Buying a home is an exciting and worthwhile investment. Home ownership is a big financial commitment, and mistakes can be costly. Here are some of the most common mistakes to avoid when purchasing a home.
1) Buying a House You Can’t Afford
When you take on a mortgage, it’s not always wise to borrow the entire amount that you qualify for. If you’ll need to stretch your budget to make your mortgage payments, you should look for a less expensive home. Buying a house you can’t afford can be a recipe for disaster. If your financial situation ever changes, you’ll be at a high risk of losing your home. Be realistic about the monthly payment you can afford. Experts recommend that your housing costs be no more than 30% of your income.
Keep in mind that the monthly mortgage payment isn’t the only cost you’ll be responsible for. Homeowners also need to budget for repairs, utilities, insurance, and property taxes.
2) Home Shopping Before Mortgage-Shopping
Many first time home buyers make the mistake of looking for a home before they are pre-approved for a mortgage. Without getting pre-approved first, it’s easy to fall in love with a home you can’t afford. You may also lose out on a property if you can’t get approved for the loan. Obtaining pre-approval gives you a good idea of your budget, and also sends the message to sellers that you are a serious buyer.
3) Talking to Only One Mortgage Lender
It’s important to shop around when you’re looking for a mortgage. If you get a loan from the first lender you talk to, you may miss out on a better deal. You should compare the interest rates, terms, and lender fees from at least three different mortgage lenders. This will ensure that you’re getting the best deal possible.
Don’t overlook government-insured loans when you’re comparison shopping. They’re a valuable resource for first-time homebuyers who may not qualify for conventional financing options. Ask your prospective mortgage lenders whether you’re a candidate for one of these programs.
- FHA Loans: FHA loans are backed by the Federal Housing Administration. Many borrowers can qualify for an FHA loan with only a 3.5% down payment, and a credit score of 580 or above. FHA loans require the borrower to pay mortgage insurance.
- VA Loans: VA loans are available to veteran and active-duty service members and to their spouses. They are backed by the U.S. Department of Veteran’s Affairs. VA loans are tendered by private lenders. Lender fees are capped to ensure that the costs are affordable. A VA loan does not require a down payment; however, the borrower may pay a funding fee.
- USDA Loans: USDA loans allow low- and moderate-income borrowers to buy homes in eligible rural locations. To qualify, you must meet income limits and purchase a home in a USDA-approved area.
4) Not Checking Your Credit Report
One in every 20 people has a large error on his credit report. Before you start applying for a mortgage, you should check your credit report and dispute any inaccurate information.
5) Emptying Your Savings Account
When you’re buying a home, you should make the biggest down payment that you can afford to make. Your monthly mortgage payment will be lower if you make a higher down payment. That said, it’s a mistake to spend your entire savings account on a down payment. Without any savings, you’ll be in a tight spot if an emergency arises.
6) Taking On Additional Debt
Your mortgage lender will approve your loan based on your credit score and your debt-to-income ratio. Applying for additional credit, such as a car loan or a credit card, affects both of these metrics. Your lender will check your credit again before closing on the mortgage. If your debt load has gone up or your credit score has dropped, the lender may delay your closing, charge additional fees or higher interest, or even cancel the mortgage. Avoid taking on any additional debt until after you’ve closed on your new house.
7) Not Having a Home Inspection
Just because a house looks attractive does not mean it’s in perfect condition. That’s why it’s essential to have a home inspection before you buy. The house may have hidden damage. When you prepare an offer on a home, make it contingent on the property passing a home inspection.
Don’t despair if the inspector finds a problem. It doesn’t necessarily mean that you need to give up on the house. Find out how much the needed repairs will cost, and negotiate with the seller. Ask the seller to either lower the price or make the necessary repairs.
Buying your first home is an exciting prospect, but it can also be daunting. By avoiding the mistakes above, you’ll ensure that your home buying experience goes as smoothly as possible.