Buying a home is something many people desire and it can certainly be well worth it. Not only do you get to become the king or queen of your own castle (yes, really) and own your own space, you’ll also be able to build long-term equity, which can boost your wealth building process.
However, before you contact a realtor and before you hand over the down payment you’ve worked so hard to save, it’s important you keep in the mind the three biggest financial regrets of home buying so you can learn from other people’s mistakes and avoid making the same ones.
So, what are these regrets and how can you avoid them?
Regret #1 – Buying more house that you can afford
Typically, banks will qualify you for a home loan based on your pretax income. However, it’s important to note that you will be making your mortgage payments with your post tax income (take home pay). This is a big deal and one that many people don’t consider in the purchase planning process, which ultimately leads them to buying more house than they can afford.
To avoid this regret, you ideally want to keep your mortgage payments to no more than 33 percent of your post tax income. This way, once your mortgage is paid each month you still have money left over to put towards your financial goals and other things you want to do. The last thing you want is to end up with more house than you can truly afford, and less money to pursue your long terms goals.
Regret #2 – Not factoring in the cost of homeownership
When it comes to buying a house, most people focus on saving for their down payment and many enter the world of homeownership with tapped out savings accounts but there are some other major costs outside of your down payment that need to be taken into consideration to avoid unneeded financial stress as well as unnecessary debt. For instance, some major costs include:
- Closing costs
- The cost of moving from one home to another
- Furniture and decorating costs
- Home owner’s association (HOA) fees
- Renovation and home maintenance costs
So how do you plan? It’s a great idea to put aside additional savings outside of your down payment savings to cover any unplanned costs that might come up during your home buying process. Start by talking to homeowners you know to get their take on expenses you might not have considered. In addition, once you become a homeowner, make it a goal to bulk up your emergency fund to cover any home repairs or maintenance needs that could arise (e.g. appliances, water heaters, damage, etc). These repairs will be inevitable, especially as your appliances and home systems age.
Regret #3 – Buying because you think you need to
Just because everyone around you is buying a house and everything you read suggests you should buy a home does not necessarily mean homeownership is the right decision for you. Too many times people buy homes because they think it is what they are supposed to do, and then they have change of heart later and regret making the purchase.
If you are considering purchasing a home, it’s important to decide if you are ready to commit to owning a home long term. When you purchase a home, you want to give it time to build equity and for property values to grow (depending on where you buy). Selling too soon (e.g. after a few months or couple of years) because you’ve changed your mind might come at a major loss for you especially after you factor in your initial purchase expenses and then your selling and moving costs.
All you need now is a plan in place to avoid these three regrets and you’ll be a happy homeowner!