First-Time Homebuyer Mistakes to Avoid
It’s easy to get caught up in the excitement ofbuying a home. You already have apicture in your mind of what you want and you can’t wait tofind it and make it your own.
However, it’s important to be strategic, as buying a homeis one of the biggest financial investments you’ll ever make.Additionally, the average homeowner stays eight years beforemoving, according to Realtor magazine. That’s great news ifyou’re happy with your home and the price you’re payingfor it — and bad news if you’re not.
To ensure you’re set up for financial success and personalhappiness, be aware of these eight mistakes when buying ahome.
- Not setting a budget before starting theprocess. One common first-time homebuyer mistake is buyinga bigger home than you can afford. If you buy a home that’soutside of your range and an emergency strikes, it could quicklyturn into financial hardship for you and your family. Keep in mindthat 40 percent of Americans couldn’t afford a $400emergency, which is likely due to existing debt, CNBC reported.Start by determining a monthly mortgage payment you could easilyswing, rather than focusing on the maximum loan amount you mightqualify to get. Giving yourself some wiggle room helps to mitigatestress when unexpected expenses come up (as they alwaysdo).
- Not checking your credit report for errors.Lenders use your credit score to help them decide whether or not toapprove a loan and at what interest rate. Make sure the informationon your credit report is accurate and up-to-date. Federal lawallows you to get a free copy of your credit report every 12 monthsfrom each of the main credit reporting companies, TransUnion,Experian, and Equifax. Reviewing your credit report regularly canalso help you catch identity theft early on.
- House-hunting before getting pre-approved for amortgage. Another first-time homebuyer mistake is lookingfor a house before getting pre-approved for a mortgage. Applyingfor a mortgage gives you a realistic idea of how much you couldpotentially spend on a house. Starting the house-hunting processfirst is like going shopping without any idea of how much you canactually afford to spend. Secondarily, getting pre-approved for amortgage shows sellers that you’re serious about buying ahouse, which might give you a slight competitiveadvantage.
- Going with the first lender you find. Yourmortgage is one of the biggest financial transactions of your life.Make sure to treat it that way. The fees and rates can differgreatly from one lender to another, so make sure to interviewseveral before signing anything. For comparison's sake, talk toa bank, credit union, and a reputable online lender, just to weighthe options.
- Overlooking loan programs. Federal HousingAdministration (FHA) loans, which are government-backedmortgages, tend to be popular with first-time homebuyers since theyoffer easy credit qualifying, low down payments, and low closingcosts. If you’ve served in the military, you might considerapplying for a VA direct home loan or a VA-backedloan.
- Choosing a house without considering theneighborhood. You’ve found your“unicorn” — the house you’ve dreamt ofowning, but have started to think didn’t really exist… until now. When you get caught up in the idea of owningyour dream home, it’s easy to overlook one really importantfactor: the neighborhood. Accessibility, appearance, and amenitiesare all important considerations regarding the neighborhood yourhome is located within. You’ll also want to look into thecrime rate, the schools your children (or future children) would bezoned for, and the immediate neighbors. All of these factors canplay a big role in your happiness and peace of mind after buying ahome.
- Making a low down payment. A percentage ofyour home’s purchase price that you pay upfront, downpayments can impact how much you’ll need to borrow and yourinterest rate. If it is a conventional loan (not part of agovernment program) and you put down less than 20 percent of yourhome’s purchase price, your lender may require you to pay forprivate mortgage insurance. So how much should you put down whenbuying a home? It depends on the purchase price of your home andyour loan program. However, Bank of America provides a guide withsome helpful considerations.
- Underestimating repair and renovation costs.You’ve found a great home at great price and you’reready to buy it. The only problem? It’s a bit of afixer-upper. Before signing the dotted line, consider bringing in areputable contractor and getting an estimate for what therenovations might cost and how long they may take to complete. Thendouble both the cost and time estimates. Is it still worth it? Ifnot, you might want to consider a house that’s move-inready.
A little planning can go a long way, helping you avoid thesemistakes when buying a home.