A home is one of the most important purchases a person will make in their lifetime. However, like everything, it presents some challenges that with the proper preparation can be avoided. Some people may be too eager to start looking for a home and don’t consider all the implications.
Fortunately, you came to the right place. We prepared a list of possible mistakes so that you can avoid them altogether which will make the process easier for you from start to finish.
House Hunting Before A Mortgage Application
This is a very common one amongst first-time home buyer mistakes.
Long time homeowners are often familiar with the saying about home-buying, “The bank owns the place before you do.” They recognize that most sellers don’t want to risk accepting an offer from a buyer who hasn’t secured financing.
Many first time homebuyers start looking for a home without speaking to a mortgage lender; this can be a critical mistake.
The housing market is extremely competitive, so you have to arrange financing in advance, or you’ll lose out to other buyers who can make a firm offer because they’ve already budgeted for the cost of their new home.
The best advice we can give is: get pre-approved as early as possible so you know exactly how much house you can afford before visiting open houses and looking at homes. This is especially true in neighborhoods or markets that have limited availability and competition with other buyers.
Pro Tip: Don’t get caught up in the love of a house that isn’t a good fit for your financing. Talk to a real estate agent and mortgage broker about getting pre-approved before moving forward with your house hunt. It will help ensure you’re not wasting time on a property you can’t afford and focus on the right one for your budget.
Relying Solely On One Lender
One of the biggest first-time homebuyer mistakes you can make when buying your first home is not taking the time to compare several different lenders’ quotes.
If you are looking for a home, think twice before simply going with the first lender or bank that offers you financing. Make sure you are getting a great deal and the best mortgage rates by comparing multiple lending institutions and their interest rates and fees.
Pro Tip: Get quotes from at least three different banks and, if possible, one mortgage broker. Try to get rate quotes all on the same day, since rates change constantly. Compare interest rates, lenders fees, and loan terms so that you are comparing “apples to apples” when you look at the bottom line.
You’ll want to find a loan with the lowest interest rates and affordable lender fees. Also, you want to consider customer service and lender responsiveness when looking for a lender because both can make your home buying process run more smoothly.
Overspending On A House
There are many attractive features about homes, and it may be hard to compromise on some of those features when searching for your ideal home. Yet it is imperative to get a good grasp on your budget and not to overspend on a new home.
Pro Tip: Take a look at what monthly payments you can expect to pay after purchasing a house. Consider your current expenses (car, insurance, groceries, etc.) plus the mortgage payments against what you have available to spend monthly.
Rushing The Process
Buying a home can be complicated, particularly when you get into all the paperwork. Rushing the process can cost you down the line, so it’s important to be patient and plan well for your future.
Patience really is key here. Save yourself some money down the road by carefully making all the decisions regarding this important purchase. Pay attention to every detail.
Pro Tip: Create a timeline that details when you will buy your home, possibly up to a year before the purchase. Keep in mind, it may take a year if you need to work on repairing credit and saving up enough money to make a sizable down payment to become qualified for a pre-approval. Make sure to start working on boosting your credit score and paying off any debts that can have an adverse effect, such as credit cards, etc.
Using Up All Your Savings
Don’t exhaust your finances on down payment and closing costs. There will always be unexpected additional costs when it comes time to move, possibly including: small repairs, new paint, furniture, decor, window coverings, moving expenses, etc.
Pro Tip: It’s essential to have a financial safety net. Consider not depleting savings or retirement accounts that might be used in case of emergency (like extended unemployment, illness or disability, etc.) Emptying them when buying your home is risky.
Decisions must be based on numbers. If depleting all your savings is the only way to purchase your first home, then maybe you’re not quite ready. Renting for a few years could make all the difference when it comes to what you can afford.
Assuming You Have Good Credit
Before applying for a mortgage, a mortgage lender will examine your credit report to determine if you are a good candidate for the loan.
Sometimes the lender will pull your credit score again before the final approval or even at loan closing just to ensure everything is going smoothly. This is because new financial information can come up and change your eligibility for financing in some way.
Pro Tip: Keep your finances in check throughout the buying process. Don’t open new credit cards, close existing accounts, take out new loans, or make large purchases on existing credit accounts prior to closing.
Overlooking The Neighborhood
Choosing a home that meets all your criteria is important, but so is its location and neighborhood. Picking an area that interests you can add to your family’s quality of living. Conversely, ending up in an area that you really don’t like (even if the house is beautiful) can really make you want to consider moving far before it’s prudent.
Sure it’s important how the floors look and what appliances come with the purchase, but it’s also very important that the neighborhood is the right fit
Pro Tip: Decide what is most important to you in a community, and do your homework. Consider factors such as school ratings, commute time, crime numbers, and other factors based on your needs and preferences.
You could visit the neighborhood at different times to determine whether this would be a neighborhood you’d be interested in living in.
Getting Carried Away By Emotions
Buying a home is very exciting and especially so for first-time home buyers, but the emotional part can lead new buyers astray.
After finding the right home and making an offer, you might get into a bidding war with other buyers and allow your emotions to overrule common sense.
Remember that real estate markets come up and go down, so you should always have contingencies when buying a property. Make sure you understand all the costs and payments involved before signing any contacts.
First-time homebuyers should have an emergency fund of at least 6 months of your living expenses. So if something unexpected happens, you still have enough to cover all costs without having to back down from your purchase.
Pro Tip: Try to keep an emotional distance from your house. Budgeting is essential to making a home purchase work. Emotionally investing too heavily in a housing purchase may leave you with a limited financial future.
Miscalculating Homeownership Expenses
As a homeowner, you will be responsible for several expenses to keep your property up-to-date and in good repair. Sometimes these things can add up quickly, so it’s best to create a well-formed plan that accounts for everything.
Right away, you’ll want to account for homeowners insurance premiums, property taxes, and loan payments…but there might be more.
Pro Tip: To help you budget, think beyond the monthly mortgage payment (principle+interest) and include taxes, homeowners insurance, utility bills, and repairs. Shop around to get better deals on insurance coverage.
Finally, aim to set aside at least 1-3% of the home’s purchase price each year for maintenance costs.
With all the considerations for buying a home, it can be hard to know where to begin. Now that you understand the common first-time home buyer mistakes, you’re ready to begin looking for your first home and taking the first steps toward homeownership.