Four years after buying her first home with her future husband, Lindsay Bjerke embarked on a career as a real-estate agent, helping first-time buyers in Minnesota’s Twin Cities.
Bjerke recently began flipping homes. “I was able to do that because we had equity in our first home,” she says. She has four investment properties: two vacation rentals, a triplex and a single-family home. “We’re also on our third house now,” she says.
Her previous career as an interior designer, combined with her real estate experience, helps Bjerke — and, by proxy, her clients — look beyond unsightly remodels and other not-so-pretty stuff. Here, Bjerke discusses the key decisions she confronted as a first-timer buyer, and the things she wished she knew then.
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Don’t Wait Too Long To Buy Your First Home
Bjerke bought her first home in her mid-20s. “I’m glad we jumped into home ownership early,” she says. “A lot of people wait until they feel stable. Even though we didn’t put a lot of money down, we were able to build equity.”
Equity allows you to stop wasting money on rent and work toward other dreams, such as building a business. Home ownership allows you borrow against the equity.
“All that money you pay every month (in a rental) goes against wealth building,” says Bjerke. “We were building equity at a young age, and later using the equity in our home to buy investments when many others our age were just (starting to look) for their first home.”
Begin Where You Are
Bjerke commonly sees clients buying a house they expect to grow into. That, she says, is a mistake. Paying for space you’re not using yet, such as a future nursery, leaves less money for savings or other investments.
“It’s okay to start somewhere,” she says. “Some people want three bedrooms but don’t have kids yet.”
The average time spent in a first home is between five to 10 years. Five years is enough time to invest wisely, says Bjerke. Opting for the “starter home,” which typically has two bedrooms and one bath, means you’ll be more financially secure when you buy that larger home later.
“We would have liked something larger but, in our price bracket, larger meant buying a house that needed work we couldn’t afford,” says Bjerke. “Instead we bought small but well-updated. We were able to be financially comfortable and not house poor, and pay down our mortgage at a faster rate.
“It suited us for six years as we started our life together. After that, because we bought an affordable home, we had options to sell or hold as an investment when the time came to buy up.”
Prioritize Condition Over Size
For their first house, Bjerke and her husband put in an offer on a home in good repair. This was strategic: Compromise on size, not condition.
“It was easier to make accommodations for a smaller house than if we were in a money pit or constantly doing repairs (on a larger home),” she says. “This turned out well because we didn’t have any money to speak of after a down payment, and I’m glad we didn’t have that stress of endless home repairs after such an investment.
“Most first-time buyers drastically underestimate the price of repairs, myself included at that time, and are shocked when it comes time to make updates they thought would be affordable. With the rising costs of labor and materials, it’s truer now more than ever. You want to own the home, not have the home own you.”
Save as Much as Possible for Your Down Payment
It’s tempting to keep money in the bank and go low on the down payment, but then it takes longer to build equity. When deciding between, say, a 12 percent or 15 percent down payment, go with the higher amount, provided it won’t be a struggle.
“When you sell, you want to have equity and be prepared for a downturn,” says Bjerke. “You won’t regret putting more money into your house. We scraped together just enough to pay a down payment with a FHA loan.”
Bjerke said she bought her first home in a completely different market. “Even though we didn’t realize a huge profit/appreciation with the sale of our first home,” she says, “we still had equity and something of value to sell at the end of our six-year ownership versus spending tens of thousands of dollars on rent during that time.”
Consider “House Hacking”
“House hacking” is when part of the home is an accessory dwelling unit (ADU), either for short-term rentals like Airbnb or long-term monthly tenants. Buying a duplex is another way to “house hack.”
“I wish that we would have considered doing this when we were young and had the time, before kids and having to sacrifice the privacy,” Bjerke says.
Even if you don’t have a guest house, “rent out the (finished) basement,” says Bjerke. “Having that additional income is huge.”
Know Your Financing Options First
In a seller’s market, listings are snapped up quickly due to low inventory and multiple offers. Get pre-qualified and pre-approved before shopping. A realtor can recommend a lender. “In this market you don’t have time to get pre-approved after a walk-through,” says Bjerke.
There’s another benefit to securing finances first: You’ll know which homes are out of your budget, so you won’t be lured in by a fancy kitchen or spa-like primary bath. “(Evaluate your finances) before you jump into the emotional aspect of home buying because that’s when you can make mistakes,” says Bjerke.
Use MLS in Your Housing Search
Hiring a realtor and scrolling an online listing’s photos is a huge help. This is what Bjerke and her husband did repeatedly. Plus, you want to know the minute a property goes up for sale.
“Information in this fast-moving market is not accurate on Zillow,” says Bjerke. “You need to see the property in the first 24 or 48 hours.” Only an agent can give you online access to Multiple Listing Service (MLS).
Be Prepared for Inspection
The least attractive aspect of buying a home is the inspection. Before it happens, Bjerke says, “Ask your agent what might be needed for repair.” Agents have walked through hundreds of homes and know common condition issues related to a home’s age or architectural style.
“Buyers are thinking about what color they want to paint and not how old is the furnace,” says Bjerke.
Bjerke’s interior design experience, working on homes alongside contractors and architects, helped her know what to look for pre-inspection.
Buy Under Budget
Once your lender tells you how much you can borrow and effectively spend on a home, don’t assume you have to adhere to that amount. “Just because you’re qualified to buy more, stick to your monthly payment and work back from that to determine what your house price should be,” says Bjerke.
She and her husband resisted the urge to buy what they were approved for. They realized their chances of buying a larger house later on might suffer if they actually borrowed that much money.