Mistakes First-Time Homebuyers Should Avoid; Buying a house? Are you a first time home buyer? Here are home buying mistakes that you should stay clear of today!
Disclaimer: this post may contain affiliate links, and every purchase made through these links will give me a small commission (at absolutely no extra cost for you!) AS AN AMAZON ASSOCIATE AND REWARDSTYLE MEMBER, I EARN FROM QUALIFYING PURCHASES. See Privacy Policy for additional info.
Hello, first-time homebuyers! For starters, this must be an exciting time for you. CONGRATS! There's nothing quite like the experience of leaving behind a rental lease and sinking your roots into a new property—one that you own!
Still, even if you have all the excitement in the world about buying your first home, it can be easy to make some common mistakes along the way. I've seen plenty of people fall into traps that ultimately cost them money or leave them with a house they're not happy with.
In this post, I'll go over some of these pitfalls so that you don't end up falling into them yourself. We will talk about Mistakes First-Time Homebuyers Should Avoid and why these things are so important.
Take it from me: Buying your first home should be one of the most rewarding things you ever do. With just a little planning and care on your part, it absolutely will be! So lets jump into all the Mistakes First-Time Homebuyers Should Avoid!
Mistakes First-Time Homebuyers Should Avoid:
Overlooking the Budget
Before you start looking for houses, you need to understand how much a home will cost. The best way to do this is by calculating the cost of homeownership AND your home's purchase price.
The most important thing to remember when estimating your mortgage payment as first-time buyers is that the amount you pay will be determined by three things:
- How much you borrow (your loan-to-value ratio and overall income ratio)
- The interest rate on your mortgage
- The length of time over which your payments are spread out (the amortization period)
Skimping on the Down Payment
If you are a first-time homebuyer, it's important to get your finances in order before making an offer on a house. One of the biggest mistakes first-time homebuyers can make is not putting down enough money for their down payment. Sometimes a minimum is not enough.
This is because when you buy a house, there are two major expenses: buying the house (also known as "purchasing price") and closing costs. Closing costs are fees charged by lenders and title companies for administrative work related to purchasing your new home. The amount of these fees varies from state to state but typically range from 2% to 5% of the total price of your home.
The majority of these closing costs are paid by the buyer; however, lenders will require some type of deposit at closing time (typically around 1%) which has been called an “earnest money deposit or good faith deposit”. This deposit is repaid to you when you close on your mortgage loan transaction with no interest added on top!
Forgetting About Closing Costs
While you can certainly find a home at a price that doesn't require any closing costs, it's more common for them to be around 2% to 5% of the purchase price. Closing costs are typically paid at closing, which is when you sign all the documents that complete your purchase and transfer ownership from seller to buyer.
So if you buy a $250,000 house with 20% down, then you'll have $30,000 in cash left over for this—or about $1,500 per month for 30 years if put into an investment account earning 3%.
Not Getting Pre-approved for a Loan
Getting pre-approved for a home loan is one of the best things you can do as a first-time homebuyer. It's an excellent way to ensure that you're making a good financial decision and that it will be within your budget. It also allows you to shop around in the marketplace with confidence, knowing what kind of mortgage is available for the purchase of the home you want.
Getting preapproved for a loan will also save you time when shopping around for houses, because it tells buyers that they can trust your real estate agent's recommendation on which properties are worth looking at.
In turn, getting pre-approved will allow agents to spend more time looking at homes that match up with their clients' needs—rather than wasting time showing off homes that aren't within reach financially or otherwise don't fit well into their clients' lives and budgets.
Getting a Shorter Loan Term to Save Money
In the rush to make a sale, many homebuyers opt for a shorter conventional loan term to save money. This is not always the best choice, however:
- Shorter Loan Term = Higher Monthly Payments. When you take out a 30-year mortgage over 20 years or less, your monthly payments will be higher than if you had taken out a longer-term loan. You'll also pay more in interest over time because of this discrepancy between initial and total repayment amounts—and if you have to refinance (which can happen when rates go up), there's another hit on your wallet.
- Shorter Loan Term = Higher Interest Rates. Even though most lenders will offer better rates when they know there's less risk involved with getting approved by consumers who don't have much equity yet in their homes, that doesn't mean that all short term loans are cheaper than long term ones—in fact it often happens just the opposite way around because lenders don't want people defaulting on their loans so soon after purchasing properties! So while those initial low "no money down" teaser rates might look great now...think about how much more expensive they'll be when it comes time for them to renew again later down road (and yes...they will!) That being said: If possible do everything possible before buying property within reason such as saving up enough money upfront (or having an amazing credit score) so that these types of options aren't necessary at all--then get yourself into something solid like 15 Year Fixed Rate Mortgages instead which typically offer lower rates overall but still provide stability throughout whole process."
Improperly Planning for Home Maintenance
Properly planning for home maintenance is one of the most important and often overlooked aspects of planning to buy a home. Home maintenance is not just about maintaining the house, it’s also about maintaining your finances. This is why home inspections are so important. You are able to visualize your future maintenance requirements. So get close with your home inspectors!
Home maintenance isn't just about keeping up with repairs around the house, but also requires you to prepare yourself mentally and physically for life after closing on your new home. To help ensure that you have everything in order before moving into your new home, consider these five tips:
- Create a budget—with contingencies: You should have an idea of what type of mortgage payment you can afford based on several factors including income, debt load and savings history (if any). However, since there are several variables that can affect this number throughout the course of owning a house (such as unexpected repairs), it's always smart to leave room in these monthly expenses so that you can stay financially healthy even if something goes wrong unexpectedly down the road when there's no money left over after paying everyone else's bills!
- Make sure all utility services are turned off at current residence prior to closing: Before finalizing any arrangements with lenders or other parties involved with purchasing property from another state/country etc., make sure all utility services have been turned off at old residence AND any outstanding bills settled according
Not Taking Advantage of Tax Deductions
- Tax deductions are one of the most powerful ways to reduce your taxable income, which can save you thousands of dollars.
- Tax deductions can be used to reduce your tax bill.
- Tax deductions can also be used to reduce your tax liability.
- Understand property taxes for the future.
Not Hiring an Attorney for the Closing
Buying a home is exciting, but it can also be stressful and confusing. When you're ready to start looking for your first home, it's important to know what you're getting into. There are a lot of things that may seem like they'll be easy or simple at first, but will end up being much more complicated than expected along the way. If you dont know where to find an attorney, as your mortgage lender.
One mistake that many first-time homebuyers make is not hiring an attorney for their closing (the signing of the final paperwork). This can lead to several issues down the road if they don't have legal representation at this time:
- Closing costs are not just for the buyer; they are paid by both parties (typically split evenly). The seller might ask for too much money in closing costs because they think it's part of their "down payment," which means there won't be enough money left over for other fees such as inspection fees and prepaid insurance premiums on top of everything else happening during this process!
- Closing costs can be very high — sometimes more than $3k depending on where you live — so having someone who knows how everything works helps ease some stress off your shoulders knowing someone else has got this under control!
Lacking Emergency Savings Account
If you're a first-time homebuyer, it's important to have an emergency fund. According to the National Association of Realtors, half of all buyers use their savings for closing costs and about 25% use their savings for a down payment. If you don't have any money saved up and need to dip into your emergency fund for these expenses, this could hamper your ability to make monthly mortgage payments.
When calculating how much money is enough in your emergency fund account, consider what type of emergencies may occur and how much they might cost. For example: if you're buying an older home that needs repairs or maintenance work done on it often (e.g., replacing windows), consider putting aside more than usual so that there will be some extra funds available if something goes wrong right after closing escrow has closed on your new property.
Or if one spouse loses their job during the purchase process (and possibly while waiting for escrow papers), then having sufficient funds saved up could prevent him/her from losing his/her job altogether by being able to sustain himself/herself until he finds another job again.
On top of having an emergency savings account you will also want to make sure you have homeowners insurance to protect yourself the minute you walk into that front door!
Failing to Use a Mortgage Calculator
One of the biggest mistakes that first time homebuyers make is not using a mortgage calculator. This tool can help you figure out how much you can afford to spend and how much interest you will have to pay over the life of your loan.
Use a calculator to figure out exactly what your monthly payment would be on any home purchase by estimating principal, interest rate, taxes and insurance (PITI) as well as other factors like private mortgage insurance (PMI) and closing costs.
Using a mortgage calculator will help you visualize your conventional mortgage payments and if you can afford that home loan.
Make sure you identify different lenders by using a mortgage broker to ensure you are getting the best mortgage. This is SO crucial for ensuring your getting the best bang for your buck!
Buying a House Without Knowing Your Credit Score
A lot of people don't realize that you can actually check your credit score for free. There are several websites out there that will let you check a credit score for free, including the three big ones: Experian, TransUnion and Equifax. These sites will give you a general idea of where your score stands, but keep in mind that they're not always accurate.
The best thing to do is get a copy of your report from one of the three major credit bureaus and make sure it's correct before making any decisions about buying a house or anything else related to finances.
Be knowledgable about your new lines of credit, credit cards and any other debt you may have, going into the house buying process. This one of the easiest first-time homebuyer mistakes to avoid!
Choosing the Wrong Neighborhood or School District
Choosing the wrong neighborhood or school district will be a big mistake. If you are buying a home with a spouse or partner, make sure they agree with your choice. Consider the neighborhood and school district when buying a home.
Sinking Money Into Renovations You Won't Get Back
- Think twice before sinking money into renovations you won't get back.
- An expensive renovation can be more than just an overpriced purchase, it could also be a waste of time and effort if you can't (or won't) recoup the expenses.
- You might not be able to sell your house at a higher price because of the renovation work. In fact, many homeowners have found that after spending thousands on their home's interior design, they were unable to sell their property for what they paid for it in the first place!
- If all else fails and no one wants to buy or rent your house—and even if someone does—it's likely that any potential buyer or renter will need some convincing before purchasing/renting from you knowing how much time and money went into making these changes.
Failing to Have an Appraisal Done Before Buying a Home
Before you buy that dream home, it's important to have an appraisal done on the property. An appraisal is an estimate of the worth of a piece of real estate based on its market value. It shows how much your house would sell for if you were to put it on the market today, and it determines whether your lender will approve your loan application.
The cost for an appraisal usually ranges from $400 to $500—but some appraisers charge as much as $800 or $900! To find an appraiser in your area, check out local listings in the phone book or online at sites like Homestars and Yelp.
You can also ask friends who've recently bought homes where they went for their appraisals; they may have gotten recommendations from their real estate agents or even had their own bank recommend someone who was able to help them get approved quickly and easily (which is always great when time is short).
Overspending or Underspending on a Home That Doesn't Fit Your Needs and Budget
When you’re first starting out as a homeowner, it can be easy to get caught up in the excitement of finally owning your own home. If you’re not careful, however, this excitement could lead you to overspend on or under spend for a home that doesn't fit your needs—and ultimately end up costing you plenty later on down the road!
This mistake is especially common among millennials who may have never owned a house before and who don't know how much money they'll need for maintenance expenses like repairs and landscaping.
The best way to avoid this mistake? Make sure all members of your household are on board with what kind of house fits their needs best before deciding which one will be theirs! Analyze your home's purchase price and insure all borrowers (for example you and your spouse), are all on board.
First-time homebuyers can make many mistakes, but these tips will help you avoid them.
First-time homebuyers can make many mistakes, but these tips will help you avoid them.
- Assuming that your house is worth more than it is.
- Not getting pre-approved for a mortgage before visiting homes for sale.
- Taking on too much debt to buy a house, especially if you have no money saved up from which to draw down in case of an emergency (which is inevitable).
- Buying bigger than what's affordable for your family and lifestyle needs because you think it will be easier to resell later at a profit (which rarely happens).
First-time homebuyers have a lot to learn—but even if you're not a first-timer, it's easy to make some of these mistakes. I hope this post helps you avoid the common pitfalls that can derail your home purchase.
Make sure you do your home buying process research before diving in. Also make sure you look into first-time home buyer program options for your state/province. Not looking into your specific regions 1st time home buyer programs would be a HUGE mistake!
I hope you enjoyed this post all about Mistakes First-Time Homebuyers Should Avoid!
Until next time,
Mistakes First-Time Homebuyers Should Avoid; Buying a house? Are you a first time home buyer? Here are home buying mistakes that you should stay clear of today!
Leave a Reply