A mortgage is a complex and long-term project. If you make serious mistakes at the very beginning, you can lose money and sometimes housing. So how to avoid common first-time buyer mistakes?
Take a consumer loan for a down payment
Sometimes, borrowers who do not have enough money for a down payment on a mortgage take out a consumer loan or a cash loan. The borrower will have a double or even triple financial burden: consumer loans, mortgages, and repair or arrangement of an apartment. Such a burden is not easy to deal with.
To avoid such a mistake, if the borrower does not have enough money for the down payment, then the best option would be to postpone the purchase of a home and continue saving.
Take out a mortgage with a high monthly payment for a short term.
Some borrowers take out a loan for a shorter period in order to end up paying less interest. But at the same time, their mandatory monthly payment increases.
The number of payments for all loans in total should be no more than 30-40% of the borrower’s income. The remaining 60% goes to other family expenses – usually, this is a comfortable amount for the budget.
To reduce the amount of the monthly payment, you can extend the loan term, make a larger down payment, or choose another home – for example, smaller or farther from the center.
Sign a contract of purchase and sale of an apartment “with improvements.”
If the residential property was owned by the seller for less than three years, then he will have to pay tax on its sale.
Because of this, some sellers ask buyers to enter into the contract the full cost of the house and the rest of the money to register as an additional payment for improvements in the form of repairs. This is how they intend to avoid paying taxes.
Increase the loan due to the down payment
Another scheme that borrowers sometimes use is to “add” the down payment to the cost of housing. The buyer agrees with the appraiser of the home to overstate the cost of the home by the amount of the required down payment. This gives the borrower the opportunity to get a larger mortgage and pay off the seller without using personal funds, only for the bank’s money.
This should be avoided. The down payment reduces the loan amount, allows you to reduce overpayment, and reduces the monthly payment. By using this scheme, the borrower increases the cost of the loan, and its repayment can become a difficult task.
Written by Bader Albader, market researcher.