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.
Recommended Mortgage Posts:
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 regard 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 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 in 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 additional 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.
” Who doesn’t want to look at a 3,000 square foot house with 4 bedrooms, 3.5 baths, and all the new amenities that come with the higher-end homes?” ooh-ooh! Me! Me!
I really have no clue why somebody would want that large of a house. This place is 40% of that size.
With regards to the first to items on your list, we didn’t really consider them at all. We liked the place, it was in our price range. That was enough for us.
I wouldn’t really consider such a huge house either. Then again, you have to spend $1M+ to get something like that where I live. So I’ve been trained to think that is an impossible goal. If I ever want something like that I’d have to settle in a small town far away from where I am now.
Great post, Jason! Avoiding becoming house poor? I think we missed that memo! Our house isn’t too big for us or anything, but we probably should have bought a less expensive house and saved up for a few years before trying to tackle this much of a payment. Live and learn!
Jeremy, I’m going to have lots more time in a short while here when 2/3 of my kids go back to school and I’d love to write a post for you some time!
Michelle you are definitely welcome to submit a guest post anytime. I’m sure we’ll be in touch before then.
Your house purchase does seem like it limited your finances. At least you are working hard to overcome your situation by finding lots of ways to save money while also building up side income. With the rate that your blog is growing, I’m sure you’ll have no problem with that mortgage.
We were pretty lucky with our first house. The fact that it is 3 blocks from the beach makes the resale pretty decent hopefully. We don’t plan on selling though, we’re going to rent it out when we eventually move to our next house and then maybe retire here one day…
That sounds like a good plan to use your first home as your future retirement home. The rent in the meantime would add some nice side income. In your case it sounds like you actually wouldn’t want the home to go up in value or you’d be paying higher property taxes. Being that close to a beach would likely keep the value going up though.
I’ve lived in a small 1200 sq. ft home as well as almost 9800 sq. ft. home, and I can tell you that your happiness dwindles as you start living in much larger home. You lose family bond as every family member wants privacy. I’ve learned one big lesson to share with everyone — never buy a home a square inch more than your actual need.
Wow that sounds like a massive home. There is so much more to happiness than the size of your home and amount of possessions. Taking on such a big home would also put extra pressures on you with a more expensive mortgage, higher taxes and even the need to buy more stuff to fill it up. People know that they can get by with a smaller house, but they just assume any extra space would be a huge benefit worth paying more for.
We had a terrible realtor AND loan office for our first home purchase. We didn’t know you can shop around for those. It took so long with mistakes each made and tying up loose ends that we had to live in a motel for two weeks because we had to start our jobs and had no place to live. I’ve learned that if someone isn’t working, there are plenty of others our there who are happy to have your business. It ended up being a good house though, just frustrating in the beginning.
Sounds like a bad experience. A good realtor can make a huge difference. Some people just assume that having a realtor is just a formality and is only there for the technicalities. Really though, they can find out so much more about a house and recognize any potential problems ahead of time. A good realtor would also have strong mortgage broker connections to keep the process running smoothly.
We were smart about not being house poor. What we were not smart about was location. We were on a corner in a high traffic area. A lot of noise!
I guess that was part of why the house wasn’t too expensive. There really are so many things to consider when buying a home. For some people all that noise would be unbearable.
Great posts Jason. To many times people only think about the present when buying a home and not the aspects of selling it down the road. If you’re looking to buy a short term property you have to really consider what other people want to see.
I had that kind of thinking with my car purchase. I bought what I wanted today rather than what I would also be able to sell for a decent price down the road. Hopefully that lesson will help me when buying a home. If you’re thinking long term it’s not just about what you personally want. It’s also about what potential buyers will want later.
I think location is definately important, I’m going to be buying a house next year so I’ll be careful to watch out some of these things and keep an open mind.
The thing about location is that you have to consider long term location potential. Some areas are in the midst of revitalization or cleanup efforts. So while the location might not be ideal today, it might be substantially better down the road.
Man, you hit the nail on the head. My wife and I always look casually at houses and find ourselves saying “it’s ok that it’s near the highway, we’ve lived in a city for 8 years, we don’t mind the noise.” Then we realize EVERYONE ELSE DOES! So if we wanted to sell it we’d need other people who don’t mind the noise and want to live right there… bad for business…
For sure. You don’t want to limit your future reselling market by settling for things that would scare a lot of people away. I would think most buyers do not think that far down the road though. They are instead just focused on what they personally want.
Great post!
Another mistake is to avoid getting carried away with upgrades when buying a new home. The upgrades can amount to a lot if you are not careful.
Very good point Kanwal. Once someone decides they are going to buy a home that needs some upgrades, they get caught up trying to turn it into their dream home. They probably wouldn’t be considering which renovations would add sufficient extra resale value later.
Thanks for these great tips! I think no. 3 is very important. We should be financially prepared to buy that dream house. When finances are well planned, owning comes in smooth and stress free.
Great tips. Sometimes, we are overly excited about owning our first home and forget about the financial aspect of buying one. Thanks for the heads up.
Conveyancers can save the seller/buyer time and money. What’s more, you are assured that the entire process is done right. Mistakes are costly.
This is a good heads up for those who are on the hunt for their first home. Also, they should not forget about the legal process of buying a home. A conveyancer will be a great help.