Ten years ago I purchased my first house, not because I knew what I was doing or I was in a good enough financial shape to do so. I did so because that’s what everyone else was doing. In doing what everyone else said I should be doing I made a ton of house buying mistakes.
It cost me thousands upon thousands of dollars.
I was one job loss or financial emergency away from being in a financial crisis.
Never did I want to put myself in that position again.
I Wrote a Book About My Home Buying Mistakes
The good thing was that this home purchase gave me a financial wake-up call, I learned from my mistake and seven years later sold the original house and bought a new home for our family. This time I documented everything and it ended up being a financial blessing that I was able to capture in my new book, “A Tale of Two Houses-Our journey of buying a home the right way after buying one the wrong way.”
I made about every possible mistake you could think of ten years ago, but thankfully you don’t have to do the same thing.
Below you'll find the top five home buying mistakes to avoid.
Not Hiring a Good Real Estate Agent
When I purchased my first house I inquired about a few real estate agents and ultimately went with the first one that called me back. They were OK, but didn’t really do to much to help me along the home buying journey.
Our second time, my wife and I interviewed three separate real estate agents and picked the one who had the most experience and who we felt comfortable with.
Point being that a good real estate agent can save you hundreds if not thousands of dollars in realtor fees. The key is that you have to ask around and find one that you feel comfortable working with. A lot of times we skip past this part, but picking a good real estate agent who knows the area you are looking at will be a big help, especially for first time home buyers. They can also be helpful because they know other trusted professionals you may need, such as a real estate attorney, if you have any problems during the home buying process.
Rushing Through the Process
When the real estate market is in a seller’s market it can be tempting to put in an offer on the first house you like and rush through the process. But having house fever can easily lead to overextending yourself, and make a purchase that you will later regret. Taking your time and avoid this home buying mistake. Especially when you're a first-time home buyer, it will not only save you money in the short run but it will also save you money in the long term.
Not Knowing How Much You Can Afford
When I bought my condo, I had no idea how much I could afford. So naturally I instead just told my mortgage broker what my annual income was, and they suggested a price range for me.
The problem with those is that no one knows your financial situation better than yourself. Your mortgage broker doesn’t know how much debt you have, what your financial dreams are and what your career path looks like.
In addition when we try to determine how much how we can afford, we usually just go online and look up what our payment would be on one of the mortgage calculators. However those calculators don’t figure in things like property taxes and homeowner's insurance which can add hundreds of dollars on to your monthly payment.
Instead it is important to figure out what mortgage payment we can afford ahead of time, including property taxes and insurance. That will help us stay within our budget and make the house a financial blessing instead of a home buying mistake.
Underestimating the Cost of Owning a Home
Often when we attempt to figure out the cost of owning a home, we go online to one of the mortgage calculators and calculate what our payment would be. We then compare that amount to what our current mortgage or rent is for the month and go from there.
Unfortunately the cost of owning a home doesn’t work like that. In addition to the property taxes and home insurances mentioned earlier there are other costs of home ownership that we can easily overlook. You don't want to end up selling a house after 1 year because you realize you can't afford it.
Can You Really Afford to Own a Home?
The main difference between home ownership and renting is that when something breaks you are the one who will be shelling out the cash for the repair, compared to renting when you call your landlord and they fix it. So the question you have to ask yourself is this, how would you pay for a new heater if it went out during the winter? How would you pay for a new roof?
If the answer isn’t with cash then it might be wise to step back and build up more of a cash reserve before you buy. If you aren’t careful and buy correctly, your house can be a never ending money pit.
Also when you move into a new house often we want to change the carpet, paint a wall, or get new furniture. Those things in and of themselves are great, but that can cost quite a bit of cash and can leave you open to financial emergencies.
When we’re talking about the costs, we’re not just talking about money. We also have to consider time and effort that will go into maintaining the home. Bigger yards are great, but who is going to mow it and keep up with the landscaping? Are you ready to spend the time cleaning and maintaining the new home?
Not Putting Enough Down for a Down Payment
How much should you put down on a home? There is no magic number or percentage. At least 20% is ideal as that helps you avoid Private Mortgage Insurance (PMI) which is an added cost to you as the buyer. I don’t think that is a rule that has to be followed.
With that being said, I think zero is not a good answer. I put zero down when I first purchased my condo and it was a disaster. Not too soon after I closed on my condo, the house crisis of 2007-2008 occurred and my condo lost thousands of dollars in worth. I was instantly underwater, which meant I owed more than what I could sell the condo for. Talk about feeling stuck; if I ever lost my job or had to move for whatever reason I would have been scrambling.
The best answer to the question of how much one should put down is as much as possible! But there isn’t a magic number that has to be put down before you purchase a home. I know there are a lot of government programs out there that promote home ownership by subsidizing mortgages with zero money down. While I appreciate the sentiment I don’t think those are a good idea as putting nothing down on a home doesn’t allow any margin in case of market downturns.
I Learned from My House Buying Mistakes
So those are the 5 home buying mistakes to avoid. Unfortunately I made all those mistakes with my condo. But I learned my lesson and my wife and I made a better financial purchase on our second home and it has allowed us financial flexibility and to reach our other financial goals.
This is a guest post by Jon White- Jon White is a financial coach, blogger, podcaster, and now author over at JWFinancialCoaching.com. His new book “A Tale of Two Houses-Our journey of buying a house the right way, after buying one the wrong way” is now available for sale on Amazon and is designed to help you make wise decisions during your home buying and selling process.