Most of us would agree that when we buy our own home, we are making a major investment. But even with the significance of this venture, some of the common mistakes first time home buyers make can be mind boggling.
Residential real estate is no less an investment than stocks and shares but you wouldn’t start buying into the stock market without some expert advice or input. Why then do some of us approach buying a house as if we were getting a new shirt at the mall? Simply picking out the right size and style isn’t going to cut it here.
Learning the basics can be as simple as reading up on the process and talking to friends and family, who’ve already gone down that path. But to be a savvy home buyer, you need to understand some of the mistakes and possible pitfalls that await the unwary.
Unless you’re a trust fund baby or just won the sweepstakes, you probably have certain financial constraints on your purchase. Four of the most common mistakes first time home buyers make have to do with money.
Taking on too much mortgage
Make do with the smallest mortgage you can manage – or no mortgage! If you can afford to put a bigger down payment on a property, why take out a bigger mortgage?
According to AOL Finance, the more a home costs, the more likely the purchaser will pay cash. Around 62.2 percent of people buying homes worth at least $5 million will pay cash. Do these wealthy folks know something the rest of us are missing?
To start with, a mortgage is not free money. With less mortgage, your indebtedness to a lender is reduced and your monthly payments are smaller.
Only you can decide how much mortgage you can afford. If you are uncomfortable with a big loan, consider a larger down payment and a smaller mortgage.
Letting your heart rule your head
Buying a home is a big step. For many people, the emotions of the purchase can influence their better judgement and they may end up overpaying. One of the common mistakes first time home buyers make is falling in love with a property for trivial reasons.
That gorgeous kitchen remodel may have pushed the selling price up by $40,000 or $50,000 when in reality the total cost was probably closer to $10,000. There’s a reason that sellers wait to do big improvements like bathroom remodels, new carpeting and the like. Good finishes are great but they should be view dispassionately.
Keep in mind the resale value of the home. The price you pay for the house will directly dictate your profit or loss when you come to sell it.
Not factoring in the cost of the deal
Another common mistake first time home buyers make is not taking the transaction costs into account when setting their budget
A property deal includes expenses that people tend to forget about such as resale commissions, title transfer fees, latent future assessments and any extra insurance. Getting a mortgage also means lender fees; including a pricey loan origination fee, the lender’s title insurance, underwriting fees and such.
Keep re-sale value in mind
Considering that the Census Bureau calculated a typical American will move 11.7 times in their lives, we should all be keeping the resale value of our homes in mind.
With the likelihood that sometime in the future you are going to want to sell, you should be considering the desirability of your neighborhood. Having a property in a good school district or a low crime area will go a long way toward adding to its value.
Re-sale value is an important consideration before you decide to buy.
There is no substitute for educating yourself into the ins and outs of property purchases. Doing so will help you avoid some of the common mistakes first time home buyers make.