Buying a home is widely recognized as one of the most stressful life events that Americans go through. There’s financial pressure, so much uncertainty, and commitments that last decades at the same time as planning the logistics of moving your entire life from one place to another, often across state lines. Due to these concerns and distractions, many new homeowners end up not paying enough attention to the considerations that wind up having a huge impact on their family’s finances for the next 15 or 30 years, depending on their mortgage term. Below, we’ve assembled the ways to avoid the most common mistakes new homeowners make. Learn from their mistakes and have a better experience when buying your new home.
Choosing Your New Home
Too many people put on a pair of rose-colored glasses when browsing for new homes. Highly skilled sellers’ agents can paint pictures of a beautiful future for your family in their client’s property, tempting you to invest yourself in the house before even seeing the flaws and cracks just beneath the surface. While most homes can be viable investments, as well as safe places to live, consider the following tips to avoid getting tied to a money pit.
- Major Repairs – Ask for information related to major appliances, such as plumbing, HVAC, gas lines, and electricity. Depending on the age of the house, these things will need to be replaced or have major work done every so often. If the water heater and HVAC system are already 20 years old, they may be on their last legs. Similarly, the house’s roof will need to be redone or re-coated every so often, depending on the type of covering. Account for these likely expenses during negotiations with the seller.
- Similar House Sales – Compare the asking price for the home to recent purchases in the surrounding area. If there’s a major discrepancy, investigate further. An overpriced home may simply be the seller trying to make more of a profit and can be negotiated. A home being underpriced may indicate there are serious issues lurking just beneath the surface.
- Specialist Inspectors – House assessors tend to be generalists. They can tell you if there are fairly obvious, major issues likely to occur in the home. Instead of relying on a generalist, talk to contractors you trust and pay them to inspect the home regarding their specialty. Specifically, the contractors you’re most likely to spend a lot of money paying anyway if you miss some sort of issue. Discovering these problems before signing the papers can save you thousands of dollars.
It goes without saying that you should consider the neighborhood, school district, etc., when buying a home, but those considerations are true of any home. Ensure that you take the time to consider these home-specific factors before you become emotionally invested in “your” home. A motivated seller may only disclose what they are legally required to, and many are landlords who don’t know every nook and cranny of the property, even if they are honest.
Getting the Mortgage
The second most important part of buying a home is getting ready to pay for it. Which company should you use for the mortgage? Should you get a 15-year or a 30-year mortgage? First-time homebuyers are especially likely to focus on the physical building and neglect the financial aspect, often at their own cost. Avoid those mistakes, and don’t neglect the financial angle of buying your new home.
Shop Around for Agents
Buying a home is a team effort, and you’ll have to work with several specialists to make it happen. While you are legally allowed to handle most or all of the paperwork on your end, depending on the state you live in, it’s rarely advisable to do so. Unless you work in the mortgage or real estate industry, there are minutiae related to these agreements that can have a significant impact on your bottom line. Look for qualified real estate agents and mortgage brokers who know what they’re talking about and will represent your interests.
The rates you get on your home ultimately determine your monthly mortgage rate. If you have a good real estate agent to negotiate a better price and a better mortgage broker to secure a lower interest rate, you may see a difference of $200-300 per month or even more. Multiplied over the life of your loan, even a $200 monthly swing at signing can result in more than $70,000 staying in your bank account. Take the time to ask friends and family who have been through this process about their experiences and see if they can recommend agents for this purpose.
Shop Around for Rates
Along with searching for agents, search for a good bank that can provide the best rates. While mortgage brokers may be tied to certain banks, you can search through pre-approval options for your mortgage. As many of these are soft inquiries, they will not have a negative impact on your credit, meaning that you can get potential offers from numerous banks and compare each of them before making a decision. If you select the first bank that offers you financing, you may only discover after the fact that you’re paying significantly more per month than you should.
Plan Ahead
Your finances will absolutely change after buying a home. If you’re used to renting, you may not have a plan in place to budget for major appliance repairs and the occasional home renovation. Fortunately, paying your mortgage builds equity, so if you budget your monthly mortgage payment into your monthly expenses, you are actually saving some of that money in a form that can be accessed through home equity loans or refinancing your mortgage at a later date. You can also have a big impact on the amount of interest you pay overall by pre-paying your mortgage each month.
A good rule of thumb is to set aside an additional 50% of your mortgage for the first several years into an interest-bearing account dedicated to home repairs and other costs that can arise. Additionally, if you can pay an extra several hundred dollars per month on your mortgage for a year or two in the beginning, you may shave years off the life of your mortgage.
If you take these suggestions into account, you may find yourself in a new home without all the financial heartbreak that can come with committing too quickly to a house and mortgage that you didn’t get to know well enough.
By Christopher Gallagher
Christopher is a homeowner who has been through the trials and tribulations of working with contractors, inspectors, and assessors. His years of work for contracting and financial firms, combined with his first-hand experience, give him a practical perspective.