1. Buying more house than you can afford.
Typically, you don’t want your mortgage payment to be more than 28% to 34% of your monthly income. For example, if your monthly income is $5,000, a total mortgage payment of $1,500 will be in the ball park. Of course, you need to include all of your overall debt payments which should never be more than 40% to 45% of your overall bills.
2. Not putting 20% down.
This will seem like a very hard goal for people buying their first house, but it has a really important purpose. First, it teaches you the habit of forced savings which I truly believe helps you get ready to own a home because there are always more unexpected bills than you can imagine. Second, it right sizes your purchases because it whittles you into the mortgage you can genuinely afford. In essence, the 20% rule really helps prevent you from overbuying too much house.
3. Paying PMI
The lack of being able to put 20% down, may (depending on how the mortgages are written) make your subject to paying private mortgage insurance. By following rule #2, you won’t be paying for unnecessary insurance by not putting down adequate funds on your new property. Many mortgage brokers will show you how to potentially get around this, but you should be asking questions about the consequences of doing this, especially having more mortgage than your income will allow for each month.
4. Not knowing the ‘real’ bills of the home you are buying.
If I had my way, your HUD statement would have a full and fair disclosure of each and every bill from the home over the course of the past year that you are buying. Remember, homes are not at all like buying a car. Your ancillary expenses for upkeep, maintenance, and bills can be devastating to your budget if you don’t know what you will be walking into when you buy the home. If the home comes with a pool, get all of those bills as well.
5. Not picking the right mortgage
Between adjustable rate mortgages, fixed rate mortgages, interest only mortgages, etc., it can be confusing to know if you are selecting the right mortgage. You should be asking key questions such as how long do you plan to stay in the property? Do you like knowing you will have the same fixed rate no matter what happens in the economy? Or, are you willing to gamble if interest rates stay low. Most of all, can you pay this off by the time you retire. Having a big mortgage in retirement will put a dent in your ability to not outlive your resources in retirement.
6. Writing the contract without a contingency offer.
I really recommend that you have a contingency offer, especially on the outcome of a home inspection. Get the meanest and toughest home inspector you can find, as you generally only get one shot to take care of the issues before the contract is finalized.
7. Falling in the love with home before you make an offer
Never . . . and I repeat never fall in love with a home. Remember, that homes are a lot like relationships. They make you feel all warm and cozy and excited the first time or several times you are in them. Once you get into a long term relationship, you will start to notice cracks on the walls, chipped floors, and all of the flaws you didn’t see when you were in puppy love. Be prepared to walk away no matter what. There is always another home.
8. Picking the wrong school district
Needless to say, with the cost of raising a child in the upwards of $500,000 to $1,000,000 already, you could potentially add hundreds of thousands of dollars by picking a school district that is not suitable for having your child get a public education. While some of you may choose to go the private education route already, picking the right school district could give you a ‘private’ type education within a public school district. I’ve made every home selection with this thought in mind, and it has saved me thousands of dollars with three kids.
9. Not being at the home inspection
This is your best chance to really understand where the fatal flaws may be in your property. Water damage? An unstable deck? Plumbing problems? Mold? If you aren’t at the inspection going side by side with the home inspector, you’ll miss out on the opportunity to get at understanding the nooks and crannies of the property. This part of the process is not to be missed. It’s worth skipping a day of work!
10. Not having the right real estate agent
Bottom line . . . EXPERIENCE. You need to know how many homes your agent has sold, and what their experience is when buying and selling homes. You wouldn’t hire a doctor to perform surgery who only operated successfully 4 to 8 times last year like most agents do. You want an agent who can represent the buyer, and has done this thousands of times. It may mean all the difference between getting what you want and what you don’t want.
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Phone 1.800.355.9318 or 770.777.0427
oXYGen Financial, Inc. co-CEO Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
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