Buying a house has long been considered an essential element of the American Dream. It’s a rite of passage for many and is often the largest purchase any of us will ever make.
Thanks in part to historically low interest rates, more people are buying homes today. There are many things that go into buying a home that can be easy to overlook in the excitement of home shopping. In fact, one of the worst financial mistakes you can make is getting into a house that’s not right for you. If you’re in the market for a house this year, make sure you aren’t guilty of making one of the following mistakes before signing the dotted line.
Going Over Budget
A budget might be the last thing you think about when buying a new house. You’re thinking about everything you want in a new home and budgeting is easy to overlook, especially if you’re in a rush. Don’t fall into this trap as it can result in one thing – being house poor. The last thing you want is to buy a house only to struggle to be able to make the mortgage payment each month.
Mortgage lenders are going to want to make sure you’ll be able to afford not only the house but also your payment each month. There are a variety of methods to make sure you can stay on budget when buying a house – from free online calculators to tools from your lender. Take advantage of them to make sure you don’t go over budget.
Overlooking Added Costs
There are a lot of added costs when it comes to buying a house. I remember when we bought our first house; it felt like costs came out of nowhere. Everyone seemed to want their piece of the process, and they added up quickly. Following are some of the added costs that come into play when buying a new house:
- Moving costs
- Turning on utilities
- Home inspection
- Decorations/furniture for your new house
- Closing costs
Depending on the location and cost of your house, these overlooked costs will easily add up to at least several thousand dollars. Make sure you can afford them by planning for them ahead of time. Consider having a devoted savings account to cover these expenses or add additional money to your emergency fund to be able to afford them without undue burden.
Too Small of a Down Payment
Becoming a homeowner, in many instances, has never been easier. This isn’t always a good thing, especially if you use a small down payment to get into a house. In some instances, you can get into a house with as little as three percent down. While seemingly great, it can open you up to too many problems.
Most experts recommend a down payment of at least 20 percent. That can be a significant amount of money, but also brings significant benefits – such as:
- The chance to build instant equity
- A lower rate on your loan
- Smaller loan payment
- Avoiding Private Mortgage Insurance
What all these benefits have in common is more of your money working for you, less overall debt and more security for you as the homebuyer. If you’re not at the place to be able to put down 20 percent, consider delaying buying a home until you can.
Buying a home brings with it a lot of benefits, but there are many costs that are easy to overlook. Do yourself a favor and be aware of them so you can set yourself up for long-term success.