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Buying a first home is an exciting time. But it is all too easy to get caught up in the excitement and end up overpaying or buying a home that just isn’t right. If you’re a first-time home buyer, here are some common traps to watch out for.
Rent or Own?
Many people assume that owning a home is a better financial decision than renting. Why throw away money with monthly rent checks when you can be building equity in something you own? But this isn’t always the case. While home ownership has certain benefits, like not having to ask permission to renovate or redecorate, it isn’t always the best financial decision. Homes don’t always go up in price, which means you might be better off in a cheap rental and sticking the extra cash in your 401k. And even in a market with rising house prices, it doesn’t make sense to buy if you plan on moving in a few years. Before you make the decision to transition from renter to owner, you should run some figures through a calculator to figure out if buying a home is right for you.
Not Getting Your Debt In Order
Lenders can be pretty lenient about giving out credit cards, student loans and car loans. But landing a mortgage is a far more stringent process. The first step potential buyers should take is to run a credit check to see where they stand. Your credit score is one of the most important factors in determining what kind of mortgage offer you’ll get, but it’s not the only factor. Your total debt-to-earnings ratio will also factor into a lender’s calculations, which means it’s a bad idea to take on new debt while you are gearing up to buy a house. If you’re thinking about buying a home, start paying off as much debt as you can.
Failing to Foresee All The Costs
When you sign a lease, you know what you’ll be paying each month. Sure, there might be a few extra costs, like utilities and cable, but if you can afford the rent, you can afford to live there. Unfortunately, many first-time buyers assume that owning a home is going to be the same, and they start making plans based solely on the monthly mortgage payment. But any homeowner will tell you that the mortgage is only part of the cost of owning a home. In addition to the closing costs when you buy the home — which can total up to 5 percent of the sale price — there’s also the homeowners insurance, property taxes, and the cost of repairs. So before you get your heart set on a home that’s out of your price range, use a mortgage calculator that factors in these added costs to set up a budget.
Not Doing Your Homework
Buying your first home can be exciting, but it’s not something that you want to rush into. Before you make an offer you want to make sure that that you thoroughly research the place to ensure that it’s the right home for you. A home inspection can cost a few hundred dollars, but it can save you thousands if it turns up major issues with the property, such as a faulty foundation or shoddy roof. If you’re planning on starting a family in your new home, you’ll want to ensure that you don’t outgrow it in a few years. Will there be enough room as your family grows? Are there good schools and places for kids to play? Is the neighborhood safe? When you’re just starting out, these factors might not seem that crucial, but they suddenly become all-important concerns a few years down the line.