10 First Time Home Buyer Tips

Today I’m going to talk about tips for first time home buyers. This is based on not only my experience with helping countless clients purchase their first home, but from my personal experience buying my own first home as well.

With interest rates at historic lows, mortgage applications for first home purchases are at all time highs, and then another month goes by and they hit yet another all time high.

It goes without saying that purchasing a home has jumped way up the list of many people as they begin to navigate what the pandemic means for their work and their home situation.

It’s a daunting experience, especially in Los Angeles where home prices are high compared to the rest of the country and the great homes get snapped up very quickly.

That being said, it certainly can be done, so I’m going to go over my top ten tips for purchasing your first home.

First, you’ll want to make sure you have your down payment in order. For many people, this will be 20% of the purchase price, but with interest rates low and prices high in LA, I’m seeing more and more people put less money down.

I used to not be a huge fan of putting less than 20% down due to the fact that you will have to pay mortgage insurance, but I’ve recently changed my stance on this.

Now I recommend people put at least 10% down, but you can comfortably put anywhere between 10 and 20% down and still have enough equity in the home and get very competitive rates.

Plus, mortgage insurance is only paid until you reach 20% equity in the home, so if you do put less than 20% down, I recommend looking at your long term financial situation and seeing if there are ways to pay that off faster and remove the mortgage insurance quicker than the typical schedule.

I definitely don’t recommend putting more than 20% down because interest rates are so low at the moment. Remember, if you get a 3% or less mortgage rate, the stock market historically 6% or more per year. That means the difference if you have that extra money, is better invested in a broad index fund than in your home. Let leverage work in your favor!

My second tip, see if you qualify for different assistance programs for first time home buyers. Many lenders will actually offer you a credit to your closing costs, which actually functions as cash in hand if you qualify.

Sometimes it depends on your income, others are completely independent of income and focus on particular areas. Some are not through lenders at all but rather through state or federal programs.

I’ve come across a handful recently that I really like for certain buyers, so if you’re on the fence and want to know about some of these programs, call or email me, I”m happy to chat.

Third, make sure you’re putting aside money for closing costs on top of your down payment.

I’ve worked with many first time home buyers to get their closing costs down, sometimes by thousands of dollars, but they do exist and you will have to pay for them. Many of the big ones like title insurance and escrow fees are based on a purchase price point system, meaning they are directly tied to your purchase price.

In general, I recommend people put aside 1.5% of the purchase price of a home to make sure you can cover your closing costs.

Don’t worry though, your lender will advise you on this as well to make sure you don’t accidentally purchase something you can’t afford, and I advise my clients on closing costs up to the very end on closing day.

Here’s a big one at number four: get preapproved early. It’s a question I get over and over, when should I get preapproved for a loan? The answer is, as soon as you can.

The reason for this is that there are mortgage calculators online, I of course can provide estimates as to what you might be able to afford, but at the end of the day, I’m not loaning you the money. The lender is!

Only they can take a look at your finances and tell you exactly what you would qualify for, for better or worse.

There are all sorts of little snags you can hit like your credit or student loans or liquidity of funds or legal business structures, type and length of employment, the list goes on, of things that you think aren’t a big deal but surprise! Are a huge deal to someone lending you hundreds of thousands of dollars.

And there could be good news too, you might find different loan programs that offer you fantastic rates or income you didn’t think you could count but can actually make the amount you’re approved for higher than you expected.

And here’s the thing, when you get preapproved, you do take what is called a soft hit on your credit. But the credit bureaus give you an entire 6 months of time where any further mortgage related credit inquiries only count as that one initial hit.

They assume people will be shopping around for their mortgage, so they don’t penalize you to do so.

And though yes, a preapproval only counts for somewhere between 30 and 60 days depending on the lender, if the preapproval expires, you just call them up and have them run it again.

They’ll just update you on current interest rates and make sure your income still qualifies and issue you another preapprvoal, no problem.

And remember, you cannot write an offer without a preapproval, so in most instances real estate agents won’t show property to you without evidence of that preapproval. They don’t want to show a home to someone who isn’t ready to buy yet.

Therefore, as soon as you are ready to see houses in person, it’s time to get your preapproval in order!

That’s why the preapproval is one of the very first things I help first time buyers with before many other steps can happen.

Tip 5, understand your payment! When you’re a renter, you really only have one housing payment: rent.

When you own a home, you have multiple payments that you’ll need to take on and you should understand what they mean and when they are due.

You may have heard of the acronym PITI, Principle Interest Tax and Insurance. These are your four main components, but it could include a 5th for HOA dues if you purchase a home in a planned development like a condo or a townhome.

The first two, principle and interest are a part of your mortgage payment, you’ll pay them as one lump sum each month on the 1st to your lender.

Principle refers to the principle of your loan balance, essentially the money that you build up as equity ownership in the property.

Interest refers to your interest payment on the loan. Early on more money goes towards interest, but as you get further along, a larger and larger percentage of your payment will go to principle and less to interest

T refers to taxes, good old Uncle Sam, property taxes and any special assessment taxes.

Remember, taxes are not due each month, rather in the state of California, they are paid for the year, and come in two equal payments, December and April. Remember, if you’re not choosing to do an impound escrow account for your taxes, which I don’t recommend my clients do, you still do need to make sure to put money aside for your property taxes by the end of the year.

Finally, insurance. Most people actually pay this as a lump sum on the year at the beginning of ownership, but you do need to keep it current to satisfy your lender requirements so make sure you pay it!

Remember, property taxes and interest on your mortgage are both tax deductible, as is mortgage insurance if you have it. The tax benefits of home ownership!

Tip Number 6, buying what you can afford. Remember, everyone’s financial situation is different, so it is up to you to choose responsibly what kind of house payment you can afford.

You may be comfortable with the payment on the full amount of your preapproval, but even if you’re approved for a high amount doesn’t mean you should spend that full amount.

In most instances the monthly payment on your home is going to be higher than your previous rent in Los Angeles. That’s probably because you’re going from a shared apartment to...surprise, a whole place to yourself! Of course, owning where you live has some incredible financial advantages, but it can be financially disastrous if you become house rich and life poor.

So remember, you should of course try to get approved for as much money as you can…and then decide how much of that you want to actually spend.

Coming in at number 7 is one people don’t like to talk about but definitely need to: how much of a fixer you’re ok with.

On a scale of: it needs literally everything to completely turnkey, everyone should have a firm conversation about what condition you need your home to be in, really. I’ll be honest when I say, most people probably want a little more turnkey than they think they do.

Remember, moving sucks, and buying a house is stressful, so you might think you want a fixer that you can remodel yourself, but what happens when you have to go to work all day and something breaks, or that remodel project gets pushed and suddenly that house you thought you were going to have is way further out in the future than you thought...or worse, costs more than you expected.

You might think I’m eating my words on this one since I purchased a fixer home that I’m in the middle of renovating right now.

And yes, financially it is a fantastic way to earn even more on your investment. But it’s taken far longer than I imagined, and it’s physically tough, and I’m going to end up over budget.

It’s definitely for some people and I don’t regret it, but for most of my clients, I can’t recommend a major fixer as your primary residence.

That being said, if you’re handy and you have a little cash to spare, a light to medium fixer could be a fantastic way to go. It’s just all about honesty with yourself and what you want out of your home.

Tip number 8, very important, get a great agent.

Yes, I’m a real estate agent, so you might think this point is a bit of self promotion, but check this out. I represented myself as a buyer on the purchase of our first home. And oh boy did I get the first hand reality check of needing an agent to help myself out. I had to do this weird thing where I had to break into two people and have Cameron the real estate agent help and advise Cameron the buyer.

That’s because yes, most agents can do a fine enough job of handling the basics of a purchase. We do this for a living after all.

But a great agent is someone that you trust, personally, and picks up the phone when you call, and navigates you through negotiations, and assures you everything will be alright and then turns around and makes it alright, whatever needs to be done.

They are your first line of defence against all the crappy things that come up during inspections. They’re there researching everything for you, calling county offices and pulling permits, getting you deals on inspections, organizing handymen, attending appraisals, getting cost estimates from every type of contractor, making sure documents are in order, explaining those documents, those mountains and mounts of documents, in every little detail.

Most agents don’t do any of that, but we all get paid the same when you buy your home. Choose someone that goes above and beyond, that you truly connect with, and that lays it down on the line when things get tough. That’s a great agent.

Tip 9, get prepared...emotionally. I’m not going to beat around the bush here, this process is tough. Specially, emotionally tough. It’s a rollercoaster of ups and downs. It’s your first house after all!

When I purchased my first home, and even though I do this for a living, it was still so tough! There were times I was completely worn thin.

Ask any great agent and they will tell you the true reason they exist is that this process is complicated, difficult and emotionally taxing, and our job is to be there through all of it, helping and supporting. And that’s true.

And honestly, there isn’t anything you can do to prepare for it. Sorry, I don’t have a magic answer here. You just have to know going in, it’s emotionally difficult, but you will get through it to the other side, and it WILL be worth it.

The last tip I have for you, tip 10, is very relevant to today’s times, and likely about a lot of this process going forward.

Things have changed due to the pandemic, and obviously at the moment, we need to do a lot of safety procedures to make sure we are able to view properties as safe as possible.

Of course we use a mask and sanitizer, but additionally, we view things through a digital lens far earlier. Instead of photos, we’ll now likely see videos, or even click through 3D walkthroughs of the property. We use Google Street view to virtually walk neighborhoods. We sign very few things in person, everything is almost entirely digital now.

And a lot of this is good! It means we can really get a sense for a home and the area before we take time out of a busy schedule to go see it. But again, we always have to go in person.

I can’t tell you how many times this year that I’ve heard something looked bigger than the photos, or smaller than the photos, or just plain different from the photos.

You can’t hear noise, whether how peaceful a balcony is or how noisy a street is. You can only really use this to cover the basics, does it fit your general criteria, then you go in person.

And I kind of want to play off of that for a bonus tip. Call it tip number 11, just because I do like going above and beyond.

The biggest thing you cannot get without being in person is how a home feels.

These are the intangibles, the things that are hard to put into words, but what humans can intuitively understand simply by being in a space.

My last tip is this: go with your gut. You should honestly be able to tell within minutes of being in a home if it is the one. You can look at numbers and photos and descriptions all day, but only you know if you get that feeling of butterflies in your stomach.

Conversely if you walk out of a home saying, “it just didn’t feel right” Great! Stop right there. No need to analyze it and try to figure out. Don’t noodle it to death, you’ll drive yourself crazy. Go with your feeling and move on until you do find that perfect feeling.

Just so you know, it should feel like dropping from a roller coaster. Equal parts wild excitement, equal parts sheer terror. That’s what you’re looking for. That I think we found the one! I think we found the one...

So there you have it, actually 11 tips for the first time home buyer. I hope you enjoyed this video and learned something new about this process.

If you’re interested in purchasing your first home, I LOVE working with first time home buyers and taking a deep dive into what you’re looking for and how we can strategize to make that happen in this still very competitive market in Los Angeles.

To be successful you need the right agent who can market you as the right buyer and understand how to craft the right offer, otherwise MAN, is it going to be tough out there.

And if you’re looking to sell your home, I have a fantastic program that really just blows what most other listing agents offer out of the water.

I pay for all of the aspects of digital marketing from photography, drone footage, videography, 3D walkthrough and virtual open houses right out of my entry level commission structure.

No other listing agent is doing this and if they are they’re going to pass the cost along to you or mark up their cost to you, but I pay for it, no questions asked. It’s my way of bridging the gap between the virtual and the personal.

Thanks again for reading, and don’t hesitate to reach out if you’d like to chat