7 Home Buying Tips From Warren Buffett

Warren Buffett is a billionaire investor and the chairman and CEO of Berkshire Hathaway. Buffett has provided many pieces of helpful financial advice to investors in the decades he has been in business and in the public eye.

While much of this advice has to do with tips for investing successfully in the stock market, he has some wise words for real estate investors as well. Here are seven tips from Buffett that every homebuyer should read.

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Buying a home is a huge financial commitment, but it is one that Buffett thinks many people should make. Buffett told CNBC that he believes real estate can be a valuable asset "for a great many people."

Indeed, Buffett is correct about this, as homeowners generally have a higher net worth than renters and are often more engaged and involved in community affairs than renters.

ALSO READ: Homeowners Have Higher Net Worths, but You Can Still Get Rich if You Rent

Buffett has also made it clear that he believes a home purchase is a good investment, even if you could most likely earn a better return elsewhere.

"All things considered, the third-best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks," Buffett said in 2011.

His two best investments that beat out his home were wedding rings.

This advice is important because it underscores that some financial decisions are about more than just math. It may be true that you could earn a higher ROI by putting your money into the market, but that doesn't mean you should give up on homeownership, as it can come with intangible nonmonetary benefits that can be impossible to measure.

Although Buffett has indicated that buying a home was the right choice for him and could be the best option for many others, there is a caveat.

He told CNBC that owning a property could be a good investment "for families that plan on being in the same location for many years."

Buffett is making the crucial point that you must consider long-term plans when deciding whether to buy. If you purchase a property and don't plan to stay there, you could lose money on transaction costs.

ALSO READ: Do You Really Need to Stay in Your Home for 3-Plus Years to Break Even on Your Mortgage?

At a Berkshire Hathaway meeting, Buffett was asked when to purchase a home. He suggested you wait until the down payment is around 10% of your net worth.

He believes this is important not to tie up too much of your money that you could use for other wealth-building endeavors. Buffett's advice here is important because if you jump right into saving for a home, you could miss out on making early investments in other assets and benefiting from compound growth.

When it comes to your mortgage, Buffett is very clear that you should opt for a 30-year loan rather than a 15-year mortgage. In 2017, he referred to a 30-year loan as "the best instrument in the world." Buffett thinks this mortgage loan term is ideal because you lock in your rate with the bank but have a one-way opportunity to renegotiate your loan by refinancing if rates go down.

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Speaking on housing policy, Buffett gave some great advice. "Our country's social goals should not be to put families into the house of their dreams, but rather to put them into a house that they can afford," he said.

While it may be frustrating not to be able to purchase the "perfect" house that fulfills all your needs, you are far better off not overstretching yourself with a house that eats up too much of your income.

ALSO READ: How Much House Can I Afford?

Buffett also had a stark warning every homeowner should heed: "A house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender -- often protected by a government guarantee -- facilitates his fantasy."

Buffett's advice here is not to stretch to buy a home you can't afford, even if you can get approved. Many government-backed loans, such as FHA loans, are easier to qualify for even if you don't have perfect financial credentials, but that doesn't mean it's a good idea to get one.

Heeding these wise words from Warren Buffett can help you to ensure you don't buy a home before you're ready or choose a mortgage that doesn't make sense. Since your home is likely to be one of your largest purchases, it's worth following some advice from a true financial expert before you jump in.

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