homebuying mistakes

First-time Foibles: Don't Make These Homebuying Mistakes

Real estate transactions are a big deal, and most of us don't complete that many over our lifetimes. It's easy to make a mistake, and mistakes can be very expensive. Here are five big bullets to dodge.

Click to see today's rates (Apr 7th, 2017)

Mistake #1: Buying Because You "Should"

Buying a home because you've hit some magic age in which you're supposed to be grown up and responsible, or because it's the "American Dream," is just a bad idea.

You should buy a home when you're ready, and not before. If your career requires frequent moves, for instance, homeownership may be a poor investment. It just costs too much to sell a home and buy a new one, over and over.

If you're not maxing out your 401(k) and other retirement savings opportunities, you may not be ready to buy a home. If you don't have emergency savings, homebuying might be too risky right now. And if your career or industry isn't rock solid, bide your time.

Mistake #2: Driving Until You Qualify

People who work in major metropolitan areas can run into this one.

All the houses near your workplace are too expensive for you to finance. So you look for cheaper houses further and further away, until your income qualifies you for a home mortgage.

The only problem is that underwriters don't review your commuting costs, and you could end up with an unaffordable situation. You'll be paying more for gas, maintenance and insurance.

An Urban Land Institute study found that while housing costs dropped outside city limits, those who lived closer to work actually had lower expenses overall.

Commuting can take a huge bite out of your budget if you're not careful. In fact, a quarter of the communities in the Urban Land Institute study paid combined housing and transportation costs exceeding 58 percent of their median household income.

Mistake #3: Forgetting Ownership Costs

Many of us get so caught up in what we need to make a deal work -- down payment! closing costs! credit score! income! -- that we forget that closing is just the beginning.

Homeownership costs go way beyond your mortgage payment. They include maintenance, repairs, property taxes, utility bills you may not have paid as a renter, and insurance.

Personal finance experts recommend putting aside one-to-three percent of the home's value each year for needed repairs and upgrades -- depending on the age and condition of the property.

Another option is purchasing a home warranty that covers many common repairs and requires a small co-payment for services.

Mistake #4: Blowing Off Your Timeframe

The amount of time you expect to own your home has a huge affect on your return on investment. It also impacts the type of mortgage you choose, and the features you'd look for.

If you expect to sell up in five years or fewer, for instance, resale has to be a consideration. You'll want features that will help you sell easily when the time comes, and you'll probably want to avoid "quirky" properties. But if you'll be there at least a decade, you can indulge your wild side a bit.

Shorter tenure also means you can go for a less-expensive mortgage. Rates for 5/1 ARMs are fixed for five years and seriously lower than those of 30-year fixed mortgages. Why pay more for a benefit you won't receive?

On the other hand, if you plan to keep the home as a rental after you move, it makes sense to get a fixed rate while it's your primary residence, and cheaper to finance.

Mistake #5: Falling In Love

No one is saying that you should not involve your emotions in a home purchase. Of course, you should.

But homebuying is also a financial decision, and you need open eyes. You also need a home inspection. For a few hundred dollars, you can save yourself some serious costs later -- most contracts allow for renegotiations if inspections turn up major problems. Or you can walk away from the deal.

That's a lot harder if you've already convinced yourself that this is the only house for you and that no other home will do.

Listing agents can smell this and it will not work to your advantage.

These problems can all be avoided with advance planning and budgeting. If you can do that, you probably are ready to buy a home.

What Are Today's Mortgage Rates?

Current mortgage rates are still great for homebuying. The actual quotes you receive depend on your credit, down payment, type of property and other factors.

What you pay also depends on how effectively you shop for your home loan. Several studies have proven that people save by getting multiple mortgage quotes.

Show Me Today's Rates (Apr 7th, 2017)

Courtesy of Gina Pogol
The Mortgage Reports

Posted by Florida Realty Marketplace on


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