Buying a home for the first time, despite the various headaches and complications that comes with it, is a very exciting process. You’re finally going to stop having to depend on landlords, relatives and other people to live independently, and finally have a house which you can truly call “mine”. Although you’re obviously going to be very excited about this huge change in your life, it’s important not to get blinded by the beauty of granite kitchen counters and designer backsplashes. To make sure you’re getting the best possible house for the lowest possible price, you need to approach your first house hunt in a smart, careful way. Here are four common mistakes to avoid at all costs.
Overspending is one of the most obvious mistakes people can make when looking to buy a new home. Despite this, countless first-time buyers manage to run away with their emotions, and bind themselves to a mortgage which they really can’t afford. Long before your first viewing, you need to have a firm idea of how much you can realistically spend. There are various online calculator tools you can use to figure this out, but you need to remember that this will only be an estimate. These calculators are a great starting point, true. However, after you use them, you need to adjust the amount they come up with based on your specific situation. What are you currently paying for rent? Are you able to meet these payments with ease, or do you find yourself struggling from time to time? What you can currently afford is a pretty solid indicator of what you’ll be able to in your new place. Even though you may not be able to afford your ideal rate right now, remember to take the time to look at all the options available to you. Mortgage rates are extremely wide-ranging, and there are many resources you can use to compare them, such as this page from LendingTree.
Counting on Uncertainties
When I say you should determine your budget based on what you can currently afford, I mean it. Don’t set your cap any higher than what you and your partner are currently earning from stable sources. If you’re currently in your final year of med school, for example, don’t base your home buying budget on what interns earn at the hospital you want to work at. Or, if your partner is gunning for a big promotion at work, and they’ve got a pretty good chance of getting it, don’t take the higher salary as a given when you’re looking at homes and rates. No matter what might seem set in stone, no one has a crystal ball, and certain things can happen which may turn your plans on their head. If you think you’re going to be in a better financial situation in the near future, then put off looking for mortgage rates for the time being. It may be tough to spend a few more months in a dingy apartment, or even worse your parent’s house! However, a little patience can often pay off massively when it comes to buying your first home.
Forgetting About All the Extras
Although the mortgage itself may make up the bulk of what you have to pay to become a homeowner, it’s just the tip of the iceberg. After the down payment and your monthly installments, you need to worry about closing costs, HOA contributions, homeowner’s insurance, property taxes, and various other expenses. Homeowner’s association fees can be completely free, or a few hundred dollars per month depending on where you live and the amenities on offer. Property taxes and homeowner’s insurance can also vary greatly depending on where you live. Insurance rates are notoriously high in Florida, and Texas is known for its high property taxes. Idaho, on the other hand, has comparatively cheaper homeowner’s insurance, and Hawaii has significantly lower property taxes. Aside from these glaring expenses, you may also have to think about private mortgage insurance, or PMI. This is basically to protect the lender should you default on your loan. With all these different costs combined, you may have to come up with a regular amount twice as much as your base mortgage payment. If you’ve done a bit of idle window shopping already, and you were surprised by how big of a house you could afford, it may be time to begin again and make sure you’re accounting for every last cost.
Failing to Protect Yourself
It’s pretty common for first-time buyers to head out for their first round of viewings, and come across a property that looks absolutely perfect at first glance. Then, as they have a look around the rooms, they start to notice little, underlying issues. The floorboards make piercing squeaks when you tread on certain areas, the foundations may have cracks, the kitchen island may be a little off-centre. By the end of the tour, most first-time buyers will realize that someone simply tried to polish a turd, and that the whole property is in less than pristine condition. Believe it or not, these people are the lucky ones! If you don’t want to discover all kinds of issues after you’ve moved in, it’s important to protect yourself by hiring a professional home inspector. They’ll be able to survey the house thoroughly, and pick out any big issues which you had overlooked. After all, the seller certainly isn’t going to point out any serious problems! Contingency clauses can also offer you a decent amount of protection, against the uncertainty of life rather than the house. A financing contingency clause can cover you if, for example, you suddenly find yourself unemployed and the loan falls through, or it turns out that the appraisal price is going to end up over the purchase price. If any of these things happen, a contingency clause will ensure that you retrieve the money you used to secure the house. Without it, you could not only lose that money, but still be obligated to pay for the home!