Your first home purchase is a big milestone, but what you don’t know could hurt you. Here’s what one member took from her first home-buying experience.
Buying a house can seem like a daunting task at first – the mountain of paperwork, the negotiations, and upfront costs are enough to scare some people away before they even begin. But if you're willing to put forth the effort (and a lot of cash), the process can be as rewarding as any experience you'll ever have.
Just ask Ashley C ., a longtime BECU member who bought her first house with her husband Kjell in 2012 using another lender. Shortly after getting married, Ashley said, the couple figured out they were paying roughly the same amount for rent as they would pay if they had a mortgage. Buying a house, then, seemed like the next logical step – they wanted more space to raise a family, and an apartment just didn't seem like the long-term answer. After finding a good agent, their home purchase went smoothly enough, but they soon discovered the wide gap that exists between renter and homeowner. Here's what Ashley said they wished they'd known before buying their first home:
Ashley and Kjell were excited when they ran the numbers and discovered their would-be mortgage payment would be around the same as what they were then paying in rent. But, a mortgage and a rent payment are not created equal. Though it may be subject to sudden increases, a rent payment is largely a “what you see is what you get” installment payment that might also include the cost of monthly utilities, parking, and the like.
Buying a house, on the other hand, is an entirely different beast. Most mortgage payments include the principal (the balance of the amount owed on the home loan), interest (the rate charged on the loan amount), property taxes, and homeowners' insurance. This meant their total monthly cost was higher than what they initially calculated. The differences became very real to Ashley and Kjell soon after they moved in.
“There was a lot of overtime worked, and not a whole lot of money left over afterwards,” Ashley said.
On top of those costs, there was still another that took the couple by surprise. To protect against a default, the lender will add private mortgage insurance (PMI) to the cost of the monthly mortgage payment if your down payment is less than 20%.
“We didn't have a 20 percent down payment,” Ashley said, “and we didn't understand how PMI worked. That was our first mistake.”
Having that extra fee on top of the monthly mortgage payment, she added, was a lot to handle. With the cost of PMI not factored in to their original estimate, payments went well above what they had planned to pay.
It's easy to walk into a house for the first time and fall in love. You start picturing yourself cooking in the kitchen, relaxing in the back yard, and before you know it, you're sending an offer to the seller. But did you actually look to see if you can afford the house?
“Keep your expectations realistic,” Ashley said. “I would say try not to walk into a house and fall in love with the aesthetic features without thinking about things like the structure of the house, how it was actually built, and how it would serve you and your family.”
To keep your head out of the clouds, walk around the house and explore every room. Turn the lights on and off. Flush the toilets. Open and close all doors and windows. Does everything work as you'd expect it to? Some of these things can of course be solved with a professional home inspection, but you can also save yourself a lot of time and money by doing your own brief “inspection” when you first enter the home.
Good news for Ashley and Kjell: They managed to turn things around after learning from their first-time buying missteps. They've since purchased another home — this time with BECU — that suits them well, and are expecting their first child this year. When purchasing this new home, they made the 20% down payment to avoid paying PMI.
However, Ashley still recommends asking the right questions before making any home purchase. Their new community has a homeowners' association (HOA), which are designed to cover shared fees in a housing development related to areas such as maintenance, recreational facilities, and landscaping. The fees may change over time, and the rules of each might not be the most ideal fit for your lifestyle.
“Just assess the community you're going to live in,” she said. “Our HOA is strict, and the fees go up every year. That's also kind of an unseen monthly payment, and it's tough to predict those. Talk to the neighbors and surrounding community before you buy the house, and see what they think of the neighborhood.”
Even if it seems like you've walked into your dream house, it's important to think like a buyer, not an owner. You're making what will likely be one of the most important and costly purchases of your life – be sure to take it slow, and not throw caution to the wind. And keep in mind: every situation will be different. Your best scenario may be someone else's worst nightmare.
If you're thinking it's time to buy your first home, meet with a BECU mortgage advisor, your tax accountant, or realtor, and create a plan that answers the right questions. How much can you afford? Do you have enough upfront cash for a down payment or closing costs? What type of home do you want? How do you feel about HOAs?
Preparing yourself before diving in can save a lot of time, money, and confusion. Once you've got your plan all sorted out, come take a look at BECU's home loan options, and speak to a mortgage advisor about the home and loan that best fits your life.
“The process was very easy with BECU,” Ashley said. “I felt they were upfront, efficient, and made the process really smooth for us.”
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