Home ownership is the American dream. Perhaps you’ve saved the down payment and are ready to go. Here’s a word of caution—buying a house isn’t an easy process. It’s a long term financial investment. It is the largest investment most people ever make. Consider these points before purchasing your first home.
No Established Budget
The most important step before buying a home is budgeting. What can you really afford? Make a list of your monthly expenses. Don’t forget to include insurance, groceries, savings, car, credit cards, etc. Subtract this number from your monthly income to see how much house you can afford.
Don’t look at homes outside your price range or you’ll run the risk of overextending yourself. You may find that you cannot afford what you really want. In this case, you can reduce your monthly expenses or increase your income.
Based on your credit and income, the bank will determine how much they will loan you. Get a prequalification before you start your home search. A preapproval letter is required on most offers and prevents wasted time. Be careful not to take out additional loans or alter your credit score after the pre-approval because it can affect the loan.
Failing to plan for Hidden Costs Homeowners are responsible for repairs, insurance, and property taxes. There could be additional neighborhood amenity fees. A new roof, air conditioner or furnace can be extremely costly. Have an emergency fund before you make an offer on a house. Don’t forget about closing costs on your new home and factor that into your initial offer.
Neglecting a Home Inspection The only way to assess your home realistically is to get a home inspection. A satisfactory home inspection is a clause in the contract that has saved many a homebuyer from the money pit. It protects the buyer from costly hidden repairs. It’s best to do your investigation before the final purchase and avoid surprises.
Not considering resale value
Pay attention to the neighborhood and area of your chosen home. How can you avoid unpleasant surprises down the road? Consider research from planning commissions and neighborhood covenants. Could a highway be built nearby within 10 years? What are the zoning laws? If there is land that is undeveloped, check out plans and zoning.
Trusting a Verbal Agreement
The oldest mistake in the book is trusting a verbal agreement. Always secure your agreement in writing and include every detail. It’s best to use a professional realtor to secure your agreement because the realtor is experienced and prepared with secure agreement forms.
Spending too much too soon New buyers are in a hurry to fix up their home and often overextend their credit too fast. Not all improvements will automatically increase the home’s value. Take time to do your research.
Failing to include a Contingency Clause in the Contract Your offer should contain a mortgage contingency clause. In this economy it’s a good idea to include a statement that releases the buyer from the contract if there is a job loss or the loan fails to go through. This should include a return of entire deposit.
Home buying alone Enlist help early on in the home buying process. It can be complex and a dependable team is needed. Use a recommended realtor if you can. If you choose not to, seek advice from trusted professionals, friends and family.
First time homeowners should follow these tips to avoid the ten largest mistakes.