Buying a home is probably the biggest investment you will make. As a result, it is crucial that you know what you’re getting into at the very onset. You don’t want to overlook an important aspect that you may regret later. Fortunately, you can avoid commonly made home buying mistakes if you follow some basic guidelines before and during the process. So, what are the common home buying mistakes to avoid?
It is important that you contact a lender soon after you decide you wish to go the homeownership way. This gives you insight into the types of loans on offer, the down payment you need to pay, interest rates, loan terms, and whether or not you might require private mortgage insurance (PMI). Consider getting pre-approved as this gives you an indication of how much you can afford. It also serves as an indicator that you are serious about making a purchase.
If you go through first-time home buyer tips, you will notice that thinking about buying a home when you have considerable debt is not the way to go. Think about it this way – would you want to run a marathon with ankle weights slowing you down? Debt has a way of eating into your monthly budget, and it might even cause problems when it comes to keeping up with regular monthly repayments toward your mortgage. If you’re in debt, reduce it, build your savings, and then think about buying a home.
It is common for lenders to check borrowers’ credit reports at the time of preapproval, and then again at the time of closing. A mortgage provider does this to ensure that there is no change in an applicant’s financial position during this period. Once you apply for a loan, make sure you don’t apply for other new forms of credit until the closing. Refrain from making big-ticket purchases on credit as well. This is because any significant change in your debt-to-income ratio can get an underwriter to reject your application or provide revised terms that are less than favorable.
What you should try to do is get your existing outstanding balances to below 30% of your available credit limit, while paying all your bills in full and on time every month.
Several first-time home buyers think that they need to pay at least 20% of a home’s selling cost as a down payment. This is not true. However, if you pay 20% or more as down payment, you do not have to worry about getting PMI. The flipside is that it might take you several years to save the required 20%, and you might also limit your cash flow during the period.
Depending on the type of loan you get, you can pay as little as 3% down payment for a conventional loan. With some government-insured loans, you can pay even lesser.
Not taking a look at what different government-insured loans have to offer is among the top home buying mistakes you should avoid. The ones that require your attention include the United States Department of Agriculture (USDA) loans, Federal Housing Administration (FHA) loans, and U.S. Department of Veterans Affairs (VA) loans.
Getting a mortgage to buy a home can be a complicated process. One of the most important things to avoid when buying a house is to rush through the process of getting a loan. If you rush through things, you get little time to save money for the down payment, and you will probably miss fixing errors on your credit report. Bear in mind that it may take months or even years to repair poor credit. As a result, map out a suitable home buying timeline well in advance.
Not factoring in costs other than the home’s selling price makes it to the list of home buying mistakes to avoid, and not without reason. There is no dearth of first-time homebuyers who focus on making the down payment and forget to account for closing costs. Typically, closing costs hover between 2% to 4% of a home’s selling price.
You need to take the cost of homeownership into account as well. In addition to making repayments toward your mortgage, you will also need to pay property taxes and any applicable home insurance premiums. Ongoing repair and maintenance costs require your attention as well, failing which you might find yourself overshooting your monthly budget. You should ideally aim to set aside around 1% to 3% of the home’s buying price each year for repairs and maintenance.
It is not uncommon for people to fall in love with homes and buy them even if it requires them to stretch their pockets. This is one of the things to avoid when buying a house, even if you qualify for a mortgage. This is because the mortgage payments, homeowners insurance, and property taxes might add a severe burden on your finances. While the added cost might not seem like much initially, it might turn out to be problematic in the long run.
Not saving enough money before you buy a home makes it to the list of home buying mistakes to avoid for different reasons. For starters, while saving money for the down payment is important, you also need to consider ongoing repair and maintenance costs. In addition, spending all or a major portion of your savings toward the down payment is definitely not suggested. While paying 20% or more toward down payment does away with the need for PMI and helps reduce monthly costs, you should have some savings in place to account for unexpected expenses. You should ideally aim to keep an emergency fund with at least six months of living expenses.
Another home buying mistake you should avoid is to give more priority to a house than its neighborhood. Consider this – you find a house that suits all your requirements perfectly, but once you move in you find out that you don’t quite like the neighborhood. Narrowing down on the right suburb or town can make a significant difference when it comes to the lifestyle you lead as well as family development.
The neighborhood you select should ideally not be a mismatch with the culture and values you follow. Once you find the right neighborhood, you can always consider buying a house that you can tailor to your needs. Aspects that typically need your attention include school ratings and crime rate as well as access to public transportation and healthcare.
It is crucial that you have a good idea about what shape a house is in before the closing of a sale. This is because you don’t want to end up with a house that requires unexpected repairs, especially when they burn a hole in your pocket. While inspecting a home on your own gives you a basic indication of its condition, you might be better off using the services of a professional home inspector. This is because they know just what to look for and where, and can end up saving you heartache and money in the long run.
It is only natural to want to buy a house that appeals to you visually. However, some cosmetic changes, such as replacing old wallpaper, may well be worth the cost. Not buying a home simply because you don’t like its paint job, landscaping, or carpeting is a rookie mistake you should avoid. If you look for a home with the approach of not minding making a few cosmetic changes, the possibility of landing a good deal increases.
Physical appearances can take a backseat if you are getting a house that fits your budget and meets your other requirements such as size and location. Remember that owning a home is usually a long-term proposition, and you can always think about making changes further down the road. Some of the other aspects you need to focus on include the home’s floor plan, it’s roofing, its foundation, as well as its plumbing and electrical systems.
Remember that fixing a house on your own or hiring a contractor to do the job is typically more cost effective than buying a house that has recently been fixed by its existing owner. Besides, you can then do up the house according to your own liking.
One of the most common first-time homebuyer tips that pass the attention of people is to get homebuyer rebates or commission rebates. The rebate can be up to one percent of a home’s selling price. It is deducted from the buyer’s agent’s commission. First-time home buyers can benefit by getting this rebate in most states in the U.S. If you plan to buy a house in a state that allows homebuyer rebates, find out if your agent will offer the rebate before closing. The states that prohibit homebuyer rebates include:
Given the widespread use of the internet and easy access to real estate listings, some prospective buyers feel that can get through the process of purchasing a house on their own. However, using the services of a professional real estate agent might be in your best interest. According to data released by the National Association of Realtors, 87% of buyers bought their homes through real estate agents or brokers in 2018.
Typically, the seller pays the buyer’s agent’s commission, so this is an aspect you don’t have to worry about. In addition, a real estate agent can:
Not getting all the details surrounding a purchase in writing makes it to the list of buying mistakes to avoid for good reason. There have been instances of homebuyers assuming that the kitchen appliances they see during their inspections are part of the deal, only to find kitchens bereft of any equipment after the deal is done.
Expect a home’s previous owner to take all that can be detached away once you buy the house. This can include hot tubs, bath fixtures, light fixtures, washers, dryers, ceiling fans, and other home appliances. Make sure you go through the contract in great detail before the closing. It any of the items you think come with the house are missing, get them added before signing on the dotted line.
Buying a home might seem like a daunting task, although carrying out a little groundwork ensures that you minimize the possibility of getting a bad deal. The best place to start is to contact a lender and establish how much you can afford to borrow. Then, make a list of what you require from the new home and the locality, and look for homes accordingly. Do not hesitate to seek professional assistance because doing so makes the process considerably simpler.
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Considering homeownership but not sure where to begin? The Meadowbrook Financial Mortgage Bankers Corp. guide to home buying will make the process easy all in one packet.
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