Taking the leap and purchasing your first home can be an exciting time, and it’s also often one of the biggest financial decisions you’ll make in your lifetime, so it pays to think long and hard about all of the factors that go into such a big purchase.
The benefits of buying your own home are many, but if you don’t take the time to learn about common home buyer mistakes before you commit to this path, you could end up losing money in the long run. Here are nine mistakes to watch out for that can cost you big time if not avoided!
1) Not Having a Realistic Price Range
Most people want to get into a home as soon as possible, but rushing into a bad deal because you don’t have enough time to shop around isn’t smart.
First-time home buyers in particular need to be flexible with their budgets—even more so than people who have purchased homes before. Most first-timers make one of two common mistakes: either they skimp on certain things because they think it will make it easier for them to afford a home, or they try and buy a property that is too expensive for their budget and wind up getting outbid by other buyers who can outspend them.
The best way to avoid these mistakes is to know your maximum price range for a property so you never bid over your head.
2) Not Understanding Mortgage Rates
When you’re shopping for a home loan, you have to consider all of your options. Understanding mortgage rates is just as important as knowing your credit score. Interest rates vary by type of mortgage, so make sure you understand any fees and service charges that could influence your monthly payments and overall costs.
A lower interest rate isn’t always better, especially if you don’t know whether it’s due to a special incentive or because there are additional hidden fees. If you choose to work with an independent lender instead of going through a bank or mortgage broker, do some research before choosing one and make sure they’re licensed by states where their loans are sold.
3) Thinking Too Small
Just like you wouldn’t buy a car without considering how it will fit into your life in three to five years, it’s important to look at your home as part of a larger picture.
For example, if you’re planning on having kids soon and want to be close to friends and family, then buying a large house that’s far from school and work might not be such a good idea. If you’re looking for an investment property or plan on renting out rooms in your home or apartment, then buying something with extra bedrooms could pay off financially down the road.
If you plan on moving within 10 years or have no plans of staying put in your area, consider renting instead of buying so that you can take advantage of price appreciation while living wherever it suits you best.
4) Buying on Impulse
The housing market is complicated and it’s easy to get caught up in all of its moving parts. If you don’t know how much you can afford, how likely you are to be approved for a loan or if your credit score is good enough, then buying on impulse is an even bigger risk.
Just because something seems cheap doesn’t mean it really is—if it looks too good to be true, chances are there’s a catch or at least something out of your control that makes buying it a bad idea.
Before rushing into anything without researching home loans, take some time to understand where you stand as a buyer so that you can make smart decisions and keep future home-buying mistakes from being made.
5) Not Getting Pre-Approved for a Loan
Before you start house hunting, make sure you’re pre-approved for a home loan. Home sellers prefer to deal with buyers who are already approved—not only will it save you money on your closing costs, but it can help you secure a better interest rate as well.
Think of it like dating: Would you want to tell your date about all of your issues before your first date? Probably not. When home shopping, keep in mind that most buyers lose out on an average of three offers due to financing difficulties; by being pre-approved for a loan, that won’t be an issue for you.
6) Not Doing Your Research
Another one of these is not doing your research. Think about when you go to buy a new car or any other expensive asset; do you know what it’s worth and what is fair to pay for it?
How will you make sure that you are paying a fair price and not getting ripped off?
Well, as with anything else in life, if you don’t have an idea of how much something is worth then there’s a good chance that you will be taken advantage of.
The same goes for buying a home, if you don’t do your research then there’s no way that you will be able to make an informed decision on what price to offer on a home.
7) Being Unprepared for Closing Costs and Escrow Processes
When you’re purchasing a home, you should be prepared for closing costs. Closing costs are all of those extra charges related to buying a home. These vary widely and there is no way to know what your closing costs will be until you start shopping around for loan products, but most
estimates hover between 2% and 5% of your purchase price. To get an idea of what that looks like in numbers, on a $250,000 purchase price ($25,000), two points would mean an additional $5,000 to close and five points would mean another $12,500 in fees.
8) Failing to Consider Taxes, HOA Fees, and Other Lifestyle Factors
Buying a home is not just about getting financing and moving in; it’s also about making sure you can afford to live there. Many first-time home buyers fail to consider taxes, homeowner association fees, and other lifestyle factors when shopping for their dream home.
Doing so can be detrimental as these costs add up quickly—especially if you have trouble sticking to a budget. Make sure your finances are well in check before starting your house hunt.
If your credit needs work or you don’t have enough for a down payment, avoid falling into debt and keep your lifestyle expenses low by renting rather than buying until you’re financially ready to buy a home.
9) Feeling Pressured To Purchase Quickly
Many people, especially first-time home buyers, feel pressured to purchase a home quickly. Sometimes they’re under pressure from friends and family or just their own eagerness to settle down. But if you’re not careful, jumping into a home purchase without careful consideration can lead to costly mistakes.
Whether it’s falling in love with an overpriced house or missing out on a cheaper home down the street because you were too hasty to pull out your checkbook—don’t let your feelings push you into purchasing something that’s going to cause problems for years to come.
Allow yourself time to explore all your options and don’t ever feel pressured by others (or yourself) into making such an important decision before you’re ready.
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