Buying a new home is an especially exciting event for a first-time home buyer. In 2014, first-time home buyers made up the smallest portion of home buyers in 27 years -- 33% -- but there were still millions of them. If you're one, be careful that you don't get carried away and end up spending more than you should.
Here are some money-saving tips for first-time homebuyers -- and others, too, who may be setting up a new home:
Don't think of your home as an investment
Many first-time home buyers mistakenly think of their homes as investments. That's not ideal, because real estate isn't the best path to wealth for most of us. Nobel-prize-winning economist Robert Shiller is famous for his studies of the housing market, and his data suggests that housing prices have grown at a compound annual rate of just 0.3% over the past century (inflation-adjusted), while the S&P 500 has averaged roughly 6.5%. And that's just an average. If you were unlucky and bought in the wrong places at the wrong time, you'd be in worse shape. Worse still, real estate has some big drawbacks compared to, say, stocks. For one thing, you can't liquidate a home quickly, and you can't sell off part of your home in order to generate some needed funds. Buying a home isn't necessarily a mistake at all, but you may well not make a lot of money doing so.
Get the right insurance
One of the first things you do when you get a new home is buy insurance for it. You may get a better price by carrying multiple policies (such as home and car, and possibly umbrella insurance, as well) with the same insurer. But shop around, to make sure you're getting the best rates you can. You may save $200 a year by bundling your policies with one insurer, but sometimes not doing so can enable you to save, say, $300 on one policy with a particular insurer. Consider opting for a sizable deductible, too, if it's affordable, because that can lower your premium considerably. According to the Insurance Information Institute, hiking a deductible from $500 to $1,000 can save you as much as 25%.
Finally, buy the right amount of insurance. You might have paid $200,000 for your home, but it might cost $250,000 to rebuild it in the event of a catastrophic fire. Alternatively, much of your home's value might be in its location and land, meaning that you can probably insure it at a value lower than what you paid for it.
Don't remodel in order to boost your home's value
You may be eager to remodel your kitchen and/or bathroom, or make other improvements to your home. In most cases, though, you should do so only for your own enjoyment and not in order to boost your home's value. That's because most improvements will cost you more than the value they'll add to your home. According to 2014 data from Remodeling magazine, the national average cost of a mid-range major kitchen remodeling was $55,000, while only adding about $41,000 to the home's value. Homeowners only recouped about 74% of the cost of the job. A bathroom remodeling recouped just 73%, while a two-story addition recouped 72%.
Consider making energy-efficiency improvements
Some improvements can be well worth it financially, though. For example, you might replace light bulbs with ones that use less electricity, install a programmable thermostat and weather-stripping, get new, energy-efficient appliances and heating and cooling equipment, and install more insulation in your home. Together, such initiatives can save you hundreds of dollars per year. Insulation can help you save as much as 20% of your heating and cooling costs, while a programmable thermostat can help you save up to $150 per year.
Just be sure that you plan to stay in that home for enough years to make it worth the cost. You don't want to be making the home energy efficient for the folks who will buy your home in two years.
Explore tax breaks
It's also well worth exploring tax breaks that might be available to you -- beyond the lovely mortgage interest and property tax deductions that you will probably enjoy on your federal tax return. Check with your town, for example, to see if there's a property tax break in the form of a homestead exemption if you live in the home. Some municipalities offer special concessions for senior citizens, veterans, the disabled, and so on.
There may also be tax breaks for energy-efficiency improvements you made or remodeling you did, if it meets certain criteria, such as being done to update an old house. A first-time home buyer in 2014 or any other year would be well served by looking into all tax breaks available.
Save money for eventual repairs
Don't forget to plan for future necessary expenses that might come at expected or unexpected times. A new roof can cost you several thousand dollars, and if water is leaking into your bedroom, you won't want to put off such an expense when it's needed. Water heaters will often last less than a decade, and sometimes much less. Various appliances will break over time, and a painted home will need a new paint job eventually, too. It's a good idea to accumulate money in a special home-maintenance fund, so that it's available when needed.
Don't neglect your emergency fund and retirement accounts
Finally, despite all the home-related expenses above, don't neglect the rest of your financial life. Be sure to have an emergency fund ready to carry you for three to nine months, should you lose a job or suddenly face a costly health crisis. It will need to be sufficient to pay for food, your mortgage, utilities, transportation, and so on. Keep saving and investing for retirement, too.
Be strategic when you buy your first (or fifth) home, and you can save a lot of money.
Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.