Buying your first home is one of the most significant spend of your life. It comes with many big decisions that is often intimidating for most of the home buyers.
The aim of every home owner is to end up with a pretty home that they love and that comes at an affordable price. As exciting as it is to buy your first home, it is scary as well. It will either have you sitting comfortably on your property or it will send your finances down the drain. As a first time home-buyer, it is really easy to get swept up in the impulse of shopping for your first home and make mistakes.
If this is your first time buying a home or it’s been years since you last bought your home, know that it’s important to have a thorough knowledge of the entire process of buying your new home. Especially, if you don’t want to get over-charged for the services you avail and end up in huge amount of debts.
Most buyers cannot go through the process of buying their first home on their own and sometimes even if they have professional help, they make common mistakes again and again.
So, here is an important list of information to know as a first-time home buyer
- Not Knowing What You Can Afford
A common mistake that most first-time home buyers make is not knowing what they can afford. It is not necessary that what your bank says you can afford and what you know you can afford are the same. Consult your bank about your financial situation and get an estimate on how much savings do you have and how much the bank can lend you.
Make a list of your monthly expenses including groceries, retirement savings, student loan payments, credit card payments, health insurance and so on. Also, don’t forget any payments that you deposit annually for example an insurance that you have to pay annually or any other such things. Now subtract all these expenses from your total monthly income and know the surplus money. This way, you will get an idea on how much monthly mortgage payment you can afford.
Now look up online for current interest rates. It will give you a general idea about how much the usual mortgage payments are and whether you can afford it or not.
You can now refine your house hunting process for only the houses that you can afford.
- Looking For a Home Before Applying For a Mortgage
Home buyers make the mistake of looking for homes before looking for a mortgage lender. From the past few years, house inventory is tight which means that there are less affordable houses in the market than the current buyer demand. So, you can lose an affordable house if you are not pre-approved for a home mortgage.
Therefore, it is highly recommended that before you start looking for houses, get a written pre-approval for your home loan.
- Not Looking For First Time Home Buyer Programs
There are plenty of programs available for first time home buyer both from state and exclusively from different mortgage companies as well. As a first time home buyer, you probably would not have a lot of money saved up for down payment.
This is why there are programs particularly for first time home buyers that offer down payment assistance and competitive mortgage rates.
You would need to ask your mortgage lender about such programs in your state.
- Ignoring VA, USDA and FHA loan programs
First-time home buyers generally assume that they have no financing option and delay their home search. As, a lot of home buyers don’t know about the government loan programs that make the process of buying a new home easier by allowing a little or no down payment.
Look into these three Government-backed programs offered by Federal Housing Authority (FHA), US department of Veteran Affairs (VA), and US department of Agriculture (USDA). Learn about these loan programs and figure out how you can get the most out of them as it might make your home buying process a lot easier.
- Making a really small Down Payment
Down payments is the money that you pay up-front to your lender. Typically, home buyers pay 20% of their total mortgage loan as down payment. But you have option to pay any amount that you can afford.
First time home buyers usually put a really small money as their down payment but this comes with an even bigger price in the longer run. A bigger down payment lets you get a smaller interest rate on your mortgage. This, in turn, results in small monthly mortgage payments and overall smaller mortgage amount.
- Not Working with a Real Estate Agent
Once you are ready to buy a new home, do not start looking for the houses without a Real Estate Agent by your side. The real estate market keeps changing, therefore, having a qualified local Real Estate Agent by your side will help you in making informed decisions. Talk to different agents to find out who understands your situation better and will help you in winning a negotiation if you are in competition with other buyers for the same property.
Choose the real estate agent that you feel most comfortable with and who has a sound knowledge of the current real estate market.
- Neglecting Home Inspection
Having a home inspection is a really important step before finalizing any home. It is tempting to own a house as soon as you can but do not make this mistake. Before closing the deal, you have the chance to identify any defects in the property while they are still the responsibility of the seller.
You surely don’t want to get stuck with a lot of un-expected home repairs. So, take your home inspection process very seriously.
You will need to set up a thorough inspection of your intended new house to avoid any serious financial mistake.
- Not Considering Other Expenses
Apart from the down payment, you will have to pay the closing costs for your new home which literally drains savings of most of the home buyers. And once you have bought a new home, you will have many additional expenses on top of your monthly mortgage payments. First time home buyers often under-estimate the costs of home renovation and maintenance.
If you are buying a home that requires renovation, get an estimation of the renovation cost from multiple contractors to avoid any confusion. Apart from home renovation costs, you will also be responsible for property taxes and insuring your home against any disasters.
Consider these expenses before finalizing your deal. If possible, choose a house that require either a little or no renovation at all.
- Draining your Savings
Spending all of your saved money on down payment and closing costs is a common mistake of first-time home buyers. As you might have figured by now that home ownership comes with huge responsibilities and additional costs.
So, you will be in huge trouble if you haven’t saved up any money for post home buying phase. Try to divide your savings for each step of the home buying process separately.
The Bottom Line
Buying your first home is surely stressful but knowing these pitfalls ahead of time can really save you from making any serious financial mistakes. If you avoid these first-time home buyers’ mistakes, you can surely shop for a house successfully.
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