Buying your first home can be as scary as it is exciting. It’s easy to make some mistakes that could leave you with buyer’s remorse later.
Here are a few common first-time homebuyer mistakes & a few tips on how to avoid them:
1. House Hunting without Mortgage Pre-Approval
First-time buyers generally make this mistake and start house hunting without getting a pre- approved or even pre-qualified. In a competitive real estate market, you could lose a dream house if you aren’t pre approved for a mortgage. The home buying process will become more stressful and challenging. You might waste a lot of time and efforts as you might look at homes you can’t afford.
Tip: Be sure to get an underwritten pre-approval which sends a clear message to the seller that you’re a serious buyer and makes you a stress free.
Get Pre-Qualified in minutes for free: http://bit.ly/mortgageprequalification
2. Credit is not in good shape
If the credit is not in good shape – you might end up paying more in interest for your dream home. Lenders will check your credit report at the time of pre-approval and again at the time of closing. Any new credit lines or loan or any debt can put your final loan approval at risk on closing
Tip: Check your credit report and don’t apply for new credit lines, close existing accounts. Avoid making large purchases on existing credit accounts. Keep your credit account balances less than 30% of available credit limit and pay all bills on time.
3. Not using a Mortgage Broker
First-time home buyers might get a mortgage from their bank and don’t talk to any mortgage broker - possibly leaving thousands of dollars in savings.
A professional mortgage broker will look into your situation and suggest you the right mortgage product based on your family’s immediate and future needs and ensure you’re getting a the lowest rates possible.
Tip: Need to shop around with different lenders & mortgage brokers. Compare rates & loan terms. Customer service plays an important role in smooth mortgage approval process.
4. Not planning well in advance
Buying a home can be the biggest investment decision of your life and the process can be complex and challenging but planning well in advance can make it smooth for you.
Not planning well in advance means – not saving enough for a down payment & closing costs, checking the credit reports.
Tip: Plan at least a year in advance as it can take months to save a sizable amount of down payment or to fix your credit report or paying down the debt
5. Making emotional decision
Buying a house is a big decision and a major milestone of your life. It’s easy to get attached and make emotional decisions in the home buying process. It’s better to look for a house where you can add some value which will ensures some home equity from day one.
You could end up paying more and going out of your budget because of an emotional decision.
Tip: Know what you can afford and stick to your budget throughout the process to avoid emotions.
6. Using every penny out of savings
First-time home buyer generally tends to spend all or most of their savings on down payment or the closing costs which can have an adverse effect on their financial stability and overall credit.
Most of the home buyers do not want to pay mortgage insurance and to save that premium they try to put all they can to make 20% down payment which leave them with no or zero savings.
Is it really worth to spend $35,000 to save $211.62 per month?
Tip: Paying a premium for mortgage insurance looks like a total waste but it is important keep an emergency fund in your savings (at least 6 months). Paying that extra amount as down payment will expose you for a financial risk.
7. Hidden costs of home ownership
As a new homeowner, you’ll pay for property taxes, mortgage insurance, homeowners insurance, repair & maintenance (include expensive items like a roof or a furnace) and utilities etc over and above the monthly mortgage payment.
Tip: Calculate these numbers well in advance and add to your monthly expense along with your monthly mortgage payment and keep aside at least 1% of the home price every year as maintenance expense.
8. Buying a house you cannot afford
Buying a home that is beyond your budget - higher the financial risk of losing your home in financial crisis and will leave you with no room for any additional expense in the future.
Count all your monthly expenses and payments (not only monthly mortgage payment) and don’t stretch beyond your monthly financial budget
Tip: Focus on your monthly budget (factor in all financial obligations) and the monthly mortgage payment and the amount you are qualified for is totally irrelevant.
9. Not Thinking About the Future
It's very difficult to foresee the future but when buying a home – you need to pay serious attention to:
- Family’s immediate and future needs
- Neighborhood
- Zoning laws
Tip: When buying home think of at least 7-8 years (Both personally & professionally)
10. Overlooking Home Inspection
Once your offer has been accepted – there is a natural temptation to think that you're a homeowner now but we are still waiting for the Home Inspection as you need to know if the property is really in good shape. This is very important to avoid unexpected expenses (repair & maintenance). Keep a check on your emotions (before you get the home inspection report) to avoid making a financial mistake.
Tip: It is highly recommended to use a professional home inspector (check reviews and ask for recommendations) for a thorough home inspection to get a third party independent advice on the property.
11. Not Using a Real Estate Agent
It is highly recommended that you start your house hunting with a real estate agent or a realtor. They are held to the strict ethical rule that they must act in both the seller and the buyer parties' best interests, but you can see how that might not work in your best interest if you start dealing with a
seller's agent before contacting one of your own. A professional realtor gives you the peace of mind and helps you evaluate neighborhood and properties as per your needs
Tip: As a buyer, there is no cost for you and you will get a third party independent advice who understands your local real estate market.
Process of buying your first home can be exciting and stressful as it has some potential pitfalls. But if you are fully aware and plan it well in advance - you can avoid these costly mistakes.
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