Your home is your castle, the place where you live, your refuge and the source of many of your memories. That is why it is often difficult to see it as the investment and financial asset that it really is. At the end of the day, everyone needs a house, a place to live.
And it is precisely that fear of being left without one that is one of the reasons why Spaniards tend to want to own a property, when it is not always the best option. In fact, that misconception is one of the most typical mistakes made in terms of housing.
In this article we tell you why, as well as the other mistakes you should avoid when it comes to your home.
Thinking that renting is throwing money away
You’ve probably heard that phrase more than once and you may have even thought about it when thinking about whether to buy or rent.
The reality is that renting is not a waste of money. Just like when you dine out, you’re paying money to get something of value in return – in this case, a home with a number of amenities that you wouldn’t have as a homeowner, for example.
Like everything in life, renting has its moment, its advantages and disadvantages. Renting can make a lot of sense in the early stages of your life, when you don’t have the resources to buy a home and what you need is the flexibility to live wherever you want.
In fact, this flexibility is one of the advantages of renting because it allows you to adapt your home to your needs without the financial and mental ties of a mortgage.
Conversely, it is money that is not helping you to acquire an asset (your house).
The way to make the best decision in your particular case is to do the numbers and take into account your stage of life. Think about:
- The city you live in and your plans to stay there long term or travel.
- The reasons why you want to buy a house.
- How much it will cost you to buy the house you want by adding up the price of the house and the mortgage.
Spending more than you thought you would on the purchase
Your home is the biggest purchase you will ever make in your life and that’s why having a fixed budget should be a must. In other words, guide your purchase according to your finances and not your emotions.
Unfortunately, that’s easier said than done. Common mistakes when buying a home include:
- Getting carried away by your heart and ‘falling in love’ with a particular home, which will cause you to overpay.
- Buying a house thinking only of the present and not the future, such as a two-bedroom house for a couple that later becomes too small with children.
- Buying a house for life when you are young, which translates into a more expensive house and usually a larger mortgage that will tie your hands financially.
- Focusing on a single neighborhood or area, especially when you are young. In fact, the most common thing is to want to live where your parents do and in the way they do, when your financial situation is probably different.
- Not taking into account the taxes you will also have to pay when you buy, and later as an owner.
Added to this are other issues such as not knowing how to negotiate the price or buying the first house you see just for fear that the price will go up or that you will lose the purchase.
In all cases the result is usually the same: spending more than you had intended to on your home.
Not getting the right mortgage
Most people need financing to buy their home. This translates into a mortgage, where getting it wrong is easier than getting it right.
In fact, getting the mortgage wrong is one of the biggest housing mistakes, and not because you made the wrong choice between a fixed-rate and a variable-rate mortgage.
There are two common mistakes with the mortgage that will make its cost skyrocket.
- Focusing on the monthly payments and not on the total interest. Of all the mortgage variables, the monthly payment is actually the most variable. In fact, it reflects all the other elements of the loan. Namely: the amount you ask for, the interest rate and the term of the loan. If you extend the term long enough, the instalment can become ridiculous, even if the total interest rate skyrockets. For that reason, when looking at a variable, it should be the total interest that you will pay for the loan and the best way to limit it is to sign a short-term mortgage.
- Look at the differential and not at the cost of the discounted products. It is common for financial institutions to improve the interest rate if you increase your relationship with the bank. From paying your salary directly into your account to taking out a life or home insurance policy, or even a pension plan. A common mistake is to get carried away by this reduction in the mortgage rate without properly studying the costs of these products. Before making the decision it is important to compare costs and review their conditions.
Underestimating the costs of home ownership and overspending on renovations
Being a homeowner entails a series of expenses that are easy to overlook. The first is the taxes that you have to pay for the house, especially Property Tax (Impuesto de Bienes Inmuebles or IBI in Spain).
The second are the costs of maintaining the house and any renovations that you plan to carry out over time As with the purchase of the house, it is usual to overspend on doing up your home, especially if you finance it.
The final issue is related to community fees for apartments and property expenses. A common mistake when buying a house is not knowing the condition of the property and then having to pay additional expenses.
Not seeing the house as an asset
Your home is both the place where you live and a financial asset. If you only see it as the place where you live, it is easy to hold on to it against all odds, even when you are having trouble paying the mortgage.
One of the advantages of renting is the flexibility. You can move whenever you want, and that can help you adjust your expenses if you hit a financial rough patch. In other words, you can change your rented apartment for a cheaper one.
With your own home you can do this too. You just need to start seeing it as a financial asset. You don’t have to sell the house if, for example, it’s not a good time. You could also rent it out and move to a cheaper place to live.
Keeping the family home when the children are gone
The last big housing mistake occurs when children leave home to start their own families or live their own lives. The most common thing to do in this situation is to hold on to the family home, which is usually no longer adequate for your needs.
In other words, you may have a four-bedroom house when two would suffice, or be in a community with common areas and a swimming pool that you don’t use. All that unused space is an additional cost in terms of both money and time. At the end of the day, maintaining a large house costs more than maintaining a small one and you will also need more time to clean it, for example.
The solution is the same as with the previous mistake, start looking at your home as an asset. In this case, an asset that can supplement your pension if you are retired, or help you make it better if you are not yet retired.