Buying your first home is a big deal and for good reason! It’s one of the biggest financial decisions you’ll have to make. Chances are, you have saved up for years, searched for the perfect location for your family, and are now ready to put down some roots. But in order to make the home buying experience as enjoyable as possible, it’s important to know some of the less obvious things that can make it a headache.
If you are in the market for your first home (or are on your next home and need a reminder of what to expect), this post will help you understand things — big and small — that people wish they knew before closing.
#1: “I wish I better understood the fees listed in my paperwork.”
Understanding every charge you may incur while buying a home is one of the most critical actions to take. When spending such a large sum of money, you definitely don’t want to pay more than you have to!
One common cost to be aware of is called private mortgage insurance (PMI). PMI is a type of mortgage insurance you may be required to pay if you are putting less than 20% down on a conventional loan. The most common way to pay PMI is a monthly premium added to your mortgage payment. While PMI may allow you to apply for a mortgage loan you may not normally qualify for, it only provides protection benefits to the lender. In the end, you will end up paying more for your loan than if you were to put 20% down on a home more in your price range.
Closely review your closing costs for other sneaky fees. You may see line items for things such as home inspection fee, appraisal fee, document preparation fee and title fee. While many of these are required, keep an eye on the amount. Do your research to make sure the number is in the expected range and nothing is out of place. And if you paid for the home inspection and appraisal yourself, those fees should not be included in your total amount.
#2: “I wish I researched money-savings programs available to me.”
If you are a first-time homebuyer, many states offer rebate programs that significantly reduce the mortgage rate. For example, the state of Maryland (where I reside) offers a lower interest rate and special tax credit for first-time homebuyers. Many resources (like this one!) exist to help you identify these programs available to you in your state.
#3: “I wish I got a better sense of the neighborhood.”
Your potential new neighborhood is more than a place for you to walk your dog and wave at neighbors: it’s a place for you to feel safe and welcomed. Before moving into a new area, do a couple of drive-bys at different times of the day. This can help you understand the ins and outs of the neighborhood. Are there mostly kids or older folks? How is parking on Saturdays versus Tuesdays? Where are bus stops and the nearest grocery store?
If it is important for you to mingle with people in similar life stages, this exercise will help you see what it would be like to live there. You can also do research online with tools like Zillow or local government websites to get a broad sense of safety and school reputations in the area.
Lastly, not many things are worse than moving into your “dream” home, only to find out new construction will be happening for the next few years. Be prepared to wake up to early morning construction noises, the eyesore of equipment and sheetrock, and potential traffic jams around work shifts. To avoid situations like this, be sure to consult your realtor to understand construction projects that may be happening in the area. Remember, some construction may be a good thing: if it is bringing more jobs and office space, it could eventually increase your home value. Just make sure the temporary disruptions are worth it!
#4: “I wish I walked through the house with the home inspector.”
Once your offer is accepted, you may be responsible for hiring a home inspector to perform an inspection. A home inspection is a comprehensive analysis of a home’s safety, health and functionality. When the inspector conducts his or her inspection, they spend a few hours exploring your potential home’s HVAC unit, electric, windows, roof and other critical areas to determine what may need to be repaired or replaced. They send a detailed report listing the condition of the home and areas recommended for improvement.
At that point, you and your realtor can discuss what you would like to ask the current homeowner to fix or to deduct from the sale price before closing.
While home inspectors conduct a thorough investigation of your potential new home, they don’t always explore the nooks and crannies — or move furniture to find hidden issues. When I bought my home, the inspector never reported a large foundation crack in our basement wall because it was hidden behind a bookshelf. That was an extra cost we may have been able to ask the previous owner to fix before purchasing.
The lesson: walk through the home inspection and take a good look around yourself. Note any issues you may see like older appliances and water pressure — it could save you thousands in the long run.
#5: “I wish I set aside more money for unexpected expenses.”
Take it from a homeowner herself: something will go wrong during your first year owning a home. I can’t count the number of times I sarcastically said, “Ah, the joys of homeownership!” every time something broke. We’ve had to call a roofer to patch holes for a squirrel issue. We’ve had to buy a new dishwasher and stove. We’ve had to rewire our electric. Even though we were prepared, each expense packed a powerful punch!
To ease the burden of these not-so-unexpected expenses, make sure you save enough for a home emergency fund. While you did just spend a lot of money on your down payment and closing costs, it is critical to still have a large sum in reserves for when you need it — trust me, you will spend that amount whether you have it ready or not!
Another solution may be to purchase a home warranty. Home warranties can help ease the financial burden you may face on certain covered items. “Certain covered times” is the key here: depending on which warranty program you choose, you have to make note of the items that are covered for repair or replacement. Typical covered appliances include major kitchen appliances, electrical, plumbing, and HVAC. Find out if a home warranty is worth it by doing research on companies available in your area and determining your annual cost.
#6: “I wish I left emotions out of the buying process.”
Buying a house, especially your first, is an emotional rollercoaster. You first feel excitement when you see your dream home listed for sale online. Then you get attached after you see it in person for the first time. From there, you may feel a range of impatience to panic to happiness.
While it is an exciting time, keeping emotions out of the decision making process is critical. This is especially true when negotiating the sale price. If you become too attached, you may end up overpaying for a house that isn’t worth it. You’ll also want to keep emotions out when the inspection happens. Don’t be afraid to walk away from the house, no matter how much you love it, if the inspection raises too many red flags.
#7: “I wish I purchased a house I could better afford.”
The term “house poor” refers to people who spend too much money on their housing which makes it more difficult to afford other expenses, including paying off debt. People can get in trouble when they purchase a home they can’t afford, just to keep up with the Joneses. This ultimately ends up causing an incredible amount of financial stress.
As a general rule, most sources recommend that you should not spend more than 30% of your monthly gross income on housing. As a homeowner, that includes the monthly mortgage, utilities, property taxes, and maintenance. This number comes from the government, which states that those who spend more than 30% on their housing have historically been “cost-burdened.”
The real point here is to determine what you and your family can afford, not just with an upfront down payment, but with a monthly mortgage payment, homeowners insurance, and property taxes. Savology’s free monthly budget tool is a great way to keep track of your current income and expenses to help you figure out how much house you really can afford.
|💡 Tip: You can create a free financial plan in just a few minutes with Savology that will help you better understand the impact of housing affordability on your overall financial life.|
#8: “I wish I had a better realtor and/or lender.”
You need to have the right team supporting you when buying a home. Your realtor and lender can quite literally save you thousands, if not more, on your home purchase.
The right realtor will be honest about the neighborhood and the comps in the area. He or she will go up to bat for you during negotiations to make sure you get the best deal. They will be upfront about the resale value and the home’s potential. And, of course, they handle the conversations between the buyer’s agent and do the paperwork to make your job as easy as possible.
A great lender will strive to get you the best loan type and interest rate. He or she will review your credit history and other financials to get the best loan possible for your situation. For example, our lender is an excellent resource for rental property purchases because he understands our financial goals and finds loans suitable for investors.
To get the right home buying team, do your research and ask friends and family for referrals. It’s important not to settle on the first agent, broker, or lender you come across. At the end of the day, these key people work for you and should always have your interest in mind.
Moving forward with buying your home
Buying a home comes with its challenges, but it is an exciting milestone for many people. If you’re prepared for the worst, then you are already ahead of the millions of Americans who purchase a home every year. Remember, make sure to continue doing your research, work on saving up for emergencies, and leave your emotions out of it!
Your financial future starts today
Savology has helped tens of thousands of households across the United States improve their financial well-being by providing comprehensive digital financial planning. Users can get started with our free financial planning or premium monthly planning memberships, allowing them to build a personalized financial plan, holistic report card, personalized action items, and more. In addition to our consumer-facing platform, we’re helping employers across the country provide their employees with effective financial wellness benefits.