First-time home buyers are often prone to mislead steps. Here are some common mistakes and how to stay clear of them. Every time when a person buys a home for the first time, he makes the same mistakes his friends, parents and siblings made. If you are planing to buy your first home then this is exactly where you should be. This article is all you need to know about before buying your first home, including all the mistakes you could possibly make, and how can you avoid them.
1. Not figuring out your budget
Before buying anything it is extremely important to go through your pocket first. Without knowing your exact budget, you can end up wasting your time. You could end up looking for houses you cannot afford or viewing houses that are below your standard price levels.
Mostly the goal of first time buyers is to buy a house and get a loan with some monthly payment plan that will keep them at rest. However sometimes it is a good idea to aim for the low. To overcome the this issue you can always use a mortgage calculator to know your maximum budget and the minimum budget.
2. Relying on one quotation
Shopping for a house mortgage is like shopping for a vehicle or any other expensive item: It pays to compare different offers. Mortgage interest rates always vary from one lender to another, and so does fees such as closing costs and sometimes discount offers. Never ever just rely on one mortgage lenders, as you could end up putting yourself in a big loss.
How to avoid mortgage mistakes:
Always apply to multiple mortgage lenders. Typically a borrower could save around $430 in interest just in the first year by comparing 5 different lenders. All mortgage applications made within a 45-day frame will be counted as just one credit inquiry.
3. Ignoring credit scores and errors
Mortgage lenders will always inspect your credit reports before deciding whether to approve a loan or not, and if yes then at what interest rate. If your credit report consists of errors, you may get quoted an interest rate that’s higher than normal. That’s why it takes a some money to make sure your credit report is error free.
How can you avoid this mistake:
You may request for a credit report each year from each of the three main credit bureaus and may dispute any mistakes you find.
4. Making a small down payment
It is said that you don’t always have to make a 20% downpayment to buy a home. Sometimes you can get your home with 0 or 3.5% downpayment. This could be a good idea to proceed with but sometimes it comes with great risks and regrets.
In a survey conducted by NerfWallet, 11% of homeowners under the age of 35 disclosed their regrets of paying small down payment. It was youngster’s most common regret.
How to handle situation like this:
Considering out how much to save could be a judgment call. A bigger down payment lets you get your hands on a smaller mortgage, that give you more affordable monthly payments plans. The drawback of taking the time to save your own money is that home prices and mortgages have been rising, which makes it more difficult to buy the desired home and you may miss out on creating home equity as home value increases. The key point here is to make sure that your down payment helps you secure an amount you’re comfortable making each month.
5. Not looking for home buyer programs
As a first-time home buyer, you probably don’t have a a lot of money piled up to give as a down payment. But do not get wronged by thinking you have to postpone your homeownership while saving for big amount of down payment. There are multiple low down payment plans available in the market including state programs offering assistance with down payment and competitive mortgage rates for the first time home buyers.
You can find various home buying programs by asking a mortgage lender about your first-time home buyer options. You may also qualify for a U.S. Department of Agriculture loan or one guaranteed-loan by the Department of Veterans Affairs that doesn’t require any down payment. Federal Housing Administration loans have usually a minimum down payment of 3.5%, and some traditional loan programs allow down payments as low as 2%.
6. Making Emotional Decisions
Home buying is always as exciting as getting married, most of the time people get caught up in their happiness and make bad decisions while buying home. You may envision yourself in every house you see as an option, and you may get attached to a particular thing in a particular home. But always remember to do your financial and possibility analysis before making your self attached to any option.
Home buying could probably be your largest financial investment thus requires a deep analysis before making any decision. It is important to consider important facts like your budget, your home’s resale value, property appreciate rate and many more.
7. Emptying your savings
If you buy a pre-owned home, it will almost inevitably need an unpredicted repair not long after. You may need to replace a cooling system or pay previous owner’s insurance deductible after natural damage caused by bad weather or earthquake.
Repairing can be sometimes very painful for the first time home buyers as they usually spend all their money in just the start. If you don’t save anything for after care you may get yourself in some trouble, that could overcome your joy of buying new home. If you are planing to buy a new home you must save at least 10% of the total home price for small maintenance, moving your stuff and making interior changes.
8. Applying for credit before the finalising the sale
One day, you apply for a home-mortgage. A few days later, you seem to close, or finalize, the loan and get the keys to your new house. The in-between periods is critical: You may want to leave your credit alone as much as possible. It can be a massive mistake to get a new credit card, purchase new furniture or appliances on credit, or take out an auto loan before the previous mortgage closes.
It is because the mortgage decision is usually based on your credit score and your debt-to-income ratio, which is the percentage of your total income that goes toward monthly tally payments. Applying for a new credit card can reduce your credit score a few points. Applying for a new loan, or adding debts to your monthly debt payments, could increase your debt-to-income ratio. Neither of these is appreciated from the mortgage lender’s perspective.
About after a week of the mortgage closing, the lender may check your credit one last time. If your credit score has decreased, or if your debt-to-income ratio has increased, the lender might alter the interest rate or fees on the mortgage. It could also cause a delay in your closing, or sometimes even result in a canceled mortgage.
You can avoid this kind of risks by waiting until after closing to open new credit accounts or to change furniture, appliances or other household items to your credit cards. It’s fine to have all those items picked out little ahead of time; just don’t buy them on credit until after you have the keys of your new home in your hand.
9. Not hiring a real estate agent
Searching for a home on your own can be a little time-consuming and complicated. A professional real estate broker can help you with both finding a suitable property and in the negotiation process with sellers.
Also, if you go to viewings without your own real estate agent, a seller’s agent might offer to represent you for some extra commission. In that scenario, the broker may not have your interests in mind as their goal would be only to get the highest and best offer for their seller. Having your own agent whose interests are more in favour of yours will help you make more informed decisions.
10. Ignoring the Home Inspection
Ignoring a home inspection before purchasing can be a costly mistake. Home inspections are planned to protect the buyer from the major issues that they may find in future.
Skipping an inspection can get you in a big trouble after buying your home, as there will be no recourse for issues such as cracked pipes, water damages or mould occurrence. This could mean spending a whole new amount of money for fixing these issues.
With that occurrence in place, you may withdraw your offer and usually get your full earnest money deposit refunded after a few weeks. This home inspection fee is not refundable and generally paid by the buyer to the home inspector in advance. It typically ranges from $200 to $600, depending on the location and the size of the property. Meanwhile, the expected costs of replacing a furnace, water heater, or other big-ticket items could be thousands of dollars.
Concluding the mistakes people make as first home buyer
The process of buying a home can be both exciting and stressful at the same time. With so many stages connected, it’s easy to get lost in the middle of your way – but when you’re making one of the most remarkable financial investments of your life, small errors can quickly bump into the situation.
Fortunately, you can always break the cycle of first-time home buyer mistakes by learning from people’s experience who have gone before you. If you have trusted friends or family members who have recently bought their home, ask them what mistakes they have made and what they’ve learned along the way. It is very important to note that there are a lot of people working day and night just to get you a better place of living and making the whole process a lot easier – yes, they are brokers whose main job is to get you a place of living without any hassle and problems. It is always recommended to let the officials do their job instead of stepping into the process without any knowledge and ending up bearing the heavy losses.
FAQS
Common mistakes include underestimating hidden costs, skipping home inspections, neglecting to shop around for mortgages, and not considering future needs like resale value or potential renovations.
Avoid overspending by setting a budget and sticking to it. Consider all costs beyond the down payment, like closing costs, property taxes, and maintenance expenses. It’s also wise to get pre-approved for a mortgage to understand your financial limits.
Rushing into a purchase can lead to regrets later on. Take time to explore various properties, neighborhoods, and market conditions. Don’t settle for the first option if it doesn’t meet your needs or budget.
A home inspection reveals potential issues with the property, helping you avoid costly surprises down the road. It provides insight into the home’s condition, including structural integrity, safety concerns, and necessary repairs.
Yes, overlooking future needs can be a critical mistake. Consider factors like neighborhood amenities, school districts, and potential for resale value. Also, think about your long-term plans, such as family growth or career changes, to ensure the home meets your evolving needs.