Are you ready to take the leap into homeownership but worried that as a first time home buyer you might not be making the best financial decisions?
I’m going to share with you 3 financial mistakes that I see first time home buyers make so that you will know WHAT NOT TO DO in order to set yourself up for financial success as a new home owner.
Mistake #1: Making Large Purchases AFTER you are Pre-Approved
It is so great that you took that first step and have gotten pre-approved for a mortgage BUT be aware that this pre-approval is not a 100% guarantee.
When a bank or mortgage broker pre-approves you for a mortgage they look at things like your credit score and your debt to equity ratio. If you go out and as example buy a new car you may no longer meet the criteria for the amount that you were previously pre-approved.
Any offer that you make on a home is subject to financing and you don’t want to go though all the effort of getting your offer accepted only to have the deal fall apart in financing.
Mistake #2: Forgetting about Closing Costs
Most buyers are so focused on the downpayment that they neglect to factor in closing costs into their house purchasing budget. A rule of thumb is that you will need 3-4% of additional money budgeted for the closing costs.
Mistake #3: Leaving yourself House Poor
Your bank will tell you how much you can borrow but not necessarily how much you can afford AND maintain your lifestyle.
How does this happen? Let’s say for example you are approved for a mortgage of $250,000, this is the very top of the amount that you are approved for, that does not necessarily mean that you should go out and buy a house for $250,000.
The true cost of owning a home is your mortgage payment PLUS all the home associated costs that will come along with owning a home, such as home insurance, municipal tax, heat & light, cable & internet.
I recommend that you sit down and create a monthly budget and then be realistic about how much of a monthly payment you can actually afford. You don’t want to be in your nice new home and not have any extra money at the end of the month to enjoy your life.
FIRST TIME HOME BUYER
(If you want to maintain your current lifestyle.)
The amount you are saving per month + the amount you are currently spending in rent should be < or = the total amount of your mortgage & home associated costs.