Home buying is an incredible blessing and one of the most exciting times of your life. Buying a home should be a joyous occasion, but for so many, it can become a stressful situation. Avoid these 5 mistakes and you’ll find yourself on the side of happiness as you search for your next home.
1. Make sure that you are out of debt first. If you have debt, purchasing a home will slow down your ability to pay it off. In addition to a mortgage, most homeowners spend between 1% and 4% of their home’s value on maintenance and upkeep each year. However, when you’re only paying for rent and rental insurance, you’ll find yourself in a much better place to pay off debt.
2. Pay down 20% of the home. If you do this, you’ll avoid PMI (Private Mortgage Insurance), which can range from .3% to 1.5% of the loan added to your payment each year. PMI is added to your mortgage because it protects the bank, not you. If you don’t own at least 20% of your home, the bank classifies you as a high-risk borrower and requires PMI.
3. Determine how long you will reside in the home. If you aren’t going to live in your new home for at least 3-5 years, buying a home might not be the wisest decision. Even though the market value of the home will increase, any growth will be reduced by realtor fees (3% for each realtor) and repair fees needed to ensure that the property sells for maximum value. Additionally, you will not be able to pay down enough principle on the loan during that time for it to make financial sense.
4. Don’t become house poor. House poor occurs when your mortgage payment makes up a high percentage of your total budget, resulting in little money to do anything else. My wife and I didn’t consider this when we purchased our home, but according to financial experts, the range that you want your house payment to be within is 25%-30% of your after-tax monthly pay. This range may limit your home options, but it also allows you to budget for what’s important: tithing, retirement, college saving, health insurance, life insurance, etc. Don’t sacrifice the important things because you want a slightly nicer house.
5. Don’t finance furniture or appliances. I’m cringing as I write this because I was the guy that felt like I NEEDED to have that refrigerator with a TV on it. After all, it was going to be life-changing. It also had Pinterest and cameras within the fridge that let us know what we had inside. Pretty cool right? Necessary? No. I also financed an expensive security system alongside that and racked up $3,000 in credit card debt in a matter of 5 minutes. Now I’m not saying that it’s wrong to have nice things, but if you’re going to buy them, pay cash or save for them. Financing appliances or furniture is never a good option, even if they offer you a 90 days "same as cash" deal or a 12-month, 0% financing option. Companies use these deals to their advantage. If you think you’re going to outsmart billion-dollar companies by being an out of the ordinary borrower, know that history isn’t on your side. I know it’s tempting to purchase luxury items on credit, but it’s not worth putting your financial future at risk.
I hope this list encourages you to be intentional in how you approach buying a home. Using the Lord's provisions to purchase a home should be a blessing, but it requires wisdom and good stewardship on the part of the homeowner to keep it from becoming a curse.