Buying your first home is a memorable experience. And, it can be a scary experience too. If you do not properly plan your first home purchase, you might end up making mistakes that might cost you financially and in other ways in the future. We have discussed some common mistakes that first-time home purchasers make to help you stay alert on your first home purchase.
Not Applying for a Mortgage First
Most first-time home buyers directly start looking for a property instead of first approaching a mortgage lender. When it comes to affordable homes, there's more demand than supply. Thus, if you don't have an approved mortgage, you could lose out on your dream home. Similarly, you might also end up choosing a home that you can't afford and will have to start the house-hunting process all over again. Thus, it would be better to consult a mortgage lender first before deciding upon your dream home. Based on the mortgage available, you can then decide on the home instead of the other way round.
Talking to Only One Lender
People most often approach only one lender or bank and get a mortgage without considering other options. They don't want to spend extra time looking for other options; they want to quickly get done with the process. This can prove to be a huge mistake. In fact, the more time you spend considering different options, the better you can compare between them. You can then decide on a mortgage that is best suited to you.
Thus, take the time to compare the interest rates, fees, repayment period, and other loan terms from at least three different lenders before deciding on one. It will help keep your finances in place in the future.
Depleting Your Entire Savings
One of the biggest mistakes you can make while purchasing your first home is spending all your savings on the down payment. This leaves people with zero liquid funds and can become a problem if they need money. For instance, if you end up spending your savings on down-payment, you won't have money left to pay for emergency medical bills or other unforeseen expenses.
Thus, always keep an emergency fund in your savings account that can last you for at least three to six months. This emergency fund can help you cover any accidental and unwanted expenses. Spending all your money for a home down payment is a risk best avoided.
Not Considering the Neighborhood
The locality of the home is as important as the home itself. You may find a home that checks all your needs, compelling you to purchase the home. It is equally important that the neighborhood match your values and culture and provide a safe environment for your family. But if the neighborhood is not good enough for your life and your family's development, then the purchase may turn out to be a bad investment.
Similarly, choose a neighborhood that provides convenience to you and your family. For instance, choose a locality from where your office is nearer, or your children don't end up spending too much time commuting to school.
Not Considering the Hidden Costs
In addition to the mortgage's interest payment, there are other costs that you need to consider while buying a house. These include property taxes, maintenance and repair costs, and home insurance, among others. The average annual home maintenance can range from one to four percent of the home's value. Thus, while purchasing a home, consider all the additional expenses you will incur. Set aside one to three percent of the home's purchase price for maintenance and repairs purposes.
Buying a Bigger Home than Needed
People usually stretch their budgets while purchasing a home. But, one must not overextend the budget way beyond capacity. This can lead to foreclosure in the future if you encounter any financial issues. Similarly, other expenses will increase depending upon the size of the house, which can further take a toll on your finances. For instance, you will have to take a bigger loan, which means you will have to repay more considering the loan interest. Similarly, you will spend more on utility bills and home maintenance on a bigger house, which can cause issues with your monthly finances.
Buying a home is a tough task, and it becomes tougher for people making their first purchase. We hope that this blog will help you in buying your first house. Knowing where the pitfalls are will help you make better decisions and can even help you in the future.
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