At Fabulous South Bay, we love first time buyers! Buying your first home is such an exciting time, and we feel privileged to participate in it with you. Home ownership is a great way to build wealth, especially since Uncle Sam still has that mortgage interest deduction that means that much of your house payment will be subsidized by the U.S. Government!
Some things to think about when buying your first home are:
- Don’t get too hung up on all the details of the first house. You probably won’t live there longer than a couple of years, then you’ll take your profit and move on to a better neighborhood and/or a bigger house. Buy the home in the best location that you can afford as long as it has a reasonable floor plan, but unless you have more cash than time, consider buying one that needs remodeling — you will get the increase in equity instead of letting someone else do the work and then sell it to you at a higher price.
- As my friend says, “Separate the need from the greed”. It is natural for everyone to keep adding to your wish list until suddenly you find that you’ve either added so many items to the list that you’ve priced yourself out of the best neighborhood. Do you really need 4 bedrooms, or could you use a sofa bed in the family room for that guest room and make 3 do just fine? Do you really need a “master” bath attached to the biggest bedroom, or can you do ok as long as there are two bathrooms somewhere in the house. Do you need a big garage for your cars, or are you just going to fill it with boxes anyway and you could consider a home with a nice large storage shed or basement just as well? By separating out what you really need from what you’d like to have, you open yourself up to homes that may be perfect for you, but that otherwise won’t get shown to you.
- If you have a significant other, make sure you are on the same page about “needs”. Nothing is more frustrating to everyone than when one partner says he has to have an ocean view and doesn’t care about yard, and the other one has to have a huge yard and doesn’t care about view. Unless money is no object, size of yards goes up pretty much in direct proportion to distance from the beach.
- GET PREAPPROVED! Before you start falling in love with homes, make sure you can make an offer on the spot if necessary. In our current market, homes go very quickly if they are well done and well priced. We have multiple offers on 50 percent of the deals these days. Make sure you can be the one that has the pre-approval letter with your offer package so that your offer gets accepted over the others.
- Be careful about inviting friends or parents to see it before you close the deal. I have often seen clients bring their friends to see a place, only to have the green-eyed monster of jealousy rear his ugly head. The friends, who probably subconsciously wish they could afford to buy a place, start nitpicking the home until all your excitement over your first place gets killed off and you are left with doubts and a feeling of anxiety. Friends whom you can trust to be supportive are great, but you’d be surprised what happens when one person or couple starts moving a bit ahead of the crowd. Parents can also be chronic naysayers, because what they really feel is that their son or daughter is too young to buy a house or want more for their child than the child can afford. I’ve seen many a parent say “but you should be living in Manhattan Beach” to someone who can only afford $600,000. That’s not generally going to get the job done in Manhattan Beach, but there are wonderful neighborhoods close by in Redondo Beach or Hollyglen or Torrance that the same $600,000 can buy a lot of house in.
- Be sure to hire a great local Realtor®. Yes, you can get most of the listings from the internet. That’s not the same as having the market knowledge of which streets are less desirable, which have soil stability issues, where the “off market” listings are, etc.
- Remember that finding the home is only the beginning of the process. Escrow is scary to first time home buyers, and you want to have someone who can walk you through it and keep all the moving pieces moving smoothly. If something goes wrong with the loan, the appraisal, or the inspection, you want to be sure you have an experienced professional who can figure out whether the problem is fixable and get it fixed.
- Be sure to talk to your accountant. The tax deductions are great but in order to understand exactly what your cash flow is, you need to be sure you understand all the nuances of your tax bracket, etc. He or she can help you to understand which parts of the initial purchase are deductible immediately and which monthly payment items can be deducted.
- Be sure that you do everything you can to keep your FICO scores up while you are looking. Don’t buy anything major! Don’t open credit cards. Nothing is sadder than having the loan get turned down at the last minute because you went out and bought a new washer, dryer and refrigerator in anticipation of the move and ruined your debt to income ratio!
- Relax and let your trained professional be your “captain” to navigate through the sometimes turbulent escrow waters. This is an exciting time, with lots of possibilities for you to imagine and mentally picture yourself living in; try to enjoy it!