10 Valuable Lessons for Beginners
In the summer of 2007, my wife and I bought our first house. As a first home buyer, I knew we needed to spend a significant amount of time researching our purchase. That’s exactly what we did: we read as much as we could, studied the local real estate market, and researched every aspect of the home buying process. But even then, we still made a few rookie mistakes.
This post was originally published on The Simple Dollar .
Of course, now it’s easy to see it – after the fact. You know, as they say, “Flashback – 20/20.” While overall we are still happy with our purchase, there are definitely a few things that I would like us to do differently.
Valuable lessons for aspiring home buyers
But you live and learn. And at the end of the day, that’s all anyone can do. With that said, I wanted to share some of our mistakes and other things we’ve learned since buying our home, 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 would recommend to anyone buying a home for the first time:
1. Start saving now
The sooner you start deferring this down payment, the easier it will be to do so. We didn’t start worrying about it until it was too late and we had to get over 80% of the value of our home on a mortgage. If we had been at our best even two years earlier, we would not have had to do this.
If you want to avoid paying for private mortgage insurance or PMI, in most cases you will need to accumulate at least 20% of the value of your future home in order to use it as a down payment. This is easier said than done, but it becomes a much more realistic concept if you start saving right away.
Even if you are not ready to buy for the foreseeable future , you can improve your situation by investing $ 50 or $ 100 a month in a new housing stock. Bottom line: the earlier you start, the better.
2. Take your time
Because my wife got pregnant, we rushed to buy a house. We knew that with the baby on the way, our apartment would soon explode at the seams. While I am happy with our purchase of the house, I wish we were in a rush.
There are many factors to consider when buying a home, and you can often benefit by searching different neighborhoods and areas before pulling the trigger . I feel that we have in some way agreed, and this is one mistake that I still regret.
3. Build your emergency fund
When you buy a home for the first time, it’s easy to shock you to see the myriad of “value-added services” that appear in your monthly budget. Things that didn’t exist before, like big utility bills, home renovations, and lawn maintenance, are starting to add up and make a huge difference to your bottom line.
If you want to be as prepared as possible, build your emergency fund for months – or even years – before you begin the home buying process. The money will be there when you need it, making the entire purchase a lot less stressful.
4. Price-store for mortgages.
The easiest way to get the best mortgage rate is to buy as many as possible. When we went through the process of buying a home, I was surprised at how much lower (and higher) mortgage rates from different firms can be.
We ended up choosing the lowest rate of the three and contacted our credit union. However, I would really like us to take the time to explore the various loan options as well as rates from at least a few other mortgage brokers. Saving just half a percent on a mid-price home can lead to savings of tens of thousands of dollars over the years.
5. Be careful when looking around the house.
During our inspection of the house, we thought that we did everything right. We followed the home inspector through each room. We asked questions. We took notes. However, we did not check everything ourselves.
Unfortunately, in our case, our inability to investigate the entire property meant that we overlooked a very old and almost unusable water heater. We have since replaced it, but we might have been able to ask the seller for a loan if we had known about it at the time. The bottom line is to always inspect the house yourself and pay attention to the details.
6. Get a second (or third) opinion
When you’ve fallen in love with a home, it’s easy to overlook things that might not be right. Unfortunately, these blinkers of love can lead to costly mistakes if you don’t notice something is wrong with your property.
This is why it is so important to bring a family friend or relative with you. Since they don’t buy the property themselves, they are more likely to see it for what it is. So get a second or third opinion from someone who is not blinded by love glasses. Different eyes see different things, and friendly eyes will tell you about the problems they see.
7. Shop around for homeowner insurance
It can really pay off when you look for the best homeowner insurance policy you can find. And don’t be afraid to move other insurance policies around and bundle them together – most insurers offer a generous discount if you pack both your car and homeowners’ policies, for example.
But you shouldn’t only be looking for the cheapest policy you can find; this is probably the biggest investment you will ever make, so you need high quality policies that will serve their purpose if you ever need them. So don’t shop by price alone – consider the quality of your policy and your coverage options. If you ever need to file a claim, you’ll be glad you did.
Another way to save on homeowner insurance is to estimate the actual value of your home’s contents and insure it accordingly. At first, we used the default amount suggested by our insurance agent, simply because we didn’t know anything. Later, after actually calculating the cost of everything in the house, we slightly reduced this figure. Remember, don’t count irreplaceable items – you still won’t replace them, and they have no real replacement cost.
8. Do not go to the store for furniture the day after the move.
When you buy a home for the first time, it’s easy to forget that your new home will bring with it a whole new set of expenses that you’ve never had to worry about before. So before you head out on your furniture shopping, take the time to figure out what your new budget might look like and what you really need for your new home.
If you take a little time and do enough shopping, you might even find a great furniture sale or disposal, or find used furniture on Craigslist that perfectly suits your needs. Take your time buying furniture. You have a lot of time, so use it.
We had a bunch of cheap furniture from college days in our old apartment that we didn’t bring with us. By sheer coincidence, we stumbled upon a furniture store liquidation sale and furnished our living room very cheaply, but it was a mistake to think we needed new furniture for our new home. Please update it later – you may have some empty rooms for a while. Save until you can afford what you really want instead of buying furniture just to fill the room.
9. Offer to help others move forward for years to come
How does this help you? Well, imagine that over a three-year period, you help 10 different families to 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 astonishing speed.
Our big mistake was not that we got help, but how I did it. Don’t force everyone to come and help you at once. Ask two friends to come one day and two friends on the next, instead of inviting everyone at once, so you will be much more productive.
10. Know what can and cannot be changed.
When you buy your first home, the whole process seems daunting. The idea of spending thousands of dollars to replace or upgrade old or unsafe systems or outdated technology is particularly troubling and can seem like an insurmountable obstacle.
But every home has its own problems. Some of them can be lived with, and some are not; some of them can be changed, and some are permanent.
The main thing that you cannot change in the house is its location, so remember: when you buy a house, you are buying not just a house, but an area. Explore your surroundings before submitting an offer and making a full purchase.
Meanwhile, other problems can be fixed, or at least survived until you can fix them. For example, this problematic water heater could be changed in the house. But if we let this issue deter us from buying, we might be missing out on the chance to live in a family-oriented community with good neighbors.
More Tips to Improve Your Home Buying Process
Your home is likely to be the most expensive purchase you have ever made. This is why it is so important to research every aspect of the home buying process and make sure you get it right from the beginning.
Part of this process involves tidying up your own financial home. Here are a few steps you should take as you prepare your finances for the prospect of getting a mortgage:
Make sure your loan is in good shape
If you want to qualify for the best mortgage rates possible, it is important that your credit rating is in top shape. If your credit score needs improvement, there are many steps you can take to improve it . Some of these include paying off debt, diversifying the types of credit used, and paying bills on time.
Pay off your debts
Paying off your debt can not only improve your credit rating, but it can also increase your chances of getting a mortgage loan, as well as improve your financial well-being. Once you owe less money, you have more spendable income each month that you could set aside for a down payment on your new home – or for renovations or upgrades after you move.
Paying off your debts can also help you qualify for a mortgage, as lenders prefer to keep your total debt obligations, including your new mortgage, no more than 43% of your income .
Avoid New Debt
Another piece of the puzzle as you prepare for your mortgage is stay out of new debt. Remember, any monthly commitments you have can get in the way of taking out a mortgage on the home you really want to buy. When preparing to buy a new home, try not to take out new loans, including car loans. You will be in a much better place to get your ideal mortgage and ideal conditions if you are out of debt.
Resist the urge to buy whatever you can afford
This is really important. When you first apply for a mortgage, the bank may lend you more than you really need. However, there are many really compelling reasons to buy less home than you can afford.
For example, the lower payments associated with a smaller mortgage can be helpful when you’re looking to start a family or save for retirement. A smaller home, meanwhile, can mean less money for repairs, utilities and upkeep.
However, you should buy as much home as you need and spend as much as you feel comfortable with. Who cares what the bank says you can afford?
As intimidating as it is, buying your first home is a wonderful, immersive experience, especially if you familiarize yourself with the process ahead of time. Do readers have any other suggestions on what they would do differently with their first home purchase?
10 Tips For First Time Buyers | Simple dollar