5 Pitfalls to Avoid When Buying a New Home
A home is the largest purchase you will make in your life, but many buyers try to rush into the process without fully understanding and weighing all of their options.
Here are five major pitfalls to avoid when buying a new home.
1. Looking for a Home Before Applying for a Mortgage
First-time home buyers often make the mistake of looking for a home before even applying for a mortgage. Getting pre-approved for a mortgage before you start looking or making offers will improve your chances of buying the home you want.
Some housing markets are more competitive than others. If buyer demand outweighs housing inventory, you may find yourself competing against buyers who are already pre-qualified and may miss your chance to buy the perfect home.
Talking to a mortgage lender will also give you an idea of how much home you can afford. If you just go blindly into the process, you may start looking at (and falling in love with) homes that are way out of your price range.
Take the time to get a fully underwritten preapproval. This will show that you’re serious about buying a home and that your finances are in order to get a mortgage approved.
2. Ignoring Government Loan Programs
Many home buyers, particularly first-time buyers, ignore government loan program options. Saving for a hefty down payment is often the biggest challenge new buyers face, but there are government-backed loan programs that allow for a lower down payment.
FHA loans, for example, allow for a down payment as low as 3.5%. You’ll need to meet other qualifications, such as a minimum 580 credit score, but the low down payment qualifications may help you get into an affordable home more quickly.
Weigh all of your financing options to see if buying a home is possible and if you can do it without having to drain all of your savings into the purchase.
3. Not Getting an Inspection
Inspections are crucial when purchasing a home, but many home buyers skip or skimp on this important phase. In many home markets today, demand outweighs inventory, so more buyers are skipping inspections or doing the bare minimum just to close the deal before someone else does.
It’s important to remember that sellers may not disclose defects, major repairs, or history of water damage. Home buyers should be investing in thorough inspections, and this means also hiring an electrician and plumber to make sure that the home’s major systems are in good working order.
Once you buy a home, you may be stuck with whatever defects it has. You may have some legal recourse in real estate, particularly if there is evidence of fraud or breach of contract, but you want to avoid this headache at all costs.
4. Buying More Home Than You Can Afford
A very common pitfall home buyers make: going for a home they really can’t afford. When buyers get their preapproval letter, they often make the mistake of trying to buy a home that’s in the top of their price range.
Stretching your budget too far will only cause undue financial strain. It’s important to consider more than just your monthly mortgage payment. There are other costs involved in owning a home, including maintenance and potentially higher utility bills.
Many first-time home buyers will also need to buy things for their new home, like furniture or even a lawnmower.
Take the time to really consider and be honest about all expenses you’ll incur when buying a home. Look for a home priced in a range that you can comfortably afford.
If your mortgage is really stretching your budget, then you may find yourself really struggling financially if a home repair arises or you need to purchase something for your home.
5. Draining Savings into the Down Payment and Closing Costs
Many home buyers, especially first-time buyers, strive to put down that 20% down payment to avoid mortgage insurance. Yes, avoiding mortgage insurance can save you quite a bit of money, but if you drain all of your savings, you leave yourself with no safety net. You also need to consider closing costs.
Instead of draining all of your savings into the purchase of the home, go with a lower down payment and make sure that you have emergency savings.