Home Buying Mistakes That May Ruin Your Finances
Serenity! Your home is that place. This article would tell you the home buying mistakes that may ruin your finances. Here we go!
Buying a new home can be quite thrilling but some mistakes homebuyers make can ruin their finances for life.
In this article, we would be listing out several home buying mistakes that we make that may ruin our finances and also ways we can avoid them.
We would help you spot these common home buying mistakes before you even make them.
Let’s get you started;
#Getting Rate Quote From Only One Lender
When getting a mortgage you would need to get a rate quote from a lender. Getting a quote from a lender can be quite stressful because you have to make out time to have a conversation with a loan expert and also provide some documentation. This makes some of us be tempted on getting quotes from the first lender that offers them an interest rate. But this single mistake may cost them thousands of dollars over time.
When you stick on getting rate quotes from just one lender you miss out on better deals because no two lenders are the same so as their closing costs, interest rates, or other fixed fees. But if you get quotes from various lenders you will be able to choose or select the very one that would save you money over the life of the loan or at the closing table.
You can avoid making this mistake that might eventually ruin your finances by shopping around and getting quotes from at least two lenders.
#Looking For a Home Before Getting Pre-approved
Many a time, people get overly thrilled about getting a house and sometimes want to get a jump-start on it. But they forget the fact of shopping for a home before getting pre-approved for a mortgage is a mistake they would probably think twice before making them.
When people shop for homes before getting pre-approved, they might end up finding homes they love but then it falls out of their price range. This would surely make them pay for a home that is way above their budget and this may ruin their finances.
This can be avoided if you focus on your finances first by making sure you have enough money saved for closing costs and a down payment and then, get pre-approval.
You can get pre-approval with Rocket Mortgage by Quicken Loans.
#Buying a House With a Lenders Budget
After getting approved, you might assume that you can buy a house for the amount of money they are approved for. You believe that as long as the lender reviewed your income and assets and gave you an amount you can probably afford it. But you seem to forget that what the lender says you can afford may not be really what you can afford.
Like I said earlier, getting pre-approved is nice but the lender does not know how much you pay for insurance, gas, or even groceries; they only gave you an amount they think you can afford based on your income and even your income-debt- ratio.
These additional expenses will surely be included in your monthly budget. Going ahead with the amount you are approved for outrightly without considering your other monthly expenses you may end up ruining your finance for life.
This home buying mistake can be avoided if you make a list of all your monthly expenses and weigh them with the price of the house you want to pay for. If the total amount is more than your income, you should probably look for a more affordable one.
#Making a Small Down Payment
Down Payments may feel like a hit since all of it is due at closing and makes up to several thousand dollars, most of the time. This makes buyers tempted to make a “small down payment”
The problem is that, when you think that making a small down payment will save you money now, it would end up making you spend more down the line. This is because the more interest you will pay when you put down less money.
We can curb this home buying mistake but giving ourselves time to save up for a down payment before we decide to purchase a home.
#Draining Your Savings for a Down Payment
Now, while making a down payment is better than making a ‘small’ down payment, we shouldn’t get to the point of draining all our savings just for the sole purpose of making an outright down payment to purchase a home. This can wreck you and ruin your finances.
If making a down payment to buy a home would put you in a position where you probably wouldn’t have extra money set aside to handle other expenses that arise from owning a home; then you should probably focus on saving more and disregard the urge of making the payment.
A solution to this is deciding if it’s the right time to purchase a home and making sure you have enough money to make your down payment and closing costs.
#Not Planning For Closing Costs
Most times we get carried away in making a down payment and forget about planning for closing costs. These closing costs maybe even more than the down payment made, so failing to plan or put the closing costs in your budget you might end up borrowing from family or friends, pulling more money out of your savings, or even pulling out of the deal which would eventually cost you more.
This can be avoided by preparing and planning for closing costs. Below is a list of common fees that might not be included in your closing costs:
- Home inspection
- Property taxes
- Title and attorney fees
- Lender fees
- Application fee
- Prepaid interest
- Loan origination fee
- Discount points
- Title search fee
- Mortgage insurance application fee
- Upfront mortgage insurance, optional
- Lender and owner title insurance
Prepare to pay about 5% of your purchase price. For example, if you are purchasing a home for about $150,000 prepare to pay about $7,500 for closing costs.
Buying a home for the first time can be taxing but now you have known some common home buying mistakes and how to avoid them, you can be sure that buying that your dream house would be a lot easier.