being a finite resource, so he invested $5k in Tesla. After saving a bit more, the Tesla stock had done well, so he invested another 10k in Tesla.
Selling the Index Fund
Once we were serious about making an offer on a house, it was time to sell that fund to ensure we had the money on hand if an offer was accepted. We also needed to make sure to accommodate for any taxes that would be owed on earnings from our stocks while still allowing for a minimum of 3 months emergency savings after paying those taxes.
And even though we had together over $25k in savings, we took out $10k from our savings to contribute to the down payment just to be safe.
We saved up for 2-3 years before making a down payment. Here is a table break down of our savings:
Originally I wanted a move-in ready home because growing up my family always moved in move-in ready homes. It wasn't still we started browsing at open houses that I realized how incredibly picky I am. Then we started to look at fixer uppers, but ultimately, those ended up about the same cost as the others.
We saw over 10 homes, and our search took about 5 months.
We made 3 offers:
- They went over the amount that we wanted to spend. Even though it was on a beautiful street across a park, we didn't think that paying over $900k for a 2 bed/1 bath that had less than 4000 sq. ft was worth it. So we passed.
- Second offer we lost to an all cash offer. We would have spent an additional 100k in renovations b/c the interior of the house was a fixer upper.
- Third offer which is the home we live in now. Although we went 50k over the asking price, I made an extra effort of writing a personal letter and getting to know the family. She was an ex-teacher turned stay-at-home-mom with 3 children. I appealed to the sellers by telling them I envision raising my future kids in this house and really making it a beautiful and sacred space.
Do NOT Exceed Your Maximum Approval Limit
In July 2015 we moved into our first home together as Mr. & Mrs. Ketterer. I don't agree that a home in which you live in is an investment, but rather an expense. What really sold us was that there was a detached studio that we can rent out to earn income, which offsets the monthly mortgage payments.
Buying isn't for everyone, but if you live in a city where the cost of living is high and you anticipate staying there for at least 5 years it would be beneficial for you to buy, you just have to save beforehand.
Do not—I repeat—DO NOT exceed your maximum approval limit, even if your rich Auntie is loaning you 100k for a down payment.
If you’d like more financial wellness tips to learn to save for your future home, book your initial free consultation with Coremoney Coaching today.