Though homeownership has many benefits and is generally considered a great investment, there are still mistakes you can make in the homebuying process. Luckily, the old saying is right— knowledge is power. To save you from regrets, we’ve compiled a list of the most common mistakes that homebuyers make.
9 Homebuying Mistakes to Avoid
Whether this is your first home or your fifth, here are nine things to steer clear of when buying a house.
1. Buying a house on a whim
It can be tempting to jump on the homebuying train when interest rates are at all-time lows or you just happen across the perfect house. But, realistically speaking, buying a house on a whim is seldom a good idea.
Purchasing a home should be something that you plan for. In many cases, people spend years building up their credit and saving for a down payment. And it all pays off, too. Those who approach homebuying with thoughtful planning and research often benefit from lower interest rates thanks to better credit standings. Similarly, spending years of saving up for a down payment means a smaller loan.
Don’t start looking at houses until you’ve been pre-approved”
Rushing into homebuying can end up costing you down the road. Just a few months or years of planning can save you in the long run.
2. Looking at houses without getting pre-qualified
Even if you have been planning for months, don’t start looking at houses until you’ve been pre-qualified for a mortgage. Getting pre-qualified means that a lender has already looked over your financials, working with you to decide on a mortgage amount. This is beneficial for several reasons:
- Real estate agents and sellers will take you seriously as a homebuyer because you’re more likely to be approved for financing
- You know what your budget is and can shop accordingly
- You will have an idea of how much your monthly mortgage payments and closing costs will be
The best part is, when you’re ready to make an offer, you can do it quickly if you’re pre-qualified. Please keep in mind: being pre-qualified is not any guarantee you will be approved for that loan–it is subject to change.
3. Buying more house than you can afford
You don’t want to buy a house only to find yourself struggling to make payments every month. It’s important to be realistic about how much you can afford to spend when looking at listings.
Before you buy, be sure to sit down and do the math. There are numerous tools online, including our Home Affordability Calculator that can help you add up and compare your income and expenses. Keep in mind that if you are pre-approved for a certain amount, it doesn’t mean that you should spend the maximum amount. Doing so can stretch your finances farther than is wise.
4. Emptying your savings
Putting down a sizable down payment is a move that can help you pay off your home faster and cut down on your interest payments— but it’s not a good idea to completely deplete your savings to do so.
Accidents can happen at any time, and it’s important that you still have money stashed away to fall back on in case of an emergency. Make sure you don’t dig all the way into your reserves. You still want some funds to cover something like unexpected medical bills, car repairs, or anything else that may pop up when you least expect it.
Not all loans are created equal.”
5. Not doing your research
Not all loans are created equal. Before you start applying for loans, look at which ones may be best for you. Explore all of your options, including conventional loans and government-backed products like FHA loans, VA loans, and USDA loans.
You’d also be surprised about the opportunities available for homebuyers. All it takes is a little research to discover that you qualify for a first-time homebuyer program or a government grant. The Texas Department of Housing and Community Affairs (TDHCA) has a program called “My First Texas Home” that is specifically designed for first-time homebuyers in the state.
Not a first-time homebuyer? It might be worth checking out the “My Choice Texas Home” program.
Ultimately, it’s up to you to find out what’s out there and what you qualify for. To start your search, try using terms that apply to your particular situation, like “programs for first-time homebuyers” or “loans for veterans”.
6. Not shopping around
Once you find which loan may be best for you, shop around. Many homebuyers make the mistake of taking out a loan at the first lender they come to.
Instead, you should get a quote from several lenders. You may find that the second or third lender you go to can offer you a much better interest rate or a better deal on closing costs. You’ll never know what you’re missing out on if you don’t look!
7. Forgetting about other costs
The purchase price of the house is by far the largest expense in the homebuying process, but it’s not the only one.
Many folks get so caught up in the purchase price and down payment that they forget to consider the other costs— including ones that need to be paid upfront. Think about things like:
- Closing costs
- Movers and moving supplies
- Minor home improvement and renovations to your new home
- Fees for moving utilities or starting new accounts
While these are certainly less than the price of a house, they can still add up. Make sure you factor these into your budget.
8. Not being prepared for home ownership responsibilities
Similarly, your mortgage payment will be only part of the financial responsibility that comes with owning a home. If you’ve never owned a home before, be prepared for added expenses like property taxes, homeowners insurance, and HOA fees.
Home maintenance is also another consideration. Common costs include lawn care, landscaping, pool upkeep costs, and pest control. On top of that, you should be ready to foot the bill for anything that goes wrong in the house. If your A/C or a major appliance goes out, you’re responsible for getting it repaired or replaced.
9. Having too much debt
Going into the home-buying process with too much debt can hurt your interest rate and ability to qualify for a loan.
One thing that lenders will look at when you apply for a loan is your debt-to-income ratio. This number compares your monthly debt expenses to your income. If the number is too high (greater than 43% for most financial institutions), a lender will not approve your mortgage.
Work to pay down your debts before you begin the homebuying process. Doing so can also help lower your credit score, helping you secure a lower interest rate in the process.
Know the Homebuying Mistakes to Avoid
By knowing what to avoid, you’re already one step ahead in the homebuying process and on your way to making smart money moves. Just remember to take things slow, do your research, and get your finances in order before diving into home shopping.