What I Learned When Buying My First Home
This is a sponsored post from BECU member and guest blogger Tina Phan of Just a Tina Bit.
Prior to buying a house together, my boyfriend-turned-husband and I each had our own condos, accounts and finances until he proposed and we decided to purchase our first home together. Even though the proposal was a complete surprise, we knew we were going to spend the rest of our lives together and had already started working towards saving for a home down payment. We created a financial plan and worked extremely hard to meet our savings goals. A home was one of the biggest purchases of our lives, and we wanted to make sure we were fully prepared for it.
If you're thinking of purchasing your first home or have been saving up to do so, navigating that process - especially now during such uncertain times - can feel overwhelming. I've found BECU's first-time homebuyer tools to be helpful—allowing me to go from novice to pro. While there are many people facing financial hardships and uncertainties right now, BECU financial experts are available to ensure you feel supported and have the right tools and resources to make financial decisions that are best for you. I appreciate that with BECU, you don't have to go through the home buying process alone. You can reach out to a mortgage advisor to help you on your home buying journey!
Understanding the Home Buying Process
Purchasing your first home is a large financial investment, and making sure you have all the necessary information on hand to move through the process is critical.
According to BECU, there are three critical things you should know before purchasing your first home:
- Know What You Can Afford
- Find a Home in An Area that Meets Your Needs and Falls Within Your Budget
- Review Your Loan Estimate and Cost
While the home buying process looks different for everyone, having a deep understanding of these three steps can help you make the right and best decision for your current needs. When navigating the process ourselves, we made sure to do as much research as possible to ensure we felt confident in our buying decision. One thing we were surprised to learn during the home buying process was how much a good school district affects home values. Since we are planning to grow a family in our first home together, it was important for us to find one in a highly rated school district as well.
Assess Your (and Your Partner's) Personal Finances
Whether you're buying a home on your own or with someone else, it's important to assess both your and the other person's financial situations. This might feel a bit personal, but it's critical to ask the tough questions beforehand! It helped when my then-fiancé and I asked ourselves these questions:
- How much income do you and/or your partner earn?
- How much do you and/or your partner have saved in cash, stocks, retirement funds, etc.?
- How much debt do you and/or your partner currently have?
- What is yours and/or your partner's current expenses and credit score?
Combining all of these factors will help you see what your financial situation looks like as a whole. When my fiancé and I were having these discussions, it was helpful for us to keep in mind advice from BECU Financial Educator Stacey Black on navigating conversations around finances early on with your partner. The goal is to make sure you are aligned in a way that helps you reach your monetary goals, now and in the years to come. “Create realistic goals you both can actually live by,” says Black, “This will open up broader conversations about money and also help to see if you are on the same page when it comes to short-term and long-term financial goals around saving, spending, budgeting and reducing debt.”
When assessing our finances, we documented all of our current financial information in a spreadsheet and calculated how much total we had coming in and going out. This in turn helped us decide how much we could afford on a new home and how much we would need to save towards our down payment.
Calculate What You Can Afford
After going over our financials, we then determined what was a reasonable and comfortable budget for our down payment. Helpful resources like BECU's mortgage calculator, which determines how much you can afford on a house payment, allow you to visualize your funds and plan for the future based on what you've already saved and plan to set aside. The calculator takes into account your annual household income, debt payments, down payment, property taxes, home insurance, etc. After we looked at our overall financial picture, we were able to clearly see what our biggest expenses were, which were our car payments and condo mortgage payments. Using the BECU How Much How Can I Afford calculator, we were able to plug in this debt information along with our combined income to quickly determine what we can afford.
Determine Your Home Loan Type and Down Payment Savings Goal
Once you've determined how much you can afford, it's time to research different types of home loans, such as Fixed Rate, Adjustable Rate, FHA, or VA (if you qualify). When buying our home, we figured out what loan made the most sense for us based on our financial situation and how much of a down payment was needed. We decided on a traditional 30-year fixed loan with a 20% down payment. A major reason we decided to put down at least 20% was that we wanted to avoid paying more in Private Mortgage Insurance (PMI), although, I recognize that it may not be financially feasible for everyone to do so. For those who might need some assistance saving up for a down deposit, BECU's Financial Health Check is a great resource to explore saving and budgeting according to your current financial status.
Another tip I learned is to get a pre-approved loan to make your home searching journey smoother and quicker. If you're looking for additional assistance and ways to properly maneuver your finances during your first home purchase, BECU also offers eligible members the chance to apply for its First Time Homebuyer Grant program, where you can receive up to $7,500 in down-payment assistance toward a qualified property.
Set Aside Income Monthly for Your Down Payment
In order for us to achieve our 20% down payment savings goal, we set aside a portion of our income towards our savings before paying off any monthly living expenses. To do this, we determined how much money we were going to contribute towards our down payment savings goal and set up automatic transfers to our joint savings account. With BECU, you can open an unlimited number of free savings accounts for different savings goals. Learn more about joining BECU on their membership page.
Reduce Spending and Expenses
The last tip for buying your first home, either alone or with someone else, is to review all of your spending and expenses and see if you can reduce costs or cut anything out in order to increase your savings faster. Some areas to consider include reducing or sharing subscriptions and memberships, eating out less, exploring cheaper commuting options, and doing DIY projects (versus hiring contractors). Since my husband and I both work in downtown Seattle, we originally carpooled and paid for monthly parking. However, we started taking advantage of our companies' commuter benefits and got free transit cards to take the bus to work. Although this increased our commuting time, this helped us contribute an extra $300 per month towards our down payment savings account!
After following these steps, we were able to meet our savings goal of a 20% down payment. Then, about one and a half months into home searching, we finally found our dream home! Everything happened super fast and we absolutely love our house. All of the savings and sacrifices we made were totally worth it. I hope these tips were helpful for buying your first home!
Tina is a Seattle-based lifestyle and home decor blogger at Just A Tina Bit and works full-time in Security & Privacy at Lyft. During her free time, she loves spending quality time with her husband and three small (fur) babies and drinking boba tea. Tina and her husband are also expecting a fourth baby (the human kind this time) this fall!