Buying Home? Avoid These 5 Financial Mistakes
Who doesn’t want to own a house? This is one of the basic needs and we all are very emotional about it too. But being an exciting, fulfilling, and emotional decision, it is a risky and financial damaging decision if not done thoughtfully. It is not always we have all the finances ready to buy home. We need to get engaged with financial entities to help us in this decision which requires analysis and planning. When taking home loan becomes necessary, be extra cautious as healthy finances are imperative to lead a peaceful life. Let’s discuss some of the common mistakes people should not make on this path.
1. Nudging other important financial goals:
We all want the best in most of the things if not in everything. And house is surely one of those things. In the process of buying a house- the best house, we happen to compromise on other important financial goals. We must remember that EMI outflow should not exceed 30-40 percent of our income. Future doesn’t hold the responsibility to cater to your financial goals. You decide and plan on them now by seeing current financial resources and not by depending upon the increment you are likely to get this year. Have a thorough understanding of your expenses, current & future ones, before applying for a loan or finalising an out-of-the-budget property.
It’s perfectly fine to spend your savings for the down payment, but don’t touch contingency savings such as emergency fund for the same. Here, you take this thing into consideration that in future you just need not to pay EMIs, you may bear the payments for several fixed and variable future expenses. Fixed maintenance fees, property tax, water and gas connection charges will be there to take a share of your income. Moreover, when you buy a house on loan, you may need to keep it insured against natural calamities, fire and theft etc which further adds up on your yearly expenses.
2. Not Checking out with Different Lenders:
You may lose a lot of your hard-earned money if you don’t research well on mortgage. It is not always that your bank or financial institution has best offers for you, you must check with other lenders. A good loan offers you attractive rate of interest, low penalty rate, low cost of borrowing, quick processing time, long loan tenure, better prepayment rates, and flexible loan eligibility norms.
Even small pricing variances add up to significant cost savings over the period of the loan. See-through it, some lenders will offer you discount points and bring down your interest rate in order to increase closing cost. One way here can be to ask a mortgage broker to shop rates for you. As mortgage brokers are matchmaker, they can save you time and money by comparing multiple products to suit your needs. Also, to have a better idea and see what they offer, look into some direct lenders either online or offline by yourself. Use a mortgage calculator to budget the cost.
3. Start Searching for Homes Before Getting Pre-Approved
Real estate is generally a competitive industry. Once you come across the most suitable house, the time should not be wasted. To make the sellers consider your offer you must present a pre-approval letter from a lender. This letter lists the qualified loan amount you qualify for and the interest rate along with your estimated down payment amount. The pre-approval letter is usually valid for 90 days. Here, one precaution should be exercised that you should not pay the token money before the approval of your home loan. It is advisable to go ahead with the process after ascertaining the time that the loan is going to take to avoid unnecessary legality.
4. Not Engaging a Real Estate Agent
It is a good idea when you are buying something as expensive as a house to indulge someone who is experienced in that. It saves you from a lot of time-consuming and complicated process. An experienced real estate agent not only helps you narrow down your choices, he also can spot the issues if any, in physical property and can be a good help in negotiation. However, in some states, real estate attorney are demanded to handle the transaction, but they don’t help you in searching home. Their work is just limited to draft an offer, negotiate the purchase agreement and act as a closing agent.
In this situation, if you don’t have your own real estate agent, the seller’s agent might convince you to represent you. Here, this agent can be more aligned to seller’s interest rather yours. Here a good thing is you don’t have to bear the cost of enlisting an agent for you. The cost usually born by the seller who pay the commission to his agent then he splits the commission with the buyer’s agent.
5. Buying a House with not Required Amenities:
Hey, will you still pay for the swimming pool and its maintenance if you never use it? No., right? Instead, you may not have any problems shelling out some extra money for round-the-clock power backup or community hall which are essential. Here is a thing to know, super built-up area encapsulates carpet area with area covered in wall construction, terrace, balconies. Common areas like lift, stairs, park, swimming pool, gym, and clubhouse, etc are also included in it.
All these physical amenities not only may bring the cost of the property higher but can increase the maintenance costs. Hence, it is imperative to evaluate beforehand if you really need these listed amenities. The thing to understand here is you can buy a property of the same size at a lower rate let’s say in these apartments for rent in Cincinnati, which eventually reduces the loan amount and still you get all the basic amenities you need, which eventually reduce the loan amount and still you get all the basic amenities you need.
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