Top Three Financial Mistakes New Homebuyers Make
You know that feeling, the one you get one when you’ve been saving for so long or maybe you just got a new promotion, and all of sudden you can finally say, “I can afford to buy my first home.”
Bright lights twinkle, you feel a rush of adrenaline and joy, and the thrill of it all prompts you to tell everyone you meet, about your good news. And I do mean everyone, from the grocery clerk to the hairdresser. You immediately go online to start shopping for that perfect house, in the perfect neighborhood, with that perfect, proverbial, white, picket fence. But before you get into the thick of house hunting too far, let’s step back and look at the three top mistakes new homebuyers make, and how you can avoid them.
1. Overestimating What You Can Afford
You have established the amount that you have available to spend on your home. Let’s say, for the purpose of this article, that your budget is $250,000. You’ve done the math, you’ve figured your house payment after all, and you feel completely comfortable with that number, you’re all set, right? Wrong. When figuring your budget for the price of your home, you must take into consideration additional costs as well. Expenses like those mentioned below, will drive the “total cost” of your home up. They will be a monthly or even weekly cost that is coming out of your budget, beyond your monthly payment. Be sure to get all the information you can, sit down and put the numbers on paper and make a realistic decision, based on your findings.
• Homeowners insurance
This is a vital part of owning a home. In the event, that you become a victim of a natural disaster, catastrophe or theft, homeowners insurance will help you cover the costs of the damage. This could be for rebuilding, repair or even for replacing your valuables.
• Property taxes
Property taxes are controlled by local government and they use these real estate taxes to pay for public services. This could include schools or even sidewalks. You can request the current tax information on the property from your real estate agent.
• Utility bills
These can vary greatly depending on your home, the material used for building (think frame home versus block home), the amount of insulation, location (think well water versus city water) and a myriad of other things. You can request the current utility information from your real estate agent or seller, prior to purchasing the home.
Maintenance can be a huge expense and because of that you should pay special attention to areas such as, heating, roofing and electrical. Hiring a highly qualified home inspector to inspect your potential home, prior to buying, is a great way to help answer some big questions about what kind of maintenance or how soon you may need to do maintenance. For example, if you need to replace your roof within 2 years, that cost is something to take into consideration when choosing your budget.
Many expenses fall under this category and it’s one that a soon-to-be homeowner should earnestly take time to think and plan for. Things such as lawn care, home security systems, pool care and, depending on the location of your home, you may have homeowners association fees. Make sure to determine all the facts and even your dreams and include extra in your budget for these things.
• Home Purchasing Costs
This one is not to be overlooked! There are expenses such as closing costs, loan fees, security deposits for utilities and prepaids for escrow.
Be sure to get all the information you can, sit down and put the numbers on paper and make a realistic decision, based on your findings.
2. Assuming Property Values Will Always Go Up
Having this assumption can be disastrous, not only for the short term but even for the long-term financial good, of the buyer. Many people did this in the early 2000’s, when the housing market was in its prime. Then when the housing market recession hit in 2008, they were left devastated and grappling with huge mortgage payments that they were not able to afford. Many lost their homes and their credit. You cannot count on the property value going up and having that buffer, in the event that something should arise and you would need to sell your home. It is best to choose a price point that you know you will be able to sustain or at least be able to come out even with, should something unexpected occur, such as another recession or even a job loss or decline in health.
It is best to choose a price point that you know you will be able to sustain or at least be able to come out even with, should something unexpected occur, such as another recession or even a job loss or decline in health.
3. Believing You Cannot Afford Professional Advice
You may be considering a private sale, investigating and determining any issues yourself, so as to have a larger budget for your home. While this “could” work and “could” save you some money initially, in the long run, 9 times out of 10, it will end up costing you thousands of more dollars, between incorrect papers, appraisal numbers and even trouble with your home. Think hidden leaks, which could lead to mold, roof damage and interior damage. This would be a huge expense and one that may be avoided with some professional advice. With those kinds of odds, why would you risk it? The truth to this is that you cannot afford to NOT have professional advice.
Finding a real estate group or realtor, that will guide you through the ins and outs of buying a home, is vital. From paperwork, to telling you when prices are too high, to potential issues that could occur within the sale, your realtor is there to instruct and guide you. They are trained for this. Allow them to carry the stress of this important decision and give yourself a pass to just enjoy the process, with peace of mind.
Some other professional advice and help you should always get is:
• Appraisal of the home’s value
• Inspection of the home’s condition
• Lawyer to prepare legal paperwork
Don’t become a statistic! Budget for the professional advice and services, and help make your experience as seamless as possible and in the meantime, save yourself time, energy and money in the long run.
This is one of the greatest moments of your life. You will remember it forever and with luck, you will create years of memories in this new home. Don’t allow these financial mistakes to trip you up and keep you from enjoying each step of the process. By following these three guidelines, you can have peace of mind from the first step you take inside your home, to the day you watch your grandchild walk through that same door to visit you.