Are you looking to buy your very first home? If so, you need to ensure you do not make the following rookie mistakes.
Buying a Home Without Considering the Practicalities
While you will want to make sure that you buy a home that you love, if you base your decision to purchase a property on that basis alone, you are making a big mistake.
If you ignore practical and financial matters, you are likely to overpay for a property or end up paying out a lot more over time to fix flaws you did not think about when you decided to buy.
It does not matter how charming or beautiful you think a property is if you do not ensure that you are paying a reasonable price for the home that it is in good condition, or that it is priced appropriately for its condition.
Not Planning Ahead When Buying a Property in Poor Condition
Following on from the last point, if the home you are considering buying is in poor condition, it is crucial that you know three things:
- That the price is fair for the condition.
- That you know how much it will cost to do the place up and that you have the available funds to complete the work.
- That you are capable of doing the work yourself or have the funds to hire contractors.
Not Working Out Whether You Can Afford the Home
Regardless of the condition of a place you are considering buying, whether it needs work or is in perfect condition, it is imperative that you do not make the mistake of not determining whether you can afford the mortgage.
You need to perform some calculations first.
That includes working out your household income, your monthly debts, such as student loan or car loan repayments, and your monthly outgoings, as well as the amount you have saved for the down payment.
Furthermore, even if your monthly income is stable at the moment, you should be prepared for unexpected expenses in the future.
A good rule of thumb when calculating how much you can afford to spend on a mortgage for your home is to follow the 28%/36% rule.
That involves spending no more than 28% of your monthly income on home-related expenses and 36% on your total debts, which includes your mortgage and other repayments, like credit cards and student loans.
While that rule is a good one to stick to, make sure you take your whole financial situation into account before you determine how much you should spend on your new home.
Working out costs for a home purchase may sound complicated, but it becomes a lot easier and simpler when you use an online mortgage calculator like the SoFi mortgage calculator.
Being Unprepared for Closing Costs
Even after you have used a mortgage calculator to determine how much you can afford to spend on your first home, you need to consider the other costs involved with buying a property.
Most importantly, you need to be prepared for the closing costs. Many new homebuyers forget about this expense. Make sure you do not.
Transaction fees and other expenses required for buying a home can mount up. Often, they can be between 2% and 5% of the property’s value.
So, never proceed with a home purchase without knowing how much the closing costs will be. If you do, you could end up owing thousands of dollars that you had not accounted for.
If you are unable to pay the closing costs, your purchase could fall through and you could be left significantly out of pocket and have to borrow more money to take ownership of the home.
Ensure you ask your lender upfront what your closing costs will be. You should be able to receive an estimate after a few days of applying for a mortgage.