- January 12, 2022
- Posted by General Electric Credit Union
- 5 read
Avoid These 3 Mistakes During the Homebuying Process
While you may feel ready to dive head-first into the real estate market, it’s wise to pump the breaks and familiarize yourself with the common mistakes people make when buying a home. Doing so will help you avoid costly blunders and even surprise issues down the road. Refer to the guide below so you can enter the homebuying market more knowledgeable and confident.
3 homebuying mistakes to steer clear of
1. Not knowing your credit score or debt to income ratio
Unless you have the money on hand to buy a house without borrowing, you will need to secure a mortgage loan. The average American makes a down payment of 12%, requiring them to borrow the remaining amount.1 What a mortgage loan costs you, including the monthly payment and what you’ll end up paying in interest over the life of a loan, depends on a few factors. Lenders will look at your credit and debt to income ratio (DTI) to determine how likely you are to pay them back. These risk assessments will impact the rate they offer you. A high interest rate can make monthly payments less affordable, potentially tempting you to choose a longer loan term upon applying. The longer the loan term, the longer interest can accumulate.
All of this is to say it’s important to take note of your credit score and any lingering debts. Once you know where improvements need to be made, you can start putting in the work. Start by accessing your credit score using annualcreditreport.com. It’s free to use once a year!
- Tip: Check out General Electric Credit Union’s (GECU) first eBook, The Ultimate Beginner’s Guide to Credit Scores, available for download. Or, become a credit union member and meet our criteria to access your FICO® Score for free within Online Banking or our mobile app.
2. Buying more house than you can afford
As a rule of thumb, you should spend no more than 25% of your monthly income on mortgage payments each month. Keep in mind, though, that there are more financial obligations to consider. Closing costs, real estate agent fees, and inspections are up-front costs of buying a home, while things like homeowner’s insurance, maintenance, and property taxes are ongoing and should be budgeted for.
- Tip: Use GECU’s free online calculators to see how much home you can afford.
Lastly, pinpoint any features of a home that would be difficult to maintain. For example, a swimming pool may be nice during Ohio’s summers, but taking care of one can cost upwards of $1,800 a year for basic upkeep.2
3. Skipping a home inspection
The housing market intensified in 2020, leaving many potential homebuyers stressed and priced out of the neighborhoods they wanted to live in. To lower costs and appear more eager to sellers, some homebuyers went so far as to forgo a home inspection.
Before you decide, consider the following reasons a home inspection can help:
- Health and safety. A home inspection will catch issues that are detrimental to the safety of a household. For example, knob and tube wiring is a major fire hazard and is common in older homes.
- Unexpected costs. While homeowners should expect some maintenance, certain issues are more expensive than others to repair. Termite damage and a poorly waterproofed basement are among the high-dollar problems an inspector may be able to identify. This information can help you make an educated decision on whether or not you want to continue with the sale.
- Negotiation tool. Say an inspector catches a broken window lock. You can require the current homeowner to fix this as a term of the sale. Or, you can ask for closing credits. This will offset the cost you incur when paying for repairs on your own. Another option is to renegotiate the sales price of the home with the estimated cost of repairs guiding the number.
When the time comes and you’re ready to enter the real estate market, turn to GECU for a mortgage loan pre-approval. You’ll feel confident buying a home knowing you have the financing available to do so and the knowledge needed to protect your wallet. Unlike big banks, credit unions are not-for-profit. You’ll see and feel the difference in better loan rates than the competition and more personable service. Become a GECU member today by applying online. To be eligible, you just have to live, work, worship, or go to school in select Ohio, Indiana, and Kentucky counties.