Valuable Lessons for First-Time Home Buyers
But you live and you learn. And in the end, that’s all anyone can do. With that said, I wanted to share some of our mistakes and other things we’ve learned since we bought our house, in case they might prove helpful to someone else going through the home buying process. Looking back on my own experience, here are some tips I’d recommend to any first-time home buyer:
Start saving right away
The earlier you start saving for that down payment, the easier it gets. We didn’t start worrying about it until it was too late, and we had to get a mortgage for more than 80% of our home’s value. If we had been on the ball even two years earlier, we wouldn’t have had to do that.
If you want to avoid paying private mortgage insurance, or PMI, in most cases you need to save up at least 20% of your future home’s value to use as a down payment. That’s easier said than done, but it becomes a much more realistic concept if you start saving right away.
Even if you aren’t ready to buy in the foreseeable future, you can put yourself in a better position by stashing $50 or $100 per month into a new home fund. The bottom line: The sooner you start, the better.
Don’t rush things
Because of the timing of my wife’s pregnancy, we felt rushed into our home purchase. With a baby on the way, we knew our apartment would soon be exploding at the seams. Although I’m happy with our home purchase, I wish we hadn’t rushed it so much.
There are lots of factors to consider when buying a home, and you can often benefit by searching in different areas and neighborhoods before you pull the trigger. I feel as though we settled in a way, and that’s one mistake I still regret.
Build your emergency fund
When you’re a first-time home buyer, it’s easy to be shocked by the many “extras” that appear in your monthly budget. Things that didn’t exist before – like larger utility bills, home repairs, and lawn maintenance – start adding up and making a huge difference in your bottom line.
If you want to be as prepared as possible, build your emergency fund for several months – or even years – before you commit to the home buying process. The money will be there when you need it that way, which will make the entire purchase a lot less stressful.
Price-shop for a mortgage
The easiest way to get the best mortgage rates is to shop around as much as you can. When we were going through the home buying process, I was surprised at how much lower (and higher) mortgage rates from different firms could be.
We ultimately chose the lowest rate out of three and went with our credit union. However, I really wish we would have taken the time to explore different loan options, as well as rates from at least a few more mortgage brokers. Saving just a half a percentage point on an average-priced home could lead to tens of thousands of dollars in savings over the years.
Pay attention during the home inspection
During the home inspection process, we thought we did everything right. We followed the home inspector through every room. We asked questions. We took notes. One thing we didn’t do, however, was check things out for ourselves.
Unfortunately, in our case, our failure to explore the entire property meant that we overlooked an extremely old and almost unusable hot water heater. We’ve since replaced it, but we might have been able to ask the seller for a credit had we known at the time. The bottom line – always inspect the home on your own and pay attention to the details.
Get a second (or third) opinion
When you’ve fallen in love with a house, it’s easy to overlook things that may not be quite right. Unfortunately, those “love blinders” can cause expensive mistakes if you fail to notice something wrong with the property.
That’s why it’s important to bring a family friend or relative along. Since they aren’t buying the property themselves, they’re more likely to see it for what it is. So get a second or third opinion from someone who isn’t blinded by love goggles. Different eyes spot different things, and friendly eyes will tell you the problems they see.
Shop around for homeowners insurance
It can really pay off to shop around for the best homeowner’s insurance policy you can find. And don’t be afraid to move your other insurance policies and bundle them together — most insurers offer a generous discount if you package both your auto and homeowners policies, for instance.
But your search shouldn’t just be for the cheapest policy you can find; this is likely the biggest investment you’ll ever make, so you want a high-quality policy that will serve its purpose if you should ever need it. So don’t shop just on price alone – consider the quality of the policy and its coverage options. If you ever need to file a claim, you’ll be glad you did.
Another way to save some money on your homeowners insurance is to evaluate the actual value of your house’s contents, and insure them accordingly. At first, we went with a default amount suggested by our insurance agent, simply because we didn’t know any better. Later, having actually calculated the value of everything in the house, we adjusted that figure downward quite a bit. Remember, don’t count irreplaceable items – you wouldn’t replace them anyway, and they have no real replacement value.
Don’t go furniture shopping the day after you move in
When you’re a first-time home buyer, it’s easy to forget that your new home will bring with it a whole new set of expenses you’ve never had to worry about before. So before you go on a furniture-shopping spree, take some time to figure out what your new budget might look like, and what you actually need for your new home.
If you take some time and shop around enough, you might even find an awesome furniture sale or liquidation, or discover some used furniture on Craigslist that suits your needs perfectly. Don’t rush into a furniture purchase. You have plenty of time, so use it.
We had a bunch of cheap furniture from our college days at our old apartment that we didn’t bring with us. By pure luck, we happened to stumble upon a liquidation sale at a furniture shop and outfitted our living room very cheaply, but it was really a mistake to decide that we needed new furniture for our new house. Upgrade it later on – you can have a few empty rooms for a while. Save up until you can afford what you actually want instead of buying furniture just to fill a room.
Offer to help others move for years in advance
How does this help you? Well, imagine over a three-year period that you help 10 different families move. When you move, you can call any of these people to help you move — and five families can unload a truck and unpack boxes at an astounding rate.
Our big mistake wasn’t the help we received, but how I managed it. Don’t have everyone come and help you at once. Ask two friends to come one day and two friends to come another day instead of having them all come at once — you’ll be far more productive that way.
Know what you can change, and what you can’t
When you buy your first home, the whole process feels daunting. The idea of spending thousands of dollars to replace or update old or unsafe systems or outdated appliances is especially unsettling and can seem like an insurmountable obstacle.
But every home has some issues. Some of them are things you can live with, while some are things you can’t; some are things you can change, and some are permanent features.
The number-one thing you can’t change about a house is its location, so remember: When you buy a home, you’re not just buying a house, you’re buying the neighborhood. Explore the surrounding area before you submit an offer and fully commit to the purchase.
Meanwhile, other problems can be fixed, or at least endured until you are able to fix them. For example, that problematic hot water heater was something we could change about the house. But if we had let that issue scare us away from buying it, we might have missed out on the chance to live in a family-oriented community with great neighbors.
More Tips to Improve the Home Buying Process
Your home will probably be the most expensive purchase you ever make. That’s why it’s important to research every aspect of the home buying process – and make sure you do things right from the start.
Part of that process involves getting your own financial house in order. Here are some steps you should consider taking as you prepare your finances for the prospect of a mortgage:
Make sure your credit is in good shape
If you want to qualify for the best mortgage rates possible, it’s essential that you get your credit score in tip-top shape. If your credit score needs work, there are plenty of steps you can take to improve it. Some of them include paying down debt, diversifying the types of credit you use, and paying your bills on time, every time.
Pay down your debts
Not only can paying down debt improve your credit score, it can increase your chances of getting qualified for a mortgage — and improve your financial well-being, too. Once you owe less money, you should have more expendable income each month that you could save for your new home’s down payment – or for repairs or upgrades once you move in.
Paying down your debts can also help you qualify for a mortgage, since lenders prefer to have your total debt obligations — including your new mortgage — to represent no more than 43% of your income.
Avoid new debts
Another piece of the puzzle while you’re preparing for a mortgage is staying away from new debts. Remember, any monthly obligations you have could stand in the way of taking out a mortgage for the home you really want to buy. As you prepare to buy a new home, try to stay away from taking out any new loans, including car loans. You’ll be in a much better place to get your ideal mortgage, and ideal mortgage terms, if you are debt-free.
Resist the urge to buy all the home you can ‘afford’
This one is really important. When you first apply for a mortgage, the bank may be willing to lend you more than you really need. However, there are a lot of really good arguments in favor of buying less house than you can afford.
For example, the lower payments that come with having a smaller mortgage can be beneficial when you’re getting ready to start a family or saving for retirement. Meanwhile, a smaller home can mean less money needed for repairs, utilities, and upkeep.
Regardless, you should only buy as much home as you need and only spend as much as you’re comfortable with. Who cares what the bank says you can afford?
As intimidating as it can be, buying your first home is a wonderful, exciting experience — especially if you educate yourself about the process beforehand. Do the readers have any more suggestions for things they’d do differently with their first home purchase?