Fifth and Final First Time Homebuyer Mistake

#5 Not understanding more than P&I of a mortgage so you buy too much house.

In number four you can kill the deal, but there are several ways while buying a house, you can kill your credit.  Maybe not right away, but soon enough.  Those little mortgage calculaters on all those sites calculate what your monthly payment would be for a loan amount at a certain rate of interest.  Just the P&I - the principal (the amount you borrowed) and the interest you owe (on the amount you borrowed)

So the calculater tells you you can afford a $500,000 loan at 3.99 interest.  Whoo!!! but whoa.  Along with P&I is basic utilities, homeowners insurance, property taxes and in some places, other fees.  You'll need those estimates too.  And can you get a 3.99 interest loan? Or do other things such as the available cash for the deal not leave you enough to get that rate?  Plus there are costs to completing a purchase.  The costs are usually spelled out on the initial estimate along with estimated taxes, P&I, and other fees, but you'd have to go get estimates for insurance.  

So you've talked to a lender and given him your information (yes you pulled together actual paperwork so he can tell you for real what is possible) and he's told you the most you have to work with.  But just because you can, doesn't mean you should.  In addition, to complete the deal are you tapping every bit of cash reserves you have?  That can leave you mighty venerable in this uncertain world. If every dime of your income is going to pay for your home (P&I, Insurance, Taxes, Fees, and basic utilities) then you are going to start to feel pressured, and should the smallest thing happens ( the extra pay you were getting is cancelled, you got an early transfer, the water heater broke, the baby got sick, life), you my friend are up the creek without a paddle.  You'd end up starting on that deadly credit spiral downward killing your credit just to survive.

The investment in a home is the best longterm investment you can make.  It has been proven over and over, homeownership is the best way to build wealth and provide security for your family.  But let's be wise buyers and make sure it is a financial decision not an emotional one.  Carefully assess your monthly income and deduct those expenses that are necessary to the family's well-being, as well as the basics you have to pay out each month.  You don't need to eat out every night, but an occasional movie and a hamburger is  ok.  Determine the price range of the home you can afford - not the home that you could buy.

Plan ahead for unexpected salary changes or job transfers - some things we can't control but we can be prepared for.  Make sure your home is in a good area for quick rentals at prices that will cover most or all of your costs.  That way you can always rent it out until the market is at a place where you can sell and take your equity to your next home investment.

So let's skip that home you could buy and look for that home you should buy in Aiea, Diamond Head, Ewa Beach, Haleiwa,Hauula, Hawaii Kai,Honolulu, Kaaawa, Kahuku, Kailua, Kaneohe, Kapolei, Laie, Lanikai, Mililani, Pearl City,Wahiawa, Waialae Iki, Waialua, Waianae, Waikiki, Waimanalo, Waipahu.