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Reflections On Our First Home- Things Done Right and Wrong

September 11, 2011 · 39 comments

in Home & Garden, Personal Finance

After 2 years of marriage and apartment living, we bought our first home.  The year was 1993, and the housing market was on fire.

Our combined income was about $70,000 back then, but we had quite a bit of student loan debt.  Therefore, we didn’t want to spend too much on a house as I was also pregnant, and the goal was for me to be able to stay home with our kids at some point.

We looked into different types of home financing, which was a topic we knew almost nothing about.  We knew there were VA Loans (that we didn’t qualify for), Conventional Loans, and FHA Loans.   Because it was our first home and we had little credit history, an FHA Loan seemed to be the perfect fit for our decision.  There was one aspect to FHA Loans that actually kind of kept our spending in check:  FHA Loans had a limit on the amount of ‘house’ you were allowed to buy.  I don’t remember the exact price limit, but I want to say that if we planned on buying a home using an FHA loan, we were not allowed to purchase a home for greater than $103,000.  That was actually kind of difficult given how good the housing market was at that time.  We ended up buying a cute 1,150 square foot home in a nice neighborhood for $95,000 though, so it worked out perfectly.  We even bid $100 over what the sellers were asking because the market was so competitive.

Mistakes Made With Our First Home First Purchase

Our first home worked out fine, and we lived there for four years.   We ended up selling the house for $126,500, so at least we didn’t owe money at closing like many do today.  (Even though it looks like we ‘made’ $31,500 on the home over four years, we did spend money on new windows, new furnace, some new flooring, taxes, etc, so we pretty much broke even on the whole deal.)  Looking back on the experience, there are a few things I would have done differently:

  1. Rented longer.  Had we stayed in our apartment longer, we could have accumulated more money to put toward a down payment.  The first couple years, we had to pay PMI insurance, and I hated that.  (Private Mortgage Insurance, or PMI, has to be purchased until a homeowner has at least 20 percent equity in a home.)
  2. Better Researched Home Appraisers.  We didn’t have any major problems in our first house, except with the leaky screened in back porch.  I think I hired the home appraiser that the realtor recommended, which was probably not very wise.  I am sure it is in the realtor’s best interest to get a nice, clean inspection on the home so the sale can go through.  I wish I had known someone like the guy on the “Holmes On Holmes” TV show that could pick up the smallest issues.

Things We Did Right With Our First Home Purchase (and throughout our home ownership):

Even though our first home transaction was not perfect, there are a few things that I think we handled pretty well, such as:

  1. Became very familiar with target neighborhoods.  We really researched the neighborhoods of the homes we were considering.  We had no idea how long we would be living in the home, so we wanted to make sure the house was in a safe neighborhood with good schools.  We bought the house on the premise that we may live there forever, so we wanted to make sure it was a house we could stay him long term and raise our family.
  2. We refinanced once rates dropped.  Our initial interest rate on the home was 8 percent.  Over the course of our stay there, we refinanced our mortgage to 6 percent.
  3. Kept a close eye on home equity.  When we refinanced, the home appraised at a higher value than it did when we first purchased it.  With the increased appraisal and increased equity in the home, we were able to get our PMI insurance dropped since we then had greater than 20 percent equity in the house.
  4. Made reasonable home improvements.  We updated the home, but we did not make high-end improvements because we didn’t want to  outprice our neighborhood.  For instance, we replaced the windows with vinyl instead of wood as all homes in the area had vinyl windows.  In other words, we didn’t want to own the most expensive home on the block.
  5. Sold the house by owner.  We had 3 realtors come in and they all said our house was worth about 30,000 dollars more than we had paid for it.  The market was still quite hot, so we took that as our chance to start looking at our next home.  We took the average price of the 3 realtors and put the house up for sale, and the house sold the first weekend.  Handling the sale ourselves saved us a lot of money, and we were able to put all the proceeds from our first house on the down payment for our next house.

Ironically enough, my first house is currently up for sale.  Turns out the house is for sale for $132,000, which is $5,500 more than we sold it for 14 years ago.  There were also a lot of pictures of our former home online, and the house has been totally remodled since we lived there.  The house has been on the market for awhile, so I fear the price will actually end up being somewhere around what we sold it for all those years ago.  It is just another example of why people should never consider a home an investment!

Do you live in your first home?  Do you have any first home-buying stories?


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{ 35 comments… read them below or add one }

krantcents September 12, 2011 at 12:11 am

My first house was a divorce sale (1973). It was run down compared to other homes in the community. We bought it at a 25% discount to other homes and in those days you could assume the loan. The prevailing rate was 7%, but the loan was at 5.75%. I put down a third to assume the loan. My mortgage payment was less than my rent. It helped we had savings. It was a three Bedroom one and a half bath home with a pool. We lived there three years and sold it for double. Of course, we fixed the place up. We moved to our dream house on the hill on the country club overlooking the first hole and Los Angeles. It was a brand new five bedroom and two and half bath home. We added a pool, patio, fencing and landscaping. We lived there for nearly twenty years.


Cordelia September 12, 2011 at 3:03 pm

How come you sold your dream house on the hill?


Kris September 12, 2011 at 3:52 pm

That is exactly what I want to know!


Kris September 12, 2011 at 4:12 pm

I want to live in your house- it sounds perfect!! Sounds like you did real well with it too. Was it just too big to keep?


First Gen American September 12, 2011 at 1:10 am

I am still in the first house I bought, but we also bought my mom’s house too. I agree on the home inspector. Both times, the inspectors missed big things, but pointed out stupid obvious dumb things that didn’t matter..like the kitchen doesn’t have GFCI plugs. I think it’s a scam and a total waste of money. I don’t think I’ll use one next time. I’d rather hire a licensed contractor or plumber to come out and look at things instead of an appraiser..even if they are “state licensed.”

We knew our last place needed a roof but the guy missed that there were actually 3 layers of roofing on the house..he said 2. That was another dumpster and it cost us another $900 to get rid of the extra layer of cedar shake…so that was something I would have liked to have known and negotiated at the time of the sale. He also missed that our oil tank was totally corroded through, leaking and at risk of being a big expensive environmental cleanup if it failed catastrophically. I guess I should have also caught that there was a pile of kitty litter under the tank, but I assumed it was there to cleanup a spill from overfilling which there were signs of as well…another very expensive repair that could have been negotiated in if the guy just did his job.

My lesson is not to rely on stupid appraisers and go through a place myself with a fine tooth comb next time before we buy.

I think I over improved our current place a little too much. We will probably break even despite the fact that we bought it when the market was low in 2001. But, I think if we stay in it at least another 5 years without putting any more significant money in, it’ll be worth it just for our own enjoyment of the place.

My husband has never seen our home as an investment but as a place he wants to live in. Decisions like putting in central AC and cutting down trees were never about payback time or return on investment. It was about whether we’d use and enjoy the improvements.


Kris September 12, 2011 at 4:11 pm

First Gen, it sounds like you have a post in the making based on the experience you shared. You really did get a lazy inspector. I am glad you didn’t have any foundation issues like I have seen on some of the home shows I have watched.

I am the same as your husband. We remodeled our house to be like we wanted it. However, we did do so with resale in mind, so I guess it was a combination of the two. You can never go wrong with putting in central air, that is for sure.


Niki September 12, 2011 at 7:31 am

We are currently living in our first home. We have the smallest house on the block, but we have one of the most updated. Our whole block is filled with gorgeous Victorian homes, but most have not been updated recently.

Our home inspector was a sham too. Exactly like Sandy said, noticed insignificant things and totally missed the big stuff.

We are planning on moving within the year and are still going back and forth on whether to sell or rent, but we are now leaning on more towards renting. But if we sell I am definitely trying ‘but owner’ first.


Kris September 12, 2011 at 9:58 am

Your house sounds beautiful though Niki! Why are you moving?


20's Finances September 12, 2011 at 8:59 am

We are still saving for our first home. It sounds like you did a lot more things right than wrong. Great work, especially selling your house at the right time. Great tip on keeping an eye on the appreciated value to refinance and get rid of the PMI. I hope to have 20% down when I buy my first home to save this expense.


Kris September 12, 2011 at 9:56 am

20s- you are smart if you wait until you have 20 percent for a down payment! We did some right and some wrong, but we had some great experiences in that house!


Little House September 12, 2011 at 10:03 am

We’re still working on saving for a house, but I like how you listed the things you did right. I think buying in the right neighborhood is really important. Our thoughts are when we do buy, it will be ‘forever’, or so we think. I also don’t want to pay PMI, so hopefully we’ll have our 20% saved in the next few years.


Kris September 12, 2011 at 4:08 pm

Little House, I anxiously await to see the house you do buy. You are being so thoughtful in your buying process. I bet you will buy the perfect house for yourselves!


Denise @ The Single Saver September 12, 2011 at 10:05 am

I think the best take-a-way of this article is to avoid paying PMI. Not because PMI is ‘bad’ but because it means you have made a smaller down payment than 20%. if I were Queen of the World buyers would be required to pay 20% down on all homes because not only does it give a good cushion to protect against market downturns, but it also means you are paying less money in the long run on interest! I rented for 7 years and was able to put 30% down on the house I built. I admit it was tempting to spend more on the house (I would have still had enough for a 20% down payment) but in the end I don’t regret scaling back a little in favor for financial security. Nice article!!!


Kris September 12, 2011 at 4:07 pm

Queen of the World- you are very right, it would be nice to require everyone to have 20 percent down on their house. The only downside of that is that the housing market would probably just crumble worse than it already has as many homes would take much longer to sell.

As Queen of the World, could you also eliminate interest-only loans? Thank you.


Linda September 12, 2011 at 10:33 am

My ex and I had a small condo before we bought this house. The condo was a gut rehab before we bought it and we made a small profit when we sold it and bought this house. PMI was a pain. We should have waited to have 20% down before we bought but my ex was wanting to own because he thought it was better than renting.

I bought out my ex so I could keep the house after the divorce. Too bad I couldn’t arrange to buy him out when the market was at complete bottom. Within one year I had sustained a “paper loss” of 35K when I refinanced again a year later. Ah well.


Kris September 12, 2011 at 4:06 pm

Linda, that is unfortunate about the timing of the house sale. But, money isn’t everything, peace of mind is important too.


MoneyCone September 12, 2011 at 10:40 am

Yep, still living in my first home, but then I just bought it this year! 🙂


Kris September 12, 2011 at 3:56 pm

That’s good MC, I am glad you haven’t been kicked out yet! 🙂


The Biz of Life September 12, 2011 at 11:21 am

I’m on my 4th home. Never paid PMI on any of my house…. didn’t want to pay for something that only benefited the lender. The trickiest thing for me was making sure we bought in areas that were on an economic upswing and improving, rather than declining. We’ve been pretty fortunate so far in that regard.


Kris September 12, 2011 at 3:56 pm

Biz, you are pretty fortunate. My houses were also purchased in ‘economic upswing’ areas. (At least cities within metro Detroit.) Unfortunately, things went to hell in a handbasket and most of our homes are worth less than when we bought them around here. It doesn’t help that the house next door is for sale as a short sale, and I am guessing foreclosure will be next because the the price is ridiculous. That will bring down the value of my house even more.


Ashley @ Money Talks September 12, 2011 at 1:11 pm

I had the hardest time getting rid of our PMI. We only missed putting 20% down by like $5,000 and the price of our house went up like $50,000 in the first 6 months of buying it. We bought in early 2004. I spent a good year tryin to get the PMI taken off. There was always a reason. First we had to get the mortgage balance 20% under what we paid for the house regardless of what it was worth. So I did that. Then I had to pay PMI for a set amount of time. So I did that. Then I had to jump through hoops. They did finally take it off, but it was a journey.


Kris September 12, 2011 at 3:54 pm

Oh, I am sure it was a nightmare to try and get it removed. The refinance is what did the trick for us though, without that, I don’t know if they ever would have ‘given in’.


retirebyforty September 12, 2011 at 2:38 pm

Wow, the housing price really reset back 10+ years. I think you did a great job with PMI. It would hate to pay that every month!


Kris September 12, 2011 at 3:53 pm

Well, I guess the first house did better than my current house. We bought this house ten years ago, and it think it’s market value according to Zillow is 55,000 dollars less than we paid for it!


Eric September 12, 2011 at 4:45 pm

I am closing on my first home next week! While I have a little bit of jitters, I know I found a good deal and it is a great home. Thanks for the good tips.


Kris September 12, 2011 at 5:01 pm

Oh how exciting! Moving into a new home is such a fun time. One other thing I learned was that it is hard to know how to paint or decorate until you have been in the house for awhile and ‘get to know’ it.

Good luck and enjoy!!


My University Money September 12, 2011 at 7:01 pm

I bought my first home last year. I went against the golden rule of waiting until I had 20% down, but there were some mitigating circumstances. First of all, the house was only 95K (I love rural life) and they are in the midst of a natural resource (including oil) boom in my area that was just showing beginning signs a year ago. I decided to pay the extra mortgage insurance and gamble that it would be less than the price increases on houses. Turns out I was right on that one. Also, even with the added insurance cost on the mortgage, my mortgage payments are still less than my rent would have been, with a 25 year ammoritization, and I’ve been able to make aggressive pre-payments. I was also moving into a guaranteed teaching position that started at 50K and will now rise every year by 3K or so for the next 10 years. Overall, I learned a lot going through it, and I’m very glad I did it as I have been extremely happy with the house and will definitely make a profit on the resale in a few years.


Matt Wegner @ Financial Excellence September 12, 2011 at 9:34 pm

“I wish I had known someone like the guy on the “Holmes On Holmes” TV show that could pick up the smallest issues”

I LOVE that show! Makes me a little leery about buying another house though. We came out ahead on our last house but not really because of anything we did. We just bought at the right time in the market (pure luck).


Jeff @ Sustainable Life Blog September 13, 2011 at 11:21 am

Stories like this make me hesitant to buy a home. Some people consider home buying an investment, but it typically doesnt work out that way. Looks like you did well for your first home!


Money Reasons September 13, 2011 at 12:52 pm

We still live in our first house, and while the dimensions (over 2,000 sq ft) are fine, we’ve definitely outgrown the yard.

Nice job selling your house by owner, that’s incredible!!!

My 1st house regret is that I wish house was more of a fixer upper. Since we built new, I didn’t get a chance to experiment with fixing thinking on the house. Oh well, next lifetime perhaps…


Money Reasons September 13, 2011 at 12:55 pm

Shoot! I forgot to mention that I love these real life stories! All too often, we all work mostly in theory, is it’s nice to hear thought about how it really happened or came about!

Many time stories such as this one has a bump road and with twists and turns that the theoretical advice can’t replicate.

Thanks for sharing!


funancials September 13, 2011 at 1:05 pm

I really enjoyed this post. To begin, I love Holmes on Homes. How he hasn’t made the cover of TIME is beyond me. I also love that you wish you had rented longer. So many dream the dream of home-ownership without recognizing the benefits of renting. I could purchase a home tomorrow if I wanted to but the timing isn’t right for me. Renting provides flexibility as well as a growing cash cushion. Once I get married, ill look to purchase.


Jenna, Adaptu Community Manager September 13, 2011 at 2:50 pm

I’m currently looking for my first home. Knowing the neighborhood is key. I want to be able to live in the house forever. Probably won’t happen but I’m going to plan for it.


Roshawn @ Watson Inc September 14, 2011 at 9:02 am

I am very happy that you were able to successfully sell the house yourself. Often the marketing of real estate is a big problem for many homeowners; for others, the rules, regulations, and common practices are overwhelming. It sounds like you saved a boat load.


101 Centavos September 18, 2011 at 4:54 am

Renting longer and neighborhood familiarity is one that we could have used more. We bought our first US home relatively late in life, due to many years spent living overseas. We sometimes regretted choosing the home on our particular street, which is used by drivers as a shortcut between neighborhoods, and as such gets more than its share of traffic and stupid speeding drivers.


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