Successful Homeownership Starts with avoiding Mistakes

Everyone makes mistakes. But in home buying? Those mistakes can cost you deeply

Not only can they mean more in costs (think tens of thousands more), but they can also hinder your mortgage loan, throw off your closing or — in some cases — even make you lose your dream home altogether.

Want to make sure you’re on the right track for your first home purchase? Then avoid these all-too-common first-time buyer mistakes.

1. Buying more houses than you can afford

Though getting pre-approved for a mortgage can help you determine your maximum loan amount, you really want to focus on your monthly payment. Experts suggest spending no more than 30 percent of your monthly income on housing.

After adding up your income, your spouse’s and any other earnings you take in each month, what does 30% come out to? 

You’ll also need to factor in the extra costs of homeownership. Unlike when renting, you’ll need to cover property taxes, homeowner’s insurance, hazard insurance, repairs, maintenance and utilities. Depending on your down payment amount, you might need private mortgage insurance as well. These all add both monthly and annual costs to your bill.

And remember: Just because a lender says you’re qualified for a RM500,000 loan doesn’t mean you’ll be able to comfortably make the payment that comes with it. Make sure you have an accurate estimate of your monthly mortgage costs before moving forward with any purchase.

2. Starting the home search before getting pre-approved for a loan

Pre-approval is an important step in the home buying process. First, it gives you a price range to start shopping in. Armed with your pre-approved maximum loan amount, as well as the monthly payment you’re aimed for (see No. 1 above), you can hone your list of potential properties and really dig into the search.

Being pre-approved for your loan also sets you apart from other buyers and gives sellers confidence in your offers. If your local market is particularly hot or there are many bidders on a home you’re considering, a pre-approval letter can mean all the difference.

3. Not checking your credit report/score first

Your credit score will play a big role in your home purchase — and how much it costs.

So before starting the home search, pull your annual credit report from one of the three major credit reporting bureaus, Experian, Ctos.

For the former, banks would look at your CCRIS report, which offers a picture of your overall financial health. In other words, it’ll inform lenders if you’re a creditworthy individual.

For the latter, it would be your CTOS score, where the higher you score the better it’ll be for you. Here is where lenders will know if you’re able to repay your debts on time or not, based on your track record for previous payments.

Here are some ways you can start improving that credit score:

·         Pay down existing debts and credit card balances.

·         Avoid applying for any new cards or loans

·         Prevent missed payments by automating all your bills

·         Don’t close accounts once they’ve been paid off

 

4. Visiting properties that are way too expensive

If you’ve already got a budget in mind AND a pre-approved loan amount, the last thing you’d want to do is window shop at properties above that amount.

You’d only be setting yourself up for unnecessary disappointment, while also wasting your time and efforts. If you’re able to, it’s a good idea to look at homes that are below that figure, and not right on the dot.

In this manner, you’re giving yourself some room for price negotiations with the seller, in case you find yourself competing with other potential buyers looking at the same property.

 

5. Not providing a paper trail for gift money

If you’re expecting financial help from your parents, grandparents or some other loved one in your home purchase, you’ll need to get a plan together early.

How much are they able to contribute? When can they write you a check or transfer the funds? Are they willing to document the entire transaction going in and coming out of their account?

Not knowing these details up-front can throw off your mortgage loan and your home purchase entirely.

6. Putting too much or too little down

You should feel excited and passionate about the home you’re buying, but don’t take it too far. Getting too attached to a house can make it hard to strike a good deal

It’s easy to get swept up in the rush of emotions and fall in love with the very first property you visit. But if you haven’t compared it to other similar ones, how would you know if it’s really “the one”?

It’s better to check out a few options that tick off the right boxes on your search list, so that you’d at least have an idea of what flaws you should be looking out for.

7. Neglecting to inspect for important flaws

Speaking of flaws, another common mistake that first-time homebuyers make would be forgetting to check every single corner of the potential property for signs of defects.

You need be fully aware of the condition of the place you’re about to sign for: whether any repairs are needed, how potentially expensive it’ll be (if any), and whether you’re going to be taking on remodelling, restoring or full-on renovating when you move in.

If you discover anything that’s going to put a dent in your funds, you could even have the upper hand in negotiating with the seller to fix the problem, or reduce the price!

 

The bottom line

Avoiding these first-time buyer mistakes is only the beginning, though. When you’re buying a home, there a lot of moving parts. Each one impacts the other, and any small change or slip-up can have serious effects on your ability to purchase a property. Before diving in, make sure you’re clear on your financial scenario, shop around for the right lender and get pre-approved for your loan. This will give you a solid foundation as you begin your home buying journey.