My 3 mistakes buying my first home
In 2013, I bought my first home, a 2 bedroom / 1.5 bathroom condo located in Southern California for $170K. While I was hoping to spend between $120K - $160K, it was important for me to buy a property that was move-in ready since I had no experience with home renovation.
At the time, I was earning $68k a year, and I was pre-qualified to purchase a home valued up to $300K. Yet, I wanted to make sure my monthly payments (including HOA) were manageable. After putting 20% down, my monthly payment ended up being $1,000 a month, meaning 20% of my monthly take home pay went towards housing. Overall, I'd consider the purchase a success because the condo was pleasant to live in, needed no major repairs, and has doubled in value since I purchased it in 2013.
While, in hindsight, the purchase was a success, the process was definitely rough. These are the three mistakes I made when purchasing my first home.
Mistake #1: Looking for a home in a market you don’t understand
While I grew up in Northern California, I relocated to Southern California for my first job out of college. I was eager to become a homeowner and not pay rent. I saw several listings online that were within my budget and after talking to a local realtor and lender, I was excited to submit offers. Yet, once I toured some of the homes, I found myself in rough neighborhoods where I was afraid to live. I then realized that while I can review properties on Zillow or Redfin, there's actually very little information about actually living in a given neighborhood.
To avoid this mistake, I recommend researching the market.
First, go to as many open houses or watch as many video walkthroughs as possible. Looking at different homes and neighborhoods helps you identify the aspects that you like and don’t like. Read in between the lines and pay attention to aspects outside of the home, such as if the neighbors maintain their homes, kids play in the street, and noise from a busy road.
Second, talking to people who know the area well. Find out about current or upcoming projects that could impact the home in the short-term and long-term. For example, when buying this condo, I noticed it was 4 homes down from a church. I went into the church, ran into the priest, told him I was thinking about buying a home in the area and asked his honest opinion about the neighborhood.
Third, understand the trade-off between affordability and standard of living. The more you spend, the “safer” you may feel. While budget may be important to you, you may be willing to spend a few $100 more a month to live in a turn-key home and friendly neighborhood
Mistake #2: Holding out for the lowest purchase price
My parents had raised me to be frugal. Having worked during college, lived 5 guys in a small apartment, and just starting my first real job, my goal was to make a home purchase that made sense financially. I submitted offers on homes and actually had my offer accepted several times, yet, I often second guessed myself. Was I paying too much? Could I find a cheaper home? Looking back, there were several homes I could have purchased that would have offered a lower price.
This mistake may be unavoidable. There will always be some fear with a big purchase, especially the first purchase. But to better deal with this fear, you have to know what numbers you are comfortable with and stick with it. And looking at the larger economy will help put the numbers into context.
Back in 2012 - 2013, I wish I had better internalized that home prices were at record lows. While I acknowledge there was a lot of uncertainty at the time, if I had recognized that almost all homes were being sold at a discount, I would have followed through on homes where my offer was accepted. For example, that 4-unit multi-family home that sold for $300K in 2013 sure looks like a steal now.
In addition to looking at larger, macroeconomic factors, you need to be honest with yourself about how the home will work for you in the short and long-term. While financials (like mortgage payment, interest, and down payment) are all important, you need to think about practical favors such as maintenance, utilities, and size of family in the short-term and long-term. For example, do you have the time, energy, and money to put in some TLC on a home? If you are willing to put in the work, great, you'll pay less upfront and unlock a ton of value in the long-term. If not, then acknowledge that you're exchanging rock-bottom prices for peace of mind and be decisive when the perfect home pops-up.
Mistake #3: Being loyal to a real estate agent that isn’t loyal to you.
There are thousands of realtors, so how do you know which one to pick? For me, this was especially difficult since I relocated to Southern California and had very few people to ask for referrals. I ended up choosing realtors with several reviews and a high rating on Zillow and Redfin. After going back and forth with several realtors, I ended up choosing one realtor (let’s call her Amy) to help with the majority of my search, but something didn’t feel right.
While the initial meet and greet with Amy was great, I often found two issues that always made me feel unsure. First, after the initial meet and greet, Amy would pass me off to an assistant for future home walkthroughs. While I’m sure Amy was busy with more important things, this made me feel unimportant and the assistant’s lack of expertise didn’t help either. Second, when I was interested in homes that needed a bit of work, Amy would always give me her repair estimate that was based on her best guess, and was well below what a contractor would later quote me. This made me feel like Amy was only interested in selling me on a home rather than my actual long-term happiness.
To avoid this mistake, if something doesn’t feel right, you have to learn when to call it quits. While it may sound selfish to use a realtor's time with nothing for the realtor to show for it, you need to look out for yourself and be honest with yourself about the level of service you’ve been receiving.
My criteria for a good realtor are:
Does the realtor respond in a timely manner? This can take the form of email, calls, texts, etc. If you feel you are important and prioritized, the answer is yes.
Was the realtor honest? Listen to his/her feedback and see if you can validate it with a second opinion or with other means of verification, such as contractor estimates. If you feel they have your best interest in mind and are not focused on getting you in any home in record time, the answer is yes.
Was the realtor consistent and did they keep his/her commitments? Think about what was promised in the initial meeting and what the level of service is like 2-3 months later. For example, did he/she constantly follow-up with you or continue to send you listings? If you feel you are at the top of the realtor’s mind and their commitment has been unwavering, the answer is yes.
For my first home purchase, I pivoted away from Amy and a realtor named Vipul. Every email or text I sent was followed-up immediately with an answer or an acknowledgment that they received my note and that he was working on it. Every concern I voiced about paying too much was always followed-up with comparable homes recently sold in the area. Lastly, whenever a new listing popped-up he would always email me immediately and ask if I was interested, even if we hadn't spoken for days or weeks.
Conclusion:
Searching for my first home was one of the most nerve-racking experiences. I made my share of mistakes by searching for a home in a market I didn't understand, holding out for the lowest purchase price, and working with an agent that wasn't working for me. Yet, when you're in these tough situations, you need to always keep an open mind, reflect on the challenges, and make small adjustments to ultimately arrive at the perfect home. I hope you avoid these 3 mistakes and are excited about your first home purchase!
