My First Time Home Buyer Tips to Avoid Debt
…From Someone Who Made Every Mistake in the Book!
I’d like to think I’m a little bit financially savvy. I’m debt free. I recently had a debt free wedding. I’m the author of a book that will get you out of debt. And I have a few first time home buyer tips to avoid debt. But only because I’ve made so many mistakes on my own home ownership journey.
Let me tell you a little story about two first time buyers. Specifically, their first time buyer mistakes and the debt they got into along the way.
It was 2015. We had just received the keys to our first home, and we were busy moving in. It was the fourth property we viewed, and we were desperate to secure it.
We tried to negotiate on the price, but the buyer persuaded us to increase our offer. He said he liked us and wanted to sell the house to a nice couple. So we met him at his price.
Our home was a fixer-upper, and despite not having any experience in this field, we decided to renovate. Straight away, I scoured the internet for ideas, and started purchasing furniture.
“We thought that having the perfect home would make us the perfect people, with the perfect lives.”
As for our mortgage, we went with the first place that accepted us with the rate they offered. We had a 5% deposit, which was our total savings. We were elated when we were offered our mortgage, because I had a temporary work contract and didn’t think I’d be eligible.
When we moved in, we started our renovations by cash-flowing what we could. But we couldn’t financially keep up with the pace of the renovation work, and took our a loan of £7,500 to finish it. A week later, having realised we hadn’t factored in all of the costs, we topped up our loan to £13,500.
By the time we completed the work, we were in a ton of debt. We had no money to spare every month, and an expensive mortgage to pay. We were both exhausted from living in a building site. And honestly, after all of that, we felt nothing but resentment for our home.
Four years later, I look back and shudder. I was worrying about my work situation and wondering if I could be unemployed at any moment. My husband was working so many hours that he was facing burn-out.
But despite this, we believed that having the perfect home would make us the perfect people, with the perfect lives.
The reality is that first time buyers make a lot of mistakes, many of which lead to debt. The debt we racked up felt like a mountain, and the financial pressure of owning and maintaining a home felt overwhelming. Everyone around me was financing sofas and landscaping gardens. I was wondering how they could afford it, and at the same time, financing those things myself.
Four years later, I’m glad to say that we are debt free and our circumstances have changed for the better.
But when it comes to first time buyer mistakes, we made them all. Here are my first time home buyer tips to avoid debt, based on my own mistakes.
#1: Focus on saving a decent deposit and securing the right mortgage
First time buyers are usually short on time, between balancing their many commitments and responsibilities. It’s natural to focus more time and energy on looking for homes, and less on saving for a deposit and finding the right mortgage.
My husband and I saved the minimum deposit, which meant that we seriously reduced our eligibility for better mortgage rates. We borrowed the maximum we could, meaning we have so much more interest to pay.
We also didn’t shop around for mortgage rates, which meant that we didn’t get the best deal for our circumstances.
Avoid a first time buyer mistake by:
Doing your research when it comes to your first time buyer mortgage. Rather than spending all of your time viewing houses, apportion some time to focus on mortgage deals.
As for paying for independent mortgage advice, this could be a great idea if you don’t plan on shopping around for the best deal. It may be costly, but could save you a lot more if you secure a better deal as a result.
And when it comes to your deposit, aim to put down at least 20%.
“Everyone around me was financing sofas and landscaping gardens. I was wondering how they could afford it, and at the same time, financing those things myself.”
#2: Dictate your own budget when looking for your first home
When we were looking for our first home, we based our search on what we could borrow rather than what we could afford. This was because I perceived what we could afford, and what we could borrow, as one and the same.
But they aren’t. As a first time buyer, what you can borrow is what a lender is prepared to lend you based on their criteria. What you can afford is what you will be able to comfortably pay each month based on your own, specific circumstances.
We based our search on what we could borrow, which meant we focused more on large, fancier properties that we knew, deep down, we couldn’t afford and we would never pull the trigger on. It was a huge waste of time and energy. We ended up buying a smaller, less intimidating property. But more on that later.
If your first time home search is based on what you can borrow, you tend to forget what you can afford, and what fits your circumstances.
Avoid this first time buyer mistake by:
Rather than waiting for a lender to give you an ideal of how much they will lend you, figure out what you can comfortably afford to pay for your home each month. And work off this figure to get an idea of the price range you’ll be looking at for homes.
Remember that lenders have criteria on which they base affordability, but this won’t take into account your individual circumstances. Only you know what you can afford based on your lifestyle and choices.
Realistically, what you can afford may be lower than what you can borrow. If so, look at smaller properties, and extend your search area.
Remember, this is your first home, and probably not your forever home. So don’t worry if it’s not the home of your dreams. You will be much happier living within your means in a modest home you can afford than up to your eyes in debt in a mansion you can’t.
There are a lot of first time buyers out there struggling to pay their mortgage due to irresponsible lending. Of all of my first time home buyer tips to avoid debt, this is the one that could benefit you the most.
#3: Factor in the cost of renovations, work and decor on potential first time homes
One of my worst first time buyer mistakes was viewing a lot of fixer-uppers without realising that I’d need a budget to pay for renovation work. It’s kind of like buying a fridge and having no money to purchase food to put in it.
We looked at a lot of properties requiring a lot of work. And not once did we consider the costs of bringing the house up to code, or the price of our plans.
And while I’m on it, I really wish I didn’t pore over Pinterest, home decor blogs, and home Instagram accounts, because they gave me unrealistic expectations of what my first time buyer home would be, and how much I should spend.
I learned the hard way that there is no point planning to build a glass staircase in my humble home. Ain’t nobody got time for that.
Avoid this first time buyer mistake by:
Add the cost of any work you are planning to carry out in the first five years in your first home.
Factor these costs into your budget. For example, if you immediately want to install a new bathroom, figure out much you need to save and how many long you’ll have to save these funds.
You may find that this will limit your search a little when you realise just how much of your income will be eaten up by the cost of renovating. But see this as a positive, because it’s much better to rule out a money pit before you’ve invested £20,000 in it.
#4: Forget what everyone else thinks your first home should be
When we bought our first home, I looked to others, rather than what we were doing, planning, and wanted for our future.
For example, while I love our home, there are parts that aren’t fit for our purposes. We have a huge garden that requires constant maintenance, even though we rarely use it. We have three bedrooms- and only need one or two. The one we actually use has got just one plug socket, which isn’t ideal.
In basing our property search on what we felt we should have bought, rather than what we needed, we’ve ended up in a home that costs a lot more than we needed to pay, and requires a lot more maintenance than we are prepared to give.
And I do love our home, but I can’t help thinking we should have bought a cosy two-bedroom terrace in a central location, saved the difference, and had a much bigger deposit right now to go towards our next home.
Avoid this first time buyer mistake by:
Tuning out social media, what your family are telling you and all of that well-intentioned advice from friends. Like affordability, base your property search on what fits your circumstances between now and the next few years, rather than external advice.
“…It’s much better to rule out a money pit before you’ve invested £20,000 in it.”
So these are my first time home buyer tips to avoid debt. I hope your first time buyer experience goes smoothly, and I wish you a lifetime of debt freedom!
Let me know in the comments below if you have any regrets with your first time home buy, and what you would do differently.
Want to be debt free? Then check out my book, How to Get Out of Debt, exclusively on Amazon