Few things can match the excitement and anticipation of becoming a first-time homebuyer. But while owning your very own property is certainly an opportunity worthy of celebration, potential homeowners should also be aware of pitfalls and proceed with caution.
Lack of experience and eagerness to get in the door and become a property owner can cause first-time homebuyers to agree to terms, make concessions or otherwise take actions that are not only not in their best interests, but that could potentially jeopardize their home sale. Before you dive into the deep end, read on for the worst mistakes to avoid as a first-time homebuyer.
1. Not Knowing How Much You Can Afford
Before you set foot on your first open house or home tour, the first step of any home purchase should involve determining just how big of a monthly payment you can afford. This should never be a rough estimate; instead consider compiling all of your monthly bills, checking statements and various other financial obligations to help you make a wise decision.
2. Pre-Approval and Do You Qualify?
Your decision regarding how much you can afford is only half of the equation when it comes to deciding which property is right for you as your comfortability with your monthly budget may be different from that of your lender.
First time homeowners should always get a mortgage pre-qualification analysis and letter before deciding on a property.
3. Not Factoring in Other Expenses
First-time homebuyers often don’t realize the extra expenses that make up your total monthly payment. Expenses such as homeowner’s insurance, taxes, PMI and increased utility bills and maintenance fees are all additional costs not typically associated with rentals that need to be considered in your total monthly payment amount.
Most commong home owner expenses
- Property Taxes
- Lawn maintenance
- Decks, Patios, Sheds and additional rooms
- Home Maintenance (e.g. Roof, Chemney, etc.)
- Maintenance (e.g. Leaks, electrical system, etc.)
- Air Conditioning
- Wiring – Phone, internet, etc.
- Pest Control
- Emergency (e.g. power outages)
4. Prioritize but Be Willing to Compromise
First-time homeowners can often fall into the trap of wanting their home to have everything they could hope for, plus the kitchen sink.
While this is a great goal to shoot for, potential homebuyers should realize that wish lists should be aspirational and should categorize home qualities that they may be willing to make concessions on to find the perfect house.
5. Don’t Get Too Emotional
One of the worst mistakes that first-time homebuyers can make is choosing a potential home for emotional reasons rather than using logic and good financial sense.
Sometimes little items such as a newer kitchen or cute yard can make you minimize significant issues such as cracked foundations or poor location, which are more important in the long run for your enjoyment.
6. Research Your New Neighborhood
Before you make an offer on a new home, checking out your local neighborhood should be on the top of your priority list. While you can often make significant changes and upgrades to your individual properties, changing a pesky neighbor or eliminating crime is more than one homeowner can accomplish.
7. Being too Quick to Remodel
First time homebuyers often have high expectations for creating their dream home right our of the gate, which can lead to unrealistic expectations and a desire to make significant changes right away.
Instead of diving into a remodel effort, consider living in your home for some length of time to understand its quirks, charms and potential resale value.
8. Being Too Focused on the Dollar Signs
We’ve all seen the rags to riches stories that involve investing in a rundown property and turning it into a gold mine of investment opportunity when it’s flipped and upgraded a few years later.
In reality, the real estate market can fluctuate and first-time homebuyers should focus first and foremost on the enjoyment and comfort of their new home.
9. Finding a House Before Considering the Financials
First-time homebuyers that start shopping for homes before considering the financial picture run the risk of finding the perfect dream house that they just can’t afford.
This can often lead to disappointment or, worse yet, making poor financial decisions which is why you should always make a realistic budget before home shopping.
10. Confusing Prequalification with Pre-Approval
Misunderstanding the meaning and purpose of prequalification letters and pre-approval from your potential mortgage company can put a quick halt on your home purchase.
While pre-qualification is a valuable tool in helping you understand what you may be able to afford, pre-approval is the more formal and preferred route for assuring your ability to get a loan.
11. Location is Everything
While it can be hard to predict what the neighborhood may be like 5, 10 or more years down the line, it is important for first-time homebuyers to pay attention to potential indicators that your area may be moving up or down.
Take your time checking out local businesses and make a trip to city hall to get the pulse of your new community.
12. Plan for the Future
Making a list that features both short and long term needs in a home is an essential checklist item before beginning your home shopping adventure.
Consider your family situation and future plans such as children, work from home situations or need for garage or driveway space to avoid a larger or smaller house or home with critical features missing.
13. Home Inspections are Critical
While they may be an added expense during the home-buying process, getting a home inspection is an essential element of any potential purchase.
A qualified home inspector is the only way to uncover potential major issues such as termites, foundation or water damage or other major repair areas that could cost you in the long run.
14. Making Big Purchases Before Your Loan Closes
While you may be excited over the prospect of your new home, one of the biggest mistakes you could make is celebrating your new property by taking out additional loans for furniture, appliances or other major purchases.
Having additional loans appear suddenly on your credit could potentially delay or even jeopardize your mortgage and should always wait until after your house has closed.
15. Using all Your Savings on a Down Payment and Closing Costs
This may sound like a perfect idea, but it can backfire once you close the deal. Without any savings, you won’t have any money for repairs, upgrades, or any other expenses associated with owning your first home.
16. Neglecting to Get Professional Help
In today’s day and age of advanced technology, it’s easy to believe that you can buy a home without professional help. Nothing could be further from the truth.
From an agent to a real estate attorney, there are many people who can assist you through the process.
17. Not Choosing Your Own Agent
Do you think it’s a good idea for the seller’s agent to represent you as well? It’s not. You should choose your own agent, based on your personal research and the type of service you require.
18. Overlooking Closing Costs
In a perfect world, you’d never have to pay closing costs when buying a home. In the real world, this isn’t the way things work. You will have to pay closing costs, which account for things such as taxes, real estate fees, title insurance, and much more.
19. Getting Involved with Online Gambling
Do you enjoy betting on horses every now and again? How about playing online poker? This may not sound like a big deal, but it can work against you when attempting to secure a mortgage. Do you really want this to hold you back from buying your dream home?
20. Loyalty to One Bank
There is nothing wrong with reaching out to your bank to discuss your mortgage options. However, you don’t want to focus too heavily on one bank.
There are hundreds upon hundreds of lenders out there, so spread yourself around as you search for the best deal.
21. A Bidding War
There is nothing wrong with “going hard” after the home of your dreams. Even so, there may come a point when you need to walk away. A bidding war is not nearly as exciting as it sounds, as this only means that the price is being driven up.
The only person who benefits in the end is the seller
22. Stretching Your Budget
You need to know your finances inside and out, as to ensure that you don’t stretch your budget too far. If you make this mistake, you could end up regretting your decision – and that’s not something that you want to do.
23. Searching for Foreclosures and Short Sales
If you come across a foreclosure or short sale that piques your interest, don’t be afraid to take a closer look. Just remember this: just because it’s a foreclosure or short sale doesn’t necessarily mean you’ll get a great deal. Not only will the lender be looking to recover some of its losses, but these homes are often in a bad condition.
24. Showing Your Love
There is nothing wrong with falling in love with a home. In fact, most people do this at some point in their life. Just make sure you don’t let your love show through. If you get too excited, the seller may try to take advantage of you.
25. Forgetting the Mortgage Contingency Clause
With this in place, you are protected in the event that you are unable to secure a mortgage for any reason. For example, if you lose your job you may need to walk away from the deal.
This contingency will keep you protected.
26. Neglecting to do Your Homework
There is no denying the fact that you have to act quickly if you want to make a purchase, but this doesn’t mean you should get ahead of yourself. You need to do your homework, as to ensure that you know exactly what you are getting.
27. Buying After One Visit
Many first time homebuyers visit a home one time, put in an offer, and then begin to move forward with the process. Don’t let this process bog you down. You have the right to return as many times as necessary.
You shouldn’t put in an offer until you are 100 percent comfortable with doing so.
28. Being Indecisive
Yes, you want to take your time as you compare homes and make a final decision. This is one of the biggest purchases you will ever make.
Although this is a sound approach, indecisiveness in a hot real estate market could stop you from securing the property.
First-time homebuyers face many challenges, some of which they don’t even know exist. If you want to put yourself on the right path to success, avoid the mistakes detailed above. Remember, buying a home is supposed to be exciting.
When you make all the right moves, you have a better chance of enjoying every aspect of the experience.