Buying a home is one of the biggest financial purchases you will make in your life. Therefore you’ll want to make sure that you spend ample time researching and planning before you sign the dotted line. Below are the top five biggest mistakes you can make when making the transition into homeownership.
Not Knowing Your Credit Score
If you’re serious about buying a home, the first thing you should do is getting your credit score checked. This number will impact your new home loan financing. If your score is especially low you may want to rethink buying a home right now and wait until you are able to raise your score. The lower your score, the higher your costs of borrowing. By taking the time to pay off your outstanding debt you will have a higher score, a lower interest rate and more financing to buy your dream home. There are a variety of free places online where you can view your credit report and check your score.
Cutting Corners on Home Inspection
The home inspection is one of the most important steps when buying a home that shouldn’t be overlooked. This is especially true if you are buying a foreclosed or short sale home where the likelihood of costly repairs is much higher.
A home inspection can find multiple problems with the foundation of a home including problems with electrical wiring, plumbing, the roof, attic insulation, and heating and air conditioning. The knowledge that you gain from an inspection will help you budget expenses you may need to spend on these repairs if you still want to move forward. Just remember, the costs of repairs far exceed the cost of inspection
Failing to Budget for Home Expenses
When prospective homebuyers think of major expenses the first thought is usually their mortgage. While this is the largest expense of homeownership, there are other costs to take into account. One of the second biggest finances that come along with owning a home are the insurance costs. Unlike a mortgage, which you can pay off, you'll be responsible for the insurance costs forever.
New homeowners should also budget for an increase in utility bills, HOA fees and future maintenance and repair costs, such as replacing appliances or updating the roof.
Not Understanding Mortgage Insurance
If your down payment on a home is less than 20 percent of the appraised value or sale price, you must obtain mortgage insurance. Mortgage insurance is coverage for the lender so that if you default on the loan the lender will be paid back all of the money they are owed. The cost of the monthly mortgage insurance payments vary dependent on the size of the down payment and the loan, but it typically amounts to about one-half of 1 percent of the loan. It’s important for homebuyers to account this expense into their budget for the new home.
Over Trusting the Good Faith Estimate
Before you purchase a new home, lenders will provide you with a form, called the Good Faith Estimate, which estimates closing costs. Homebuyers must keep in mind that these numbers are not set in stone - they can go up. Closing costs are generally about 3-5% percent of the loan amount.
Bonus Tip: Go to multiple lenders and ask for an estimate then compare them. If you see a significant difference between the number then ask for an explanation from the lender.
To further discuss your options for buying a home in Orlando visit LennarOrlandoFl.com.