Home ownership has long been one of the cornerstones of the American dream. For many people, firm financial footing rests on the solid foundation of real estate investment. Buying a home is often a choice made out of emotional need, but can also help put you in a safer financial position.
However, if you enter the homebuying process lacking knowledge or reasonable expectations, you could dig yourself an incredibly deep financial hole. Included here are a few financial mistakes to avoid when you buy your first home.
Underestimating Monthly Payments
For many people, the monthly mortgage payment will be less than what they are currently paying in rent. Unfortunately, as a property owner, you will also face other monthly expenses like interest, homeowner’s insurance, property taxes, and homeowner’s association dues. All of these payments will likely be factored into your monthly cost and should be planned for before you sign paperwork.
Additionally, most people buy homes that are larger than their previous residence. This means you are going to be facing higher electric bills, potential water bills, and even the costs of heating oil or natural gas. Have a firm understanding of the home’s energy efficiency as well as heating and cooling costs before you sign.
Looking Before Loan
Many prospective homebuyers become enamored with the home shopping process and push the necessary loan applications aside. This results in looking at homes way out of your price range and falling in love with places you can never realistically afford. Don’t become emotionally attached to a place when you have no idea if it is attainable.
The first step to take in the homebuying process is to get approved for a loan. This means you will have a fairly educated understanding of what your price range is and how much your monthly bills will be. You can then avoid the dangerous game of buying more house than you can afford and sinking yourself in debt.
A huge financial risk for many homebuyers is in depleting their savings for the down payment and closing costs. Paying 20% down on your home will help you avoid mortgage insurance, but it leaves you with no fallback in case of calamity. While an emergency fund is critical for everyone, it is even more so for homeowners.
Anything can go wrong when you own a house and you must have liquid assets to utilize in times of trouble. For example, losing your roof, furnace, or sewage line could require a repair costing thousands of dollars. If you are unprepared for this you may find yourself scrambling for a loan or asking family for help. Avoid that stressful, and awkward, situation by preparing for the future and maintaining a savings stash.
Accruing New Debt
One of the worst mistakes homebuyers can make is to accrue new debt when they are in the process of closing. Every aspect of your finances is going to monitored while you are purchasing a home, it is critical that you are making wise financial choices. Deciding to buy furniture on a payment plan, pick up a new car on loan or open a new credit card can totally destroy your chances of closing on a house. Keep your wallet closed until the home buying process is finalized.
Categories: Real Estate