Financial Mistakes I Made When Buying A Home

home buying mistakesBuying a home is one of the biggest decisions that you will ever make. This affects your personal life, as well as your money in a number of different ways. A couple months ago I purchased my second home. While I am generally happy with the deal I received, there are some things that I could have done better. In other words, I made a few financial mistakes along the way. But, instead of hiding them, I’d like to share them with you so you don’t make the same mistakes that I did. Here are a few mistakes I made that you can avoid with careful planning on your part.

  1. I could have negotiated more on the price. No matter what I buy, if negotiations are involved, I always look back and wonder how much better I could have done. Even though I was happy with the end result and purchase price, something inside tells me that the buyer would have taken one last counter offer. I strongly urge anybody who is in the process of buying a home to be ready to negotiate as much as it takes. Along with this, make sure you are willing to listen to the advice of your real estate agent. They can help steer you in the right direction. Keep a solid price in mind based on real evidence such as comparable sales within the zip code.
  2. I agreed to a higher interest rate, because I was comfortable with the lender. My past mortgage was through Wells Fargo at 6.25 percent. While searching for a new lender, I naturally called on them once again. This time, thanks to the market conditions, I qualified for a lower rate at 5.25 percent. So, what was the problem? Well, there were other lenders, mostly small local banks, that offered a rate of 5 – 5.125 percent. At the time, I decided to stick with Wells Fargo, because I was familiar with their process and sure of their customer service.

    Looking back, I probably could have done a better job screening other lenders. This may have led me to a lower rate and a savings of thousands of dollars over the course of my loan. In my case, the difference in interest rates wasn’t much, but depending on if you use a broker or go straight to lender, the rate could vary based on how they make money and their underwriting guidelines. Also, make sure that the lender or broker explicitly explains to you everything that went into giving you the interest rate quote.
  3. I could have put more money down. As you know, most lenders in today’s day and age want to see at least 20 percent. There are some banks that will agree to as little as five percent down, but they are few and far between. Not to mention the fact that 20 percent lets you avoid paying private mortgage insurance. I decided to put down 20 percent, no more and no less. This got my payment where I wanted it while also allowing me to choose from a larger pool of lenders (although I didn’t do a great job of it). That being said, I had enough cash in the bank to make a down payment of up to 35 percent. This would have lowered my monthly payment as well as the overall balance of the loan. On top of this, a larger down payment would have saved me tons of money in interest.

    You don’t need to put every penny you have towards a down payment, but my point is not to settle only for putting 20% down. If you can wait a little longer and save more, you’ll thank yourself when you have a lower payment, pay less mortgage interest, and you’re able to pay off your mortgage quicker! If you already made this mistake like me, you can still make a lump sum payment to pay down the principle of the loan, but we advise for people to pay off other unsecured debts, build an emergency fund, and max out IRA contributions before putting extra principle on their mortgage loan.

I try not to dwell too much on the past – especially when it comes to financial decisions. But as you know, this is not always as easy as it sounds. If you are buying a home, don’t fall prey to the same mistakes that I made. Have you made any financial mistakes when buying a home that you’ve learned from?

(photo credit: WessexParkHomes)

  • Daddy Paul

    Thank you for sharing. Be grateful you don’t have unseen problems such as flooding or bed neighbors.
    People have a tendency to fall in love with a house before they buy it. This makes them unwilling to negotiate harder.

  • Jeccica Simpson

    I was one of those people, fell in love with the house before we purchased it, you have to be frugal, and take your time, for sure!

    • Mac

      Same here. That was 7 years ago. A month after closing, I sort of regretted buying the place. Ouch! Now we’re trying to sell it in this market and it’s really tough. Next house I get I’ll need to keep the emotion out of it. Never really used that wet bar anyways. ;)

  • Em D.

    My friend really regrets her decision to buy a house- especially the horrible mortgage her parents talked her into. It tied her down both physically and financially and has prevented her from pursuing other life interests. I’ve avoided that but I hear you on bargaining. I lived in China for four years where you bargain for everything and I almost always walked away feeling like I could have gotten a better deal!

  • Karmella

    I don’t think those are mistakes, really – you made the choices you were comfortable with and that were reasonable.

  • Jennifer P

    This is oh so true of so many. You really need to walk away and look and think before buying. It is a huge life altering investment that can be wonderful or a nightmare. Check out the neighbors, talk to them, look really look at the house, and don’t agree to things in a contract just because you think you are friends with the Realtor. They are out for themselves even if a friend, protect yourself so you don’t look back later. All of what you said is so valid and important.

    • Mac

      Well said. It took me too long to realize that realtors are not working for the buyer OR the seller. They are working for themselves only. They want to help someone buy a house because they want the commission. They want the seller to sell the house also for a commission. They are looking for their own best interests. Wish I knew that before I bought this money pit.

  • gina

    We get way too emotionally attached to our home purchases and it is difficult to see things clearly when you REALLY want the house. It is a good idea to consider all your points before buying. OK, maybe you overpaid, or had an interest rate that is too high, or have PMI, or whatever. Once you realize your mistake, then fix it! You can try to refinance, pay down the mortgage to stop PMI, sell the house, whatever it takes! I suggest that you carefully look at your situation and come up with a plan to correct it to at least make the mistake less problematic.

  • Winston

    I believe my dad could have negotiated a better deal when he bought the house. He really wanted the house because it is so close to his job. He could even walk to work if he wants. The realtor kept telling my dad that there were a lot of people wanting this house. The fact is that’s probably what realtor tells everybody even if there is no offer. Feeling anxious, my dad upped his offer and of course he got the house. If my dad kept his cool,I think my dad could have gotten the house few thousands less.