5 Home Buying Mistakes That Will Cost You Financially
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.
Brian Freeman, with the Freeman Team of ReeceNichols, tells his Kansas City home buyers to focus on what they like and dislike about the home they’re moving from. He discusses things like being close to work or family, school districts, room for kids and pets, and whether more or less space is important.
Focusing on your wants and needs helps you realize what truly motivates you. That way finding a good deal doesn’t get in the way of other motivators.
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.
Freeman suggests homebuyers get a pre-approval letter before looking at homes.
“First off, it’s crucial to understand your personal financial situation, and what amount of monthly payment or mortgage you’d be comfortable with,” Freeman explained. “Fair warning…be prepared to have at least 2 years of back taxes, two months of payment stubs and bank statements, etc. at hand for the lender to verify. This can seem intrusive, but is designed to protect you from getting in over your head, and the banks from making bad loans.”
In today’s market, pre-approval letters are a must or buyers need proof of funds if buying the property with cash.
“It’s heartbreaking to fall in love with a home, only to lose it to another party because you don’t have your pre-approval or proof of funds in hand!” Freeman explained.
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.
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.
Real estate agents suggest 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.
Trust your instincts and those of your real estate agent. They’ll help you structure your offer so it’s competitive and contains the best terms for your financial and personal situation.
“Additionally, we’ll review the real estate contract in detail and discuss how the contract will perform in terms of financing, timeline, buyer requests, closing, etc.,” Freeman said.
If you can’t find the home you truly want, rent instead of buying. A corporate rental is often an option if you’re moving to Kansas City to work at one of the premier companies headquartered here like Cerner, Burns & McDonnell, and Black & Veatch.
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 real estate agents suggest you don’t focus 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.
Focus on finding a home that’s the right fit for the rice price.
Find a Kansas City 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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