Most people dream of buying a home and know exactly what they are looking for and what they would like to spend on the mortgage, however, they do not consider several important details.
Along with the hot home-buying market comes heavy competition for the homes and many are making all-cash offers. But, if you aren’t familiar with all the complexities of purchasing a home, you may have future financial regrets. Here are the top five mistakes that first-time home-buyers often make.
- They don’t take into account all of their options. Although purchasing a home is often the best financial decision you could make, it doesn’t work for everyone. For example, if you know you’ll only be in the home for a couple of years it may not make sense to buy after you amortize the closing costs for that time period.
- They don’t consider costs other than down payment. Homeowner’s insurance, maintenance, or HOA (Homeowners Association) fees and closing costs may eat up your savings and leave you with no emergency funds.
- They don’t get a home inspection. A home inspection is no way to cut the costs of buying a home. The defects a home inspector may find far outweighs the price of a home inspector and you may save thousands of dollars on future repairs.
- They fully expect their home to appreciate in value. Many home buyers think if they dump their life savings into a home and keep it for a few years they’ll get a significant increase in the value of their property. While home equity is nice, the home is one of those assets that aren’t very liquid if you need money fast.
- They don’t consider debt-to-income ratio before looking for a lender. A lender considers this ratio when looking at your ability to pay for a home. If you’ve accrued too much debt, you may not be approved. Show a history of saving – not getting into debt before you apply for a home mortgage.
(Also, keep a close eye on your credit score before applying with a lender. Even if you have a pre-approval letter, you’re not guaranteed for the loan. If your score changes a great deal you may find out just before closing time that you don’t qualify.)
If you’re a first-time or novice home buyer, it’s imperative that you spend some time with an expert, such as a trusted realtor, before rushing into the home-buying experience. Today, many home buyers rely on websites and may get a false sense of the true values of homes in the area. A great realtor can give you a reality check on home prices and they keep up with changes in current market values and how the various mortgage companies do business!