Ask the Readers: What should you consider when buying a house at 25 (or any age for that matter)?
Published on - January 4th, 2013 (by Ellen Cannon) This is a guest post from Jenna Forstrom.
I always wanted to have my own house. My parents flipped houses while I was growing up and I like creating spaces and using my hands, plus it always sounded like a good investment. I graduated college at 21 and decided my next goal was to buy a house by 25. So, after graduation, I moved back home to Portland to live with my mom.
Some people may need to ask themselves if they truly want to own a home and all that comes with it. But for me, this was easy. Yes, I wanted a house. Therefore living in suburbia with my mom while I saved money was worth it. And after two years of saving money, I decided it was time to start looking. I met with a realtor and started coming up with requirements for my future house.
What do you NEED in a house?
My list of needs:
- Location – It needed to be in Portland, close to public transportation and near a particular college, just in case I wanted to turn my future home into a future rental property.
- Size – A minimum of three bedrooms. My younger brother was graduating from college soon, and I wanted to have space for him to live with me and either have a guest room or another roommate.
- Driveway – City parking is a pain. If I’m going to live here, I want to keep my hardly-used car in its own space. Plus, I needed somewhere off the curb to store my camper. I wasn’t going to own a home and pay rent to keep it somewhere else.
- Affordable – I had a tight budget and wanted to stay within it. I used the “Say Yes to the Dress” motto with my realtor. “If I can only afford a $1,000 wedding dress, don’t put me in a $10,000 wedding dress. I know it will look better, but it only gets my hopes up.” Obviously, a more expensive house will be better, that is why they cost more!
- Forever – I wanted a house I could live in forever, from roommate to babies to retirement. Or something I could rent out if I choose to move to China for some reason. Not a starter home.
I spent 18 months looking for my house. I was in no rush, I wasn’t getting married or having a child anytime soon. This gave me more time to save for my future home and regularly research and check out various houses that fit within my “needs” criteria. That being said, have an end date. Your realtor will thank you. Mine was my younger brother’s graduation, June 2012.
I put 20 percent down in order to avoid paying private mortgage insurance (PMI) or needing a co-signer on my loan. Things have changed in the last couple of years that have made it harder for young people to qualify for a mortgage. I had okay credit, but not enough history. Make sure you have a good credit score and consider saving more for a down payment. Also, since I use Adaptu, I was able to keep a close eye on my monthly spending while I was saving up for my dream house. This motivated me to cut costs whenever possible. Plus, now I can track my mortgage payments and property value through Adaptu.
I bought my dream house in March 2012, six months into my 25th year and three months before my brother graduated. That was just enough time to close and get the pipes working so we had running water when I moved in.
What did you consider when buying your first home? What do you wish you would have considered?
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My husband and I just purchased our first home (a co-op, so not really a house) a little over a week ago. When we started looking, we had a list of things that we soon altered when we decided this wasn’t our “forever” home. When we decided this wasn’t our forever home, we looked for:
-Something where our d/p was going to be at least 20%. (It ended up being 30%.)
-Something where our mortgage and maintenance payments were less than our rent. Everyone is so shocked when I tell them I will be paying less than my previous rent every month.
-Something that was on the cheaper-side.
-Something we could fix-up here or there to make a profit on down the line—I know the area and I’ve seen comps in the same building that are updated so I know we got a good price b/c the bathroom and kitchen needs updating.
I don’t think buying a house is for everyone and I don’t think everyone needs to own a house. I do think everyone needs to do their own cost/benefit analysis and that there probably shouldn’t be as many people jumping into buying a home “just because.”
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Be careful to do your own research. I have bought two homes now and the realtor and the bank tried to get us to borrow way more than we knew we could afford. Thankfully we did not listen to them, once in each house we had to deal with a long term unemployment situation. We would have lost each home if we had listened to the professionals.
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Totally agree with AMW to ignore any bank or mortgage broker’s approval for what they say you “can afford”. When we bought the house we live in now, it was when we were engaged, but not yet married (we were 26 then!) so it ended up being all done in my name since Mr. PoP was self employed at the time.
I couldn’t believe the amounts they were approving for a “single person” on 1 income. Our purchase price was WAAAY under the amount we were pre-approved for.
I’d say also not to be afraid of small/older houses in neighborhoods without HOAs. A new coat of paint and little updates as you go along living there will go a long way to making it feel new again, and your ongoing costs (insurance, taxes, and maintenance) are going to be significantly smaller every single year.
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Your first four points seem reasonable, but I think it’s very hard at age 25 to know what your future needs are likely to be. Your 20s (and 30s to some extent) are times of rapid change in many people’s lives. Most people are building their careers, continuing their education, seeking a mate, and growing their families.
My husband and I bought our first home when we’d been married less than a year. We thought it was our “forever” house. He was 24 and I was 23. Four years later, I received an incredible job offer for my “dream” job. But the dream job was 1000 miles away from the forever house. We didn’t want to be absentee landlords, so we sold the house and my husband found a job in the new location. We didn’t buy another house for several years, and when we did, we realized it probably wouldn’t be our forever house either.
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Even if you don’t stay forever, when you buy a “forever” house, the big advantage is that if you looked for accessibility features, it will sell faster and for more because it will appeal to a wide variety of potential buyers.
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We built our first house when I was 21 and SwampMan was 24. Nothing was finished except the ceiling and roof when we moved in. Bare concrete floors, no paint on the sheetrocked walls, no interior doors, and one year old child in tow. We finished it as we could afford it, then added a huge master bedroom suite in the back and a greatly expanded kitchen as our family grew. Then we got a wild hair and moved across the country and sold the house. *sigh*
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We bought our home when I was 25 and he was 24. We’d been married for a year and a half, I’d finished my masters degree four months before we bought.
We wanted a house close to the public transportation system, walking distance to parks and libraries and schools.
Sadly, the neighborhood has gone downhill in the past 9 years. Several nightclubs came and went, with shootings resulting in their closings… prostitution increased and there is a large immigrant population from Somalia in this part of the city, and they fight with the African Americans in gang activity. A lot of foreclosures – three on my block in the last two years. A convicted murderer moved in next door three years after we bought our house. He died last year though. A convicted rapist moved in behind us, two years after we bought the house.
Hindsight being what it is, I wouldn’t have bought this house. We had an inspection but either the guy was a moron or we have really bad luck, because we had some major repairs in our first year in the place.
Our house is plenty big for our now family of 5 people and 2 cats, but the neighborhood leaves a LOT to be desired.
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I started looking for my first house at 25 and closed when I just turned 26. It is a huge financial commitment. Now, 3 years later, I have worked hard to pay down my mortgage and am ready for another home.
If you asked me 2 1/2 years ago was it the right thing, I would have said no, it is the stupidest thing I have ever done and I wouldn’t recommend anyone that age to buy a house. Now, though, I would recommend it, as long as you are willing to make the sacrifices and put the time and effort into it.
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DH & I bought our first (and probably only) house at ages 52 and 47, respectively. For a few years before that, we’d dealt extensively with elder care issues from parents and realized that we had to have a house we could still live in when mobility became an issue. It’s only a couple of steps from the front door to the sidewalk, and most of the living area is on the first floor; my blown-out knee is thanking me for that. We’re just off a bus line so if/when I lose my vision (as did my mom, her parents, and all her siblings), I don’t have to drive to get around.
Along similar lines, being older, with health problems beginning to set in, and with little to no DIY skills, we needed and bought a house in good repair that wasn’t a fixer-upper.
Cost: I won’t lie; we bought more house than we could afford, simply because no house existed within our budget in our HCOL area (and no, we definitely do not live in a McMansion). While conventional wisdom would say to continue to rent, that became untenable for a variety of reasons I can’t get into here (other than agreeing to buy saved my marriage). The mortgage payment proper is less than rent (PITI is more).
Most importantly, we don’t have to deal with the whims of landlords or obnoxious neighbors on the other side of the wall/above/below. This house isn’t someone else’s subject to what they want (well, yeah, it’s the bank’s, but you know what I mean) and we don’t share it. That’s worth working longer hours and juggling money.
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We bought our first house at the age of 20. I wish we would have looked longer and not jumped so quickly!
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I just bought my first home in September of 2012. Both my wife and I were 25 at the time.
Some of the best advice I could give for the experience is trusting the people you work with. We worked with a Realtor and mortgage broker that were excellent. I think one of the biggest things was the mortgage broker never told use how much house we could afford, instead he asked, how much are we comfortable paying each month. With having a worked out monthly budget it was easy to determine how much we wanted to pay.
The realtor was also on board with this strategy and never showed us a house over what we were willing to pay, although we did ask to see a few above our price range which we liked. We took our time, around 8 months and viewed 40-50 different homes. Patience is the key, especially when homes are moving so fast these days. So if you find one you must have that fits your wants and desires, act fast.
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I bought at 28 and like you my #1 was rental value. Life did happen about two years later and I moved country, so far the property has been easily rented for three years.
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Location is absolute key. The first home I bought was out in the boonies 40 min from work. The home was much nicer than others I could afford closer to town, and I enjoyed the rural setting. However, it got very old very quickly driving back and forth to work and to hangout with friends. Choose a location that you’ll be happy over a bigger fancier house.
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I bought my house when I was 25, but I am very cautious when recommending it to younger buyers. Here are a few things I have learned.
Pros:
No landlord. I have lived in several different apartments before purchasing a home and even though I never had a bad experience with a landlord it is nice not to have someone to answer to. Are you a pet owner? This can get real expensive if you are a renter.
Experience. I have learned a ton about home improvement in the past 7 years with this house. You really learn the value of time vs. money. After refinishing the hardwood floors I knew it was the first and last time I will ever do that myself. The experience of working on a house is rewarding and will always be valuable in the future.
Cons:
Expensive. Emergency Fund, Emergency Fund, Emergency Fund! Houses will need major repairs from time to time. I have replaced the furnace, air conditioning, stove, and windows all in the past 2 years. These types of repairs always seem to happen when you least expect them. Fortunately for me the timing has been spread out far enough to refund my emergency fund to comfortable levels. New buyers should make sure they have a little extra after the down payment. Also, pay attention to the little things, paint, light bulbs, trim, filters, etc. Upkeep can add up quick and eat your cash flow if you are not careful.
Stuck. In the past 7 years I have changed careers twice and it seems like each time I make a change my office gets further and further away. I have a 50 mile one way heavy traffic commute every morning. The housing market downturn hit my neighborhood pretty hard. A lot of my equity was wiped out. I am still evaluating my options, but it is hard to be attractive in the market with so many foreclosures nearby and I am not confident I have the time to put into renting the property.
I believe everyone should own a home eventually, but in hindsight I would have waited a few more years when my life was a bit more stable.
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As with most real estate, the first three things we considered were location, location and location. So we bought our first “house” (i.e. condo) across the street from the beach. Obviously, the numbers had to work out as well, and allow us to put 20% down, achieve manageable monthly payments, etc.
We began renting the condo from my parents when we were 24 & 22, and eventually purchased the unit from them when we were 27 & 25. We have no intent to move until our family size physically exceeds the 2 bed/2 bath space, which we presume gives us another 5 years or so.
Our goal has always been to keep the place as a rental when we’re young and ideally as a 2nd home when we are much older.
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I am curious about many things. I live in Canada where we did not have a real estate meltdown so prices are high.I am not sure how expensive housing is in Portland but I believe it’s pretty high. Where I live, the limited amount (I think maybe 15 houses came up on an internet search) a modest starter home (3 bedrooms,2 bath, maybe a yard and driveway)is close to 300K. And not always in a good neighborhood. How did you save 20% down? Multiple jobs? I am sure living with Mom helped, but that still is quite a bit of money to save in 4 years.
I would love more details.
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I saved. A. LOT. I got a good deal on the house, invested a lot of sweat equity and was able to scrap together 20% down in four years.
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“I saved. A. LOT.”
Really? Never would have guessed
I think what Slackerjo is getting at is that for those of us international readers (and many U.S. readers), your post could have used more details to make it relevant. I’d wager most of us GRS readers know to work hard and save cash — we’d like to dig down to the details.
Kudos on your purchase
Sounds like you made a smart decision.
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I was saving roughly $1,000 / month while living at home with my mom. Over four years. Then I found a house that was in my price range and needed some sweat equity.
I gave up a lot of social activities to get this house, but I think it was worth it.
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I agree, more details. What percent of your salary did you have to save, for how many years, to reach that downpayment? How did you negotiate that with the parents? What did you need to sacrifice to keep in your price range?
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Also, did you do that on top of or in lieu of retirement savings?
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There’s so much to consider when buying a home. My husband and I both lived with our parents after college and thanks to not having any student loan debt, were able to save up almost $100k in cash reserves for our first home. We would have had mroe if we hadn’t paid for my graduate degree and our wedding with cash, but those were important expenses too! To most people $100k is a ton of money. Since we live in DC, however, it doesn’t go very far. To do a 20% down payment, buy all of the furniture and paint/decorate the inside to our tastes and have some emergency cushion leftover, we changed our purchase price from $400k to $325k. We wound up sacrificing almost everything on our “wishlist” just to get into the market. We went from hoping to afford a 3br/2ba rowhome with a basement and small yard walkable to metro and amenities to a 2br/1ba condo walkable to bus and amenities. We’ve been here for 2.5 years and have plans to purchase our “wishlist” home in the next 2.5 years and to use our first house as a rental property. In the meantime, I love our home, and I realize now that although it is not everything I want it to be, it is enough.
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I bought my first house at 24.
I wish I had waited to buy. I regret not travelling more (all my money went into fixing up my handyman special) and I regret that I didn’t give myself a chance to live elsewhere.
For me, walkability is a big issue, as are access to nature. I love to walk, and to have a destination – a town center where I can walk safely at night and a park or conservation land where I can walk my dogs during the day.
Good schools is important. My first house did not have this, as I couldn’t afford to buy in the towns with the best schools.
As I’ve aged my needs have changed. When I was young I wanted a dream home… a large house with character and lots of property. As a middle-aged working parent, I like having a smaller house with a smaller yard that doesnt’ require lots of upkeep. I’d rather spend my free time doing something other than cleaning and yardwork.
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We’re 28 and planning on buying our first home in cash. It’s not for everyone, but we’re very excited about it. We also are delaying purchasing a home even though we desperately want to when all our friends are talking about theirs. But the fact is that we are still changing jobs, moving, and altering our life circumstances at a rapid pace, so renting it is for the forseeable future.
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I definitely agree with the article. You should always buy something that is in your budget. Good to see that you bought near a college.
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Editor: This is a Guest story, NOT an ask the reader’s story. Please use title’s appropriately. It’s clear from this article the author is giving, not asking for, advice.
That being said – sounds like Jenna did an excellent job in finding a home that met her criteria. Congrats to you Jenna. How has the house held up since you bought it? Have any surprises financial or otherwise come up for you these past few months with regards to the house?
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Well, I’ve been living in the house since May and so far things are going great. I’m loving it here. The biggest thing about owning a house for me that I didn’t anticipate is how careful I am with everything, from fires in the fireplace to heading out of town for long weekends. I think that will get better with time.
The biggest issue so far was a flooded basement that happened during the first big downpour in Portland this fall. No damage but definitely stressful.
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Stay careful, Jenna. The life you save may be your own!
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My first “house” was a condo in Dallas. On a teacher’s salary, I couldn’t afford a real house, and didn’t want to deal with things like lawn maintenance, roof repair, etc.
In retrospect I wish I would have just kept renting until I met my DH, because the only thing I got back on it when we sold it was my down payment.
But how was I to know my DH was going to show up in four years, and that the housing market was going to take a tumble during that time?
20/20 hindsight…
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DH = Dear Husband or Dream House? Could go either way in your story…
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Sheesh, you had to live somewhere, didn’t you?
It feels like you’re kicking yourself, perhaps unnecessarily.
Sounds to me like you got to live in your own home for four years AND you got your down payment back. What about tax savings: are you counting that in your total? Have you compared all of that to renting for four years? At least you didn’t have to bring cash to closing.
In this economy, I’d consider that a WIN!
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I’m glad you were wise enough to put 20% to avoid PMI. I think you made sensible choices based on your age, income, and where you live.
A forever house is probably not the case for most people, even though they think it at the time. I’ve now owned three different houses, have a rental property, and a vacation home. I would suggest buying if you know you will be in the house for at least five years to recoup closing costs, etc.
Finally, you may love your house, but what if the person of your dreams come along and doesn’t love it or has a place of his/her own?
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I’m totally open to renting my house out and moving into my future husband’s house, or getting a new place of our own. I’d like to think I come to the marriage with some additional assets and passive income.
I think Prince Charming would be pretty bummed I just sat around waiting for him to do all the work and buy a house…
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Great job on putting 20% down!
It takes a lot of willpower to save that much at such a young age. You will be thanking yourself later. =)
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I haven’t purchased or built my first house yet, but for a long time I’ve been taking notes about the things that make a house a good house.
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What I wish I had considered before buying a home was a realistic budget for upkeep and maintenance. I was so focused on saving my 20% down that I never quite got a grip on just how much it costs to maintain a home, and that’s outside of doing project-improvements.
Several years into owning a home, I read one of those helpful hints style brochures put out by a CFP group, and the recommendation was to budget 3% of the value of your home just for annual maintenance and upkeep.
I was shocked, but it actually makes a lot of sense– currently, it always feels like an extra stretch for bigger maintenance, even if we do the work ourselves.
Even if I never spend 3% for upkeep in a year, I really wish it had been part of my thinking when I was considering monthly payments; insurance; property taxes, etc.
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My story is a bit different. I had just turned 24 when I bought my first house, but was an Army officer who would leave that town after a few years, so my story is a bit different.
*Size: I settled upon a four-plex with two rooms per unit, to get some economies of scale while still facing the same tax treatment as though I’d bought a single-person home. I’d live in one and rent the other three while I was there and then rent all four upon leaving.
*Price: This was tricky because I did not plan on staying in the Army long and was not entirely sure what I would do after. The rental income would cover the mortgage, insurance, and property taxes in most months, but if I went through a long, dry spell with tenants, I didn’t want to be stuck with those bills being more than I could manage. In the end, I went with a mortgage that was 1/4 of my salary.
*Not forever: I wanted something I would be fine with living in for a few years, but that I would sell about ten years later after pocketing some rental income and (hopefully) seeing some growth in property value
What I wish I’d known: How important it would be to have a good property manager. I got lucky with mine, but can imagine how bad it could have gotten had they been less good at filling vacancies and dealing with problem tenants.
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I really like your “forever”criterium! We bought our first house five years ago (at 42, a bit late) and that was one of our criteria. We have five kids and we wanted a house that still made sense once they had left. In the end we bought a fairly small house and in addition bought a large storage unit (almost 9000 sq ft) closely. Thus we keep all our clutter in the storage unit and use the space in the house exclusively for living. Once the kids move out we will get rid of the storage unit or rent it out if we want a bit of extra income. We now consider buying the storage unit one of the best investments we ever did, for each dollar invested in the unit we saved at least 3 in a larger house.
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There were a lot of naysayers when my sister and I bought a house in our twenties. Location was the key, we wanted a central location on the busline so we didn’t have to depend totally on our old cars. Yes, we gave up driving the latest models in order to buy a house. We sold ten years later for a handsome profit. Everyone loved the location—-so what they say about that is so true, it’s LOCATION that matters first. Everything else can be changed.
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I wish I’d focused more on the forever aspect you mentioned. I bought a condo- which was not forever, especially since it had to be owner occupied (great while living there, but makes it unrentable)
When I bought I was using the rule of thumb of 20% down and mortgage of 3x income. It worked out but I felt really strapped. Since then I’ve adjusted my own rule of thumb to at least 20% down and mortgage 2x our income. That’s what we used when we bought our house recently and I’m so glad we did not buy more house!
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Dh bought our first home when he was 28. We weren’t married at the time. He didn’t consider future things like schools and aging in place. He did buy a great house for a great price, which we were able to sell 15 years later for a $250k profit. We bought into another school district (in Portland) and were able to find a home where we can age in place. Not things that many 25 year olds think of. But I suppose most people don’t stay in the same home for their entire life.
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I was 27 when I bought m y first house. I was looking for more value. I looked for a home that needed a little work and I could get a below market price. I bought my first home for a 25% discount.
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I bought my first house at age 25 in August of 2012. I focused on 1) Location and 2) Rental Potential. I ended up buying a duplex in a great neighborhood with a solid rental market. I have had it rented since the day I bought it and the rent I collect pays 75% of my monthly note/insurance/taxes. I am paying less now per month to own than I was paying to rent. I don’t plan on living here forever, but financially I know I can cover the note with rental income.
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Like many other, I really question the wisdom of buying a house before you’re settled. What if you get a job offer for that dream job halfway across the country? You meet the man of your dreams and he has 4 children? You decide that you want a run a home business? I don’t know many people who are settled in their path at 25, but I’m sure it works out that way for some.
Going along with this – the biggest thing I would look for is flexibility. With a house purchase that means looking to see how saleable the house is in case you have to sell it. You achieve this with a higher downpayment (to avoid being underwater) and picking a house that has enough desirable features. For me, that meant at least 1500 sq ft and 3 bedrooms.
The idea of a forever house is awesome – but I think sometimes it’s foolish to predict what your housing needs will be for the rest of your life when you’re only 25. Especially if you’re not married yet and planning on marraige and children.
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Here are my answers:
1. I’d be happy renting this house out if I got offered a dream job. Based on rentals in my area, I could easily rent my house out for more than twice to mortgage. Or I could be talked into selling, which I could also sell for a profit with the sweat equity and permitting I’ve done.
2. I hope the man of my dreams has a house for those four kids before I come into the picture. If not, they could come live here, it’s a four bedroom house (we’d have to get a bunk bed) or we could convert the basement from a bar into an additional playroom.
3. I’m not sure I’d ever run a home business, but I do work from home often. One of my roommates is a freelancer and works from home all the time here. I don’t think that is much of an issue – although the tax brea would be nice.
Well, I’m definitely hoping to be married some day and maybe having kids, so I think that will just be a conversation to have when the time comes, but for now, I’m not waiting for a Prince to come and hopefully when he does, he’ll have some assets of his own.
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I have to say I love your attitude about not waiting for Prince Charming. Sometimes he takes his sweet time showing up!
I’m surprised at all the people wondering “what if” — as if being “settled down” is a guarantee of anything. In the past year alone, I know two couples who split permanently. I know a few people who have lost their jobs. It’s trite, but there are no guarantees in life. We make the best decisions we can at the time.
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This bit : “Things have changed in the last couple of years that have made it harder for young people to qualify for a mortgage.”
Should more accurately be stated as :
Things have changed in the last couple of years that have made it harder to qualify for a mortgage.
I don’t think theres anything targeting young people there in general is there?
I mean younger people tend to have shorter credit history and shorter job history so that will impact their loan applications. But I don’t know if any bank considers age as a factor alone.
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I bought my first place when I was 25, mostly because it seemed like rent in my area was the same as a mortgage payment for a similar living situation, and I was tired of paying another person’s mortgage. I don’t think I regret buying a house so much as I regret not taking my time with the purchase. Had I just taken an extra few months to really look, I probably would have found a nicer place in a better neighborhood. Now my husband (then boyfriend) and I can’t wait to leave. The neighborhood has really gone downhill over the past 5 years and property values have plummeted. And our place is just too small now for our growing family.
I think I will recommend to my children that they wait to buy a house in their 30′s – still plenty of time to payoff a mortgage before retirement, but they’ll have a more realistic outlook on what they need.
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We bought our first house at 24/26 years old. We loved it but moved a year from the day we moved in. Despite a great school district, nice yard and neighborhood, etc. it took us almost 2 years to sell it and it was in mint condition. We had no business buying a house when we weren’t sure we wanted to stay in the area. Our next house has served us quite well, however, the schools are terrible. It didn’t matter to us at the time with no kids, but it’s going to kill our ability to sell it. It reduces the pool of buyers to single people and retired people or those who are sending their kids to private schools.
We are now building our forever house, but it’s taken living in two other homes to realize what things are REALLY important to us to make informed decisions when planning.
I would suggest keeping a log of “what I’d do differently in the next house” so that when you do look for your “forever” house, you won’t make the same mistakes. For instance, I’ll always have a laundry sink and giant pantry and an oversized garage. I wouldn’t have known the importance of those things after living in apartments.
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I turned 48 in October 2012, and bought my first place in June 2012 – so I was almost twice as old as the author! I wish I’d been smarter with my money in years gone by..I would now own my condo outright (or be pretty close!) but I wasn’t. However, I’m finally an owner, came in with 20% down (thanks in part to an inheritance), bought a condo that was $35k under my original budget. I would say spend under what the banks tell you can afford, and I would also leave yourself a chunk of money so you can do some improvements right away…I took up the grubby old carpet and had nice laminate installed, and I wish that I’d taken up the kitchen tiles while the place was empty (it’s going to be a dusty job!). I’m going to stay here for probably 7 years, retire, sell and move out of the city. I don’t really consider any home a “forever” home…life and circumstances change and consequently your plans change.
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So true! I thought we’d found our forever home, and started making improvements that would last for a long time. Unfortunately, we ended up moving for work, which was unexpected. We rented the house out, but didn’t like being absentee landlords and worrying about the condition of the house. The improvements helped sell the house in a down market, but we certainly didn’t get our money back. The new owners got a well-insulated house with energy efficient windows and a brand-new kitchen.
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Question 1: How important is your home to you?
Owning a home will take both time and money. As others have pointed out it also reduce your flexibility. You need to be clear that the home you live in is really that high a priority in your life.
Question 2: Am you willing to lose your down payment?
No one thinks their home value will sink. But as many have found out, sometimes that happens. We recently went through an unusual nationwide meltdown, but collapses in local prices are far more common. And they often correspond to collapses in the local job market.
Question 3: How “handy” are you?
If you have to pay someone for every repair, home ownership can get very expensive in a hurry. But if you don’t have the skills, the do-it-yourself solution can sometimes be even more expensive.
Question 4: Do you really want to be in the landlord business?
Lots of people think they can just “rent it out” when they are ready to move. But renting even one property can turn into a lot of work.
Question 5: What is the condition of the house’s “bones”.
People are always buying based on location, appearances and features. But the real costs come from failures in things like the foundation, roof, plumbing, wiring and heating. Get a home inspection and make sure you have an accurate assessment of the home’s condition.
Question 6: What are the likely future tax or homeowner assessments?
If the street, water system, sewer and sidewalks are in disrepair, are you going to get a big tax bill when the city gets around to fixing them? If your house is a condominium or part of a homeowner association that is responsible for shared spaces, make sure it has actually been collecting enough to cover repairing and/or replacing them when needed.
Question 7: If you are single and buying a “forever” house, will your future spouse like the house?
I know that is not really answerable unless you make liking your house a criteria for choosing a spouse. Which brings us back to Question 1. How important is your house to you?
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Yes yes yes to ALL of these, but especially #1 and #5. We got a good home inspection before buying and our house has good bones. Even though the roof needed replacing a few years earlier than expected, it’s a solidly-built, well-built house. That makes a big difference.
And of course, how important is your house to you – well put. One thing I’d add to that one is, how much time do you think you’ll be spending at home? Spending all your current and future income on your dream home may not make sense if you want to travel and just need a place to collect mail and store stuff. For us, a decent home is critical; we rarely travel and we’re usually home after work. I’d much rather spend the evening or weekend in my house than anywhere else.
As for whether it’s our forever house – hard to say. It’s nearly 60 years old and has only been in one other family. We plan to change the ownership (I think to a trust – I definitely need to look into this one as I don’t yet know the particulars) to include DS when he turns 18 as the plan is to roll over the ownership to him eventually. I don’t know that it’ll be his forever house, though right now he claims it is.
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We bought about six years ago as we were expecting and wanted to be in a house before we had our first child. Other than putting more of a down payment down, the biggest thing we would’ve changed was paying more attention to the layout of the house. All of the bedrooms are in one area of the house. We did not notice it really until we had our second child and it becomes easy for the little ones to wake each other up or for us to wake them up when we shower in the morning.
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I guess my question would be: how much more per month were you able to save by living at home vs renting and paying your own bills, averaging for normal rent in your area?
Also, did you have any student loans to pay back before your started saving?
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In Portland, you are looking at $600-$1,000 in rent, plus utilities.
And I am definitely blessed not to have any student loans.
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Ok, thanks for the information.
As somebody who is repaying student loans and credit card debt from when I was in school and paying rent plus utilities, groceries, bus pass etc, I really do wonder if I’ll ever be able to buy a house or condo of my own. I make a decent salary for entry level of about $40,000 per year gross but until the loans are paid off or if I get a serious salary raise, I’ll never be able to afford it, especially as a single.
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My husband and I bought in July of 2012. We live in a HCOL area (DC metro) and went with only 10% down.
I know that everyone is tsking us, but that was absolutely the best choice. We never got the downturn here to the extreme that other markets did, and our market has really picked up. There has not been a single house in our neighborhood in our price range since we bought. We bought the cheapest house on the block at the perfect time.
Sure, we pay PMI, but by the time that’s gone, it will have cost us less than $6,600. (Half that, really, since we’re doubling down on the principal payments.) The house appraised at more than $15k over what we purchased it for. That PMI was worth the time it bought us, since by the time we saved 20% down, we would have been priced out.
And there was no way we were considering an condo or townhouse. We wanted a SFH, and that’s what we got. We put in a ton of sweat equity and are very happy.
(It was, mind you, painful to see that we could have bought the equivalent where I grew up with the same amount of down payment making up 30+% of the price!)
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We bought our home with only 5% down because that’s all we had. For us too it was the smartest thing we ever did and even now with 20/20 hindsight and a much more responsible financial outlook, it still looks like it was the best move for us given our circumstances at the time. I sometimes get frustrated with folks who feel everyone must play so rigidly by the same rules. 20% down is not always the best for every situation.
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I would consider my employment and life stability. If moving or being laid off is a reasonable future expectation, being a home owner might not be a great idea.
You should also think about the age and condition of the house. Houses have maintenance issues. Are you ready to deal with those financially, free time wise, etc? You don’t have to be a DIY repair expert, but you’ll still have to have the time and the money to get the maintenance completed. With a house it’s nowhere near as easy as putting in a work order with a landlord.
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Here’s what I learned about buying a house after I bought one: (I live in metro NYC area)
-It’s nice to say you own house. You’ll probably have many wonderful memories there
-Renting is cheaper and there is nothing wrong with paying a landlord. Don’t let your parents convince you it’s better or that owning is an investment or guilt you that you haven’t achieved the American dream. I repeat, there is nothing wrong with paying a landlord. Your savings account will appreciate faster than the value of your house.
-We should have put down way more than 20%. Should have been somewhere like 40%-50% or asking price. With the market the way it is, we are in the negative. Your payment with taxes, insurance and utilities will be like 5x your rent. (Tip: Your parents won’t admit that to you until after closing)
-Don’t do a piggy back or 80/10/10 loan. Always get a fixed.
-Your monthly payment stays the same but your escrow company will always be asking you for more money every year when your taxes and insurance goes UP. (another expense your parents wont’ admit to you)
-Home inspectors and engineers will charge you a lot of money to state the obvious and then absolve themselves of any responsibility when stuff goes wrong. Trust me, a total waste of time and money.
-Do not under any circumstances, live in any type of flood zone or near the water. You’ll pay in excess of $2500 in flood insurance premiums. No matter how nice and new the house is–run, very fast from the home and don’t look back.
-Ask the previous owner if there has been any type of water intrusion, flooding or mold. If so, what did they do as a remediation of the problem. Cleaning mold with bleach doesn’t kill mold. (no matter what they say)
-Have central AC and furnace inspected by an AC or Heating company NOT the home inspector. Chances are you will be replacing them within a few years.
-It’s unlikely that you will make extra payments after you buy your house. Maybe you will after you own it but you won’t, no matter how well intentioned you are.
-A new boiler, hot water heater costs like $5000 in metro NYC area.
-Any type of ‘little’ repair will cost you $500 or more.
-Have at least $5000+ in the bank to be used for home emergencies.
-Homeowner repairs never come out the way they do on a TV show-it usually looks sub par. Pay an expert to do it right.
-Finally, it’s nice to say you own house. You’ll probably have many wonderful memories there.
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We just bought a home and we got almost everything on our wish list within our budget, which is definitely not easy here in BC. It wouldn’t be possible without my partner being a carpenter, so he’s been able to do some things that may have scared other buyers away. Home buying is a tough and emotional purchase!
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I waited until I was married to buy a home, which I was 38. If you are in the military or retired military go with a VA loan. You do not pay PMI with a VA loan. We only had to bring $93 dollars in a cashier’s check to the closing. Also, USAA is a great insurance company for current and retired military. I’ve written a blog post about USAA.
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We bought our first and only house when I was 30 and my husband was 34. Back then the two things we were looking at were affordability and location.
We’re older now and more set in our ways but we’re also more experienced and I think for both those reasons if we were forced to move we would add a lot more to our list for our primary residence now than we had back then. We’re well aware of the improvements we’ve made to our home that have made us happier and we’d be looking for those in addition to affordability and location.
However, we’re now in the very early stages of considering buying a vacation home in the Poconos. If we do, our two factors will once again be affordability and location. Everything else we figure we can change to our liking just like we did with our home. And because we’d only be there on weekends and the occasional full week, we’d just have to put up with whatever inconveniences an affordable home in the good location brings us until we could afford to improve it.
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My first home was a condo, which was in a cool city neighborhood. It was a great experience and I had a lot of fun there. While I have long since moved on in life, I do think I could have moved there a little sooner instead of renting. Could have made some additional money in price appreciation, based on the rising prices at that time. But I don’t dwell on it at all, it was a good time.
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I’ve just bought one at 27 and the biggest thing for us was making sure we were going to be in the one place for long enough to make the initial costs worthwhile.
It’s always worth doing the maths to work out if renting is better in your area. A whole host of complex local factors make it pretty impossible to give a one-size-fits-all answer for everyone.
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Like you, I bought my first home when I was single at age 25. I had a car, a truck and a bass boat to park, instead of a camper.
At first I looked at cheaper fixer-up places in the $50-$75k range, but I soon realized after looking at them that the potential for buying a money pit was high. I went to the top of my budget at $89,000, and was able to buy a 3 bedroom garden home in a safe subdivision with a community pool. It was a beautiful little home that was perfect for me and my dog. The yard was tiny and easy to maintain. It was really ideal for my situation at the time.
It didn’t take long for life to happen, and I met and married my husband within 2 years. He also had a house as a bachelor, so we sold mine and moved into his when we married. I missed my light filled cottage whenever I moved into his man-cave. Two weeks after the honeymoon we put his on the market and bought another bigger home down the road. After each owning our own homes it was better for us to live in “our” home instead of “his” house.
My advice for young people looking to buy (not the author)- make sure you can afford the little things that add up quickly with home ownership. Lawn care and upkeep (especially if you have strict HOA rules) take time and money. There was a time I borrowed my sister’s push mower and hauled it back and forth between our houses whenever I needed to mow my grass. Can you afford to call a repairman when it’s 12 degrees outside and your heat stops working? If you buy a brand new home can you afford to put curtains and blinds up on all the windows? Can you afford to pay $250 to have the dead tree cut down in the front yard when a storm blows it over? There are hundreds of things that come with home ownership that you don’t consider when you are sitting at the closing table. Like the other commenter said- Emergency fund!
Congrats on your purchase, Jenna. The fact that you saved 20% for a home by age 25 and are guest posting on the Get Rich Slowly blog tells me you will do just fine in life!
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I bought my condo in 2007, one of the worst times to buy — I definitely overpaid. I beat myself up about that for awhile…but then I realized that buying the condo actually set me on a path to be much more in control of my finances. I started reading GRS in 2008. I paid off all non-mortgage debt. I have a fully funded emergency fund. And best of all, I’ve paid down over $150K in principal over the past 5-1/2 years. So despite overpaying initially, I’m not underwater and am more motivated than ever to pay off the entire mortgage. I also love this condo and plan to keep it for many years to come (it will be a very good rental).
Practical advice:
It’s cliche, but “location location location” is truly important. Take a hard look at this. Is the house on a busy street? Have you visited the neighborhood at night, on a weekend? Talk to people at the local coffee shop — what do they think of the neighborhood?
Think carefully about square footage — personally, I would err on the side of LESS square footage. More rooms means you’ll feel the need to fill them, and clean them, and your utility bills will be higher. Bigger is not always better!
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I love your blog, so I nominated you for the Reality Blog Award! More info here: http://doilooksick.wordpress.com/2013/01/06/the-reality-blog-award/
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