lewkmiller/istockphoto
Buying a home will likely be the most expensive decision of your life. In the best-case scenario, it’s the first step toward building significant generational wealth. But if you buy a money pit, take on too much debt, or settle for something you don’t really want, you could be stuck with a financial ball and chain. To help you avoid the latter path, we’ve compiled a list of 10 common mistakes people make when buying a house.
There’s nothing wrong with buying a fixer-upper, provided you have the cash, time, and expertise to take on renovations. You also have to remember that you might not be able to identify every repair right away. For your pocketbook and personal sanity, it’s better to overestimate rather than underestimate how many improvements you’ll have to make.
There are three things that matter in property: location, location, location. It’s a worthy reminder, as first-time buyers are quick to overlook a neighborhood’s schools, homeowner's association, traffic, noise, and crime. Sure, the house might be great, but do you really want to live next to a freeway for the next 20 years? Ask yourself these questions before spending your life’s savings.
Before you even begin your housing search, you should estimate a reasonable monthly mortgage payment, home price, and down payment. Otherwise, you could risk wasting time on homes you can’t afford — or, even worse, overextending your finances. If you need financial guidance, you can use a home affordability calculator.
While a 20% down payment used to be the minimum, home prices are so high today that some lenders allow down payments as low as 3%. If your down payment is low, the downside is that you’ll have to pay private mortgage insurance on top of your home loan. Other potential ramifications include a higher interest rate and a larger overall mortgage — both of which could be risky financial decisions. That said, some first-time homebuyers can qualify for local government and nonprofit down payment assistance programs.
Which brings us to our next point: Look into first-time home buyer programs. The Federal Housing Finance Agency offers lower interest rates for first-timers, and other government agencies like the U.S. Department of Agriculture and the Department of Veteran Affairs have similar incentives. Even some private lenders have low- and no-down-payment mortgages that offer competitive rates. In short, look at different programs, compare mortgage rates, and go for the best deal.
After you apply for a mortgage, you shouldn’t do anything that could lower your credit score. So hold off on new credit card applications, loans, and large credit-based purchases.
This is the largest purchase you’ll ever make. Do you really want to spend your life savings on a home you’ve never seen in person? Your answer should be an emphatic no.
If you waive your home inspection, you accept financial responsibility for all of the repairs and defects, seen and unseen. While there are a few unique cases where this might make sense — to save money on a new, warranty-backed home, for example — it’s almost always a bad idea. The same goes for treating the inspection like an empty formality. No matter how new a property may seem, a home inspection is a crucial step in the buying process that can reveal dealbreakers and help you negotiate the price.
Related: These Are the Best Markets for First-Time Homebuyers
While it’s possible to buy property without a real estate agent, there’s a reason most homebuyers hire one. They can help you navigate the intricacies of home sales, negotiate a fair price, and find gems on the multiple listing service (MLS). The only occasion when it might be OK to buy a house yourself is if you’re related to the seller or you’re working directly with a builder for a new home.
Related: Redditors Share Their Best Money-Saving Tips for New Homeowners
Even if you nab the perfect house and a great loan, you’ll be in financial trouble if you don’t have savings left over. What if the water heater breaks? What if a pipe bursts? What about all the furniture you need? Suffice it to say that the spending isn’t over even after you close the sale.
For more home-buying tips and financial advice, please sign up for our free newsletters.
