7 First-Time Homebuyer Mistakes You Can Avoid

Many people start their home buying process without a real understanding of what it takes be a homeowner. 

In fact many of them don’t even know the upfront costs when buying a house — including a down payment, closing costs, repairs, and so many others.

They think that if they have a sizable down payment and a stable job, that its smooth sailing from here. Well, not quite…

This lack of knowledge can lead them to make costly mistakes, including paying thousands of dollars extra in loan interest, defaulting on their home loan, or going bankrupt. The following are some of the biggest mistakes made when it comes to buying a house.

1. Not Figuring Out How Much House You Can Afford

Without knowing how much house you can afford, you might waste a lot of your time and energy. You could end up looking at houses that you can’t afford yet, or not in your ideal conditions or location that you can actually afford. Your time is valuable so treat it that way.

For many first-time buyers, the goal is to buy a house and get a loan with a comfortable monthly payment that won’t keep them up at night, generally no more than 30-40% of your monthly income. Aiming lower and not trying to max what the bank says you pre-qualify for can be and effective way to build a sort of saftey net.

To avoid this mistake: Use a mortgage calculator to help you know what price range is affordable, what’s a stretch and what’s overly aggressive. And don’t forget if it’s your first time to leave a little extra breathing room for those big expenses expected with years of home ownership.

2. Getting Only One Rate Quote

Getting a loan to purchase a house is the most expensive financial decisions most people make their entire lives. So it’s important to have the best mortgage rates possible so you don’t end up paying thousands or tens of thousands of dollars extra in interest over the life of the loan. 

Yet, time and time again I see friends and family only speak with one lender when buying a home. This is a big mistake! When you speak with one lender, you don’t know what other mortgage rates are available to you. A good mortgage rate means less interest. I get 3 quotes, normally anything past 3-5 there is a smaller variation from the other loans.

Shopping for a mortgage is like shopping for a car or any other expensive item: It pays to compare offers. You or someone you know probably spends alot of time shopping for a car. But hardly spend a fraction of that when buying a home.. on something that can be more financially substantial that all the cars they buy over the life of that mortgage! According to Consumerfinance.gov, almost half of borrowers don’t shop for a loan.

To avoid this mistake: Apply with multiple mortgage lenders. A typical borrower could save hundreds in interest in the first year alone. If you’re worried about your credit score going down from all these inquiries don’t, mortgage applications made within a 45-day window will count as just one credit inquiry.

3. Not Checking Credit Reports and Correcting Errors

One of the most important things a mortgage lender looks at when deciding qualifying you for a mortgage loan is your credit score. 

Yet, many don’t know the importance of maintaining a good credit score. Lacking that fundamental knowledge could cost them a lot. One is that you will have a harder time getting qualified for the loan.

Second, even if you do qualify, you will likely get a high mortgage rate. A high mortgage rate can cost you thousands of dollars in interest – money that you could contribute towards savings, investments, and retirement.

To avoid this mistake when buying a house, first figure out your credit scores through a free monitoring service like MyFreeScoreNow. A good credit score is around 700+. 

Once you have an idea of what your credit score is through your credit report, take steps to improve it. One way to raise your credit score is not to max out your credit limit. 

Maxing out your credit cards can hurt your credit score significantly. Ideally keeping your credit utilization rate under 30 percent. 

Another way to improve your credit score is to pay your bills on time. Payment history accounts for 35% of your overall credit score making it very important to pay your bills promptly.

Mortgage lenders will scrutinize your credit reports when deciding whether to approve a loan and if so at what interest rate. If your credit report contains errors, you might get quoted an interest rate that’s higher than you deserve. That’s why it pays to make sure your credit report is accurate.

To avoid this mistake: You should use your free credit report each year from all three of the main credit bureaus. You should also dispute any errors you find. 

4. Making a Down Payment That’s Too Small

A down payment on a house is arguably the most important factor when it comes to buying a house. Unless you are so wealthy that you can buy a house with outright cash, you will need to come up with a down payment. 

The recommended down payment is 20% of the home purchase price. But many first time home buyers can be qualified for a FHA loan, where the down payment is 3.5%. 

However, the disadvantage of putting less than 20% is that you will have to pay Private Mortgage Insurance (PMI). A PMI is extra fee added to your monthly mortgage payment. 

Another disadvantage is that it will take you longer to pay off your mortgage. And your monthly mortgage payments will be much more.

One way to not have to worry about a PMI is to save for a 20% down payment before starting the home buying process. Saving for a down payment should not be that hard if you have a savings strategy in place.

Related: 10 Ways to Maximize Savings in 2020

You don’t have to make a 20% down payment to buy a home. Some loan programs allow you to buy a home with zero down or 3.5% down. Sometimes that’s a good idea, but homeowners occasionally have regrets and it inherently carries more risk.

Use Mortgagecalculator.org when looking at how much of a down payment to use, balance this with how much you can afford monthly.

To avoid this mistake: A bigger down payment lets you get a smaller mortgage, giving you more affordable monthly house payments. The downside of taking the time to save more money is that home prices and mortgage rates are always changing, which means it could become more difficult to buy the home you want and you may miss out on building home equity as home values increase. The key is making sure your down payment helps you secure a payment you can comfortably make each month.

Budgets Suck. Do This Instead.

Budgeting sucks; it’s really boring and most of us never stick with it. Learn an easy way to (not) budget in only a few minutes a month.

Don’t get me wrong. I’m not saying you should just throw caution to the wind and blow your money on whatever you want. Becoming Financial Independent requires a certain amount of discipline, which means you can’t turn your expenses into a money inferno. BUT that also doesn’t mean you have to cut expenses down to the bone.

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Old-school personal finance books tell you that if you just create a budget and stick to it, then you’re all set and your money problems will be solved. But anybody who has ever tried budgeting knows it isn’t quite that simple or easy. 

In fact, only one out of every three Americans creates and follows a long term financial plan. Obviosuly budgets work for some but we will cover a different approach to manual spreadsheets, 50/30/20 , and the envelope method.

You know you should budget, but you also know you’re not really going to do it. Learning how to budget isn’t the problem, the information is out there.

You can visit any one of hundreds of personal finance blogs to read about budgeting techniques:

  • You can download free spreadsheets on countless sites
  • You can pick up one of hundreds of books
  • You can use any one of dozens of budgeting apps, many are free

Even if you track every dollar and dime you spend for 30 days… you’re still human.

Over the past 10 years in the navy, I’ve messed around a lot with my budget. I’ve set monthly budgets, annual budgets, and weekly budgets.

I’ve tracked my spending using paper and pencil, spreadsheets, and apps like Mint.com. And through this I’ve learned alot.

Tracking spending manually is pointless.

I never keep up or on top if it for very long. And I’m a financial blogger and nerd about this stuff.

Spreadsheet, Graph, Chart, Report, Theme

If I can’t do it, how can I expect you to. Monthly budgets are useless because it’s so easy to underestimate our monthly expenses.

There are some you pay for every month, such as housing, transportation, utilities, food, and debt payments.

Then there are things you pay for less often like car repairs, home improvements, trips and vacations, holiday gifts, and insurance payments. For you, these less predictable expenses may only be 10 percent or so of your total spending. But for me they’ve crept up to more like 30 percent.

And here’s what this means. Accounting for, and “pre-spending,” every dollar you make can be a financial mistake.

If you take your annual take-home pay, divide it by 12, and proceed to spend that amount every month, you’re going to be in trouble when that unexpected expensive repair comes up, or any of lifes financial curveballs comes your way. 

So what you need to do is stop obsessing over the detailed, track-every-penny budgets you’ve always been told were the solution and instead, you need to implement a simple spending plan that’s easy to set up and easy to follow. 

What is a simple spending plan?

A simple spending plan is an easy way to budget that helps you save money, get out of debt, pay your bills on time, and still allows you the freedom to spend money on things you value or keep you sane, within reason of course.

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Step 1: Track your spending automatically

Budgeting is simple: Subtract your bills from what you earn; save or spend what’s left.

Forget about manually tracking every beer, energy drink, coffee etc. The goal is to set up a system that keeps track of all of your spending electronically without any additional work from you so that you can access it as you need to.

An easy way to do this is by using the single-card method. This is when you use a single debit or credit card for all of your purchases, or as close to all of them as you can, and let technology do the tracking for you.

One of the best ways technology can help our wallets is by eliminating the need to use cash, and therefore, eliminating the need to keep track of our cash expenses. Now this is counterintuitive to what most of the old-school financial gurus say about cash helping you spend less.

Electronic payments are here, like it or not, and the number of times you need cash (for anything) over a debit or credit card are fewer and fewer. But the best thing about using a credit or debit card is that you automatically have a record of all of your spending.

So should you use credit or debit?

An age-old question. If you have a tendency to buy things first and figure out how you can pay for them later, stick to a debit card. But if you’re comfortable with a credit and only charging what you can pay back in full each month, credit cards are more useful than most debit cards for tagging and categorizing your purchases, as well as cash back and rewards that they offer.

Find the best credit cards, how to choose the best card for you, and how to use credit cards responsibly at Nerdwallet.com

If a single card isn’t for you, an alternative to the single-card method are personal finance management (PFM) tools. These applications link to your credit and debit cards, aggregate your transactions, and can even categorize them automatically.

You set spending limits, and they can send an email or text when you hit them. These apps are powerful and effective, if of course, you remember to login occasionally and make sure the categories are right, and view your spending.

But even if you don’t, that’s OK. The important thing is that data is there if you need it.

10 Reasons You’re Still Poor

If you ever find yourself asking “why am I broke?” then odds are you’re falling into one of the 10 pitfalls discussed below. Fix a couple of these and you will be able to find a little extra wiggle room in your budget at the end of each month.

You have a job but your paychecks never seem to stretch as far as you think they should and ends never quite seem to meet. You know you should be saving more and spending less, yet you never manage to do either. You’re hoping your financial fortunes will somehow turn around. In the meantime, the debts keep piling up. Sound familiar?

Instead of waiting for your situation to magically improve, it’s time to take a hard look at all the things you’re doing that are contributing to your financial troubles. That’s right: It might actually be your own fault that you have no money. 

 A few will probably look very familiar to you. Follow this advice for fixing your finances and you should be able to dig yourself out of your hole.

No Money, Jeans, Money, Wallet, Poverty

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#1: You Slave Away for a Paycheck

Other than working for commissions or investment banking, where you can leverage company assessts, if you really want to get ahead in life you have to own your own business. I am not saying that you need to quit your job immediately. You need to have the right mindset in order to start your own successful business without quitting your job, or having to put up a lot of money.

At some point, if you want to be wealthy you have to get your own business. Otherwise you will continue to spend all your time making someone else rich.

#2: You Painfully Ignore the Power of Interest

So you were young and dumb and maxed out a credit card because you were desperate. This is not an uncommon occurrence. But that singular decision can have a lasting impact.

Sure missing a payment lowers your credit score, making it harder to get a car loan or that mortgage you’ve been hoping for…everyone knows that.

But that’s not the only the only problem — it’s the crushing interest payments that you didn’t take into consideration. If you send in just the monthly minimum (2% of the balance) on a credit card with a $5,000 balance and 15% interest rate, it will take 32 years to get rid the debt, and you will pay nearly $8,000 in interest on the original $5,000 balance.

#3: Car Poor

What keeps most people from financial freedom? What keeps people from having a solid retirement fund? What keeps Americans poor? It’s not lattes and impulse buys, it’s way too often car payments.

$500/month, invested at an 8% interest rate, over an entire typical adult lifetime, would be over $2 million, but people would rather have a nice car than money. And I get it, you want a nice car, but there are ways to save and wait until you can actually afford a nice car. If you have to finance it, you can’t afford it.

A good rule of thumb is to pay no more than 5x your monthly salary for a vehicle. Figure out that amount, and save first, then buy once you have the money. The idea is to make car payments to yourself in an interest-bearing account, instead of making car payments to a company and paying interest.

If you can break free of the mindset that says “you should care what other people think” or “you deserve a nice car,” you’ll be one step closer to financial freedom!

#4: Unsuccessful People Try to Reinvent the Wheel

Poor people always try to come up with something spectacular and new to make their fortune. This is the biggest trap you face as you work toward your goals. Instead of something new, what you need is a proven system, one that you know works and will help you gain success.

Caveman, Primeval, Primitive, Man

Warren Buffet once said, “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”

What is the system that you have in place? Are you trying to reinvent the wheel or do you have one that is proven?

#5: Controlled by Fear

Fear is a natural component of the business world. If the path to success were clear-cut and infallible, then everyone would be wealthy. Because it isn’t, everyone must deal with situations that make them anxious. There are three different ways to process and manage fear: The first two options will destroy your chances for a successful and healthy life, while the third gives you the mindset you need to use fear to your advantage.

1) Some people pretend that fear does not exist. The people who manage fear through ignoring it end up in a life filled with poverty and misery. By ignoring fear, you let it control you because you neither acknowledge it nor learn how to deal with it. Unacknowledged fear renders you impotent in your efforts to reach your goals, and this is the most disempowered state for wealth and success.

2) Other people act in spite of fear. This way of dealing with fear allows you to achieve certain goals despite being afraid; however, it leads you to anxiety. Yes, you will have wealth, but you will constantly be afraid of taking the wrong step. These people are hung up on worries like “What if I fail?” and “What if I don’t hit my goal?” This results in a situation where you second-guess every decision and live in fear of failure.

3) Successful people embrace fear and let it motivate them. These people achieve their goals and do so by acknowledging their fear without letting it ruin their enjoyment of their success.

10 Lies We Tell Ourselves About Debt.

Debt is one of those things that is almost unavoidable. If you want to buy a car, you’re likely taking out a loan to pay for that car. If you are looking to buy a house, unless you are very wealthy, you are going to be getting a mortgage on the home.

Some debts are less bad to carry and have some tax advatages over the others, like mortgages. Others are really just bad—think revolving credit card debt that never gets paid off. But if you’re trying to get out of debt, you may come across a lot of misinformation.

While we know how we should live financially, many of us just don’t listen. Thing is, I believed the lies and fell for the hype as well.  I didn’t listen to what the experts had to say.  I just did what I thought was right based on what I was reading and had been told by others in my situation.  But all along I was just lying to myself.

The thing is, debt is bad.  There is no other way to say it.  You don’t want it.  You don’t need it.  So why then, do we all continue to believe the myths and lies?  Perhaps it is because we just don’t even know that is what they are. I along with many many others are guilty of believing and living these untruths. Here are 10 lies people believe about getting out of debt.

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1. Everyone’s got debt

This one isn’t entirely false. Most Americans—75 percent—do carry debt. Most can be attributed to student loans, mortgages, and car loans.

The really unfortunate form of debt is the dreaded credit card that you can’t pay down.

For the purposes of this article, we will focus on non-mortgage debt. Focusing on credit cards, student loans, and automobile loans. While auto loans have finite terms, credit card and student loan debts could literally stay with you a lifetime if you don’t hunker down and come up with a plan to take care of them.

There are many Americans who have no debt at all.  Some do not even have a mortgage payment. “If everyone was jumping off a bridge, would you jump too?”  Of course not.  You have more common sense than to do that, don’t you? Why then, do you think that just because everyone has debt that it is OK for you to have it too.

This lie is often trotted out when we want to excuse a new purchase. Herd mentality is nothing new. I used this very defense more than once when I wanted my parents to buy the next “new thing” for me in high school. “But mom… but dad, everyone has one!” However, there are plenty of people who have no debt at all, not even a car payment or a mortgage. Debt does not have to be a constant reality from birth to death. Everyone does not have debt.

2. I don’t need to sacrifice

To be frank, I hate the term “sacrifice.” What you really need to do in order to free yourself from burdensome debt is to make an active choice to do so. Choosing not to buy the latest iPhone or smart watch is not a sacrifice. Jumping on a grenade in a war zone is a sacrifice.

If you think that you are going to get out of debt without making the hard choices about the purchases that you make going forward, then you should stop reading now.. not really. But thinking of this reminds me of Dave Ramseys saying “If you will live like no one else now, later you can live like no one else

See also: Dave Ramsey vs Robery Kiyosaki

You are most likely going to have to say no to a lot of things. That dinner date with your friends at the fancy sushi restaurant, the new iPhone, that gym membership that you only use once a month, or the fastest internet plan your provider offers.

3. I can only afford unhealthy foods

While going to McDonald’s and buying food off of the dollar menu may be cheaper than going to the grocery store and getting some healthy alternatives, it is not a good life choice.

You can create extremely budget friendly meals at home that will not only be better for your body, but will taste better, too.

If you doubt me, here is a link to 15 recipes that you can cook at home for under five bucks! There are so many more that you can find on your own by just searching for key terms like “cheap, healthy recipes.”

What’s the point of getting out of debt if you can’t live long enough to enjoy the benefits?

No more excuses for eating that unhealthy fast food—well, at least not monetarily.

10 Ways to Maximize Savings in 2021

You’re probably familiar with the annoying saying that “it takes money to make money.” There’s definitely some truth in it. The more money you stash away in investments that generate passive income, the more income you earn. The more capital you have to launch a business, the greater its odds of success.

What they don’t normally tell you is where to find the initial money to invest. That’s because it’s an answer no one really wants to hear: You have to live well below your means and save it. You have to maximize your savings rate, the percentage of your net income that you put toward savings and investments.

The price of building wealth is a high savings rate, which takes discipline. It’s not fun to drive a 5 to 10-year-old Honda while your colleagues and friends drive brand-new BMWs. But if you want to build true wealth, it’s time to get serious about your savings and start piling money into income-oriented investments that will make you truly rich, instead of just rich-looking to your friends.

How to Maximize Your Savings Rate

Boosting your savings rate is partially about budgeting but spending less is more a behavioral problem than it is a math problem.

Being able to use some of the tips below will help you spend less while achieving a similar quality of life. Some are about reducing wasted money, others about automating savings. All require a high priority toward accumulating wealth.

Remember, as you set about raising your savings rate, that it’s more about adopting a mindset than it is about any one tactic or action. If keeping up with the Joneses is a priority for you, don’t expect to ever save much money, because there’s always someone with a fancier lifestyle you compare yourself to, and try to keep up with.

A great book that goes deeper into this concept of keeping up with the Joneses is The Millionaire Next Door. Which is an excellent read and will make you realize how much you and those around you are hurting their long-term wealth generation for things that don’t actually make them happier. 

Start internalizing a desire to build real wealth. It takes patience, time, and discipline, none of which is sexy. But there’s no more effective way to build long-term wealth than by investing every possible cent in high-ROI investments and letting the returns compound.

Saving more money doesn’t have to be about cutting your daily coffee(my favorite coffee death wish for you kcup users), feeling guilty about spontaneous buys, or trying harder. Before you start slashing expenses left and right, start with these three steps to set yourself up for successful saving.

  1. Recognize that saving is not about more willpower. You may have tried and failed to save money in the past. If trying didn’t work then, don’t expect it to work now. Trying harder to save, or summoning more willpower to save, is not going to work. If you’re serious about saving money, putting systems in place that help take the emotion and effort needed to make it easier for you to save is the way to go.
  2. Be realistic. When planning on how to save or how much money to save, set realistic goals. For instance, if you eat out most nights or buy a daily morning coffee, you don’t have to go cold turkey in order to save money because your not as likely to stick to it. Making gradual changes over time to your habits will make it more likely that you’ll stick with them.
  3. Automate your savings. Automating your finances is the best step you can take to save money with ease. You can have your employer funnel your money to two accounts instead of one, have your bank automatically move a small amount into your savings account every month, or set a Goal specifically for saving with your simple account. Whichever you choose to do, the idea is that you have money you want to save monthly automatically funneled into a place separate from the rest of your money. Automating your savings makes it effortless to grow your savings and more difficult to spend the money you’ve saved.