Buying

Financial Mistakes to Avoid When Buying a House

In order to put yourself in a better position to experience financial success after you close on your first home, avoid these financial pitfalls.

Purchasing your first home is probably the biggest investment you’ve ever made up to this point. After all, you’re committing to purchasing something that will probably take you somewhere between 20 and 30 years to completely pay off. A decision of that magnitude should only be made after you’ve gone through a careful planning process that focuses on your ability to make and manage money. While there is life after a foreclosure, the long-term ramifications on your credit score brought about by losing a home can make it hard for you to purchase a new house, vehicles and other major items. In order to put yourself in a better position to experience financial success after you close on your first home, avoid these financial pitfalls.

Buying Too Much Home

Before you ever start looking at potential properties, you should meet with a mortgage lender who can give you a preapproval letter. This preapproval takes various factors into account, including your income, debt level, credit score and other factors in order to decide how much money they want to lend you in order to buy a home with. If your preapproval says that you can borrow up to $200,000, it can be tempting to find a $200,000 home. In most cases, you should purchase a home that doesn’t require you to spend your full mortgage amount. The preapproval letter doesn’t include other costs (which we will discuss in a moment) so you can find yourself purchasing too much home for you to be able to repay.

Don’t Forget Your Taxes

Every state in the US requires some form of property tax to be paid every year. While the amount of taxes that are charged may vary by state, the fact remains that all 50 states will assess the value of your home and charge you a percentage of property tax based on their assessment. Obviously, more expensive homes require a higher amount of property tax to be paid. While the presence of property taxes doesn’t mean that you have to buy a tiny home that you don’t like, it does mean that you should account for the price of annual taxes when you’re deciding how much to spend on a home. Failure to pay your property taxes can result in the state seizing your home and selling it to the first person who is able to pay the unpaid taxes on it!

Managing Maintenance Costs

How are you going to maintain your home? Lawn care, repairs and other tasks are routine parts of home ownership. Depending on the area in which you’re going to live, there may be homeowners’ association restrictions that dictate exactly how your lawn is to be cared for. If that’s the case, you’ll need to figure out exactly how much you’re going to pay for maintenance. When you’re figuring out your maintenance budget, make a list of everything that is generally a part of responsible home ownership. Lawn care, cleaning out gutters, making minor repairs and making major repairs should all be a part of this budget. Once you’ve decided what tasks you plan on handling on your own (if any), you can get a better idea of how much you’re going to pay for the other maintenance needs.

Other Hidden Costs

Taxes and maintenance costs aren’t the only hidden costs associated with buying your first home. You’ll also need to figure out closing costs, the down payment and any costs of moving from your current address to your new one. Your down payment will be largely dependent on the type of mortgage that you’re applying for. Some types of loans only require a down payment of a little over 3%. Conversely, other loan types require that you pay as much as 20% down. Closing costs are the fees paid at the time of your purchase closing and can vary significantly based on how well your real estate agent negotiates. Finally, you should remember the fact that you’re going to have to move from your current address to the home you’re buying. How much is a moving company going to charge you? If you decide to move on your own, you’ll need to plan on the price of renting a moving truck and other equipment.

Shopping Around for a Loan

Interest rates, types of loans and other aspects of borrowing money to buy a home can vary from one lender to the next. Because of these variances, you should be sure to talk to multiple mortgage lenders before you decide where you’re going to get your loan from. Shopping around in an attempt to get a better deal on your loan is a crucial part of saving as much as you can on the monthly mortgage payments that you’re going to make for the next two to three decades. You’re not required to get your mortgage from the bank where you generally do your business, so don’t be afraid to shop around and find a mortgage lender who can give you the best deal.

Buying the First Home You Like

It’s not uncommon to get so eager to buy a home that you purchase the first one that really gets your attention. This concept of real estate “love at first sight” can often spell financial disaster for first time home buyers. The first home you see could be overpriced, have major defects, and may present any number of other issues. Be sure that you don’t become so enamored with the first home that you see that you put in an offer that you may end up regretting after closing. Spend some time shopping for a home, compare your options and make the best decision possible.

The process of purchasing your first home can seem daunting. There is so much information floating around, forms to fill out and decisions to make that it can feel like you’re more of a spectator than a participant. In order to put yourself in more control, make sure that you have a financial plan that you will follow from start to finish.

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