There are many mistakes that buyers tend to make when purchasing a home, but they can be avoided with a bit of research and planning. If you’re in the market for a home, there are a number of things you should know before you waste valuable time and money. After all, buying a home may be the biggest investment you will make in your lifetime. The tips below will get you started.
1.Know your limit and be prepared to buy.
We’ve all heard of ‘eyes being too big for our pockets,’ so before you fall in love with a property make sure you’ve got your financing set up. Inexperienced borrowers or those who are naturally impulsive should take extra care. It’s one thing to overspend when you’re buying a dress, but it’s another thing when you’re buying a house.
It’s a great idea to have pre-approval for a loan before beginning your property search. This way you have a limit to observe and can avoid taking on too much debt.
Make sure the mortgage loan originator sees your credit report and your income and asset documents to verify all information prior to issuing a pre-approval. You don’t want an uninformed pre-qualification. That could lead to debt problems later.
2.Make sure your credit score is high enough.
Lenders consult major credit-reporting agencies before they complete a loan application. Bad credit can result in higher interest rates or rejected loan applications and prevent you from owning your dream home. Take steps to raise your credit score and remove any erroneous information in your credit reports.
Research your credit rating a couple of months before applying for a loan. This will give you time to repair any mistakes that may be on your credit report.
Don’t sugar-coat a bad credit rating. It’s best to report your credit rating and personal debt accurately. Doing otherwise is not only illegal but extremely unwise.
3.Don’t assume that assets will take the place of income.
When considering how much home you can afford, know your borrowing capacity. This figure is based on your income-earning ability, not the assets you own. However, if you do have a large amount of assets, you can sell off some of the assets to place a larger down payment on a home. This will lower your payments.
4.Never underestimate the costs involved in buying a property.
First-time buyers rarely understand how many additional costs come with home ownership. Consult with your real estate agent and mortgage lender to get an idea of what additional fees you’ll be responsible for. Remember to budget in the following when setting up your financing:
Other fees and taxes, where applicable.
5. Understand your mortgage options.
You can either go the traditional route and pay about 20% of the home’s value as a down payment or finance more purchase at once with a smaller down payment. Keep in mind that saving for a larger down payment is still considered the safer route and is always cheaper for you.
Gone are the days when you had to save up for a 20% down-payment in order to own your dream home. In some cases, you can borrow up to the full price of the property, which means you don’t have to spend years saving for a down-payment before buying.
6.Figure out your mortgage-repayment strategy.
If you can afford to make more than your scheduled mortgage payments, do so. With interest calculated daily and charged monthly, larger or more frequent payments will reduce the amount and length of your mortgage. In general, make sure that you expect to have an income stable enough to pay down the mortgage over the life of the loan.
7. Consider resale value.
Even if you’re not considering moving for some time, remember that your situation can always change and you may choose to or be forced to sell. Think about how well you could sell the house in this situation. Would it go quickly if put back on the market?
Additionally, think about purchasing a house that will be worth more in the future, perhaps in a growth area or new development neighborhood.
8. Think about the house rationally.
Many buyers make the mistake of ignoring huge flaws in a property simply because it perfectly fulfills one of their wishes. Maybe the house has an unstable foundation but the backyard and kitchen are perfect. Step back and take a breath, weighing the ups and downs of a property with a cool head before settling on a property. If in doubt, talk it out with friends or family.
It may help to treat the house an investment. Consider the value you’re getting and resale value you can get back.
9.Look at easy changes you could make.
A big mistakes often made by home buyers is rejecting a good fit simply because they didn’t like one element of the house, for example paint colors or the type of cabinets in the kitchen. Recognize the difference between things that are easy to change and those that are not. Look at the “bones” of the house, like the layout, windows, and other elements that would be difficult and expensive to change. If these are good, you can change the rest to suit your needs.
10. Factor in the cost of additions or changes you want to make.
If you choose a house with the intention of making major changes to it, consider the price of doing so beforehand. You may even want to hire a contractor and get an estimate of what your addition might cost. You don’t want to get into the new house only to find that you can’t afford the changes you wanted to make. Factor them into your budget before buying.