Purchasing your first home can be a very exciting and almost overwhelming experience, especially if you’re unsure of the steps to take. So often first-time home buyers make classic major mistakes in the home buying process that can leave them disappointed, and more so, in some financial hot water. Let’s take a look at the common mistakes you should avoid making when buying your first home.
Forgetting About Other Expenses
A major blunder first-time home buyers make is that they often forget that the purchase of a home doesn’t just have one price tag. In fact, the complete home-buying process can have several additional costs, which can add up to be a fair sized chunk of change. Expenses such as property insurance, taxes, homeowners association dues, maintenance and even higher power and water bills can be a huge financial burden on homebuyers who are not prepared with enough financial leeway to afford the added costs.
Another factor in these additional costs is that they can change each year. It’s suggested that a homebuyer allow their budget some wiggle room if their taxes, insurance, etc. goes up over the next few years to ensure they will still be able to comfortably make their payments. If you are planning on switching jobs or relocating in a few years, the purchase of a home may not be right for you. I suggest you aim to stay in your current living situation and plan for enough financial stability for at least 5 to 7 years.
Looking For A Home Before Approval
Often, a big problem with first-time home buyers is overexcitement and jumping the gun to find a new home before they are pre-approved for a mortgage. In my experience, this can happen for several reasons. Sometimes, homebuyers are unassuming and naive about the amount their loan will be approved for, so they pick a price range and start looking, more often than not they end up disappointed and back at square one. Another reason is the sheer fact that people don’t like the idea of disappointment so they avoid the possibility of it until the final step, and lay out their finances after they’ve found a home they’ve fallen in love with. In my opinion, this is a completely backwards way of working. Traditionally, you should apply for a loan within your budget and financial means, then begin to look for a home which you can afford. Much like you wouldn’t try on a pair of shoes you don’t have enough money to buy. Getting approval before shopping makes for a sound financial decision, opposed to an emotional decision.
Not Getting Professional Help
There is absolutely nothing wrong with asking for a little help when you’re buying a home for the first time. Whether it be to answer questions, guide you through the process or even to help you every step of the way, it is always encouraged to seek help from the pros to ensure you are on track financially, and even legally! If you are unsure or even just new to the home buying world, it is best that you seek advice and references from Realtors®, brokers and even lawyers. These types of professionals can help guide your transaction more smoothly and prevent you from stepping on a legal or financial landmine.
Using Up Savings For A Down Payment
A major part of the initial home buying process is the down payment. Sometimes people add it to their loan and borrow it, and sometimes people save for it. However a big no-no, in my opinion, is to drain your savings to pay for the down payment. The main reason is because you are depleting your “rainy day fund”. While the money in your long-term savings may not actually be to spend on a rainy afternoon, it should be kept as a safety net in case any unforeseeable circumstances arise. Whether it be a lost job, unexpected expenditures, or what have you, having a bit of a financial cushion saved away can prevent some major bank account blunders.
Not Holding Off On Other Big Purchases
Once your loan is approved, it can be tempting to go crazy with more spending on décor, furniture, etc. However, I would strongly advise against it. Although your current credit is reviewed prior to your loan approval, it will likely be looked at again before closing. Any major changes, like another loan or even some maxed out credit limits can put the closing in jeopardy. I suggest you wait until everything has been signed, sealed and delivered before you re-open your wallet and look to spend more money. Not to mention, as I expressed earlier, additional costs can pop up after the purchase of a home and you might need the extra funds to be used there instead of to buy that nice new sofa.
Buying a home is probably the biggest single investment you will make in your lifetime, so it is important to follow each step correctly in order to prevent yourself from falling into any financial turmoil. If you have any questions about applying for a mortgage or purchasing a home, please don’t hesitate to give me a call at 705-315-0516. I am always happy to help you make sound financial decisions that lead you towards owning your dream home.