Financial Mistakes All Potential Homebuyers Must AvoidWhen you are in the market to purchase a new home, you want to receive the best deal possible. You want a home that is a terrific investment,
Financial Mistakes For Homebuyers To Avoid
Dated: August 2 2018
Financial Mistakes All Potential Homebuyers Must Avoid
When you are in the market to purchase a new home, you want to receive the best deal possible. You want a home that is a terrific investment, can build equity, and has all the features you desperately desire. However, in this process, there are many financial mistakes potential homebuyers make to cut costs or to speed up the home-buying process. Unfortunately, these choices cost more in the end. Let’s take a look at several financial mistakes many homebuyers make and how you can avoid them.
1. You Don’t Think Long-Term
When you purchase a home, you should never think only about the upfront costs of the purchase. While your monthly mortgage payment and closing costs are important, they should not be the only thing you worry about. Instead, you want to think about the future of the home and any money you need to put into the property.
Let’s look at an example. Let’s say that you are in the market for a home that you plan to live in for approximately 10 to 15 years. You are interested in an older, charming home. While everything in the home is in working order and no large upgrades are needed right now, the roof, water heater, and furnace only have a few years left in them and will likely need a replacement within the next five years. The average cost for these replacements are:
A roof: $7,354
A water heater: $1,047
A furnace: $4,230
While these prices will vary depending on the size of your home and the quality of product you choose, you can expect to pay approximately $12,630 just in these three upgrades. This means that if you are interested in a home that is $300,000 and negotiate a 3% decrease in asking price, you will save $9.000. However, you will end up paying more for repairs and replacements in the next several years. You also must take into consideration any additional upgrades and changes you wish to make to improve the cosmetic look of the property.
2. You Buy with a Poor Credit Score
A good credit score is vital for receiving a home loan. Lenders will carefully look at your credit score because it tells them how big of a risk you are. Your credit score is comprised of several aspects including your payment history, debt, available credit line, the types of credit you have opened, etc. When your score is high, it means you have developed stronger financial habits and lenders are more likely to approve your loan.
Ideally, you want a minimum credit score of 640. For many lenders, this is the lowest score they will approve if you are applying for a conventional loan. If you have lower scores, you can still be approved for other types of home loans but your interest rate will be much higher. Just a small difference in interest rates can mean thousands of dollars over the course of the loan.
3. Not Being Wise with Credit
In addition to improving your credit score, it is also essential that potential homebuyers pay close attention to their spending habits and their credit scores during the home-buying process. If you have been approved for a loan, it does not mean that you are guaranteed to close on the home. There are several actions you can take that will affect your credit score and cause your home loan application to be denied near the end of the home-buying process. A few things to avoid prior to closing on a new house include:
Opening new lines of credit such as personal loans, automobile loans, store credit cards, etc.
Meeting the maximum balance on your credit cards
Missing payments or suddenly paying bills late
4. Purchasing a Home You Can’t Afford
A common mistake many real estate agents see is buyers purchasing a home that is much more than they can afford. This is particularly common among first-time homebuyers who want large, feature-filled, new homes. And while you may qualify for these homes, it doesn’t mean you can afford the monthly payment and the other expenses that come with these purchases.
Ideally, you want your monthly payment to be no more than 28% of your monthly income. However, you also want to set money aside every single month to cover the cost of homeownership. Many experts suggest following the 1% Rule. This rule simply states that every year, you set aside 1% of the home’s purchase price to cover maintenance expenses and repairs. This means for a home in Placer County that costs approximately $400,000, you want to set aside approximately $4,000 throughout the year to care for the home. Of course, this number can vary from year to year and depending on the current condition of your home, but it is an excellent starting place.
5. Not Hiring the Right People
Having the right team of individuals to help you throughout the home-buying process will make all the difference. For example, many homebuyers will choose to forgo hiring a home inspector to save money. Unfortunately, this one decision can cost a significantly large amount of money. In Roseville, the average home inspector costs approximately $300. While this is certainly a large chunk of money, these individuals are trained to find potential problems and issues that could drain your savings and bury you in debt. Foundation complications, roofing issues, broken appliances, mold, mildew, etc., can all be found and taken care of by the seller without the buyer later dealing and paying for these problems.
Additionally, hiring a qualified real estate agent is one of the best — and most important — decisions you can make in the home-buying process. Finding an agent who is an expert in the community, understands the importance of a budget, and is willing to work for you is one of the most important things you need when purchasing a new home. Without this team member, you could fail the negotiation process, miss the small details, and eventually regret your purchasing decision.
If you want to work with a qualified real estate agent who is familiar with the community, is knowledgeable, and has your interests in mind, contact Rogers Real Estate Team. They can help you find your dream home with no regrets.
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