Are You Ready to Buy Your First Home?

This post is brought to you by State Farm.

Thinking about buying your first home? Here’s how one couple began their house hunt, and their experience with the closing process and hiring a general contractor to remodel their home.

Nine months before their wedding date, Cat and Steve Hoang started thinking about buying their first home. At first, Cat, a 29-year-old marketing analyst living in Orange County, Calif. thought that buying a condo would make the most sense for their budget. A brand new condo would make a great starter home, she thought, and the couple could upgrade from there, but Steve disagreed.

“Steve really wanted a house we could live in for possibly the rest of our lives,” Cat said. “He thought a house would be a better investment because of the market right now. Housing prices are pretty low, and they’re going to eventually go up. We might not be able to afford an upgrade a few years from now, so we thought we should find the house we want to live in for a long time.”

With a house now in mind, Cat considered looking at tract homes in a gated community, which are popular in Orange County, but Steve pointed out that living in a gated community would mean having to pay homeowner association (HOA) fees. “Do we really want to be paying that for the rest of our lives?” he asked. They didn’t.

The couple sat down and talked about their must-haves, which would help them narrow down their search: They wanted a four-bedroom, two-story home in Orange County. They wanted the house to be near their workplaces, but also near Cat’s mom, who also lives in Orange County. Cat and Steve were planning on starting a family, and having Cat’s mother nearby to help watch the kids would be an enormous help. They looked at a few houses within their budget, but didn’t find anything they loved, and then stopped their hunt to focus on their wedding.

A year later, and now officially married, Cat and Steve resumed their hunt. Their budget was $500,000 to $550,000, and together, they had saved $100,000 for a 20 percent down payment by living with a roommate and putting as much of their paychecks as possible into an ING savings account for the last few years. (Cat’s motto during this time period was, “Saving is amazing.”)

Wanting to further cut down on costs, Cat and Steve decided to forego using a traditional real estate broker, and looked for houses themselves on Redfin, an online real estate brokerage site that allow buyers to search for homes on their own, reducing the costs and the amount of time brokers have to spend helping homeowners with their house hunt. Your average real estate agent typically earns a commission of about 3 percent of a home’s purchase price, but buyers who use Redfin can get a refund of up to 50 percent of that commission back in their pockets. For Cat and Steve, this would mean a savings of about $8,000.

But looking for their dream house on Redfin proved more difficult than they originally thought. Since this was the home they were probably going to live in forever, Cat and Steve were really picky. Most of the homes they saw were too small. They also looked at fixer-uppers, knowing that sellers of these homes were more inclined to sell as quickly as possible compared to homeowners who invested a lot of time and money into a property and wanted to make a big profit. They still struggled to find something they loved. After six months of looking, Cat’s parents offered to gift them some money, which pushed their budget to $600,000 and gave them a little bit more room to negotiate, but the homes they really liked were still out of their price range.

“We just couldn’t find anything,” Cat says. “We weren’t sure what we were going to do.”

They were finally able to find a house right in front of them: Steve’s parents owned two houses because his mom and dad worked in different parts of the state, and they decided it would make sense to sell their house in Orange County to Cat and Steve—if they liked it, of course. Though the house had nearly everything on their list of must-haves, it wasn’t aesthetically what they wanted. But Steve’s parents were also willing to sell them the house for $500,000, which was below the market value and a great deal, so they decided they’d buy the house and use the leftover money in their budget to fix it up to their liking. They were off to the bank, or banks, actually—it was time to shop around for a mortgage loan.

Chase, Bank of America, Wells Fargo, and a local credit union all offered the same mortgage rate of 3.625 percent. Steve’s father told Cat and Steve that he saw other banks offering interest rates as low as 2.6 percent, and when the couple asked lenders about the lower rate, they were told that it was more than likely that the rate was low because borrowers would have to buy it, meaning they’d give the bank money to “buy points” to lower their interest rate. Cat and Steve ran the numbers and decided that buying points to lower their interest rate would cost them more in the long run, especially if they decided to refinance in a few years.

“This is something you should really be cautious about,” Cat said. “You have to think really hard about the numbers.”

Cat and Steve decided to go with the general interest rate of 3.625 percent and chose Wells Fargo as their lender. Next came the escrow process, otherwise known as the “closing” process—the period of time between when the seller accepts a buyer’s bid, and when the buyers finally get the keys to move in. Cat and Steve put their deposit in an escrow account, and their escrow company, First American, acted as a neutral third party to collect all the paperwork and money involved in the closing, making sure everything is collected and done correctly, including the bank’s appraisal of the house, the home inspection, and the acquiring of homeowners insurance.

“There was so much paperwork,” Cat says. “We got so many drafts, probably two trees worth of drafts. I had one copy of the files, and Steve had another copy, and we looked at them separately to see what we could understand on our own. Steve and I compared notes on what we did or did not understand, and made a list of questions to ask our escrow agent. We ended up scheduling a one-hour teleconference with our agent and ran down our list of questions: ‘What is this dollar number here? What is this?’ That sort of thing. A lot of the time, the answer we got was, ‘You don’t need to know that.’ So we asked, ‘Okay, so what do we need to know? What should we worry about?’ You have put a lot of trust in them.”

The escrow process took about 30 days to complete, and the paperwork required 42 signatures and 22 initials. Starting this month, Cat and Steve are paying a total of $2,200 a month in mortgage, tax and insurance payments. They also have the option of paying biweekly, which would shorten their repayment period over the long run.

Now, that they’re officially homeowners, Cat and Steve are working on remodeling the house. They’re considering ripping down walls to create a more open floor plan, updating all the appliances in the kitchen, changing the carpet and the window treatments. They’ve met with six general contractors, four of whom were found on Craigslist, and two through recommendations from friends. Most of the general contractors were “yes men”—they said everything was possible to please the couple.

“Can we rip out this wall?” (“Yes.”)
“Can we move this stove here?” (Yes.”)
“Are you sure? Would you have to rewire the house?” (“Yes, don’t worry, we’ll take care of it.”)

They made it sound so easy. So Cat and Steve passed on each one. One contractor they met asked a lot of questions, and brought up issues that could arise during the remodeling, and was overall very thorough and patient. Cat and Steve has decided to hire him. They’re looking forward to settling in their new home.

Things of Note:

• Cat and Steve decided to forgo a broker because they felt comfortable about housing hunting on their own and wanted to save some money. Cat says her sister, “who is the type who wanted a lot more hand-holding” used a broker and was happy to have someone walk them through the entire process.

• It can be much harder to negotiate with sellers of newly-renovated homes because of all the time, money and effort the sellers have put in to make their home desirable for buyers. If you’re looking for a bargain a lot more room for negotiating, go for a fixer-upper.

• Cat and Steve wanted to have a 20 to 30 percent down payment on hand to get a desirable mortgage rate. It is possible to have a downpayment as low as 10 percent, but you’ll get less desirable rates.

Ten Really Fun House Buying Terms To Throw Around at Your Next Dinner Party

How much the house is worth according to a Professional Appraiser.

Assessed Value
How much the house is worth according to the city, so they can figure out how much tax money you have to pay.

Stuff that has to happen in order for your contract to be binding (as in, you have to buy that thing). EXAMPLES: getting loan approval, passing inspection.

Value of house – balance of mortgage = equity (How much of the house you own.)

Portion of the mortgage payment that is kept in a trust by the mortgage company to be used for taxes.

Principal, interest, taxes, and insurance. All the parts of a mortgage payment!

Fannie May
Private company created by Congress buys and sells mortgages, making them cheaper for borrowers.

Freddie Mac
Private company created by Congress; buys and sells mortgages, makingvthem cheaper for borrowers.

FHA Loan
Mortgage insured by the Federal Housing Administration (the premium is one to 3.8 percent of the loan, paid at closing). Allows people who can’t afford a down payment to get financing.

List of everything that has to be paid at closing.


Illustrations by Charrow, an artist in Brooklyn.

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26 Comments / Post A Comment

fennel (#2,494)

I have sold a house and have also looked at potential houses to buy, and really don’t relate to this article at all. The only things Cat and Steve seem to have considered besides price were the size of the house and whether or not it was in a gated community? That’s it? (Related: they were willing to live in a gated community?! and raise children there?!).

What about # of bedrooms, bathroom & kitchen states, existence or not of a yard, balcony, deck, and so on; the choice between an older structure or a new one; evaluating flood or fire risk; location quality (noise, busy streets, etc.); public transport accessibility; state of the furnace/boiler; ??

Mike Dang (#2)

@fennel Cat and Steve are planning on spending a significant amount of money on renovating their home to their liking, so having the perfect kitchen or bathroom wasn’t such a priority for them because it was all going to be replaced anyway. Obviously, this is their experience—plenty of buyers don’t hire a general contractor soon after closing.

eraserface (#1,628)

Can we do a thing about how to figure out what mortgage payment you can afford? (I know there are tools online, but a real person who can explain the details of this). My husband and I are saving for a down payment for a starter home/apartment ($300K-ish), but we have no idea if we should push our range down or up based on our income i.e. what the monthly mortgage payment would be. Also, things like- how much should property taxes be a consideration? (live in DC, so could choose between DC and MD. VA’s out of the equation.)

Mike Dang (#2)

@eraserface Yes!

@eraserface I’d be interested in this, too.

@eraserface This handy calculator from the NYT has been mentioned here before, and it may help you out.

ThatWench (#269)

@eraserface Gonna ditto stuffisthings on that one. At first, I found the NYT calculator super-intimidating, mostly because of all the variables I didn’t know by heart. (Local property tax rates, what?)

But then I figured out that most of that was super-easy to google, and I plugged it all in, and got a really useful result. (For me, buying a home like my current one in my current neighborhood would break me even in just a few years; however, I would want a second bedroom if I were to buy, and the break-even date on that versus renting a one-br is 17 years. This was a useful story that has informed my thinking ever since.)

mof (#342)

@eraserface I’m going to third that NYT calculator. The more familiar you can make yourself with things like local property tax rates, the more comfortable you’ll be when you’re ready to go speak with a lender.

eraserface (#1,628)

@mof @ThatWench @stuffisthings Thanks for the tip all- this pretty awesome, and seems like pretty easy to adjust to be not NYC-specific

‘You say.. “Steve.. how can I be a millionaire.. and never pay taxes?” First.. get a million dollars. Now..’

gimlet (#2,496)

Am I ready to buy my first home? I don’t have parents willing to give me $100,000 and then sell me their second home, so, apparently not.

I’m not about to begrudge them their use of whatever advantages they have – but let’s not pretend this is typical, or that “have wealthy parents” is practical advice.

(EDITED TO ADD: Of course, good on them for saving up so much and doing such good research! It’s just a little depressing to think that even with such great savings habits and thorough background work, they still couldn’t do it without the extra nudge from Mom and Dad.)

Srslythough (#2,483)

@gimlet Completely agree. That’s amazing that they had so much help, but most of us won’t have that. Plus, it doesn’t really represent a typical home-buying experience when you’re buying from family- no inspections, counter offers, etc. This article should have been titled “Are You Ready to Be Given Your First Home?” (I’m familiar with the Orange County home market, and they were most likely sold that house for waaaaay under market value.)

But let’s face it, I’m just bitter because we can’t figure out how we can afford a house. I’d love an article about how people do it without $300,000 from their parents!

gimlet (#2,496)

@Srslythough Yep. I’d be really interested to know just how much “below market value” we’re talking here.

(Sincerely, a fellow bitter renter)

Mike Dang (#2)

@gimlet I’m glad you added that edit, because we are talking about a married couple in their late twenties and early thirties who lived with a roommate for years to save up $100,000 on their own to buy a house. They deserve much credit for that. They didn’t need the money from their parents to buy the house they ended up buying, and they weren’t expecting that they’d find a house through their family. And yes, this isn’t typical, which is why I framed this as one couple’s experience at the top. This is just one of many stories we’ll have about the house-buying experience (like Jia’s story from May about buying a house in Ann Arbor, and Arielle’s story about buying a house in Charlottesville). I think there’s something to take away from each of these experiences.

@Mike Dang I’d like to see one on buying a condo in a large city, and the differences versus buying a house, if you have such a thing in the ol’ file drawer.

(On a side note, I saw in the paper the other day that people are apparently buying 1-2 brs in Anacostia for like $50,000. Yeah, I might just consider it… that gentrification wave is hitting sooner than later!)

mof (#342)

@gimlet It is entirely possible for a person with a decent salary, who is careful with money, to buy a house. Maybe not in Orange County or a similarly priced high-end area, but it is possible. For example, my husband and I were able to buy a nice home because it was located in a less popular area. Don’t despair, just adjust your variables.

anorktopus (#2,498)

@Mike Dang Just de-lurking to let you know that Jia’s story from May was what made me suddenly realize that buying a house was a thing I could do! It set me on a merry spree of saving (I’d never really done it on purpose), financial self-education (I had none), and dream-house-hunting on Trulia (which I had never heard of). If you had asked me at the beginning of May how much money my husband and I had, I wouldn’t have been able to tell you, but now I use Mint religiously and spend way less on things that don’t matter to me, like going out to eat just because we’re too tired to cook. (OK, we still do that, but less!)

Five months later, we are 80% of the way to our target down-payment (we were 65% there in May, but had no concrete use for our savings and no motivation to save more). Even though there are still major roadblocks to homeownership for us (the main one being the combined inevitability and uncertainty of grad school), saving for a house has completely changed the way I manage money and think about the future. Jia’s situation didn’t really match mine, partly because we are in very different real estate markets, but it was still somehow transformative for me. I’m really excited for the rest of this series. Maybe other people will have similar “aha” moments, even if their numbers don’t match the ones on the page.

Mike Dang (#2)

@anorktopus Oh, that’s terrific! And perhaps this is a story to be told as well! I’m always looking for people to tell us about their own experiences. Think about it!

Confused (#2,501)

@Mike Dang But they absolutely did need their parents money to buy that house because they bought it *below market value*. Do I think an average couple, even one with impressive savings, could find a four-bedroom house in generally decent condition in a good area (schools, safety, etc) in Orange County for $500,000? Absolutely not. Again, good for them for achieving those saving but I hope you’ll run future stories on more realistic situations.

pearl (#153)

As someone who is also familiar with the Orange County market, there’s a huge difference in price between North and South Orange County in terms of housing price. With those variables, it’s likely that they were looking in north OC, maybe in the Orange/Tustin or Fountain Valley/Garden Grove areas. A quick look on Redfin shows a decent amount of houses that fall in the ~up to $600,000 range with 4 bedrooms.

ImASadGiraffe (#982)

@Srslythough I am buying a condo, as a single female in her late 20s, in Chicago, with no help from parents. I wouldn’t mind writing about my experience, as I feel like there might be a lot of people in similar situations that hang out on this site!

Olivia2.0 (#260)

@Confused I totally agree with you. Yes, of course, EVERY buying experience is very different, but this one just seems SO out of the norm to me. This should have been an article about how great these two did by saving $100,000 for a down payment. Not saying “are you ready to buy your first house” because, as someone up thread said, I don’t have a 20% deposit, or parents willing to sell me their extra house so……..I guess not?

Abe (#3,483)

@stuffisthings In Anacostia? Keep dreaming.

kellyography (#250)

Zillow has been a masochistic hobby of mine lately (and they also have a handy mortgage-calculator-tool, for those who were looking). The OC is a rough area to try to buy, especially as young first-timers. I don’t know of anyone who has done it without parental help.

The thing most people forget when they buy their first home is getting the necessary education to do it intelligently.

The biggest mistake people do is listen to their Estate Agent/Realtor. These guys will cost you a lot of money. They serve themselves – not the buyer.

Do yourself a favour – control your own destiny – invest in a couple of hours education and save a pile of $$$.

Abe (#3,483)

So the moral of this story is to have parents who are willing to sell you a nice house at a cheap price. Got it. I would have loved to see how they would have done negotiating with a stranger on a different house. Someone who wouldn’t put up with this couple’s BS.

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