Wednesday, April 14, 2010

Financial Mistakes I Made When Buying A Home

Buying a home is one of the biggest decisions that you will ever make. This affects your personal life, as well as your money in a number of different ways. A couple months ago I purchased my second home. While I am generally happy with the deal I received, there are some things that I could have done better. In other words, I made a few financial mistakes along the way. But, instead of hiding them, I’d like to share them with you so you don’t make the same mistakes that I did. Here are a few mistakes I made that you can avoid with careful planning on your part.

I could have negotiated more on the price. No matter what I buy, if negotiations are involved, I always look back and wonder how much better I could have done. Even though I was happy with the end result and purchase price, something inside tells me that the buyer would have taken one last counter offer. I strongly urge anybody who is in the process of buying a home to be ready to negotiate as much as it takes. Along with this, make sure you are willing to listen to the advice of your real estate agent. They can help steer you in the right direction. Keep a solid price in mind based on real evidence such as comparable sales within the zip code.
I agreed to a higher interest rate, because I was comfortable with the lender. My past mortgage was through Wells Fargo at 6.25 percent. While searching for a new lender, I naturally called on them once again. This time, thanks to the market conditions, I qualified for a lower rate at 5.25 percent. So, what was the problem? Well, there were other lenders, mostly small local banks, that offered a rate of 5 – 5.125 percent. At the time, I decided to stick with Wells Fargo, because I was familiar with their process and sure of their customer service.

Looking back, I probably could have done a better job screening other lenders. This may have led me to a lower rate and a savings of thousands of dollars over the course of my loan. In my case, the difference in interest rates wasn’t much, but depending on if you use a broker or go straight to lender, the rate could vary based on how they make money and their underwriting guidelines. Also, make sure that the lender or broker explicitly explains to you everything that went into giving you the interest rate quote.
I could have put more money down. As you know, most lenders in today’s day and age want to see at least 20 percent. There are some banks that will agree to as little as five percent down, but they are few and far between. Not to mention the fact that 20 percent lets you avoid paying private mortgage insurance. I decided to put down 20 percent, no more and no less. This got my payment where I wanted it while also allowing me to choose from a larger pool of lenders (although I didn’t do a great job of it). That being said, I had enough cash in the bank to make a down payment of up to 35 percent. This would have lowered my monthly payment as well as the overall balance of the loan. On top of this, a larger down payment would have saved me tons of money in interest.

You don’t need to put every penny you have towards a down payment, but my point is not to settle only for putting 20% down. If you can wait a little longer and save more, you’ll thank yourself when you have a lower payment, pay less mortgage interest, and you’re able to pay off your mortgage quicker! If you already made this mistake like me, you can still make a lump sum payment to pay down the principle of the loan, but we advise for people to pay off other unsecured debts, build an emergency fund, and max out IRA contributions before putting extra principle on their mortgage loan.
I try not to dwell too much on the past – especially when it comes to financial decisions. But as you know, this is not always as easy as it sounds. If you are buying a home, don’t fall prey to the same mistakes that I made. Have you made any financial mistakes when buying a home that you’ve learned from?


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Was established since 20th Rejab 1430.
Just to educate myself.
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