6 Mistakes First-time Homebuyers Must Avoid
People are in a home-buying frenzy now with home prices relatively low as are mortgage rates. Experts are predicting that more gains will be made within the housing market during the years ahead. Along with the hot home-buying market comes heavy competition for the homes and many are making all-cash offers. But, if you aren’t familiar with all the complexities of purchasing a home, you may have future financial regrets. Considering these six areas will put first-time homebuyers on the path for a positive transaction.
Buy Too Soon
Although purchasing a home is often the best financial decision you could make, it doesn’t work for everyone. For example, if you know you’ll only be in the home for a couple of years, renting may still be the best option. It may not make sense to buy after you amortize the closing costs for that time period.
Putting enough money toward a down payment and having an affordable monthly payment are only the beginning. Homeowner’s insurance, maintenance or HOA (Home Owner’s Association) fees and closing costs may eat up your savings and leave you with no emergency funds.
Home Inspection & Title Insurance
A home inspection is no way to cut the costs of buying a home. The defects a home inspector may find far outweighs the price of a home inspector and you may save thousands of dollars on future repairs. The same goes for title insurance. Having peace of mind while letting the insurance company worry any title issues from decades ago is a no-brainer.
Quick Price Appreciation
Many homebuyers think if they dump their life savings into a home and keep it for a few years, they’ll get a significant increase in property value. While that can be true in certain areas during a given time frame, that also means there could be slow downs or even drops in value. Those are the times that can make a home asset less liquid and more difficult to get cash back out of the home. On average, a home is a slow and steady asset that will keep up with inflation. A paid off home is typically the key asset for successful households as they near retirement or plan for leaving an inheritance.
It is absolutely crucial for first-time homebuyers to analyze their debt-to-income ratio before looking for a lender. A lender considers this ratio when looking at your ability to pay for a home. If you’ve accrued too much debt, you may not be approved. Show a history of saving and not getting into debt before you apply for a home mortgage. In other words, always pay your bills on time and don’t go into more debt by purchasing a new car or opening credit cards.
Income stability is an important criterion. Avoid switching jobs until after you close and the house is yours. Also, keep a close eye on your credit score before applying with a lender. Even if you have a pre-approval letter, you’re not guaranteed for the loan. If your score changes a great deal, you may find out just before closing time that you don’t qualify.
Spending some time with an expert that you trust is imperative for first-time homebuyers before that rushing into that first purchase. They keep up with changes in current market values and how the various mortgage companies do business. A real estate professional can also give you a reality check on home prices and values. Today, many homebuyers rely on such online sites as Zillow or Trulia and may get a false sense of the true values of homes in the area.