Don’t Overextend Yourself When Buying a Home

How to avoid this and other similar mistakes

05/05/2015



When you are at the point in your life when you are ready to buy a house, it can be a very exciting time. However, it’s important not to pursue a property without knowing what you can afford and what will be the best investment for you in the long run. Before you start your home search, be aware of these common mistakes that could cause you to buy beyond your means.
 

Assuming 

You know what happens when you assume, right? Yes, assumptions are dangerous at any time, but especially so during the home-buying process. You need to base all plans and details off of hard facts, never “best guesses.”
 
The online calculators offered are nothing more than estimates, so they are to be used only as a guide. Individuals’ credit scores and debt-to-income ratios play a big part in what you will be paying.
 
That being said, it’s best to meet with a lender prior to engaging in any activity.
 
“The idea is to find out how much you can afford to borrow. Once you know how much you have to work with, then and only then should you start your house hunt,” said Than Merrill of FortuneBuilders, one of the premier real estate education companies in the country. “It is important to work within the confines of your loan.”
 

Forgetting about additional costs

Purchasing property is as complicated as it is exciting. Do your homework and be aware of the other costs associated with buying a home. There are interest rates, closing costs, property taxes, insurance premiums and HOA fees to consider, and that’s just the tip of the iceberg.
 

Not protecting your investment

“Upon searching for the perfect property, it is not uncommon to become infatuated with a home. However, it is important not to make any rash decisions before you view the property in a more detailed light,” Merrill said. “What was originally a great-looking property may be nothing more than a money pit once you really get down to it. Essentially, you can’t know what you are getting into until you really get a feel for the property.”
 
Home inspections can help you with that. The inspector will be able to find problems that you can’t and that the seller may not disclose. You’ll want to know these problems before you sign on the dotted line and inherit what are essentially hidden “fees.”
 
Contingency clauses are another form of protection. A mortgage with this addendum protects you if, for example, the appraisal price comes in lower than the purchase price. If this were to occur, the buyer could potentially renegotiate the price or get back their earnest money and start their home search over; however, without the clause, the buyer would still be obligated to buy the house and likely required to bring addition funds for a down payment.  
 
All of the above can be avoided by simply having your finances in order. If you stay organized, plan ahead and remember your bottom line, you’ll be off to a good start.

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