Buying your first home is an exciting accomplishment! It’s a statement of financial independence and freedom, since you now have the power to do whatever you like with the space. However, buying a home comes with a certain amount of risk. Unfortunately, too many first time homebuyers make some costly, avoidable mistakes.
1. Buying More Home Than You Can Afford
There are many factors that play into purchasing a home you can afford. Typically, the bank won’t give you a loan with payments that are more than one-third your monthly income. However, they don’t factor in all your expenses. Look at things like vehicle costs, groceries, insurance premiums, retirement savings, debt payments, and other expenditures and determine what you can pay.
It’s also important to keep a sizeable nest egg on hand in case of unexpected repairs or maintenance. When you own a home, you can’t pawn off problems on the landlord. It’s your responsibility, and you’ll need savings just in case.
Additionally, many homebuyers don’t factor in closing costs, realtor fees, application dues, and upkeep expenses. They look at a house at the top of their budget, not realizing that they’ll have tens of thousands more to pay at closing.
2. Skipping the Home Inspection
A home inspector will check for serious issues related to plumbing, electrical, foundation, and other major structural components. They’ll also run drug tests and check for mold, asbestos, and lead paint that are dangerous and costly. Essentially, an inspector protects you from purchasing a money pit. Even though it will cost some extra money, it’s vital.
Specifically, ask the inspector to check your sewer system. Backed up toilets and drains could result in tens of thousands in water damage. You may want a plumber to make a thorough inspection of a potential home’s sewer.
“In some cities, it is a requirement to have your sewer inspected before you can legally sell the property,” explains Don Paz of Legendary Home Services in Phoenix. “The home inspector will run water down each drain to verify drainage. But what the inspector can’t see is the actual condition of the drain. Hire a plumber or sewer inspector to have the drain lines scoped.”
3. Choosing a Low Down Payment and High Interest Rate
Thanks to private lenders and government subsidizing, young homebuyers can purchase a home with a down payment as little as $5,000. However, a low down payment often comes with high interest rates. You’ll end up paying far more for a home in the long run due to interest charges.
Even though it may take longer to save, it’s smart to raise the cash for a 20 percent or more down payment. If you have good credit, this will put you in line for some of the lowest interest rates on the market (3.5 percent).
4. Purchasing a Fixer Upper With Little Knowledge or Means
Popular television shows like Fixer Upper and Flip or Flop make it seem easy to purchase a downtrodden home and make it beautiful. It’s tempting to purchase a fixer upper for $100,000 cheaper and spend $50,000 fixing it up.
But don’t be pulled into the idea that it will be cheap or easy to take on a fixer upper. If you don’t know what you’re doing, it can cost more in the long run than purchasing a new home. You might also run into problems that go beyond your abilities, resulting in costly mistakes.
Ilona Bray, realtor and author of “Nolo’s Essential Guide to Buying Your First Home” told BobVila.com that it can have a serious strain on relationships. “A lot of people move into houses soon after they’ve entered a long-term relationship,” says Bray. “That can be tough on a relationship if you’re trying to figure out these difficult things that have big implications for your finances and how you want to spend your life.”
Ultimately, the time, cost, and emotional stress of a fixer upper usually aren’t worth it to most first-time homebuyers.
5. Making an Emotional Purchase
Purchasing a home based purely on emotion is another serious and expensive problem. You might become emotionally attached to a house, despite some of its larger issues. If you’re rushing into a decision, step back and consider all options first.
When talking about client showings, Nick Jabbour, a former New York City real estate agent, told Bankrate, “We will look at no less than five properties before we sign any contracts. It’s easy to fall in love right away. (But) jumping on the first or second home that a buyer looks at will often result in buyer’s remorse, overpaying and the inability to sell at a reasonable price down the line.”
Jabbour recommends seeking counsel from a trusted friend or family member before signing any papers. “[Homebuyers] need someone in their corner who can counsel them and make sure they are making a smart investment, not an emotionally driven purchase,” Jabbour concludes.
Thanks to the media and an industry full of trusty agents, first-time homebuyers don’t have to make these rookie mistakes. Do your research before entering the home buying process and be ready to handle whatever comes your way.