Close

May 23, 2017

Buying Your First Home

Buying a home is a difficult and intimidating process which takes lots of time and money, so it’s not a surprise that younger people are being more cautious about buying their first home. I bought my first home 1 year ago  (May 2016) at age 24, and it’s a process I highly recommend if you’re in a similar situation as I am. I worked in a stable, yet not very lucrative job, but in an area of the country that I really enjoy living in. There are many Engineering jobs in my area (Brevard County, FL), so I knew that when I wanted to, I could always get a better job. Which I did, about 8 months after buying my house. And I’m at the age and mindset where I don’t mind having roommates which help offset my mortgage payment.
 
 
 

How to Decide What You Need in a Home

While searching, I found all of the houses on my own using the local MLS, and made a huge spreadsheet. I had a friend who was a realtor who showed me the homes, and who I closed with. My spreadsheet highlighted the best deals per square foot, more desirable locations, and distances to my work location at the time. I didn’t want a house in South West Palm Bay, which is very far away from anything. My budget was too small to afford a home in any of the local beachside areas, so it basically cut my search area to North East Palm Bay and Melbourne. I also wanted a low HOA, or at least one that wasn’t crazy strict. One neighborhood I looked at was $160/yr for the HOA, which wasn’t bad. But I analyzed their budgets, and almost 3/4 of their expenses were mailing out letters to homes that were breaking HOA rules. That was way too overbearing.
 
 
 

How To Determine How Much to Spend

I was very lucky in that I have a family with a solid financial background — I wanted to put the traditional 20% down on my first house to avoid PMI (Private Mortgage Insurance). I also wanted to do a 15 year loan, which would mean my monthly payment would be higher, but over time my house would cost quite a bit less. Many other people my age that purchase homes with 3.5% down, using some sort of First Time Homebuyer credit. This is a really good option for many people, but I wanted to pay my home off quickly.
 
My income was almost $60,000 a year at the time, so I decided I could afford a $170,000 house, maybe a little more… and of course that turned in to making offers on $220,000 houses. I made an offer on 2 houses that were very large, nice, and needed no renovations. One for $220,000, and one for $215,000. Both offers were rejected in favor of some other offer (even thought I was only $5,000 off asking price on each house). This led to becoming more humble about what I could actually afford, and considering that you don’t get everything you want in a “starter home”.
 

 

The House I Bought

I re-thought about a house I had already knocked off the table. It was a 4 bedroom, 2 bath, 2 car garage house, which I what I wanted. I had 3 roommates lined up, and needed to have a room for everyone. Having more rooms for rent could really limit how much I had to pay per month towards my mortgage. But this house was weird – the master bedroom was hotel style, with a vanity in the bedroom area itself. The house was very dated, it was built in 1980 and likely last renovated in 1980. However, it had some really good things going for it. A new roof, new A/C, a large pool, and it was in a nicer neighborhood than the previous houses I made offers on. The neighborhood is great, and I probably have the cheapest house in the whole neighborhood. The house was listed for $175,000, I offered $158,000, and they countered at $170,000. I accepted, and after inspection got another $2,000 towards closing for fixing a few things.
 
I will say that when I bought my house, it was a pretty bad time to be buying a house in Brevard County, FL. May is always expensive to buy because families are moving because of schools, plus the real estate market is hot here. If I had bought a year before, the house would’ve probably cost me $30,000 less. Anyways, I bought that house and have been renovating it quite a bit. I had 3 roommates for a couple months, and I’ve had 2 roommates since then. I turned the other bedroom into my office, and luckily get to work from home sometimes.
 
 

 

Final Housing Numbers

As far as the loan and the numbers, here we go. The final purchase price was $170,000, and my closing costs and 20% down ended up being about $35,000. I had a few thousand myself to go towards it, and borrowed $30,000 from my parents for the rest. In fact, the main reason I sold my Corvette last year was to help pay off the down payment loan. I paid the down payment loan off in a very aggressive 6 months. I got a 15 year mortgage at 3.25%, taxes and insurance are about $1,200 a year each. Next time, I’ll spend more time shopping for insurance and mortgages, but I’m happy with my result. My final payment is about $1,200, and my roommates pay $500 each. When I had 3 roommates, I made $350 above my mortgage, but all of that and more went right into renovations. Currently, I pay $200 a month myself towards the mortgage, and I’m gaining about $600 per month in equity. It’s really nice when you don’t have to pay much for your monthly mortgage payment, but you also have to deal with living with people who might not be as clean or organized as you, so it’s not for everyone. It’s a tradeoff.
 
 

 

Rising Home Values

The biggest financial advantage so far is in the rising home value. I purchased the home for $170,000. I’ve renovated 2 of the 4 bedrooms, the living room, the laundry room, and put in tons of sweat equity. I also want to thank my girlfriend, my father, and one of my roommates for helping out a ton with labor and some expenses. The value of the house was appraised at $175,000 when I purchased the home, and would be at least $215,000 now. Similar houses in the neighborhood have sold for $230,000 or more. I have spent about $10,000 on materials and tools over the last year on the home. I think the house will continue to rise. I’ve got a home renovation blog at citrusrenovations.com, if you like that kinda thing.

Before and After Living Room Renovation

 
I’m really glad I didn’t purchase a home outside of my price range. Having a cheaper house has been a huge burden lifted in terms of finance, and I wouldn’t enjoy it if I had a larger payment and still made a lower salary. Having stable, affordable housing has allowed me to max out all of my tax advantaged accounts this year, which is accelerating my retirement date. Now that my income has risen, I plan to buy another house in a year or so (using a HELOC on my current residence for the down payment) and rent my current home for $600-800 above the mortgage.