Moving is a major life event which can create stress, anxiety, and costly financial mistakes. Buying a home provides more than a roof over your head. It is an investment that can make or cost you money, depending on your decisions. Picking the wrong house at the wrong time can lead to financial losses> Selecting the wrong mortgage can cost thousands of dollars in extra in payments over the life of the loan. Take the following steps to eliminate costly mistakes when buying your next house.
House Buying Mistakes
Overbuying is one of the most common mistakes. Commonly referred to as being house poor, moving into a bigger home or a more desirable neighborhood can make it hard to maintain the residence, pay the mortgage, and spend on other priorities such as retirement, vacations, or hobbies.
• Avoid the mistake by looking at the total cost of home ownership: How much do you need to cover homeowner’s dues, maintenance, repairs, taxes, insurance, utilities and yard work? Experts recommend budgeting 1% of the home’s value for maintenance expenses each year.
Having Unrealistic Expectations based on the loan amount you qualify. There is no perfect home and getting everything you dream about will most likely be out of your price range. Know what you need and line those requirements up with your budget.
• Avoid the mistake by carefully considering your must-have and wish list for the price range you qualify. Don’t fall into the temptation to overbuy for a few extra want-to-haves, at the expense of your lifestyle.
Not accounting for your lifestyle is a mistake almost every first-time home buyer makes. Home buying is often an emotional decision focused more on fantasy than your real life. Your home choice should consider long-term needs, family size changes, and lifestyle.
• Avoid the mistake by getting a sense of what living at a particular address means. Will the large yard eat up all your time on weekends? Will the fixer upper lead to living in a construction zone for years to come. Will that condo downtown, make it hard to park and have privacy on popular weekends. Set aside the nostalgia and consider what it is like to live in a place. Buying the wrong house, in the wrong neighborhood, is difficult to correct.
Underestimating the importance of location. In real estate, they say the three most important factors are location, location, location. It is not only the neighborhood but the future growth of an area that matters: New roads can turn a middle of the neighborhood home into a major thoroughfare; new shopping centers, eateries, and entertainment can increase the value of a neighborhood over time.
• Avoid the mistake by researching upcoming plans for the area over the next decade. Road projects and construction require public planning and re-zoning, often years in advance of groundbreaking. Also consider the distance to work, schools, parks, and entertainment to find the best location for your new home.
Not considering the long-term value of the home. Housing is one of the few purchases that is likely to appreciate over time (is that what you mean? Because you say howit will appreciate), and you should consider its long -term value. Factors such as an odd floor plan, location on a busy street, an unusual lot shape, or other undesirable factors could result in a financial loss or long turnaround time when you are ready to sell.
• Avoid the mistake by viewing the home as an investor. Does the home need major repairs and can you fix its downside? How will factors out of your control impact the long-term market value of the home? If it needs major updates, will you stay long enough to benefit from the increased value? What makes it hard to sell today, could be your cross to bear when you are ready to sell.
Making an emotional purchase and overpaying for the house. You have a vision of how your dream home looks. Staged homes are popular today because they help buyers envision life in the new home. However, you could give up a diamond in the rough or buy a house with unforeseen problems if you don’t look beyond the emotional appeal. A cluttered home could be spacious when the current owner removes their belongings, and on the flip-side, a spotless home could have hidden problems.
• Avoid the mistake by relying on the numbers. Use comps to determine the homes worth instead of relying on the asking price. Use inspections to evaluate the home’s structure and quality rather than staging.
Not getting financial documents in order. Getting a home means getting your financial life clear: You have finances in order, including the down payment, credit, and income, a stable job, enough savings required to close the loan, and good enough credit to meet the lender’s requirements.
• Avoid the mistake by pulling your credit reports before applying for a loan. Fix any credit errors and pay down small bills to lower debt levels. Many loans only require 3 or 3 ½% down payment, as long as you have average credit or better. You also need enough to cover closing costs. Asking the seller to pay closing costs, could lower your purchase price.
Hunting for the house before getting the loan. A house hunt should start with financing. You will have a clear picture of how much you can afford to buy saving both time and money. With a loan in place, you will also have a stronger offer and faster close. The loan product you choose can impact the price range you can buy.
• Avoid the mistake by gathering financial documents and pulling credit before you begin. Meet with a lender and request a pre-approval, instead of pre-qualification, which involves submitting an application and typically an underwriting review. REPETITIVE
Making large purchases before closing. At the start of the application, underwriting will review your credit, paystubs, and asset statements. Then just prior to closing the underwriter re-checks everything to ensure nothing has changed. Buying furniture and appliances for your future home, a new car, or any other large expense, even if paying cash, can alter your cash flow, debt, and asset picture, required to close the loan.
• Avoid the mistake by delaying any changes to your financial picture. Do not move investments, change jobs, apply for credit, or make large purchases 60 to 90 days before buying a home. If you pay off credit cards in full each month, use cash before applying, because balances found on the credit report will count as debt, even if you pay the bill off each month.
Not reading the contract before closing. Lenders finalize the paperwork up to 3 days before closing and can produce all closing documents ahead of closing if you request. At the closing, if you find unexpected terms or interest charges, you can feel trapped into signing, and you can’t make changes because the lender is not present.
• Avoid the mistake by requesting an email of the final documents before closing, giving you 24 hours to review everything, ask questions, and make changes, if something is amiss. You can also take the time to read over documents at closing, although you cannot make changes the day of closing.
Slowing down and closely reviewing what needs attention before you make such a big purchase will never lead to regret. Make a list of what you need to review and check off accordingly.
If you are burdened with high amounts of credit card debt and are struggling to make your payments, or you’re just not seeing your balances go down, call Timberline Financial today for a FREE financial analysis. Our team of highly skilled professionals will evaluate your current situation to see if you may qualify for one of our debt relief programs. You don’t have to struggle with high interest credit card debt any longer. Call (855) 250-8329 or get in touch with us by sending a message through our website.