With a vastly improved housing market, more favorable interest rates and affordable prices around much of the country, you might find yourself strongly considering a home purchase. The equity you build in your home and the tax benefits are certainly strong incentives to take the home buying plunge. But buying a home is a serious matter and care must be taken to ensure that the experience is a happy one and not a disaster.
Here are five of the most common mistakes consumers make when tackling their first home purchase:
1. Great choice at the wrong time
Sometimes staying in your rental home is the best choice. Do you like your neighborhood? Is your family situation stable? What about your job? How long do you plan to stay with your employer? Are you looking to advance in the near future and the only advancement opportunities are across the country? Is the entrepreneurial bug getting to you? If you envision significant changes in your life within two to four years, then the associated costs of purchasing a home is not going to be worth it. First step is to conduct an honest assessment of your current and short-term life goals to determine if the time is right. If not, staying put in your rental home is the more financially wise option.
2. Financial house is not in order
If your debt-to-income ratio is not positive, mortgage lenders will give you a pass. If you have high balances on your credit cards, student loans or car purchases you may have a very difficult time being approved for a mortgage by any lending institution. Best thing is to plan ahead: set a timetable for your home purchase and focus on paying down debt and not accumulating new debt. Before you begin house hunting, know how much you can afford and get pre-approved for a mortgage. No point in wasting time or setting yourself up for disappointment when you find that you cannot buy your dream house. Do not forget to factor in all the costs associated with buying your home, including: loan application fees, mortgage insurance, stamp duties and various municipal filing fees, etc.
3. Digital information does not give you the whole picture
Everyone is digital savvy these days. We are using the internet for just about every task in life, including checking out mortgage loan options. It is a good way to start, but many consumers do not understand all the qualifications, exceptions, fees and terms that come with the mortgage loan. Additionally, the online information is generic, not catered toward specific locations in the country or unique consumer situations. Do not skip in-person meetings with mortgage loan officers to discuss in detail your personal situation and needs. Better yet, hire a mortgage broker who has access to a wide variety of mortgage lenders and products.
This reliance on digital information applies also to shopping for properties. Too many consumers rely on price information gleaned from online sources such as Zillow or Trulia for establishing what they believe is the market price. Again, it is a great way to start, but to protect yourself from surprises and frustration, seek out expert real estate agents in the market where you hope to make a purchase. Real estate agents will steer you to the exact neighborhoods that match your family needs and personal preferences.
4. No home inspection
According to the American Society of Home Inspectors, as many as 10% of home purchases are made without first inspecting the property. Do not rely on the seller, especially if you are doing this solo. Even if the home looks great in your eyes, one never knows what lurks beneath the surface. Inspectors can be expensive and it may be tempting to skip this expense and save some money, but in the long-term it could cost you much more. The foundation, roof, all mechanical systems and structural components should be vigorously inspected by a seasoned home inspector.
5. Buying on emotion
Sellers know when you love the house. Once they believe you are “in love” their bargaining power increases over yours. Keep your emotions in check. Maintain a poker face. Further, do not let your heart push you into making a purchase that you really cannot afford. Remember your budget that you established at the beginning of the process and stick to it.