5 common mistakes millennials make when buying their first home
Buying a home is a rite of passage, a huge responsibility, and potentially a great investment, but it's also all too easy to make mistakes in the process.
Many millennials are reaching a point in their lives when they are finally ready to become first-time homebuyers, which means they soon could be making a number of home buying mistakes.
Here are five common mistakes millennial homebuyers make; the good news is that all of them are avoidable.
When my wife and I bought our first home, we had a few points on which we were set and a few on which we were flexible. We loved the neighborhood of Glendale, California, in which we had rented an apartment for the five years and were only willing to look within a one or two mile radius, for example.
But on the other hand, we were open to various types of architecture, yard size, and even square footage. We ended up lucking out, finding a gorgeous Spanish-style house built in 1928 with a big yard, good bones, but just enough need for renovation to have kept the price well in range for us.
So we were all set then, right? We got our loan approved, formalized our offer, and signed the paperwork. OK, there were a few more steps, but everything went smoothly, so I won't bore you with the details.
Then, on literally our first night in the house, the rotted pipes gave out, flooding water into the crawlspace and rendering it impossible to bathe, flush, run the sinks, or use any water at all, in fact. Our cut-rate inspector had missed major issues in the plumbing, but it was too late, and the responsibility was all ours. Within a few years, we'd also need to fully replace the roof. And put on an addition as we outgrew the home once our first kid was born. And so on.
Frankly, we were pretty savvy homebuyers for a couple in their late 20s, but we still made plenty of mistakes. And so do many people, according to the nearly 1,000 first-time homebuyers who responded to a survey put together by the online home improvement company Porch.
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Drawing from Porch's survey and a few other sources, here are five common mistakes that many first-time homebuyers make:
1. Not saving enough money before the purchase
The number one issue most millennials reported to Porch after buying a first home was not having enough money on hand after the purchase. Being able to afford the down payment and being planned for the monthly mortgage bill is one thing; repairing the damage caused by a burst pipe or replacing rotting floorboards found under an old carpet is another.
Until you are sure you have enough cash to cover what experts call the real cost of home buying, keep saving! 48% of a focus group surveyed said they did not plan for the costs of additional home maintenance needed in the first year of ownership, while 46% said ended up going over budget even for planned improvements.
2. Not factoring in taxes
A home's price tag and closing costs are one thing, but along with that monthly mortgage payment there will also be taxes due. Any homebuyer paying any attention to the process (and imbued with common sense) knows that, but what even savvy first time homebuyers often fail to realize is how often and how dramatically taxes can go up. This happens in two primary ways.
First, the town, city, or county can simply raise property taxes in a given area. Second, a home's market price can be reassessed at a greater value, often through additions and upgrades made by the new owner. The tax burden may well rise with the added value of the improved home.
3. Choosing the wrong neighborhood
Fully 84% of respondents to a recent Trulia/Harris Interactive survey reported that finding the right neighborhood was as important or even more important than finding the exact right house. But what constitutes the right neighborhood for a millennial homebuyer one year might be quite different in the years to come.
The home near bars and dining and shopping might be great for now, but with kids that mixed zoning neighborhood might be a terrible fit. Likewise a quaint, quiet neighborhood might seem the perfect place to settle, but might add an hour to the daily commute. Or you might find that it's too quiet.
4. Not taking the inspection seriously enough
The home inspection is one of the most important days in the entire home ownership process; it is the only day on which you, as the buyer, have the chance to identify problems with a property while the issues are still the responsibility of the seller.
By not paying for a top-quality inspector, not learning about the critical areas to make sure he or she checks on, and by not attending the inspection yourself in person to make sure it is thorough, you stand to inherit a raft of problems for which you will have no recourse other than spending money for repairs. Once you sign off on the final paperwork, even pre-existing issues, issues that may well have led you to walk away from a property, are all yours.
5. Buying a home that's too small
Here, my wife and I were guilty. When we bought our first home, it was absolutely capacious compared to our apartment. Two bathrooms? A guest room? A living room and a little den? How could we ever need more space? Then we found ourselves expecting our first kid.
Within a few weeks of that happy news, we found an architect and general contractor and got to work adding an addition to the house. The final product was plenty of space for the growing family, but it added greatly to the amount of cash we had invested into the home.
When considering a house for purchase, think beyond today and consider your needs in years to come. Buying a home that was too small tied as the top mistake reported by the millennials Porch surveyed. Tellingly, for Gen Xers and baby boomers, buying too small of a house was the No. 1 mistake they reported.
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