Happy Real Estate Week everyone! I hope you’ve been enjoying all the awesome resources I’ve been putting out on my Instagram page regarding all the different ways you, as an investor, can get your hands on real estate whether that be through rental properties, REITS, or homeownership.
Did you know that millennial homeownership is a full 8 percentage points lower than previous generations when they were our age? Currently only 37% of millennials own homes[1]. While we can attribute this gap to many lifestyle and preference factors that really shouldn’t raise much concern (after all if we don’t want to own houses, who’s to say we should??), there are some external factors like increased student loan burden and shortage of affordable housing that are precluding those of us that want to own homes from closing the deal!
This week’s blog post is all about my amazing friend who is beating this economic trend and recently bought her first house at the impressive age of 22 (wooo!).
For privacy reasons, we’ll call her Hannah even though that’s not her real name.
Hannah is a first-year art teacher (going into her second year) teaching in a suburb outside of a midwestern city. For context, she makes $37K a year and graduated undergrad in three years with no debt.
Today, we’ll be hearing from her first-hand about what the home buying process is like for a fellow young twenty something. She shares how she prepared herself financially for this big move and what the steps were to go through with the purchase!
Sound off in the comments whether buying a house is on your list of financial dreams and at what age you would want to reach that goal!
Tell me about what went into your decision to buy a house.
Originally when I got my job lined up last year, I didn’t want to live at home. I was actually going to rent, but when I was looking at places. The cheapest I could find was around $700/month and then a little less with a roommate. Even so, when I did the math, I found that I’m going to be paying less on the mortgage than I would have been on rent. So, instead of paying rent to a landlord, I would be paying rent to myself. This was obviously dependent on the fact that I knew I would be able to live at home for a year while I saved up for the down payment.
After talking to my parents who are helpful with making financial decisions, I decided to live at home while I saved money. Having a goal in mind made it much easier to save.
This is definitely a very personal decision. For me, I’m lucky that I didn’t graduate with debt. I went to a state school and graduated early, and my parents also helped a little. I also got a job near home which made it possible to live at home for a while. I also will hopefully work for my district for about five years which will make the home purchase worth it in the end.
Can we talk a little bit more about how job stability played a role in your decision? Is it normal for teachers to stay with the same school for about five years?
It depends on the district. Luckily, my district is pretty secure. There are a lot of art teachers and the district is growing, so I know they won’t be cutting teachers in the near future. I know that my position is pretty secure, so I would say that five years is a realistic time frame for me to stay. If I knew my district was in trouble, I probably wouldn’t have decided to buy a house. For example, the district I student taught at hasn’t passed a levy in 20 years. If I had taken a job there instead, this would be a very different conversation.
Were there any other financial goals you wanted to hit before buying a house?
Basically, I wanted to make sure I had enough money to cover the down payment, initial home improvement projects, and then have around $2000 left over for an emergency cushion after everything was said and done.
I was saving money since the beginning of last year and keeping my eyes out for price ranges in the area. Once I got a good chunk of money saved and getting closer to having the down payment, I started planning out exactly how much more I would need to save per month to reach my goal within the year.
After taxes, I take home around $2000/month. I was putting away around $1800 each month into savings. I figured out that continuing at this rate would keep me on track to buy in the summer.
Can you walk me through how the home buying process went for you?
Six months ago, I sat down and did the math of how much house I could afford with the money I was saving for the down payment (ex: what is 20% of $65,000?). From there I was able to back into what month I would be in the position to buy. After I formed my goal, I would automatically deposit the majority of my paycheck each month into my savings and then live off the rest (~$200 each month).
During that time, I was also looking at my real estate apps because it was fun to see what was out there. In June I found a place on Red Fin and showed my Dad. He encouraged me to go see it. I didn’t really know how that worked, but I called the number on the app and they offered for me to see it that day. It went really fast
I went to see it and the real estate agent was there. It wasn’t the seller’s agent, but he was from the same company. Something I learned during this process was how real estate agents work. Basically, this guy became my guy for the whole process. His name was John. There was nothing wrong with him, but I didn’t find him too helpful. I would suggest that people investigate real estate agents before getting stuck with one.
When I saw the condo and I really liked it. It was the perfect size. It’s a little bit out from the main suburbs of my city. It’s not a trendy area, but it’s quiet and has lots of trees which I like.
After we left, I was talking with my parents. They asked if I liked it and I said yes. Then they asked if I want to buy it. I couldn’t really think of any good reasons not to. So, I went home and applied for preapproval for a loan. Even though I wasn’t completely sure I wanted to buy it, I still applied for the loan just in case. I could’ve used that loan for a different place if I didn’t decide to get that place.
I thought about it more and decided I wanted it, so I texted my real estate agent, but I needed to wait for the loan preapproval to go through. The next day was a long process of phone calls and negotiations with the loan company, real estate agent, and sellers. I negotiated the price from $85K to $80K because I originally wanted them to do some repairs, but they refused.
After that I had to do a bunch of paperwork. I had to get a home inspection through a company I found through a recommendation. The paperwork process took several days. Then I waited for two weeks to get the keys. I signed the closing documents and got a notary to come to my house. The next day, after the deal went through and I got the keys!
Were there any added challenges throughout the process that came up due to your age?
The main challenge was that I didn’t really know the vocabulary. Luckily, my dad was really helpful with that. Generally, Everyone was nice to me and helpful. Also, my real estate agent was only like four years older than me, so that helped.
Another big challenge was just that I thought people would treat me differently even though they didn’t. I definitely acted confident and tried to look the part by dressing a little nicer when I did have to meet people.
If you have at least one person on your side that knows what they’re doing to help you through the process, that will really help. When I first got the contract, I read through the whole 30-page document and highlighted things I didn’t understand. Then I asked my dad or my real estate agent about the things I didn’t understand. It’s definitely important to ask a lot of questions so that you know what you’re getting yourself into!
Overall, was the process easier or harder than you thought it would be?
I didn’t really know what to expect when I was going into it. It was really intimidating at first, but once I got into it, I got the hang of it. Then it just became more of a hassle than anything else. It was a lot more time consuming than I expected.
[1] https://www.urban.org/sites/default/files/publication/98729/millennial_homeownership_0.pdf