First Time Home Buyer Mistakes
Buying your first home can be a daunting task and it may be the largest investment and purchase of your life. As a first-time homebuyer, you might feel excited and scared at the same time, and it’s fairly normal. However, most people who are buying a home for the first time get so excited about house shopping that they tend to neglect the important things associated with buying a property.
It is important to avoid the most common first time home buyer mistakes to have a smooth home buying experience that you will not regret in the future. Here are the most common first-time homebuyer mistakes you need to avoid:
1. Failure to Assess Your Finances
One of the most common first time home buyer mistakes not assessing their finances before deciding to buy a home. Just because they have saved up money for a house doesn’t mean that they can really afford one. A house can be a great investment. However, it could eat a huge chunk of your savings. If this purchase leaves you with an empty emergency fund, it’s best to consider it before making a decision.
Before anything else, take a look at your finances first to ensure that you can afford to buy a home. If you plan to buy the property through a mortgage, you also need to consider your monthly payments. Mortgage payments can substantially cut down your monthly income, so it’s important to know that you earn enough to afford the mortgage.
Finally, there is a huge difference between thinking you can afford to purchase a home and knowing for sure that you are financially capable. Speaking with a loan officer to discuss your finances ahead of time could save you time and money.
2. Not Sticking to a Budget
Many homebuyers got so caught up with the excitement of home shopping that they fell into the trap of going overboard with their budget. If you buy a home that’s worth more than what you can afford, this can be detrimental to your financial well being. You could take on more debt and spend more than you earn.
To avoid this mistake, it’s important to set a budget after assessing your finances. Know how much of your savings you can spend for a property, and how much loan you can comfortably pay on a timely and regular basis. Once you have set a budget, make sure to stick to it when looking for a property to buy. Don’t get tempted to buy a luxurious home if you’re not sure if you can pay for it.
It is also important to stick to a budget after the home purchase. It is easy to get carried away with buying furnishings and remodeling the home.
3. Not Applying for a Mortgage Before Looking for a Home to Buy
Some home buyers start looking for a home even before they talk to a mortgage lender. This mistake could result in unapproved offers. These days, for-sale listings are getting scarce, and the competition is getting tighter. That is why most home-sellers would not approve an offer without a mortgage pre-approval. Most real estate agents will not take you on tour to see any homes without a pre-approval either.
It’s best to find a mortgage lender first before you start looking for a property to buy. Make sure to get a fully underwritten approval so you will have the edge over other buyers. Remember that sellers would not want to take a risk on buyers who are unsure if they can get a mortgage. A pre-approval is one way to convince the seller that you are indeed serious about your offer.
4. Failure to Compare Several Lenders
Buying a home can be a tedious task, which is why many homebuyers do not want to spend more time talking to more than one lender because they think this is just a waste of time and energy. However, this is a costly mistake that you wouldn’t want to make.
Before deciding on or committing to a lender, it’s crucial to talk to several mortgage providers so you can compare the different rates and terms. Doing so allows you to choose the one that offers the most favorable terms and rates, which can help you save money on interest in the long run.
Not every lender is the same when it comes to the rates and programs they offer which is another reason to speak with more than one lender.
5. Not Hiring a Professional to Inspect the Property
When you buy a home, you need to first see the property for yourself to know if it’s worth your money. However, if you are not knowledgeable about the structural technicalities of a property, doing the inspection yourself will not really help.
Many homebuyers choose not to hire a professional to perform the inspection because they want to save money. But this could lead to unnecessary costs in the future, especially if the property has structural defects that are too costly to remedy. Hiring a professional inspector could prevent you from buying a property that needs costly restructuring.
If you plan to use an FHA loan to finance your home, an FHA inspection is mandatory and cannot be avoided. It will protect you from purchasing a home that is in disrepair or even hazardous.
6. Going Overboard on Home Improvement
Another common mistake that you need to avoid is spending too much on home improvements. Many homebuyers drain their savings because they want to perform luxurious improvements that are way beyond their budget.
While it’s nice to build your dream house, going overboard with renovations that are sometimes unnecessary can be a deterrent to your overall financial health. To avoid this mistake, make sure to stick to your budget and only renovate what is necessary. Unless you can afford it, you don’t need to make everything look new as long as they are still functioning well.
An alternative to consider is the FHA 203k rehab loan. With this program you can finance the purchase of the home plus the renovations you desire.
7. Choosing the Wrong Location
Choosing the wrong location is one of the biggest mistakes first time homebuyers need to avoid. When it comes to real estate, location is a crucial factor that can affect the overall success of home-buying.
A wrong location could be a neighborhood that is generally unsafe or a city that has bad economic conditions. A bad location means your property will not increase in value any time soon, and home appreciation is something that every homeowner should prioritize. After all, even if this home is intended for your personal use, it is still a long-term investment.
When shopping for a house, one of the first important things you should do is find a good location. Make sure to research the market that you are interested in buying in. Check the economic status and the overall safety of the area where you are looking.
Are there job opportunities available in the area? Are there basic amenities available, such as schools, banks, recreation, and medical facilities? What is the neighborhood’s crime rate? What is the home appreciation rate in the area? Will your property increase in value after a few years? These are just a few of the questions that you need to ask before deciding on a place or neighborhood.
8. Failure to Consider Other Loan Options
Most first-time homebuyers are not aware of the various loan options available to help them finance their home purchase. Some even think that they need to pay the home purchase entirely in cash. This mistake could lead to a drained savings account, while some ended up borrowing money from high-interest loans.
The good news is that there is a variety of loan options available that can help first-time homebuyers finance their first home. Make sure to check the three government-insured loan programs and see if you can qualify for any of them. These loan options are backed by the Federal Housing Administration (FHA loans), the U.S Department of Agriculture (USDA loans), and the U.S. Department of Veterans Affairs (VA loans).
The terms and qualification requirements for these types of loans vary, but they usually come with low-interest rates and an easier approval process if you are eligible. The next time you visit a loan provider, ask if they provide any of these loans and see if you are eligible to apply.
If the lender you are speaking with does not offer all of these programs, or has credit score requirements that are too high, then you should speak with another lender.
9. Making a Small Down Payment
While the standard required down payment for most loans is 20%, there are other loan options that require a lower down payment. In fact, some programs don’t require a down payment at all. While this may seem enticing to some borrowers, especially those who don’t have enough money saved up for a down payment and other loan costs, many homebuyers end up regretting not making a larger down payment.
If you make a larger down payment, you could end up getting a smaller mortgage. This means that your monthly mortgage payments will be more affordable, and you can pay off your loan balance sooner. If you can, it’s best to wait a little bit longer so you can save up enough money for a down payment that is better for you financially.
10. Overlooking the Costs of Home Ownership
Being a homeowner is a great idea. However, it’s important to understand the costs that come with owning a property. Some people think that buying a home only involves paying the purchase price. Or if the purchase is through a mortgage, they think that they only need to spend for the down payment and worry about the mortgage payments later on.
However, buying a home involves several expenses. For starters, you have to consider the loan closing costs if you choose to finance the property through a mortgage. In addition, you also need to set aside a budget for a home inspection, appraisals, property taxes, and insurance. Moreover, you have to consider the renovation costs, as well as regular repairs and maintenance, and utility bills.
11. Making a Large Purchase Before Closing
One of the biggest first time home buyer mistakes is making a large purchase right before buying a home. What we usually see is someone decides to purchase a car either right before applying for a mortgage or just before closing on the home.
Bill Gassett from Maximum Real Estate Exposure says “Making a significant purchase such as a car before closing that throws off the borrowers DTI”.
The additional monthly payment on your credit score will either limit the amount you can get approved for, or will result in a loan denial. If you already received your mortgage approval, you still need to refrain from making large purchases. Lenders will pull your credit again just before the closing and if your credit or payment situation has changed, it could result in a last minute denial.
12. Not asking for a Seller Concession
Closing costs can be expensive but what first time home buyers do not realize is the seller’s can contribute towards your closing costs. This is considered to be a seller closing cost contribution which is a type of concession. It would be a big mistake to negotiate the price of the home with the seller without also asking for a seller closing cost concession.
You can also ask for a concession for repairs if the home inspector found items that need to be fixed. The seller can fix the items or give you a credit at closing for them.
13. Not Considering Future Resale
When buying your first home, you need to consider the future resale of the property. This is not just the location that we discussed earlier, but also the type of home you are buying. How much will it appreciate in value versus other home types? For example, stick built homes will have a better resale value than mobile homes.
If you buy a home that does not have a garage, or has a very small kitchen, it may be more difficult to sell when you are ready to move one day. You need to love your first home as a place to live, but also as an investment.
Bottom Line
Buying a home is a thrilling experience, but it can also be overwhelming if you don’t know how to begin. If it’s your first time buying a home, make sure to remember the common first time home buyer mistakes mentioned above and avoid them at all costs. Get your finances in order, understand the responsibilities of homeownership, and you’ll be ready to find your first home.
