If you’re a first-time home buyer you might be interested to know that Dan Marino’s 10-bedroom, 12-bathroom mansion in Weston, Florida, is up for sale for $13.5 million. Marino originally listed the home in 2006 for $15.9 million, but recently decided to make his offer more enticing by cutting the price and throwing in some designer furniture and an autographed football.
If those new incentives get you excited, you need to stop and take a breath. Would you really be induced to spend $13.5 million on a house only because the seller throws in an autographed football? After all, you can get one on eBay for less than $100. For $13.5 million, Marino should come back once a year and hold a football camp for your son. He should be the guest of honor at an annual barbecue with you and your friends where you can all stare wide-eyed while he tells war stories from the NFL — and then make fun of him after he leaves for never winning a Super Bowl.
Honestly, if you’re a first-time home buyer, you would do well to not get too starry-eyed at the prospect of sitting in your living room gazing at a Dan Marino football on your mantelpiece wondering how you’re going to make the next $85,000 mortgage payment.
Here are some other common mistakes people make when they decide to take the leap from renting to owning.
Falling in love with perks that don’t add value
The Marino football is just one, unique example. Some people fall in love with a built-in swimming pool. (Marino’s house is loaded with them by the way.) What a lot of people don’t know is that a swimming pool is expensive to maintain and it may cause your homeowner’s premiums to go up. (Insurance companies call it an “attractive nuisance.”) Also, when you go to sell your home, many people will avoid homes that have swimming pools or ask that, as a contingency for sale, the pool be filled in.
So when you’re shopping, don’t get too attached to the house with the sinking foundation next to the freeway just because it has got a wet bar and pool table in the basement. If you need any perks, add them later to a house that is a better value.
Failing to budget for all those things that will break down
When home repairs need to be done, a renter picks up the phone and calls the landlord. When repairs need to be done and you’re the owner of the home, you’re on the hook. You are the one who has to replace the hot water heater when it busts open like a water balloon. You are the one who has to change the filter in your central air unit, make sure the gutters are cleaned out and replace broken appliances. You’ve got to buy a lawn mower, a snow shovel and salt when it snows. All of these things cost money — and they add up (big time).
Foreclosures are happening everywhere today because people borrowed the absolute maximum they qualified for so they could get into the biggest house they saw. They could barely afford their mortgage payments and that left no money to do repairs or even routine maintenance.
Your best bet is to buy a little bit less house than you can afford. That will leave money in your budget for maintenance and any other surprises that come up; then you can focus on funding your savings account so that in a few years you can do renovations (kitchen, bathroom) that will increase the value of your home.
Overestimating the tax savings
You may have heard that a lot of European millionaires live in Monaco because the principality has no income tax, whereas countries such as Great Britain have nothing but income tax. A lot of people look to buy homes because they think the tax deduction they’ll receive will turn out to be a similar tax haven for them.
It is true that you get a tax deduction on the interest you pay on your mortgage; but remember, when you are a renter you don’t have a mortgage so you don’t pay interest on a gigantic loan. That’s what a mortgage is: The biggest loan you’re ever going to take on in your life.
Getting a tax deduction on the interest you pay on a mortgage makes the interest a little more affordable, but it’s still not better than paying no interest at all. If you don’t believe us, we’ll make a deal with you: You pay our mortgages every month and we’ll write you a check for the tax savings at the end of the year.
Everybody hates paying taxes, but some people don’t have a really big tax burden. If you have a couple of kids and your household income is less than $100,000 per year, then you don’t pay a lot in federal income taxes. The tax savings on a mortgage wouldn’t really be all that great.
That’s not to say there aren’t any compelling reasons to buy your own home; but don’t fool yourself into thinking the tax savings are going to be a windfall for you. Read our article on the home buyer tax credit.
Not researching the neighborhood
“Hell is other people,” said the existentialist philosopher Jean-Paul Sartre — and sometimes they live next door.
Try to do all the due diligence you can on your new house. Check out the school districts (even if you don’t have kids, the quality of schools in the area will affect the resale value of your home), get a home inspection done and ask people you know about the neighborhood. Still, there’s one thing you might not really know until you’ve been in the house for a few years: That’s the painful idiosyncrasies of the freaks that live on either side of you.
Sure, renters have neighbors too, but if the situation becomes too painful they can get up and move when their lease is up at the end of the year. You can’t just turn around and flip that house when your neighbor takes to doing part-time auto body work in his front yard.
When you buy a house, you’re also buying a whole neighborhood. Ask the mailman if you have to, but try to find out as much about the people who live around you before you move in.
Overestimating your enthusiasm for renovations
A little “TLC” said the listing. It’s awaiting your special designer’s touch, your creative flair. You can paint the walls any color you like. You can put in permanent fixtures. You can build a patio, a deck and remodel a bathroom if you like.
Unfortunately, in a lot of cases you have to do those things. The linoleum in the kitchen floor is a fake brick pattern and 30 years ago some teenage boy epoxied a Fonzie poster to the wall in his bedroom. The realtor can call it any thing she wants, but most people call it what it is: work. Owning a home that needs a lot of updating is like having a part-time job that you don’t get paid for.
It’s great if you have experience doing those things or if you like that kind of work. But if neither of the above is true, then you’re going to need to budget a lot more time into doing the simplest of chores than you think. It’s going to be learning on the job. You’re going to be chasing guys with orange aprons up and down the aisles at Home Depot.
If that’s your idea of fun, then buy the fixer-upper. If not, you might want to consider a townhouse or a home that’s been built in the last 10 years.
Do your homework
This isn’t to say that you should be afraid to buy a home — just do it with your eyes open. Owning a home can be personally and financially rewarding over the long term. But in recent years a lot of people didn’t educate themselves beforehand and our whole economy is paying for it today.
After all, you don’t want to be stuck in a few years trying to unload a house that nobody wants — like poor Dan Marino.
First-Time Home Buyer Mistakes Provided by AskMen.