It’s easy to get caught up in the excitement of buying a home. You already have a picture in your mind of what you want and you can’t wait to find it and make it your own.
However, it’s important to be strategic, as buying a home is one of the biggest financial investments you’ll ever make. Additionally, the average homeowner stays eight years before moving, according to Realtor magazine. That’s great news if you’re happy with your home and the price you’re paying for it — and bad news if you’re not.
To ensure you’re set up for financial success and personal happiness, be aware of these eight mistakes when buying a home.
- Not setting a budget before starting the process. One common first-time homebuyer mistake is buying a bigger home than you can afford. If you buy a home that’s outside of your range and an emergency strikes, it could quickly turn into financial hardship for you and your family. Keep in mind that 40 percent of Americans couldn’t afford a $400 emergency, which is likely due to existing debt, CNBC reported. Start by determining a monthly mortgage payment you could easily swing, rather than focusing on the maximum loan amount you might qualify to get. Giving yourself some wiggle room helps to mitigate stress when unexpected expenses come up (as they always do).
- Not checking your credit report for errors. Lenders use your credit score to help them decide whether or not to approve a loan and at what interest rate. Make sure the information on your credit report is accurate and up-to-date. Federal law allows you to get a free copy of your credit report every 12 months from each of the main credit reporting companies, TransUnion, Experian, and Equifax. Reviewing your credit report regularly can also help you catch identity theft early on.
- House-hunting before getting pre-approved for a mortgage. Another first-time homebuyer mistake is looking for a house before getting pre-approved for a mortgage. Applying for a mortgage gives you a realistic idea of how much you could potentially spend on a house. Starting the house-hunting process first is like going shopping without any idea of how much you can actually afford to spend. Secondarily, getting pre-approved for a mortgage shows sellers that you’re serious about buying a house, which might give you a slight competitive advantage.
- Going with the first lender you find. Your mortgage is one of the biggest financial transactions of your life. Make sure to treat it that way. The fees and rates can differ greatly from one lender to another, so make sure to interview several before signing anything. For comparison's sake, talk to a bank, credit union, and a reputable online lender, just to weigh the options.
- Overlooking loan programs. Federal Housing Administration (FHA) loans, which are government-backed mortgages, tend to be popular with first-time homebuyers since they offer easy credit qualifying, low down payments, and low closing costs. If you’ve served in the military, you might consider applying for a VA direct home loan or a VA-backed loan.
- Choosing a house without considering the neighborhood. You’ve found your “unicorn” — the house you’ve dreamt of owning, but have started to think didn’t really exist … until now. When you get caught up in the idea of owning your dream home, it’s easy to overlook one really important factor: the neighborhood. Accessibility, appearance, and amenities are all important considerations regarding the neighborhood your home is located within. You’ll also want to look into the crime rate, the schools your children (or future children) would be zoned for, and the immediate neighbors. All of these factors can play a big role in your happiness and peace of mind after buying a home.
- Making a low down payment. A percentage of your home’s purchase price that you pay upfront, down payments can impact how much you’ll need to borrow and your interest rate. If it is a conventional loan (not part of a government program) and you put down less than 20 percent of your home’s purchase price, your lender may require you to pay for private mortgage insurance. So how much should you put down when buying a home? It depends on the purchase price of your home and your loan program. However, Bank of America provides a guide with some helpful considerations.
- Underestimating repair and renovation costs. You’ve found a great home at great price and you’re ready to buy it. The only problem? It’s a bit of a fixer-upper. Before signing the dotted line, consider bringing in a reputable contractor and getting an estimate for what the renovations might cost and how long they may take to complete. Then double both the cost and time estimates. Is it still worth it? If not, you might want to consider a house that’s move-in ready.
A little planning can go a long way, helping you avoid these mistakes when buying a home.