It’s an exciting time when you’re looking at buying your first home. So much so that we often create expectations in our head that clash with the reality of the situation.
Often times, first time home buyers walk into the mortgage and home buying process thinking it’s going to be a breeze, that they have enough money, that buying is the best option for them, but really, they haven’t spoken to an expert – a mortgage agent – to find out is those thoughts are actually true.
Here are some of the most common expectations – or thoughts – first time home buyers have, that sometimes don’t match up with their reality. Give it a read to make sure you’ve covered all your basis and are making sure your expectations are setting you up for success.
1. Going from renting to owning a home can cost the same or less
We’ve all heard the phrase that owning a home is more worthwhile because you’re putting money into something that you will one day own, versus dumping money into rent. While this is true, it’s also often said that a mortgage costs the same, and sometimes less than rent. I would like to take the time to officially debunk this theory.
Firstly, yes, you can find a cost-efficient mortgage that is comparable to what you are paying in rent. Of course that depends on how much your rent is. If you’re only renting a room and are only paying a few hundred dollars then chances are your monthly living cost will increase by quite a bit. But, if you’re renting an apartment or a house, then mortgages can sometimes be around the same price. Keep in mind that this is not always the case. So, setting the expectation that buying a home will actually save you money is not the reality.
The reality is that owning a home comes with more expenses than first time buyers realize. Some of these extra costs include repairs – you no longer have a superintendent fixing things up for you – home insurance, property taxes, utilities, etc. This is why it’s smart to sit down and build out a budget for yourself. Cash flow planning is a great option to make sure that you’re using the money you have in the best way that you can.
2. You qualified for a certain loan amount and you should use all of it
Just because you qualified for a certain amount, doesn’t mean you should use all of it. Prior to applying for a mortgage, you should have established a budget with a cash flow planning specialist to determine what you can afford on a monthly basis. And, once you’ve done that, you stick within your budget to make sure you’re not overextending yourself financially.
It’s always smart to give yourself a price range. For example, let’s say you qualify for a mortgage of $600,000.00, you can say that you would like to find a home between $450,000.00 to $550,000.00. That way, if you end up getting into a bit of a bidding war for the home of your dreams, you have some wiggle room.
3. You have enough saved for your down payment
So many people come in after saving for years, only to realize that their down payment isn’t necessarily enough. They think their down payment is quite sizeable, and it probably is, but the general rule is to have at least 5% saved for a home that is worth less than $500,000.00. But, the higher you can get that percentage, the better off you will be.
So, make sure you’re well-informed about the amount you need to be saving. And, in order to get there, you can use effective cash flow planning to make sure you are saving enough money in the amount of time you want. So, if you have a goal to save up a $25,000.00 down payment in three years, cash flow planning can look at how much you need to save and how you can use the money you’re making now to actually make that happen.
4. Once you’ve saved for your down payment, there are no other fees
Saving for a down payment is a big task and it takes time. A lot of first time home buyers think that once they’ve saved for their down payment, they just need to apply for the mortgage and they’re good to go. This isn’t the case. People often forget about all the other fees that come with buying a home.
Some of these fees include:
- Realtor fees
- Legal fees
- Moving costs
- Inspection fees
- And so much more
These fees need to be paid before you take ownership of your home, and therefore need to be accounted for when you’re looking at applying for a mortgage and buying your home.
I know that this blog may make it seem like there are a ton of obstacles and hoops to jump through in order to qualify for a mortgage, but the reality is, as long as you’re prepared and you know what to expect, you’ll be set up for success. So, get in touch with a mortgage agent, learn the reality of applying AND qualifying for a mortgage, and start preparing for that home you’ll get into faster than you know it.