A home is likely the single biggest purchase you’ll ever make.
Unfortunately, plenty of people make dumb mistakes when buying a home — errors that can cost you tens of thousands of dollars in extra interest, or saddle you with a home you can’t afford or unload.
Following are seven examples of dumb moves homebuyers make year after year. Read on so you can avoid them.
Dumb move No. 1: Ignoring your credit score
Your credit score can make or break your mortgage interest rate.
Lenders save their best interest rates for homebuyers with top credit scores. They know that people with great scores will almost certainly pay off their home loan in full.
Meanwhile, if your credit score is low, lenders get nervous that you’re going to bail. If they give you a loan, they will generally charge you more for it in the form of a higher interest rate.
If you test out Money Talks News’ free mortgage search tool, you can get an idea of what interest rates lenders would actually offer you right now based on your current credit score.
Don’t make the mistake of ignoring your credit score before house shopping. If it’s stuck in the basement, boost your credit score fast so you can borrow at a more favorable rate.
Dumb move No. 2: Not getting preapproved for a home loan
Getting preapproved for a mortgage isn’t the same as being prequalified, although some people use the terms interchangeably.
The preapproval process entails a lender thoroughly examining your financial situation, including pulling your credit report. As a result, the lender can give you a figure for the amount of money you can borrow. The prequalification process, on the other hand, is simply based on the data that the consumer provides.
Another bonus of preapproval: It can give you an edge if multiple people are placing offers on the same property.
Dumb move No. 3: Falling for the wrong type of loan
Be realistic about what you can actually afford versus what the bank says you can afford. Borrowing up to the bank-approved limit may stretch your finances and set you up for a major catastrophe in the event of a job loss or injury.
Also, be wary of falling into the trap of agreeing to a risky loan, like an adjustable-rate or interest-only mortgage. For some people, these loans make sense. But borrowers must beware that although these loans might start out with low payments, the interest rate is liable to adjust later on, taking your payments skyward.
A fixed-rate mortgage, on the other hand, gives you security and peace of mind.
Dumb move No. 4: Going without an agent
For most people, it’s a mistake to go it alone through the homebuying process.
A good agent can direct you to hot properties entering the market, connect you to competent lenders and inspectors, and generally smooth out any bumps that may arise.
This isn’t the time to be nice and use your brother’s friend’s uncle as a favor. You’re making a major purchase, and you want a proven professional to walk with you through the process.
If you really can’t bear to pay a commission to an agent, at least get a real estate lawyer to help draw up your offer and look over paperwork before you sign on the dotted line.
Dumb move No. 5: Buying based on emotion
Some people see a house they love, and the planned budget goes out the window. Others find a home within their budgeted price but don’t think about all the extras that may come along with it.
A pool needs to be maintained. A huge lawn must be mowed. And a homeowners association will demand not only annual fees, but also your undying loyalty to their bylaws.
Before buying a house, ask yourself these questions to make sure your purchase is a rational decision:
- Can I comfortably afford this house — including the taxes?
- Can I afford to maintain, heat and cool this house?
- Can I pay for needed renovations?
- Do the rooms and layout make sense for our family?
- Will my family actually use features such as a hot tub or outdoor kitchen?
Dumb move No. 6: Skipping an inspection
Regardless of whether you’re buying new construction or a historic home, you need to have it inspected before finalizing the sale. Don’t trust your own judgment. A professional will be able to point out possible code violations, safety threats and structural damage.
To make the most of the inspection, try to walk through the house with the inspector so he or she can point out potential problems and you can ask questions.
An inspection can lengthen the homebuying process, but it’s worth any inconvenience. The alternative may be finding out after moving in that your house has a costly or dangerous problem.
Dumb move No. 7: Forgetting to have a backup plan
What happens if the home inspection shows the beams in the basement are rotting? Do you have a Plan B?
Hopefully, you’ve avoided mistake No. 4 and have a decent buying agent. That person should have entered a clause into your offer that ensures you get back any deposit in the event the inspection doesn’t go well.
You’ll also need to have a backup plan for what happens if the house doesn’t appraise as expected, or if you were counting on funding through a particular loan program that doesn’t materialize.
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