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Is Buying A House Right Now A Good Idea? (Plus A Step-By-Step Guide For First-Time Buyers)

Cat’s outta the bag: I’m house hunting. I’ve been renting in LA for 8 years, I love it here, and mortgage rates are so low that I figured I’d just look and see what’s out there. (Also, I became very obsessed with the @cheapoldhouses Instagram, which has fed into my frenzy and my lifelong dream of renovating something to live in. Those people are doing the lord’s work.) But AHHH. Y’all, being a first-time homebuyer is confusing. Even being a person considering buying a home for the first time is confusing. There’s a whole new vocabulary to pick up, ducks to get in a row, and a lot of my googling was fruitless (you know, seeing as we’re living in an unprecedented time and the real estate rules have changed a little bit from when most advice was written). 

Basically, I spent the last couple of months totally lost. Can I even afford a house? Is now a good time to buy? Where is the checklist for beginners?! How many questions can I text my mom before she blocks my number?! I needed a one-stop internet post that clarified all the terms and timelines — a step-by-step guide for buying real estate, explained by a normal person who didn’t have a vested interest in selling me a property or mortgage or moving service. I couldn’t find one (or, at least, I couldn’t find a centralized one that didn’t end with me opening an exponential number of tabs and overheating my laptop), so I decided to harangue my loan officer, Andy Green, and my Realtor, Francine Biton, with hours of questions on everything first-time buyers need to know. (If you’re like, “hey, but Caitlin, I don’t have a loan officer or agent to help me,” DON’T WORRY. I will also share how you, too, can find nice and generous people to harangue with your own questions!)

So if you’re also sitting at home wondering “hey, should I do this?” my answer is this: “uhh…maybe! It depends on your situation. But hopefully, I can help clarify!” (Sorry if you’ve come here from Google in the hopes that at least one person can validate your home search.) Before we jump in, I just can’t overstate enough that nobody knows what’s going to happen in the market moving forward and that yes, we are living in unprecedented times…but if you’re curious about exploring ownership right now, here’s a regular person’s guide to how things are currently going down in the time of COVID and how to figure out if now is the right time for you to take the plunge. 

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i, too, hope i get the opportunity to fix up a place like emily’s glendale home

Step 1: Check Your Credit Score

Unless you’re planning to stroll in and buy a home in cash, you’re going to need to take out a mortgage. (If you are planning to stroll in and buy a home in cash, dang, please come write a guest post about that because I admire your financial acumen.) 

Simply put for my beginners: a mortgage is an IOU between you and a lender (AKA a bank with a lot of money). They’ll come in, buy your house on your behalf, and you’ll have the privilege of spending 15-30 years paying them back (with a little extra added on top every month, because hey, they did loan you a ton of money). 

So, how does your lender decide that you’re someone worth trusting? How do they know that you’re not the kind of person who will just borrow a bunch of money and never pay them back? They’ll look at your whole background, like your work history and your bank statements, but they’ll take special note of your credit score. You can check your score with sites like Credit Karma, Nerd Wallet, or Mint, but your bank or credit card provider may also be able to tell you. (I can find my FICO score in my Bank of America app, my Citi App, and my Amex app.) 

If your score is high — usually anywhere above a 720 is a great place to be — your lender will say, “oh, heck yeah, that person will definitely pay me back,” and you’ll be eligible for the lowest rates. That means that you’ll have to pay a little less every month (and if you’re buying something as big as a house, “a little less” every month can add up to thousands of dollars over the life of your loan). If your score is above a 620, you should still be able to secure a “conventional” mortgage, just with a higher rate (read: you’ll pay more every month). But if you have a lower credit score, around 580, don’t despair! There’s still hope for you. Now it’s time to…

Step 2: Learn Your Loans

OKAY. I know. I just dropped the term “conventional loan,” and WHAT EVEN IS THAT?! So let’s take a sec to clarify the main types of loans you can take out — get used to these words cause you’re gonna see them a lot on your search. 

  • Conventional Loan: This just means that the loan is issued by a financial institution and not insured by the government. (The rest of the loans below are insured by the government, which means that a bank or credit union will buy your house, but the government will provide a guarantee to your lender in case you stop paying.) Normally, folks in this category have a fairly strong credit score and they’ll put down around 10-20%, but you can go as low as 3% in some situations. If you’re paying less than 20% for your downpayment, you’ll pay a monthly fee called private mortgage insurance until you hit certain thresholds (this is all super dependent on your market and the house you buy.) In COVID times, these are hands down the most attractive types of loans. WHY? Well, next up is… 
  • FHA Loan: This type of loan can be easier for first-timers to qualify for, since they only require a credit score of 580 and a minimum downpayment of 3.5%. While this can offer you some financial flexibility and breathing room, some agents may encourage their sellers not to accept offers made with FHA loans. Basically, FHA loans have SUPER stringent safety rules. While you may be okay with redoing weak floors or fixing peeling paint, this loan’s requirements says that the seller has to make all these changes before FHA will sign off on you buying the house. Since this may be annoying for a seller who just wants to get out and move on ASAP, offers from those with conventional loans will often win out over their FHA equivalent. (Not to get too in the weeds, but even 203k renovation loans — like what Bowser got, where FHA will bundle in a loan for repairs with your mortgage — require that the home is safe…so drywall’s gotta be up, no visible wires waiting to shock ya, no peeling paint for your kid to pull off and eat, you get it.)
  • VA Loans or USDA Loan: These are two more types of government-insured loans that let you buy a home with zero downpayment. VA loans are for eligible veterans or active-duty military personnel; USDA loans are for low-income rural or suburban buyers. Since I’m not a veteran or a rural buyer, I’m not a true expert on either — just note that these may be options for you, too! Here’s a page with more info on each

It’s important to know which type of loan makes sense for you early in the process for two reasons: some properties are extremely specific in what they’re willing to accept (“No FHA” is a super common phrase in listings), and having an idea of what sort of loan you’re shooting for will give you a better idea of how much of a downpayment you’ll need to pony up. That’ll come in handy when you start to…

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we have to do all the responsible financial stuff first so i can live my dream of DIY tiling a kitchen like orlando’s

Step 3: Look At Your Budget

It’s time to take a look at your finances. (Bleh, I know, but also…important.) At the beginning of this process, I was under the impression that I just needed to have enough saved for a downpayment (and obviously a cushion for emergencies) but BOY, that was NOT CORRECT. Let’s jump into some of the standard questions, yeah?

“How much house can I afford?”

OK, the basic rule here is that you can — generally, with good credit — afford a home that’s about 3 – 5 times more than you make per year. If you live in a high cost of living area, like LA, you may be approved for more. (In my case, I have been given the green light by my loan officer to look at houses up to 6.25x my annual income. That’s higher than I’m willing to spend because I don’t want to feel overwhelmed by a mortgage that’s significantly more than my rent is now, but it’s nice to have that parameter.)

The other thing you’ll need to consider is your debt-to-income ratio. Basically, you’ve got to think about what recurring payments you have set up. What are your minimum credit card payments? (“Debt,” in this case, isn’t referring to the whole amount you’re paying off, just the required monthly payment.) Are you paying off student loans? Do you have a car payment or lease? Did you buy something with a service like Affirm or Afterpay with a long financing time frame? (Guilty as charged on that last one — I didn’t realize that those small monthly payments would be on my credit report, but THEY WERE.) And in this case, your income isn’t determined by your take-home pay. Lenders only care about your gross income, AKA what you make before taxes.

Plug everything into a calculator like this one. You’re going to want a debt-to-income ratio under 36%. Lenders may approve you if it’s higher — everything is on a case-by-case basis — but this is just a good number to have on hand. You can also play around with the tool to test out potential mortgage payments to see what monthly number makes sense for your budget. For a lot of lenders, 43% is a limit. I’ve heard anecdotal cases of people going up to 50%, and I’m not your financial advisor, but uhhhhhh…maybe try to avoid signing up for more debt if you can avoid it.

“Am I a viable candidate for a loan?”

When there’s not a pandemic, unemployment isn’t a deal-breaker — lenders would issue loans for those who experienced unemployment as a “typical part of their industry.” The go-to example in LA is production crews, who work on set for 8 months and experience stints of unemployment between gigs. But since there is a pandemic, lenders have gotten really nervous and they’ve tightened their belts. It’s still a case-by-case basis (like, if you’re just sitting on a pile of funds or if you’re earning interest on dividends or something, you’ll have a better shot), but it’ll be significantly more challenging to get approved.

“Where are my funds coming from?”

If your potential downpayment funds are in a normal bank account, great! If not, do you have a plan to get these funds into your account? In my case, the money I have saved for a downpayment is in a brokerage account. That’s great for returns, but less great for accessing funds quickly. I’ll have to work with a banker to figure out a plan to withdraw my money so I don’t get slammed with capital gains taxes, which I hadn’t fully considered. If you have something similar in place, it’s worth just thinking about now as your future taxes may cut into the amount you think you have saved.

There are also rules for gifted funds — how long they have to be in your account, verification from your gift-er that you don’t need to repay them, and more — but I did forget to ask my loan officer Andy about the specifics. I’M SORRY. I can report back if any of you have a generous family member who’d like to send me a gift 🙂

“Do I have earnest money ready to go?”

WHAT THE HECK EVEN IS THAT? I had literally NEVER heard of “earnest money” until my first call with Andy! But basically, when you finally submit an offer and it’s accepted, you’ll have to send a small percentage of the total home purchase price over to the seller within three days. It’s usually about 1-5% of the total purchase price, but y’all, THAT CAN BE A LOT. For a $300,000 home, that’s $3,000-$15,000 up front! The funds are held by a separate company while you go through the motions and will be generally be returned if the deal falls through, unless you’ve broken the contract in some way (in which case the seller keeps the earnest money as repayment for making them take the house off the market). This sounds very scary, but as long as you’re working with a good realtor, your funds will be safe and returned if anything does go south.

Anyway, I had been under the impression that all funds were just wired at closing, which is NOT the case. It’s important to note that if you’re buying a house, you’re going to need to start cutting checks a month sooner in the process than the media has traditionally led us newbies to believe.

“Have I budgeted for closing costs?”

So, in a normal market, you may have been able to negotiate for sellers to pay your closing costs. Unfortunately, thanks to this combo of low-interest rates and low inventory (thanks, Ms. Rona), we are in a SUPER HOT seller’s market. They have all the power right now — homes are going fast and are above asking — which means it might be harder for you to ask for these concessions up front.

But oof, this is a big expense — 3% to 5% of the value of your loan. There are a lot of tiny costs rolled in here (appraisals, attorney fees, and interest, in addition to some upfront payments of property taxes, insurance, etc.) and in a best-case scenario, you may be able to have a lender pay for some of them, but are you ready to drop an extra couple thousand dollars ON TOP of your downpayment? Will this deplete your reserves in the event that an unexpected repair pops up immediately after you take possession? Just keep it in mind, okay?

“What about the extra expenses?”

Yeah, yeah, not to be too much of a mom here, but you’re also going to want to make sure you’re looking at the extra area-specific needs. For me in LA, that means pricing out some earthquake insurance. If you live in a place that’s near a big body of water, maybe that means flood insurance. These things aren’t covered by your normal home insurance (ugh), but they’ll factor into your new expenses. OH BOY, BEING AN ADULT IS FUN, RIGHT?!

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since you’re doing so much homework, here’s a nice desk set up for ya

Step 4: Start Your Research

AHHH BUT IT IS KINDA FUN NOW. If you’ve looked at your credit score, figured out which type of loan you’ll likely be approved for, and taken a look at what your potential monthly expenses would be, you can FINALLY start looking responsibly.

Pop your financial parameters in your listing engine of choice and start peeking at what’s falling in your range. In these early stages, I’d recommend favoriting homes even if they don’t meet all the items on your wishlist. You’re going to start looking for patterns: how fast are homes in your area moving? Are things selling under asking or over asking? In LA, homes are selling VERY FAST and for over asking, so I’ve tried not to focus too much on the homes at the high end of my budget as I don’t want to get swept up in a bidding frenzy that ends with me and a too-big mortgage.

Buuuuuuut…if things aren’t selling, there’s no harm in just looking a biiiit above your budgeted range. If you find something that’s been sitting, you can always ask your real estate agent (we’ll get to how to find one, I swear) if the seller would consider a lower offer. For my searches, I’ve tacked on 100k to the highest number my loan officer suggested and I’ve been eyeballing a few properties that have been on the market for over four months with the hopes of coming in with an offer 20-25% below asking. The danger here, from personal experience: SAY YES TO THE DRESS SYNDROME. Naturally, I fell in love with a home that’s out of my budget and the sellers are firm on price. PROCEED WITH CAUTION. (And maybe send a prayer my way that this particular seller will have a change of heart, get tired of paying a mortgage on their empty house, and consider an offer. It has been nearly 140 days, please let me love your house.)

And a word of caution: algorithms are great, but in the time of COVID, price estimates generated by these sites are kind of a wash. I know that the website says the average square footage in this area is worth 200 dollars less or this home should be 50k cheaper, but the site is not factoring in historic low-interest rates (like, guys, my mom told me about mortgages in the double-digit TEENS, and I’m over here at 2.8%!) and a billion people trying to move after being stuck in their house for five months. KEEP A LEVEL HEAD. We can all find houses! (It may just take a while, and they may cost more than we had anticipated.)

I also don’t want to ignore the very real issue of gentrification. There are so many variables in searching for a home responsibly, depending on your budget and where you’re looking. But at the very least you should be planning on investing in the community you might move into, not just the house you are going to live in.

Step 5: Find a Loan Officer

“Find a loan officer? Before a realtor?” YUP. This flip is just based on our current corona-climate. First off, just some quick terms because I was TOTALLY CONFUSED here for a while.

  • Loan Officer: This is whoever you’re working with to get a loan. It can be a person from a bank, a person from the internet…whoever is actually in charge of helping you pay for your future home. If you get a quote from Bank of America, you’ll have a loan officer there. If you get a quote from Quicken Loans, you’ll get a loan officer there. But you can also go the way that I did, which was to get a…
  • Mortgage Broker: A mortgage broker doesn’t work directly for a lender — their job is to get a WHOLE BUNCH of different quotes and bring them to you, so you can find the financial institution that works best for you. I prefer this route because I do feel weird about texting someone with someone from a big corporation but I don’t feel weird texting with Andy (or making Andy sit through 40 minutes of questions). If you decide to work with a mortgage broker, they can ALSO be your loan officer. I just feel a lot better knowing that I have a guy who lives in LA and who specializes in California real estate advocating for me.
  • Lender: This is the financial institution that provides your mortgage loan. (Just in case you forgot.)

SO. How do you find your loan officer or mortgage broker? REFERRALS. I know, that’s the most annoying answer, but it’s true. I asked my friends who they had used and about their experiences, but Sara’s recommendation that she had written in this post really stuck out in my mind. I needed someone to hold my hand and break everything down (CLEARLY, ha), and so I decided to work with Andy over just getting pre-qualified on a website and being like, “hey, I filled out 4 pieces of information and the internet spit out a number, so I can afford this.”

But if you’re the first in your friend group to buy a home, don’t despair! Just search for mortgage brokers in your area and then DO YOUR RESEARCH. If someone’s review mentions that their loan officer was great at calling, make sure that’s a fit for you and your lifestyle (I see you, phone-scared millennials!!!). If you’re super digital, see if anyone mentions how quickly their broker responded to texts or emails. You can ABSOLUTELY shop around for this person — there is no pressure to work with the first one you meet, and you can still switch to another even if you’ve been advised by someone for a while — so make sure it’s someone YOU feel good about working with and who’s willing to break everything down for you.

Anyway, I say that you need to find your loan officer first because COVID HAS MADE THINGS WILD. For a lot of homes, you’re going to need a pre-approval to enter. (In LA, some homes are even requiring OFFERS before entry. And there are no photos of the inside. IT’S TRULY SOMETHING OUT HERE.)

But pre-approvals are serious. In the olden days (you know…back in FEBRUARY), you’d be good to go with a pre-qualification, which is when your loan officer crunches all your data (income, debt, estimated credit score, savings, etc.) and they pop out an estimate for how much they’d be willing to lend. But pre-approvals, on the other hand, are a SERIOUS indication that you’re looking to buy. You’ll need a whole bunch of documents — 2 years of tax returns, 1 month of pay stubs, 2 months of bank statements, 2 months of statements from your 401k/IRA/stocks/bonds (if you have any of those), and a copy of your license — and your loan officer will pull your credit (yes, they’ll run a hard inquiry) and confirm that yes, a lender is going to approve your mortgage.

It signals to sellers that you’re not just looking for fun — you’re looking to buy. And since the world is ending and people don’t necessarily want a whole bunch of strangers walking through their house, this is the step you may have to take to even SEE the place you’re thinking of buying. Plus, since homes are selling SO QUICKLY, it’s a leg-up on anyone who submits an offer with just a pre-qualification.

Also, for what it’s worth, you don’t pay your loan officer or mortgage broker (or even your real estate agent!). The seller does it all out of proceeds from the house sale. So go out and find the best, most qualified person you can — it can only help you.

WHEW, this is a lot! let’s take a momentary breather with velinda’s whole house $55k reno

Step 6: Find a Real Estate Agent

AHHH. This is where I struggled. Y’all, I cannot even tell you how many agents I chatted with before finding Francine. I bet you can guess how I found her, too, based on the previous section, but first, let’s talk about what to do/not to do.

What not to do: I don’t want to put any listing sites on blast, but don’t expect to hit it off with a random suggestion that’s matched to you after you hit the “I want more information” button a house. (Also, refrain from putting your phone number in ANYWHERE unless you’re giving it directly to an agent. I’m STILL getting phone calls and texts at 6 AM and 11 PM about mortgages and agents and offers and it’s a nightmare.)

Anyway, I tried having conversations with several of these arbitrary matches and they were fruitless. The agents recommended were super kind, but it’s SO IMPORTANT that you find someone who really understands who you are, what you’re looking for, and why. After several conversations trying to explain what I do (believe it or not, “I work for an influencer” is still a pretty confusing job description, even in LA) and what I’m looking for (a fixer, but one that I can manage a la Velinda’s), I just felt like NOBODY GOT IT.

I then tried a new strategy: Reaching out to agents who had listed homes in the areas where I was looking. I couldn’t find a ton of people who specialized where I’d like to buy (it’s in an unincorporated area outside the city), but I figured that maybe these agents would be able to point me in the direction of more homes (or, maybe they’d have coworkers putting homes on the market in the vicinity). This was a little closer and a little better, but it was still no dice.

Finally, success: My realtor, Francine, was a recommendation from Andy. (Y’all. I cannot overstate the importance of referrals.) She called me and from our first chat and I was like, “AHHHH THERE YOU ARE. FINALLY.” Francine’s also a millennial, an LA native, and I feel like she was the first person who just *got* what I was hoping to buy. She was also the first realtor to suggest homes that ~aesthetically~ fit what I was going for — a sign that she listened to my actual wants, just beyond budget — and she’s been AWESOME at guiding me through the whole process. Francine even Zoomed with me for an hour on a Sunday to go over all my questions and then to look at contracts. I didn’t even have an offer in, but she wanted to brief me on everything so I’d be ready when the time comes. WHAT A COOL LADY.

So again, if you’re referral-less and the first in your friend/family group to buy in your area, it’s time to get googlin’. (If you need a referral in LA — and maybe you might, since there are a LOT of you based here — you can also use Andy and Francine. You have my blessing.) But remember: look for the BEST agent for you — you don’t have to trust an arbitrary match. I mean, think of it like being randomly matched with your college roommate. Sometimes your school knocks it out of the park. (Hi, Jess, my freshman year roommate!) But sometimes they don’t, and you pick a new roommate for your next year. (Hi, literally everyone else I know who ended up switching roommates for sophomore year!) If you’re not feeling it, keep looking. Not to be too much like your mom (again), but you’ll know when you’ve met a good match.

Step 7: Let The Serious Shopping Begin

OH BABY. You’ve made it this far. You’ve figured out your mortgage situation, your downpayment plan, your budget for extra costs, and what you want in a home. You’ve also assembled your team and you’re READY TO MAKE OFFERS. This is the big leagues, my pal!

Fun 2020 fact: Before entering a house, you’re probably going to need to sign a bunch of disclosures saying that you don’t have COVID and that you don’t know anyone else who’s sick. Your showings may also be limited (in LA, it’s an agent + 2, and technically it’s supposed to be 2 people who are quarantining together), so if you’re dreaming about bringing a contractor with ya to take a peek at that fixer…it may be off the table.

So when you’re viewing in-person, there are a couple of big things you’re going to want to take note of: are there any cracks? Are the floors tilted? Is there any water damage? (Or, is there any “new” paneling that seems like it may be covering up water damage? Just like, a fun question from my own experience.) Do the windows or doors stick? How’s the water pressure and temperature?

And then, you can also ask the seller’s agent (or you ask your agent to ask the seller’s agent) the following big questions. I’m assuming that you’re tech savvy enough to deduce the normal things (“what school district is this in? How far is it from the city?”) but these are the things you really want to pay attention to before putting in an offer. You can ask in any order, in case you want to shake it up:

  • Why is the seller leaving?
  • What’s included in the sale? (Lest you be stuck dropping $10,000 on new appliances.)
  • How old is the roof?
  • Have there been any renovations or additions?
  • Is there any un-permitted work? (Gosh. I could write another full post about this. OOF. Basically, this may cost you money to tear out or you’ll have to pay to get it permitted. Not awesome!)
  • How old are the major systems? (Water heater, furnace, A/C, plumbing, etc.)
  • Are there any health or safety hazards? (Sellers have to disclose, but lead, radon, and mold are costly to fix and may hold up your loan.)
  • Do you have a history of past insurance claims? (You’ll learn if there’s been any weather damage, major issues, or vandalism.)
  • Can I see a copy of the HOA rules? (I know some people who have broken off contracts after seeing some HOA agreements.)
  • Are there any problems with the house? Have there ever been? (This is just the big catchall in case the seller hasn’t disclosed something covered by the billion other questions you’ve asked.)

OH GEEZ. 4,500 words later and we’ve almost made it to the end. Do you know that my original draft for this post was going to be THROUGH CLOSING? LOL. If this has been helpful for anyone else trying to navigate the home-buying process right now, let me know and we can get cracking on the “submitting an offer through keys in hand” phase. (And maybe by the time I finish writing that novel a post, Emily’s book will be out and you’ll be able to jump straight into a renovation.)

I DIGRESS. If you’ve made it this far and you’ve already purchased a house, I’d love to hear from you! Was this your experience, too? Is there anything you’d change or anything you wish you knew when you were thinking about buying? Any glaring errors? How did YOU meet your realtor and loan officer? Any horror stories? I JUST REALLY WANT TO TALK ABOUT HOMEOWNERSHIP, in any capacity, all day. Please chat with me. 🙂

Also here is a little checklist to act as a reminder since you started reading this post a month ago!

Opening Image Credit: Photo by Sara Ligorria-Tramp | Designed by William Hunter Collective | Styled by Emily Henderson Design | From: How We Staged a House (To Sell) With Soul + Some Sneak Peeks


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98 thoughts on “Is Buying A House Right Now A Good Idea? (Plus A Step-By-Step Guide For First-Time Buyers)

  1. That’s a very interesting post from a cultural point of view.
    Being from Austria, where just like in our neighbouring countries Germany and Switzerland, we avoid getting into debt like the devil shuns away from holy water (popular saying, lol).
    So here we usually save like maniacs and pay out of pocket at least 50% of a house’s price. Preferably more.
    The downside is that it takes us definitely longer to own a house.

    1. I have read a bit about this aversion to loans in your countries and love that part about your culture. I am from India where earlier people would only buy a house after retirement when they would receive their retirement funds and needed only small amounts, sometimes none at all, of loans.

      However high salaries and easy loans have gripped the current generation and young folks are getting into home ownership almost as soon as they land their first jobs. Home ownership has become like a status symbol.

      I now live in the US and am recently becoming more and more aware of how I am getting sucked into the credit and mortgage culture and lately am trying to be very intentional about house purchase, including really evaluating if I want to own a house purely for emotional reasons or does that genuinely make sense for me.

      1. That sounds very familiar.
        Most people here choose renting and saving as much as they can to buy or build a house in their late 30s or early 40s.
        But of course, we’re also big on staying in one place for most of our lives, so houses get handed down to children, which is helping a lot!
        Fun fact: I was surpised to learn that in the US credit cards don’t get automatically balanced from one’s account at the end of the following month, because that’s how it’s here by default. If there’s not enough on your account, there goes your credit card, wave it good-bye. CCs are basically just delayed debit cards, that’s how much we hate debt 🙂

    2. oh wow! 50%! how much are homes vs. your yearly income? this is so interesting!

      1. We had a massive deposit (around 50%) when we bought our house and hands down it was the best decision we’ve made – we saved for what seemed like 1000 years (we were in our late 30s when we bought) and bought a place at the lower end of our budget…..which was good since housing prices are going down where we live, so even though out house is probably worth less than when we bought it we are not underwater.

        But more importantly since our mortgage is so much lower we can pay it off much much faster and will hopefully be mortgage free in a few years if we can keep our jobs (yay Covid!).

        For reference at the time we bought our house was just over 3 times our combined salaries (but we live in Australia where taxes are much higher I think and mortgages are not tax deductible on your own home so I’m not sure the comparison makes sense).

      2. Net average monthly salary (adjusted for living costs) 2000 – 3000 € (~2300 – 3500 dollars) in Austria/Germany respectively.
        A simple, smallish house (1600 sft, typically masonry, built to last forever) without a cellar/basement would cost from 250 000€ (294 150 dollars) up.
        Prefab houses are cheaper, from 190 000 € up. They are rather massive here, but not as solid as masonry houses and for the price I gave they would come unfinished. You’d have to put in staircases, electrics, spackle walls … and so on yourself.
        Concrete cast basement, which almost everybody has, is another 50 000€.
        Our plots are typically a lot smaller than those in the US, 850 m² is an average size for what an average family would get nowadays. Depending on location you could buy such a lot for anything between 47 000 dollars (rural region end of the world) to 100 000 dollars town, schools, shops, …. infrastructure).

        So all in all one has to estimate between 300 000 and 500 000 € for an average sized house on an average sized plot without great luxury.

        Hope that answers your questions!

  2. On the financial front, owning a house often comes with un-planned-for costs. The property taxes may jump (sometimes A LOT) based on the recent sale. There are repairs, even in recent builds. There’s landscaping- even if yours is simple, you likely need to buy tools. You likely need more furniture than you have and even the least expensive stuff adds up. Utilities are probably higher than you’re used to – sometimes A LOT higher.

    My suggestion is to not max out your cash unless you have family or other resources you can fall back on.

    1. I agree with this completely. I bought in Austin, TX over 10 years ago, and our real estate market has gone crazy and so have the property taxes. They can only raise them 10% a year if you have a homestead exemption, but after 10 years, that’s still a 100% increase in what you’re paying, and home prices are still going up. I’m now paying more in property taxes every month than I am towards my mortgage!

      1. Hi Loro! I also live in Austin and am trying to figure out when to buy… not that it would be great for the economy, but maybe there will be more inventory in several months after sellers get sick of waiting for the pandemic to die down before listing their homes or we see some foreclosures like in 2008-2009?! That being said, how do you handle such high increases in property taxes? Unless your income increases along with this, how to you accommodate for the growing expense? If property taxes get so high it’s a strain on monthly expenses, is this when people might re-fi to lower their mortgage to compensate for taxes? I also realize this is another reason residents may have to leave their neighborhood, a major effect of gentrification. Thanks for your insight! I have always wondered about property taxes.

        1. Sarah we just bought in Austin and had to appeal the property taxes on our house as it was assessed MUCH high than what we actually paid.

          That worked in our favor since we had proof from the appraisal that the house was not worth what the tax assessor estimated. Bottom line, you have to get the homestead exemption AND appeal any property tax increase yearly to keep them down. It doesn’t always work as the value of the house may indeed be in line with market rate, but it’s the only way to really fight it.

          I have neighbors who have lived in this area for 40+ years and yes they bemoan the increase in taxes especially the last couple of years (and I sit there guiltily as one of the folks who probably contributed to the increase) but not much we can do aside from the homestead or other exceptions.

        2. I really worry about whether I’m going to still be able to afford to live here in another 10 years or so. I was really really really lucky that I bought when I did– I paid $145K in 2006 for a 1280 sq foot house in what is now a super hot neighborhood. (Back then, they’d give anyone with a good credit score a loan and you didn’t need a down payment.)

          I had to split the loan initially to avoid mortgage insurance, so I worked like crazy, got a roommate, and threw every spare dollar at paying off the smaller second loan. That got my monthly payments down a bit. Then, after taxes went up again, I got another roommate to offset costs. Then once he moved out, I decided it was time to refinance bc rates had dropped significantly and I was sick of sharing my place with people I barely knew. And now, a few years later, my bf lives here with me. My goal is to get the actual mortgage paid off before rising taxes become too much, but we’ll see what happens. It’s an old house, so lots of things have needed updating as they fall apart, and I prefer to pay for that stuff in cash.

          I have no idea how younger people can afford to buy here now without an inheritance or other significant family help!

          As for housing prices dropping here, I think Austin’s in a unique situation with all of the tech companies. Tesla’s about to open a huge factory. We have Apple and Dell and all of that. So as long as those people are making money, those of us whose jobs depend on people having disposable income are doing pretty well (minus bars/restaurants right now). I don’t really see the cost of housing really dropping significantly because of that– in the past, Austin has managed to kind of float over the worst of recessions. I also have a few friends who are real estate agents, and after the initial panic back in the spring, work for them is basically back to normal, just with masks.

          I hope that helped!

        3. Prop 13 in California has helped with this issue of property taxes outpacing your income due to skyrocketing home values. It’s not perfect but as I start retirement, I don’t have to worry about my taxes driving me out of my home.

          1. Yes, Prop 13 does help retirees. At the same time, it cast a significant blow to education and has lead to CA schools falling to the bottom in per pupil spending.

    2. YES, this is good advice. especially on landscaping! i had been looking at a lot of houses that are surrounded by concrete (a super LA thing, hah) but i recently took a peek at a place that’s surrounded by grass on a steep slope. either i’d have to buy a lawnmower or i’d have to pay someone for lawn care, which definitely factored into my choice to not pursue further. such a good tip!

      1. Caitlin – gardening costs in LA are pretty “cheap” as far as these things go – like $150/month for 4 weeks of mowing/weeding/etc. Not to say it’s nothing, but it’s likely not a huge budget increase.

    3. My property tax was wildly higher once I moved in than it had been the year previous, and that was something I hadn’t accounted for!

  3. Re house budget. 3-5x your salary seems like a lot!!! I have never heard that much, and just the thought of a mortgage that big makes my heart race, and I live in a major metropolitan area with expensive housing! I learned from a personal finance teacher in college to keep your housing expenses under 30% of your take home pay (after taxes, retirement, etc). We’ve stuck to that with our first house and couldn’t be happier that we’re not house poor and have some financial flexibility.

    1. I agree! We bought a house 2x our salary and it made a lot more sense for us. I wanted financial flexibility to do renovations, buy furniture and still go on trips!

      1. oh my!! i think this is where LA has really gotten me into a pickle. (also, being single doesn’t help, haha, WHERE IS MY CONTRACTOR BOYFRIEND?!) i would love to buy something that’s 2x my salary, but our average prices here (814k right now!!! HOW?!) just put that out of reach here for me. i’ve definitely had to do a lot of pro/con thinking — it is a BIG commitment, and a large amount of my take-home pay — but i *thiiiiink* that for me, it’s worth it. my mortgage rates will never be lower, i’m in a good financial place in terms of downpayment/savings, i’ve spent the past 5 months in my apartment, we work from home now, and i just really love LA. i think dedicating this much of my take home pay to a mortgage is a sacrifice i’m willing to make.

        but i’ll definitely need to think about how to tighten up my budget moving forward (like, oh my god, i am going to probably 10 rescheduled weddings in 2021 that i need to start saving for now if i’m expecting to allocate more of my monthly budget to housing costs) in the magic event that i actually end up being able to get a place. i’m also currently running into sara’s problem from her OG home buying post where everything in my price range is dilapidated and being snapped up by developers, ha. i just want to be like, “i really want to live here!!! please, i will fix the house and love it and stay here and be a good neighbor!!!” but it’s hard to compete with. FINGERS CROSSED THAT ONE DAY I GET MY SHOT AT BUYING A FIXER. hah.

        1. Hey!

          Just wanted to say that LA, the SF Bay Area, and NYC are pretty much exempt from “normal” housing pricing/buying/budget “rules.” I live in a town in the Bay Area (NOT SF, SJ, or OAK) and the median single family home price here is $1.6 million. Here, SELLERS actually pay for every type of inspection and pretty much must do so before listing or no one would even look at the home.

          So… don’t listen to buyers or sellers from other areas. Yes, the personal finance “rule” of housing as less than 30% of your income sounds great. The only way to attain that in these three areas? Buying something way more expensive than that and letting inflation/promotions/refinancing take care of the rest. It’s wild, but if it’s not for you, there’s 95% of the American housing market waiting 🙂 In our case, our monthly payment started out as about 55% of our combined income, and now that we’ve refinanced to a lower rate and have been promoted at work, it’s more like 38%.

        2. I am in Austin, and just went under contract for a place roughly 4x my income. To beat off the developers, I wrote a love letter to the seller that they received along with my offer, telling them how much I loved the home and how much I could see myself living in it. It worked! Not that all sellers will think this way, but some really want their homes to go to good homes 🙂

          Also – I’m considering renting a room out to a roommate to offset the high mortgage payment. Definitely would help!

        3. I get it. It’s a different ball game in CA.

          Two thoughts:
          Avoid an HOA at all costs. It will very likely continue to go up and it’s money that could have gone toward your mortgage (learned the hard way)

          In a perfect world I would have saved longer, but the prices go so fast in CA that I would have been priced out within the year. It’s just harder out here.

    2. It truly depends on your job industry and your real estate market. At the time we bought our house 5 years ago, it was about 3x our yearly salaries and the mortgage was around 35% of our take home. We make really good money, but we live in LA and believe it or not, there was nothing cheaper (even a little frther out) and our house was a “deal” (FOR LA, not for anywhere else!). 5 years later, our house is worth 30% more, and our salaries have gone up to the point where our housing expenses are 20% of our take home pay. We contribute to our retirement accounts, and have additional savings. We’ve also afforded remodeling the entire house. It was scary at the time, but we knew our market and our job prospects, and we’ve never questioned the decision. That is all to say that a strict number cut off doesn’t always make sense, but you do have to be really smart about why you’re making the decision you are.

  4. Where was this a month ago?! We close on a house on Friday and are still fumbling through this process!

    But seriously, very helpful and detailed breakdown of the process. Great work!

  5. What an awesome post! I have gone through the homebuying process twice but still really enjoyed reading this and love that you created this resource for future homebuyers. I certainly needed this back when.

    Definitely second your recommendation to shop around for the loan officer, and ask them to prepare an estimate of your closing costs for a house in your budget range so that you can plan ahead.

  6. This was super interesting! I look forward to the next post about the rest of the home-buying process.

  7. This was SO helpful!! My husband & I are currently in the home stretch of our (many) years of saving up for a downpayment – hoping to buy sometime Spring 2021. The info about how much money you need and the tools you linked, like the debt / income calculator, were especially helpful for us at this stage in the process. Can’t wait to read the second part!

  8. Caitlin, this was an AWESOME starting point. Like you said it’s like a whole other vocabulary!!! We just closed last Monday (woo!), and I had no idea what earnest money was until like 90 days ago. The big question for us was, just because we can afford to buy, should we?

    One exercise I would STRONGLY encourage potential buyers to go through is calculating the cost of a sale of said house. How long do you plan on staying in the house? If it’s only 3-5 years, perhaps you won’t make your money “back”. Which doesn’t mean you should not do it, just that you should be aware of it so you don’t have a nasty shock in a few years when you want to move in with someone/move cities/need a bigger place.

    Why: Selling is also crazy expensive….typical realtor fees here are 6% (3% to each realtor). Remember too that that it cost you all of the above (closing, moving, inspection costs) to buy and finance the purchase, and you don’t get that back. Meanwhile you’ve been paying property taxes and interest (which is a HUGE proportion in the beginning of your loan). Amortization tables and a good loan officer can help you understand the break even point, though aren’t necessary.

    It also cost a significant amount of money to maintain our first house, even though it was built in 2008. Somewhere I read budget 1% of the house cost per year, and I was like NAH that’s crazy talk and then got hit with $14k of stucco repair in one year. Yikes. And repairs get more expensive if you delay them and they cause damage in the meantime (ie leaks leading to rot, or to foundation issues that snowball). Repairs tend to help you maintain house value; upgrades are what help increase it, and not always at 100% ROI.

    All to say, I had the experience of being a homeowner (thanks to my spouse…) but hadn’t been a buyer myself. They’re just things I’m glad I knew rather automatically assuming a house would be worth it.

    Looking forward to your series. Best of luck in that crazy market.

  9. We are closing on our first house later this month. It has been a wild ride, but I guess we also don’t know anything else. We were planning on renting for the foreseeable future until the pandemic began. We are in a very crazy market — low inventory, pent-up demand (DC area). We ended up finding a house that was listed over our budget and had sat for 6 weeks (unheard of in our area) and we ended up buying it for under list price. I’m so happy that our house was listed over what it was worth as it was not a competitive bidding situation. We didn’t have to waive all our contingencies or use an acceleration clause and we could use the best rate we got from a lender even though it would take longer to close (45 days). Our real estate agent told us that 45 days to close would be a deal-breaker if we are offering on a competitively priced house. (And I think he was right — a week after our offer was accepted a similar house in the neighborhood sold for 11% over list price and closed in two weeks.)

  10. I’m closing on my first house too (though second purchase!) and I understand the stress about buying in a pandemic. Part of me is wondering if this is the time — there’s so much talk of prices going down In the fall and winter — but no one can ever time the market, and I know that my budget is one where lots of people will always be looking, regardless. As a Canadian, it’s interesting to see the different terms and slightly different Covid practices (though I’m in a smaller city than LA). Thanks for sharing!

  11. Wondering if that is the correct link to the cheap old houses Instagram page. Thanks!

  12. Caitlin…how lonnnnnng did it take you to put this post together?!?
    It’s so thorough. You are now accepted into applying for Home Ownership 101 PhD!! Ha!
    Seriously, really good, even the thoughtful rest breaks along the way.

    I bought my first place when I’d just turned 22 and it totally set me up financially. Shortly after purchasing, interest rates went up to 16-18% in Australia! Crazzzzzzy! But it still worked for me.
    So, I say (as long as people plan carefully and make sure they can afford to pay higher intrrest than currently exists)… do it!!!

    There’s nothing like living in your own home! And I couldn’t even afford to live in mine for tge girst four years, I rented it out and lived in a share house…just sayin’, where there’s a will, there’s a way.

    Soooo exciting! 😄

  13. What a timely post! I’m closing on my first house next week, and am SUPER fortunate to be married to a loan officer who knows this all inside and out. If I weren’t, I’d have been so over my head to learn this all from scratch. Happy hunting Caitlin! Can’t wait to see where you land and watch your projects unfold.

    1. My mom was a realtor so I feel the same way – 30+ years of experience a phone call away at any time!! Not only did I know a lot before I had started thinking about buying a house, but I’d been IN hundreds of homes and knew what my ‘musts’ versus ‘wants’ were due to this. I’ve also seen a million house horror stories, so I wasn’t completely naive about what I was jumping into.

      The only bummer when I went to buy was doing all of this several states away from my family… my mom (in addition to my actual realtor) received a lot of calls and texts 🙂

  14. Thank you SO much for this! And for linking to Bowser’s reno/mortgage post. I’ve always wondered about that option, but the no FHA loan warnings seem to make it an unlikely task in my bustling city (Austin). I would actually really love if you could ask Andy about the timing needed if we are getting a gift from family (nothing crazy.. but maybe $10k-$15k). Do we need to get that money now to sit in our bank account for a few months prior to connecting with a mortgage broker so everyone knows it’s ours outright? It will be very helpful to us to have this money as a gift for the upfront payments you mentioned and closing costs. Guessing lenders are less likely to help cover those now, as I’ve heard in the past from friends who had help from lenders covering closing costs.

    1. From what I understand, 3 months is enough to sit. Also, know that if it’s less time, it doesn’t mean they’ll reject that it’s yours, you’ll just need a letter from the gifter explaining that it was a gift not a loan.

    2. I don’t know if our experience is universal, but our mortgage broker advised us that checks from our parents were fine and had them write “gift for a house” on the note line. They typically look back 2 months on bank statements so if the money was there two months ago, they won’t question where it came from. If less than two months, they might want a statement from our parents indicating that it’s a gift, not a loan. In our state (or maybe it’s federal? Don’t know!) there is a $15k gift limit on the gift giver per year.

    3. If it’s a gift just make sure you have a note from the giver as other posters have said. We did that when we bought our house and the escrow/banks didn’t care. The money was wired to us less than a month before we closed but again because we had the “gift note” included it was not an issue.

      A good lender and realtor will walk you through this process and ours were both great! Granted that was Austin a few months ago. I can’t even tell if it’s better or worse but from what I’ve been told my our realtor he’s busier than ever.

  15. The 3-5x your salary “rule” is laughable for anyone living in a large metropolitan area who isn’t already wealthy. You’re totally right Caitlin! I thought a “normal” price was like $100k-$150k (lol nope) but there are completely average houses in not-great areas selling for $700k+, often breaking into seven figures. I haven’t bought anything yet but I was pre-approved for far more than I would actually be willing/able to pay sustainably, and even small semi-crappy condos cost easily 4x my salary, not including taxes, fees, repairs, etc.

    This is a great guide, and I totally empathize with all the people trying to figure out how they can possibly buy a home when the barrier to entry is so high!

  16. Buying a house now seems risky. Housing prices didn’t bottom out after the Great Recession until YEARS after the economy tanked. You may be buying at the top of the market now. People in DC, LA or SF have more protection from housing prices collapsing, but the rest of the country, who knows. The NY Times has a great calculator for finding out if it’s better for you to buy or rent.

    1. I agree with this. Though, it also depends on your geographical location. We have a rental house in San Diego, that has grown in value so much since we bought it 7 years ago. With home prices being at an all-time high AND the market still strong, we are considering selling – b/c we are tired of being landlords, and we are worried about the housing market. Plus, isn’t the goal to sell high? We are looking into options for the next investment, or taking the capital gains tax hit (which my husband wants to do – and then buy a house “when” the market tanks, but I’m not so sure that will happen in San Diego where the median home price is $600k).

      We are on the edge of a very big cliff – there are MILLIONS of people on the cusp of defaulting on mortgages, and many more who won’t be able to pay rent (which means landlords can’t pay their mortgages) – the banks are bracing themselves.

      This recession has only just begun, and it’s gonna be a long, painful road.

      1. Well that was cheery 😆
        I appreciate the dose of realism and I do think someone has to bring it. That said, I’m a big believer that buying a home is about more than a financial investment. In fact, I’ve read many articles arguing that we should categorize it as an investment at all because, by and large, homeownership often costs more than it pays, in dollars and cents. The amount you “make” on your home, adjusted for inflation, and minus all of the out of pocket expenses over the years, often is not as big a number as we think it is. The value of being a homeowner, the sense of psychological safety and stability it brings, is really the thing of value here. For some it’s living in a safer neighborhood, having something of their own, feeling that their efforts are worthwhile, making long-range plans, being the first in their family to accomplish homeownership, having a sense of control over your destiny (ie not subject to the whims of a landlord)— all of that stuff is important and has been research-proven to improve quality of life! So yes, you don’t want to make a huge financial mistake, get in way over your head or get locked into a bad mortgage. But just because you may not make $200k on your home in the end, does not mean it’s a poor decision to make (not should that be your sole consideration)…. in my humble opinion 🙂
        And maybe this is coming from a bright-eyed (older) millennial who wants to believe that there’s something out there for me and my future, too.

        Thank you for the awesome write-up, Caitlin! We are in the pre-approval phase and I for sure learned a few things!

        1. Agree with your sentiments Ashley! While the fear of timing is real, a home is more than just an investment and the sense of security, freedom, or whatever else home ownership gives has its own non-financial rewards.

          Renting has the freedom of course to pack up and move easily and not worry about big maintenance items, or having to offload a house if finances go downhill. But on the flip side you have a lot of uncertainty and are at the mercy of a landlord and market prices going sky-high like in the Bay Area where I’m from (gives me some satisfaction to see the prices for rentals falling now after so long).

          We’ve been on both sides, and while now being a homeowner I do worry about foundation, maintenance, taxes (ugh!)- at least I can put as many holes in my walls and paint them whatever color I want and nobody can say anything about it! 🙂

          Bottom line… folks should buy when THEY feel ready, are financially in a good place and for the right reasons like staying in a place long term and wanting to put down roots in the neighborhood. If it’s a house for an investment purpose only like a rental… different set of rules apply IMO.

  17. When looking for a loan officer and realtor, it’s also good to keep in mind who you want to invest in (as with anywhere you take your business)- looking for a woman, WOC, or POC is a concrete way to make a difference.

  18. One thing you talked about a little, but I think is SUPER IMPORTANT is finding the right Realtor for you. Keep in mind when you’re talking to Realtors that they’re likely to make 5% – 12% OF THE TOTAL SALE PRICE on this deal. If the Realtor is only working for you, they’ll make 5-6%…but if they’re also working for the seller, they can make another 5-6% on top of what they’re making from you. So watch out if you get in contact if you end up talking to a seller’s Realtor at any point. In some areas this isn’t allowed, but if it is, they may not have your best interest in mind.

    Also, I just like to remind people that a Realtor (like anyone else you hire), ultimately works for you. So you get some say in how they treat you. If you ever feel dissatisfied with the way you’re being treated, YOU GET TO DECIDE WHO YOU GIVE YOUR HARD EARNED MONEY TO!!! Sure, you’re trading a service for your cash, but if they’re not the type of person you want to hand a stack of cash to–keep looking!

    If you were getting a haircut, and you weren’t happy with the stylists attitude/approach/result/etc, you wouldn’t go back to them, right? Every house your Realtor shows you is like a hair consultation. If their style isn’t your style, or you don’t feel 100% comfortable with them, or they’re just not your people–for whatever reason, move on to someone else, and don’t feel bad about it.

    1. Your point about dual representation is a good one. If you go that route make sure you can either advocate for your own interests (ie can understand the process, read the documents and know when you need to waive contingencies and when your earnest money will “go hard”, ie be non-refundable) or that you have another experienced party that you are aligned with (like your loan officer) that can backstop the process and make sure that inspections, appraisals and documents are all done timely and accurately. I do think you have overestimated broker fees, at least in California. In CA the standard is 6% of the purchase price, split between seller’s and buyer’s brokers. It is sometimes possible to negotiate this downward, particularly the fee for the buyer’s agent. If the same broker represents both parties it is common to reduce the total fee to around 5% (but you need to negotiate that – it isn’t a given). The reason all of this is relevant is that the brokers (both buyer’s broker and seller’s broker) have an inherent conflict of interest because they benefit financially only if a transaction closes. So a buyer’s agent might push a buyer to close on a house that has problems or push a buyer to come in with a higher offer than needed to ensure that they will get their fee. Similarly, a selling agent might push their client to accept the first offer that comes along in order to get paid more quickly and invest less money in marketing and selling the property. Thus, make sure that you are comfortable every step of the process, ask questions if needed and trust your gut (and not just your broker).

    2. Real estate agents in Australia don’t get paid anything by the purchaser…the vendor foots the bill.

      1. @Rusty, it is also traditional in the US for the seller to pay the buyer’s agent’s commission from the proceeds of the sale.

  19. Caitlin, I *love* reading your posts. And your captions ….. slow clap bravo! Chock full of info, entertainment, encouragement, and somehow you made this terrifying world of Covid home buying sound … fun.

    GOOD LUCK! yes to part two of this novel. Bring on the sequel!

  20. Great article. Good luck on your journey. In my personal experience, when it comes to finding an agent, I can’t overstate the importance of asking them how many homes they’ve helped customers buy or sell recently. There are many part time agents who do a few transactions per year. They may be really nice people, but in a competitive market, being a nice person won’t cut it. You need someone who has recent experience and does enough business to know what’s going on in the market right now and can help you actually win.

  21. While using a loan officer from a mortgage broker can be great, if you belong to a credit union, you can get a mortgage with fewer fees. We’ve done both, and definitely prefer our credit union loans and the ease of managing them, even being able to do rate adjustment for a small fee when rates drop. However, credit unions don’t have the bandwidth of typical mortgage brokers, so there’s less handholding. That’s really what you’re paying for with extra fees to a broker.

    As for agents, we’ve found our favorites by going to open houses and chatting with several. When we ended up at houses with the same agents over and over, who lived and worked in the neighborhood (or nearby) that we loved, we knew we found a good fit. Unfortunately, this is not possible during the pandemic. Referrals are always great, too.

    Good luck with your house hunt, Caitlin!

    1. YES YES YES CREDIT UNION. We bought a condo about a year ago and the credit union made the whole thing a joy. It also allowed us to get a 0% down, no PMI loan -something no standard bank/lender would have given us. (Obviously putting nothing down left us with a larger monthly payment, but we did the math, and pay less total than our rent for our previous, smaller apartment.)

    2. In our area, at least, the credit union’s interest rate was higher and much more difficult to manage (no communication, even though my partner has been a customer for years) – and our realtor said that that’s usually the case in her experience. We didn’t use a broker though – I called around for mortgage offers, based on recommendations. So I think it’s great to keep credit unions in mind, but shop around and don’t assume – which is probably the take-home message in general!

      1. Definitely shop around. Our credit union consistently has the lowest rates. However, their appraisals are much more conservative, so a house may not get the necessary appraisal, which is challenging in a high cost area.

  22. Please do write a post on the cost of unpermitted work (and how to properly go about permits) which has seemingly been green lighted on this website time and time again.

  23. Great post overall! I would just add to look at credit unions you may be eligible to join. I am not a fan of the traditional bank mortgage because they sell them all the time so every year or two you’ll have a new mortgage provider with a new website login to remember, have to switch your accounts, etc. which I find to be a huge hassle. (I also got screwed with my first house because I was too naive to know that they couldn’t change the terms of my loan so when the new lender refused to remove PMI THEY WERE IN THE WRONG!). Anyway, most credit unions your loan will stay with them for the life of the loan, which makes me feel better.

  24. I’m a real estate attorney and as part of my practice, I represent residential buyers regularly, either in lieu of an agent or as the title agent closing the transaction. My biggest piece of advice for buyers is to NEVER EVER UNDER ANY CIRCUMSTANCES agree to be represented by a real estate agent who is also the seller/listing agent. This is known as Dual Agency and is permissible in some states. Even where permitted, I hate it. In my experience, there is no way an agent can adequately negotiate and represent the best interests of adverse parties in a real estate transaction. You want to be able to trust that the confidential information you share with your agent remains confidential, and though ethical rules would limit what they can share, I’ve seen this scenario go wrong way too often to rely on rule-following.

    1. Couldn’t agree more! I’ve been an agent for 30+ years in CA & NV and have spoken to many people who think they will save $$$ by going through the listing agent. It’s a fantasy at best.

      Would you walk into a courtroom with the defendant’s attorney representing you? I think not!!

  25. I closed on a co-op apartment just last week in Brooklyn, after having signed the contract in late March…! Needless to say, I had MANY second thoughts but I think I ultimately made the right choice. One thing I would recommend about buying a house during pandemic times is BUY A PRINTER. I didn’t own one, because I usually relied on the one at my office, and that was closed/inaccessible staring early March. So I had to walk 30+ mins back and forth to my friend’s house to have her print stuff every time I needed to sign a document. I also recommend downloading a scanner app on your phone- cameras are so good on phones now that these apps really can replace an actual scanner. Also, no one was at my closing except for the bank’s lawyer- my lawyer was on speakerphone the whole time to represent me. So that was a little nerve-wracking and also kind of anticlimactic. Just me and this dude sitting across a large table with masks on, and no handshakes to seal the deal.

    1. Congrats! Nice to hear from a fellow coop owner, since the discussion on this site is usually LA based and about stand alone homes, which is def not the norm in NYC. Question: Did you in fact buy a printer, and if so, what kind did you get? Do you like it?

    2. Hahahahaha YES to the printer! And buy it right away, don’t hem and haw about it like we did.

      We put 10% down on our Brooklyn condo a week before sh*t got real, and nearly lost that money because the banks were literally changing the rules after they’d already approved the loan! An awful stress to have on top of living in the COVID hot spot plus wondering if we were going to go totally broke because we’re both self employed consultants and the economy was freaking out.

      It all worked out in the end and we’re glad it did and are super happy with our new place, but we would have backed out if it was an option. If I had a dollar for every time I think of how lucky we’ve been compared to so many other folks, I could probably pay off our mortgage.

      Sounds like things have settled down now and folks have figured out what it means to buy/sell a place during a pandemic!

      Buying a place is always a big commitment but as a millennial I feel the need to reiterate that we don’t necessarily have the luxury of financial stability that other generations had and you better have some real solid reasoning and math to back up a home purchase. Buying a place is definitely not as valuable a life milestone as it might have been in the past

  26. One thing I wish I knew is that when choosing an angent is that its better to have someone who has a good network/reputation/ realtionships with other agents in the specific area you look to reside. In the Boston area many hot spots are dominated by a few key players (with each hot spot having their own players) and if your not represented by them or connected to them in some fashion your offer may not get real consideration. To sum it up short, REALTIONSHIPS MATTER. Also, someone who is a great seller’s agent may not be a great buyers agent so sometimes its worth having two different agents if your doing a double transaction.

  27. This is a great article, so much good information! I bought for the first time in 2013 and was so stressed out and had second thoughts but am so glad I went through with it. At the time, I bought at a little over 3.4x my salary. My loan agreement was that I would put 20% down but I had insisted on a second appraisal because I thought the first was too high. The second appraisal did come back with a lower but it was still a seller’s market back then and they refused to come down on the price. The bank would only loan me 80% of the lower second appraisal so I had to come up with the difference of $5k. At the time, I felt like such a fool but in the end, it made my monthly payments lower and I’m not mad at that. 🙂 It’s a wild process and can only imagine how crazy it is now. I wish everyone luck!!

  28. When the average home in LA costs ~800K, howww do people save up even 10% for a downpayment? Getting to 80K is going to take me a really long time.

    1. Hi Victoria, don’t despair – that average includes a lot of super expensive mansions. There are less expensive properties out there.
      I live in LA too and I bought a house four years ago. It took me about six and a half years to save my 60K nest egg (50k down and the rest for moving/painting/fixing/appliances etc). The first four or so years I was less serious about saving and the last few years I did get a little intense – like no travel vacations and very sporadic “treats.”
      The best thing to do is increase your income – which I know is super hard in these times. Try to maximize the income you get from your main job rather than working yourself to death on a side hustle. The website has some great advice about this – things like asking for raises every year (with backup documents!) and moving companies to break through whatever ceiling you are hitting, even if you like the company.
      For reference, when I started saving for a house I made about 1,000/week and I did not make much progress toward my savings goals. At the end I had raised my salary to 2,800/week and it was much easier to save significant amounts! Go figure!
      So yeah, it will take some time, but if it is a goal you want to set for yourself it is something that you can do.

  29. Don’t forget all the $ you need to spend on inspections and sewer scoping and recognize that in a seller’s market much of the inspection won’t do much to impact the price of the home but you need to know what you’re getting into (hello – needs new water heater/washer/dryer/roof).

  30. Good luck Caitlin….remember you may have to kiss a bunch of toads to find the right one 💜

  31. Caitlin, this is phenomenal! I just went through my fourth real estate transaction, and you explained things that I was pretty sure I understood before, but now I definitely do. Can’t wait to follow along on your journey!

  32. I haven’t seen any posts advising potential buyers to check zoning laws. The person who made the previous offer on the house I bought changed his mind when he found out he couldn’t put in a driveway and garage because that would result in too much “hardscape” on the small lot.

    Neighbors have had to tear down fences, gazebos, garden sheds, and basketball goals because they violated setbacks and someone eventually called city hall to complain.

    My house shares a concrete walk on a side lot line with the neighbor. I only found this out at closing, when it didn’t seem to matter. But now that I need some repairs done on the north side of the house, I’m still trying to get in touch with my sheltering – at- her – out-of-town – lake – house neighbor to get her permission for work crews to be on her property.

    On another note, your advice on finding professionals made me glad I live in a small town. The seller and my realtor both went to my church. My lawyer and title agent were close friends of my parents.

    I took a risk with the lender – went with a small, now defunct, hole-in-the-wall place that worked with people whose credit was in the 650 and under range. They treated me exceptionally well, refinancing my loan twice with closing costs under $1000 each time. I currently have big, faceless Wells Fargo. No complaints, but no love.

    1. By the way, I do put paragraph breaks in my posts — sometimes they show up; sometimes (like now) they don’t.

  33. This is a very thorough post, thank you. I would add though, step one should be to get out of debt.

    At least pay off your consumer debt, your credit cards and vehicle loans. I would say ideally pay off your student loans as well, but those are often at least very low interest and sometimes on special forgiveness plans so I think you could potentially make a calculated decision to keep them. Keeping credit card debt makes absolutely no sense though.

    I understand that the housing market in major cities like LA requires different calculations regarding the percentage of your take home pay that you spend, etc. But being at least consumer debt free should be a universal rule. This can only help you. Your credit score will improve. Your DTI will improve. You’ll have more money free to buy curtains in your new house.

    Take the time to figure out how to afford your life now before adding another $800k+ in debt.

  34. Did you already purchase a house? Because you definitely do have to pay your mortgage broker/officer. This is referred to as “points” which means a percentage point of your loan amount that also has to be disclosed on your loan documents. Beware if you are using a mortgage company that has their own in-house mortgage banking department because they are not required to disclose all of the costs.

    1. Points are different! You do definitely pay to initiate or “originate” the mortgage, which I think is a percentage of the loan amount. But that’s a fee that you just have to pay. Points are optional, and change the interest rate on your mortgage, so it’s an upfront cost that may save you money over time (you have to calculate how many years it will take to break even vs how long you plan to keep the house).

  35. This is incredibly helpful. Thank you! My family is looking to buy in the next year, and I feel so much more prepared.

  36. Love your post and have forwarded to all my first-time Buyers. Honestly, I am an active Realtor for 30+ years in CA & NV, and I really enjoyed your post because it’s true and timely!

    Thank you for keeping it real and fun to read with the house eye-candy…

    ps: A lot of people in the big metro areas are also discussing the benefits of buy VS rent. I would love to collaborate with you on a post Emily…

  37. I feel like your list of documents that the loan officer will want see is a little light. My experience was a couple of years ago, but they wanted three years of tax returns and at least a year of pay stubs (I had three years of pay stubs and they copied each and every one of them). This might not be an issue if you have been with the same employer for years.

    I also want to second what others have said about getting your loan through a credit union. They generally don’t sell your loan to some faceless corporation (and interest rates are the same or lower). That might not seem like a big deal initially, but if something goes sideways in your life your local credit union is much more likely to be able to work with you – hello pandemic recession and record unemployment.

  38. The fast-spreading Covid-19 has created an enormous impact on real estate market. The sellers want to sell house quickly, but feel scare to let someone into their homes. The buyers are also in the same situation. In another view, stocks have fallen; entire industries are putting themselves on pause. All that may make it seem like an odd moment to consider buying a house. Besides, the Covid-19 crisis has disrupted the housing market. But with rates low and sellers anxious, home buyers could find good chance to own a good house.

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  40. One week away from closing on a house in LA and this was VERY accurate! I’d only add that if you find a good realtor first, they can also often refer you to a lender. Endless referrals for all!

  41. Interest rates are extremely low, but I suspect we’re not alone as a family who can’t afford refinance/purchase due to changes in income circumstances, which we hope are temporary enough. Our region has become one of the sanctuaries to which people (retirees or folks who can work high-income jobs remotely, as there aren’t many locally available) are fleeing, so the already high market is skyrocketing. I’ve seen people almost double their investment from a mere five years ago.

  42. Amazing post! I learned so much and am at this exact stage (maybe buying a house in 3 months, maybe not). Please keep the series going! Keep the info/tips coming!

  43. Thanks to algorithm this post came to my attention. I’m going through the motion you listed as we speak as a first time home buyer. Although, I’m not ready to buy just yet, I’m researching as much as I can until I can truly feel comfortable to proceed in buying my first home. It is a never ending learning experience. Thanks for posting!

  44. I wanted to add a few points in case anyone out there needs the info.
    VA loans are available to Reservists as well, but they need more time in service than Active Duty (I think it was 6 years).
    I’d recommend anyone looking for a home to check the FEMA floodplain maps for their area ( these are called FIRM maps; I think it’s Flood Insurance Rate Maps or something like that). Do note they’ve been updating them, but some are pretty old so you’ll have to think about how much development there’s been since the map was last updated (if your municipality/state requires stormwater management, then maybe flooding hasn’t changed much). You can also check wetland maps. It’s really NOT recommended to build in wetlands, but older houses might have been.
    About taxes: if the person that lived in the house before you had a lot of exemptions (senior, veterans, etc.) and you take ownership partway through a tax year (which may vary depending on the type – different start & end months for school, county, city taxes, etc), you’ll have to pay back the part you weren’t entitled to those exemptions + your own regular taxes (T_T speaking from experience). However, NYS property taxes aren’t allowed to go up by more than 2.5% annually, and you can get a slow increase for major renovations (I’m not an expert on these though, so I probably have the details wrong). While I’m at it, let me hype up Western New York, where we bought a $130k 3 bed 1 bath house in an adorable walkable village, 20 minutes south of Buffalo, utilities (especially water) are cheap, we basically don’t have any natural disasters to contend with, and theres tons of older houses needing TLC 🙂

    1. Thank you so much for this article. It is so clear and helpful! My husband and I are starting our journey in buying a home. We live in Toronto, where it seems house prices are very similar to LA. And, no, we do not make anywhere near 3x $800K+ Ha!! I’m wondering if all of this applies here in Canada (we’ve only lived here for two years), but I’m thankful that I have this info spelled out to know which questions to ask, what might be our options to get a mortgage and which expenses to prepare for!!
      We are lucky to get good references for mortgage and real estate brokers.
      If anyone has bought recently in Canada, I would love to see your comments and Canada-specific advice.
      Thank you Caitlin and please keep this discussion going!!

  45. Thanks for the tip about making sure to ask about safety hazards when buying a family house. I’m quite wary potential molds in a house because I was hospitalized when I was a kid due to asthma. If my child has the same weak lungs like mine, I will need to make sure that our new home has very clean air.

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