Sure, becoming a home owner is about making mistakes and learning from them. Whether it’s choosing the wrong kind of soil for your garden or waiting too long to repair a cracked chimney, every little problem you encounter becomes a lesson in home maintenance. But some mistakes are more costly than others when buying your first home.
That’s why it’s so important for first-time buyers to do their homework. A new home is likely the largest purchase you’ll ever make — homes, on average, cost $243,225 in the United States — and even a minor misstep can cost you thousands. That’s why we’ve put together a guide for anyone new to the real estate game in 2020.
Your Real Estate Agent (and Lender) Wants You to Buy a Home You Can’t Afford
First-time home buyers often look to the lender when determining their budget. They apply for a mortgage and receive a letter stating how much money the bank will lend them, which they use as a guideline when house shopping. They find listings close to that number in price, and eventually borrow the required amount.
That may seem like a logical approach at first glance, but it’s actually a backward strategy. The bank makes more in interest the more you borrow, so they want you to purchase the most expensive home you can possibly afford — even if you have to work overtime or get a second job to afford the mortgage payments.
On top of this, your real estate agent might convince you to buy a home that you can’t really afford. After all, real estate agents make more money on more expensive properties. It’s simple math.
To figure out how much you can afford, consider your current rent. Is it easy to pay every month or would you like a little more breathing room?
Next, consider how much you’ll need to save for maintenance. Most experts estimate these costs between 1-3 percent of the mortgage every year. If you buy a $150,000 house, for example, expect to spend between $1,500 and $4,500 on repairs annually. This will add an extra $125-$375 a month. If the home is in a homeowner’s association, you’ll also have to pay monthly dues, which will cost between $200 and $300 a month on average.
This cost doesn’t include any cosmetic upgrades, like painting or replacing your kitchen cabinets. If you know you’ll want to renovate a house you’re looking at, consider if you can afford both the mortgage and the renovation.
Don’t forget to factor in how much more you might spend on landscaping, snow removal, and other services. Some things you might be able to do yourself, but others you’ll want or need to outsource.
Also consider if you or your partner’s salary will change in the next few years, and how that will affect your budget. If you want to start a family, factor in the cost of daycare and other child-related expenses.
Your Real Estate Agent Might Not Tell You the Truth About a Neighborhood
A real estate agent I know once told me, “You can change a lot of things about a house, but you can’t change its location.”
The home’s neighborhood should be one of the biggest deciding factors. If a neighborhood isn’t desirable, you’ll have a harder time selling the house when you’re ready to move. You may be able to slap a new coat of paint on a house that would otherwise look shabby, but you can’t do
much to improve the appearance of a neighborhood with a high crime rate or poor access to goods and services. Unfortunately, not all real estate agents tell home buyers about crime in the area of the quality of local amenities, such as healthcare and public schools.
You can determine a neighborhood’s worth by looking at crime statistics, how quickly other homes sold, and the quality of public schools. (Area Vibes is a great resource). Ask people who live in the neighborhood what they think about the location and if there’s anything you should know before moving there. Don’t just rely on your real estate agent to tell you the truth.
If possible, spend some time at the house during different times of the day so you can gauge the atmosphere. A house that seems quiet and safe on a weekday afternoon might be loud and raucous on a Saturday night.
Your Real Estate Agent Might Not Provide You With Enough Options
The most common type of house is a detached single-family home, but there are plenty of other options to consider. Tell your real estate agent that you are flexible when looking for property types, and you might find the house of your dreams.
If you buy a duplex, for example, you can rent out the other side and earn enough to pay a significant chunk of your mortgage. You can also use it to provide lodging for an aging parent or adult child who needs a place to crash.
A house in a rural area may be cheaper and offer a bigger lot, but it could also be harder to sell if your company moves or you decide to downsize.
Your Real Estate Agent Might Not Tell You the True Condition of a House
When buying a house, you have to consider what the home will be like to maintain. Even the prettiest home in the nicest neighborhood could have major structural issues you won’t notice during a walk-through. That house won’t seem so pretty when the pipes are leaking and the
electrical wiring is going haywire. Ask your real estate agent about the true condition of any home you view. Not all agents will be forthcoming with this information.
A new house will typically require fewer repairs because appliances and other major parts will still be under warranty. An older house will have more issues, especially if the property owner hasn’t updated it in a while. A qualified home inspector can reveal if the home has any major problems, like a termite problem or a cracked foundation.
If you’re not handy or aren’t interested in big repairs, steer clear of older homes unless the inspector gives you a clean bill of health.
Don’t Let a Real Estate Agent Convince You to Buy If You’re Not Ready
Many first-time home buyers are looking for a starter home, where they can build equity before upgrading to a larger home in five to 10 years. If a prospective buyer’s current budget is low and projected future income is high, like a physician in residency or a law school student, that time frame might not make sense.
If you’ll want to upgrade in less than five years, consider holding off on buying a house. It usually takes at least five years for the property value to increase enough to offset closing costs, moving fees, and other expenses. If you move before you’ve lived there for two years, you’ll have to pay capital gains tax on any profit earned from the sale.
If you think you’re going to have kids soon, consider if the home is big enough for a family. If you have a dog, find out if there is a fenced-in backyard or if the streets provide a nice walking route.
If something doesn’t feel right, or you would rather wait a while after reviewing your options, don’t let your real estate agent convince you otherwise.
Not all real estate agents are the same. If you are looking for honest, valuable property advice, check out LemonBrew, who will match you with your perfect local agent.