Are you ready to buy your first home? Taking the steps toward homeownership is an exciting process, but it can also be overwhelming at the same time. Your goal is to find the home you love within your budget; but unfortunately, mistakes are often made by first time home buyers that prevent this.
Before you go any further, prepare yourself with these tips and avoid making the 9 most common mistakes when purchasing your first home.
1. Shopping for a house first before a mortgage
Before you even begin shopping for a home, speak with a mortgage professional about getting pre-qualified or even pre-approved for a home loan.
Speaking with a loan officer will give you a clear idea of how much you can borrow and prevent you from looking in the wrong price range.
2. Not looking for first-time home buyer programs
Don’t make the mistake of assuming you have to delay homeownership while saving for a huge down payment. Most first-time home buyers don’t have a lot of money saved up for the down payment and closing costs. However, there are plenty of low-down-payment loan programs out there.
Ask a mortgage lender about your options. You may qualify for a VA or USDA loan that doesn’t require a down payment. Federal Housing Administration (FHA) loans have a minimum down payment of 3.5%, and some conventional loan programs allow down payments as low as 3%.
3. Not hiring a real estate agent
Your agent is looking out for your best interest from the moment you begin your home search all the way through closing.
A seller’s agent has a fiduciary duty (legally mandated obligations) to the home seller acting in their best interests, to ensure their private information is confidential and accounting for all funds and documents in the home transaction.
A buyer’s agent will have that same duty, except for one major difference: they have the best interest for you, the buyer, in mind. Hire an agent so that you’ll have someone looking out for your best interests throughout the buying process.
4. Using up all of your savings
Unless you’re building your home, there’s a good chance you’ll encounter an unexpected repair not long after moving in. Putting everything you have into a downpayment may seem like a good idea – but this is a common mistake for many first-time homeowners. When something breaks you’ll quickly find yourself in a hole if you’ve drained your savings account.
The best way to buy your first home is to save enough money for a down payment, closing costs and moving expenses, and still have enough left over for any unexpected expenses after moving in.
5. Overlooking a home’s drawbacks
Many first-time home buyers fall in love with one of the first properties they find and overlook the drawbacks. The negative aspects of a property may seem small at first, but you can’t disregard the negative sides forever. A long commute to work may not sound so bad at first. But once you’ve taken possession of the home and reality sets in, you might think otherwise.
Rather than disregarding the negative aspects of a house or neighborhood, commit to making a list. Write down all of the attractive and the unattractive features of each house, and weigh the list once it’s complete.
These two steps will keep you from overlooking the negative aspects of a home you might later regret.
6. Overpaying for a house
Unfortunately, first-time home buyers often end up paying more for their home than experienced buyers would pay for the same house, according to Federal Housing Finance Agency research.
Purchasing a home is an emotional experience, but people who are new to home buying often make decisions based completely on emotion. Writing down what you like and don’t like about each house will help you make a practical, balanced choice.
Another way to avoid overpaying is to ask your agent for a competitive market analysis, a report that looks at the prices of comparable nearby homes that have been sold recently.
7. Skipping the home inspection
You never know what type of hidden damage a home may have. And that’s why you should never buy a pre-owned home without an inspection.
Avoiding the extra cost of a home inspection may be tempting. However, hiring a licensed home inspector could spare you from costly hidden damage that you wouldn’t otherwise see.
8. Underestimating the costs of ownership
If you’re accustomed to renting, the cost of homeownership may be a surprise. When calculating the cost of owning a home, first-time homeowners often only consider their mortgage payment. But you must also include your water bill, utility bill, and many other expenses that the bank won’t mention when determining whether you qualify for a mortgage.
These monthly bills don’t include home repair and renovations you might want to do. There’s a good chance you’ll come up with a few things you’ll want to change or update as you walk through a home. These added costs should be included in the cost of homeownership.
When shopping for your home, consider whether you can afford renovations. Some changes may have to wait. You should also talk with your real estate agent about property taxes and the cost of insurance. You want to consider all the costs of homeownership so that you can accurately plan your finances.
9. Applying for credit before the sale is final
You want to leave your credit alone during the time in between applying for a mortgage and finalizing it. This time is critical as the lender’s mortgage decision is based on your credit score and your debt-to-income ratio (this is the percentage of your income that goes toward monthly debt payments) at the time you apply.
Applying for credit can reduce your credit several points. Getting a new loan, or adding to your monthly debt payments, will increase your debt-to-income ratio. Neither of these is good from the mortgage lender’s perspective.
Within about a week of the closing, the lender will check your credit one final time. If your credit score has fallen, or if your debt-to-income ratio has gone up, the lender might change the interest rate on the mortgage. This could cause a delay in your closing, or worse – it could lead to a canceled mortgage.
One of the most common mistakes people make is purchasing furniture before closing. If you’re going to make a large purchase, wait until after you have closed to prevent it from impacting the mortgage decision.
Buying your first home can seem overwhelming, but if the necessary steps are taken, you can easily avoid these common mistakes that first-time home buyers often make.
If you’re ready to begin your journey to homeownership, talk to one of our agents today about taking your next step.