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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