10 Common Home Buying Mistakes (And How To Avoid Them)
Is buying a house in your plans this year? Whether it’s your first home or just a bigger place for your growing family, it’s a major decision that will affect your finances for years to come. Our team of mortgage specialists and financial counselors would love to be a part of your team as you consider such a large investment.
To get you started on the right path, here is a list of home buying mistakes that we hope you’ll avoid as you begin your search.
Ten Common Home Buying Mistakes
1. Starting without Budgeting
Before you make the decision to buy, take a good look at your income and expenses to find out the truth about what you can comfortably afford to pay every month for the next 15 or 30 years. Home ownership may seem like a wise alternative to renting, but it’s not necessarily going to be cheaper in the short term. It’s a common mistake to assume what you can or can’t afford. I recommend budgeting for unexpected expenses that may include AC / Heating, hot water tanks or a new roof. Maintenance on these items can cause a financial strain and having to replace these items can be expensive, so not including these expenses into your periodic savings plan may lead to a financial hardship. Take time to research the average costs involved in heating and cooling your new space. This could be asking the previous owner for an average monthly cost and also researching the average temperature for each season to help you gauge if adjustments will need to be made to your estimates.
2. Applying for a Mortgage Before You Know Your Credit Situation
Checking your credit reports with all three credit reporting agencies using annualcreditreport.com will help to eliminate any surprises. This allows you to check for any errors and also help you be aware of what is outstanding. Having a plan to get some of your debt paid down, even if not necessarily paid off, can help your credit score. Keep in mind that 30% of what makes up your credit score is the current balances you carry on your existing accounts. Keeping your lines of credit below 50% of your high credit amount will help you maintain a more favorable utilization rate on these accounts, resulting in a healthier credit score for you.
3. Ignoring Housing Market Trends
If you’re anxious to buy now because it’s right for your own financial situation, you may be missing the big picture. The housing market isn’t static, it fluctuates. Sometimes it favors those looking to buy – a buyers’ market. Other times it favors those looking to sell – a sellers’ market. A buyer’s market can be advantageous when you are planning to buy your first home, as the market is flush with houses to choose from. If you already own a home, you will usually benefit on one side of the trend.
4. Skipping the Pre-Approval
It’s easy to fall into the trap of thinking you first have to find the house you want, and then start thinking about the loan process. But put yourself in a seller’s shoes. As sellers, they may receive several bids and, in trying compare them, may not base a decision solely on the offer amount. If they accept an offer, they want to know the buyers will be able to live up to their bid. Getting pre-approved gives a seller this peace of mind. Our mortgage department will help you gather the necessary information before starting this process, so you can make the best decisions for your home purchase. They will tell you how long your pre-approval is good for as well as what to do when you decide to move forward.
5. Ignoring Resale Value
Even if you want to live in your new house forever, life is full of unexpected changes….job transfers, family illnesses, falling in love with someone who lives on the other side of the country. A mortgage payment that seems reasonable now may become a major liability if your house is not easy to sell later on. You’re making an major investment; it would be a mistake to ignore these questions. You may not have children or really need that 3rd or 4th bedroom, but weighing your options upfront when you are purchasing your home may increase your return on your investment down the road.
6. Relying on Biased Advice
Real estate agents are godsends for facilitating the process of home buying. However, be sure to consider the motivations and the limits of their advice. Seller’s agents are hired to help sell a house. They might embellish its positive features and play down the negative aspects of the house. Your buyer’s agent is tasked with helping you find the right home. We recommend interviewing several and choosing one significant experience. In general though, when dealing with real estate agents, remember whose interests they represent.
7. Trusting an Unwritten or Verbal Agreement
You’ve done the research. You’re pre-approved. You’ve found the house you want and put in an impressive bid to show you’re serious. After some back-and-forth haggling, you finally get the call that the seller has accepted your bid! Before you start celebrating and packing up the moving truck, it’s important to secure your agreement in writing. Verbal agreements are not binding and you will have little legal recourse if the seller backs out unexpectedly.
8. Overlooking The Hidden Costs of Home Buying
Everything is going according to plan, you’re ready to close the deal and bring your home buying journey to an end. Do you know what to expect at closing? “Closing costs” are a collection of fees that cover the final legal housekeeping elements of purchasing a home, but are a prime example of unexpected fees that surprise many first-time home-buyers. Don’t let this happen to you. Depending on the purchase price, you could be looking at a few thousand dollars or much more. Other fees that you should be on the lookout for and ready to pay include: appraisal fee, credit report fee, escrow fee, notary fee, homeowner’s insurance fees, property taxes. And don’t forget about the costs of getting a house inspection…
9. Skipping the Home Inspection
Many lenders will require a whole house inspection, often depending on the type of mortgage you have applied for. The purpose of the inspection is not to stop you from buying your new home, but rather to protect you (and the lender) from issues with the property that stand out to a professional inspector, but were otherwise unseen by untrained eyes. Particularly for first-time home-buyers, it’s extremely valuable to have an independent third-party inspector review and report any findings. The risk of not getting a professional inspection done is living in a home that costs almost as much in repairs as you paid for it in the first place.
10. Falling in Love with a House Too Soon
How does the old saying go? “Only fools rush in?” Falling in love at first sight with a house could be a major financial mistake. Not only can it lead to overpaying, but it can also cause you to ignore other critical pieces of advice that we’ve laid out for you here. Do yourself a favor: take it slow. You’re looking for a house you can love for a lifetime, potentially, and that should take more than clever staging and curb appeal.
When buying a house, remember to keep a cool head and an open mind. Be prepared for the unexpected! And, perhaps most importantly, developing trusted partnerships with your realtor and your mortgage person will help create a great home buying experience. Click here to find out more about our mortgage offerings at Call Federal.