Top 3 Mistakes Young People Make When Buying Their First Home
Nowadays, it’s becoming less popular for young people to purchase homes. The cost of purchasing a house in many areas of country is out for most young people’s budgets.
So, they choose to rent instead. Here are the Top 3 Mistakes Young People Make When Buying Their First Home.
Typically, renting is the best path to take when you don’t have a significant income and are still young. The payments will be less than buying a home for the most part. Your landlord will take care of the majority of the issues and repairs with the apartment or house.
Renting does give you the freedom to move homes or leave the country at any time. Even if you sign a contract. Which most landlords do require. You may have to pay the contract out or you may have a clause that will allow you to sublet the property.
When you’re young you may wish to keep your living situation flexible so you can travel and live in different cities around the world.
Without a doubt, buying a home can be a wise long-term investment. If you buy a home in an up-and-coming location then the home will likely appreciate in value over time.
But, just know in addition to home appreciation (which of course is what you want) there are other responsibilities once you purchase a home. You the home owner are responsible for all the repairs, the mortgage payment, insurance on the home and property taxes.
This article is directed to individuals or couples in their 20s and 30’s that are thinking about buying their first home. There are some issues and financial difficulties that should be considered before making the purchase.
Listed below are Top 3 Mistakes Young People Make When Buying Their First Home.
Buying when you should be renting
A lot of people have the dream of owning a home. No landlord will check up on you for rent and you have the freedom to paint your walls and renovate. The ability to completely personalize a home is what many people look forward to.
It’s important to remember though: buying a home is a huge financial commitment that you will be paying off for many years to come. The costs associated with owning a home are typically much greater than what you pay for renting.
When purchasing a home, you inherit any issues that it had. Whether you knew the issues existed or not when you purchased the place, you’ll still have to deal with them.
Whether it’s a leaking pipe or mold on the wall, sometimes people purchase a home without getting the place inspected or considering unforeseen costs.
If your refrigerator breaks or your pipe bursts it’ll require hundreds or thousands of dollars to fix it. When renting a home, you never have to worry about those issues because it is up to the landlord to cover the costs for the most part. Make sure what costs are covered in your lease agreement.
You won’t have to stress out about appliances or infrastructure breaking in your house and having to cover the cost. Young people who just bought their first home typically aren’t wealthy.
And it is common to be living paycheck to paycheck to make your mortgage payments – along with all the other payments associated with being a homeowner.
Not saving up enough for payments
Purchasing a house comes with a range of expenses that you may not have considered when you came up with a price range for your home.
First, you’ll need to consider the closing costs of buying a home. Your Realtor will likely take a fee of 2.5-5.0% of the final closing cost. This should be the first thing to keep in mind.
Second, you’ll want to make as large of a down payment as possible. Aim for a 20% down payment if you want to save the most money in the long term.
This will make it much easier to get a great rate with the help of a mortgage broker. The lower your down payment and bad credit the poorer your mortgage rate will be and the longer you’ll be paying off your home.
Being a homeowner also means you’ll need to pay property tax and homeowner’s insurance. Even if you had these costs in mind when budgeting for your home purchase there are still unexpected costs that may occur.
There are many factors that could push you over the edge into significant debt, making it tough to catch up on payments.
You may be tempted to get a home above your price range with the monthly income you’re generating, but if you don’t have sufficient money saved up you could be in serious trouble when unexpected expenses come up.
Consider finding ways to reduce costs once you move into your new place. This could include: eating out less, buying less clothes, using less water and heat, buying ingredients for cheap meals and cooking it yourself. And canceling subscriptions for services that aren’t necessary.
It’ll feel better knowing you can handle an unexpected payment of thousands of dollars and not be in debt.
Buying a home too early in a relationship
This one applies to young couples who are deciding to move into a new home together. You may want to live with your partner for a couple of years so you can understand what life cohabiting a space
Couples may believe everything will go smoothly when they move in together.
However, couples that are buying a home to move in together for the first time may have some conflicts.
Household duties like cutting the grass or cleaning the dishes may cause arguments and being in each other’s personal space.
Everyday may cause strain on the relationship that neither of you expected.
In the worst-case scenario that you end things with the person you purchased a house with then you have some things to consider.
Unless you decide to share the house while being separated then one or both of you will have to move out.
In the case that one person stays in the house then they’ll need to handle the mortgage payments and property taxes by themselves now.
If that is not within your budget then you’ll end up having to sell the house.
That will be another costly endeavor and you’ll have sunk a lot of money into the place by then.
If you rented a place with your significant other instead of purchasing. Then either one of you could leave the place and not have to worry about selling it or handling mortgage payments.
Purchasing a home with someone is a huge financial commitment and a test to the relationship.
You should be very confident that things will go well when you buy a home together. Perhaps test the waters by renting a place together first.
Buying a home isn’t for everyone so do the research and make sure you want to buy over renting.
Both have their advantages, but for young people the situation is a little different so these factors should to be considered.
Above are the Top 3 Mistakes Young People Make When Buying Their First Home.
Article written by:
Rob Campbell is a mortgage broker from Guelph, Ontario.
He is the owner of The Rob Campbell Mortgage team. He loves his job of helping people get the best mortgage rate so they can afford a new home. You may contact Rob at the TheRobCampbell.com
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