What are Often Missteps When Buying a House?

Having your own home is an exhilarating experience. It’s the kind of joy one feels for having something to call his own and this happens to most, if not all first-time home buyers. After all, this is a way to fulfill one’s basic need which is the need for shelter. This endeavor may be an extra special experience for first-time homebuyers who have the proper mindset, right knowledge and proper tools. Although it is a new experience for them, first-time homebuyers may embark on this exciting journey without having to be burdened by first-time home buyer mistakes. However, exciting as it may seem, the buyer should prepare for some unfavorable incidents as this undertaking is an invitation to stress that may come from different directions. And the best way to avoid this is for the homebuyer to learn to embrace it in order to enjoy the home buying process.

Common Mistakes and How to Avoid Them

Below are some common homebuying mistakes a first-time homebuyer may encounter as well as tips on how to avoid them. The homebuyer will be able to go through the homebuying process with less stress if he is able to avoid these first-time home buyer mistakes. The homebuyer will just have to have a clear plan in mind, the right mindset and disposition. It may also help first-time homebuyers if they communicate with people who also went through the same experience or with experts on this undertaking.

DELAYING SAVING FOR HOUSEBUYING

The need for shelter is a basic need. Hence, everyone dreams to buy a home. However, not everyone seriously takes this endeavor at heart. Someone who is determined to have his own house sets his home saving goals early. To avoid this mistake of delaying to save in order to buy a house, he intentionally sets aside funds for expenses that will not be covered by the mortgage such as down payment, closing costs and other incidental expenses.

1. Looking for high-yielding form of saving his funds and earmarking it solely for the purchase of a house can be an effective way when pooling funds.
2. Creating a discipline to regularly deposit or add funds will not be burdensome to come up with a reasonable amount of savings.
3. Making sure not to make withdrawals until the homebuying process begins can be a way to pool funds quickly.

SCHEDULING THE APPROVAL PROCESS AT A LATER TIME

This often happens when a first-time home buyer excitingly jumps in shopping for a home without putting so much thought and preparation into the processes involved. To avoid this, the homebuyer should initially consider the initial approval process, particularly if the buyer plans to apply for a mortgage. This process commonly referred to as the pre-approval process, is beneficial to a first-time home buyer:

1. A consultation with mortgage lenders gives the first-time home buyer a reasonable range to work with during house shopping.
2. It is a realistic guide to determine how much house you can afford than getting excited over a house you can’t afford or beyond your budget and capacity to pay resulting to disappointment.
3. It can expedite the homebuying process once the buyer is able to identify the perfect home and it can be a good indication for sellers that the buyer is determined to close a sale.
4. A wise homebuyer considers several mortgage lenders before choosing one so as to have options in terms of mortgage quotes and to get the ideal rate and terms that will work best with the buyer’s budget.

SKIPPING ONE’S CREDIT REPORT

A credit report is a summary one’s credit history. It reflects the creditworthiness of a borrower. It includes the types of credit accounts one had as well as payment history and other information such as one’s credit limits. Banks or mortgage lenders use this report to determine whether a borrower has the capacity to pay on time and aids them whether to grant the loan application or not. Although the Philippines lack a centralized credit reporting system, the country provides a credit score range from 300 to 850, with 300 as the poorest rating and 850 as the most acceptable rating. To avoid this poor rating, the buyer should have maintained a favorable payment history, kept a low credit utilization or kept his credit card usage below credit limit, responsibly schedules credit applications, and maintains credit accounts open.

1. A good credit score or landing a score of 700 in the credit score range raises the chances of having one’s loan application approved with the best interest rates.
2. One’s credit score can be a replacement for hard assets as collateral in acquiring financing. Recently, a good credit score in the Philippines became an acceptable tool in applying for loans.

Your credit report is contained in the pre-approval process. The home buyer may review it for possible errors and correct them should there be a need to. After all, the best mortgage deals are enjoyed by home buyers with a great credit history and credit score.

FAILURE TO CONSULT WITH A REAL ESTATE AGENT AND/OR HIRING THE FIRST AGENT ONE COMES ACROSS WITH

It is possible for someone to buy a lot or a house without a real estate agent. However, these experts exist for a reason. While having an agent by one’s side in the home buying process is an added cost, it is better to consider having one in this endeavor to avoid this home buying mistake and other errors the homebuyer may encounter along the way.

1. Buying a house may be exciting but the tasks involved in it may become overwhelming for first-time home buyers so having an agent may put one at ease and turn an overwhelming experience to a smooth transaction.
2. Real estate agents act as mediators for buyers and sellers as they are knowledgeable in this business. They may assist in negotiating for the cost and may recommend options according to the homebuyer’s budget. Should there be instances that the buyer is not able to match the prices of the houses in his chosen location for example in Dasmariñas, Cavite, the real estate agent may recommend a Dasmariñas, Cavite lot for sale initially. The real estate agents have a wide range of knowledge and options when it comes to properties for sale in general.
3. They perform administrative, research and marketing tasks which is beneficial to first time home buyers as they will be able to draft and prepare documents, coordinate with appraisers and inspectors, and will be able to properly guide a buyer in the legalities required to make a successful purchase.

Nonetheless, it is wise to talk to several real estate agents before accepting the service of one. Like in many transactions, it is best to consider options and weighing them before making a decision. Avoid the mistake of choosing the first real estate agent you came across with.

CHOOSING A HOUSE THAT IS MORE THAN ONE CAN AFFORD

When shopping for a house, the buyer has to set his priorities and make realistic expectations. It should meet the buyer and his family’s requirements while keeping in mind the budget he has to work around with. It is important to buy within his budget and to decide on a house that he can afford so as not to be financially burdened. It is not simply buying something he and his family likes. Be that as it may, it is recommended to buy a house lower than the amount of mortgage approved. When a mortgage lender reviews one’s financial information, only the debt-to-income ratio or commonly known as DTI is considered. This helps them to determine how much of the buyer’s monthly income is going toward debt payments. To avoid this mistake of going beyond the budget, the first-time buyer should be able to factor in all other monthly expenses and find the difference between your debt-to-income ratio and your monthly expenses (cost of utilities, food, insurance, education, etc.) as a whole. The most realistic way is to even add the extra costs that will entail being a homeowner inclusive of but not limited to association dues as well as potential increase in utility costs. Moreover, closing costs such as fees involved in the title, record-filing, appraisal, underwriting, insurance and provisions for other fees that may be required by the bank, or any third party should also be considered.

1. A house is not a burden but a place of shelter that should bring ease and comfort in terms of mortgage payment when you choose what you can afford.
2. An issue with the budget may be redirected to other options like considering a lot for sale initially rather than a house and lot at once.
3. An affordable house will bring peace of mind to first time home buyers as the fear of not being able to fulfill mortgage payments will be eradicated.

PAYING AN ERRONEOUS DOWNPAYMENT

A down payment made in the purchase of a house has a big impact on the interest rate and the amount of monthly mortgage payments. Generally, a down payment ranges from 10% to 20% of the total contract price. However, not all home buyers can afford to pay the entire down payment at once. Hence, they may negotiate for half spot cash and half for spread out down payment, instead of paying an erroneous amount of down payment. Paying the right amount of down payment has its advantages.

1. First time homebuyers are more likely to qualify for the best interest rates on their mortgage loan.
2. Amount of mortgage is decreased which will eventually result to affordable payments over time.
3. The chances of not being able to settle mortgage payments is reduced.
4. A down payment helps mitigate risk for the lender, as it represents the homebuyer’s investment in the home and decreases the loan amount the lender has to give relative to the purchase.
5. Work on paying a down payment that is sensible and something that you can afford rather than an outrageously large amount.
6. Homeowners with their own money invested is an indication that they are less likely to default on their payments.

USING UP ALL OF ONE’S SAVINGS

It pays to save up for your down payment and closing costs but ensure that the savings is not depleted after these are settled.

1. Allocating a portion of your savings for emergency funds for unexpected expenses as you go through the home buying process can help you navigate through the process without going through so much stress.
2. The homebuyer who comes prepared for uncertainties are the happiest homeowners.
3. Without enough savings for emergency fund makes a homebuyer vulnerable to risk of foreclosure.

MISSING A HOME INSPECTION

A home inspection is essential to the home buying process. Its significance lies on the fact that that it gives a clear picture and a detailed report on the core system or the structure of the house.

1. The inspection report would give the first-time home buyers insights as to the possible issues of the house in the years to come and may eventually give them the opportunity to prepare for them financially or otherwise.
2. This would give the buyer a chance to negotiate cost after considering the cost of repairs and other issues on the structure.

SKIPPING THE NEIGHBORHOOD TOUR

When house-hunting, it is recommended to know the neighborhood in advance. The first-time home buyer and his family need to familiarize themselves with the neighborhood as this is where they will be spending most of their time in and this might be the biggest investment they would make.

1. Get a firsthand experience by driving around in the daytime and checking on the availability of groceries, drug stores, churches and school to have an idea of the resources within reach.
2. Checking the neighborhood prior to closing on a sale can be a big help to determine the traffic situation, options for commute and the safety of the neighborhood in general.
3. If possible, tour the area not only on sunny days but also on rainy days to check on the drainage system of the place as well as flooding concerns.
4. This will help the buyer to familiarize with the kind of neighbors and the community as a whole that he will be living in.

CONSIDERING THE FIRST HOME AS AN INVESTMENT

Remember that your purpose is to look for a home and not to buy for investment purposes. Of course, the equity price of the house will increase in time but since the purpose is to look for a residence, a first-time homebuyer has to prioritize the household needs of his family.

1. The house should be able to meet the financial and emotional needs of the buyer for a house to be a source of joy of its residents.
2. Make sure to buy a home with the amenities that would be enjoyed by the whole family to avoid stress.

BUYING A HOUSE WITH EXISTING DEBT

The buyer who decides to buy a home with an existing debt is one of the house buying mistakes one should avoid. A practical and realistic first-time home buyer would try to pay off his other loans before deciding on buying a home.

1. The buyer will be able to focus on one loan payment at a time.
2. He will have a more favorable credit score if he is able to settle the existing loan before applying for a home mortgage.
3. The burden of saving up for the down payment to get a lower mortgage plan will be lighter.
4. Being free from debt while applying for home financing will allow the lender to be confident in approving the loan application.

Final Note

It is normal to feel doubt when buying a house as it is typical to feel this type of deep regret after making a large financial decision. However, the buyer should not let this remorse as well as the anxiety from first-time home buying mistakes steal the joy of the idea that owning a home is a great opportunity one should cherish. Awareness of these mistakes as well as ways to avoid them will give the buyer peace of mind. The buyer just needs to be on guard for unexpected turn of events so that when it happens, he would be able to deal with them, embrace them and carry on by keeping his focus on the goal.

Related Blog: Factors To Consider When Buying A House And Lot in the Philippines