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Thursday, April 17, 2008
7 Common First-Time Home Buyer Mistakes | Schaefer's Blog
1. Don’t Ask Enough Questions - It’s often the case that people avoid asking questions when walking a path they know little about. This seems counterintuitive, but the fear of looking stupid or immature drives many first-time home buyers into making really poor decisions. Smart people ask questions.
When my wife and I decided to start the search for our first home I had my dad get me in touch with a good friend of his who had been a successful real estate agent for several decades. I spent 45 minutes on the phone with him one morning asking him every question I could think of in regards to buying a home. The knowledge I gained through this conversation was immense…not only did it help me avoid potential pitfalls, I acquired in 45 minutes what would have taken me weeks or months of reading and research to discover. ASK QUESTIONS!
2. Underestimate Additional Costs - If only the cost of buying a house was wholly represented by the sticker price, life would be so much easier. Unfortunately the purchase price is just one of many costs included in purchasing a home. Earnest money, lending fees, closing costs and home owner’s insurance are the obvious ones that come to mind, but often people fail to account for other future costs as well.
For example, the landscaping for the backyard was not included in the purchase agreement for our house so we will need additional money to put up a fence, lay sod and plant trees and shrubs. On top of this we will have to buy paint, supplies, window dressings, etc. And then comes utilities, maintenance, the list goes on and on. Because the purchase price is the most visible, first-time home buyers often unconsciously think of this as the single cost that drives their purchase decision rather than one part, albeit significant, of a much larger equation.
3. Overestimate How Much They Can Afford - I wrote a post earlier on determining how much of a house you can afford. Unfortunately, many first-time buyers either don’t take the time to really determine this or they take the largest amount that they qualify for as the amount they can afford…not necessarily true. The lender is simply using a few different formulas to determine what they feel they can safely loan you, but this doesn’t mean you can really afford this much house.
When you find the perfect house that costs a little more than you can really afford, it’s easy to think that you will just suck it up and find the money. Reality is often far less kind. The last thing you want is to be stuck with a house that is a major drain on you and your family, leaving you with the sick, heavy feeling of financial drowning. Be realistic about what you can afford and stick to it.
4. Forget About Resale - As exciting as buying your first home can be, chances are it will not be long before you are ready to sell. According to Realtor.org the average first-time home buyer only stays in their home for 4 years. Characteristics about a house that makes it uniquely perfect for you might not be as attractive to other home buyers.
For example, my wife and I don’t have school aged children, but we realized that finding a house in a great school district will be important, not for us quite yet, but for the majority of other home buyers. Things like school districts, age of house and major features like the roof, plumbing, electrical system, and type of community developing around the house and neighborhood all play important roles in resale.
5. “Tim the Tool Man” Syndrome - Home repair is much like driving…everyone considers themselves above average. The tendency of many first-time home buyers is to look for “fixer-uppers,” partly because of the reduced price and partly out of the naive romanticism of building your house with a hammer, some nails and the sweat off your brow. In home speak, “fixer-upper” normally means “money drain.”
Watch any house flipping show on television and you’ll see that remodeling a home almost always costs more, takes longer and results in far less enjoyment than owners expect. Obviously there are some that have the skills, patience and desire to take on projects like this. But, for the rest of us, put the drill back in it’s case and buy a home that requires only minor improvements.
6. Forget They’re Buying a Neighborhood - Many first-time home buyers are so excited to get into their first house that they become like a horse with blinders, falling in love with a house, but failing to see the terrible neighborhood surrounding it. Location is the number one driver in real estate. Having the best house in the neighborhood can actually be a terrible thing when it comes to the future value of your home.
Look for the least expensive house in a really nice neighborhood. It’s age-old advice, but true. This isn’t always a sure thing, but it definitely will get you on the right track when it comes to buying in a good location. After all, the nicest starter home on the market is worthless if your neighbor likes to keep rusted cars in his front yard and wild hyenas in the back (You laugh, but stuff like this happens, trust me).
7. Buying Before They’re Ready- Sometimes it’s a much better decision to continue renting rather than buying a home. This is hard for some people to swallow being that home ownership is often touted as the greatest single investment one can make. This is true in some cases, but all one has to do is look at the current mortgage mess and see that often times home ownership is actually a financial disaster in the making. Ramit Sethi makes some great points concerning the benefits of the recent meltdown and I must say, I agree completely.
One of the best things to happen from the real-estate bust that we’re undergoing is to make people think twice about real estate as an investment. That’s right — to actually consciously think about why they’re making the biggest purchase of their lives, rather than just buying a house because “it’s the next thing to do.”
Buying a house is exciting, fulfilling and can often times be incredibly rewarding, but it’s a decision that each person must make for themselves. It should be researched and discussed thoroughly, not jumped into because it seems like the next step in the “becoming an adult” process.