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Buying a house for the first time is a major decision that, if made poorly, can have you knocking on the door of bankruptcy. Unfortunately, buyer’s remorse is all too common when purchasing real estate. First-time homebuying is a highly emotional process that, if unrestrained, can lead to costly and sometimes financially devastating mistakes.
When you purchase real estate, you’re buying more than merely a place to live—you’re making an alternative investment in your financial future. After covering my top five rules of investing, I figured I’d pivot to homebuying and go over the ground rules for investing in real estate. In this guide, I’ll touch on some of the top real estate rules, and mistakes you should avoid, when buying a house for the first time.
Forgoing a Real Estate Agent
In an effort to skip realtor fees, more and more first-time homebuyers are passing on hiring a real estate agent. Although selling real estate agents often take commissions of up to 6% of the home’s selling price, this figure is split between the buying and selling agents, and the mark-up is factored into the price of the house.
While it may seem reasonable to want to skip out on this added cost, doing so comes at a steep price. It requires you to negotiate the terms of the closure, hire a property inspector, and potentially hire a real estate attorney if you make the slightest mistake when settling the contract with the title company. For the added peace of mind and minimization of risk, it’s always a better idea to go with a realtor, unless you’re a real estate attorney yourself. In our books, this is one of the top real estate rules that should very seldom be sidestepped.
Going Too Cheap on a Fixer-Upper
A home shouldn’t be purchased for the sole fact that it has potential. Consult a contracting firm to determine how much it would actually cost, in time and money, to transform the property into what you want it to be. Often, the work required to bring a fixer-upper to the buyer’s standards offsets whatever value they would’ve received from the lower selling price.
However, if you do decide to purchase a low-cost home that requires renovations, be sure to negotiate a long due diligence period. This way, you can take your time consulting with experts and contractors and can back out of the deal if the situation calls for it.
Misunderstanding What You Can Afford
There’s a lot more that goes into the cost of a home than the sticker price, down payment, and estimated mortgage payment. Buying a home for the first time often entails the following ancillary expenses that can make a home purchase far more expensive than the buyer first believes:
- Private mortgage insurance
- Taxes on mortgage insurance
- Land transfer taxes
- Real estate attorney fees
- Insurance for land title
- Home appraisal fees
- Inspection fees
Before you fall in love with a property you can’t afford, consider the many add-on costs that can cause a borderline-affordable home to become totally financially unattainable. By neglecting these costs, you can find yourself among the 30.4% of Americans who are “house-poor”—that is, having negative non-house wealth.
Not Researching the Neighborhood
Far too many homebuyers see a property through rose-colored glasses after looking at the property’s asking price and its centrality to the downtown core. This, often, leads them to forego their due diligence and blindly close on a property they haven’t researched. Before signing the dotted line, ask local business owners about their honest take on the area and research the neighborhood online.
Not Getting a Mortgage Pre-Approval
Just because you think you can afford a property doesn’t mean a bank will lend you the money for it. If you end up signing on a house only to have lenders deny your mortgage application, you will have wasted everybody’s time. Or, worse yet, you may feel forced to accept unfavorable terms that can cost you thousands in the long run.
To prevent boxing yourself into a financial corner, get a mortgage pre-approval before you start house hunting. This way, you won’t have to worry about wasting anyone’s time and it will give you a clear picture of what you can and cannot afford.
Buy Real Estate With Confidence
Today, 63% of home buyers under the age of 35 regret their purchase. Often, homebuyer’s remorse can be prevented merely by exercising a little patience, discipline, and financial responsibility. Remember, a real estate purchase is about more than finding a place to live—it’s an alternative investment, and often the largest one you’ll ever make.
For investors looking to gain exposure to the real estate market, consider using real estate crowdfunding services. We found an excellent Realty Shares review and Realty Mogul review, two of the top online services for connecting real estate investors to the resources they need to get a foothold in the market. It’s a good idea to check out these services sooner than later because investments in real estate are among the best ways to recession-proof your portfolio.
Don’t repeat the same mistakes your parents, friends, and siblings might have made throughout the years when buying their first homes. By avoiding the five real estate mistakes outlined above, you can improve your chances of securing a home that will serve you well for years to come and will build toward, not against, your financial future.