Even as pending home sales did not meet the forecast of industry watchers, it still shows that the surge in the real estate market last continues up to today. Pending home sales show the number of signed contracts for the sale of existing homes but have yet to be finalized. The demand for homes last year reached a point where there was a shortage in the supply of homes.
Many of those who purchased were first-time homebuyers who took advantage of the low mortgage rates. Even as the mortgage rates went up a bit, they went down again recently. Due to this, you may be interested in buying a house for your family. And if you intend to buy a house, you should remember that a house is a major investment. So, you should avoid the following mistakes when you are in the market for one.
Not Setting a Budget
This is one big mistake you should avoid. You should always set a budget before you even look at a real estate listing. The budget you set should take into account your income and your monthly expenses, including rent, utilities, groceries, and credit card payments, among others. You can even include future travel plans in case you want to go on a vacation every year.
You shouldn’t rely on what the bank tells you since you may not be comfortable with the figures the banks provide. You may have expenses that the bank does not take into account. So, you should make your computations.
Once you have the figure, you can start looking at houses that you can afford. If you do not set your budget, you may end up looking at properties beyond your ability to pay. You should avoid buying properties above your budget since you wouldn’t want the bank to foreclose the property if you miss a payment.
Overlooking the Hidden Costs
When you buy a house, you have other costs to consider. It’s not as easy as simply paying for the mortgage every month. You have to take into account the closing costs, which normally range from two to five percent of the principal loan. The closing costs can include the credit check fee, title search fee, appraisal fee, and title insurance, among others.
Additionally, you have to take into account the property taxes that you have to pay for the house you own. The assessment of your house determines the property tax. So, if the home values in the area where your house is located, the assessment value of the house may also increase together with the property tax.
The private mortgage and homeowners’ insurance can also increase the cost of acquiring property. Private mortgage insurance or PMI is normally required if your down payment is less than 20 percent. The insurance protects the lender in case you default on the loan. On the other hand, homeowners’ insurance protects you financially in case something happens to your home. Mortgage companies normally require this even if it’s optional under the law.
These are just some of the hidden costs you should consider when you buy a house. So, when you set your budget, you should include these costs in your computation.
Not Checking Loan Qualification
Always check if you qualify for a loan before making an offer on a house you are eyeing. Getting a pre-approved loan allows you to avoid a financial setback when buying a house since loans have their own set of requirements.
You should meet all the requirements for the loan since the amount you’re offering for a house should match the loan you are getting from the bank. If you lack some requirements or your qualifications fall short, the bank may reduce or even reject your loan application. This normally happens to people with poor credit ratings or those who have an unstable income.
Overlooking the Down Payment
It is also important for you to pay for the down payment of the house. You should learn from the lessons of the 2008 housing crisis, where buyers obtained mortgages even if they couldn’t pay for the down payment. If you skip one payment, the mortgage payment will go up together with interest.
This will result in more expenses since you have to pay for insurance until you pay off around 20 percent of the cost of the house. If you don’t have the funds yet, it may be advisable to put off from purchasing a house until you’re capable of paying for the down payment.
Buying a house can be challenging. But if you can avoid the mistakes that first-time homebuyers make, you may be on your way to owning a house of your own.