First-time Home Buyer Mistakes

I work with many first-time home buyers, and over the years, I have seen them make many mistakes. Of course, we try to do everything we can to prevent them from making a regretful decision. Sometimes I can. Well, sometimes they will just do what they are going to do.

But the two things I want you to watch out for are:

Mistake #1:  Putting Too Much Money Down

In a way, that doesn’t make sense. If you put a sizeable down payment on your home, you have a lower mortgage payment and typically better interest rates. What’s the problem with that? Well, you must ask yourself two things.

First, do you have that family “what-if” account that if something happens, such as a medical event, a car breaks down, or a kid’s tuition?  Do you have money to fall back onto just in case those things arise?  It can be difficult to access your equity once you put that money down!

You should also figure out what else that money could be doing for you. For instance, it could be invested in something like a stock or a mutual fund. And maybe the long-term gains on that investment will far outweigh the tax-adjusted mortgage rate that you’re paying.

Mistake #2: Not Buying Enough House

I am not trying to push you to buy the biggest house you can. That’s not our goal. Our goal is to ensure that when you buy a home, you’re buying something that’s sustainable and really fits your goals. Not just for today but for two, three, five, ten years from now, whatever that is for you and your family.

Many people do not slow down to budget based on future tax savings, debts that will be paid off, and forthcoming raises. A year later, they call me and say, “you know what, John, we can afford more. We want that bigger house.” But unfortunately, you can’t control markets. Interest rates and property prices can be higher.

For example, a client of mine purchased a $600k home because they did not want a payment of more than $3,000.  A little over a year later, his car was paid off, and he and his partner received a combined 3% annual raise. They decided to start looking for a larger house.  To their surprise, that house they could have purchased for $750k a year ago was now selling for $850k, and mortgage rates were .50% higher.  They decided to stay put because that increased sale price mixed with the increased rate was no longer affordable. If only they put more thought into their long-term budget, they would have made a different decision.

Why Mistakes Happen

These mistakes happen because people get an idea in their head and then start shopping based on that idea. Unfortunately, most loan officers are trained to give you rate options based on what you asked for and to make those look as attractive as possible, hoping to gain you as a client. The next thing you know, you’ve railroaded yourself down one path. Now, I don’t want to say no one, but most loan officers are not going to challenge you the way we do at The Downs Group. Try to stay open to considering all options, and be careful that you don’t get yourself stuck.