In all of the financial transactions we make in our lives, there are few that pale in comparison to the excitement of making the purchase of your first home. Many years ago, the first time homebuyer merely began with a starter home, but expectations have significantly increased today with new homebuyers wanting all of the modern up to date amenities included in their first home. Oddly enough, the first time home purchase is often made with as swift a decisions as buying a new car although the purchase may be ten times the size of a new car. Here are your five smart money moves to make so you can avoid the pitfalls and traps that most new homebuyers make.
- Falling In Love With Your Mortgage Pre-Approval: Just because you are pre-approved for a $400,000 loan doesn’t mean you can actually afford a $400,000 loan. “Listening to the mortgage lender when they tell you that you are pre-approved for a (certain amount) of dollars and then thinking this is what you have to spend” is a bad idea according to Jim Martell from Keller Williams Realty in Sandy Springs. “You need to evaluate what monthly payment you are comfortable with each month.”
- You Will Need To Furnish The House– 10 out of 10 new buyers will tell you they will take their time to ‘fix-up’ and ‘furnish’ the house. The truth is you should plan that remodels, repairs, and furnishings will run you about 10% of the purchase price in the first year. That along with about 20 trips to Home Depot.
- Monthly Bills Will Go Up– When you move from renting to owning, generally your normally monthly run rate bills will increase. This includes gas, electric, cable, exterminators, water, and much more. Depending on the size of the property you may additional bills such as landscaping or a maid service.
- Plan On Regular Yearly Upkeep– You never exactly know when something is going to blow up or break in your house. I have always suggested a rule of thumb of about 1% of your home value which has become very accurate after actually paying bills for over 20 years myself. If your home value is $400,000, you will have about $4,000 of routine upkeep and repairs throughout the year.
- Plan For The What If?– Many new homebuyers are younger and earning two healthy incomes. What happens if you have your first child as a family and now you are down to one income? Will you still be able to afford the house? This is a big planning mistake that new first time homebuyers make when they decide on the amount of home they can afford.
By following these five smart money moves, the likelihood is you’ll make a better overall financial decision for your family. Don’t let the tax tail wag the dog and convince yourself that you’ll now have this huge income tax deduction that will even everything out because it won’t. Make sense of your family budget in advance of the purchase and you’ll have smooth sailing on your way toward being a new homeowner.
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