5 Common First-Time Homebuyer Mistakes to Avoid

The prospect of buying your first home is both exciting and nerve-wracking. On one hand, owning your own house is the final step of financial independence. You’re no longer accountable to a landlord and their rental agreement. On the other hand, buying a home is a huge financial decision that will determine where you live for the next several years.

As a first-time buyer, there’s a lot to learn about buying a house. You’ll often hear homeowners say, “I wish I knew that before buying this house.” So, in this article, we’re going to give you some common mistakes that first-time buyers make so you can have the best possible experience in the home buying process.  

1. Underestimating the costs

When first-time buyers get preapproved for a mortgage, they sometimes see this as permission to spend whatever amount they’re approved for. However, even after closing costs, there are a number of other expenses you’ll need to account for in your budget.

You’ll be responsible for maintenance, utilities, taxes, and repairing things when they get old. If all of your money is tied up just paying your mortgage and other bills, you won’t have anything left over to maintain your house.

Furthermore, living your life just to make your mortgage payments is draining. Instead, buy a house that gives you enough room to save for retirement, vacations, a family, or whatever else you see in your future.

2. Prequalify first

Before you start shopping for homes, make sure you meet some basic prerequisites. You’ll need a solid credit score, steady income history, and money saved for a down payment. You might set yourself up for disappointment looking at homes that are outside of your spending limit if you don’t get prequalified first.

3. This probably isn’t your last home

While it’s okay to dream about the future, don’t set unrealistic expectations for your first home. You can always upgrade later on, and building equity in your first home is a good way to help you do that.

4. Don’t get too attached to your “dream home”

So, you’ve been shopping around for a few weeks and finally found the perfect house. If everything goes well your offer could get accepted. But if it doesn’t, don’t worry about it. There are constantly new houses appearing on the market, and there’s a good chance you’ll like one even more than this one.

5. Don’t waive contingencies without good reason

Contingencies are there to protect you. They might seem like a way to needlessly complicate a contract. Or, you might think that waiving them makes you look better in the eyes of the seller. However, both sellers and their agents know that contingencies serve an important purpose.

The three main contingencies you’ll want when buying a home are an appraisal contingency, financing contingency, and an inspection contingency. Unless you’re buying under special circumstances, you’ll want to keep all three in your contract. 

A Checklist to Find Out if You’re Ready to Buy a Home

Buying a home is one of the biggest decisions you will make in your life, financially and otherwise. When you buy a home you’re deciding on the region you want to live in, where you might want to raise children, and the people you’ll live around for likely many years.

You’re also signing up for all of the responsibilities that come with a home: utility bills, issues and repairs, cleaning the house, maintaining the yard… the list goes on.

So, before plunging into a mortgage, check off all the items on this checklist to determine if you’re ready for home ownership.

The First Time Home Buyer’s Checklist:

  1. I know where I want to live.
    Determining the location of your home is one of the most important factors that goes into home buying. Most decisions are influenced by your job/career, but things like family, friends and weather are all important things to consider.
    Aside from knowing where you want to live, you’ll also need to know how long you want to stay. As a general rule, if you don’t plan on staying in your home for at least 5-8 years it could be cheaper and easier to rent until you find somewhere you’d like to settle in.
  2. I have my finances under control.
    You don’t need to be wealthy to buy a home, but you do need to have a strong understanding of your personal finances. In a spreadsheet, write down your total savings, monthly income and monthly expenses (including groceries, transportation, bills, and loans). Find out what type of mortgage and downpayment you can afford at your income level.
  3. My income is dependable.
    When you apply for a home loan the bank will look into this for you. But you should also want to make sure you can continue to afford your mortgage payments. How dependable is your job? Are there a lot of job opportunities in your field and in your area? These are all questions that help you determine the stability of your income.
  4. I have a good credit score.
    Your credit will be a big factor in getting approved for a home loan. Building credit seems complicated but it’s based on four main things: paying bills on time, keeping balances relatively low, having a long record of repayment, and not opening several new cards or taking on multiple loans in a short period of time.
  5. I’m pre-approved for a loan.
    Getting pre-approved isn’t mandatory, but it offers many benefits. First, it shows lenders that you are a safe person to loan money to. Second, it will give you insight into what banks think of your finances and will give you an idea of what price range you can safely buy in.
  6. I’m prepared for the responsibilities of owning a home and willing to learn.
    If you’re handy around the house and can fix anything, that’s great. What’s more important, however, is that you have the time and willingness to learn new skills that will help you become a good homeowner.

First Time Homebuyer

Being a first time home buyer has it’s benefits when it comes to financing. The Federal Housing Administration (FHA) has loans tailored specifically to you! Lower down payments and lower closing costs help newbies make the jump into home ownership.

With a FHA first time home buyer loan you can get interest rates as low as 3.5%, which can really save money on the life of your loan and keep your monthly payments lower. Your down payment is also lower than a traditional mortgage; instead of putting 20% down, you can put as low as 3.5% down if you qualify. While a lower down payment will increase your monthly payment (since you are taking a loan out for more money), it will help with the burden of needing a large amount of money up front.

With FHA loans you can also include most of the closing costs and fees into the loan, again helping with the money needed at the time of purchase. You can even add in the costs for repairing a home that needs a good deal of fixing up. Regardless, you will need to have enough money for the down payment, some closing costs, and inspection.

Since you would be putting less than 20% down, FHA loans require that you also have private mortgage insurance (PMI), which is a percentage of your loan. This will be added to your monthly mortgage payment, and the bank will pay it out of your monthly.

Being a first time home buyer probably means you need some help on getting through the process. The US Department of Housing and Urban Development (HUD) has housing counseling agencies that can give you advice on buying a home, avoiding foreclosure, and fixing your credit. You can find your local agency at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Lastly, you can also find local buying programs to help with buying a home, including helping with your down payment at http://www.hud.gov/buying/localbuying.cfm.

If you never thought you would be able to afford a house, think again. With programs out there to help you buy your first home, you could be moving into a place before you know it!

How to Prepare Buy Your First Home

You’ve been thinking about buying your first home and it is a very big decision. It is typically not a decision you make overnight instead you need to take the time prepare yourself.  Here are the basic steps that you should follow when it is time to buy a home.

  1. Ask are you ready? Home ownership is quite different than renting. It is a lot more expensive than renting. You will have added expenses and responsibility. There will be expenses like repairs, added utility costs, such as garbage and water, plus taxes and insurance related to your home. You will want to make sure to have an emergency fund, before you purchase your first home.
  2. Shop for a loan. Your first step will be to get preapproved. Knowing how much you can afford will help you to look for homes within your price range.
  3. Figure out how much you can afford. Just because you are preapproved for a certain loan doesn’t mean you can afford that in the real world. A good rule of thumb is to keep your mortgage along with your taxes and insurance between twenty five and thirty percent of your income. You don’t want to be house poor.
  4. Use a real estate professional you can trust.  A good real estate professional will listen to your wants and needs carefully. It is important that you are also educated on the process of buying a home. A good real estate professional will help meet your needs while navigating you through the process and advocating for your best interests.