Thinking of buying a home in the near future? Keep in mind that there are several things that you should do, and a number of others that you shouldn’t. Buying real estate is a huge deal that involves a ton of money and commitment, so you want to make sure you’re making all the right moves.
To help keep you on the right track, be sure to avoid the following costly home buying mistakes.
1. Not Shopping For a Mortgage Before Shopping For a House
This is a common mistake among first-time homebuyers. They tend to get all excited about the prospect of buying and owning a home and forget about the need to get approved for a mortgage first. Many people may have an idea of what they can get approved for based on their income, but lenders look at a lot more than just what you take home with every paycheck.
When you’re ready to buy, it’s very important to get a pre-approval letter from a lender. You may have begun the process of getting approved for a home loan, but you really won’t have a clear indication of exactly how much you can afford to spend and what a lender may be willing to loan you if you don’t get pre-approved first.
Always make a stop at the lender’s office before you start house hunting.
2. Spending More Than You’re Comfortable With
Getting pre-approved for a mortgage is an important step, but don’t let that price limit mesmerize you. Just because you may be able to get approved for a loan of a certain amount doesn’t necessarily mean you should spend all that. The bank may have been diligent about checking your income, assets, debt load, and credit, but they don’t know what type of lifestyle you lead and what your other expenses may be aside from how much you’ll be spending to maintain and operate your home.
Life comes with so many more expenses other than home-related costs. Child care, hobbies, vacations, children’s education, retirement savings, and other expenses are not included in the calculations made by your lender. It’s your responsibility to crunch the numbers and factor in how much you typically spend before buying a home in the upper price range. You don’t want to be so stressed with your mortgage payments that you’ve got nothing left over to pay for anything else.
3. Making a Small Down Payment
If you want to avoid paying Private Mortgage Insurance (PMI), you’ll need to come up with at least a 20% down payment if you’re applying for a conventional mortgage. This insurance policy is meant to protect your lender – not you – even though you’re paying for it. But it’s obviously pretty difficult to come up with that kind of cash, especially if you’re buying a home in a particularly expensive market.
There are other home loan programs available for those who can’t come up with a lot of money for a down payment. For instance, FHA home loans require as little as 3.5% down, making it easier to get approved for a mortgage to purchase a home with a smaller down payment. But as convenient as these programs may be, many homeowners find themselves regretting not putting much more down.
Sometimes it’s worth waiting a little longer to buy a home to provide you with more time to save up for a larger down payment. The less money you put down, the bigger your loan amount and monthly payments will be.
That said, it’s important to assess the current market and mortgage rates and try to determine where the market and rates will go in the near future. Sometimes waiting too long can leave you paying a much higher interest rate on your mortgage and a lot more for a home. Be sure to consult with your real estate agent about what your best course of action would be in this circumstance.
4. Making Some Big Financial Moves Before Closing on a Home
You’ve been pre-approved for a mortgage, found the house of your dreams, put in an offer and it was accepted. Fantastic! But the house isn’t yours yet. In fact, your lender probably hasn’t finalized the mortgage just yet if closing has not yet occurred. During this time, it’s imperative that you don’t make any major financial decisions, or else it could throw a wrench in the mortgage approval process.
If you decide to take out a loan to buy a car, take out a couple of credit cards, or make any other large expenditure on credit, you could be shooting yourself in the foot. Your lender is working with the financial information you provided before you put in an offer on a home.
Now that you’ve added more debt into the mix, your lender will essentially have to start over, which can delay closing. It can even cause you to get turned down for a mortgage if the lender determines that your new debt makes you ineligible to afford your mortgage payments.
5. Forgoing a Home Inspection Because the House Looks Like it’s in Mint Condition
Just because a house looks like there’s nothing wrong with it doesn’t mean there aren’t any potential issues lurking. Some buyers mistakenly neglect to include a home inspection contingency because the house looks like it’s perfect. They may even forgo this contingency in order to speed up the process. But doing so can prove to be a very costly mistake.
While sellers might love the idea of not having to deal with another contingency and accept your offer as a result, you can end up with a ton of issues on your hands that you never thought you would. Even a new house can have certain things wrong with it, which is why it’s important to have the chance to have a home inspected by a professional before you seal the deal.
6. Ignoring the Neighborhood
Obviously, you want to make sure that the house you inevitably choose is a perfect fit for your lifestyle and your finances. But the structure itself is only a part of the equation. You’ll want to give just as much attention to the neighborhood it’s in before you make a purchasing decision.
The place might be a dream home, but if it’s located in a sub-par community, that will seriously impact how much you’ll end up enjoying your new home. Maybe the schools aren’t that great for your kids, or you’re right under an airplane route that will keep you up at night, or you don’t feel safe walking the streets when the sun sets.
Whatever the case may be, it’s important to uncover all traits of a neighborhood before you decide to invest in one.
7. Not Thinking About Resale Value
It might sound strange to think about selling your future home when you haven’t even bought anything yet, but considering resale value is very important. You might have intentions of staying put for years to come, but you just never know when life throws you a curveball that prompts you to make an unexpected move.
Whatever may happen that could put you in a position to move again, you’ll need to make sure that it will be relatively easy to sell the home for a decent price. When it comes to listing your house, how easy or difficult will it be to sell? Always keep resale value in mind when shopping for a new home, even if you plan to stick around for the long haul.
The Bottom Line
Considering the financial significance of a home purchase, it makes sense that you’d want to make each move very carefully and methodically in order to avoid making any potentially costly blunders. Keep the above mistakes in mind and do your best to steer clear of them in order to ensure a successful real estate transaction.