When buying a home, most buyers put all their energy into finding that perfect property. They already know what the house is going to look like in their mind. How many bedrooms, how many square feet, how large of a yard, but they often forget to focus on the financial side of things as well. This can lead to them becoming house poor or completely missing out on their dream home. That's why today I'm going to talk to you guys about the top three financial mistakes I keep seeing home buyers make. Stay tuned.
Number one is focusing on the sales price and not the monthly cost. In a lot of ways the sales price is a bit of a vanity number and what's really important is how much that home is going to cost you month after month after month. There's a lot of factors that play into your monthly costs other than just the sales price. This includes things like your interest rate, your HOA, if you have to get private mortgage insurance on the property, the loan type and your utility costs. It's entirely possible that you could purchase a $400,000 home in one neighborhood and your monthly cost would be dramatically different than if you purchase that $400,000 home in a different neighborhood.
This could be because maybe one of these houses has an HOA while the other one does not. Maybe one is in a different county and has different property taxes than another one. Or maybe one qualifies for a certain mortgage program where the other one does not. So when you're looking at properties, make sure you focus on what your monthly costs will be more than what the actual sales price of the home is.
Number two is not getting pre-qualified by a lender before you start looking at properties. You may think that you would want and qualify for a $600,000 house, but you don't even know what your mortgage payment would be on that property without talking to a lender first. There's a lot of factors that play into how much you would qualify for including what your debt to income ratio is, how long you've been at your current job, what the current interest rates are and what loan program you're going to be using. Also, keep in mind that a lender needs a good bit of information and paperwork from you and if you have complicated finances it can take up to four, five, six days to finally get that preapproval letter from the lender. So if you're looking at properties first and then you find your dream home, and then you start applying for financing and you don't get qualified for another week later, that may cause you to lose out on your dream home.
Another common situation I see is that a buyer may think that they're ready to buy a home right now, but after talking to a lender and the lender tells them, if you do A, B and C I can qualify you for a better interest rate. So reality, it may be another three to six months before that buyer is ready to buy a home. So a buyer may end up delaying their purchase by three, four, five months to get the best financing possible. So make sure you talk to a lender first and get pre-qualified for a home mortgage before you waste your time and your realtor's time looking at properties.
So number three is taking on new debt while you're under contract on a home. So this is one of the quickest way for you to completely lose out on your dream home and lose out on all the money that you spent on home inspection. One of the biggest factors when qualifying somebody for a home loan is their debt to income ratio. This needs to be above a certain level for you to qualify to take on new debt with a home loan.
Unfortunately, it's not an uncommon story that a buyer gets a home under contract, they get so excited about buying a new home, that they then go and buy a new car as well. They take on an another 20, $30,000 worth of debt. This very well may make you unqualified now for that new loan, or they may go out and put three, $4,000 on the credit card buying new furniture and new appliances for that home they're just about to buy. Both of these situations will affect your debt to income ratio and very well may make you unqualified now to purchase a new home and take on that large mortgage payment.
So during that 30 to 45 days that you're under contract on a new property, do not take on any new debt. In fact, consult with your lender before you make any big financial decisions, including just moving money from one account to another. If you're thinking about buying a home and you'd love some more useful tips, I've got an entire playlist of videos right over here, all about the home buying process.
If your looking for a licensed Utah real estate agent give us a call at 435-414-8597
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