I’m assuming you are reading this because you have a house and that house has a mortgage attached to it? There was that one time I assumed the giant storage rack I constructed outside would fit through my front door when it was complete… Assumptions can sometimes lead to muck ups.
So, tell me, what makes your house so special? Why did you pick the one you are currently sitting in while you are reading this instead of the one next door, or the one three streets over, or the one on the other side of town? Why in a town with 5,000, 50,000 or 500,000 homes did this one tickle your fancy? With so many houses to choose from so many of them will be the same but you chose THIS one. Why?
I’m going to make a few assumptions that the following things were important to you when you went house hunting:
- It felt homely and it had a good vibe
- You felt it had resale value while at the same time thinking this was your forever home
- The neighbours looked nice
- It had street appeal
- You were pretty sure you could afford it
We trawl through the real estate magazines and Trademe looking for the home that speaks to us, calls to us, and when we start to narrow our search down to one or two houses we call on our general lack of building and estimating experience and start to make on the back of the envelope vague calculations about how we are going to add our mark to it and what that work will cost.
- New driveway $20,000
- New kitchen $15,000
- Pull out a wall - we reckon we could try that ourselves? How hard can it be?
Basically what I’m saying is that we think we are making the biggest financial decision of our lives based on thorough research and facts but the facts barely come into it. It’s largely on a hunch, a feeling and a best guess that we really make the decision to throw all of our eggs into one house at Number 10 Thiswilldome Street.
It’s pretty amazing in my mind that we make an enormous amount of assumptions and guesses when we are looking for a new home and you will find plenty of willing real estate agents and sellers to back up your thought processes and wish lists no matter how bonkers they may sound.
I know the above to be true because that is how we bought our first house. For me it was a very quick process and involved picking a real estate agent by walking into the first one I saw, sitting with her at her office with 50 houses in front of us and ruling out 43 due to the number of bedrooms and looks alone, driving past the remaining 7 and ruling out 3 more due to street appeal, visiting the final four and picking one because I liked its vibe and the idea that we could do it up ourselves which would not cost much. Oh, and I got a LIM report. Job done.
How right and wrong I proved to be. It was nice to live it but it did take us many years of weekends to make it “our own”. Goodness knows what it cost us in the end, because as a homeowner I conveniently forgot the costs of homeownership: the new kitchen, new bathroom, landscaping and what have you. But it was it all worth it to have the kitchen we liked and the wall colours that matched our personality right? Our house even made it into a magazine which is a terrible justification for all the time and money we spent! It was pure dumb luck that it all worked out so who was I kidding when I thought that this was a thorough, methodical and sensible way to pick a house and plow every cent we borrowed into it and a whole lot more besides?
I have entered a much more systematic phase of my life now and our current home had a heck of a lot more planning involved with certain measurable criteria to meet, budget being number one. Vibe was never once mentioned but having it carefully planned out prior to even beginning to build it was. The word compromise and the sentence “we are not building a castle for future generations here” came into play instead.
So my tips to you if you are about to embark on your first home, or second, or third are these:
Get your financial house in order FIRST and acquaint yourself with an Excel Spreadsheet and/or all of the budgeting tools NZHL place at your disposal. And actually use them! What is your net worth? Exactly. How much do you have minus how much do you owe? Any surprises there? Find your lending amount and aim lower; borrow less than a bank says you can manage. Remember that a “stretch goal” is something you do at the gym, 20 press ups instead of 10, don’t let your bank set you a stretch goal. What exactly does borrowing an extra $50,000 look like in reality, how many more years will you need to trade your time for money to pay for it?
Working out your budget coincides nicely with educating yourself as to what is available to buy. Spend a fair amount of time researching homes that you are interested in and narrow down your list of available houses that are in your price range. Don’t even bother visiting homes you know you can’t afford, that would be like taking a kid to a lolly shop and making them leave empty handed.
When working on point number two keep the following in mind...It is just a freaking house. If you look around you THEY ARE EVERYWHERE. Only buy one if you want to, not because your parents told you to or society tells you it sucks to be a renter. Realise that other people probably don’t care about your house or they make assumptions about you without knowing the facts, and if they buy into the theory that you must buy a home and continuously improve it then by that very statement their house is better than yours anyway, so don’t worry about keeping up with them. Strip what you need back to the basics and borrow as little as possible to achieve it.
When choosing a real estate agent find one that acts for YOU and not the seller and don’t let them take you to houses “for comparison purposes” that you know fall outside of your criteria and that you know you can’t afford. And don’t be afraid to look at private sales either, they follow the same process but without an agent and without their fees.
You CAN assume the following. When you move into your new, carefully and logically purchased home something will break down, blow up or fall off within the first few months and you need to plan for this too. If you have plowed every cent into the purchase of your new home and left nothing for an emergency then you will have a problem. In your meticulously planned budget hold some money back for when you hit a bump in the road.
And finally, you need to fall in love. With your spreadsheet first and then maybe your house second. NZHL has the worst business model I’ve seen and you should be using this to your advantage! Most companies want to hold onto clients forever but instead they want to wave you goodbye once you have cleared your mortgage. They are actively trying to help you get debt free using budgeting tools to account for every dollar so you can direct your money into fast debt repayment in a systematic and calculated way! You want to optimise every dollar coming into your life so you can own your home outright as fast as you possibly can and you can’t do this if you are basing your decisions on assumptions alone.
And when you have done it, pat yourself on the back and then go and sit in your favourite chair, soak up “the vibe of it” and read a book about “being content with what I have” instead of “is this your next dream home”?
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans (NZHL).