Buying a house for the first time is a monumental step to take that can affect the rest of your life. This purchase can impact your budget and financial well-being as well as your lifestyle and many other factors for decades to come. You understandably want to make wise decisions throughout the process so that you can purchase a home that is right for you without delay. However, as a first-time homebuyer, there are a lot of things that you may not know about buying real estate. By learning more about common first-time homebuyer mistakes, you can take action to avoid making those mistakes yourself.
Taking on Too Much Debt Before Buying a House
One of the most common financial mistakes individuals make when renting a home or apartment is taking on too much debt. Many people live up to their means rather than below their means. They may purchase an expensive and take on a large auto payment because they have room in their budget to do so when renting a home. They may also rack up credit card debt and other debts. Because your debt ratio will determine the maximum loan amount you may qualify for when buying a house, it is imperative that you keep debts to a minimum before making this purchase. Your debt ratio is calculated by taking your gross monthly debts and dividing them by your gross monthly income.
Failing to Check and Repair Credit Scores Before Applying for a Loan
Your home loan will be a critical part of the overall buying process. Home loans are credit-driven. This means that your interest rate and loan amount will be affected by your credit scores. It is important for you to review your credit report before you start shopping for a new loan. Remember that you can obtain a free copy of your report from each of the three credit bureaus annually upon request. You should also repair any items that are incorrect. If you have derogatory credit issues, such as an outstanding collection account, you should pay that balance off as well. Taking these steps can help you to increase your credit rating, and this may be substantial enough to help you qualify for a lower interest rate.
Not Planning for Other Buying and Moving Expenses
Many home buyers will save money for years in an effort to buy their first home. However, they will often only budget for the down payment on the home. There are also closing cost that can be rather substantial. In fact, they may be three to four percent of the sales price of the home. You also may need to pay for deposits, fees for professional moving services and more. Both buying a home and relocating can be expensive and should be properly budgeted for so that you have ample funds available for all aspects of buying a home.
Failing to Shop Around for Insurance Rates
Another mistake home buyers make is not shopping for insurance quotes. Insurance rates can vary substantially from insurer to insurer. This is a large expense in your budget, so you should look for the best rate possible. However, you also need to make sure that you have a solid insurance policy with great protection offered by a reputable insurance company. When you are shopping for new insurance rates, pay attention to the reputation of the insurance company as well.
As you can see, there are many mistakes that inexperienced homebuyers can make. These mistakes can ultimately cost you thousands of dollars or more. In some cases, they may even make you ineligible to purchase the home you truly want. If you are planning to purchase a home in the near future, you should take time to carefully review these mistakes and act now to avoid making these mistakes yourself. By doing so, you may navigate through the home buying process more easily and successfully.
