Buying a home is often considered the most impactful financial decision of your lifetime. With that being said, it can be nerve wracking, intimidating and completely overwhelming — especially if it is your first time. Needless to say, knowledge and preparation will help you a lot during this experience. There are a handful of mistakes that first time buyers often make and many of them are easily avoidable.
Here are 9 common mistakes of first time buyers:
1. Not saving enough for a down payment.
Nowadays you don’t have to make a 20% down payment to buy a home, there are even some loan programs that help you buy a home with zero down payment. That being said, one of the worst mistakes you can make is not putting down a large amount. Save as much as you can! Having a smaller down payment is equal to having a smaller mortgage (less interest, less monthly payments, more equity etc.)
We understand that the down payment can be one of the more difficult parts to buying a home, however don’t take this step lightly. If it is extremely challenging to save for a down payment, you should ask yourself if you are really ready to buy a home.
2. Spending more than you can afford
Before you go searching for your dream house, figure out how much house you can afford. It’s simple to fall in love with homes that are out of your budget, however overextending yourself is never a good idea. The ultimate goal is to buy a home with a loan that has comfortable monthly payment (generally, it shouldn’t be much more than 28 percent of your monthly gross income).
Be careful, just because you qualify for a $500,000 loan doesn’t mean you should spend all $500,000! We highly recommend using a mortgage affordability calculator to help you understand what price range is reasonable.
3. Looking For A Home Before Getting Pre-approved
Shopping for a home before getting pre-approved for a mortgage is a big mistake. Having a mortgage pre-approval makes you a more qualified buyer because it ensures you have the financial means to actually buy a home. When you miss this step, you might find your dream house that you absolutely love but that is not in your price range. If this is the case, no home will ever be good enough. Always remember to put your finances first and emotions second.
4. Applying for credit before the sale is final
This is also one of the most common mistakes for first time buyers. Make sure that you don’t touch your credit in between the time off for a mortgage and the closing of your home. This period of time is critical. Don’t buy a new car, new furniture or appliances on credit. Wait until the mortgage is closed. Don’t forget that applying for any type of credit can reduce your credit score, and thus change the terms of your initial mortgage.
5. Obsessing over the house and forgetting about the neighborhood
Even though being nitpicky about a house’s physical appearance is important, you must not forget that it is equally (if not more) important that you like the neighborhood where the house is situated. Choosing the right location is imperative for your life and family’s development. If you are planning to have kids, also take into account the quality of the schools around your neighborhood. You can always renovate a house, add a couple bedrooms, change the layout or a bathroom. However, there is not much you can do about the location.
6. Forgetting about the hidden costs of homeownership
It is not only the mortgage payment that you’ll have to keep up with every month, owning a house means many additional bills. Not only should you factor in your mortgage payment, but you should also think about the taxes, insurance, utilities, and maintenance (just to name a few). Have enough cushion for when unexpected expenses arise.
7. Making an emotional decision
Since buying a house is such a major decision, it is easy to get attached and start making emotional decisions rather than rational ones. Don’t forget you are making one of the biggest investments of your life, so think about it as a business transaction. Don’t overpay for a home just because there is an “emotional attachment” and don’t get attached to a home that is not yours. Always stick to your initial budget and plan.
8. Not investing in an inspection before closing
HUGE mistake. Doing an inspection in your future home is something that not everyone does. When you see a property, everything may look good, but professional inspectors can notice something you don’t: mold, electrical wiring, drainage issues, faulty foundation, etc. This is more common when you are buying an existing home. When you buy a brand new home you don’t have to worry about major fixes for years because they are constantly inspected during the construction.
9. Getting the wrong kind of mortgage
There are different types of mortgages, from fixed-rate mortgages to adjustable-rate ones. Start by establishing the term of your mortgage and the length of your payment plan. Most homeowners choose a 30 year fixed rate mortgage, as it is typically the safest and lowest cost option. Regardless of which loan product you choose, consider adding to the principal payment every month to pay off the loan sooner (you can even pay it in half the time).