Every year, first time home buyers venture out in search of the perfect home. Unfortunately, they make a number of mistakes that have been made by first time home buyers for generations. This article is here to help reveal the top 10 first time home buying mistakes and how to break the cycle!
1. Shopping for a house before a mortgage
It’s more fun to look at homes than it is to talk about your finances with a lender. So that’s what a lot of first time home buyers do. They visit a number of properties before knowing how much they are able to borrow. Once they talk with a lender, they are often disappointed to find they’ve been looking in the wrong price range and aren’t able to make a serious offer on any of the homes they liked.
How to avoid this mistake:
You should speak with a mortgage professional about getting pre-qualified or preapproved for a home loan before you start to seriously look at making a purchase.
2. Using all of your savings
If you buy a previously owned home, it likely won’t be long before an unexpected repair comes along. Maybe you’ll need to replace a water heater, repair or get rid of hidden mold.
You can buy a home with a small down payment, allowing you to conserve your savings.
If you leave yourself very little in bank account, back reserves or emergency funds,you can quickly find yourself in financial trouble.
How to avoid this mistake:
Save enough money to make a down payment, pay for closing costs and moving expenses, and take care of unexpected expenses and repairs. This is easier said than done, but you can buy a home with a down payment of much less than 20%, allowing you to conserve your savings.
3. Ignoring a home’s downsides
A lot of first-time home buyers fall in love with one of the first properties they look at and ignore the negatives of the house and its neighborhood.
It’s important to remember that you can’t overlook the downsides forever. For example, you might think you’ll be OK with a long commute, but after a few months of spending hours stuck in traffic, you’ll wish you had bought a house closer to your office.
How to avoid this mistake:
First, resolve to visit 10, 15, 20 houses before making an offer. This will make it less likely that you’ll fall in love with the first or second home you look at. Second, make a list of the pros and cons of each house, and pay close attention to each home’s downsides.
4. Being indecisive
On the other hand, acting too slowly when you find the right home could cause you to miss out. In a market with more buyers than sellers, you have to move fast.
How to avoid this mistake:
Once you look at multiple houses and you get a feel of the market if you see a home that you like, don’t hesitate to make an offer.
5. Overpaying for a house
First-time home buyers tend to pay more than experienced buyers would pay for the same house. According to research conducted by two economists with the Federal Housing Finance Agency, first timer home buyers overpay by an average of 0.79%. That adds up to nearly $2,200 more per house.
A lot of this can be due to the inexperience of first time home buyers. Real estate agents say newbie buyers let their emotions take over. This leads them to focus only on the positive qualities of the home.
How to avoid this mistake:
Ask your agent for a competitive market analysis. This report looks at the prices of comparable nearby homes that have been sold recently. This will help to give you a better idea of the average cost in the area and make reasonable negotiations as needed.
6. Skipping the home inspection
In some markets, a lot of buyers compete for a small number of properties for sale. In these types of markets, buyers are tempted to waive a home inspection. It gives them a competitive edge over smarter buyers who wouldn’t dream of forgoing an inspection before putting down hundreds of thousands of dollars for a home.
It’s a mistake to buy a previously owned home without an inspection because there could be expensive, hidden damage that you wouldn’t spot, but an inspector would.
How to avoid this mistake:
Simple! Hire a licensed home inspector. Your real estate agent will gladly make a recommendation, but it’s better to hire an inspector of your own choosing who doesn’t depend on your agent for referrals.
7. Underestimating the costs of ownership
After you buy a home, the monthly bills keep stacking up. This can come as a surprise if you’re not ready.
Everything from gas and oil to electricity and cable bills will pile up if you aren’t prepared. While renters often pay these kinds of bills too, your new home could have higher costs and might come with entirely new bills, such as homeowner association fees.
How to avoid this mistake:
Work with a real estate agent who can tell you how much the neighborhood’s property taxes and insurance cost on average. You should also ask to see the seller’s utility bills for the last 12 months the home was occupied. This will help you get an idea how much they will cost once you move in.
8. Miscalculating repair and renovation costs
First-time home buyers are frequently surprised by high repair and renovation costs. Whether you get a repair estimate from just one contractor or the estimate is unrealistically low higher price tags for repairs can come as a shock. Many first time home buyers have their perspectives distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.
How to avoid this mistake:
Assume that all repair estimates are low. It is recommended that you double the estimates to get a more realistic view of costs.
It is also a good idea to get more than one estimate for expensive repairs, such as roof replacements. A good real estate agent should be able to give you referrals to contractors. Finding independent referrals from friends, family and co-workers will allow you to compare costs more accurately as well.
9. Applying for credit before the sale is final
One day, you apply for a mortgage. A few weeks later, you close, or finalize the loan and get the keys to the house. The period between is critical. You want to leave your credit alone as much as possible. It’s a mistake to get a new credit card, charge large expenses or get an auto loan before the closing.
Wait until after closing to open a new credit account or charge big expenses.
Here’s why:
The lender’s mortgage decision is based on your credit score and your debt-to-income ratio, which is the percentage of your income that goes toward monthly debt payments. Applying for credit can reduce your credit score a few points. Getting a new loan, or adding to your monthly debt payments, will increase your debt-to-income ratio. Neither of those is good from the mortgage lender’s perspective.
Within about a week of the closing, the lender will check your credit one last time. If your credit score has fallen, or if your debt-to-income ratio has gone up, the lender might change the interest rate or fees on the mortgage. It could cause a delay in your closing, or even result in a canceled mortgage.
How to avoid this mistake:
Wait until after closing to open any new credit accounts or to charge furniture, appliances or tools to your credit cards. It’s OK to have all those things picked out ahead of time; just don’t buy them on credit until after you have the keys in hand.
10. Missing the first mortgage payment
It may be hard to believe, but it’s not rare for new homeowners to miss their first monthly payment. Whether you didn’t fully understand the process, you thought it was being auto-deducted but it’s not being auto-deducted, or you didn’t get the bill in the mail. Those first couple of payments, from a credit perspective, are very important.
How to avoid this mistake:
At the real estate closing, ask when the first mortgage payment will be due and write it down. Find out how you will receive notice that the payment is due. Will it be a letter in the mail? An email? A text? Then, look out for that notification.
In many cases, the mortgage servicer, the company that bills you, collects the payments and makes sure the principal, interest, taxes and insurance all go to the right places, will mail you a welcome letter with these details.
While buying your first home can be overwhelming and there are a number of mistakes you could make in the process, insurance doesn’t have to be one of them. Just call us at 724-929-2300 today and let us do the comparing for you. We can get you the best price on the right insurance for you the first time.