7 Mistakes to Avoid When Looking for a New Home

Purchasing a home is a major milestone; owning your own home gives you a feeling of independence that renting can’t offer, and there are big financial benefits, too. A home is likely the most expensive asset you will ever own, however, and it’s not a decision to take lightly. The dream of homeownership can quickly turn into a nightmare, leaving you with enough financial regrets to last a lifetime.

Don’t let the home-buying process make a financial fool out of you. Here are seven of the biggest home shopping and mortgage mistakes to avoid.

1. Treating your home like a short-term investment

A house should first and foremost be for living in -- it’s not always going to be a shrewd investment. Home values don’t always appreciate over time and a house is a large asset that isn't very liquid. For example, if you plan to move in three or four years, you probably won’t be able to recoup the transaction costs and you can even lose money. Buyers must view the purchase of a home as a very a long-term investment. If you want to invest but aren’t ready for that kind of commitment, consider putting your money in a mutual fund.

2. Comparing your rent to a mortgage payment

Just because you pay a certain amount in rent doesn’t mean you can afford the same amount as a mortgage payment. In fact, you can probably afford much, much less than your rent. There are multiple costs associated with purchasing and owning a home: stamp duty, registration charges, various taxes, house shifting costs, insurance coverage, home maintenance, property taxes, and more. Many homeowners are aware of these costs, but underestimate just how much they can be.

3. Maxing out your loan

Your mortgage preapproval number is not necessarily what you should spend on a house. Give yourself flexibility and options by choosing a less expensive home. Life can be unpredictable, and it’s easy to find yourself suddenly living in a house you can no longer afford. Skip the hefty mortgage payment and opt for security instead. You can’t put a price on knowing you can stay in your home even if you face a financial crisis or life change, like having a baby.

4. Not planning ahead

Before you even start to shop around for a home, take 12 months to clean up your credit report, get your debt-to-income ratio down and save up as much cash as possible. A few dings on your credit report could cost you thousands over the lifetime of a loan or could keep you from scoring the home of your dreams.

Once your credit is squeaky clean, you can meet with a bank to get preapproved for a loan. Then you will be able to jump quickly on a great deal with a better chance of landing it.

5. Taking too long to make a decision

Right now it’s a seller’s market: inventory is low and homes sell quickly. You have to move fast. There's not a high volume of home inventory out there and many of the lower-priced homes are going for cash.

Don’t let cosmetic issues like paint colors, outdated décor or old appliances keep you from putting an offer in on a home. You can take your time later to upgrade the physical imperfections. If a house is priced well, in your desired location, is the right size and has a great layout -- make an offer! You can worry about that powder pink bathroom later.

6. Failing to shop multiple mortgage brokers

Talk to various lenders, explore the types of loans available and learn the terminology. Know what affects rates and compare the fees charged by different brokers. Your qualifications can be weighted differently and each mortgage company operates in its own way.

7. Trusting online home values

While the internet is a helpful tool for conducting basic research or comparing mortgage options, online home valuation sites can create unrealistic expectations. Work with an experienced real estate agent and ask him to conduct a comparative market analysis based off internal industry data -- it will be more reliable.

A good agent also understands the market and will be able to highlight subtleties that affect home prices. For example, a house might seem like a great deal online but your agent knows that it’s facing in a direction that receives little daylight, the house next door is blighted. Your agent might even have inside information about neighborhood drama -- something you probably want to avoid at all costs.

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Saving

Savings can help you achieve any financial goal. Whether it’s a comfortable retirement, a down payment for a house, or a new car or stereo, you can get there by setting money aside. And best of all, you can have what you want without getting bogged down in debt.

Yet if you’re like most people, you don’t save as much as you’d like to. Or you don’t save at all. Generally people spend more than they earn. Today’s high energy, home and food prices may make saving seem less possible than ever.

But the time is now. And with a little forethought and effort, saving money is not only possible, it’s easy and practical.

Make Saving a Priority

You’ll be more likely to save money if you make it a priority. Sit down and figure out what you’d like to save money for – retirement, a house, car, college, dream vacation – and how much it will cost. Then make your plan:

• Set a timeline for when you’d like to reach your goal.
• Set a schedule by dividing the total goal amount by the number of weeks, months or pay periods between now and your goal date.
• Be vigilant by treating your savings contribution just like any other must-pay expense, such as rent or groceries.

Find Money to Save

While it may seem difficult sometimes just to make ends meet, chances are you have extra money you didn’t even know about. Here are some ways to find it:

• Keep track of everything you spend for a week. You might be surprised what you’re buying, and what you can do without.
• Make purchases with cash. This can help you stick to a budget and avoid impulse purchases. Simply decide ahead of time how much you want to spend and then set aside that amount in cash before you go shopping.
• Lower your bills. Many creditors will give borrowers a lower interest rate if they’re asked. Also, conserving electricity and gas can make a big difference.
• Rank your nonessential expenses. Keep the ones you like the best and cut the items on the bottom of the list.
• Pack a lunch. Or cook more dinners at home. Eating out at restaurants can eat up a lot of money that could be saved.

Pay Yourself First

You're probably inclined to pay everyone else first – whether it’s your landlord or your grocer or the electric company. But it’s vital to start paying yourself first by saving money. Once you’ve made a contribution to your financial longevity and well-being, then you can divide up your money to cover everything else. Don’t worry. You'll more than likely have plenty left over to cover everything you need.

In fact, most banks make this easier. You can have them automatically transfer funds from your checking account to your savings account, money market, mutual fund and other accounts. You might also check with your employer. Companies will often deduct savings from paychecks if asked.

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