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Looking to buy a home? Steer clear of these newbie blunders.
Buying a home is a major undertaking, and if you’re doing it for the first time, it’s easy to get in over your head. If you’re about to embark on a home search, here are a few mistakes to avoid at all costs.
1. Not getting pre-approved for a mortgage
Getting pre-approved for a mortgage sends the message that you’re a serious buyer who’s in a strong enough financial position to make good on a home purchase offer. And that’s important because if you wind up in a situation where you’re competing with other buyers for the same home, having that pre-approval could give you the edge.
But that’s not the only reason why pre-approval is important. Taking that step will also give you a good sense of how much money you’re qualified to borrow. If you don’t get pre-approved for a mortgage, you could end up wasting your time looking for homes that are beyond your price range.
2. Stretching your budget to buy a home
Tempting as it may be to push yourself a little to buy the home of your dreams, extending yourself financially is an unwise move when you’re buying for the first time. On top of your monthly mortgage payment, you’ll need to cover the cost of property taxes, insurance, and maintenance, and if you spend too much on a home, you’ll risk not having enough money left over to pay for these other unavoidable expenses.
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3. Not paying attention to your home inspection
The purpose of a home inspection is to protect you, the buyer, from costly repairs. It’s important to not only attend your home inspection but also take your inspector’s advice to heart. If you’re told that the home you’re looking to buy has a cracked foundation, problematic plumbing, or a failing roof, moving forward with your purchase could leave you on the hook for some seriously expensive repairs shortly after you close on your home.
Of course, getting bad news from a home inspector doesn’t mean you need to pull out of your purchase. But what you should do is take that information to your seller and ask that major repairs be fixed before completing the sale. As an alternative, you can get an estimate for the cost of the repairs at hand and ask to have that total deducted from your home’s purchase price.
When it comes to approving applicants, different mortgage lenders set their own rules and requirements based on factors like credit score, existing debt, and income level. If you accept the first home loan you’re offered, you could miss out on an opportunity to snag a better mortgage rate. That’s why it pays to seek out multiple offers before signing a mortgage.
5. Making too small a down payment
You’ll often hear that it’s best to put down 20% of your home’s purchase price when buying a home, but some lenders will allow you to close on a property with less. There’s just one problem with going that route: If you put down less than 20% on your new home, you’ll be hit with private mortgage insurance, or PMI.
Don’t let the term “insurance” fool you. PMI is meant to protect your lender, not you, and it will serve as a monthly expense that you’ll need to pay in addition to your regular mortgage payment. By putting down 20%, you can avoid that extra expense.
Buying a home for the first time can be very exciting, but it’s important to be smart about how you do it. Avoid the above mistakes, and with any luck, your biggest challenge in buying a home will be figuring out how to furnish and decorate your new space.