10 Common First-Time Homebuyer Mistakes to Avoid
If you're in the market for a new house for the first time, then you should avoid these 10 common homebuyer mistakes at all costs.
As a first-time homebuyer, you may feel that everyone knows what to. Don't feel alone. Around a third of homebuyers, are first time buyers.
If you're in the market for a new house for the first time, then you should avoid these 10 common homebuyer mistakes at all costs.
Homebuyer Mistakes
First-time homebuyers sometimes make mistakes they regret later. You can reduce the risk by doing some homework. Start now.
1. Not Knowing What You Can Afford
It can be exciting to start looking at houses and to imagine living in them. You could be wasting your time and needlessly raising your hopes. If you don't know how much you can afford, don't start looking.
Start by deciding how much money you have for a down payment and how big a loan you can get. Consider what you can afford as a monthly payment.
It's important to make the distinction between what a lender is prepared to loan you and what you can afford. You will have to make the monthly payments so make sure you can afford to make them, whatever a lender is prepared to lend you.
2. Not Shopping Around for a Mortgage
If you want to buy a TV or a car you will probably shop around. Buying a mortgage is no different. Don't go to just one lender and accept their offer.
The interest rate and other terms vary from lender to lender. Check multiple mortgage lenders and don't worry that this might impact on your credit score. All the mortgage applications you make will count as one credit inquiry so long as they are within one 45-day period.
3. Not Making a Bigger Down Payment
First-time buyers can get fixated on the myth that you have to make a 20% down payment. There are programs that will help you reduce the percentage you need for a down payment. (See below).
More importantly, you can make a bigger down payment. Making a bigger down payment reduces the amount of your mortgage. This can reduce your monthly payments.
It's worth considering whether you prefer to wait until you have a bigger down payment saved up, use more of your savings or buy a more inexpensive property. All these options will reduce your monthly payments.
The downside is that you may miss out on a home you want, home prices may rise and mortgage rates may rise. The important thing is to consider the options and to be sure you can make the monthly payments you commit to.
4. Over Stretching
An overly ambitious home purchase can have very serious consequences. In simple terms, if you cannot make your monthly payments you could lose your home. If this isn't bad enough, it can also have serious consequences for your ability to get a loan in the future.
Decide what you can afford. Take account of your other obligations. Try to anticipate other costs you might face in the future.
5. Being Impatient
Your excitement about buying a house can sometimes lead you to cut corners. Missing some important details in the home buying process may have consequences long into the future. Slow down and take each step at a time.
Start by focusing on raising a down payment and enough funds to cover closing payments. Bear in mind you may have some essential home improvement work to do. Check and address any issues with your credit report.
Take time to prepare for homeownership so as to avoid the pitfalls. Careful preparation will mean that when you need to move quickly to secure a home you want, you are able to do so, safely.
6. Not Retaining Some Savings
You should not have all your finances tied up in your home. If you have no savings you may be unable to survive even a minor financial crisis. You should have sufficient savings to be able to weather a storm and still make your monthly mortgage payments.
Calculate what it costs you to live for a month including all your expenses. Take account of costs that only occur annually. Add to this your projected monthly mortgage payment and you then know your average total monthly living costs.
Aim to have enough savings to cover three to six months of living expenses. This means you can cope with a short period of illness, job changes or an unexpected big expense without losing your home. Aim to build on your savings for the long term.
7. Not Caring About Credit
Your credit report is used by lenders to help decide whether you are a reliable borrower. It should matter to you what this report says about you.
If your mortgage lender has pre-approved a loan your credit report may have been fine. They will do a final check before final loan approval. Be careful not to take out any new credit cards, loans or make large credit purchases as this may compromise your creditworthiness.
8. Emotional Decision Making
Buying your dream home can be an emotional experience. Falling in love with a home is a natural thing to do but be careful. This is a major decision in your life and you need all your common sense and clear thinking to make sure you don't make a mistake that you will regret later.
Set aside your emotions. Take advice from professionals and check that you are making sensible financial decisions. Have a budget and don't allow your emotions to override it.
Becoming emotionally attached to a particular home when it isn't yours may lead to disappointment. There's time after you have completed the purchase to become attached to your home.
9. Not Thoroughly Checking the Property
First impressions are not always right. A home seller will likely present their home in the best possible light. It's up to you to thoroughly investigate it.
Have the home checked by a professional. A great price may hide a huge construction bill later. Identify repair and renovation costs and use these to leverage a reduction in the purchase price.
Don't just look at the house. Check the neighborhood and decide if you want to live there. Is it in decline and could this affect the future value of your home?
10. Not Checking First Time Buyer Programs
There a range of first-time buyer programs that might help you. Check Federal Housing Association loans, Veterans Affairs loans and U.S. Department of Agriculture loans. They might apply to you and your circumstances.
Homework Helps
Having learned about some of the pitfalls you are better equipped to buy your first home. Your aim is to reduce the risk of future problems by not making common homebuyer mistakes. Do this and you can relax and enjoy your new home.
If you want to know more, get professional advice.