Regardless of how money-savvy you think you are, buying your first home will test everything you thought you knew about keeping your financial house in order. While the same rules apply, budgeting becomes a bit more complicated – you need to budget for worst case scenarios (rather than a rough estimate of what your monthly expenses will be). Lucky for you, there are some common mistakes that first time homeowners make when it comes to managing their bank accounts.
If you are looking into buying a home, then you are familiar with pre-approved mortgages – it’s generally the first stop on your journey to becoming a certified homeowner. As a rule, you will be approved for more than you should actually spend (MANTRA: Just because I am able to spend a certain amount, doesn’t mean I should spend that much). The pre-approval is simply a validation that you could afford whatever number they approve, that doesn’t mean that you actually can. Thus, it’s always a good idea to look for something lower than whatever you were initially approved for so you can purchase comfortably.
Once you’ve decided on the home you’re going to buy, you might think the sticker price is all you are obligated to pay (and therefore you don’t need to budget for anything else) – wrong. Closing costs need to be paid when you close escrow. These closing costs are pennies compared to the cost of the house, but it still adds up; the cost of the deed, title insurance, notary fees, etc. While you might consider asking the seller for a credit towards closing costs, nothing is guaranteed and different loan programs may restrict how much you can receive in credit – be wary, and have more money than you need to cover closing costs. You can expect closing costs to be about 1-1.5% of the purchase price of your home. (MANTRA: There are always hidden costs, so always be prepared to pay more than you thought you would).
Finally, you have the house of your dreams and a few dollars in the bank; the budgeting challenge isn’t over. Regardless of how perfect your home is during inspection, there’s a real possibility that it wont be as perfect when you finally move in (MANTRA: Prepare for the worst, hope for the best), and this will cost you more money. It’s a fact of life that there are unexpected (and frequently unpleasant) surprises; surprises generally cost money. Make sure to have a healthy savings account for those surprises, nobody wants to buy a house and have to live with something not fully operational.
At the Chernov Team we understand that knowledge is power, and knowledge of how to avoid going broke over your home is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.