A lot of buyers, particularly first time buyers tend to make a few common mistakes when buying a home. These typically revolve around placing too much emphasis on easily fixable issues. Additionally, many buyers overlook the costs of maintenance, under or overestimate costs of the projects they want to do, and fail to adequately insure the property. Today, we’re going to look at each of these items and give some simple advice to avoid making any of these mistakes.
Common Mistakes When Buying a Home #1. Placing too much emphasis in easily fixable issues:
A 2011 survey done by Coldwell Banker showed that nearly 90% of first time buyers want a home that is “turn-key” or “move in ready”. These buyers usually recognize that they simply don’t have the budget to tackle major projects like a kitchen or bath remodel. Additionally, many buyers (both first time and those moving up) simply don’t want to tackle a project in a new home.
Most buyers also have other important considerations, such as good schools, small commute times, proximity to shopping and entertainment, and so on. Most of these items should ultimately be much more important than finding “the perfect house”.
Don’t misunderstand that: It’s not to say settle for a floor plan you don’t like to get the other things. However, you need to recognize that it is usually easier to clean or replace carpet, paint walls, fix landscaping issues, replace lighting or plumbing fixtures or even update a kitchen than it is to find the perfect house in the perfect location. Moreover, by being willing to tackle some of these projects, you’ll be making the home your own. This way, you can really make a home exactly what you want. You may not realize it, but by looking exclusively for a move-in ready home, you’re usually settling anyway.
The moral of the story: Remember, fixing cosmetic issues is usually fairly inexpensive and fairly easy. Don’t shy away from these issues in a home you would otherwise love.
Common Mistakes When Buying a Home #2: Ignoring maintenance costs
When deciding to buy a new home, most buyers compare the cost of the new home they want to the cost of their current living arrangements. Too often, they do a simple payment to payment comparison.
However, when buying your first home, remember that you are now absorbing the cost of maintenance as well. You no longer have a landlord to fix all the little issues. Typically, these things only cost a few dollars per month. On occasion, something more major will break, and you need to budget for an occasional repair that may cost a few hundred to a few thousand dollars.
Those who are moving up to a bigger and nicer home need to be aware that your new home may have amenities you didn’t have before, which come with a maintenance cost you didn’t previously pay. The Jetted Tub, Water softener, second furnace, built-in theater system, etc will all have some maintenance costs at some point in time. Make sure to account for these costs, rather than assuming all homes cost the same to maintain.
The moral of the story: Never max out your budget. If you spend every penny you can afford on a mortgage payment, a repair bill may put you in a serious bind, and can even lead to foreclosure in some circumstances.
Common Mistakes When Buying a Home #3: Failing to properly estimate project costs
Admit it, you’ve spent some time watching Do it yourself reality TV shows and thought “I could/should do that!” Most of us buy a home envisioning projects we want to complete. These can range from hanging some shelves to adding crown molding to finishing the basement.
Most people estimate in an “off the cuff” manner. These estimates typically reflect what they think a project should cost (low) or what they’re afraid it might cost (high). You would be much better served to actually go into your favorite home improvement store and look at the cost of materials and ask questions of the pros who work there.
By doing this, you will get a much better estimate, as well as a better idea of whether the project falls within your skill level. Knowing this information upfront can be the difference between buying a house and passing on it in favor of one that suits you better.
Moral of the story: Being informed about the costs of projects you want to complete is of paramount importance. Don’t rely on estimates based on opinions for projects you deem important.
Common Mistakes when buying a home #4: Failing to adequately understand your Homeowners Insurance Coverage.
Most home buyers believe their homeowners insurance is there to protect them against any sort of catastrophe in their home. In fact, some even believe that it functions as a warranty of sorts and will cover things like a broken furnace. However, these ideas aren’t necessarily true, and are often completely false.
Here’s a good primer on homeowners insurance from CNN Money
For example: Homeowners insurance does not cover floods or earthquakes in their standard coverages. If rain water comes in through an open window, or if a pipe bursts, you are on your own.
Additionally, if you have a covered emergency, your coverage may not completely pay for the damage. For example, most standard insurance policies do not cover the costs to update to new building codes. This means if you had a fire, and your city has implemented a fire sprinkler requirement since your house was built and your house does not have them, you could be liable for the cost of installing these sprinklers during the rebuilding process. Most insurance companies offer a low-cost “rider” to your insurance policy that will cover these costs. It is typically called “Code Update Coverage” or something similar.
Finally, your contents are probably not fully covered. Most of us would assume the cost of our possessions is far lower than it actually is. Most people carry a relatively minimal $20,000-$50,000 worth of content coverage. However, if you really think about the value of every single thing you own, you are likely to realize that your possessions are worth far more than your policy limit. Additionally, standard insurance coverage will typically depreciate the value of your possessions, meaning that your 4-5 year old HDTV might only be worth $100 to the insurance company, even though it would cost you $1000 to replace it. Fortunately, most insurance companies offer a “rider” for this as well. It is usually called “Cost Replacement Protection” or something similar, and it states that the insurance company will pay the depreciated value of an item, but will reimburse you for any additional costs as well, as long as you replace the item.
The moral of the story: Don’t buy Homeowners (or any other insurance) in a hurry. Ask your Insurance agent about riders that are available, about coverage limitations, about policy limits, and about costs for improving their basic coverage. An investment of $5-10/month in insurance premiums can save you tens of thousands of dollars when a catastrophe occurs. Trust me, I learned this first hand.
The overall moral of the story:
Being aware of these facts can save you a lot of heartache in the first couple years in your new home. Having a full awareness of the costs you may incur will help you to determine what you need to set aside for projects and emergencies. Knowing what will be covered in the event of a catastrophe will give you peace of mind should that day ever come.
Be a smart buyer, and know what you’re getting into. Don’t trust the loan officer who tells you “oh, you can qualify for $10 million.” Do the math yourself and set a budget you’re comfortable with, and make sure your expectations and needs are achievable within that budget.
