When I first set out to buy an apartment with my husband, I was in my mid-20s and didn't know anyone my age who owned property. My general policy in life is to try to learn from other people's mistakes, but with no one else's experiences to draw on, I had no choice; I had to make my own.
I entered the fray on my own and, as expected, got bruised — but I also emerged, eventually, with a well-priced, well-situated two-bedroom apartment that has since appreciated significantly in value.
Here are three of the most important things I didn't know I didn't know when I set out to buy my first home:
Why should intention matter in real estate? It's a material transaction, right? Bucks for bricks. And yet, what you're looking for in those bricks, what they mean to you, makes all the difference.
The first apartment my husband and I tried to buy was a one-bedroom I found on the for-sale-by-owner section of Craigslist. It was below-market for its location near transportation, my favorite bookstore, my favorite movie theater, my gym and the new Trader Joe's.
Sure, the apartment didn't get a lot of light, its layout was awkward and its space oddly distributed, but I wanted it anyway. I wanted it because of its location. I wanted it because it was a good deal. Most of all, I wanted it because I was tired of uncertainty.
Over our past few years as renters, my husband and I had been forced to move more often than I liked: Once because a landlord sold the building out from under us, once because an unstable, erratic housemate demanded we break our lease.
If we could just buy a place, I thought, I could relax. We could be in control. That's a dumb reason to make one of the most significant purchases of your life.
If you're anxious, take a walk in the woods. Don't empty out your savings account. The apartment was the wrong one for us and yet I couldn't see that because I had convinced myself buying it would solve our problems, that it could somehow function as a hedge against the chaos of the universe.
Thank goodness bad luck intervened.
When you're trying to take out a mortgage or obtain mortgage insurance, lenders consider what you've got and what you owe. They take into consideration your paystubs, your bank accounts, your holdings, everything. When it comes to deciding whether or not you're a good risk, though, they look not at your wealth but at your income, and they weigh that total against what you owe — including any student loans.
So even if you're making a lot, and even if you've saved a lot, and even if you've been diligently paying off your student loans every month, it might not matter. Your debt-to-income ratio — or all of your monthly payments on your debts divided by your gross monthly income — has to come in below 43 percent. The Consumer Financial Protection Bureau explains:
Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a Qualified Mortgage.
In our case, we missed the cut-off by one point, and that was the best possible outcome, though we didn't realize it at the time. Instead of buying, we kept saving. I got a better job with a higher salary. We paid off all the loans. By 2012, we were debt-free and felt actually ready to buy. At that point, the banks agreed.
And that was when we found the two-bedroom co-op that would serve us so well over the next five or so years, and when I realized how lucky we had been to have to wait.
If the building you're trying to buy into has paid off its underlying mortgage and doesn't have a pricey arrangement with a management company, you're going to pay a lot less each month for maintenance, which means you'll save a lot of money in the long run.
When looking at a listing, it's easy to skim past the common charges, real estate taxes and other fees. Before you buy, though, make sure you understand the full extent of your obligations. If the sprawling 2,000-square-foot co-op you've got your eye on comes with a maintenance of $1,500 a month, you'll be stuck paying off not only your mortgage but the equivalent of rent, too.
The apartment we settled on and bought had a maintenance charge of about $450 a month. Because the building was self-run, had no outstanding obligations and had built up healthy cash reserves, that fee actually went down a year or so after we moved in, though usually you can expect the fee to go up two percent or more, annually.
We've saved about $400 a month every month now for about five years by choosing an apartment in a building that asked only a below-average maintenance fee. Yes, we have to pull our trashcans out to the curb ourselves and occasionally shovel snow. It's been worth it for the extra roughly $24,000 we've been able to put away.
People will try to photobomb every stage of your house-buying experience. Most of them aren't necessary. If you're willing to make a spreadsheet, do some research and attend a lot of open houses yourself, you don't have to assemble a whole team of experts just to make a purchase.
My husband and I hired a top-notch real estate lawyer and otherwise we did everything ourselves: Found the right apartment, found the right mortgage and so on. We managed.
With a little preparation, and the willingness to learn from the mistakes of others, you probably can too.