Buying a house is a huge milestone for most people. It is an exciting experience, but also very nerve-racking because it is a huge financial decision, one that you have to live with for a long time.
You will be spending a significant portion of your monthly income to pay off your house. You should be careful about how you spend your hard-earned cash.
If you are in the process of or thinking about buying a house, here are the common financial mistakes that you should avoid:
Not Shopping for a Mortgage
Some people think that shopping for a mortgage will affect their credit score, making it more difficult for them to get a favorable deal. However, if you want to find the best mortgage loan rates in your area, you have no choice to looks around and see what is available for you.
Shopping for mortgage rates will affect your credit score. Whenever you apply for a loan, the lender requests to review your credit history. Multiple requests would signal that you are in the process of acquiring a debt which affects your credit history.
The good news is, its effects are minimal. Your credit score would not significantly dip from what you currently. Lenders would not look at your credit history negatively if you shop around for the lowest mortgage rates unless you have a bad score in the first place.
Consumers also have a 45-day window to shop around without affecting their current credit score. Within that window, multiple requests for your credit score will be counted as one, so do not wait weeks and months to inquire around for a deal that fits your needs.
Using Emergency Funds as Down Payment
Buying a house comes with upfront costs in addition to the mortgage. There are taxes and fees that need to be paid to officially close the sale. A down payment, usually 20% of the total price of the house, that the aspiring homeowner should hand over.
Dipping your hands into your emergency funds for the down payment and other expenses associated with the acquisition of the property is a bad idea.
As the term suggests, your emergency fund should be used during emergency situations, not whenever you want. You cannot be assured that a personal crisis would not arise in the next month or so.
Your emergency fund is money you raised so that you can survive and live comfortably in case you lose your job or you, or a loved one, are diagnosed with an illness. Keep your emergency fund for emergency and look for down payment somewhere else.
Buying a Fixer-Upper Because It’s Cheap
A lot of people think that they are getting a good deal by buying a house that is in need of major repairs. It is cheaper than a house that is in good shape. What they do not realize until it is too late is, renovation is very expensive.
Stripping an old wallpaper is affordable, but replacing a roof because it has outlived its expected lifespan or shoring up foundations would require a lot of money. In the end, you might realize that you have spent more money renovating a fixer-upper than buying a house that you can move into immediately.
Buying a Large House
Can you really afford to buy a bigger house? When deciding how much home loan to borrow, it is easy to say that the family can move around finances and have a smaller monthly budget for necessities. You can, for example, stop shopping for clothes, makeup, video games, or electronic devices so that you can afford a larger mortgage. Putting it in practice, however, will be difficult.
It is hard to break bad habits. There are also expenses that, no matter how strictly stick to your budget, will pop up and force you to spend more.
Moreover, having more space than you need is a waste of money and time because you would not be able to fully utilize the house and you will be cleaning it regularly, do maintenance and repairs, etc. Stick to a house that you can afford and is the perfect size for you and your family’s needs.
It’s an Investment and a Liability
Buying a house is an investment. Over time, its value will appreciate and you can sell it for more than what you paid for. However, it takes a really long time. You would need to wait years before you get a good return for your investment. Then it becomes a liability
You also need to funnel resources to keep it in good condition. A house, even if you do not live in it, will get damaged or will show wear and tear. If you live in it, things out of your control will happen. A portion of your house will break and will need expensive repairs.
You should always be careful throughout the process of buying a house. The process is tricky and it is quite easy to make a mistake, but by knowing what not to do when hunting for a mortgage or choosing the property to acquire, you can make decisions that will benefit you in the long run.