Buying a house is a big deal. A house is often the single most valuable asset an individual owns, it costs a bunch of money, and for most people it means taking on a huge amount of debt.
As a veteran homeowner today, I wish I would have known these five things before I first took the plunge on my first home purchase.
1. Owning a home is a lot of work
When I was a kid, my least favorite of all my chores was picking up pine cones. I should have put two and two together on this one, but 20 years later, when I first bought my own home, I realized that once again I was responsible for cleaning up all the pine cones.
And for painting. And for cutting the grass. And for cleaning the shutters and gutters. and everything else that goes into maintaining a house.
For some people, like my dad, cutting the grass or doing some of these typical home maintenance tasks can be fun, even relaxing. I'm not one of those people.
The reality is that owning your own home is a lot of work. There's nothing wrong with that fact -- just know it up front.
2. Things break, and it's up to you to fix them
About a year after I bought my first house, the air conditioner suddenly went quiet. It was late July in the south, and to say it was hot and humid would be putting it very, very mildly.
Being perhaps a bit naive, I had not budgeted for this unforeseen yet absolutely necessary repair. When it catches you off guard, spending a few thousand dollars on your HVAC unit can be a painful experience.
Not long after that, I had a problem with the stove, requiring it to be replaced. This time I was ready, and the financial surprise was minimal.
Things will break, and it's your responsibility to fix them or go without. Budget accordingly.
3. The bank will give you way more money than you can really afford
My first home purchase was pretty early in my career, and I was by no means making the big bucks. Yet shockingly at the time, the bank approved me for a very healthy six-figure loan. The approval was for far more than I needed to buy my house.
Looking at my own budget, the numbers just didn't make sense. Even though my ratios were within the bank's policy at the time, there was just no way I could make ends meet with that size of a monthly payment, plus taxes and insurance.
I ended up buying the house I was originally considering with a much more manageable debt burden. Had I taken on more debt, the end result could have been disastrous.
Just because the bank is willing to give you more money doesn't mean you should take it.
4. There are costs and annoyances you've never considered before
In my neighborhood at the time, residents had two choices for trash collection. For $9 per month, the resident could roll out his or her trash cans to the road once a week and city workers would load the trash into a garbage truck and take it away.
But for $27 per month, those city workers would walk into your yard and roll your trash cans out for you, load the trash into the truck, and then return the cans to the side of your house. Talk about luxury!
Being a young professional just starting out, I opted for the former option. The problem was that when my monthly bill came in, the city defaulted me into the $27-per-month program.
Emails were unanswered. Calls and voicemails fell on deaf ears. Letters were apparently lost in the mail.
It wasn't until a few months later that a neighbor told me that the city responded only to in-person requests to change your trash collection preferences. This was bureaucracy at its worst, but fortunately it cost me only an extra $50 or so -- if these oddball processes were applied to taxes, water usage laws, HOA rules, and the like, the costs could be very large and severe.
Ask around in the neighborhood before you buy, to try to discover all the oddities that could cause you hassle and pain down the road.
5. Living in your own home is not an investment; it's a forced savings account
The real estate bubble and financial crisis taught the nation a painful lesson. A home is not an investment; it's more akin to a forced savings account.
Your home doesn't generate a profit. It doesn't have revenues or sales. It doesn't pay you a cash dividend each quarter. But it does force you to pay a chunk of change to the bank every month.
Part of that payment goes to the bank as interest, but the other portion goes to your equity in the property. Over time, those payments really add up, building sizable wealth over the long term. Those monthly bank payments are a required contribution to a savings account -- your home equity. That's why homeowners tend to have higher a higher net worth than those who rent.
Foolish final thoughts
At the end of the day, I'm glad I bought my first home. It was a rewarding experience as a young adult and investor, even including some of the unforeseen annoyances and expenses.
Owning real estate, or any asset for that matter, for the first time is always a learning experience. Keeping an open mind, asking for help, and planning for surprises will mitigate many hiccups and make the experience much more rewarding personally and financially.
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