When I first moved to San Francisco, I thought I was going to be homeless as a recent graduate. The amount I spent on rent in college only paid for a parking spot. How would I ever own a home like my parents when I could barely afford a place to live?! Needless to say, I eventually found a place with random roommates (some old enough to be my grandpa). And after four years of roommates and Craigslist lease agreements, I am happy to brag I am now a homeowner in San Francisco!
On move in day, I unpacked boxes and ate Vietnamese food on my roof alone since my dining table belonged to my old roommates. But to get to that moment, to truly enjoy my delicious noodle dish, I knew there were a number of habits and sacrifices I had to make during the homeownership journey. And you can make them, too.
Build Your Credit
Start by diversifying your credit sources.
In high school, I got my first credit card and used it only for gas purchases. Although the purchases were small, I was able to pay my bill on time and had consistency. Then after I graduated college, I got another credit card, to earn miles and visit my family back East. Then came my student loans, months after graduating. Between the two, I was building my credit history and diversifying the sources. Your usage and history help increase your score over time. Be sure to pay your bills in full and on time. And if you are doing this together as a couple, be sure the card or account has both of your names.
Run your credit report, annually.
Protect your new sources of credit by running annual reports (from all the different credit bureaus). Reports ensure no accounts are opened in your name without knowledge, and confirm all payments were made on time. From my first report, I learned one credit card was in both my name and my parents’, which was not helping my credit (sorry mom and dad!). This exercise is especially important for new couples buying a house together, and an opportunity to discuss your credit histories.
Explore First-time Homebuyer Programs
Each program is different.
No matter where you live in the country, there are many first-time homebuyer programs available at the city and county level. Every program is different. Some programs help with the down payment, some subsidize the purchase price, and some help with the interest rate. The common thread among the programs is they generally have an income restriction. Often, residents don’t look into this program until after they’ve phased out, missing this valuable opportunity. (If you tie the knot and your combined household income phases you out, this is a good problem to have!)
Shop around and learn your options.
Research programs and lenders in your area to find the best rate and type of mortgage for you. Most importantly, can you afford the payment in addition to insurance and property taxes? Working with three lenders is a good place to start. Since I had excellent credit, I was able to get a better interest rate, which meant more than $200,000 in interest savings over the life a 30-year fixed loan!
Save for your down payment…and then some.
The next step is to determine with your lender the maximum purchase price you can afford. From there, you can figure out how much to save for your down payment. Also consider you will need to pay closing costs, you’ll have moving expenses, and will probably want new furnishings. However much you plan on spending, add more. You will go over budget. I set up automatic transfers to an external bank, so come closing time I had the cash ready and untouched.
In addition to planning for your down payment and other costs, it’s essential to maintain an emergency fund (at least three months of living expenses).
Be Patient and Stay on Budget
Hold out for the right property.
The home buying process is daunting and exhausting, especially in expensive areas like San Francisco. I almost gave up after a year of multiple open houses and offers. You may be competing with numerous offers (some all cash), which could be out of your price range. Before going to an open house, create a list of the qualities that are a “must” (i.e. walking distance to public transportation) and a “nice to have” (i.e. washer/dryer in the building). If you stick to your budget and give yourself time, the right opportunity will present itself.
The first place I looked at was a 374 square foot studio with no oven and no washer/dryer. Aside from the lack of amenities, my commute was going to be roughly an hour and half each way, with a bus AND a train. But with patience, I landed a one bedroom, nearly double the size! It even came with an oven and a washer/dryer in the unit. Instead of a long commute, I can walk to the train. Although I don’t have an iconic view of the Golden Gate Bridge, I pass by a homeless shelter on my daily walk and it reminds me how lucky I am to have my own home, just like my parents.