Buying a house for many people is the American dream. While the local housing market is on fire, and with Boise recently named one of the best places in the U.S. to buy a home for first-time home buyers, it’s easy to see why people would be in a hurry to buy a house.
However, buyers need to be prudent in their quest to buy a home and be mindful of some common home buying mistakes. Below, we review many of the most common home buying mistakes and offer suggestions on how to avoid them.
Not Using a Real Estate Agent
When buying a house, you need to rely on a real estate agent’s expertise to help you navigate the very competitive housing marketplace. A REALTOR® is your advocate to make sure you get the best deal possible and leave nothing to chance. Buying a home is a significant investment and having their guidance is invaluable.
Buying a House When You Have Debt
Depending on who you talk to, you shouldn’t buy a home if you have any debt. However, having some debt isn’t the end of the world, especially if your income to debt ratio is below 50%. You’ll be in a stronger financial position, the less debt you have when buying a home.
Buying a House Based on Emotion
Buying a new home is exciting. However, making the mistake of purchasing a home based on emotion can lead to problems. You can get buyer’s remorse, especially if the house doesn’t tick all of the “need” boxes you want; the house has underlying issues you overlook just because you like the place. It can also force you to make decisions you wouldn’t usually, such as spending more on the house or getting wrapped up in the “bidding war” for a home.
Not Getting Pre-Approved
In a seller’s market, as we have in Boise, a pre-approval is required as a condition of submitting an offer on a home. It also makes sense for your financial planning and peace of mind to understand what you can afford. Sitting down with a lender and getting pre-approved for a mortgage helps you know what you can afford in a monthly payment. Meeting with a lender also gives you guidance in your home search, allowing you to look at homes within budget and not wasting your time looking at ones that aren’t financially viable.
And, there is a difference between being Pre-Qualified and Pre-Approved.
Buying a Home That You Can’t Afford
As mentioned above, buying on emotion can cause you to spend more than you can afford. You need to work with a lender and get a solid idea about what you can and can’t afford in a home. Even if you’re approved to spend more than comfortable with, you need to be realistic about your obligations and adjust accordingly. The last thing you want is to have a monthly payment that’s not very comfortable, especially when you have other commitments.
Not Saving Enough for a Down Payment
As a rule, most lenders will require a 20% down payment when buying a home conventionally (getting a mortgage). Of course, this will depend on the type of loan as some loans may not require it (e.g., a VA loan). If your loan requires you to put 20% down, and you’re not able, then you’ll be required to pay Private Mortgage Insurance or PMI. Lenders want borrowers to have skin in the game, and having a decent down payment shows them that you’re serious about buying a home. PMI can be expensive and is unnecessary with the 20% down payment.
Forgetting About Closing Costs and Moving Expenses
When people buy a home, a lot of times, they forget about the other expense involved with the purchase. You need to factor in closing costs and moving costs as part of the equation as the last thing you want to do is go into further debt after buying a home. Make sure you explore moving options (get estimates) and have itemized estimates for closing, so you know what your final out of pocket expenses will be on closing day.
Emptying Savings to Buy a Home
Many experts suggest having three to six months’ worth of expenses saved in a savings account for “just in case” things that happen. If you managed to build savings, that awesome. However, using the savings solely for a down payment on a home is not advisable as you should have a rainy-day fund for emergencies.
Getting the Wrong Mortgage
There are various mortgages available to help you get into a house no matter what your financial situation is. They all have different fees and interest rates, so it’s best to discuss your options with a lender and make sure you’re getting the best mortgage for your unique situation.
Having Someone Co-Sign Your Mortgage
If you’re in a financial situation that you need to have someone else co-sign for your loan, you’re not ready for the responsibility of owning a home.
Focusing on Style over Structure
As part of your home search, you’ve found a home that structurally looks good, but you’re not in awe of the design choices. You need to be realistic with what your unique needs are for a home. You can change the paint colors or make some other cosmetic changes to the home, but passing on a house simply because you’re not crazy about the particular design choices can be a bummer.
Ignoring Resale Value
When you buy a house, you need to consider its resale value. While most people live in their homes for five to seven years, when the time comes to sell, you need to make sure your house will appeal to as many people as possible and maximize its value. What coveted features does it have? Where is it located?
Buying Without a Home Inspection
In a competitive market, as we have here in the Treasure Valley, many would-be buyers are removing the home inspection contingency. While that’s a good negotiating tactic, it could wind up burning you in the future, especially if you go to sell and the buyer’s home inspection discovers something significant. A home inspection also gives you leverage to negotiate a better deal if issues are located. It also gives you peace of mind knowing that there’s nothing significant that needs repairs.
Not Walking Away from a Bad Deal
If a home inspection, for instance, finds issues, and the seller isn’t willing to offer any concessions, is it worth living with and paying for the problems? Overpaying for a home with problems doesn’t make a lot of financial sense. And while you may like the house, you’ll have to live with the issues. Don’t settle.
Opening New Credit Accounts While Buying a House
One of the big mistakes people make when buying a house is opening new lines of credit. For instance, going to a furniture store and applying for credit to purchase new furniture for your soon-to-be new home is a no-no, especially if you’re getting a mortgage. Wait until the ink dries on your closing documents before applying for new credit, or better yet, plan for any expenses ahead of time so that you have the money saved for the purchase.
The Last Word
Buying a house is a considerable investment and is one that shouldn’t be taken lightly. Be mindful of your finances, have a plan, and work with a REALTOR® to make sure you have a positive home buying experience.
We also have a home buying guide that can help walk you through the home buying process.
Photo Credit: iStock.com/Mikolette