When you are looking to enter a new living situation, the rent vs. buy decision can be difficult to make. While your specific situation dictates which option is best for you, many Americans find themselves purchasing a home at least once in their life. In fact, it is likely the biggest financial choice you will make.
As you calculate how much home mortgage you can afford to take on, you may think you have every possible cost and possible roadblock accounted for, but there are plenty of steps to buying a home that you may not be able to predict and they’re not the most fun to deal with.
1. Sending Reams of Required Documents
It may seem obvious that there is a lot paperwork involved in the homebuying process, but you could be surprised how flexible and responsive you are expected to be. Your real estate agent, seller, title company, mortgage lender and even attorney are helping to ensure you make all of the many deadlines and requirements, and it can be exhausting. Get ready for requests for personal and financial documentation up until the day of the settlement. It’s best to be as prepared as you can ahead of time and provide these as quickly as you can. This applies to proving your income with tax returns as well as answering any lingering credit questions as well. You can get a full picture of where your credit stands by pulling your free annual credit reports at AnnualCreditReport.com and your credit scores for free every month on Credit.com.
2. Appraisal & Inspection
While it may seem redundant after a seller presumably had the same processes done, astute buyers will organize an independent estimate of the value of the home they are buying and schedule an inspection. This costs a few hundred dollars (paid to a third-party company) and ensures all parties that the home is free of undisclosed structural defects and being acquired at a fair price.
No matter how many contracts guarantee the speed and style of your real estate transaction, things come up. It’s a good idea to build time for delays into your plan. Your lender may take longer to close, title issues can come up, and the seller may need more time before moving out are just some of a myriad of issues that can happen – and slow you down.
4. Paying Closing Costs
While this may not sound groundbreaking, the real purpose and final amount of closing costs often surprise first-time homebuyers. Between lender charges, settlement services and various fees, it’s important to be prepared to shell out much more than a hefty down payment. The seller sometimes covers these, but the amount is usually between 2% and 5% of your home’s value.
5. Having to Start Over
While this hopefully will not come up, you must realize as a potential homebuyer that sales can fall through. You are not always in control of whether the sale gets finalized. Shopping for homes is just like anything else in life in that it’s a good idea to have a Plan B.
More on Mortgages & Homebuying:
- Why You Should Check Your Credit Before Buying a Home
- How to Find & Choose a Mortgage Lender
- How to Search for Your Next Home