Updated: Jan 23
I bought my first house when I was twenty-two years old. I did some things right in the process and I did some things wrong but I learned a lot through the experience. Home ownership is a big step and should be approached cautiously. Owning a home should be a blessing and when the right steps are taken it is just that, but making the wrong decisions when home buying can quickly turn it into an absolute nightmare. Here are a few lessons I learned when buying a home:
1. Save money
Sounds typical right? But seriously, save up some money BEYOND your down payment. The second you become a homeowner YOU are responsible for the repairs and maintenance. The air conditioner will stop working, the heat pump will go out, the septic tank will back up (this literally happened to me twice in two consecutive houses). This isn’t an if it’s a when. Your house will go from blessing to burden in a hurry if you aren’t able to comfortably cover repair and maintenance costs. (P.S. Borrowing from your 401k to pay for a new heat pump is not wise.)
2. Choose the right loan
There are several types of home loans available these days: VA, USDA, FHA and so on. The two primary categories of home loans are fixed rate mortgages and adjustable rate mortgages (ARM). ARMs are a bad deal because as the name suggests the rates can be adjusted during the life of the loan. You should always seek out a 15-year fixed rate mortgage when purchasing a home. If you can’t afford the payment on a 15-year fixed rate home loan then you can’t afford the home. Why 15-year fixed rate? Why not a 30-year fixed rate? Let’s do some math.
Let’s say you buy a $200,000 home using a 30-year fixed rate mortgage at 3.5%. Your monthly payment (interest + principal only) will be $898. Not too bad right? Keep in mind that the entirety of that $898 is not going toward paying down the loan balance, some of it is paying interest to the mortgage company. Over the course of 30 years you will pay $323,312 for that $200,000 home.
In contrast if you were to select a 15-year fixed rate for the same $200,000 home then your monthly payment would be $1,429, but at the end of those 15 years you will only have paid $257,357 for that same house. That’s a $65,955 savings (if you threw an extra $100 toward principal every month you’d save another 9% and pay your house of 14 months faster).
3. Don’t make an emotional decision
Searching for your first home is exciting and it’s easy to get caught up in the moment when you find a house that you really like. Should you be excited about buying your first house? Of course! However, it’s really important to keep your emotions under control especially when it comes time to make a decision and begin negotiations. If you become emotionally attached to the “perfect” house then you are more likely to overlook issues with the house or make too great of a compromise during negotiations and get a bad deal. You should know what you’re looking for in a house and remember that there’s no such thing as a dream home. There are other houses just as “perfect” as the one you found. Be patient and don’t jump into a bad deal over heightened emotions.
4. Be willing to walk away
This goes hand in hand with my third point. Perhaps the most leverage you can have in the negotiation process is the willingness to walk away. It’s easy to feel trapped once you make an offer on a home and all of the wheels start turning on the closing process. If you maintain your focus and don’t allow your emotions to affect your decision making ability then you will recognize if a deal isn’t going the way it should. Compromise is part of negotiating when you’re buying a house but there is a line between compromise and getting ripped off. Be firm and be willing to walk away from a bad deal.