5 Home Buying Tips for 20-somethings

1. Save money and then save a lot more

Turns out home-buying costs a lot. I (and many professionals in the realm) agree that you should be able to pony up at least 10% for a down payment. So say you want a middle of the road property at about $140,000 (your area will vary of course), you're already at $14,000 in needed *cash*. Still ready to buy that home? Once you feel good about having $14,000 hanging around in some money-market, then realize that depending on when the home is purchased, you're probably looking at another $1,000-$5,000 in paying the seller back for property taxes of that year. You'll want to get a decent home inspector ($350), pay for your bank's home appraisal ($200), home-owner's insurance for the first year in full ($700-$1000), random fees at closing ($1,500). Okay, so now maybe you are starting to appreciate just how costly this venture is. Don't be deterred, just be aware and plan accordingly. Knowing all of this stuff ahead of time prevents you from being ill-prepared.

This doesn't even begin to touch furnishing, fixing, and "making it feel like home". Of course once you have the home you can take your time with things, but you won't want to. Let's face it, after waiting 6, 12, 24 months to save for this home, you want it to be great! Feeling this surge of entitlement, credit debt can soon follow and put you in a pit all in the name of impatience. Save a bit extra to help with quick repairs and some basics to get your home started. If not, please, exercise caution with your credit purchases for things like that coffee table you saw in "Fight Club".

2. Surround yourself with trusted professionals

I cannot begin to express how well this process can go if you have great professionals working with you, using their knowledge of this industry to position you for success. If you can find yourself a great realtor, mortgage banker, and home inspector -- you are golden.

Odds are that by asking some friends and family, you can find a reliable realtor, whether that is based on history with a buyer/seller, or just a relative. Your realtor is your best friend from day one until beyond closing. Do not take them for granted. I was lucky enough to have an amazing realtor, who still four months after closing is still "working" for me with things as simple as getting on the back of the home-warranty company, to helping represent me to lower my property taxes.

Your mortgage banker is your next friend. This is completely a personal opinion, but go local. I've heard a lot of horror stories for a lot of these "big name" mortgage companies. I went through a local bank and got great service, face-to-face answers, and never had to worry about being serialized. I even see my mortgage banker when I pay, which is an oddly re-assuring feeling. Oh, and here's a tip: PMI (Private Mortgage Insurance) is generally required for down payments under 20%, but not all mortgage bankers require this. Of note, TCF Bank, where I went through, does not require PMI which saves you a good chunk of cash yearly. Keep an eye out, ask the question if they don't tell you, and think about going elsewhere if you have to pay it. Other benefits of TCF Bank (really, this is not a pitch) include that they have ridiculously low closing costs and they won't be selling your mortgage off to anyone.

Lastly the home inspector, your random guy who climbs through attics! This person will be the link between the idea that this house is great, and the reality of it. There are no shortage of licensed and well-known inspectors, so don't settle for just anyone. Your realtor should be able to give you some recommendations or at least pamphlets. Most decent inspectors will provide you with a comprehensive report after the inspection, as well as let you walk along the entire inspection. If they don't do either of these, find someone else. You'll learn so much about your house in the two hours they were there, and consume every bit of their knowledge that you can. Do not be afraid to ask questions, as they are experts and can give insight.

3. Be prepared to wait a lot

Like anything complex and involving a lot of cash, the home-buying process can drag out a lot more than you'd like. Preparation is going to be all that you can do to help yourself in this. When going to see your mortgage banker for the first time, make sure to call ahead and ask what documents they want to see. Depending on your credit score, you will need either a lot of documentation or just a little. I would have printouts of your financial accounts (checking, savings, retirement, pretty much anything with cash that is yours), as well as debt statements. Showing your banker that you are serious and understand the process will grant you a lot of respect from them. Also, if you can find homes that you are interested in ahead of time, your realtor will be a lot more equipped to match your needs. You making yourself known as a "dedicated buyer" will engage everyone around you to work harder too.

The type of sale (foreclosure, traditional, short-sale) will change things drastically. If you can find a home with a good realtor selling it, and the buyers available on a moments notice, things can progress very quick. Once you get a bank involved via short-sale or foreclosure, things can start to slow down. I had to wait around three weeks for my offer to be accepted because of the red-tape that goes into a short-sale. Of note, a short-sale basically means that the bank has final say on the sale, but there is still a seller involved, not just the bank.

That being said, I went from "looking" to close in just over six weeks I believe.

4. Enjoy this experience thoroughly

You're going to feel stressed a lot because of the complexity of the process as well as the money involved, it's inevitable. But listen, I was 22-years-old and doing every single step on my own, and I made it just fine. Have confidence in your decision making and determination, and you will do a lot of good for yourself. The home-buying process is really fun because of the variety of houses you can see, and really start to appreciate homes for something much more than just "where you sleep". You'll start to become passionate about finding the right place for you or your family, and that is very exhilarating. Don't forget to see many homes (I saw around 16), but don't burn yourself out by seeing every home on the market. Your realtor should be able to help you greatly narrow your focus and desires to find a great place. Take notes, take pictures, ask questions, and give yourself time.

5. Buy within your means and know what your house really has to offer

I saw a lot of horrible homes, and a few great ones. Ultimately, you will probably have to "narrow it down". Remember that some things are easier to get done, even if it feels "nice" to have done for you already. Landscaping, a media room, nice paint and other superficial things are very fun to see, but really mean nothing. Look for the number of bedrooms, baths, square footage, major features (deck, pool, sunroom), and location before you worry about that terrible carpet. It's hard at first, but you begin to appreciate the theory after you've been to a few places. Make sure when you set these goals, you try to do it related to what your wallet says, and not what your heart does. If you are really hard pressed to have that extra thing, then hold off a few more months, save more for your down payment, and make it happen!

There is nothing great about buying a home that makes you poor. While it is a big monthly investment in most cases, don't forget that a home is still not your only bill, and will generate new bills for you all of the time. If you don't feel comfortable about your monthly mortgage + property taxes, don't do it! I cannot stress this enough for people our age that buying something this important, this earlier in your life. Your home should not be the worst part of your month. Wait to buy if you have to, but don't put yourself in an impossible position where you choose between your mortgage and your happiness.

Now you're an expert

That all being said, remember that you are going to have a million experiences, concerns, and troubles not written above. This is all part of the experience and take the lessons as they come. Don't be afraid to ask friends, or even random people writing articles for blogs (read: me) about their experiences or just questions that they may have some knowledge on. This is one process that you can use to get help, even if you would prefer to "just see what happens".

In closing I'd like to restate how important it is for you to be financially sound in the process and ready for the commitment of so many years of consistent debt payments. Look over all of your financials, have a plan for saving, execute on that, and reap the rewards of your effort. I'll say as much fun as this has been to write regarding my experiences, the best part is I get to do it on my couch, in my home. I hope you get to have that experience soon as well. Best of luck!