Precautions Against Costly Home Buying Mistakes
By Sadiya Anjum
Everyone makes mistakes at some point or the other but when a mistake puts a huge dent in your pocket, its best if you avoid them. Most people looking to buy homes, whether for the first time or otherwise, overlook small details which prove to be a costly affair later. Here are some of factors you should take into account if you are a homebuyer:
Settling for the Best
Most of us have an idea of what exactly we are looking for in a home. Having a long list of requirements and searching for a home that fits the complete bill is going to be a tough job. Undoubtedly spend some time looking around for various options in the market. But waiting too long may lead to further increase in value of homes or interest rates for mortgages. Pick the important requirements and find a home which fulfills these.
Overbuying- Planning a Budget
When we go shopping, we usually place a limit on how much we are willing to spend on each item. When you are buying a home, a purchase of such a huge magnitude demands a limit like this. Taking on a huge debt which does not fit your budget by buying more home than you can afford is going to be a serious problem. You need to be realistic about your income and your expenditure. Ideally your total debt should not exceed more than thirty six percent of your income. Considering monthly payments should give you a fair idea of how much you can actually afford. Take into account other expenditures, entertainment factors, savings etc. before you take the plunge.
If you have even tried looking at the options available you will know how mind boggling this aspect can be. Take a close look at your finances and what you anticipate your future to look like before you decide on a mortgage. This simply means consider factors like a promotion in the near future or one member quitting work soon etc. Then look at the various kinds of mortgages available and do not take the easy way out; the safer the option the better.
Most people overlook the fact that at some point they may sell the home they are about to buy. When you buy a home, think of its resale value. You may not mind the super tiny kitchen because of other great factors in the home but when you resell, this may not go down too well with others. Same goes with the condition of the neighborhood. Also buying the only expensive home in the neighborhood could diminish the value on your home especially if there is a huge difference when compared to the other homes.
Major Changes during the Loan Process
Even if your credit rating is super you need to move carefully during the application of a loan. Sometimes lenders do not take very kindly to a change in job in the recent past unless there is a considerable raise in your pay. Staying steady until you finally buy a home is essential as it will also reduce stress related to too many changes. Also do not make major purchases (like a car) before a loan application and until the loan is approved. Your debt to income ratio is a major factor that is considered by lenders.
Proper Research and Planning
Even if you have an agent by your side, you need to be fully aware of the details of your home buying process. Research is extremely important as it will help you see the bigger picture, foresee future problems and make smart decisions. Look thoroughly into the condition of the neighborhood; amenities available (school, park, stores, public transportation etc.) and future developments. Make sure you do your own research on similar homes (comparables) so you do not land up paying more than what is necessary. In addition, fully understand the implications of being a home owner. It takes money and effort for repairs, furniture, landscaping etc. Spending every bit on the home with no savings could mean no money for furniture or more importantly broke when there is a huge plumbing problem.
Completing an Inspection
If you save a few hundred dollars instead of carrying out an inspection, then you should not complain when the roof begins to leak during the rains. Carrying out an inspection is absolutely essential as your eyes cannot detect problems that a trained eye can. Having a fair idea of the condition of the home will help you decide what repairs need to be done. You will be able to plan your budget accordingly, negotiate better with the seller or choose any other appropriate course of action.
Neglecting to plan for closing costs can shock you when the closing day arrives. A substantial sum will be needed for legal costs, escrow charges, insurance, taxes etc. Ask your mortgage lender about closing costs ahead of time so you can plan accordingly.
If things have been going well and you draw up a contract, make sure that two contingency clauses are included. One is related to mortgage financing and the other to an inspection. In case there is a hitch with the loan process (usually due to a low appraisal) or the house does not pass the inspection, you should be able to withdraw from the deal legally. If these clauses are not included, then it may become mandatory for you to purchase the home irrespective of circumstances or at the very least, you will risk losing your earnest money deposit.
Earnest Money Deposit
Firstly protect this deposit with the contingency clauses mentioned above. In addition, if you are buying a home which is listed as for sale by owner, do not hand over the deposit to the seller. It is best to keep this money with a neutral party who will hold this amount till the deal is completed. This is a precaution against the seller spending the money and not being able to return it in case the deal turns sour.
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