Top 5 Common Home Buying Mistakes and How to Avoid Them

Buying a home is not an easy task. Time and money goes into it and you’d want to invest in something that would last for years to come. Choose the right seller, finance deal, and your future property. It is common for people to make mistakes when buying a home so don’t let this happen to you! Remember what it was like in that.

You might be tempted to turn your back on it and move on at the moment of purchase but you’ll be living with the repercussions of a buying mistake for years.

Do you want to make sure that your home purchase goes off without a hitch? Here are the most common buyer mistakes and how to avoid them — so you can get into your new home with minimal headaches.

1. Skipping the financial prep

A lot of people find moving to a new home very exciting. If you’re not ready for this massive change yet or if you don’t have enough money saved, maybe you should slow down just a little bit.

“I’ve seen buyers fail to save enough money believing they only need sufficient cash to cover the down payment,” says Carolina Gerdts, executive vice president at RelatedISG Realty in Aventura, Florida. There also a number of extra costs they need to take into account. Things like closing costs, homeowners’ insurance and property taxes are just a few examples.

Closing costs average 2% to 5% of the loan amount and are typically paid up front. You might also want to save for other expenditures as well, like regular maintenance & repairs. According to State Farm, homeowners should expect to spend 1%-4% of their home’s value on annual maintenance. That’s roughly between $4,500-$18,000 for a median-priced house.

It’s always a good idea to have your credit in good shape before you start looking for a house. The lender will look at both your score and report when deciding if you are eligible for a mortgage, which shows the information about any debt & payments. Your credit score will also have an effect on the interest rate you get and, therefore, your mortgage payment.

Prepare for home ownership by having a good understanding of your credit score and what kind of loan it will impact. Certain mortgages require higher scores in order to qualify, so that’s something to take into account.

Most banks and credit card issuers offer free credit score monitoring, but if yours doesn’t, you can request your score from credit bureaus like Experian, TransUnion or Equifax (for a small fee). Your credit score determines what interest rates you will get so if yours is below 760, make sure to bring it up before moving forward with your home purchase.

Filing a dispute with one of the three major credit bureaus, paying off debt to improve your debt-to-income ratio, and avoiding late payments will all impact your credit score. Requesting a credit line increase on your credit cards may help, too (just make sure you don’t spend any of it). It’s also a good idea to avoid opening up new accounts with other lenders in the months before you plan to buy.

2. Choosing the wrong neighborhood for you

It’s not just financial decisions. Picking a house that suits your budget and lifestyle might seem like a no-brainer, but you also need to consider the area in which the house is located.

“The No. 1 mistake we see is homebuyers jumping into their search without taking the time to find a town that syncs with their lifestyle,” says Tim Ossmo, CEO of real estate advisory service Suburban Jungle. “Many people go straight into looking at listings without realizing they would be making an incompatible purchase because they lack core values and life. Most buyers can settle on a house they like, but they may not be in the right neighborhood.

Ossmo recommends taking a “town-first approach” to house hunting. According to them, this approach gives more weight in your decision with regards to the community rather than just trying to find the perfect house.

“The search takes a long time, and it’s important to really understand the inner workings of a neighborhood before starting a life there,” Ossmo says. “It also involves understanding how far away one is from major destinations.”

You should also consider things like the public school district and how far you would have to commute. If it’s feasible, try to move your actual living space near your workplace so that there is no rush hour option-just drive and go back home.

“Location is the most important factor when you’re buying, both in terms of value and lifestyle”, says Dina Goldentayer, an executive director of sales at Douglas Elliman in Miami Beach. Many buyers think they want to live in one specific area only after spending a very short time exploring that part of town. Think critically about whether or not the area fits your lifestyle because you’ll likely be living there for decades.

3. Failing to set a clear monthly budget

One of the most common mistakes people make when buying a house is that they don’t have a clear idea of how much money they want to spend. This quickly becomes more problematic in competitive markets where bidding wars can force you to bid higher (and quicker) or mortgage rates are going up.

“With rising interest rates in recent years, it’s very important to know what you can afford at any given point. Even a small change in interest rates will impact your ability to purchase and could cause you significant pain over time,” says Heather Harmon, head of Opendoor Finance.

She’s right. If you could afford a $2000 monthly payment, for example, a 7% rate would mean buying a home priced at $300,000 or less. If that rate jumped to 7.5%, THAT max home price would be $286,000.

Knowing how much you can afford to spend on a mortgage is key. For a rough idea what your monthly payments might be, try this home affordability calculator. Just remember: The price range and monthly payment it offers are the maximum a lender will likely to approve — not the amount you should aim to spend.

Don’t forget to factor in other monthly expenses like homeowners insurance, property taxes and utility bills. If your down payment is less than 20% of the purchase price, you’ll also need to think about paying for private mortgage insurance, often called PMI. To ensure a project goes as planned, you should have a budget for unforeseen expenses- which can happen at any time. Alex Shekhtman, CEO of LBC Mortgage in Los Angeles.

4. Forgetting to check renovation history and HOA rules

When you want to buy a house, its outward appearance can only lead you so far. The right property should not only be in your ideal location and offer adequate space, but also be up-to-date construction.

“One of the most common mistakes I see homeowners make is neglecting to check if recent renovations have been performed by a licensed contractor,” says DJ Olhausen, a real estate agent with Realty ONE Group in San Diego.

Uncontracted work can often indicate shoddy craftsmanship or costly repairs in the future.

“While even licensed contractors can make mistakes, they are usually bonded and insured, and will defend their work with a warranty,” says Olhausen. Unlicensed contractors are more likely to disappear after a job is complete, leaving the new home buyer in charge of fixing any costly mistakes.

The seller of the home is usually required to disclose any major work that has been done on the property and you can find this out by asking the listing agent for contractor’s name and license number. Then, use your online resources and databases which are available through your state in order to track them down.

“If the contractor isn’t willing to provide you with their contact information, that can be a red flag,” Olhausen says.

When you’re looking for your dream home, be sure to do some research on the area and have a clear idea of what you want. This will help you make those big decisions when it comes to zoning laws, homeowners associations, and exterior design. From size to amenities, these are all things that can impact what renovation ideas you first think of. Plus if you don’t.

“Read through your HOA covenants, conditions and restrictions as soon as you get them,” says David Newcombe of the Newcombe·Zimmerman Group at Launch Real Estate in Scottsdale, Arizona. When buying a house, it is important to know all of the details, including which amenities you get to keep. HOA’s can have rules that cannot be broken, such as specific colors and parking locations.

5. Using the first mortgage lender you find

Not all mortgage lenders are the same. For example, each lender offers different products. Some mortgage companies only offer FHA loans and conventional mortgages, while others are approved for more specialized products, like VA mortgages (for veterans & military members) or USDA loans (which are home loans guaranteed by the U.S. Department of Agriculture).

That being said, others may also have first-time homebuyer programs that can help you save on your down payment or help reduce your closing costs.

Different lenders offer different rates and fees. As Jennifer Beeston from Guaranteed Rate explained, “Mortgage rates and fees can vary by thousands of dollars. This can make a big difference in your monthly payments.”

To ensure you’re getting the best rate, it’s important that you apply for pre-approval with at least three lenders. Each will require a credit check and partial financial information. Once the lender has evaluated you, they will give you a mortgage pre-approval letter which states your approved loan amount and how it breaks down into interest rates, fees & closing costs. This allows you to compare companies who’ll be able to come close to this.

Proper pre-approval letters can help you get ahead in the game of home shopping.

“Sellers are more likely to accept an offer from a buyer who is already pre-approved and able to close quickly,” Shekhtman says. “Getting preapproved not only shows the seller you’re serious about buying, but it also gives you a better idea of how much mortgage you can afford.”