Early in my career, I had the pleasure of working with a wonderful young woman (let’s call her Ann) who was preparing to buy her first house in San Jose. Ann was all of about 23 or 24 years old, but she had been saving since she was 16 or 17 years old. So much discipline! This Silicon Valley native had a clear idea of what she wanted (a house in a good part of Santa Clara County), what she expected (a bigger place that probably would need some work) and her long term goals (get a house and rent bedrooms out to friends and relatives later).
Together, we got her into a 4 bedroom Blossom Valley house with lots of potential. Ann rented the other 3 rooms out to friends and relatives. She worked to save the money to buy the property and has labored to make it better over the years. This was not an impulse buy at all – instead, it was part of a big plan she had since she was a teenager. I did and do respect her so much: she had a very clear idea both of what she wanted, and what she needed to do to attain it.
How many of us can say the same or have so much discipline and planning?
I have a ton of respect for people who carefully save and plan. At the other extreme, I worry tremendously about those who make spur of the moment, highly impulsive and seemingly unrealistic decisions. When or if they ask me for advice, they don’t always like what I have to say, because as a friend or as their Realtor, I need to try to help them to make better decisions.
- Someone I know says that she is writing an offer on a house (not with me, but out of this area) but is about to lose her job. I suggest that she rethinks this idea and she says that I’m negative and ruining her dreams. I’d like to think that I’m helping her to avoid a credit disaster!
- Another person I know says that he’s going to purchase a house with a friend. It’s a rocky relationship at best and I suggest, since he brought it up, that he rethink the wisdom of this since it’s a surefire way to ruin a friendship and potentially lose the house later too.
- Friends wander out on a sunny day and make an offer on a house because they like the floor plan, but know nothing of the area (which, by the way, is very near a state prison, a major earthquake fault and a freeway). It was their first day house hunting and I wonder why their agent doesn’t try to help them to make the best decision, rather than a fast one….
If you want to buy your first home, slow down, make a plan, check it out with trusted specialists and friends (financial planners, close relatives or friends) and see if it makes sense.
What do you need to buy a house or condo in the San Jose area? There are three main areas you need to address:
- Employment – I know it’s obvious, but you need to be gainfully employed and you need to have a good reason to believe you’ll have that job tomorrow.
- Savings – at a minimum, you need about 5% down (for an FHA loan) or more. More is better: there’s a good chance you will need to make repairs or improvements. Shoot for 10% to 25% down and you will be the better for it – interest rates are cheaper when you put more down too.
- Clean credit – early on, very very early on, get your credit scores from AnnualCreditReport.com and see if there are any errors or any issues which you can resolve. If your credit stinks, your interest rate will too.
Without all three of these in check you risk paying more in interest rates and worse, you risk ultimately losing your future home.
Wanna be Silicon Valley home buyers: slow down. Check your credit. Make a plan. Save money. Then proceed. Don’t try to do it without these three in check, Without them, it’s a recipe for disaster.