I looked at this photo and saw all the things I wanted to add/fix in our living room, but as I started to type everything out I realized I should stop and take a second to appreciate the space and our home for what it is, as it is. Sure I want to swap out that hand-me-down rug for something larger and lighter, add a plant in the empty corner, get a proper stand for the record player in the other corner, add some art or pictures on the walls, etc. but this home already deserves some appreciation, and I appreciate it.
I never wrote about the journey it took to get here, and that's mainly because I quickly discovered that first-time home buying wasn't so fun. It was stressful. It was confusing. It was intimidating. It was triggering to anxiety I didn't even know I had.
Once the papers were signed and we got the keys, however, it was all worth it. There's something about knowing you won't have to negotiate your lease in 12 months or look for somewhere else to live that makes you feel a little bit more stable. I remember moving in and thinking now we don't have to move for a while. Thank God. Because nobody likes moving.
So about the process. I'm writing about it now because I knew absolutely nothing when we started down this road, and it would've been nice to read someone else's experience (I did read Cece's post about a week before closing and could relate to every single word). We started looking for something in February and closed on the place in May. Three months probably doesn't sound like a long time in the grand scheme of things, but when you're in the thick of it, it's like waiting for the storm to blow over.
I'll be breaking everything down, step by step, over the next few weeks. I'm bringing tips to make you smile, so don't you touch that dial. ;)
Let's jump in.
I'll be breaking everything down, step by step, over the next few weeks. I'm bringing tips to make you smile, so don't you touch that dial. ;)
Let's jump in.
Step One - The Pre-Approval
You know those "pre-approved" credit card offers you get in the mail that you don't even ask/apply for? It different with a home loan; you have to actually do some research on a lending company (or have a solid referral from someone you know/trust) and then take the time to apply. In our case, we were referred by someone we know from church after I mentioned we'd probably be looking to buy something in the next few years - note: years, not months. We were in no way prepared to buy so soon, but when the doors just keep opening, ya gotta walk on through.
So we went online and submitted our information, expecting a phone call to advise what we needed to do to prepare ourselves financially. That phone call came a couple days later, but the only advice we got was to start looking for a house as they were able to work with our current situation. The catch? We'd have to apply for an FHA loan.
FHA Loans
These loans were created by the Federal Housing Administration to help first-time buyers. As long as you have at least a 580 FICO credit score, your down payment is only 3.5%. If you have lower than a 580 FICO credit score, they'll still work with you, but you'd have to put 10% down. Still, 10% is less than 20%, which is typically what conventional loans require.
Since FHA down payments are so low, you're required to have mortgage insurance on the home; that'll usually raise your monthly payment by about $100, but you can drop the insurance after 11 years worth of payments. Mortgage insurance is different from homeowners insurance. Homeowners insurances covers your home in case of fire, storm damage, break ins, and things of that nature. Mortgage insurance covers the full cost of your home in case you ever default on payments. Homeowners insurance protects you as a homeowner; mortgage insurance protects the lender as an asset holder; both are required, by law, with an FHA loan. Also, the loan approval process typically takes about 30 days, which is longer than most sellers want to wait to see if you're actually approved to buy their house.
Down Payment Assistance Options
All of the details above were thoroughly explained by our lending team, and even though a 3.5% down payment would've completely wiped out our savings at the time, we decided to move forward and start looking for something. Many states also offer down payment assistance, and if your income is below a certain threshold, you automatically qualify. The thing is, that's another application and another approval process, so even though you have to wait 30 days to be approved for the home loan, you might have to wait an additional 30-45 days to be approved for down payment assistance. This adds extra time to your closing process. Unless both the buyer and the seller are content with a 60-day closing time frame, down payment assistance may not be ideal.
The time frames, qualifications, and stipulations vary from state to state. The Georgia Dream program is one of the more popular options in the state of Georgia, and they give you up to $7,500 toward your down payment or closing costs. However, if you ever decide to sell your home, you have to pay them back... plus 4% interest. We didn't like the sound of that, and we also didn't have 30 extra days to spare for the approval process. Instead, J picked up a boatload of extra hours at his second job so we wouldn't be house poor upon closing.
*Spoiler alert: we weren't! He worked really hard to make that happen (I love my hardworking man), and I worked really hard to streamline our budget and keep tabs on every single penny coming in and out of our bank accounts. It was tough, and we had many a dollar movie and Chick-fil-a date night, but it was doable. The whole process really helped us tidy our finances in general, and we both walked away with better spending habits.
Our Budget
As far as the cost of the actual home goes, my goal was to keep us living well below our means. Even though I'm working full-time, I based our estimated monthly budget off of his income alone. That means the cost of our mortgage payment, insurance payments, utilities, car note, groceries, and all other household expenses had to be within a certain range. If all of those monthly bills totaled to more than what his monthly paychecks would cover, then we wouldn't be financially stable in my eyes. He's a county fire-fighter. so he has a life-long career that isn't going anywhere. I do contract work as a writer and editor; some months/years may be good for me while others may be a toss up. Financial stability is different for everyone, but this is how I crafted our definition.
$150K was the highest we'd go. We didn't need anything huge; we just wanted something we could call ours. The loan company was willing to write a pre-approval letter for more, but I requested we keep the cap at $150K (you have a right to request these things). In and around Metro-Atlanta, $150K can go pretty far. I understand that's not the case in other parts of the country, but we were fortunate to have a variety of options and areas to choose from. In fact, we actually had to take time to narrow all the options down.
*********************************************
And this concludes part one of our home buying process. There was so much information to digest before we even stepped foot in a potential home. I can only image how long this post would be if I didn't break it up!
Tune in next week, same time same place, for part two (house hunting).
FHA Loans
These loans were created by the Federal Housing Administration to help first-time buyers. As long as you have at least a 580 FICO credit score, your down payment is only 3.5%. If you have lower than a 580 FICO credit score, they'll still work with you, but you'd have to put 10% down. Still, 10% is less than 20%, which is typically what conventional loans require.
Since FHA down payments are so low, you're required to have mortgage insurance on the home; that'll usually raise your monthly payment by about $100, but you can drop the insurance after 11 years worth of payments. Mortgage insurance is different from homeowners insurance. Homeowners insurances covers your home in case of fire, storm damage, break ins, and things of that nature. Mortgage insurance covers the full cost of your home in case you ever default on payments. Homeowners insurance protects you as a homeowner; mortgage insurance protects the lender as an asset holder; both are required, by law, with an FHA loan. Also, the loan approval process typically takes about 30 days, which is longer than most sellers want to wait to see if you're actually approved to buy their house.
Down Payment Assistance Options
All of the details above were thoroughly explained by our lending team, and even though a 3.5% down payment would've completely wiped out our savings at the time, we decided to move forward and start looking for something. Many states also offer down payment assistance, and if your income is below a certain threshold, you automatically qualify. The thing is, that's another application and another approval process, so even though you have to wait 30 days to be approved for the home loan, you might have to wait an additional 30-45 days to be approved for down payment assistance. This adds extra time to your closing process. Unless both the buyer and the seller are content with a 60-day closing time frame, down payment assistance may not be ideal.
The time frames, qualifications, and stipulations vary from state to state. The Georgia Dream program is one of the more popular options in the state of Georgia, and they give you up to $7,500 toward your down payment or closing costs. However, if you ever decide to sell your home, you have to pay them back... plus 4% interest. We didn't like the sound of that, and we also didn't have 30 extra days to spare for the approval process. Instead, J picked up a boatload of extra hours at his second job so we wouldn't be house poor upon closing.
*Spoiler alert: we weren't! He worked really hard to make that happen (I love my hardworking man), and I worked really hard to streamline our budget and keep tabs on every single penny coming in and out of our bank accounts. It was tough, and we had many a dollar movie and Chick-fil-a date night, but it was doable. The whole process really helped us tidy our finances in general, and we both walked away with better spending habits.
Our Budget
As far as the cost of the actual home goes, my goal was to keep us living well below our means. Even though I'm working full-time, I based our estimated monthly budget off of his income alone. That means the cost of our mortgage payment, insurance payments, utilities, car note, groceries, and all other household expenses had to be within a certain range. If all of those monthly bills totaled to more than what his monthly paychecks would cover, then we wouldn't be financially stable in my eyes. He's a county fire-fighter. so he has a life-long career that isn't going anywhere. I do contract work as a writer and editor; some months/years may be good for me while others may be a toss up. Financial stability is different for everyone, but this is how I crafted our definition.
$150K was the highest we'd go. We didn't need anything huge; we just wanted something we could call ours. The loan company was willing to write a pre-approval letter for more, but I requested we keep the cap at $150K (you have a right to request these things). In and around Metro-Atlanta, $150K can go pretty far. I understand that's not the case in other parts of the country, but we were fortunate to have a variety of options and areas to choose from. In fact, we actually had to take time to narrow all the options down.
*********************************************
And this concludes part one of our home buying process. There was so much information to digest before we even stepped foot in a potential home. I can only image how long this post would be if I didn't break it up!
Tune in next week, same time same place, for part two (house hunting).
This is right on time. I'm starting the process in November.
ReplyDeleteIt definitely is a process. Let me know if you have any questions that I don't talk about during the series.
DeleteOMG,this was soooo informative. Charles and I are no where near ready to start the home-buying process but I'ma bookmark this series to refer back to. Really smart and fiscally responsible to buy below your means. Although, I AM banging my head on that $150 figure. That's so awesome. Up here, $150 would get us a studio condo. 2-3 bedroom townhouses start at $350-400, add a lawn and you're looking at $500+ in Northern VA... Maybe a sign that we need to move? lol.
ReplyDeleteYeah, I know $150K doesn't go very far in the DMV area or places like NY and Cali, but there are also many cities in which that number can go a long way. It couldn't hurt to look around.
DeleteWe managed to find a something within our budget, but it's really only big enough for us and maybe plus one later on. When it comes time to start popping out the babies, we'll likely look for more space.