Buying a home is one of the biggest investments you will make in your lifetime. Understanding the impact of your investment on your future financial stability should be a consideration during your home search. Here are seven financial mistakes to avoid when buying a home.
Table of Contents
Not Understanding Your Budget
One of the biggest financial mistakes to avoid when buying a home is failing to accurately assess your financial situation and overestimating what you can afford. Making this mistake can lead to financial strain down the road. You could be limiting financial flexibility to save for the future, cover the cost of emergencies, downgrade your lifestyle, or even cause long-term financial consequences.
Limited Flexibility
If most of your funds are tied up in your home payment, you may be limiting your financial flexibility to pay for expected expenses, emergencies or other financial expenses. Home ownership leads to all kinds of other expenses. Once you buy your home, will you have money to cover the cost of repairs to your HVAC or plumbing systems if something were to happen? Even with a home warranty, you may have additional costs that are not covered. If you have a medical emergency that arises, would you have the flexibility of funds to pay for co-pays or medical deductibles?
Do you have plans after buying your home? Do you plan to get married, have children, go back to school, buy a car, travel, or invest for your future retirement? Overestimating your budget can limit your ability to pay for these things. Limiting your financial flexibility can be a major consequence of not understanding your budget during the home buying process and is a mistake can be avoided.
Potential Downgrading of Lifestyle
Not understanding your budget could also lead to having to downgrade your lifestyle. After your home purchase, you may have to cut back on discretionary spending to make ends meet. How much are you willing and able to cut back on spending to afford your home? If you aren’t able to cut back on spending or don’t have money when emergencies arise, you could impact your credit score if you are unable to make your mortgage payments on time. Defaulting on your loan due to overspending can damage your credit score, making it harder and more expensive to borrow money in the future for other purposes, like buying a car.
Not understanding your budget can have long-term financial consequences. It can affect your ability to build wealth and achieve financial independence. If you do not have additional money after making your home payment and paying related bills, you will not have the money to pay for emergencies, extra expenditures, and discretionary spending, must less put money away for investments and retirement in the future.
Skipping Pre-Approval
When buying a home, you need to know your actual purchasing power. Skipping pre-approval is one of the financial mistakes to avoid when buying a home.
Your purchasing power may be less than you believe because the amount of home you can afford is also affected by taxes and insurance costs in the area. Not getting pre-approved for a mortgage before house hunting can result in overlooking financial issues or delays in the buying process.
Risk of Overlooking Financial Issues
The pre-approval process involves a thorough review of your financial situation, including your credit score, income, and debt-to-income ratio. Skipping this step may result in overlooking potential issues that could affect your ability to secure a mortgage.
The right lender can help you build your credit to help your buying power. The lender and your real estate agent will also provide you with a list of things not to do while buying a home. This includes not taking out additional loans – for vehicles, furniture, etc.
Limited Negotiation Power
If you make an offer on a home, but you do not have pre-approval, sellers and real estate agents may take your offer less seriously. If your offer is submitted to the seller along with other offers, they are less likely to accept your offer since there isn’t certainty in your ability to secure financing for the home. In cases where the seller is willing to negotiate, your negotiating power is limited when you don’t have a pre-approval to show your ability to secure financing and pay for downpayment and earnest money.
Ignoring Additional Costs
Additional costs such as closing costs, property taxes, insurance, maintenance, and utilities can strain your budget. It’s essential to factor in these expenses to avoid financial surprises. Speak to your real estate agent and lender to anticipate additional costs associated with closing on the home and what will impact escrow payments on the home.
As a homeowner in the Pensacola area, homeowners’ insurance is going to be a large expense each year. Get an insurance estimate on a potential home so that you understand that cost prior to making an offer. You can also request information from the seller on estimated utility costs and HOA fees to factor that into your budget prior to purchasing or making an offer on a home.
Ignoring additional costs is a financial mistake that can easily be avoided.
Skipping Home Inspections
Foregoing a professional home inspection may save money upfront but could lead to expensive repairs or issues later, affecting your finances in the long term. In the state of Florida, prior to obtaining homeowners insurance, the insurance carrier will require that you submit a couple of distinct types of home inspections, so skipping the home inspection may not be an option for many home buyers in the Pensacola area.
However, a home inspection isn’t required for a new construction home. Even on new construction, having an inspection is important. You want to know any defects or issues with the home prior to purchasing it and just because the home has recently been completed doesn’t mean that there may not be any issues. It’s better to take care of everything prior to purchase. Avoid this financial mistaken when buying a home and have the home inspection completed on any home, regardless of age.
Not Considering Resale Value
Purchasing a home without considering its potential resale value or the future market conditions in the area could make it challenging to sell the property for a profit if needed. The property’s location, size, layout, and condition all influence whether a home is a worthwhile investment, or whether you may have resale problems later on. Other considerations are the school systems around the home and the upgrades to the home. By considering the resale value of your potential home purchases, you can avoid this financial mistake. Take a look at the video below for information on things to considering when it comes to resale value.
Ignoring Maintenance and Renovation Costs
Underestimating the costs to maintain your new residence or costs of renovations is a financial mistake that can strain your finances after buying a home. It’s important to budget for these expenses and prioritize any repairs and renovations in order to maintain the value of your investment.
Rushing Your Decision when Buying a Home
Making a hasty decision without thoroughly researching the property, neighborhood, and market conditions can lead to buyer’s remorse. Buying a home is one of the biggest purchases you will make in your life. Take your time to ensure you’re making a well-informed decision.
Consult a Real Estate Agent
A great real estate agent can help you throughout the process. Reach out to us for help at hello@yourpcola.com. We can help you find a lender, connect you with insurance company, contractors, inspection agencies, etc.
