Mistakes you can make when buying a house

 BY AGENCY REPORT 

   

 

 

A housing estate in Lokoja.
| credits: fmi.gov.ng

Purchasing a home is a major milestone; owning your own home gives you a feeling of independence that renting can’t offer, and there are big financial benefits, too. A home is likely the most expensive asset you will ever own, however, and it’s not a decision to take lightly. The dream of homeownership can quickly turn into a nightmare, leaving you with enough financial regrets to last a lifetime.

Treating your home like a short-term investment

A house should first and foremost be for living in – it is not always going to be a shrewd investment. Home values don’t always appreciate over time and a house is a large asset that isn’t very liquid. For example, if you plan to move in three or four years, you probably won’t be able to recoup the transaction costs and you can even lose money. Buyers must view the purchase of a home as a very a long-term investment. If you want to invest but are not ready for that kind of commitment, consider putting your money in a mutual fund.

Comparing your rent to a mortgage payment

Just because you pay a certain amount in rent doesn’t mean you can afford the same amount as a mortgage payment. In fact, you can probably afford much, much less than your rent. There are multiple costs associated with purchasing and owning a home: escrow, home inspection, HOA fees, moving costs, insurance coverage, home and yard maintenance, property taxes, and more. Many homeowners are aware of these costs, but underestimate just how much they can be.

I’m guilty of this: I took out a mortgage with an “affordable” payment for my first home without accounting for property tax – an oversight that wound up costing me an extra $600 a month. I also thought I’d have the time and energy to take care of the entire home and yard maintenance – another mistake that cost me a few hundred a month. Did you hear that? That’s the sound of my checkbook crying.

Working out your loan plan

Your mortgage preapproval number is not necessarily what you should spend on a house. Give yourself flexibility and options by choosing a less expensive home. Life can be unpredictable, and it’s easy to find yourself suddenly living in a house you can no longer afford. Skip the hefty mortgage payment and opt for security instead. You can’t put a price on knowing you can stay in your home even if you face a financial crisis or life change, like having a baby.

Not planning ahead

Before you even start to shop around for a home, take 12 months to clean up your credit report, get your debt-to-income ratio down and save up as much cash as possible. A few dings on your credit report could cost you thousands over the lifetime of a loan or could keep you from scoring the home of your dreams.

Once your credit is squeaky clean, you can meet with a mortgage broker to get preapproved for a loan. Then you will be able to jump quickly on a great deal with a better chance of landing it. Also, don’t apply for any credit or financing (like a car loan) until escrow has closed. That can alter your credit score or debt-to-income ratio and cause you to lose financing in the middle of escrow.

Taking too long to make a decision

Right now it’s a seller’s market: inventory is low and homes sell quickly — you have to move fast. “There’s not a high volume of home inventory out there,” David Norris, president and COO of non-bank mortgage lender loanDepot, told CNBC. “And many of the lower-priced homes are going for cash.”

Don’t let cosmetic issues like paint colours, outdated décor or old appliances keep you from putting an offer in on a home. You can take your time later to upgrade the physical imperfections. If a house is priced well, in your desired location, is the right size and has a great layout – make an offer! You can worry about that powder pink bathroom later.

Failing to shop multiple mortgage brokers

According to a 2013 survey by PricewaterhouseCoopers, two out of every five bad home purchasing experiences stem from misunderstandings over fees, terms and ownership costs. Talk to various lenders, explore the types of loans available and learn the terminology. Know what affects rates and compare the fees charged by different brokers. Your qualifications can be weighted differently and each mortgage company operates in its own way.

Trusting online home values

While the internet is a helpful tool for conducting basic research or comparing mortgage options, online home valuation sites can create unrealistic expectations. Work with an experienced real estate agent and ask him to conduct a comparative market analysis based off internal industry data – it will be more reliable.

 – www.investopedia.com