How To Lose Money On Your First Home
First of all, congratulations on your decision. With interest rates still very favorable and the existing home market still struggling, you really couldn’t find a better time to buy your first home. The potential bargains to be had out there are the best that we’ve seen in decades and (one hopes) will be the best we’re likely to see again at any time in the future.
That being said, you can still lose a bundle on your first home if you follow just a few simple steps.
Fall In Love. Your first home is going to be your first place that you can call your own -- whether you’re a single person or half of a couple. It’s where you’ll get that dog your parents never allowed you to have and where you’ll bring your first child home from the hospital for the first time. You’re going to make wonderful memories in your first home – so remember that it doesn’t make much difference which home you’re in.
People in love do foolish things, not least of which is to overlook the obvious faults in the object of their affections to the point that their friends wonder, “What does she see in him?” The same goes for a first house – don’t fall in love with a certain architectural style to the point that you’re willing to overlook an otherwise undesirable neighborhood, and don’t love a great neighborhood so much that you ignore that leaky roof or a cracked foundation.
Here’s the thing. The National Association of Realtors says that the average length of home ownership is six years. That’s because young couples buy a first house, then buy a larger house when they start having children, then move once (or more) during their working years, and then downsize to a smaller house in retirement. The odds are you’re not going to live in this house forever, so it’s better to buy the house that’s the best deal, even if it’s not the storybook home you always dreamed of.
Don’t Run All The Numbers. Over the long term, the most costly thing people can neglect to do is account for all the costs of home ownership. The purchase price – no matter how far the seller came down – is only part of the equation. Other factors contribute to the total costs, and one of the biggest and most obvious things people overlook is the property tax rate.
In suburban communities, it is possible to have two homes with the same valuation, directly across the street from each other, but Home A has a higher property tax rate because it’s in a different tax district that Home B. You might wind up paying an extra $300-$400 per year in property taxes because you bought a house that was in the wrong location by only a few yards, and over the course of many years, that could really add up.
On a related matter, if you’re in the market for a condo or in any neighborhood that has a Home Owners Association (HOA), you may be paying monthly HOA fees that could go up to $500 or more depending on the amenities in your development. And be forewarned that some HOA's can be downright merciless in their demand that you pay your fees – one study showed that more than 75% of HOA’s have initiated litigation against one of their members.
Trust Your Realtor. No offense to the realtors out there, but the inescapable fact is that realtors typically work for the seller and not for the buyer. Especially when you’re a first-time homebuyer and particularly if you’re relocating, it can seem like a god-send to have a realtor who can recommend services like home inspectors and mortgage brokers. But in most cases you’ll be better off either securing these services yourself or, at least, in getting a second opinion.
Many banks won’t write a loan without a home inspection, and it’s important to make sure that the inspection is completed by a person who is trained and licensed to do the job. Remember that in some states, there are no licensing requirements to be a home inspector, so ask to make sure that the inspector you select has any one of several national certifications. Don’t trust the person that your realtor “has been using for years for this sort of thing.” That’s no guarantee that the inspection will be thorough.
When it’s time to finance your new home, chances are your realtor will recommend a local mortgage broker who, again, is someone with whom he or she has a long-standing business relationship. This is the financial equivalent of a blind date that is going to end in a proposal of marriage (let's face it - not many marriages last thirty years any more). So don't assume that the rates and closing costs provided by the "dear friend" of your realtor are the best deal in town. Shop around. Even a quarter of a percentage point difference in loan rates can translate into thousands in additional interest you'll have to pay over the long haul.
Are there other ways to lose a bundle on real estate? Sure. But these will do for starters.
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