Biggest Mistakes Made by New Homeowners
Purchasing a home, whether for the first time or the hundredth time, can be very exciting. Everyone has their own reasons for making their purchase. First time buyers might be tired of renting and want to settle down. A couple might be growing their family and need a larger dwelling or want to move to an area with a better school system. No matter what your reasons the ultimate goal should always be the same: Finding a place that meets all your selected criteria and wont make you go bankrupt to keep.
Unfortunately many buyers don't do enough research or take into account everything when deciding what they can and can not afford. New buyers especially are prone to leaping before they look. The excitement of finally having a place to call their own makes them blind to certain factors and ultimately hurts them in the end.
I have briefly outlined a few things that may seem small but in the end could mean the difference between struggling and being able to enjoy being a homeowner.
Calculate How Much You Can Really Afford
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Not Knowing The Cost to Maintain
When getting approved for a mortgage a lender will ask some questions to gauge how much mortgage you can afford. You will be asked to provide your income and your minimum monthly payments amounts for things that will show up on a credit report. This information is used to determine how much of your income is already spoken for each month. New homeowners need to remember that while, yes, the minimum monthly payment on your credit cards might only total $150, there are still MANY other expenses that need to be taken into consideration. There is so much more to home ownership then simply the mortgage and taxes. These payments include and are by no means limited to:
Utility Bills - If you have been renting and your utilities are included in your rent then you probably never gave this much thought. Ask friends, call the town that you are thinking about moving to and inquire what their average monthly bills amount to. Call the town and ask if the sewer is included with your tax bill or if it is a separate bill and find out how much you would be required to pay monthly or quarterly. Working in a real estate office has taught me that some towns are a lot cheaper to live in than others.
Lawn Care - Unless you live in a condo or have bought a home without grass you are going to have to maintain the landscaping. You have two options for this. You can hire a company for a fee to come every two weeks or 10 days to maintain your lawn in the summer. OR, you can purchase a lawnmower and take care of it yourself. Either way you are going to have to shell out a decent chunk of change. If you don't think you will have the time to devote to this chore then you might want to hire a landscaper to maintain things for you. Sometimes you can even contract them to complete snow removal in the winter months as well. If you don't prepare for this and don't have the funds to either buy a lawnmower or pay someone to do it then the towns code enforcement will likely be knocking on your door and it will cost you money anyway in the fine you will then have to pay.
Emergency Repairs - Let's face it, you never know when something is going to break down. Even something completely new can break, and now it is your responsibility to fix or replace it. If you are spending every spare penny you have on the mortgage and taxes then you definitely aren't saving money in case of an emergency. My recommendation to new buyers is to have a minimum 6 months income stashed away in a savings account and to add 10% of your paycheck every month.
Calculate Your Monthly Mortage Payments
- Mortgage Calculator
Use this free mortgage calculator to save money on your home loan today. Includes amoritization tables, bi-weekly savings, refinance info, and helpful tips.
Takeing Out a Home Equity Loan or Second Mortgage
Some choose to take out a home equity loan or second mortgage with the intent of using the money to make upgrades or updates to the home. This can be a good thing usually because updating and improving in a normal market will increase the value and marketability of your home if you are intending to re-sell soon. There are however a few downfalls to this.
Using the money for an emergency - You have just borrowed a large sum of money from the bank telling them you are going to put in a new kitchen or bath or add an addition to make it larger. An emergency comes up and you are saddled with thousands of dollars worth of bills. You choose to use the money you just got for this new emergency instead of what it was originally intended for. You still have to pay back the bank, only now your home hasn't been improved and isn't worth what the updates would have made it worth. For some you can still come out of this on top if you practice effective money management. However for some this is the beginning of the end and can't find a way to come out of the hole they suddenly find themselves in. I like to follow the theory that if you don't have enough saved to pay it back then don't borrow it.
Take the money and go on vacation - Some have extremely poor money management skills and when presented with a large sum of money immediately start thinking Bahamas. Don't get me wrong, the Bahamas are fun and I would like to go there myself, but using money intended for your home isn't the way to go about it. The result is much the same as if an emergency had come up only you don't have a good excuse. Don't be one of these people.
Fellow Hubbers Excellent Advice For New Buyers
- 11 Steps to Buying Your First House
Searching for a house to buy your first time is extremely exciting. It can also be an arduous and long process. When comparing the different decisions the first time home buyer faces it can be overwhelming.
Assuming You Can Re-Sell Whenever You Want
After working in a real estate office for 9 years I have seen the market at its highest and lowest point. In that time I have learned that there is one absolute certainty in real estate: your home is only worth what someone is willing to pay for it. For example your next door neighbor might have sold his home six months ago for $500,000. You immediately think that you can get the same amount for your home. It looks exactly the same from the outside so it must be worth the same amount right? Very WRONG!
Any home that sold more than 3 months prior to when you want to sell is automatically not an indicator of value due to it being what is called an "aged listing". That market has come and gone and you need more up to date values to find out what people are paying for homes NOW, not THEN. Also, just because something looks the same on the outside doesn't mean you know what is going on inside the home. Given two properties on the exact same size lot with off street parking and vinyl siding makes someone think they might be worth the same amount. However one of them has an updated kitchen with state of the art stainless steel appliances and granite countertops, freshly painted with new carpet laid down. The other hasn't been updated in at least 20 years, the paint is chipping and the carpet has stains on it. Which one do you think is going to be worth more?
The main problem comes into play when what you owe one the mortgage is more than your home is worth. This is unfortunately what is happening to many right now as market values continue to fall in the midst of the foreclosure robo-signing debacle. Ideally, a homeowner should be able to hold onto a home, continue to make updates and increase the overall value of the home so that when it once again becomes a sellers market they are in a good spot to sell quickly.