As you begin your career, an oft-repeated statement that you will come across quite often is that buying a house will, in all probability, be your life’s biggest investment. With the real estate market on an upswing and property prices rising through the roof, this statement couldn’t be any truer.
But, ever-increasing property prices haven’t stopped most people from investing in a new home. According to the National Association of REALTORS’ Home Buyers and Sellers Generational Trends Report, millennials—aged 36 or younger at this point in time—make up a lion’s share of home buyers as of the year 2017 – 34%.
While the process of buying a house can be exciting, any unpreparedness on your part can make this same process a daunting one. With plenty of unknowns in the property market, such as fluctuating prices and market conditions among others, it’s important that you tread as cautiously as possible before you invest.
Here’s a list of 10 common mistakes that most home buyers would do well to avoid.
1. Being Ignorant About Home-Buyer Programs and Schemes
The first mistake that most home buyers do is that they’re usually unaware of existing schemes and offers when it comes to home loans. From government loan schemes to first-time buyer programs, you’ll need to be on the lookout for anything that helps you save on your financing.
Such programs and schemes can include low down payments, subsidized interest rates, buyer category-specific financing, and zero deposits. For this reason, it’s vital that you do enough research and find out about any existing, on-going, or yet-to-be-implemented programs that you can take advantage of to the fullest.
2. Being Unaware of What You Can Afford
Next up is the fact that most home buyers are unaware of what they can afford. While some folks commit the mistake of searching for houses before even knowing how much financing they’re eligible for, others just fail to consider what they can really invest without having to struggle.
This oversight can end up making your entire search a complete waste of time as you may shortlist houses that are below your optimal price range.
To avoid this situation, just ensure that you have a well-defined budget in mind. If you don’t, then it’s time you make one. Just list all your major monthly expenses and take into account those that come in quarterly or even annually. See how much you can spare and limit your house-hunting process to this range.
3. Not Checking Your Credit History and Report
Your credit score has a major bearing on the financing amount you qualify for and if you’ll even be eligible for it. While credit reports are accurate on most occasions, mistakes can happen. So, make sure that you get a credit report before you even apply for a home loan and go through all of it in detail. Check for any errors and get them corrected as soon as possible.
4. Avoiding Pre-Approval/Pre-Qualification Processes
Another grave mistake that most home buyers do is assuming what you can afford and what the bank is willing to lend you will be the same thing. This is where taking up a pre-approval or pre-qualification process is of utmost importance.
To begin with, you’ll get an idea of what the loan amount will be and what you’ll need to put down as a deposit or down payment. Taking up this step right at the start will also help you know what kind of home you can afford and what price range you should be looking at.
You’ll also get a good idea of what you’ll need to set aside every month for loan repayments and what kind of financial commitment you’ll need to make over the long haul.
5. Being a Choosy Buyer
While it’s good to be choosy about what you buy or invest in, it can turn out to be your downfall too. Being picky about the size of your home, the location, or even the amenities on offer can end up costing you more and result in you overshooting your pre-defined budget.
Whether it’s a new home on a busy street or a pre-owned home with outdated décor, it makes sense for you to become a homeowner soon enough rather than be picky about things and continue to rent a house.
In addition, consider other positive aspects of the property you’re looking at instead of focusing on little imperfections that don’t really matter in the long run.
6. Getting a Single Quote
Buying a new house is just as good as buying a new car, a smartphone, or even getting a new credit card. It involves plenty of research and choosing the ideal one from a long list of suitable options. So, don’t just jump at the first house you lay your eyes on.
This holds good even for home loan offers – never settle for a quote from a single lender. Compare offers from multiple lenders, go through the terms of each offer in detail, and the interest rates of each loan before you choose a particular lender.
It would also help if you choose a lender based on their customer service history and track record of lending practices. In addition, remember to check the terms of the loan offer you’ve chosen in detail so you’re not left in the lurch later on.
7. Not Getting Professional Help
While a personal inspection on your end is good before you shortlist any kind of house, you’ll most definitely need professional help to make sure that the property is in the right shape. Unexpected repairs and remodels can add to your buying costs, especially if they’re absolutely necessary to complete before you invest and move in.
This way, anything you were unaware of during your personal inspection will most definitely be spotted by a professional. More importantly, don’t just walk in to buy a house without being accompanied by a seasoned real estate agent/broker. Now, either you can hire one or get assistance from the seller’s agent if he/she is available.
8. Ignoring the Risks of a Small Down Payment
Most home loan offers require you to make a down payment of anything between 10% – 30% of the property price. While this may be a huge sum if you’re looking to invest, the fact is that a large down payment, in the beginning, will be beneficial for you in the long run.
Apart from low monthly installments that are more affordable, your repayment tenure and the overall interest you pay at the end of it will be lesser. In fact, making a small down payment is a common regret among new home buyers as it equates to increased financial pressure over time.
This is where the benefits of saving money steps in. If you’ve done your research and planned your finances well enough, then putting down a sizeable initial deposit won’t be an issue. But, if you haven’t saved enough and still want to pay a large down payment, then you run the risk of biding time to save.
In this time, the property price could increase or the opportunity to buy that particular house may be lost.
9. Applying for More Credit during the Buying Process
The time period between loan application and disbursement is absolutely critical when it comes to applying for credit. A home loan application involves making a sizeable credit inquiry on your behalf, which means a drop in your credit score.
Applying for any other credit facility during the meantime can jeopardize the chances of your home loan getting approved. So, whether you’re looking to get a new credit card or borrow a small sum of money to fix your car, wait until your home loan is finalized and disbursed.
10. Being Ignorant About All Future Ownership Costs
Now, that you’ve realized your dream of being a homeowner, it doesn’t mean that you won’t have to spend any more. From home insurance and property taxes to the occasional repairs and maintenance, the cost of home ownership can end up being quite expensive, especially if you’re unaware of what’s in store for you.
This is where you’ll need to do a bit of groundwork beforehand and find out what the costs will be so you’re prepared for anything that’s thrown at you later on.
To sum things up, the biggest investment in your life can turn out to be a very expensive affair if you’re not well-informed about the entire process. Buying a new house is more than just going through a few options and picking one that suits your needs.
From a potential increase/decrease in value to overall ownership costs, there’s plenty of things you’ll need to consider before you take the plunge. For starters, try and avoid all mistakes mentioned on this list. Once, you’ve done that and got your bases covered, you’re well on your way to making an investment that makes financial sense.