What I didn't know as a First Time Home Buyer that I Know Now

My husband and I recently purchased our first home and I learned a ton about the process. So if you're a first time home buyer, I want to share all of the things that I did not know that I know now to help you with the purchase of your first home. Hey guys, welcome back to the debt free millennials channel. I'm your host Justine here. We talk about all ways to achieve financial confidence, crush debt, that leads to more fun and fewer payments. And of course, two, maybe one of your financial goals is to purchase your very first home. So Kyle and I had been saving up for like, gosh, since 20, I want to say 2016, 2017. And we just bought our first house in 2024. So you're talking seven, eight years of really just throwing money into a savings account and building up this massive down payment because we really wanted to make sure that we were in a good financial position. However, you guys know what the economy looks like that interest rates on mortgages have really just skyrocketed since 2020. So there were some things that I learned about interest rates, buying down interest rates, we're going to get into that. But first, one of the things that I learned that I did not know is that oftentimes houses are teased on the MLS, the multi listing service where all of the homes for sale are listed weeks, many weeks before they're actually live in an active listing. And they're actively showing people, which is kind of annoying because you'll see something, you'll just see maybe one or two photos of a home with some of the stats filled out square footage, bedrooms, bathrooms, that sort of thing. But you won't be able to actually see those photos until that house is in an active listing status. So this whole MLS coming soon is a way that houses are getting teased and perhaps building up a little bit of buyer anticipation. I found it really annoying because then it was a house where I'm like, well, should I hold out another 30 days for this one? Or should I just go ahead and see what I see that's active now and try to put an offer on something now. So that's just something I wasn't aware of. The next thing that I learned is well built homes and sought after locations were often sold within a day. Now I was shopping in Kansas city, but certainly this was the case when I was living in San Diego and Los Angeles, that houses that were well built and sought after locations were being sold like that. Now, if you were in the mood for a fixer upper, then you would probably have the upper hand because oftentimes I would see older, outdated homes that needed a lot of work were staying on the market for a lot longer weeks to even maybe two to three months at a time. I was seeing that same house still being listed, still active because nobody was really, there's like a specific niche of buyers that are interested in fixer uppers. The next thing I learned about the home buying process is that several listings actually had canceled contracts. So whether somebody gets cold feet or they had faulty financing, or maybe a buyer was just casting a wide net to see what they got approved and accepted and then backed out of a contract. I'm not sure what the deal was, but I did see a lot of that where there was a listing that came on the market and we're like, Oh, and then it would say, then it would say back on the market. And so it just kind of made you curious, okay, what buyers actually were being serious and well thought in their intentions on putting together these contracts and which ones were just kind of, you know, thinking, Oh, I'm really excited about this. And then started running the numbers and then realized it was a house that they probably couldn't afford. So I did see a lot of that happening when we were going through the home buying experience next. And this is new is if you are a buyer, expect to pay your agents commissions, or at least a portion of it. Now, a lot of agents, buyer agents will tell you, okay, I have a 3% commission. And now with some new ruling and changes from the national realtor association is that now they are basically giving you the flexibility to say, okay, you get to determine and negotiate that with your agent instead of the seller paying for that portion. So we kind of skirted around it. What ended up happening is she, she asked our agent asked for the 3%, the sellers covered two and a half percent. And so we had to come up with the other half percent in order to get her paid. That's all rolled up in closing costs. So you could argue, well, at the end of the day, the buyer pays for the closing costs anyway. So haven't you been paying the buyer agent commission all along? Yes, you can argue that's true. And you can also negotiate that rate with your agent. I'm not sure how many agents are going to be like, yes, please pay me 2% instead of 3%. Maybe if they were a new agent, I could see that very well happening with like brand new agents coming onto the, to, into their industry. And then in their career, we were working with a very seasoned agent in that 20 plus years experience. So she's probably not going to want to back down. Cause she's like, Hey, you're paying me for my experience. Whereas somebody who's just fresh off of their license, you know, there's probably going to be more negotiations for that. Another thing that I learned, this is huge. You can waive escrow. Yes, you can waive escrow. So escrow is that special holding account in which you can put money from your property taxes and your homeowner's insurance into it's actually rolled up into your mortgage payment. So you have your mortgage payment, your insurance and your property taxes all lumped into one single monthly payment to your lender. And then those two items, the taxes and insurance get pulled out and put into escrow into a holding account. And then when those items are due, it just gets pulled out and automatically paid. There's a benefit to that because as a homeowner, you're like, I have so many bills to juggle. Like this is just one less thing to worry about. The disadvantage to that is the money that sits in escrow never earns interest that you get to keep. Perhaps the bank is earning interest on that money and they get to keep that money. So another idea, something to toy with is if you can reach out to your lender and say, Hey, can we waive escrow? Can we get that approved? Then you can take the money you would have paid into that for taxes and insurance. Put that into your own savings account. Ideally a high yield savings account earning more than 4%. You get to earn interest on all of that money, which adds up to thousands of dollars over the year. You get to keep the interest earned, and then you just go ahead and make those payments when payments are due. Now, the disadvantage of that is you got to remember when to pay your property taxes and when to pay your homeowner's insurance. And don't worry because these entities are going to notify you and say, Hey, we want our money. You owe us taxes. You owe us your insurance policy. It needs to be renewed. All of those good things. You will be notified and you will have those dates set in your calendar. If you're a type eight person like me, I just find it so valuable. It's a tip that came from my father-in-law. Thank you. I love that. So ask if you can waive the escrow. It did not cost us any additional fees to do this. Also, another thing that I learned, and this is a huge one right now is I see a lot of mortgage lenders offering the option to buy down your interest rate because people are like, Oh my gosh, interest rates right now are just crazy. At one point they were over 8%. When we bought, it was at 7%. And I'll show you an example in just a second. Now it's getting closer to 6%. So we're hoping that it drops. Buying down the interest rate is not necessarily cost effective. And I want to show you this chart to illustrate this example. Okay. So as a first time home buyer, you definitely want to shop your interest rates. We went with a conventional 30 year fixed loan. That is what we were comfortable with. I don't believe since we bought in Kansas, I don't believe there were any first time home buyer programs that we were eligible for, but check your individual state. Um, sometimes there's income eligibility requirements for those programs. So check that out. But we did a 30 year fixed conventional, and I highly recommend that you get three, three individual rates or options from three different mortgage lenders so that you can truly compare and see, do not go with the first one. Even if it's a bank that you've been with for the last 20 years, truly give yourself some options and see, am I, am I getting the best deal? So that's the first tip as a first time home buyer in any home buyer, honestly, you should be doing this when you buy down your interest rate. What that means is you're typically paying a flat fee up front to get a lower interest rate in return. And when you get that lower interest rate, it often reduces your monthly mortgage payment. So you're getting a little bit of savings every single month. So let's take an example of what one lender presented to us. These are real numbers. Okay. So the first example was a 7% interest rate in all of these scenarios, they were requesting a 20% down payment amount in order for us to buy down, um, or just to get the flat fixed rate of 7%. So there was no additional fee. This is what they offered us based upon our qualifications and our credit history, all that our monthly mortgage payment would have been 4,204. That includes the insurance and the taxes. I was telling you about the second option they presented was at 6.8, 7, 5%. So we could shave off, you know, 0.1, 2, 5%. In order to do so, we'd have to pay $2,560. And that would reduce the monthly mortgage payment to $4,161. By the way, when you pay this flat fee, it does not go towards the principal amount of your loan. This does not go towards what you owe. This is just money that goes directly to the bank. Cha-ching. Like they're just made that amount of money off of you. And then you, in exchange for the lower interest rate. Okay. Next scenario, because $161 compared to 204, really not that big of a cost savings. Next scenario that was presented to us was 6.3, 7, 5%. Now this is looking enticing because you know, I'm getting more than half a percent off my interest rate. At a 20% down payment amount, we would need to pay $11,520 in a flat fee to the bank in order to get that rate. And it drops the monthly mortgage payment amount to $3,992. So you pay this $11,520 at closing and it goes directly towards the lender. You get a 212 monthly savings amount between that flat fee of seven or that flat interest rate of 7% compared to the 6.3, 7, 5%. But here's the question that you have to ask yourself, because I feel like a lot of people are like, Ooh, $212 a month in savings. Like that adds up over time. You know, we, we could do a lot with that savings, but you paid 11,000 that you never get back. So then you have to ask yourself, how much time will it take for me to recoup the $11,520 that I paid up front in order to get that savings? When do I hit my breakeven point? Right? In this scenario, it would have taken about 54 months or four and a half years in order to recoup those costs. Now, I don't know about you, but a lot can happen in four and a half years. You may not still be in that house in four and a half years, life happens, things change, new job opportunities and new cities pop up and you're like, I have to jump on this. Then you're out that money. Also another scenario, what if you want to use that $11,000 to, I don't know, do a kitchen renovation. Um, maybe you want to paint the entire interior of your house. Maybe you want to add in new furnishings because your two bedroom apartment furniture just doesn't fit in a four bedroom house. So think about those things. Ultimately that's what Kyle and I ended up doing. You got to do the calculations and see, okay, this really is not worth it. We could just do the 7% flat rate, flat interest rate, and then let's see how interest rates change over the next year or two. And we can refight down the road. Okay. So if you've stuck with me this far in the video, then I want to share exactly how much we paid for our house, the kind of money that we put down and what we were able to lock in. So we purchased our home in 2024, like over the summer for $640,000. Now we had a 20% down payment of $128,000, which is an insane amount of money. When you go to transfer that over to the title company to take care of all the closing costs and doing the down payment, who that was a scary moment. The loan amount that we took out was $512,000 at a 7% interest rate. Our mortgage payment is $3,406. Now, if you're like, wait a second, I thought you said it was $4,200 in that scenario. That's because it, the 3,400 actually takes out, does not account for the property taxes and insurance that I was telling you about. So that's the additional $700 that actually gets moved into my high yield savings account with Ally. By the way, Ally is running the special right now where you can earn, I think it's a hundred dollars, a hundred dollars in your savings account. If you meet eligibility requirements, I will leave my affiliate link below for you to check out Ally. I've personally used Ally for gosh, over five years now. It's where we kept our down payment money. It is where we're currently keeping our emergency fund. And now our home upgrades fund, because we realized we want to do all these fun home projects now that we're homeowners. And I love setting aside my property taxes, my homeowners insurance, and any kind of savings I want to do for renovations later on down the road with Ally. So definitely check them out. 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