5 Home Buying Mistakes That Will Cost You Financially
It’s a seller’s market, so buyers need to make smart home buying decisions. When there’s less inventory, home prices rise. Keep your finances and budget under control by avoiding these five home buying mistakes.
Your home is the foundation of your life and usually the center of your budget too. The location, home size, and school district drive many of your expenses.
Every home buyer wants all the amenities for the best price. After all, finding a good deal feels good. It’s a much better feeling than being house poor.
While price is important, don’t let a “good deal” be the driving force behind your home purchase.
Before you start house shopping, figure out what’s important to you.
Is it the price, the location, or the home’s amenities? Rank your wish list.
Heather Bortnick is a realtor with 25 years experience selling homes in Kansas and Missouri. She specializes in corporate relocation and works with employees transferring to Kansas City for jobs with Sprint, Cerner, American Century, and Hallmark.
Bortnick asks her clients to fill out a questionnaire, so she truly knows what motivates them. That way finding a good deal doesn’t get in the way of other motivators.
“Some people are so focused on getting a good deal they will buy a home in an area that’s not as desirable because it’s a good deal. They have to understand that location is the number one thing a buyer is going to look at,” Bortnick said. “There might be a reason this house isn’t selling and it’s a good deal.”
Having a home buying game plan narrows your search. It also keeps you focused and helps you avoid the first home buying mistake — focusing too much on finding a good deal.
Buying too much house
While a good deal is important to your finances, it shouldn’t be the focus. Find balance in your home buying strategy.
Be careful of the other extreme, too. Buying too much house is the second home buying mistake.
The housing market is unpredictable. Prices go up and down, and you have no control over them.
Control what you can — that’s your housing budget. Organize your finances, so you know how much house you can afford while still meeting long term and short term financial goals. Ask your financial advisor for help so you make the best financial housing decision.
On average, keep your housing budget to 28-percent of your monthly income. Create a financial checklist so you have a roadmap to find the perfect home.
Buying on emotion
Emotion drives most home purchases. While it’s important, you need a caution flag with emotion. It’s the third home buying mistake.
“If they have to have this one house. Sometimes they will make this emotional decision. Most of the residential real estate is people buying on emotion,” Bortnick explained.
You should feel passionate about the home you buy. It’s a significant investment, that will impact your budget for the next 15 to 30 years.
Some emotion is necessary. After all, you’ll live in that home for a long time. Your kids will grow up in it. You’ll make memories in that home.
Bortnick suggests finding three homes that you like.
With each home, make a list of pros and cons. Which ones match your priorities? Following your home buying strategy keeps emotions in check without losing sight of your housing priorities.
Settling on a home
While you don’t want emotion to drive your home buying decision, you also don’t want to settle. Rushing into a home purchase is the fourth mistake home buyers make.
In a seller’s market, frustration builds with buyers who can’t find the house they want. Plan. With little inventory, home searches can take longer.
That’s difficult for buyers especially when it’s a corporate relocation. Out of town buyers may not have as much time to find the home they want.
While the home may solve short-term problems, ask yourself if it’s the best fit in the long term?
If you can’t answer yes to that question, don’t buy the home. Settling on a home only leads to disappointment later.
To balance your emotion with your home buying timeline, go back to your home buying strategy. What are your priorities and how do they stack up to the homes you’re finding? Are you settling or are you truly finding homes that match your priorities?
While there’s a lot of pressure to put in a contract, especially in a seller’s market, don’t make a rushed decision. Once you find the home of your dreams, think about it.
“I don’t push people into making a decision that they are uncomfortable with because that honestly makes me uncomfortable,” Bortnick said. “So I think you have to take the time. They may not find something on their first buying trip. They might have to come in on another buying trip.”
Bortnick says realtor connections are necessary. If her buyers can’t find their dream home, she cold calls homeowners who don’t have their home on the market. That often reveals the perfect home for a buyer.
If all these methods don’t work, consider a rental before you settle on a home.
“I would suggest maybe finding a corporate rental in the location where they think they want to be,” Bortnick said.
In time, your dream home will reveal itself.
Focusing on resale value
You can’t control the housing market. You also can’t control life. It’s hard to predict when you’ll resell your home. That’s why Bortnick suggests not focusing on a home’s potential resale value.
Instead, buy homes that are financially smart investments. Have your realtor pull good comps. These are comparable properties that shape your purchase price.
While zip code specific comps are helpful, you may want to drill down even further. Look at recent sales on your street and in your neighborhood.
There are costs with buying and selling a home. The rule of thumb is that it takes a few years to recoup your costs. However, it also depends on the market.
“My whole goal is whenever you sell something to somebody they should not lose money. I think agents that go into it and say oh you are going to make all this money are setting themselves up to have very disappointed clients potentially,” Bortnick explained.
Bortnick focuses on finding a home that’s the right fit for the right price.
She stresses due diligence with all her agents.
“Don’t sell them something at the top of the market when you know they are overpaying. If they have to call you in six months because of a job transfer, then all of a sudden you’re not going to be able to sell it for what they paid for,” Bortnick explained.
Find a realtor you can trust. Don’t forget about your financial advisor. He will look at the home buying process through a completely different lens, helping you manage your short and long-term financial goals with the house of your dreams.
Have you made one of these five home buying mistakes? What’s the biggest mistake you made purchasing a home?
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