I BOUGHT MY HOUSE in 2010, when I was 28. I was lucky to get good advice from my parents and some finance blogs I read. Even with that, there were parts I didn’t understand until after all the paperwork was signed and the deal closed. Buying a home is probably the biggest purchase any of us will ever make, so it’s best to reduce rookie mistakes as much as possible:
1. Plan backward. When you buy a house, the first step is to figure out what’s nonnegotiable with respect to characteristics (think bathrooms, bedrooms and central air), location and—most important—price. What is the monthly payment, including taxes, utilities and cash set aside for repairs, that your family can comfortably handle? Experts suggest no more than 30% to 35% of pretax income. I think 25% to 30% is safer. If a home doesn’t fit your budget with the qualities you want, walk away or revisit your wish list. Resist the urge to pay up past your comfort point.
2. Get to 20%. Banks and realtors will assure you—as they did me—that you don’t need to put down 20% of the purchase price. While that’s technically true, it isn’t good financial advice. A 20% down payment eliminates private mortgage insurance, which is a required monthly cost until you have 20% equity. It also shows that you know how to save a substantial sum—an important attribute since you’ll need a sizeable house repair fund as soon as you become an owner. Each year, expect to spend 1% to 2% of a home’s value on repairs. Finally, the larger the down payment, the lower your monthly cost. That means you’ll have more cash available for investing and everyday expenses.
3. Push your realtor. If you’re buying, the realtor’s job is to help you get the best deal, including a lower price. But remember, the realtor also has a perverse incentive to prefer a higher price, because he or she makes more commission.
I was hesitant to push my realtor to demand a new roof repair before closing and generally trusted everything she told me as absolute. Today, I’d be more pushy, and ask for specific information and rationale behind a realtor’s recommendation. Good realtors will be glad you’re asking and see the long-term game: If you’re happy with their work, you’ll recommend them to others and they’ll make more sales.
4. Talk and listen. While I had a good general sense of the neighborhood, I didn’t spend any time on the street outside the house that we eventually bought. That would have opened my eyes to some unpleasant neighbors who ended up costing me money and peace of mind. The same advice goes for the home inspection. Don’t necessarily go with the realtor’s recommendation. Instead, pick an inspector with strong reviews and join him or her on the inspection. Ask questions, take notes and—if necessary—be willing to walk away from the house.
5. Consider your time horizon. If you aren’t fairly certain you’ll be in the area at least another five years, hit the pause button on your buying plans. You often need five years to break even, after all associated costs are factored in.
Zach Blattner is a former teacher and school leader who now teaches teachers across the Philly/Camden region as a faculty member at Relay GSE. He is a self-taught finance nerd who dispenses advice to his wife, friends, family and anyone else willing to listen.