5 home-buying mistakes to avoid
From getting confused about mortgage terms to not researching the neighborhood
It's next to impossible to get through the home-buying experience completely unscathed. Maybe you accidentally buy a house with mold in the basement (like I did) or you snag a condo across the street from what will soon be a multiyear redevelopment project.
Been through a bad experience? Don't beat yourself up. No matter how much you prepare, buying real estate can be an intense and messy experience.
But the right preparation can also save you time, money and heartache.
According to a nationwide survey by the real estate firm Redfin, as many as a quarter of homeowners wish they had never purchased their place at all. And you certainly don't want to number among that number!
Curious about what real buyers now regret, LearnVest caught up with five brave people willing to share the biggest mistake they made when buying a home — to hopefully save you big when you decide to take the plunge.
Buying instead of renting
Who: Jay Stevens*, 34, a blogger/entrepreneur, and his wife, 32, a Ph.D. student
In the summer of 2007, Stevens and his then fiancée (now wife) were looking to put down roots. They had hoped to find a two-bedroom apartment to rent, but wound up buying a $360,000 three-level townhouse 48 hours after first seeing it.
What went wrong?
"We were super excited, and everyone we knew were buying homes, and we thought that was 'just what you were supposed to do' at our age," says Stevens.
After falling in love with the "dream house" and the surrounding community, the couple approached a lender and found out they were approved for a $500,000 loan. That sealed the deal — but Stevens says they should have given the decision more thought. "Just because a bank will give you a large amount of money, it doesn't mean you should accept it," he says, now knowing this in retrospect.
While they both had full-time jobs and enough in savings to handle the financial commitment of home ownership, Stevens still thinks they could have made better choices with their money.
After factoring in approximately what they would have been paying in rent, Stevens says buying the townhouse — which was significantly more space than the couple really needed — probably ended up costing them an additional $1,500 a month. Moreover, the house ended up losing $60,000 in value in a matter of two years. Stevens says he and his wife felt "stuck" and down on themselves for making an impulse move with such a large amount of money.
Because they bought at the peak of the market, the couple isn't currently able to sell the house. But the silver lining is that Stevens and his wife ended up becoming landlords, and they're currently renting out the house while they wait for a better time to sell it.
Hiring the wrong real estate agent
Who: Katherine Doe, 29, a marketing manager
Location: Mount Pleasant, S.C.
"I picked up and moved from Rochester, N.Y., for the low-country lifestyle and charm of Charleston," says Doe.
In the summer of 2013, she rented a furnished condo in a Charleston suburb for four months while she looked for a two-bedroom condo to purchase.
"It's a cutthroat, sellers market here, and I was a first-time buyer," says Doe. "I thought I was doing everything right, following all directions and requests, and taking my agent's advice in getting an attorney — her referral — for the process," she adds. "I also used a mortgage broker that was recommended in the area."
Doe bought a condo in October 2013, but things didn't quite go as expected.
"I ended up purchasing a 'furnished' condo with no furniture included," she says. "The listing indicated it was being sold furnished, so I assumed it was automatically included," says Doe. But when her agent put together the contract, she failed to include that furniture was part of the deal. By the time Doe realized the mistake, the contract was already signed and executed, and there was nothing her lawyer could do to help.
"I had thought that a lawyer was reviewing everything — part of my naivety," she says.
Plus, because of delays in processing her mortgage paperwork (her real estate broker disappeared on an unannounced vacation abroad), Doe also almost ended up without a place to live, as the lease on her rental was soon expiring. Luckily, she had a kindhearted landlord who allowed her to stay in the apartment for an extra month.
Doe says she should have realized that real estate transactions can go wrong, even if you think you're completely ready. She also admits that if she'd taken the time to talk to people in the area, she would have learned that it's common for local condo closings to be delayed and overshadowed by multimillion-dollar transactions.
Had she done this research, "I would have learned that there are always problems… and that condo sales are complicated because of HOAs [home ownership associations]," she says. "The HOA I was dealing with didn't have a proper budget prepared for the lender to submit to the bank," says Doe. "It took a few weeks for them to pull that together."
Fortunately, Doe ended up getting refunds from the real estate broker, the mortgage company and the attorney due to negligence, but she puts the value of the "lost" furniture at $2,000. That money, she says, could have been used for other necessary upgrades, like installing new flooring or painting the walls.
The experience was "a challenge I pushed through and feel proud of," says Doe. "Given that my mortgage is cheaper than renting and I'm getting all kinds of tax benefits because I work from a home office, it is financially worth it," she adds.
Not researching the neighborhood
Who: Rachel Jones*, 44, an occupational therapist
Location: Bronx, N.Y.
Jones and her then-husband bought a two-bedroom condo in New York City's the Bronx in late 2006. Although they were originally looking to buy a house, they ultimately decided on a condo because it was cheaper. With a baby on the way, they wanted to be able to afford mortgage payments on one salary while Jones took time off work to be with their child.
The couple, who has since separated, didn't plan on staying in the condo long-term, so they didn't research the area's public schools.
They moved into their new home in November of 2006 and welcomed their first child two months later. "We had a 'five-year' plan to move out of the city and really didn't expect to still be around after kindergarten," explains Jones. Looking at public schools "didn't seem relevant at the time," she adds.
Jones has decided to stay in the condo for the foreseeable future because she is able to independently manage the mortgage payments, has a supportive network of friends in the area, and has her ex living close by.
While the unanticipated breakup changed the couple's long-term real estate plans, Jones is now dealing with the financial consequences in her current day-to-day. Her two kids (now four and seven years old) are attending private school, an expense she hadn't originally planned on (it's about $13,000 annually for both children, and her partner contributes to the cost). She lives with additional unexpected costs, such as paying for garage parking (street parking is troublesome) and traveling outside of her neighborhood for decent groceries.
She suggests people spend time in the area they're considering moving to, even if it's not a long-term move. "Really look at all aspects — the school system, median income and education level, retail, etc.," she says. "Visit the grocery stores, the parks," she adds. "Watch people and their kids; spend some time in the restaurants and stores."
What did Jones do right? "We bought so we could manage on one income if need be — smartest decision we made," she says.
Getting confused about mortgages
Who: Taylor White, 35, a podcast host
Location: San Diego
When Taylor White was 22, he bought his first home for $114,000 in San Diego. Though he was excited about the purchase, "I didn't fully understand all the ins-and-outs of getting a mortgage," he says.
Wanting to keep his initial payments low, White opted for a two-year fixed mortgage. "When the two years was about up, I knew the rate would then fluctuate, so I wanted to refinance and get a 30-year fixed mortgage," he says. He wanted to be able to count on the same mortgage payment each month.
"Little did I know that, even though I had a two-year adjustable rate mortgage, it came with a five-year prepayment penalty," says White. "I had to pay extra fees as a penalty of paying it off early by getting a new loan," he adds.
It was an expensive mistake: White ended up losing thousands of dollars. "It was a costly learning experience I will keep in mind the next time I am shopping for a loan, to make sure I fully understand the rate, terms, and whether it comes with a prepayment penalty or not," he says.
Landing a fixer-upper
Who: Isabel Tumblin, 40, a stay-at-home mother, and her husband, 49, a government manager
Location: Washington, D.C.
After their first child was born, Tumblin and her husband knew it was time to move out of their one-bedroom condo. They ideally wanted to buy a three-bedroom home in a decent location close to public transportation.
In August 2007 they bought a four-bedroom fixer-upper in an up-and-coming neighborhood. The charming corner row house, built in 1921, was two blocks from the metro, had a large lot and plenty of windows with views of green space. The couple saw a lot of potential in the property. "It was a house we could grow old in," says Tumblin.
That said, they had never previously owned a house that needed serious work, and were now the owners of a home that required immediate renovation (as in, new kitchen, bathrooms, floors, and electrical system).
Without doing research or getting any quotes, the couple hired a general contractor they'd used in the past for small jobs. After an aggravating renovation experience, the quality of the work ended up not meeting their standards. In addition, the couple had no idea how much electrical upgrades were going to cost.
Tumblin says they're still paying to fix mistakes the original contractor made. She's concerned they'll have to redo the bathrooms and kitchen sooner than expected, which will set back other home improvement projects they'd like to take on. "More than the monetary cost is the emotional cost of having to look at the mistakes day after day," she says.
Tumblin's advice? "Make sure you know what you are getting into. Be very thorough during the inspection. And get at least three quotes from experienced general contractors," she adds.
* Indicates names have been changed.
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