Buying a home is a big investment, and it’s important to do your research to ensure that you’re making the best decision for your financial future. However, it’s easy to make mistakes, especially if you’re a first-time home buyer. Here are 10 first-time homebuyer mistakes that you should avoid when buying your first house:
11 First-Time Homebuyer Mistakes To Avoid
Mistake #1: Not Getting Pre-Approved for a Mortgage
It’s tempting to start searching online for the perfect home. However, it’s important to get pre-approved before you start looking at homes so you know how much house you can afford and what your monthly mortgage payments will be. Knowing your numbers is particularly important if you’re shopping in a competitive market. An offer accompanied by a pre-approval letter from your lender is looked at much more seriously than one without. Find a trusted mortgage lender who can advise you on the different loan programs and give you information about first-time home buyer grants in your area. The better informed you are the better prepared you’ll feel.
Mistake #2: Not Having a Down Payment Saved
While it’s possible to buy a home with no down payment (hello, doctor loans!), it’s usually a good idea to have at least a small down payment if you can manage it. Putting money down can help you get a lower interest rate and may make it easier to get approved for a mortgage. Additionally, first-time buyers should always be prepared with enough money for an emergency fund. A little cash saved can help to cover any unexpected expenses and maintenance costs soon after moving in.
Mistake #3: Not Keeping Accurate Records
When you’re ready for your first home purchase, you will be asked to provide pay stubs, tax returns, and bank statements. Make sure all of your records reflect how much money you make. This is particularly important if you’re self-employed. However, self-employed or not, you will need to provide a two-year work history. The loan amount you’ll ultimately qualify for will depend on the income shown on your employment and tax records, your credit score, and your debt-to-income ratio.
Mistake #4: Not Considering Costs Besides the Home Price
Buying a home involves more than just the purchase price. You’ll also need to pay closing costs, property taxes, home inspections, warranties, and possibly monthly private mortgage insurance if you put less than 20% down. Your agent together with the right lender will inform you of these costs so you can plan accordingly.
Mistake #5: Buying a Home in the Wrong Location
Before committing to a home, new home buyers should consider their commute, school district, gyms, and the things that they do on a regular basis. Sure, that mountain retreat is the home of your dreams and a good deal for the price. But, if it’s 90 minutes away from your work it won’t be long before you’ll regret your purchase. In the long run, it’s a better idea to research the area and make sure that the location matches your current needs and lifestyle.
Mistake #6: Not Having a Plan for the Future
Along the same lines, it’s important to think about your long-term plans when buying a home. If you think you might move in the next few years, it may make more sense to rent rather than buy. Considering the costs of selling a home as well as market fluctuations, it’s possible to lose money if you sell too soon. If you can see yourself staying put for at least 3-5 years then you can be confident that you’ve found the right place.
Mistake #7: Failing to Negotiate
Don’t be afraid to negotiate the price of the home or ask the seller to pay closing costs. It’s common to try and get the best deal possible, and the seller may be willing to make concessions, especially if they’re in a hurry to move and their house has been on the market for a long time. A great real estate agent will guide you and negotiate this for you according to your needs and wishes.
Mistake #8: Skipping the Home Inspection
New home buyers may decide to skip the home inspection to save some cash. However, a home inspection is well worth the investment and can help to identify any potential problems with the property. I once had a client whose home inspector found foundation problems in the structure of the home. Not only that, there was also a raccoon living in the chimney! They ended up backing out of the purchase because the sellers would not fix the issues (yes, a seller can do that), and while they may have “lost” the $350 they paid for the home inspection, they saved many thousands in future repairs! Be sure to have a certified professional inspect the home before you buy.
Mistake #9: Making Big Purchases on Credit Before Closing
This is a rookie mistake that first-time home buyers often make when they’re under contract. It’s exciting and tempting to start buying new furniture and appliances, and put them on credit cards. Remember that your initial pre-approval was done based on your current debt. If you add more debt, it could jeopardize your purchase and keep you from closing on your home. Wait until after closing to make any big purchases on credit.
Mistake #10: Skipping the Home Warranty
This is one of the most common mistakes. A home warranty is a few hundred dollars and can save you money on costly repairs or replacements of items like your heating and cooling system, water heater, refrigerator, and more. This is the best way to cover expensive repairs during the first year you live in the home. Some of my clients have renewed for a second and third year because of the money it’s saved them! Home warranties are particularly helpful when you buy an older home. Having a warranty on your home can also give you access to a network of pre-screened service professionals who can perform the needed repairs or replacements. And best of all, you can ask your agent to negotiate for the seller to pay for the home warranty!
Mistake #11: Not Working with a Real estate Agent
A real estate agent can help you navigate the home-buying process and can be a valuable resource for finding homes, negotiating a good price, and handling all of the paperwork. After all, this is a legal transaction. Realtors can also help you find any vendors or contractors you may need. They are a valuable resource to have even after you close on your home. Don’t be afraid to get yourself a buyer’s agent to represent you and keep your best interests in mind.
Buying a home is a significant investment and it’s important to inform yourself about the homebuying process and do your due diligence to avoid making rookie mistakes. By being mindful of these first-time homebuyer mistakes and taking the steps to avoid them. In doing so, you can increase your chances of having a successful and stress-free home-buying experience!