The following is a guest post. If interested in submitting a post, please contact me.
Author Bio: Jason is a financial advisor and Dave Ramsey-trained counsellor that blogs over at WorkSaveLive. He aims to educate his readers on a variety of financial topics while sharing his family’s journey out of debt.
Buying a home can be one of the most exciting times in anyone’s life. It’s a very big investment to make for you and your family’s future. However, in many cases, the initial rush of emotions and thoughts of being a homeowner cloud our minds from making an intelligent decision – one that will be best for your financial future.
You have access to many tools and guides to help take you through the process, so take the time to do your due diligence. Ask for advice and read books about buying houses. Trust me; you do not want to mess this up.
When my wife and I first thought about buying a good home over 3.5 years ago, we really had no idea what we were doing. Back in early 2009 the government had just come out with a stimulus plan and was offering $8,000 to first-time home buyers. This MAJOR carrot along with the fact that interest rates were at some of their lowest levels, and housing prices had just taken a beating from the 2008 debacle, led us to believe that buying a home was a no-brainer.
Amidst all of the emotion and enthusiasm that came with buying our first place, we didn’t really stop to think about what we were getting ourselves into.
If you’re thinking of buying a home, take some time to avoid these common mistakes that will cost you dearly when you look to sell it.
3 Big Mistakes to Avoid When Purchasing a Home
Location, Location, Location
As with all things in real estate, one of the most important factors is the location of your home. The location includes things such as the school district the house falls in, how quickly it takes to get to the nearest highway, and the overall shape of your neighbourhood.
When my wife and I bought our first home, I’ll just say that the location was the last thing on my mind. We wanted a place on the outskirts of Kansas City, in a smaller town with only a few neighbours. We also didn’t care much about the school district, considering that we didn’t have any kids.
What once fit us quite well on the location front no longer works for us now as our lives evolved over the years. The once-attractive location has become a burden when it comes to travelling to work and visiting friends and family.
It may be tough to project what the future holds for you and your family, but thinking about where you’re going to be in the next five years from now plays a vital role in choosing a location for your next home purchase.
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ALWAYS Keep the Resale Value in Mind When Buying a Home
While the older generations were accustomed to buying a home and living there for 20+ years, younger adults have proven to be much more apt to move on a whim. It might be a simple move across town, or in some scenarios, it involves a move halfway across the country.
When you first consider buying a home, it’s crucial to have a realistic mindset on how long you’re going to stay there. While predicting your future may again be challenging, it’s absolutely necessary. The shorter amount of time you remain in your home, the harder it will be to sell – especially if you didn’t have a sizeable down payment.
In our scenario, we only put 3% down on our home; yes, a no-no in the PF community. Due to this and the fact that we got a 30-year mortgage, we have very little equity built up in our home. The less equity you have, the less wiggle room you have when fielding offers on your home when you go to sell it.
While living in your home longer allows you to build more equity, it also provides time for the house to increase in value. Although some cities sport booming real estate markets, most places throughout the U.S. are stagnant. Even though we bought our home in a down market, the increase over the past three and a half years has been minimal.
In regards to resale value, it’s also important to keep in mind the condition of the home you’re looking to buy. If you’re purchasing an older home, then you’re likely going to need to invest in significant upgrades when you plan to sell it.
While it’s essential to buy a home that can fit in your budget, it’s best to find one that is newer or has been upgraded to match the times. Newer kitchens, nice master bedrooms, beautiful bathrooms, new roofs, A/C and heating units, and 3-car garages are becoming the standard, and these will be things you’re competing against when you look to sell your home.
Failing to upgrade your house and keeping the resale value in mind when buying it may prove to be the difference between selling your house quickly and sitting on it for 90+ days.
Avoid Becoming House Poor
Of course, it’s nice to look at houses that are out of your budget. Who doesn’t want to look at a 3,000 square foot house with four bedrooms, three and a half baths, and all the new amenities that come with the higher-end homes?
While we live in a culture that preaches frugality and pinching pennies, I’m often shocked at how often people make MAJOR financial mistakes when it comes to the big-ticket purchases.
I’ve coached people for a long time and winning with money isn’t about how many dimes you can save by clipping coupons. Ultimately, winning with money comes down to the decisions you make on the biggest purchases of your lives: vehicles and houses.
Although the standard when buying a home is to strap yourself to a 30-year mortgage, it’s best to find a house where you can afford a payment on a 15 or 20-year mortgage. The reason the 30-year mortgage became standard in our world is simply for the mere fact that people wanted nicer, bigger, more beautiful houses than they could really afford.
Also, when you are factoring the mortgage payment that you can afford, there are a few expenses that you must include:
- Private Mortgage Insurance (PMI)
- Annual Property Taxes
- Home Owner’s Insurance
- Repairs and Upkeep
While you may be looking at the 30-year mortgage payment on a $500,000 home and getting excited at the belief that you can afford it, adding the expenses above could likely put that home out of your price range. Especially if you consider taking the mortgage down to a 15-year fixed note where it adds a significant amount of money to the monthly payment. When purchasing a home, you have to be sure that you will still be able to finance your mortgage and other expenses for the years to come.
Avoid Common Mistakes When Buying a Home – Make a Smart Decision
Buying a home is one of the biggest decisions a family will make, both for their financial futures and their lives in the short-term. Getting overly excited and making an irrational choice without considering addition financial factors could lead you to become house broke.
Take your time to evaluate every outside factor when buying a home. Consider your future five, even 10 years down the road and how your housing choice will look.
How much thought did you really put into buying your first house? Were there mistakes you make because you were too excited? What were the costs of your mistake? What things would you have done differently? Feel free to share your answers below.