Buying a new home is an exciting and rewarding venture, and if you’re doing it for the first time, these feelings are amplified to an even greater degree. Unfortunately, in all the excitement, it’s easy to lose sight of some key principles that will help you secure the best investment, and make mistakes that could damage your long-term return.
Goals of Home Buying
As a preliminary measure, it’s a good idea to recap the goals you’re trying to meet in buying a home in the first place:
- Find a place to live. For most first-time homebuyers, the main goal is to find a suitable place to live. It needs to meet your day-to-day needs and provide some level of personal satisfaction. If it’s a rental property, it will need to do this for your tenants.
- Get the most for your investment. You’ll want the best house for what you can afford, so naturally, you’ll want to shop around for the best-priced home. A slightly better house with a much higher price tag may not be worth the additional investment, for example.
- Optimize for a long-term return. You’ll also want to find a house capable of generating a long-term return, either by appreciating in value in a good neighborhood, or by generating the most income.
The Biggest Mistakes to Watch
Neglecting these needs, here are some of the most common mistakes a first-time homebuyer can make:
- They’re too fixed on buying. Just because you can buy a home doesn’t mean you should. There are actually some distinct advantages in renting over buying, both financially and logistically. When you factor in the peripheral costs of home ownership, such as property taxes, repairs, and any utilities that might be included in the price of rent, the cost of rent for a similar property could be less than a mortgage payment. Plus, when you’re renting, you won’t be responsible for as many property management responsibilities—so think twice before moving forward.
- They overrate home valuation. Home valuation is a solid way to estimate approximately how valuable a property is, but recent insights suggest the best estimation tools we have aren’t as accurate as they seem on the surface. There are many secondary and tertiary factors that can factor into a property’s inherent worth, beyond its dollar-value estimate, such as the state and future of its neighborhood, and your personal attachment to the property.
- They don’t pay attention to market trends. The housing market is in a state of constant flux. Prices rise and fall regularly, and if you buy during a particularly high time, you could end up losing on your investment. That doesn’t mean you can only buy a home during a particularly low period, but it does mean you need to pay attention to what’s happening in the home market around you.
- They don’t get a buyer’s agent. Most home sellers opt to recruit a selling agent to improve their chances of selling the home for a good price. But home buyers shouldn’t let this agent be the only one in the equation. Buying agents are free to the home buyer, and work on the buyer’s behalf to find the right home and secure a better deal. It’s a small step you shouldn’t neglect.
- They forget or neglect the home inspection. You need to get a home inspection. Period. Just because a house looks great on the outside, and just because you haven’t noticed anything peculiar, doesn’t mean the house is in perfect shape. It pays to know exactly what improvements the house needs, or what imperfections may cost you money at a later date; a home inspection doesn’t cost much, and it could save you a fortune in both the cost of your home and eventual repairs.
- They let their feelings guide their decisions. As a first-time homebuyer, your emotions are going to enter the equation. You’ll get vibes from the homes you visit—both positive and negative—and you’ll get a good feeling when you enter a home you can see yourself living in. This can be helpful, but if you allow your emotions to completely rule your decision making, you could end up passing over a logical choice or jumping into a bad choice too quickly.
- They’re too picky. It’s not a good idea to go with the first house you set your eyes on, and it’s important to have goals for what you want in a house. However, it’s easy to get swept up in the idea of a “perfect” house that probably doesn’t exist. If your list of requirements is too long, or if your wants and needs are too niche, you may encounter problems finding a house within your price range, and you may never make meaningful progress toward an actual purchase. While it’s prudent to be a patient decision maker, being too picky can make you miss some key opportunities.
- They forget the additional expenses. It’s easy enough to find a mortgage calculator that can help you estimate the regular monthly costs of a property. In fact, most lending institutions have their own versions of this functionality. This is a great tool to evaluate approximately how much home you can afford on your current salary, and project a budget for the long term. However, these can’t tell you some of the other expenses that come with owning a home—including the utilities, regular maintenance, and major home improvements. These can easily blindside new homeowners, and crush an otherwise sensible and balanced budget.
These mistakes aren’t the only ones that can interfere with the long-term return on your investment, or even the satisfaction of your final purchase, but they are some of the most common and most important to avoid. Before you even start looking for houses, take some time to evaluate what it is you really want, and find resources like databases, buying agents, and already-established homeowners to inform and direct your decision. The more time and effort you take to make the decision, the better it’s going to pay off in the end.
If you need help on the property management side of things, or direction in the home buying process, be sure to contact Green Residential for more information.