Quick reads...

Millennial Who Bought Her First Home During Covid-19 Shares Her Best Advice

By: David Bach  |  Last Updated: October 26, 2020
Financial Expert & 10x New York Times Bestseller
IN THIS ARTICLE1. It’s never too early to start looking
2. Pay attention to your credit score
3. Be willing to make sacrifices
4. Comparison shop lenders to get the best deal
5. Take action

27-year-old Hannah Addington bought her first home in just a week — and she did it during the Covid-19 pandemic, with nearly $70,000 worth of student loans and less than $6,000 in the bank.

“I read ‘The Automatic Millionaire Homeowner’ on a Friday and literally seven days later I was in escrow,” says Addington, who officially closed on a $285,000, three-bed, 2.5-bath condo about a month after being in escrow. “It was crazy. I’m still surprised that it all happened the way it did.”

My book inspired her to stop renting and become an owner. “I could not put it down,” says Addington, who was renting an apartment in Sacramento, CA at the time. “I was overwhelmed with motivation to buy a property. Even if my financial situation wasn’t ideal, I was going to find a way.” 

Besides reading my book, Hannah also went through my FREE “First-Time Homebuyer Challenge,” which she loved — and now she has more personal advice for prospective homebuyers. Here are five of her best tips, having just gone from renter to homebuyer! I hope her story can both motivate and educate you if you’re dreaming of owning a home someday.

1. It’s never too early to start looking

Regardless of your timeline, start looking at properties now, suggests Addington: “It’s never too early to look on Zillow or Redfin. Spend 30 minutes a week just getting an idea of the properties that are out there so when you are ready to buy, you have an idea of where you want to look.” 

While you’re at it, start looking up average house prices in specific locations you have your eye on. Then, you can work backwards to figure out how much money you’d need to save for a down payment.

2. Pay attention to your credit score

While experts suggest you start saving for a down payment even years before you’re ready to buy, it’s not essential that you have thousands of dollars in cash saved up to become a homeowner. Addington is living proof! She couldn’t save much for a down payment because of her student loans, but she did the next best thing: She monitored her credit score.

It ended up being very beneficial: “I was lucky that I paid attention to my credit score over the last several years, because I think that helped me get a lower interest rate,” says the new homeowner, who scored a 3.625% interest rate on a 30-year fixed-rate mortgage.

If you can’t afford to fund a home savings account immediately like Addington, take this time to work on your credit score. Paying bills on time and building out your credit history will pay off later on when you’re shopping for a mortgage. A better score will make it easier to qualify for a mortgage and get the best rates and terms. 


3. Be willing to make sacrifices

Addington set realistic expectations when shopping for her home. After looking at listings on Zillow and Redfin, she knew from the get-go that she wouldn’t be able to afford living in downtown Sacramento, where she was currently renting, so she started looking in suburbs outside of the city. 

“It’s OK to sacrifice location,” she says. “When you’re young, it’s nice to live in the downtown area, for example, but for your first home, sometimes that’s not realistic. And, it’s your first home — you don’t have to buy your dream home for your first home.”

She said it perfectly: With homeownership, you start small and work your way up. You don’t buy your dream home with your first purchase — but it will be your first house that someday helps you get your dream home. 

That’s because owning real estate is what eventually will help you build lasting wealth. That’s what Addington realized after reading this one particular stat I highlight in “The Automatic Millionaire Homeowner”: The median net worth homeowners is more than 44 times the net worth of renters.

For your first home, what’s important is that you stick to a budget you can afford. You can read about that in more detail here, but, for now, I’ll leave you with a good rule of thumb from the Federal Housing Administration’s (FHA) guidelines for home-buying: Spend no more than 29% of your gross income on housing if you have other debt. If you don’t have any debt, you can safely spend even more — up to 41% of your gross income. Keep in mind that this percentage includes more than just your mortgage payment: It includes all housing-related expenses, from insurance to property tax to maintenance. 

You don’t want to buy more than you can afford and end up with a payment that stretches your budget thin each month, making it impossible to meet your other financial obligations. Buy what you can afford, even if it means sacrifices. It will pay off in the long term.

4. Comparison shop lenders to get the best deal

One part of the homebuying process Addington says she’d do differently is spend more time comparing lenders. “If I had more time I probably would have shopped around a little more because I think my loan origination fee was a little bit higher than other lenders,” she says. 

Still, she got a pretty good deal with her 3.625% rate, partly because she used her network to her advantage: “This specific lender had an affiliation with UC Davis and, as a UC Davis alum, I was able to get a little bit of a discount going through this lender.” That’s higher than the current average on a 30-year FRM (2.9%, as of September 2020), but still a great rate to have locked in for 30 years.

Ideally, I want you to call up at least three to four mortgage lenders to compare rates and terms. This is really the only way to ensure you’re getting the best deal. Think about it this way: When you go out to make a major purchase, like a car or big appliance, you don’t simply walk into the first showroom you see and accept the first price the salesman quotes you. A good shopper goes to a number of different stores, compares offers and even plays competing retailers against each other. You can do the same when shopping for a mortgage.

If you don’t know where to start, check out my top-recommended mortgage lenders.

5. Take action

Addington’s final piece of advice for prospective homebuyers: “Just do it. Get in the right mindset and just go for it and trust the process.”

The sooner you make the leap, the sooner you’ll be on your way to building wealth. As I mentioned earlier, the renting path leaves you poor: You’ll have a recurring monthly expense and no asset. The only person profiting is your landlord because your rent payment is going toward buying his or her building! The ownership path, on the other hand, leaves you in control of a significant asset, more wealth, better financial security and no more rent payments.

As a homeowner, you’ll be in control, meaning you have options. You can rent out part of your property to build even more wealth. That’s what Addington is doing: She’s actually lowered her monthly housing expenses since buying her condo and is paying about half of what she was paying as a renter! Her mortgage costs more than what her rent cost, but she’s able to rent out two of the bedrooms in her three-bed condo and save hundreds of dollars a month.

Owning presents way more options for your future self. And there’s never been a better time to buy than now. Interest rates are historically low: In September 2020, the average interest rate on a 15-year fixed-rate mortgage dropped to 2.37%. The 30-year fixed-rate hit a low of 2.86%.

In other words, you can take out a loan for an insanely low cost right now, which makes owning your home more affordable than ever. And with a fixed-rate mortgage, you can lock in that low rate for up to 30 years. 

Still on the fence about buying? Learn more with me: I partnered with Money.com to create The First-Time Homebuyer Challenge, which is a free, five-day online course designed to help you learn the five critical steps of the home-buying process, from how to raise your credit score to how to get pre-qualified for a mortgage. This is the same class that Hannah watched, learned from and loved. 

If you’re still renting, this challenge can help you prepare to buy your first home. Your first home may be closer than you think!

Check out my top recommendations for mortgage lenders

Read next: This 27-Year-Old Bought a Home in 7 Days With Less Than $6,000—Here’s How