Owning a home is a very important milestone in life and for most people it is the largest purchase that they will ever make.
Many first time home buyers are so eager to move into their new property that they overlook the fine print and details and make some mistakes.
Buying a home is a complicated process and there are many things to keep in mind when you are making these important decisions.
Here are a few financial mistakes to avoid when buying your home:
Not Making a Large Down Payment
One of the first rules to buying a house is that you should pay as much of a down payment as you can possibly afford.
A popular strategy is to save up for a few years first and pay down as large of an amount down as you can afford. Many times the easiest approvals and lowest interest rates are offered if you can put at least 20% of the value of the home down.
This is an advantage because when you pay more money up front you will have a smaller mortgage and less interest to pay over the years.
Even a 5% increase in your down payment can make a difference of tens of thousands of dollars over the life of the mortgage.
Buying Too Much House for Your Budget
Just because your mortgage lender has told you that you can afford a house of a certain amount, it doesn’t mean that you need to buy a home which is expensive.
If your house just barely fits within your budget, you will stretch yourself to make your payments every month and be under pressure to keep earning a lot of money.
If something happens, such as your hours get cut at work or you lose your job, those large payments get overwhelming very quickly.
It is better to choose a house which is very easily in your reach so that you can make smaller monthly payments with some breathing room just in case.
Failing to Make a Budget
The best way to find out what you really can and can’t afford is to take a close look at your finances by making a budget so that you know exactly what is coming in and out.
Take stock of all of your spending and earnings over the last few months by entering your expenses and income into a spreadsheet, and don’t forget to consider non-monthly expenses such as vacations, birthday and wedding gifts, and auto repair expenses.
This will help you see exactly where your money is going, what you can cut down on and how much you can realistically afford to spend on mortgage payments.