Mistakes to Avoid When Taking Out a Home Loan

Mistakes to Avoid When Taking Out a Home Loan

If you are like most people, your home is the biggest purchase you will ever make. The loan you receive to buy your home is also likely to be the biggest debt you ever have.

This is why it’s so crucial to avoid mistakes to begin with that may cost you even more money. Keep reading to learn about some of the most common mistakes here.

Mistake: Ignoring the Real Cost of Owning a Home

Owning a home comes with an array of new expenses that may surprise you, if you aren’t prepared.

Each year, you need to budget one to two percent of your total home purchase price for the routine maintenance it’s going to need. If your home cost $300,000 you can expect to spend $3,000 to $6,000 each year on various needed tasks, such as service for your AC and furnace or replacing your water heater.

There are some years when you will spend less and when that happens, you can set the extra money aside for more expensive items, such as a new roof. The older a home is and the bigger it is, the more you are going to spend.

Property taxes will also add to the cost of owning a home every year. It’s best to learn about the property tax system in the community to learn what the current rate is, when the taxes are likely to increase, and how much will they increase?

For homes in a flood hazard location, your lender will most likely require you to carry flood insurance. This is another expense that will be tacked on to the cost of home ownership.

Mistake: Taking Out a Loan that Makes You House Poor

If you commit too much of your month-to-month income for housing related costs, it means you will have little or no money left over for anything else. If this happens, replacing an old car, saving for retirement, saving for college, or even buying furniture for you home is going to be beyond your financial means.

Essentially, if you do this, you will be purchasing a home that you eventually regret.

It’s a good idea to spend under 28 percent of your income before taxes on housing. You also need to consider other factors, such as your total household income, where you live, and other circumstances that may make an impact regarding the income you can commit to your housing costs.

Mistake: Not Shopping Around to Find the Best Loan

If you are purchasing a plane ticket, you shop around, right? You probably even look through the grocery store flyers to see which store has the lowest prices.

Devoting some time and effort to finding the best mortgage can help you save tens of thousands of dollars in interest and fees throughout the life of the loan.

While this is true, it’s estimated that almost half of people interested in buying a home fail to do their research. This is essentially leaving money on the table.

If you want to get the best mortgage terms for your needs, be sure to find a home loan that works for you and your financial situation. Doing this will pay off and help ensure you can afford the house you ultimately purchase.