When my wife and I bought our first home in September 2017, we made our fair share of mistakes. In hindsight, we should have done some things differently.
The good news: I won’t make the same mistakes again and am grateful that we did make the right choices in some instances. To help you learn from my mistakes as well as my smart money moves, here are 5 things I wish I had known before I started house hunting.
1. A mortgage broker won’t necessarily get you the lowest rate
A mortgage broker acts as a middleman between you and lenders. These brokers compare loan deals with several lenders to find you the best package. They charge a small fee for their efforts.
Since we were new to the game and didn’t feel comfortable doing everything on our own, we found a mortgage broker. He came highly recommended, and we were excited to work with him. Yet, when we were under contract for a house, I wasn’t impressed by the interest rate the broker was offering from one lender. I figured that this was a result of our low down payment — just three percent at the time.
But when that deal fell through, we decided to build a house and had time to build up a 10% down payment in our savings account. Even better: the home builder told us that if we got our mortgage through one of their partner lenders, the builder would pay our closing costs. When we told our broker about the offer, he told us that was a common tactic by home builders and that we’d end up with a higher interest rate.
Not the case. In fact, the builder’s partner lender offered us a better interest rate than the broker. We gave the broker an opportunity to match or beat the rate, but he was unable to do so.
The bottom line: a mortgage broker won’t always get you the best interest rate. Do your research and explore all options before settling upon a mortgage.
2. Your emotions can work against your best interests
Once we signed an initial contract on the first home we fell in love with, we hired a home inspector to see if there were any major problems with the house.
The results of the inspection were overwhelming:
- We would need to replace half of the roof.
- We needed a new water heater.
- The water pipes were cracking and the entire system needed to be replaced.
- There was water damage in one of the bedrooms from a window leak.
To fix all of the issues, we were looking at $20,000 out of pocket, and the seller offered just $500. Yet, I loved the house and I wanted to make the repairs. I had to step back and detach emotionally. From that point, I realized this house was looking like a money pit.
The bottom line: don’t let your emotions rule as you may end up regretting your choice. Luckily, we got out before it was too late.
3. Your monthly payment is a lot more than your mortgage
Your monthly housing payment is a lot higher than your mortgage payment alone. Here are the main elements of a monthly housing payment:
- Principal and interest: This amount goes toward paying off the mortgage loan.
- Private mortgage insurance: You will pay this if your down payment is less than 20% on a conventional loan. You can, however, request to have it removed once your loan amount is 80% of the value of the house.
- Homeowners insurance: This coverage protects you against damage and theft. We pay monthly into an escrow account, and the lender makes our premium payment for us annually.
- Property taxes: These are due annually, but your lender may require you to pay a monthly portion into an escrow account.
- Maintenance and repairs: Our home is only nine months old, and we’ve already spent money out of pocket for maintenance and repairs. To avoid any nasty surprises, real estate experts recommend saving between one percent and three percent of the home’s value each year. This way, you’ll be able to pay for those unexpected home repairs. .
When we received the final disclosure that broke down our monthly payment, it was higher than I anticipated. Yet, if we knew what the house would cost us each month from the beginning, we may have lowered our house budget even more to make more room for other things in our budget.
The bottom line: make sure you factor in the total monthly cost of owning that house. This will give you a true sense of what you can afford.
4. Your first home is never going to be perfect
After months of checking out existing homes, my wife and I were disappointed that we couldn’t find one without problems. Ultimately, we decided to build a new home.
Brand new homes, however, are not perfect and you may still have to pay for repairs or deal with issues – even in your first year in the house. For example, the insulation subcontractor didn’t blow any insulation above my kids’ rooms in the attic, and the builder made some major blunders with the landscaping that took months to fix.
Because we thought we were avoiding all of these problems by building a home from scratch, it’s been a frustrating experience.
The bottom line: be realistic and save your pennies. No house is problem-free.
5. Get everything in writing
During the building process, the construction manager for our home promised us some things that he didn’t deliver on. When we tried to get the builder to make good on the promises, he refused.
The bottom line: get everything in writing, even minor things. This will help keep the builder, seller and others accountable. After all, buying your first home is likely the biggest financial decision you’ll ever make, so take as much control of the process as you can.
The final word
While we made some mistakes buying our first home, we also learned from our experience.
When it comes time for you to buy a house, make sure you take the time to set realistic expectations and budget wisely. This will help you enjoy your new home without second-guessing yourself at every turn.