8 Biggest Regrets of New Homeowners

By Tim Lemke on 6 June 2017 0 comments

Buying a home is a big decision. When you buy your first home, it can turn out to be one of the happiest moments of your life, and set you and your family up for years of comfort. But there are also countless decisions to make during the buying process, and it's easy to make one you'll regret later.

It helps to know common traps others have learned from. Try to avoid these mistakes that many new homebuyers have made. (See also: What You Need to Know Before Buying Your First Home)

1. You bought more house than you can afford

It's easy to purchase a home that may be out of your price range. Banks are known to approve homebuyers for loans that are way beyond what should be sensibly budgeted. It's also tempting to buy a more costly home than you need, based on the assumption that you will earn more in the future.

A good rule of thumb is to avoid paying more than 30 percent of your gross income on housing. Anything more than that, and you may find yourself financially handcuffed. When searching for homes, be sure to have a budget in mind, and do your best to stick to that budget even if it means walking away from homes you like. (See also: How to Make Ends Meet When You're House Poor)

2. You did not put enough money down

Making a big down payment can make things much easier for a homeowner in the long run. If you are able to save up enough to put down at least 20 percent, there's a good chance you'll avoid paying private mortgage insurance (PMI), which can add thousands of dollars in overall costs. Plus, a bigger down payment will help you qualify for a more favorable loan, and will reduce the amount you need to borrow.

Homeowners who can't make a sizable down payment often find themselves struggling financially because the mortgage costs are onerous. The more money you put down, the more money you'll save — and the better off you'll be.

3. You did not get the right kind of mortgage

There are many different mortgage products out there. Loans with fixed interest rates or adjustable rates, interest-only loans, 30-year loans, and 15-year loans. It can be bewildering and hard to find the right mortgage for you. The key is to understand what kind of homebuyer you are.

Generally speaking, if you want to build equity in your home and plan to stay a while, you will want a fixed-rate mortgage. A 30-year term is most common and often allows for manageable monthly payments, but shorter terms can make sense if you want to pay off your loan sooner and you can afford to pay more each month.

Adjustable rate mortgages, which often start with low interest rates that can change after a certain time period, make sense for those who think they may only stay in the home for a few years.

Interest-only loans, in which you begin paying interest before any principal, tend to be riskier and don't help you build equity. But they might be right for people who want very low payments to start and think they can refinance or handle higher payments later.

Do you plan to stay in the house a long time or move within a few years? What is your budget, both in terms of down payment and monthly payments? These are hard decisions, but it is important to research your mortgage loan options thoroughly before locking one in.

4. You didn't reduce debt and improve your credit before buying

The interest rate on your mortgage is based on a variety of factors, most importantly your current debt level and credit score. If you already have a high debt load and your credit score is mediocre or poor, you may end up with a higher interest rate. This could add thousands of dollars to the overall cost of your home.

You may be eager to buy that first house, but you should first take time to pay off any current debts and improve your overall credit picture.

5. You should have continued renting

There is a lot of pressure on people to buy instead of rent, because it can be a path to long-term financial security. But there are many cases where it's perfectly fine — and perhaps wiser — to continue renting.

If your income is inconsistent or your job security is in question, renting is a better option. If you expect you may need to move within a short period of time, renting makes sense. If you don't have enough money for a sizable down payment yet, continuing to rent is fine. Renting offers flexibility and is often cheaper, so there should be no rush to buy if you're not comfortable doing so. (See also: Rent Your Home or Buy? Here's How to Decide)

6. You bought a home that needed work

A so-called "fixer upper" can be a great bargain for those willing to invest the time, sweat, and money on making necessary repairs. But this type of home isn't for everyone.

Purchasing a home that requires heavy renovation can be a source of stress, and if you're not handy enough to fix things yourself, it may be more expensive for you in the long run.

7. You waived the inspection

During the housing boom a decade ago, competition for homes was so fierce that buyers were willing to forgo a routine inspection in order to close a deal. In fact, some sellers saw a demand for an inspection as a deal-breaker. Today, this is a recipe for potential disaster.

An inspection should be an essential part of the homebuying process, allowing you to learn about any problems before you make a financial commitment. No homeowner should find themselves stuck with a house full of problems simply because they waived their right to inspect the property beforehand. (See also: Thinking of Skipping the Home Inspection? Here's What It Will Cost You)

8. You researched the house, but not the area

It's a beautiful house and you got it for a great price. But after moving in, you realize that your commute to work just doubled. Or maybe you learned that the school system is not well-regarded. Or that the neighborhood has a high crime rate. Or the home backs up to the wastewater treatment plant.

Remember that when you buy a home, you're not just buying a property. You're selecting a place to live and possibly raise your family. There's more to home than just the structure and the yard. If you don't do the research on your new neighborhood, you could end up sorely disappointed. (See also: How to Evaluate a Neighborhood Before You Buy)

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