How I Purchased My First House in Austin, Texas at 25 During a Global Pandemic
Hi. I’m your average 20-something millennial girl living in Austin, Texas, and I just purchased my first house in the city. I spend 40 hours of my week working a corporate job and the rest of my time enjoying all the trails, craft beer, and food trucks Austin has to offer. With substantial planning and a dash of luck, I was able to save enough to purchase my first home at the age of 25. I didn’t post a viral YouTube video, I didn’t become “Insta-famous,” and I didn’t juggle 9 side hustles to get here — and neither do you. I truly believe anyone can buy a house, and I want to share with you how you can also become a homeowner with a bit of intentional living.
Step 1: Grab a coffee with yourself.
Assuming that you’ve given the idea of purchasing a house ample thought and have come to the conclusion that paying a mortgage is a better financial decision than renting, the first and most important step in this process of home-buying will be getting to know yourself. Understand your high-level goals for this year and the next few years. Catalog your hobbies and interests. Retroactively review how you spend your free time. Do all these exercises to understand what you’re looking for in a house and how a house will fit your current lifestyle or enhance it. This can take days, weeks, or even (and most likely) months.
Buying a house can certainly solve some of your problems, but it will not be the solution to all of your problems. This is important to note early on in the process because you need to identify what your motivation for purchasing a home is in order to:
- Incentivize yourself to remain disciplined during this savings journey, and
- Streamline the criteria for your perfect starter home.
Step 2: Write down what’s important to you.
This step piggybacks off of the previous step and is essential to creating your S.M.A.R.T. goal later on. Imagine your life in your future home. Create a list of activities and hobbies that you need space for and want space for. Note that these lists are of activities and not features of a house that would allow you to perform the activities. Examples are: raising toddlers, running on a neighborhood trail, working from home, or building a woodworking shop. Buying a house is a key part of designing your life — this means living your life to your standards and no one else’s. This is a great opportunity to review your notes from the previous step and piece together your ideal lifestyle accordingly.
Keep in mind that this will be your first home and certainly not your last. Equity builds quickly, so with patience and smart savings, you will be able to purchase your dream home or remodel your current one sooner than you think. However, for the time being, it’s important to remain realistic when creating your lists of needs and wants. Think in terms of the next 5 years rather than the next 30 years.
Step 3: Calculate the cash you need.
To understand how much cash you need to save for your down payment and closing costs, research the four types of home loans and what you and your future property may qualify you for:
- Conventional Loan
- FHA Loan
- USDA Loan
- VA Loan
Ask around at your job or in your social circles for lender recommendations. Chatting with a loan processor on the phone is extremely useful for a first time homebuyer. It’s easy for the lender to give you an estimate of what you can afford without doing a hard pull on your credit — this is called a pre-qualification, and it’s important to complete before you start browsing homes, so you can have a general idea of what the top of your budget is. I learned a lot from speaking with recommended loan processors who were very kind and willing to explain details of the home-buying process to me, despite not being my selected lender.
After you’ve established how much house you can afford, you can start to estimate how much cash you will need to put down. Your minimum down payment amount will be based on your loan terms. This can range from 0% down (VA) to 5% (conventional). Keep in mind, these are minimum down payment amounts and if you can afford to save up more, it will benefit you greatly in the long-term. It’s important to note that if you put down less than 20% on your home, your lender will require you to pay Private Mortgage Insurance (PMI) each month to insure their loan, since a lower down payment makes for a loan riskier. PMI can range from about $40 to $200, depending on the amount you put down, your credit score, and your debt-to-income ratio, etc.
Step 4: Browse Zillow or Redfin.
It may seem early to be jumping online and looking at homes when you have no means of purchasing one, but in order to know how much you need to save, you need to know what price range your ideal starter home exists in. The biggest question to ask yourself when working with a budget is, “Do I value space or location more?” The answer is clearly not black and white. However, by reviewing your list of needs and wants, you can come up with an ideal size and distance from the city center that objectively fits your lifestyle.
Once you decide on an approximate location and home size, scroll through online listings. Zillow is great for its inventory, and RedFin is great for its market insights. Look at homes and determine what you would feel comfortable living in. After a few weeks of browsing, you should get a better feel for what homes look like in certain neighborhoods and how they are priced relative to your pre-qualification budget. If you end up in a price point that seems unrealistic for your income levels, refine your criteria and aim for 2–3 essential needs in a house or consider looking a few more miles farther away from city center.
Step 5: Create a goal and timeline.
Now that you’ve identified a price range for your ideal home and how much money you need to save for a down payment, it’s time to review your spending and create a realistic budget that allows you to reach your goal in a timely manner — aka a S.M.A.R.T. goal. If you’re not familiar with this concept, S.M.A.R.T. stands for specific, measurable, attainable, relevant, and time-bound.
In order to create an attainable and time-bound goal, you need to calculate a target amount of savings each month and a target end date for your savings goal. There are two ways to do this:
- Pick a target end date and determine how many months away from today that date is. Divide your down payment by the number of months and the result will be your target monthly savings goal.
- Pick a target monthly savings goal. Divide your down payment by the target monthly savings and the result will be the number of months until your target end date.
If you think your 1-year timeline requires too aggressive of a savings plan that doesn’t seem realistic nor sustainable to you, it’s completely okay to lengthen your timeline! Conversely, if you realize you’re already spending close to your target monthly savings without cutting back, adjust the numbers and see how much you could shorten your timeline if you saved a little bit more aggressively each month. Use these numbers simply as a guide. At the end of the day, only you know what’s most comfortable and realistic for your lifestyle.
Step 6: Create a budget.
I’m a strong believer of tracking your goals. If progress isn’t tracked, then progress isn’t made. The first step in creating your budget is picking a budgeting tool. I enjoy having full control of the organization of my budget, so I keep it simple and use Google Sheets. Other highly touted tools are YNAB, EveryDollar, and Mint. The key takeaway here is that you need a tool that you feel comfortable using and enjoy using so that you’ll remain consistent with your habits.
Next, review the last three months of your credit card and bank statements in your budgeting tool. Take the averages of your spendings in each category and use this as your baseline budget for that category. For the first month, aim to cut back by 5–10% in “commodity” categories such as entertainment, dining out, subscriptions, and even groceries. If you feel as if your baseline values are quite bloated due to excess spending, make an effort to shave your spending by 10%. If you feel as if your spending is fairly streamlined already, then aim to cut it back by 5%.
Maintain this 5–10% decrease each month until you reach your target monthly savings goal, and then work to maintain that savings rate. This is no small feat and will require discipline and willpower, but I believe anyone can do anything they put their minds to. Remember to constantly remind yourself of the end goal when met with temptation — a beautiful home to call yours!
A big tip when budgeting is to plan your purchases. A successful rock climber will plan their route at the base of the mountain. They mime a sequence that helps them remember which hand or foot will grab a hold and in what order they will do so. This is because once the climber ascends, they can no longer see all the holds in the context of the route and won’t know with full certainty which hold will lead them successfully to the top. The same concept applies to budgeting. When you plan your purchases, you’re armed with the knowledge of a successful route — you know exactly how to reach your goal. When met with temptation, you can always reference your plan of action to stay on track.
Lastly, I strongly advise against completely cutting a category of spending from your budget. “No more eating out for the month of February” or “no more subscriptions” is a method that will result in an upward trend in short-term savings, but will result in a downward spiral of binge spending in the future. I always made sure to budget for spending on my hobbies and dining out a handful of times a month, even when I was saving aggressively. The idea here is to encourage sustainable habit development through small changes in behavior.
Step 7: Patience.
Once you’ve reached your savings goal and have gotten pre-approval from a lender, the house hunt begins. At this point you will need a realtor to advise you on the process and help set up showings for the houses that interest you. This whole process could fill two to three more articles, but I’ll just keep it short and sweet — patience and luck will get you through the home stretch. Despite what you may be thinking after reading this article, this part of the journey felt the most grueling and emotionally draining.
You will see a lot of homes you love. You will see a lot of homes that you won’t believe are still lived in. You will see homes that are perfect but a little outside of your price range. And you will see homes that check every box but unfortunately end up with another buyer. This is where luck comes into play. You have no control over when your perfect home will suddenly be put on the market, so it’s important to remain calm and patient and remind yourself that something will come.
After attending house showings, I found that filling out a scored rubric helped me objectively evaluate a house and its features. I made a spreadsheet with all the features that were important to me and scored them based on how much of a need vs. a want they were. I correlated each feature with a point value and was able to calculate a score for each house based on the presence of these features. This helped tremendously, as it’s easy to get distracted by finishes and floors, when in reality, those features are easy to upgrade and do not affect the structural integrity or safety of the house. Additionally, having a score for each house allowed me to compare and rank the homes I toured.
This part of the process could take days or months, but once you find your house, make an offer, and go under contract — the fun begins!
This is merely a brief overview of such a small portion of the home-buying process. However, I hope this is helpful to anyone who has been considering purchasing a home but didn’t know where to start. It’s a long journey, but I guarantee you, it’s worth it. After all, the harder the battle, the sweeter the victory.
