Are you considering buying your first home this year? Do you feel nervous about buying your first home? Don’t worry. You are not alone.
It’s a common thing that first-time homebuyers are vulnerable to errors and missteps. They venture into the market with fewer ideas of what awaits them.
Knowledge is essential in the entire home buying process. Whether it is your first time to be a home buyer or the last time you bought a home was years ago, it’s a nice idea to know what mistakes you should avoid.
If it is your first time to buy a home, below is a list of mistakes you should avoid.
Looking for a Home Before Getting A Mortgage
Because of excitement, most first-time buyers prioritize looking for a home instead of getting a mortgage first. Mind that since buyer demand is higher than affordable homes, housing inventory tends to be tight in a competitive market. As a result, you could lose the property.
Tip: Make sure to get a fully underwritten pre-approval to show how serious you are to buy a home. It also sends a message that your finances and credit qualify to have a loan.
Tip: If you’re looking for a mortgage overseas, other rules may apply.
Not Checking Other Mortgage Lenders
It is very common for most first-time buyers to get a mortgage to the only or first bank or lender they talk to. This will lead to bad deals and might not the lowest rates possible.
Tip: You can look for at least three lenders and compare the loan terms, lender fees, and rates. This will result in good deals and making the mortgage approval process smooth.
Buying A Home that Exceeds the Budget
Many times that first-time buyers fall in love with a home that they cannot afford. As a result, they end up losing the property as tough financial times come in.
Tip: Your goal should be buying a home and getting a mortgage, where you can have a comfortable monthly payment.
Rushing the Home Buying Process
Home buying is a complex process. However, first-time buyers want to rush the process and not to plan enough for their purchase. So, the entire process cost them a lot. They fail to save enough for the down payment as well as closing costs.
Tip: When planning to buy a home, make sure to create a timeline a few months or a year in advance. Then, save more money, pay down debts, and boost the credit score.
Emptying the Savings
Another mistake that many first-time homebuyers make is scraping most of their money on the down payment and closing costs. So, they are left with no money for other expenses.
Tip: In your emergency, it’s recommended to have 3-6 months of living expenses. Do not risk your retirement or emergency savings.
Not Checking the Credit Reports
When deciding whether or not to approve your mortgage at what interest rate, lenders will scrutinize the buyer’s credit reports. The problem is that first-time homebuyers fail to check their credit reports and even correct any errors.
Tip: You can try requesting a free credit report annually from the three main credit bureaus. If you find any error, you can dispute it.
Not Checking the Neighborhood
Buying a home before checking the home is one of the common mistakes of first-time buyers. They might love the property, but they have an issue with the neighborhood.
Tip: As a homebuyer, one of your goals is to find a property with a neighborhood with the values and cultures that match yours. The real estate agent helps you determine the school ratings, crime rates, and neighborhood distance to the workplace and other locations.
Letting the Emotions Rule
A lot of first-time homebuyers end up bidding over homes that they are comfortable with. They make decisions and buy homes based on their emotions without knowing that it will overstretch their budget and overpay for the properties.
Tip: Prevent being emotionally attached to a home. You need to make sure that you have enough budget and ensure that you will stick to it.
Putting 20% Down payment
Today, many home buyers still believe that they need to put 20% down payment, and first-time buyers are accepted with this myth. According to the National Association of Realtor, 13% should be the median down payment.
Tip: You can look for other mortgage options. If you are considering a conventional mortgage, try to put as little as 3% down payment. You can also check your local housing programs and see if there are programs for first-time buyers that you can qualify at.
Looking for a Perfect Property
First-time home buyers wait to find perfect properties. However, these properties do not exist in the real estate world. This will only narrow your options and neglect the right property for your needs. Besides, it can sabotage your search.
Tip: Be open-minded about what the market is offering you. Be aware that several loan programs allow the buyers to roll the repair costs into the mortgage.
Ignoring FHA, USDA, and VA Loans
With rising home prices, many first-time homebuyers were being cash-trapped. They think there are no financing options.
Tip: You can search for government-insured loan programs such as the US Department of Agriculture (USDA loans), US Department of Veterans Affairs (VA loans), and Federal Housing Administration (FHA loans).
Miscalculating the Homeownership Hidden Costs
Many first-time homebuyers are not aware that they need to deal with the other costs of owning a home, aside from the interest and monthly principal payment. They need to pay for hazard insurance, mortgage insurance, property taxes, repairs, and maintenance, among others.
Tip: You can shop around for different insurance coverage and try to compare the cost. You can also ask the lender or real estate agent to help you calculate the mortgage insurance, taxes, and utility bills.
Final Thoughts
As you buy your first home, expect that you need to make big decisions. You can feel both excitement and fear. It is very easy to get overwhelmed with home buying. However, you should keep in mind that making mistakes can only lead to remorse later.