12 Ways to Avoid Homebuyer’s Remorse in Today’s Market

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Owning your own home may still be the American dream, but many Americans are having regrets.

According to a recent survey by Bank of the West, 55 percent of homeowners in the U.S. have regrets about their homes.

Don’t let this happen to you. Following are some of the wisest ways to avoid buyer’s remorse in today’s housing market.

1. Understand mortgages

Mortgage loan
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Do you know which type of mortgage is best for your financial situation? Choosing wrong can cost you.

In addition to the mortgage interest rate itself, you must also consider whether you’re better off with a rate that is adjustable or fixed. Adjustable-rate mortgages are more of a gamble, especially as the Federal Reserve has continued to increase the federal funds rate, helping nudge mortgage rates in the same direction.

You will also have to decide on the mortgage term, such as 15 years or 30 years. The common 30-year mortgage gives you more time to pay off your mortgage and means a smaller monthly mortgage payment. But it also means you will pay far more in interest over the life of the loan.

As we explain in “The 6 Worst Mortgage Mistakes You Can Make“:

“If you’re not comfortable with the loan terms or don’t understand them, it’s better to walk away than to make an expensive and potentially life-altering mistake.”

2. Don’t buy a great house in a bad location

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You may have fallen in love with a house in a neighborhood that isn’t great. But Judy Dutton, a deputy editor at Realtor.com, advises against buying a home in a neighborhood that is dangerous, far from your job or “just doesn’t feel like you.”

“There’s a saying among real estate agents that it’s a lot harder to fix up a terrible location than it is to fix up a terrible house,” she tells Money Talks News.

For more tips to this end, check out “20 Tips for Buying a Home in the Best Location, Location, Location.”

3. Know when to rent

buy or rent a home
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Sometimes buying a home is not the right option. Sometimes it makes more sense to rent. Which is it for you?

The answer to this million-dollar question largely depends on your circumstances and preferences. But it may also help to calculate what’s known as the price-to-rent ratio for the city in which you would buy or rent a home. This ratio is a comparison of home prices and annual rent rates in an area.

Real estate websites like Realtor.com and Zillow offer free buy-versus-rent calculators.

4. Consider the new tax code

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The Tax Cuts and Jobs Act of 2017 temporarily lowered the tax deduction for mortgage interest.

Effective for tax year 2018 through tax year 2025, a married couple filing a joint tax return, for example, can deduct interest on a mortgage of up to $750,000 rather than $1 million. The lower cap does not apply to mortgages on homes purchased on or before Dec. 15, 2017, however.

Additionally, fewer homeowners are expected to benefit from the mortgage interest deduction at all because fewer taxpayers are expected to itemize their taxes starting with tax returns due in April. This stems from the significantly higher standard deduction that takes effect for the 2018 tax year.

As we detail in “4 Big Tax Deductions You Almost Surely Won’t Claim for 2018,” mortgage interest is an itemized deduction. This means you cannot claim it if you opt to take the standard deduction rather than to itemize your deductions.

5. Don’t underestimate ongoing home costs

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Don’t neglect to factor in ongoing homeownership costs such as:

  • Property taxes
  • Homeowner’s insurance
  • Maintenance and repairs
  • Utility bills

The Bank of the West Survey found that among the 55 percent of homeowners with regrets, the most commonly cited regret is that it is costly to maintain their home.

Mari Adam, a certified financial planner with Adam Financial Associates in Boca Raton, Florida, advises clients in her area to set aside 1 percent of their home value each year for repairs alone. If your home is worth $250,000, that’s $2,500 per year.

“You may get by a couple of years on the cheap, but sooner or later you’ll get hit with a big bill,” Adam tells Money Talks News.

6. Don’t tap your retirement account

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Keep your retirement money out of your home purchase. If you tap into it to help pay for a down payment, for example, you will rob your nest egg of not only the amount of money you withdrew but also the gains that money could have generated if you had left it in your retirement account.

Additionally, you will generally incur an income tax penalty if you prematurely withdraw funds from a tax-advantaged retirement account, including workplace plans like a 401(k) as well as individual retirement accounts (IRAs).

7. Don’t buy too much house

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Many young buyers make this mistake, Adam says, because they believe buying the perfect house will enable them to live the perfect life.

“Young buyers may be tempted to buy way too much house, and those big house expenses can leave them house-poor and focused on material stuff rather than quality of life,” Adam says.

8. Consider the future

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Give some thought to how your life may change in the future when considering a home. Dutton advises thinking five or 10 years into the future.

“Do you plan on having kids soon? If so, then you’ll want to make sure there’s room for your family to grow,” she says. “Or, will stairs be tough for your aging mother-in-law to navigate? Then you may want to avoid homes with stairs or at least have one with a guest bedroom on the main floor.”

9. Read up on community rules

Woman with book in front of a chalkboard that says Know the Rules!
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Read the rules of the communities you’re considering moving into. They may also be referred to as covenants, conditions and restrictions (CCRs).

Dutton advises getting a copy of the rules and making sure you can live with all of them. This is particularly important if you’re considering joining a homeowners association (HOA), or a condo or housing cooperative.

“These organizations often have a lot of rules, like what color you can paint your house to whether you can plant political signs out front,” Dutton says.

10. Make a list of wants and needs

Woman Checklist
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The National Association of Realtors advises homebuyers to draft a list of what’s a necessity and what’s a nice-to-have before they start looking at homes:

“Knowing what they can’t live without versus optional luxuries can help buyers avoid making an emotional decision on a house with beautiful counter tops but not enough bathrooms.”

11. Make a plan if you’re unmarried

Young African American couple.
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More unmarried couples are buying homes, which can complicate the homebuying process, Adam says.

She recommends that unmarried couples draft a written agreement before buying a home together. The agreement should detail what each person contributed to the purchase and what will happen to home equity and debt in the event that they split up.

12. Don’t look at listings after you buy

Man napping in a chair
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Once you have your home, don’t compare it with others on the market.

“We know that looking at listings is fun, but after you’ve bought a place, try to take a break,” Dutton says. “Otherwise, you run the risk of seeing places you think might be ‘better’ than the one you have.”

Would you add any other tips for home shoppers to this list? Let us know by commenting below or over on our Facebook page.

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