Buying a home can be exciting when things go well! Avoid these five major home buying pitfalls.
Pre Qualification: Make sure you go through a prequalification with your lender! They will look at your current credit, debt to income ratio (DTI), savings, retirement accounts, W2 Income, and have a number of how much you can borrow. The higher your credit, the better position you are in. Make sure to only look at properties that fall in your pre approval range. I would highly suggest looking at your own finances to see what price range is best for you to afford. The bank wants to write the biggest loan possible, and does not care if you are in financial trouble after your purchase. Around 40% is a typical debt to income ratio. So if you make $4000 a month, they will be ok with a monthly mortgage payment of $1500.
Extra Costs: If you are transitioning from being a renter to a buyer, there are numerous other costs of being a homeowner. Now, you will be paying water/sewer and maintenance for the home. Depending on the age of the home, it can be between 2-4% yearly. A cap-ex fund is very smart to create for the big tickets items in your home. This includes things such as the roof, heating system, siding, etc.
Looking only at Top of Price Range. If you do this, you will instinctively compare all homes to ones at the top end of your budget. You don’t want to fall in the trap of buying more than you actually need. Essentially you are looking at your wants and not your needs. Before looking at homes it is helpful to write down or know exactly what you need in your home. Keep in mind, more space needs more maintenance. If you look at older homes, they will need more maintenance than newer homes.
Savings at Close- Ideally, having savings at close is beneficial for expenses down the line. You don’t want to have a stressful situation when a big expense comes up and you are struggling for cash.
Immediately start making changes: Before you want to make any changes, wait 2-4 months and enjoy your new home. If you don’t have the money for new things, it is best to wait. Improvements to the house can bring value, but keep in mind, not all changes will have a long term benefit for the home.
Homeownership can be very rewarding. Do your best not to set yourself up for financial difficulty by being cautious when you are ready to purchase your home.