5 Big Financial Mistakes You Don't Want to Make When Buying a Home
September 20, 2013
Undoubtedly, you’ll have plenty of things to think about when buying a home, such as the number of bedrooms, proximity to services, local schools, size of the yard, and any number of other details. These tangible things are certainly important, but don’t let them overshadow the other side of the process: the financial side. One mistake in managing your finances and whether or not you need a fenced yard won’t matter.
Here are five of the biggest mistakes that homebuyers often make with their finances and how they can be avoided:
1. Thinking your credit (and credit score) is fine. Even if you recently refinanced your mortgage—which many homeowners did in the last year—don’t assume that your credit is still up to par. Your credit score is always changing, depending upon how you use and manage your credit. And, as always, make sure to check your credit score carefully for any mistakes.
2. Making big changes to your financial situation. Major purchases—such as a new car or furniture—can cause you to lose your loan approval. A sudden drop in your bank account balance or an increase in your debt-to-income ratio may be a red flag to your lender. Likewise, try to avoid any job-related changes, such as quitting your job or taking on a new position that is commission-based.
3. Not having enough cash for a down payment or for closing. If you don’t have enough equity in your home or if you’re a first-time homebuyer, make sure you have enough cash for a down payment. Generally, you’ll need 20 percent of the purchase price as a down payment. As for closing costs, although you can usually roll your closing costs into the loan, this isn’t always available for every type of loan.
4. Buying more house than you really need. Although it may not affect your finances right away, buying a bigger home than you need—and thus getting a larger mortgage—can cause plenty of difficulties in the future. Make sure you stay within your means and that you’ll be able to afford your mortgage going forward—especially if the loan you get has an adjustable rate that may result in higher monthly payments down the road.
5. Waiting for the market conditions to improve. Whether it’s interest rates or home prices, don’t assume that you’ll save money by waiting for “better” market conditions. Interest rates can rise quickly (as they recently did) and home prices aren’t likely to fall anytime in the near future. In the end, the best time to buy a home is when you’re ready to buy a home.
For more tips and advice on how you can stay the course with your finances, talk to your real estate agent, mortgage professional, or financial advisor.
For more than 25 years, Omega Financial has been serving mortgage clients in Massachusetts. Our brokers have approximately 50 years in the mortgage business. You always will receive fast, courteous, and accurate information. Omega Financial, Inc. is a company duly licensed to operate in Massachusetts as a Mortgage Brokerage. We are located in the Town of Norwood, Massachusetts where we have been operating as Omega Financial Incorporated since 1988. Licensed by the Commissioner of Banks - License No. MB2671