Section 5: Common Mistakes
If you do decide that it makes sense for you to consider the investment of owning your own house instead of renting, congratulations! Home hunting is exciting, exhausting, and anxiety-provoking. Unfortunately, many people make mistakes that prevent them from making their goal.
Not Knowing Your Budget
Not knowing what you can afford is the wrong way to go into home buying. Even if you can get a mortgage on a home that you really should not afford, you will be "house poor" and live in great debt for a long period of time.
Ensure that you have a complete and accurate budget. List all of your monthly expenses, excluding rent, but including vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings, general savings, recreation fees, and so on. Be comprehensive nd do not overlook expenses that only occur once a year, like insurance premiums paid annually or annual vacations, or minor ones that come up quietly in the background.
Subtract this total from your take-home pay and you will know how much you really have available for your home each month. You may even realize that you genuinely cannot afford the home that you desire and that you need to work on reducing your monthly expenses or increasing your income before you start looking.
Not Getting Preapproved For A Home Loan
Some people get anxious to shop for a house and want to do it quickly. Ensure that you are pre-approved for a loan before shopping. If you do not, you could be wasting your time and your agent's time.
Disregarding Hidden Costs
If you neglect to prepare for hidden fees, you might be in for a surprise. Closing costs and pre-paids are a good example of hidden fees. In addition to your down payment, there are title fees, lender fees, taxes on the mortgage, pre-paid homeowner's insurance, pre-paid property taxes, inspection fees, appraisal fees, and survey fees.
Once you are a homeowner, you will have additional expenses on top of the monthly mortgage payment such as property taxes, homeowner's insurance, home owner dues and possibly mortgage insurance. You also want to save a little money each month for home repairs when they are needed.
Not Knowing Your Credit Score
It is best to check your credit score before applying for a mortgage. Take necessary steps to repair any negative issues with your credit score. If not, you will pay a higher monthly payment due to an increased interest rate.
Disregarding Local Housing Market Trends
The housing market fluctuates over time. Sometimes it favors buyers, and sometimes it favors sellers. Several factors affect market trends, including supply and demand, interest rates and the overall condition of the economy.
Not Being Represented By A Buyer's Agent
Once you consider seriously looking for a house, engage a real estate agent. Do not rely on the seller's agent to represent you. The listing agent has a relationship with the seller. It is not a good idea to negotiate terms and price without proper professional representation on your side.
Not Conducting A Professional Home Inspection
Any sales agreement must be conditional on the satisfactory results of a complete and comprehensive home inspection by a reputable and qualified home inspector. This will disclose structural or systems issues that exist with the home.
Compromising On Your Needs
While compromising on your desires may be necessary, do not compromise on your needs. You can do without the pool or fireplace, but do not accept a two-bedroom house if you have children and need three-bedrooms.
Relying On Online Services Only
While it is true that loans can be obtained online and houses can be purchased also, failure to establish personal touch with lenders and real estate professionals could be costly. It might feel more convenient and less stressful to go through as much of the process as possible online, but you may find that you get more stress and inconvenience later in the transaction.