It’s easy to get caught up in the excitement of the home-buying process. However, be mindful of these common mistakes before buying a house
Buying a house is probably one of the largest and most exciting investments you will make in your lifetime. You will spend a lot of time and energy during the process. While planning for your home purchase, remember to consider common mistakes to avoid when buying a house.
My husband and I made a few mistakes when we purchased our first home. Although everything, in the end, worked out well I cannot help to think that things might have been a little smoother for us had we been more aware. Learning from our first mistakes, our second home purchase felt much easier.
Below are 12 mistakes to avoid when buying a house. Not all of these will be relevant for you, but even if just preparing for one of these mistakes helps your experience to be more positive, then it is worth the read.
1. Not checking your money situation
Don’t know your money situation? You might be unpleasantly surprised when it comes time to get your home mortgage loan.
One of the first things you want to do when you start your home-buying journey is to ensure that your finances are in order. If you have not applied for a loan yet, you will need to do this. Before you contact a lender, you can do a quick self-audit of your finances with these steps. If anything needs improvement, now is the time to create a plan and start moving on it.
- List all of your monthly income and expenses.
- Calculate your debt-to-income ratio. If you don’t know what that is, or how to interpret it,, or calculate it, this article will help you.
- How much debt do you have?
- How much savings do you have?
2. Not checking your credit report
A free credit report is available for you every twelve months. Check your credit report for errors and then get them fixed. Work with your creditors to help improve your credit report.
3. Buying a house that is more than you can afford
The loan amount you qualify for and what you can afford are two different things. When we were buying our second house, the lender gave us our approved loan amount. I laughed. If we took out that loan I am not sure who would pay for child care, clothing, food, or much entertainment. And there would be no hope to continue adding to our savings account.
Don’t make this mistake when buying a house. The lender does not know your expenses and values. Therefore, they are going to approve you for a loan based on assumptions. Be sure that you are comfortable with your mortgage payment and that you are looking for houses that you can afford.
4. Draining your savings
One of the mistakes that we made when buying a house was draining our savings account. We used every little penny we have for the downpayment and the closing costs. However, we did not have enough money to pay the wire transfer fee. The fee was $10. I was so mortified. We did everything we could to save for the house and forgot to calculate the $10 bank charge.
The issue with draining the bank account was not the bank fee because we found $10. It was that we had no money available for anything that came up. The stress alone was not worth doing this.
5. Downpayment is too small
If your downpayment is too small, you may be required to pay for Private Mortgage Insurance, which is pretty much like flushing your money down the toilet. Consider saving at least 20% of the purchase price to avoid this cost.
There are loans out there that accept smaller down payments. However, keep in mind that your downpayment lowers your loan and your monthly mortgage. There is no downside for at least trying to put down as much as you can. Just don’t drain your savings.
6. Not documenting gift money
If someone is giving you money to help you with your home purchase, be sure to have that documented before searching for homes and have the funds available before making any offers.
7. Not researching various loan options
There are a ton of loans out there. Research all of them. You do not need to go through one lender. Try a few out and pick one that resonates with you and your situation. There are FHA/VA/USDA loans. I don’t even know how many other loans are available. If there is a loan that sounds too good, then ask around about it. A house is a big purchase. It is wise to do your due diligence.
8. Looking for a house before getting a loan approval
In a hot market, you need to be ready to write an offer immediately. Otherwise, the house will be gone. If you do not have loan approval to submit with your purchase offer, it will not entice the seller. Get prequalified so that you are ready to submit a strong purchase offer.
9. Miscalcualting homeownership costs
Make sure to calculate all potential homeownership costs. Include insurance, tax, homeowner association dues, utilities, garbage, pool upkeep, home repair, and maintenance costs. Not doing this can result in budget upset down the road.
10. Don’t forget home inspections before buying a house
Please request home inspections and consider them when buying a home. After saving money for years, fixing your credit, and paying down your debt, the last thing you want is to find out you need to buy a $30,000 roof or that there is $50,000 of termite damage. Your real estate agent can guide you through this process.
11. Buying a large purchase before closing is a big mistake when buying a house
Taking on debt when you buy a house will delay your closing process. Ideally, you don’t take on any more consumer debt, nor do you have much debt, once you purchase your house. However, if you plan another purchase or loan, be patient and wait until your house deal closes first.
12. Being too emotional
Check in with your emotions. Are you emotionally tied to the home or neighborhood? If yes, be careful not to bid more than you can afford.
In hot seller markets, buyers can get emotionally drained when they are up against multiple offers and bidding war situations. Try to keep calm during these times and remember to stick with the numbers that fit your budget.
Summary of mistakes when buying a house
Buying a house is a great experience, whether you are a first-time homebuyer or you have purchased multiple homes. Keep in mind some of the common mistakes to avoid, prepare yourself financially and emotionally, and you will be on the path to great fun.
If you have any questions, feel free to comment or reach out to me. I am happy to help.
Thanks for reading!
Stay balanced,
Jill