Let’s face it, we all make mistakes, but first time homebuyer mistakes can be costly.
Thankfully, my first home was new construction, so many of the first time homebuyer mistakes can be avoided.
Buying your first home can me made easier by hiring a professional real estate agent to help you with not only your home search, but with helping avoid mis-steps.
There is nothing worse for a home buyer than buyers remorse, which we discussed in our July 2019 podcast.
Right now with such a shortage of good housing inventory, first-time homebuyers need to be prepared BEFORE you go out looking at homes.
Remember that old saying about “putting the cart before the horse”; well that applies here.
If you don’t do your homework before house-hunting, you will end up losing that home to another buyer who was prepared to make an offer right away.
So, here are the 9 most common first time homebuyer mistakes and how to avoid them:
Looking for a home before applying for a mortgage.
Somehow when we, as Realtors, ask a potential buyer if they are pre-approved, it is misconstrued as us saying you cannot afford the home.
That is not the case. Getting a pre-approval gives you the exact price point of a home you can afford, so that you are only looking at those properties.
Instead of wasting time dreaming about a home you fell in love with, and possibly can’t afford, you will focus on the inventory in your budget.
And, as I mentioned earlier, when housing inventory is tight, competition for those homes is fierce.
Talking to only one lender.
This mistake is common even for seasoned borrowers. But, this first time homebuyer mistakes can cause you thousands at the closing table.
Its convenient to seek a mortgage at your local bank where you do your financial business, but that does not mean they will give you the best rates, lender fees and loan terms.
Shop around! Compare and get an informed understanding of your home buying options.
Draining your savings.
There are closing costs and upfront costs associated with buying a home.
Depending on what type of loan you are seeking, (i.e. FHA, conventional, USDA or VA), you will need between zero down to 20% down.
Homebuyers who put 20% or more down don’t have to pay mortgage insurance and that’s a big cost savings on your monthly payment.
But, it’s not worth the risk of depleting your retirement savings or emergency funds.
Take care of your credit.
Lenders always pull your credit report during a pre-approval to take a look at things that may prevent them from offering you a home loan.
Wait until after you buy a home to purchase that new car, new furniture or open a new credit card line.
New loans or credit card accounts will jeopardize the amount of money ou can borrow for a home loan.
From preapproval to closing, the mantra is “just don’t”! Don’t open any new lines of credit or do anything that will hinder the closing process.
I can personally state one transaction in my 19 year career as a Realtor where a this first time homebuyer mistake caused the loan to be denied 2 days before closing!
The best thing to do at this stage is to pay down existing balances to below 30% of your available credit and be sure you are paying your bills on time and in full each month.
Fixating on one house over a neighborhood.
Let’s face it, we all want that house with all the latest upgrades, bell and whistles.
However, being nit-picky can blur your vision about the neighborhood or community the home is in.
It’s always better to buy the smaller home in a better community, than the best ‘blinged’ out house in a bad neighborhood.
Select your home based on criteria that is important to your life and your family’s needs and growth.
Remember, you can always trade up or down in a home later on, renovate, upgrade or add on over time.
My biggest tip here is to always visit the neighborhood you are interested in at various times in the day so you can see traffic, neighborhood interaction, etc, so you can really see if this area appeals to you.
Making a decision based on emotions.
Remember my tip above about knowing your price point based on your pre-approval?
This is where it comes into play. As you tour homes online or in person, you will be attracted to certain properties.
With this being a strong seller’s market as I discussed above, first time homebuyers will be tempted to overbid for a home.
Do not become emotionally attached to a home that is not yours!
Miscalculating the hidden costs of homeownership.
Having held a mortgage brokers license in the past, I can tell you most people are shocked at their monthly payment with principle and interest.
But that doesn’t include homeowners insurance, property taxes, repairs, maintenance, utilities, HOA fees, and other costs.
According to Bankrate.com, the average homeowner pays $1,000 annually on maintenance services.
That cost can increase depending on the size of your home.
After your offer is accepted, you are past inspections and have your loan commitment, it’s time to shop for insurance and compare your quotes.
Its always good practice to put aside 1 to 3% of the home’s purchase price for repairs and maintenance expenses annually.
Waiting for your dream home.
This is the single handed biggest reasons most first time homebuyers don’t find a home.
Remember, the real estate market continues to grow whether you find a home or not.
While you are out there looking for that perfect property with limited funds and resources, you pass over great homes.
Don’t sabotage your home search by waiting for this “unicorn”! Be willing to accept a home where you may need to put in some sweat equity.
You can turn it into YOUR perfect home with your unique style.
Overlooking VA, USDA and FHA Loans.
Most first time homebuyers lack the financial resources which can make it harder for them to qualify for a conventional loan.
But there are other financing options available to you.
Talk to your lender about the three government insured loan programs: FHA, VA and USDA loans.
FHA Loans require just 3.5% down with a minimum 580 credit score. So if you don’t have top-notch credit, or little money saved, this would be a great option.
VA loans are for active duty and veteran military service members and their spouses.
These loans do not require any down payment. they also come with a cap on lenders fees which help to keep borrowing costs down and affordable.
USDA loans are for borrowers in rural areas with moderate to low income. There are certain criteria to qualify, however some USDA loans so not require a downpayment.