What mistakes do I need to avoid when buying a home — and is there anything distinctive a Christian home buyer needs to consider?
I love homes. I really do. I spent many childhood hours watching my dad turn dirt piles with flags on them into beautifully landscaped pieces of brick and mortar paradise. To this day, I still love to walk a home construction job site or flip through a floor plan book.
But as much joy as a home can bring, I've also seen home-buying mistakes bring their share of pain. So what are the common mistakes that first time home-buyers make? And what can we do to avoid them? Here are a few to watch out for.
1. Forgetting the First Thing
Owning a home may be the American Dream, but as a Christian, it shouldn't be my primary dream. My aspirations, instead, should center on obeying God. That includes obeying God in my finances. A biblical worldview needs to permeate all my decisions — including the decision to possibly buy a home. How does that work out practically? I can think of at least three ways.
First, I need to pray and ask for wisdom. Should I even do this, God? Second, I need to remember whose money is in my bank account. Hint: It's not mine. Third, I need to remember my obligations. God has instructed me in His Word to support His church and to give to the needy. If buying a home will interfere with those, guess which needs to go?
As much as I may want a home or want a certain kind of home, I need to be willing to bend my will to my Lord's.
2. Going Solo
I saw a television show the other day that tracked a 22 year old as she bought her first home. It was like watching a train wreck. She took her best buddy house shopping with her, and the conversation settled mainly around: "Can you see me here?" "Oh, I can so see you here." It made me cringe to be a blonde. I must have screamed, "Where are your parents?" at the TV set at least five times.
Most likely, you aren't this young lady. You probably have a good head on your shoulders and may even have a good working knowledge of the home-buying process. As first-time home buyers, I think my husband and I did, too. What we didn't have, however, was perspective.
If, how and when you buy a home are all decisions which will have major consequences. You may not have a home builder father to talk to (as we did), but I'd bet your parents, or older couples in your church, would be great fountains of advice and information. You may want to consider paying for professional advice from an attorney or realtor. But whoever's advice you seek, remember to ask yourself: Is this advice coming from a biblical worldview? If it doesn't, then take it with a grain of salt.
3. Buying Too Much Home
From the calls into radio shows that I hear, buying too much home seems to be the No. 1 mistake home buyers make — at least lately. What's tragic is that they don't realize that mistake until their names are already on the loan papers.
So, how much home can you afford to buy? How do you avoid ending up like one of these callers?
Previously, I've written about why the "28/36 rule" (the debt ratio many lenders use to determine how much home you can afford) is a bad standard for Christians to use. But, if you can't use the lender's recommendation, what should you use?
Here are three different guidelines to consider.
- Crown Financial Ministries: All housing costs are less than 38 percent of your net spendable income. [This includes all costs, including utilities, and is based on your net income.]
- Dave Ramsey: Mortgage payment (including taxes and insurance) does not exceed 25 percent of your take-home pay (on a 15-year mortgage).
- The Millionaire Next Door Rule: "[N]ever purchase a home that requires a mortgage that is more than twice your household's total annual realized income."
If you run the numbers, I can imagine your reaction. Something along the lines of "Give me a break. I could never afford a house using these." Yes, these are conservative by the world's standards. But, take a second look. The first two take God's admonitions about the danger of debt seriously and have counseled thousands of Christians through the home buying process. The third is a secular book whose authors advise on how to build wealth. I read it as a recommendation on how to live within my means. Investigate them all and see what you think.
4. Putting Too Little Down
If you can find a home loan that doesn't require a down payment, why wouldn't you jump at it? Consider this:
- Owning always costs more than renting. If you can't save up a down payment as you live right now, it's probably a bad idea to pursue home ownership.
- It can cost up to 10 percent of your home's value to sell it. If things go south fast and you need to get out of your home, would you even have enough equity in it to come out even?
- If you put less than 20 percent down on your home, you have to pay to insure your mortgage (private mortgage insurance — called PMI).
From my experience, a 20 percent down payment is ideal (and I don't mean ideal like "never gonna happen" I mean ideal like "try to do this, really"). But I wouldn't recommend anyone getting into a home unless they can put down 5 percent. Yes, there are programs with zero down. But that doesn't mean that it's wise to take them.
5. Living Next to an Asphalt Plant
I can remember my husband coming home and shaking his head. He couldn't believe that people were actually building homes right next to one of his company's asphalt plants! Nope, no foul stench. But my husband knew something the homebuyers didn't: that every weekday morning, at around 3 a.m., about 50 asphalt trucks would come rumbling down that road to pick up their materials for the day. Bet those homeowners had an unpleasant shock their first morning in their homes. But, really, who thinks of asphalt trucks while home shopping on a lovely Saturday afternoon?
So, what surrounds the house you are considering buying? Is it a quiet neighborhood with good schools and parks? Or does it back up to a highway, with a convenience store on one side and an apartment complex on the other? Have you visited the home during different times of day and week to see the different conditions?
6. Forgetting That Wal-Mart Might Move In
On the topic of "location, location, location," don't forget to look at any empty land around you. A neighborhood a few miles from me used to back up to pasture land. Instead of pasture, there's now a hospital — complete with ambulance sirens at all hours. Today's beautiful open land may be tomorrow's strip mall, so be sure to find out what empty areas around your possible home are zoned.
7. Gas Prices? Huh?
It's not just the location of a home that's important. It's also important to look at a home's location relative to your life. How close is it to your church and your work? Just this morning, a radio program was discussing the housing crunch in Atlanta. Evidently, up until recently, the mantra there had been "move out until you qualify." In other words, keep moving farther away from downtown until the housing prices get low enough for you to qualify for a loan. Then oil prices went up. All of a sudden, those "outer" houses aren't as desirable and values are plummeting. In addition, these "outer" homeowners' budgets are taking a huge hit because their gas expense is doubling, tripling or even more. Keep proximity in mind.
8. Not Understanding the Mortgage Process
The best way to buy a house is with cash. But I've never done that. I do think it should be every Christian's goal to eliminate all debt from their lives. But many of us, at some point, will take out a mortgage to buy our homes. If you do decide to take out a mortgage, it's best to go into the process armed with some information. What are some things to know?
- Where you can get loans
- What kinds of loans are available (e.g. conventional, ARM, government-backed)?
- What the different mortgage terms mean (e.g. "points," "origination fee," etc.)
9. Taking the First Loan You are Offered
My momma told me ... you better shop around. And your momma was right. Just like any purchase, you should do some shopping around for the best deal on loans. David Reed, author of Mortgages 101, has these recommendations for shopping a loan:
- Start with your bank. "One of the easiest ways to slide into the mortgage process is to speak with someone you know and trust. Your bank," Reed advises. You may not get the best rate (or, you might), but you'll have a yardstick to measure other loans, and you may even get a break on certain fees for being an established customer.
- Get and check referrals. Ask your real estate agent and friends and family for lender referrals. Then, use the Better Business Bureau or state agencies to check for any violations or consumer complaints against those companies.
- Compare apples to apples. To get good rate quotes from the companies you are looking at, Reed recommends getting the quotes on the same day, at the same time of day, on one loan program only and asking for all the lender fees associated with that rate.
- Ask for concessions. Then, take your two best quotes and see if the companies will sweeten the pot (maybe drop the interest rate or waive certain lender fees).
10. Taking Any Loan Just to Get the House You Want
There are some mortgage choices that are just unwise — interest-only loans being one of those. Many times, buyers use these options because they can't afford a house (or the house they want) through conventional means. For example, if a buyer can't qualify for the house he wants under the standard "28/36" rule (and remember ... not good ... see No. 3), he may go for an interest-only loan. That's a loan where you don't pay off any debt at first; your entire mortgage payment just goes toward loan interest.
That is, until the principal payments kick in, raising my payment, usually at 3-10 years into the loan. What's the problem? Well, if I can't afford a loan using the standard rules, then even an interest-only is going to stretch me. What's going to happen once the payment is raised? Maybe I'll have a higher salary, or maybe not. Maybe my home's value will increase, or maybe not (lots of Americans have learned that lesson). It's a big gamble to take with your largest financial decision.
Interest-only loans are just bad. Really. As Dave Ramsey says, "If housing is too expensive, then don't buy a house." Or move where the housing is cheaper.
11. Buying for Yourself
Don't think only of yourself when you are buying. Of course, you need to consider your tastes and needs. But also think about how those tastes and needs might change. On average, Americans live in their homes for nine years. A lot can happen during that time, and you don't want to be forced to sell and buy again simply because you didn't consider your future.
For example, you may love the deal you got on your house. But will your future wife feel safe in the neighborhood? You may love townhome life, but will you want a backyard for little ones in the future? What if you get married in the next few years? If your intended also has a home, will you have to start your marriage in the financial hole because it cost you 10 percent to sell your house? This doesn't mean that you need to buy your dream home today or that you are required to buy a three-bedroom family home as a single. Just consider what your life may look like in the next five years.
12. Bypassing the Inspection
Inspectors are your friends. Don't buy a home without them.
There are a lot of things that can go wrong with a home. As the homeowner, you are responsible to fix them. So before purchasing, you need to make sure that you are fully aware of whatever problems your home may have (even if it's brand new). A recent HGTV show, 25 Biggest Real Estate Mistakes, recommends you:
- Hire an inspector with a good referral basis, who has been in the business a while and is a member of the American Society of Home Inspectors
- Insist upon a written report, complete with photos
Also, if you buy a new home and have a warranty (often a one-year warranty), consider having your home re-inspected before your warranty runs out. That way, you know that any and all problems have been taken care of.
13. Not Counting the Cost
There are lots of additional costs to home ownership. God's Word advises us to count the cost before we start building. We should also count the cost before we buy a home.
So, consider these additional costs:
- Maintenance — Paint, repairs, landscaping, etc. can cost up to 1 percent of your home's value every year.
- Taxes and Insurance — Your property taxes and insurance may go up without notice. Can you take the hit?
- Decorating — Are you disciplined enough to sit and stare at an empty room without jumping to decorate it? Can you stand seeing your old dorm couch resting against your new home's freshly painted walls? If not, figure that cost into your budget.
- Home Owner's Dues — Don't forget about dues if you're buying in a complex or neighborhood with an association. Will they rise annually? Will you have to pay assessments for roads or landscaping?
14. Not Counting the Hidden Costs
I love home ownership. I enjoy the benefits every day. But I'd give it up in a heartbeat if it meant that I would have to give up raising my kids at home and sending them to day care. For most of my acquaintances, the family's mortgage payment is the major determiner to whether a mom can stay at home or must work outside the home. Be sure to consider that cost as you determine how much house to buy.
15. Thinking This List is Exhaustive
It's not. There are many other issues to consider. But, hopefully, this will help you avoid a few common mistakes as you contemplate buying a first home. And, hopefully, you'll continue to question: How can I bring a biblical worldview to this, and to all, my financial decisions?
Copyright 2008 Heather Koerner. All rights reserved.