Today’s topic about Home Insurance. You will know How To Avoid The Biggest Mistake A Home Buyer Can Make? So, one of the things I want to talk about today was mistakes that homebuyers make that really put them in a bad position.
So, one of those mistakes that I see home buyers make in the buying process is spending to the max of the pre-qualification amount that the lender gave them, Home Insurance.
You know, the letter that the lender says, Hey, you’re pre-qualified and this is the amount you can spend. And this is how much down payment we’ll need from you in order for you to spend this amount. Now, just because the lender says that you’re pre-qualified doesn’t mean you can really afford it. And I know what you might be thinking.
You’re thinking, what are you talking about?
But understand that just because a lender is willing to loan you, that amount of money doesn’t mean you’re going to feel like it’s affordable when it’s time for you to actually start making those payments. And so, you really need to consider whether or not you want to take up their offer and take that, that loan in that amount.
So how do you decide?
Well, only you can determine what you’re comfortable spending on a home. And my advice to you is that you should take the time to really, really think about it and go through all your finances and consider all the costs involved. So, it’s not just about the cost of the loan. You need to foresee things that might happen in your future that are unexpected and that you can’t really anticipate, but you need to expect that it just might happen sometime. So, you might be wondering if the lender is willing to give me the loan.
Doesn’t that mean that I can afford it?
Well, nan Yes and no. The lender thinks that you’re a good risk and that you are going to be responsible and you’re going to do whatever you have to do to repay that debt to them. But they don’t really care if you have to live house poor and struggle to make that payment. Because after all the lenders really only looking at their lending criteria to decide if you’re a good risk. And that is they’re looking at your gross monthly income, that’s the amount you get before taxes are taken out.
They’re considering how much debt you currently have and what your credit score is and how long you’ve had your job. They are not taking things into consideration that you should take into consideration. Like maybe you drive a lot and maybe you put a hundred thousand miles a year on your car.
Well, you’re probably going to need a car more often than the average person or to replace that car and you’ll need to have money for that. But if all your money is going into your mortgage payment and paying for your home housing bills, Home Insurance. how are you going to afford to replace that car that much more frequently than the average person?
So that’s something that you really need to consider the lender also doesn’t know things that you might be planning for. Like maybe you’re planning to go back to school and it could cost you 50,000 over the next five years to pay for that continued education. Maybe you have a child with special needs that needs extra care or is a little more expensive than most kids’ cost.
Or maybe you have one or two heading to college in a few years. And you’re trying to save that college savings fund. You’re trying to fund that how the lender’s not going to know that. And frankly, they don’t really care because all they care about is that you’re, you’re responsible enough that you’re not going to let your mortgage payment slide.
So, whatever it is only, you know, what you need to plan for financially. Plus, you should anticipate that there will be some unforeseen expenses, things that you have no idea are on the horizon.
These are just some of the reasons why you should keep your home purchase, Home Insurance, below, your pre-qualification amount and not let it be the sole factor in determining what your home buying budget is. So instead create a budget that you’re comfortable with just because the lender is willing to loan you.
The money doesn’t mean that you should take that loan and spend it. Now I say this because I have some experience behind it. I’ve been through it myself. So, I’ll tell you about my situation. When I bought my first place, I stretched it to the max. And let me tell you, it was not fun because it was a huge cause of stress for me.
For a lot of years, being a housing port is never fun for anyone. You just never know what life will throw at you. Then years later got married, feeling much more comfortable and financially more at ease.
And we considered buying a new house, but we had a child and a second child. And I never anticipated that. I would have to stop working or significantly reduce the amount of time I spent working. But when my baby, my second one had medical issues that required us to be hospitalized for a week. And, um, even after that week, still not knowing what was wrong. Home Insurance
All my priorities changed as, as I should, but it’s something I just didn’t dissipate. And nobody ever feels like it’s going to happen to them, right. It just never happens. So, I didn’t feel comfortable leaving him with anybody, um, at all ever.
So luckily, I was self-employed so I could take him to work with me, which I did a lot. And I also reduced my workload, which dramatically changed the amount of income I was making at the same time. At that point in time, I was very glad that we had not stretched our budget previously and maxed out to buy a bigger house, a fancier house because the lesson is, you never know what life is going to throw you, and it will completely shift all your priorities as it should. Home Insurance
So, having a sick child changes your priorities, and I could not have cared less about, you know, a bigger newer house or a new car. Any of it, the only thing I cared about at that point was the freedom of my time. It was the only thing that mattered at that point in life was that I was free and available.
My time was free and that I was not obligated by a huge mortgage payment or the risk of losing our house. Because even with all that was going on financially, we were fine. And that took a huge, huge, huge stress and burden off my shoulders. So, another mistake home buyers make is not having enough money saved before buying a house Home Insurance.
Oftentimes buyers only think about saving for that down payment, but it’s not a good idea to start your home shopping with the idea in mind that every cent you have in that savings account is going towards your down payment. You’ll need to plan for other expenses as well. And let’s go over what those are. So, one of the expenses that come up in addition to a down payment, our closing costs, closing costs, um, come at the time of purchase.
And there are things like escrow fees, title, insurance, appraisals, underwriting costs, notary fees, recording fees, transfer taxes, loan, origination, fees, processing fees, home inspections, Home Insurance, all these kinds of things. And you’re, not every single one of them is in every deal. And it just, every deal is different. So, you never know which one the seller might pay for you, which one might be less than another.
You may not have, um, large, you may not have. Anyway. There’s a lot of things that may just, um, variables in there. So, we just don’t know, but the safe bet is to plan for all of them and to be happy when you don’t have to spend the money.
So those are all non-recurring fees, meaning that they only happen at the closing. And, um, you’re not, they’re not going to come up again in the future, but there are other fees that are also sometimes included in closing that is recurring expenses. So, you will pay them, pay some portion of them at closing.
And then you need to expect that there’ll be ongoing in addition to your mortgage payment, as long as you own the home. And those are things like the interest on your loan, uh, property taxes, which can fluctuate, property taxes can go up, um, insurance, again, something that fluctuates HOA dues, again, something that has a potential of increasing over time.
Sometimes these can add up to quite a bit at closing and you may need to reimburse the seller for any of those expenses that they say, for example, paid ahead of time that now, like maybe they paid, maybe you’re buying your house in July. And, um, for example, you’re closing in July and the homeowners paid HOA dues through December. It doesn’t happen that often, but let’s just say that, that they did well.
Those expenses that they prepaid are going to have to get paid back to them from the time that you, um, are now the owner. So that could be another expense for you. So those are the things to consider. And with every single house, the situation is different and you never know, but also the lender could require you to pay some of those things in advance.
Like they might want you to pay your taxes in advance because, um, they’re concerned you may not do it later, or they may want you to pay a couple of months of insurance in advance or six months or whatever it is. You never know what’s going to happen. Every situation is different. So be prepared. You need more than just your down payment. So, and guess what? The down payment and closing costs, aren’t the only things you need to save money for.
Nope. There’s more, you need to plan to have a healthy emergency fund set aside as well because you never know what’s going to happen. Like in my situation, I didn’t, I didn’t know I was going to have a baby that needed to go to the hospital. I had no idea that was going to happen. Um, you know, hope for the best, but plan for the worst is what I like to say now.
So, plan for at least three months of living expenses, but six months to a year is better. You just never know what can happen if you, your job you’ll need to have some time to find anyone. If you have an accident and are out of work for a few months, you will be very glad that you don’t have to worry about your bills while you recover, because you’ve got that money set aside in case of an emergency, or like in my situation, having a sick child and needing to take time off to care for them.
And don’t forget as a homeowner, things will break and things will need to be fixed, repaired, maintained that. So, if you’re not handy enough to fix it yourself, you’ll need to pay someone else to fix it for you. Appliances are expensive to replace a refrigerator.
Have you seen the price of refrigerators?
Oh my gosh. They’ve really, it’s crazy.
Why is the refrigerator so expensive?
Can someone tell me that?
Cause I think it’s crazy anyway, but also like your conditioning could go out and that might need to be replaced. I just got an estimate actually for air conditioning replacement for a small, under a thousand square foot rental property that I own, the estimate was eight to $10,000.
Apparently, this is about double what it costs recently. I don’t know. I don’t know why, but air conditioners are super expensive right now. And luckily, I just had to replace a compressor, which was not cheap $2,000, but luckily, I had the home warranty. Home Insurance
So, I only had to pay 75, but if you don’t have the home warranty, Home Insurance, um, yeah, you need to plan ahead for these things. And at some point, you’ll need to replace the roof or at least repair it and, you know, paint doesn’t last forever and painting the exterior of a house around where I’m at. Home Insurance
It’s expensive three, $4,000. The last time we painted and that was like 12 years ago and we were about ready to need it again soon. So, you’ll need to set money aside for when these things happen.
It’s not if it will happen, but when it will happen, be prepared for it by having money set aside and not just that, there’s always more, you need to, if you have the money set aside at the beginning when you first buy the house and then you have to spend it, you got to think, do I have enough disposable income to replace that emergency fund when I do spend it? Because if you don’t know, that’s another problem.
So, a factor that into your budget as well. When you set out to buy a house, be a smart shopper, look out for your best interest because honestly, nobody else knows your situation and they just can’t.
Nobody else a lender is not going to look out for your best interest. You have to do that. Buy a house that you can afford comfortably and treat yourself to for relaxing vacation once a year, if you don’t need all that money set aside, or, you know, honestly, if, if you’re not overspending on your house and you do not house poor, you’re probably not going to have that much stress and you don’t need that relaxing of a vacation anyway, Home Insurance, just take the vacation, but do buy a house within a comfortable budget because it won’t cause you any extra stress that you might have otherwise.
And I’m sure it goes without saying, but just in case, I’m going to mention it anyway, when you calculate your budget, don’t forget to include the essentials like food and gas and utility bills. Honestly, those go up as well, too insane. But, um, cell phone and internet service, clothing. All those things, Home Insurance, none of that stops just because you took a huge bulk of your income and started putting it towards the house.
So, if you’re an experienced home buyer, Home Insurance and you have advice for new home buyers coming up, Home Insurance, leave it in the comments below, tell them what else they need to look out for. I’ll see you at the next one.