This piece is a guest post written by Kenneth Klabunde of Precedent Asset Management. Kenneth and I became friends after meeting at a conference and I asked him to share some thoughts as a guest for this site. Without further delay, Kenneth take it away!
Even if you do everything you’re supposed to do, these three things can totally sabotage your success when buying a home.
1. Searching (and Searching) for the Perfect Home
There is plenty of enticement out there for crafting the home of your dreams… in your head. We stare at Pinterest, pining for marble en-suite master bathrooms, a big back yard, or the open design layout that modern architects and interior decorators love to create.
However, a wish list that’s too unrealistic can cause you to skip over properties that may have worked wonderfully for your circumstances. Separate your desires from your needs, and price your search accordingly. Not sure how much house you should afford? Consult a financial advisor to get a clearer picture of your financial status.
2. Focusing Too Much on the Home and Too Little on the Neighborhood
You may find your dream home (or something close to it) but if it’s not in the right neighborhood then that dream could someday become a nightmare. When you’re looking at homes, don’t forget to zoom out a bit from that fab kitchen with tile backsplash and all the latest high-end appliances.
Consider whether your commute will be too long. Consider whether the neighborhood is desirable (yes you may want to sell someday). Take a look at the other homes in the area: are they run down or kept up nicely? Research your potential new neighborhood carefully and keep in mind the resale value years from now. You can’t predict the future, but you can hedge your bets.
3. Taking Out Too Much Mortgage
The rule of thumb for a reasonable down payment on a home is 20 percent. If you can’t swing that, you’ll need to reconsider your price range. Either that, or consult with a financial advisor, who may be able to help you come up with the necessary funds for the down payment you need.
He or she can help you divert funds from other financial goals, to put down as much as possible on your new home. Why should you do that? Because if you put down less than 20 percent, you’ll be forced to pay private mortgage insurance (PMI) every month.
One reason a big down payment might be wise is you’ll be that much closer to becoming mortgage-free. While interest rates on a mortgage are typically lower than other types of loans, it’s still a loan, nevertheless. You’re paying interest.
About the Author: Kenneth Klabunde, MS, CFP® is the principal at Precedent Asset Management, a fee-only wealth management firm located in Indianapolis, Indiana. Kenneth specializes in providing comprehensive planning and investment services for clients looking to build, manage and preserve their wealth.