A home is likely the largest purchase you will ever make. That’s why it’s so important to understand the ins and outs of the buying process, as well as how to know if a home is a good investment for you personally. Yet, many Americans buy homes without fully understanding what they are getting themselves into.
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Here are some of the most dangerous assumptions you should not make when buying a home.
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If You’re Preapproved for a Mortgage, You Can Afford It
Many buyers assume that if they receive a preapproval for a mortgage, they can comfortably afford the maximum amount they are allowed to borrow. However, this is typically not the case.
“Just because a lender gives you the green light doesn’t mean it’s smart to stretch that far — especially when interest rates, insurance, taxes and maintenance costs can all creep up over time,” said Brett Cobb, owner and founder of Premier OKC Home Buyers in Oklahoma. “I always advise buyers to build in a buffer so they’re not house-poor six months after move-in.”
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A Home Will Always Go Up in Value
As a general rule of thumb, home values will go up over time, but you can’t bank on this being an absolute truth.
“I’ve seen people bank their future on appreciation, only to be hit hard when the market softens or a neighborhood doesn’t grow the way they expected,” Cobb said. “Real estate is a great long-term investment, but banking on fast equity gains can backfire if life throws a curveball and you need to sell quickly.”
A Fixer-Upper Is a Better Investment Than a Turnkey Property
If you’re buying a home as an investment property, you might assume that buying a fixer-upper is always the way to go.
“Most people assume that a fixer-upper will cost them less and create instant equity,” said Brett Johnson, a licensed Colorado real estate agent and owner of New Era Home Buyers. “I’ve bought numerous distressed properties and the renovation costs nearly always exceeds expectations, even for experts.
“If a buyer does not plan sufficiently or include time and stress considerations,” he continued, “the ‘deal’ can turn into a money pit fast.”
If I Can Afford the Monthly Mortgage Payment, I Can Afford the Home
First-time homebuyers often assume that if a monthly mortgage payment is equal to or less than what they’ve been paying for rent, then buying is the smarter financial option. However, the mortgage payment is not the only cost you have to contend with when transitioning from renting to owning.
“What they are not factoring in are property taxes, insurance, HOA payments, maintenance and repairs,” Johnson said. “Homeownership costs add up quickly. I have seen people struggle financially after closing because they did not factor in things like a bad furnace or rising taxes.”
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This article originally appeared on GOBankingRates.com: 4 Dangerous Assumptions You Should Not Make When Buying a Home
