Whether we are a first time home buyer or a veteran, we tend to make mistakes during home buying which bring us woes in the long run. House is one big purchase where wrong moves can upset one's entire financial future. Hence, try to avoid the following common mistakes while shopping for your dream home.
1. Choosing the wrong mortgage
If anything that can cause the most damage to your finances, it is the wrong mortgage. In todays market when you can choose from all possible variety of mortgage, chances are more that you select the wrong one. Check your finances and then decide whether you should choose the fixed rate one or the floating rate mortgage.
2. Know your limits
We tend to get carried away with emotions when it comes to buying property. We are too filled with dreams to overlook simple pitfalls.
It's important to plan a budget before you set out to shop for your dream home. When you know how much you can borrow, you must also find out how much you can payoff. Also, you must consider how this mortgage payment is going to affect your monthly budget.
Maintaining the debt to credit ratio is another point to keep in mind. Your total debt, including the mortgage, shouldn't exceed 35% of your available credit limit.
3. Not knowing your credit score
At times we get so overwhelmed with the idea of buying home that we overlook the one most important factor, the credit score. For conventional mortgage an outstanding credit score of 720 is required. Hence, if you don't have the required score, you may work towards achieving it before you start looking for mortgage.
Pull your credit report and make sure that everything is okay before your lender disapproves your loan application because of poor credit.
4. Picking up the right community
Some places are more expensive than others. Hence, the properties are likely to cost more in these areas than others. It might not make a good business decision to buy a property in expensive neighborhood, especially, when the house prices are declining fast. You may soon find yourself upside down on your mortgage.
Proper inspection of the property is yet another important factor, especially, in the current market condition, when most of the houses are given up by the owners. There can be several deferred maintenance works in the house which can increase its cost for you and may also affect the resale value of the property.
5. Consider the closing cost
Include the closing cost of the mortgage,which can range between 2% and 5% of the mortgage amount while computing the cost of borrowing. It can significantly increase the cost of the loan.
6. Don't make a big purchase before buying home
It's a big mistake to make a big purchase just before buying home. Any newly opened account on your report tends to lower your score and can disqualify you for the loan.
It is not wrong to involve your emotion while making a purchase but it should not be put before logic. If you can avoid these common mistakes, you can also save yourself from a financial debacle .