Young couple has a dispute with real estate agent and is dissatisfied with the property contract … [+]
When I used to be 22 years old, I purchased my first house.
This moment filled me with great pride. Up until this point, I had all the time heard that owning a house was one among the neatest financial decisions you might make.
Located in a young neighborhood and inside walking distance to parks, restaurants, and a growing downtown area, I felt like I used to be back in college. My latest home was exactly what I needed—I just couldn’t afford it.
I quickly realized that I had created a situation that made me despise home ownership as a substitute of find it irresistible. And it wasn’t just that one mistake after I first bought a house – there have been many.
Here are five mistakes I made that you could learn from.
Not understanding other costs of home ownership
I used to be capable of put a ten% down payment on my first home purchase, which made me beam with pride. Saving $20,000 for my $200,000 home felt like an enormous accomplishment.
Unfortunately, that was just about all of my savings. I used to be not aware of the quantity of other home ownership costs, including but not limited to:
- Repair
- Maintenance of living space
- Furniture
- Additional costs (heating, electricity, water)
- Lawn equipment
- Dozens of other little things
I quickly ran out of homes. A significant slice of my income went toward either my mortgage or other unexpected costs of owning a house.
I also spent quite a lot of time coping with the issues of home ownership. A leaky sink, a broken lawn mower, and a broken air conditioner were just a number of of the concerns that plagued me during my first yr of home ownership.
Most of those problems were because of inexperience and human error, but I still felt just like the house was mine and never the opposite way around.
Private mortgage insurance is just not taken under consideration
Unfortunately, my 10% down payment wasn’t enough to avoid private mortgage insurance, which is a 1% fee I needed to pay my lender because I put lower than 20% down on my home purchase.
This 1% was just one other unexpected A burden on my income that I had not anticipated. PMI costs $150 monthly (or $1,800 per yr) that I might have much somewhat spent having fun with my friends.
Not paying enough money
My first job out of school required quite a lot of traveling – sometimes 10 days in a row. My weekends were Tuesdays and Wednesdays, so I didn’t really get to spend time with my friends. Then I used to be traveling again.
After a yr, I used to be burned out. I wanted one other job where I could work through the week and revel in my weekends. Unfortunately, that may have meant a $10,000 pay cut. Apparently you possibly can get extra pay for working weekends.
After fascinated about it for some time, I made a decision to offer it a try.
I didn’t really analyze how this decision would affect my funds until I noticed how much of a burden it was to must put down only 10%. The monthly mortgage payments on top of the private mortgage insurance made my situation even worse.
The cost of owning a house was greater than half of my income on the time. I felt the pinch and quickly regretted my decision.
At this point, I started taking over debt through a house equity line of credit and eventually used my student loans to finance my lifestyle.
No preparation for a financial emergency
Eventually I got here to the conclusion that I needed roommates. They would pay monthly rent, have a pleasant apartment, and I would not feel a lot financial pressure every month.
It worked out great. I even made some lifelong friends who I still spend time with today.
And then the Great Recession hit my neighborhood.
Suddenly, the worth of my house plummeted. I owed $180,000 on the home, and now it was value $100,000.
Since I now had no equity in my home, my bank told me I could not use my HELOC. No equity, no HELOC.
Around the identical time, my employer needed to temporarily cut our salaries because our business was not doing so well through the recession.
I used to be not financially prepared. My savings account was not enough to cover one month’s expenses.
An emergency fund would have really helped back then. Most financial experts recommend having a 3-6 month money buffer to get through difficult times.
Not understanding how refinancing works
The next few years were financially stressful. I got into an increasing number of debt as I continued to spend greater than I earned every month.
My salvation was a giant promotion at work. With the promotion, my salary doubled.
With this latest financial wealth, I used to be determined to repay my debts and live inside my means.
And I did, with a bit help from my latest wife. We pooled our income and started making great strides in increasing our combined net value.
With real estate prices rising, I believed it might be a great idea to do away with my 5.25% adjustable rate mortgage and secure a 30-year fixed rate at 5%. That would have worked, but two years later, when she was pregnant with our second child, my wife and I made a decision to maneuver to a brand new neighborhood.
When we refinanced our mortgage, we paid the lender $2,500 in closing costs. And we didn’t save nearly that much with our refinance.
Since my original mortgage was an ARM, the rate of interest was actually revised downwards over the subsequent three yearsSo not only did we lose $2,500 in closing costs, but we also needed to pay $11,000 more in interest on our loan before we could sell the home.
That was a $13,500 mistake.
Final Thoughts on First-Time Home Buyer Mistakes
When I look back in any respect the stressful mistakes I made, I’m not depressed about them. In fact, I’m grateful for them.
After experiencing that financially difficult decade as a home-owner, I vowed never to do it again.
My wife and I recently paid off the mortgage on our latest home. We at the moment are debt and mortgage free and have even crossed the millionaire mark at 30.
Ultimately, these mistakes were the very best lessons I ever learned.
