Becoming a first time home buyer is a thrill for almost everyone. It was for my wife and me when we bought our first home. People get so wrapped up in their first home they tend to identify themselves with it, I know I did. Have you ever called your neighbors down the street the “blue house” people? Or told someone that you live in “the Victorian on Mountain Crest Road?” We were the home with the “front porch on the corner” people.
When first time home buyers finally get into their home, they can easily fall prey to several serious mistakes that can cause a large amount of financial harm later. Here are a few of those first time home buyer mistakes that I made:
1. I ignored the home inspector.
We were so excited and desperate to get into a home, I was willing to ignore important items … like the crumbling old furnace. I reasoned that I could always fix it later, besides we were buying the house in April. That old furnace made it through one more winter before it died and it cost me $1,500 (in debt) to replace it. Had I known more about the Secrets of Power Negotiating, I could have used the furnace as a pivot point in the purchase negotiations and possibly gotten one for free!
2. I went further into debt after making the purchase.
After all, we needed furniture and new draperies and new blinds and new this and new that. I also needed to have my head examined. Here I was, fresh out of Consumer Credit Counseling, spending money I didn’t have. I still had not learned my lessons about debt.
3. I didn’t calculate my budget properly.
Even though I had gotten a substantial raise that had helped me pay off all my debt, I bought a home that put a severe strain on our budget. Things are much more expensive when you own a home. You have a property taxes to pay, homeowners insurance, a yard to mow, landscaping to do, water and sewer bills, and repair bills. Unless you have a maintenance free exterior, you’ll have to paint every 4 to 6 years, fix little things like the rotted siding on the chimney, and the decomposing cedar posts that hold up the front porch. If you’re on a septic tank, it needs to be cleaned out every few years, you have to fix or pay to fix everything that goes wrong. I didn’t budget for these things and they cost a lot of money.
4. I didn’t fully disclose everything on my financial statement.
Before you panic, let me explain. My boss was gracious enough to give me 100% of my annual raise up front so I would have enough for the down payment, but I got my mortgage based on my new total compensation level spread out over the year. The raise I had received was very, very substantial, but using all of it for a down payment meant I had to go another full year at my old rate of pay.
5. I didn’t negotiate with my Realtor for a better commission rate.
She had us pegged as desperate the moment she laid eyes on us. You don’t have to pay the listed rates, you know. Especially in today’s market, Realtors and home builders are desperately seeking buyers. Under these circumstances, you call more of the shot than you realize and can probably negotiate a much better commission rate. And I also forgot the rule that real estate agents don’t understand finance.
6. I chose a home that was too far away.
They say the three rules of real estate are location, location, location and you know what? It’s true. One reason I chose the home was its price. I reasoned that I could afford it, and I ignored the 19 miles one way it was from my place of work. I also ignored the 16 miles one way it was from my kid’s school, the 22 miles one way it was from my parent’s home, and the 12 miles one way it was from our preferred grocery store. Those miles add up fast and cost me more in gasoline, wear and tear on the car, and just plain old fatigue from driving.
7. I fell for the refinancing craze.
Yep, I did that too. I “pulled the equity” out of my home to make some upgrades. That’s just a fancy way of saying I went into more debt and extended the number of years I would be in mortgage debt in order to shave a few dollars from my payment. I felt like I was so smart!
8. I fell for the refinancing craze … again.
This time I didn’t re-finance, but I probably obliterated my credit in a furious attempt to get an even better interest rate just 18 months later. I thought I would “pull out more equity” and get a better payment. I theorized that I could “lock in” my profits from the appreciation of the home’s value. All I did was take my credit score down a couple of dozen points from all the inquiries. Oh yeah, I also paid $350 for an appraisal and then didn’t re-finance.
9. I had no idea how much closing costs I would incur.
We were using an FHA loan at the time and there were some items the sellers had to pay because of the structure of the loan, but I had no idea how much my portion would be, nor how much it would add to the amount financed. I was too focused on just getting the house.
10. I fell in love with the house before I bought it.
That was my biggest mistake. It was the right size for us at the time, it was in my price range, it had a big back yard and room for a garden, it had a full basement with a workshop, the master bedroom was on the main level and it had a big open kitchen. It was everything my wife and I wanted in a home. What I never realized was that there were probably 250 other houses that would have been everything my wife and I wanted at the time. I lost patience because our lease was almost up at our apartment and the landlord wouldn’t renew on a month to month basis. I had to get into this house, and that was my biggest mistake.
I still love that house, yes, that’s it at the top of this page. Cute isn’t it? But if the truth is told, I wish I had been more selective and had searched for a home that was closer to where we lived our lives and closer to our ability to pay. Don’t make the same mistakes I’ve made.
Patience will pay great dividends when searching for your single largest and most personal investment.
What first time homebuyer mistakes did you make?