Are you a renter thinking about buying your first house? Making the decision to buy your first home is a big step on your path towards financial success, but the whole process can seem daunting. You may have watched friends or family members make mistakes when buying a house and want to make sure the same doesn’t happen to you. Here are some of the most common mistakes first-time homeowners make and how to avoid them.
Not Knowing Your Housing Budget
Avoid buying a home that’s out of your financial comfort zone. You likely already have a budget and some idea of your expenses for running your current household. Now is the time to review that budget. Some of your expenses are going to increase in a new home—like utilities and insurance. Some expenses, like laundromat costs, may drop off the list completely.
Add up all your expenses, but leave out rent or mortgage payments. When you subtract the total of this list from your take-home pay, you’ll have a good idea of how much you have left for mortgage payments. Use our online mortgage calculator to calculate mortgage payments based on various available interest rates. Generally, housing costs should be 30% or less of your before-tax income.
Looking Outside Your Housing Budget
Don’t even look at houses that fall beyond your budget—it’ll only set you up for disappointment. Even if you manage to buy the home, you’ll find yourself with too much house and too little money.
After doing your research, you’ll know how much house you can afford. You can then pinpoint properties in that price range.
Most home purchases require compromise. Maybe you’ll decide on a smaller house in a neighborhood with the best schools. If space is your highest priority, you might choose a larger house in a less-exclusive neighborhood. Every house has advantages and disadvantages, but keep your search within your financial comfort zone.
Purchasing Based on Future Changes
If you’re having trouble finding a house in your price range, consider ways to reduce your current expenses. This will mean having more money available to make a larger monthly mortgage payment. Many people mistakenly assume they’ll make these changes once they own a house. Ideally, these budget changes should be in place before you buy a house, even if it means delaying the purchase. Give yourself at least six months to see if you can stick to your new budget.
Treating Your Home as an Investment
First-time buyers often anticipate selling their house for a large profit in 5 to 10 years. The last decade has brought major changes to every housing market. While a house in certain areas was almost guaranteed to appreciate in value, that’s no longer a sure thing.
Buying your first home is one of the most exciting experiences. Avoiding these common mistakes will set you well on your way to achieving the dream of home ownership. When you’re ready to get prequalified stop by any of our Partner Colorado locations and we’ll help you get started. If you’re still looking for a few more tips and tricks for buying your first home with confidence, we’ve got you covered. Take a look at our Go-To Guide for Home Buyers where you’ll find helpful information about different loan types, qualification requirements, and other tools to help your home-buying experience be a positive one.
Money.Kathryn Vasel. 4 things first-time homebuyers need to know.http://money.cnn.com/2017/05/11/real_estate/first-time-home-buyer/index.html
Investopedia. Amy Fontinelle.https://www.investopedia.com/articles/mortgages-real-estate/08/ten-worst-mistakes.asp
CNBC. Maggie Overfelt. 8 biggest mistakes first-time homebuyers make.https://www.cnbc.com/2014/07/17/8-biggest-mistakes-first-time-homebuyers-make.html