These days, the term “adulting” often has a negative connotation. We might be a little biased, but at Homeowners Financial Group, we happen to love adulting, especially as it relates to homeownership.
Owning your own home is about as adult as it gets, and it offers all sorts of amazing benefits. But positioning yourself to make one of the largest purchases of your life – if not the largest – does require practicing the A-word, particularly with your finances.
A big part of adulting is having an accountant or financial adviser to help guide you when you need it. To supplement that recommendation, here are 4 real-estate-specific mistakes to avoid with your money when you’re preparing to buy a home:
1. Not saving for a down payment.
Why is it important to save for a down payment when buying a home?
- Lower mortgage payments. A larger down payment means you need to borrow less money from your lender, which may reduce your monthly payment.
- Lower interest rates. When you have a larger down payment, you’re seen as less of a credit risk by your lender. That may translate to a lower interest rate on your mortgage and possible savings of thousands of dollars over the life of your loan.
- Equity in your home. The larger your down payment, the more equity you start off with at the beginning of your loan. This means you’ll own a larger portion of your home from day one, which can be helpful if you ever need to tap into your equity or sell your home in the future.
2. Not budgeting for closing costs.
Why is it important to budget for closing costs when buying a house?
- A smooth closing. Having the necessary funds available for closing costs can ensure a more worry-free closing process, as you won’t need to scramble for additional funds at the last minute.
- Protecting your investment. Paying for services such as a home inspection, title search, and survey can help identify any issues with the property and reduce the chances of any resulting headaches.
- They’re mandatory. Closing costs are non-negotiable expenses, so plan for them in advance of your closing appointment.
3. Not knowing what you can afford.
Why is it important to know what you can afford when buying a home?
- Avoiding financial stress. If you buy a house that’s beyond your means, you may struggle to make mortgage payments and cover other associated costs.
- Accurate home search. Knowing what you can afford can help you focus on properties that fit your budget. Avoiding homes that are out of your price range can save you lots of time and effort!
- Realistic expectations. Having a clear understanding of what you can afford can help you see what you can truly get for your money. Being realistic can help you make more informed decisions about the homes you choose to pursue.
4. Taking out other loans.
Why is it important to avoid taking out new loans when buying a house?
- Your debt-to-income ratio. Your DTI is a measure of how much debt you have compared to your income. Taking out new loans can increase your debt load and negatively impact your DTI, which can make it more difficult to get approved for a mortgage.
- Your credit score. Every time you apply for a loan, it triggers a hard inquiry on your credit report, which can temporarily lower your credit score.
- A larger financial burden. Taking out new loans can add to your monthly debt payments and make your household budget more difficult to manage.
Yes, adulting can be fun when you remove the unnecessary stress! So can making a major purchase like a home. All you need is a little knowledge! We’re here to help, so in addition to speaking with your accountant or financial adviser, contact your local Homeowners Licensed Mortgage Professional today for the advice you need to successfully become a homeowner.
Homeowners Financial Group does not provide financial planning, accounting, or credit repair services. Please consult professionals who specialize in those specific areas for advice about your unique circumstances.
