Whether you belong to the 1% or the 99%, buying a home is perhaps the biggest investment you’ll ever make.
Unfortunately, many buyers make stupid errors that end up costing them tens of thousands of dollars in extra interest or, worse, leave them stuck with a house they can’t afford and can’t sell.
Here are some examples of foolish decisions that homebuyers consistently make. To avoid them, continue reading.
Falling for an expensive loan
Comparing what you can afford to what the bank claims you can afford requires being practical.
In the event of a job loss or injury, borrowing up to the bank’s allowed limit could strain your resources and put you in danger of financial ruin. When searching for a home, utilize the bank-approved amount as your maximum price after taking at least 10% off.
Be careful not to fall into the trap of taking out a riskier loan, such as an interest-only or adjustable-rate mortgage. These are intricate financial instruments that can be challenging to comprehend. They start off with little payments, but as time goes on, the interest rate changes and may cause your payments to skyrocket.
There are some circumstances where those mortgages might be justified. A fixed-rate mortgage, however, provides stability, security, and peace of mind in many other situations.
Not getting preapproved for a home loan
Although the terms are sometimes used synonymously, getting preapproved for a mortgage is distinct from and preferable to getting prequalified.
A lender carefully assesses your financial condition during the preapproval procedure. As a result, the lender can inform you of the maximum loan amount. On the other hand, the prequalification procedure just examines your means briefly and gives an estimate.
Preapproval also gives you an advantage if other people are making offers on the same property.
Ignoring your credit score
Your mortgage interest rate could be made or broken by your credit score.
For homebuyers with the best credit ratings, lenders reserve their best interest rates. They are aware that those with excellent credit will almost surely repay their mortgage in full.
Meanwhile, lenders get concerned that you will default if your credit score is in the 600s or lower. In general, they will charge you extra in the form of a higher interest rate if they grant you a loan.
If you test out Money Talks News’ free mortgage search tool, you can get a sense of what interest rates lenders might actually offer you depending on your present credit score. Additionally, you can view the interest rates that lenders would present to you if your score were higher.
Going with an inferior (or no) agent
Going it alone during the home-buying process is a mistake for the majority of folks.
A good agent will be able to point you in the direction of hot properties that are entering the market, connect you with reputable lenders and inspectors, and generally smooth out any potential hiccups.
You shouldn’t ask your brother’s friend’s uncle for a favor at this time. You want a seasoned expert by your side because this is a significant purchase. I’ll admit that I used a relative’s acquaintance when we bought our first house. Although it wasn’t a terrible error, I believe we could have done better with someone with more expertise.
Get a real estate attorney to assist you in draught your offer and reviewing documents before you sign anything if you really can’t bear to pay an agent’s commission.
Buying based on emotion rather than reality
Some people abandon their predetermined budget when they find a home they adore. Others discover a house within their price range, but they fail to consider all the extras that might be included.
Pool upkeep is necessary. It’s time to mow a sizable lawn. A homeowners organization will also expect your unwavering adherence to its bylaws in addition to annual dues.
Make sure your purchase is a wise one by asking yourself these questions before making a purchase:
- Can I comfortably afford this house?
- Can I afford the property taxes on this home?
- Can I afford to heat, cool, and maintain this home?
- Can I afford any necessary renovations? Will the HOA and the neighborhood zoning regulations permit the additions or upgrades I want to make?
- How long do I intend to stay in this home?
- Does the layout and number of rooms suit our family?
- Although a (hot tub, outdoor kitchen, etc.) is a nice amenity, will my family actually utilize it?
Forgetting to have a backup plan
As you go through the home-buying process, consider the future. What will happen, for instance, if the home inspection reveals that the basement beams are rotting? What is your backup plan?
Hopefully, you’ve avoided mistake No. 4 and have a competent buyer’s agent who included a provision to your offer guaranteeing that, in the case, the inspection doesn’t go smoothly, you’ll receive your deposit back.
Additionally, you’ll need a backup strategy in case the home doesn’t appraise as anticipated or if you were dependent on funds from a certain lending program that doesn’t materialize.
Skipping an inspection
One of the issues with making emotional purchases is that they can cause you to do stupid things like forgoing a home inspection.
Whether you are purchasing a brand-new home or a historic residence, you must have it inspected before consummating the transaction. Never rely on your own judgment. A specialist can identify potential code breaches, safety risks, and structural damage.
Try to go through the house with the inspector so that he or she can point out potential issues and you can ask questions to make the most of the inspection.
Although an inspection may add time to the property buying process, it is still worthwhile. The alternative can be learning about a costly or dangerous issue with your home after you’ve already moved in.