Recently, Andrew and I became successful first-time home buyers. I’ve written about expert-advised strategies for buying a home and Andrew and I actively searched for condos a couple of years ago. However, like many adulting things, you learn far more by doing the thing than just reading about it. Our experience with buying a home was no different. Indeed, I learned so many things throughout the buying process that I wish I had known previously. I hope you find these home-buying lessons helpful as well!
There Is No Perfect Time to Become First-Time Home Buyers
First, many people will try to advise you on the “right time to buy.” They might tell you that housing prices are dropping, so now is the time to buy! Or they might say, “Wait until interest rates drop, that will be the time to buy!”
My hot take, however, is that there is no “perfect” time to become first-time home buyers. When interest rates increase, house prices generally decrease or stagnate. That’s what’s happened recently (though house prices haven’t come down much if at all in many places). In contrast, when interest rates decrease as they did in 2020, house prices skyrocket. Because your monthly mortgage payment is affected by both your interest rate and your home price, there’s a good chance your monthly payment will be similar whether interest rates are high or house prices are high.
Why Are Home Prices Consistently So High?
The problem is that the housing supply isn’t large enough to meet demand. Part of this is because the housing industry still hasn’t recovered from the 2008 crash. Many people in the construction industry lost their jobs. And not enough people have returned. Another issue is that millennials are the largest generation ever. They also happen to be in their prime home-buying years.
As a result, housing supply is low while demand is at super high levels. All of this means that anyone who is selling a home can charge a premium. There are a variety of other factors at play. But those are two of the biggest.
So unless you’re willing to wait about 10 years, the amount you pay monthly for a home will, essentially, be really similar regardless of whether interest rates are high or low or home prices are high or (relatively) low. The key is that home prices will still be as high as they can be for a given interest rate and for people to still be willing to buy homes.
If you can wait 10 years, that’s when experts expect supply to rise enough to meet demand. Millennials will be in their 40s and 50s and so less likely to be looking for housing. Plus, that will be enough time for more housing to be built. Assuming you can’t wait that long, let go of waiting for the perfect time. Or rather, view the perfect time as representing whenever you’re mentally and financially ready to buy a home.
A Good Mortgage Lender Is Key for Reducing Stress
I’ll admit, when I was in the home search process, I didn’t think your mortgage lender was that big of a deal. Sure, the interest rate they offered was super important. And I knew a verified pre-approval was really valuable. But aside from that and filling out forms, I didn’t see myself needing to interact with a mortgage lender much.
The problem with that perspective is that you have to interact with the mortgage lender a ton when you make an offer and especially when you close. Having a good mortgage lender can make the difference between an offer being accepted and rejected. It can also make the difference between closing on a house on time and with little stress and, well, having the opposite happen.
Our Mortgage Lender Experience as First-Time Home Buyers
When we were looking for condos, we had an incredible mortgage lender. She was responsive, informed, and kind. She was so good that I didn’t realize the level of effort she was putting into our home search. Our mortgage lender made the process feel natural and invisible.
When we searched for homes this year, however, we went with a different mortgage lender who could offer a much lower rate. Turns out that rate came at a cost, however. That cost was that she was a nightmare to work with. She was nice, but made constant mistakes, wasn’t responsive, and the credit union she worked for couldn’t provide the kind of competitive closing date and terms that our previous mortgage lender could. All of this meant that we ended up losing out on a housing offer to a buyer who offered the same price but had a better mortgage lender.
When we finally did close, our mortgage lender made the process so stressful. From getting the closing date wrong multiple times to changing my gender on our paperwork after a multitude of interactions to insisting we do things in a very non-industry standard way, she made the process tear-your-hair-out stressful.
So remember that a good mortgage lender is as important as a good realtor. You want a good rate. But you also want a lender who is responsive and informed.
You’ll Probably Be Surprised What Bids You Lose (and Which You End Up Winning!)
As a former statistician, I know that averages are deceiving. When you see an average home price, for example, you’re not seeing the variation around that average. Some houses went for way more than that average and some went for way less. Even if you look at just a particular-sized house in a particular neighborhood with particular features, there can be a lot of variation in the final prices of homes.
Sometimes that variation has a reason. A 3-bedroom house in a good neighborhood could go for way less than average because it’s located near a dump or has cracks in the foundation. But sometimes there isn’t a whole lot of logic to what a house ends up going for.
We ended up buying a house that was nicer than the 3 other houses we put offers on. However, the final price was lower than what the other houses we lost out on went for. Why? Maybe everyone that week put offers on the couple of other similar houses on the market. Maybe it was because that weekend was rainy and people didn’t go out. Who knows?
You might make an offer and feel super confident you’ll get the house. And then you don’t. In contrast, you might make an offer and feel sure you’ll get outbid and then you win. Every time we tried to be strategic in our offers, we failed. The key is to make an offer that reflects how much you want the house. Then, to the best of your ability, put your emotions aside and accept whatever happens. Easier said than done, I know!
Patience is A Virtue for First-Time Home Buyers
The housing search can quickly become frustrating. You might spend your whole weekend looking at houses and not find a single thing you like. Or you offer what feels like an ungodly amount of money for a house and still lose the bid. It’s not unusual for the housing search process to take months. It’s also not unusual to lose out on 3, 5, even 10 or more bids on a house before you finally win one.
Just remember that more time can sometimes be a blessing. It gives you time to refine what you like and don’t. You’ll have longer to save money. And you might find yourself feeling especially appreciative of your current home and neighborhood as you face the possibility of moving. So soak up those last few weeks or months in your current home and trust that the right new home will come along in due time.
Budget for Furniture and Other Phantom Costs
If you’re anything like me, you have been laser-focused on saving up money for a down payment. For years, every purchase I made was in the context of whether I was willing to give that money up from my down payment. (Maybe I was a little too intense about it).
The problem with that focus is that it neglects all the other costs first-time home buyers will want to budget for when buying a home. Like closing costs. Closing costs equal, on average, 2-5% of the final cost of your home. That sucks because you may think you’ve saved 20% for a down payment, when really you’ve saved 15-18%. So make sure you budget for that.
You’ll also have somewhat less obvious costs. Remember that you’ll likely want new furniture or homewares. We needed to install new locks, for example. We also needed two sets of seating, one for a living room and one for a family room in our new home. Plus we went from 1 to 3 bedrooms. You might have home repairs you need to do immediately. And then there’s the likelihood that your utilities will go up if you’re moving to a bigger space.
To the best of your abilities, set aside money for these purchases and for an emergency fund. Your costs will likely be higher than you expect. Nevertheless, do your best to research the kinds of purchases you think you’ll want to make. You might even inflate that number by 15% or more to help account for unforeseen purchases.
Final Thoughts on Lessons for First-Time Home Buyers
Becoming a first-time home buyer is incredibly exciting and rewarding. After saving money for 10 years, it feels incredible to finally own a home. However, the home-buying process was fraught with stress and setbacks. Luckily I learned so many helpful things along the way. Hopefully by sharing my lessons learned, I can save other first-time home buyers a bit of trouble.
I hope you found this article helpful. Are you in the process of buying a home? Or are you hoping to search for a home soon? Let me know in the comments!
And if you’re interested in related content, check out my first-time home buyers guide and free checklist, the top 5 qualities of a good realtor, and my guide to house hacking.
Very informative! I am saving this when I buy my first home!
I’m so glad you found it helpful! Thank you for reading!