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Interiors
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How To Buy Your First Home – Success Story
Determination vs. Intimidation
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First-time home buying can be an intimidating situation, especially when home prices have reached a point where a quarter of a million dollars would get you a run-down, leaky, filthy mess in a bad neighborhood, or a tiny one bedroom studio condo far away from the city—Washington D.C.
Neither of these options interested me, so I needed to plan on spending much more especially when the housing market is generally favorable to sellers. After my buyer’s agent explained to me “their asking price will usually be the starting point of their negotiations,” I felt that I was buying in their playground.
To add to my intimidation, I was also a single, 26-year-old, soon-to-be law student, with mediocre credit, eminent unemployment (because of school), and only one month at my current summer job.
In spite of all of this, I did have what is probably the most important asset for successfully purchasing a new home: I was determined to see it through. I rejected the idea of paying someone else rent during my next three years in school, and knew that purchasing my own home would be the best financial decision I could make. In addition to that, it would just feel great.
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My scheme for financing my house, while being an unemployed student, was based on a bit of serious number crunching. I had about $85,000 in cash to use as a down-payment, which is highly unusual for someone in my position.
But, I was also buying in one of the hottest markets in the country, where prices for decent homes were around $400,000. Most lenders like to see a down-payment of at least 20 percent of the purchase price (this helps get the best loan rates), which meant I could afford a house worth about $375,000.
I was looking at an interest rate of around 6 percent, so I knew my payment would be somewhere around $1800 per month after factoring in insurance and taxes. I would not have access to that kind of cash…without implementing part two of my plan, that is. I would be a landlord myself.
The rise in home prices had also led to the rise in average rent, with simple bedrooms in homes going for $500 to $800. I planned on cashing in on that trend by having tenants live with me in my house. It could work out quite nicely.
While a mediocre two-bedroom condo would have cost me just under $300K, it would have only brought me, say, $700 in rental income, leaving me to pay about the same myself towards my mortgage.
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Instead, I bought a four-bedroom home for $378,000, got a much nicer place, and combined rent from a basement apartment-type bedroom and one upstairs bedroom to equal $1650…all but $100 of what my mortgage payment ended up being. Thus, I was living almost for free, while my house continued to rise in value and my loan was getting paid off (albeit slowly).
These numbers where as good as they were, in part, because I had found a savvy loan-officer to help me get an interest rate even better than I had imagined. Knowing that I would likely sell after graduation, I opted for an adjustable rate mortgage with a rate at just above 5 percent, instead of the traditional 30-year fixed with a higher rate. I purchased the house, literally, the day before I started school, and my first tenant moved in just a few days later.
So far, being a homeowner has been rewarding, both mentally and financially. I have learned an enormous amount about everything from plumbing to financial management, and I continue to benefit from those first few months of really hard work.
While purchasing a home can be intimidating and is not a decision to be taken lightly, it is not nearly as frightening as one might think. Getting started is the hardest part. Once the ball gets rolling, however, a determined homebuyer will not stop until they pluck the “For Sale” sign from their front lawn…and what a sweet sensation that is.
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Posted By :
Chris Rose
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Posted On :
12/18/2008 4:50:39 AM
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