You've reached the point where you're looking to buy your next home. First off, congratulations! Homes can be amazing investments, but they can also turn into poor financial decisions if you make common mistakes. Home buying mistakes can take years to recover from, but a little forethought before signing on the dotted line makes a world of difference.
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1. Buying as much as you can afford.
Source: Rumamah Minimalis
I remember getting this advice before buying my first home. Luckily I didn't take it, but it's an easy trap to fall into. It sounds reasonable. You'd rather live in a house with too much space than not enough, right? Too much is better than too little?
The problem with maxing out your budget is simple: You limit your flexibility in the future. Your mortgage begins to control your life, and that huge house comes with big utility bills. Shutting air vents and closing doors can help reduce heating and cooling costs, but it never completely eliminates them. Big homes mean more cleaning and maintenance, and the nagging desire to fill those empty rooms with furniture can be a tough feeling to shake. With larger homes, property taxes will be higher and maintenance costs steeper. The bigger the house, the more demand on YOU.
Instead, take a different bit of advice: "Buy comfortably small."
2. Letting your mortgage approval set your budget.
Source: Los Angeles Times
Resist the temptation to let your mortgage approval define your budget. For example, if you're approved for $400,000 from a mortgage company, that does not mean you should buy a $400,000 home - or anything close to it. Set a desired budget first, then let a higher mortgage approval essentially add a little buffer to your home search. Emphasis on "little", in this case. If your budget is $200,000, stick to that number even if you are approved for twice that amount. Your future self will thank you for it.
Sometimes, however, establishing a budget can be difficult without at least some insight into how much money a bank will lend you. In this case, get pre-approved for a mortgage and use that amount as a "high estimate". Ideally, let 50% of your pre-approved mortgage amount be your target price, capping it at 75%.
3. Forgetting about homeownership costs.
Source: first tuesday Journal
In addition to the initial cost to purchase the home, a home buying budget should include the necessary costs to maintain the home after the paperwork has been signed. For example, you may be able to afford a $250,000 home in a nice neighborhood, but can you also afford the $250 per month HOA (Homeowners Association) fee? What about property taxes and homeowners insurance?
As the square footage of a home increases, so does the cost to heat and cool it. Also, consider how much your time is worth. Homes need to be cleaned. Big yards need to be mowed. Decks need tender loving care to avoid rot and rust. Pools must be maintained regularly. The more you buy, the more that needs to be maintained, demanding both time and money from the homeowner.
Remember that your costs don't stop with the initial buying price. In fact, the buy is just the beginning.
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4. Ignoring resale value.
Source: Your Rochester Hometown
If you are like most of us, you'll probably wind up selling your home at some point in the future. Naturally, the goal is to build equity (value) into the home during your stay. Some homes are easier to renovate than others, but usually there is potential with any home.
One of the biggest benefits to buying a home is the ability to customize it. Renovations add equity into homes. New hardwood floors can easily increase the home's value by thousands of dollars. New fixtures, barn-style doors, double-paned windows, you name it. The possibilities are virtually endless, so make use of them.
You need not worry about buying the perfect "turn key" home right off the bat because, in those cases, the equity has already been added to those homes from the previous owner - and YOU are paying the price for it. Instead, consider a home ripe for some upgrades, which means the next homeowner will foot the bill for the equity increase of your home, not you.
Remember, a home does not need to have every one of your "wish list" items when you buy. Those can always be put in later.
You might also like: 10 Easy Ways to Maintain Your Home and Save Money
5. Not hiring your own home inspector.
Home inspections are critical to ensure that the home you're buying is structurally sound and fit for living. It also helps minimize the chances of buying a money pit that is in need of expensive repairs and overdue maintenance ignored by the previous homeowner.
Hire your own home inspector instead of relying on your realtor to provide one. This helps to avoid a conflict of interest and ensures that the inspector has your best interest at heart. Have the homeowner take care of any problems that may result in significant repairs in the future, preferably by a licensed contractor. Refuse to let the homeowner perform their own repairs. Not only do licensed contractors do a better job than most homeowners, it also gives you someone to go back to if the problem re-emerges or was not addressed properly.