The process of buying a home can be very exciting. You are starting to plan for the next chapter of your life! Deciding what you prefer style wise, what part of town you want to live in, and what size home you need are important and exciting details to work through.
However, there are many other crucial factors to consider that many people tend to overlook. Consider some of these common house hunting mistakes so that you can avoid them and save yourself precious time and money in the home buying process.
Know Your Budget
One of the first questions you should ask and figure out for yourself is what your personal, all-in budget is for your next home. This will likely help you focus your search, which can help you save time and avoid the headache of falling in love with a property that you might not be able to afford.
A common number to shoot for when it comes to your potential mortgage is 28% of your total gross household income. You will want to keep in mind that just because you might get approved for a larger loan, you might want to use your actual physical budget for a price range instead.
Also, be aware that the ticket price on the property is not the only thing you should consider. You should also consider the taxes in a specific neighborhood and whether or not they are increasing, what your private mortgage insurance (PMI) rate is going to be, and other recurring monthly or yearly costs of a property like HOA. You don’t want to be blindsided by a fee that is going to cause financial strain.
Know Your Borrowing Limit
Aside from knowing what you can personally afford, you need to know what you are able to borrow before you start seriously looking for a home. In fact, getting your pre-approval is crucial in the shopping process. Your lender will use a handful of different factors to decide what they will allow you to borrow as a loan for your new home, and this number might not line up with what you have already figured for your personal budget.
Your income is not the only factor that will lead to your borrowing limit. Additionally, the bank will consider your earning history, and most importantly, your current debt amount. In general, the rule of thumb is that your total amount of payments including your mortgage and all other debt amounts should not exceed 36% of your gross monthly income.
This means that any credit card, car, student loan payments, and any other monthly payments combined with your new monthly mortgage payment has to be no more than 36% of your income before taxes. This is what lenders call your debt to income ratio. If you have a great deal of debt, it might be necessary to lower your budget for your home or possibly wait until you pay some of that debt down until you can qualify for the home of your dreams.
Use a Real Estate Agent
While it might seem like you can reasonably shop for and pick a home that is right for you on your own, there is way more to the home buying process than many home seekers realize. Noticing potential structural issues that might require additional inspections, negotiations, contracts, and dealing with your lenders are all important but less fun aspects of buying a home.
A great agent will handle all of this behind the scenes paperwork madness for you, so you can focus on the part of home buying that you love! Not to mention, your agent will likely have the inside scoop on properties that are already on the market or even ones that haven’t yet hit the market. This will likely widen your options and can help you end up with the perfect property!