- First-time homebuyer mistakes can leave you with a difficult financial situation
- Start with finding a trustworthy real estate agent
Shopping for your first home? That’s fantastic! No doubt you’ve already thought about what your dream home will include and scouted out some neighborhoods and school districts.
But it’s important to remember that finding the perfect home is about more than curb appeal and modern features. And while there’s plenty of advice out there on what to do during the home buying process, there are some common first-time homebuyer mistakes that can trip you up along the way. Here is a quick rundown of what not to do.
Of All First-time Homebuyer Mistakes, Looking for a Home Right Away is the Most Common
As tempting as it might be to fire up Zillow and start browsing available homes, it’s wise to avoid that. It’s fun to look at houses, but buying a home is very much a financial decision. That’s why it is so important to start with a mortgage prequalification.
True…sitting in a lender’s office to discuss your financial situation can be the polar opposite of a good time. It can even be a little scary. What if you don’t qualify for a mortgage, or you qualify for a loan smaller than expected? These are real fears and you aren’t the first person to have them.
Even if you have a price range in your head that you want to stick with, you still need to get preapproved then go look for a home. That leads us into our next point…
The Asking Price is Not the Home’s Price
So, you’ve found a house online, crunched the numbers, and you feel pretty confident you can make the monthly mortgage payments…based on the listing price.
Hate to burst your bubble, but just because you can afford the listing price, doesn’t mean you can afford owning a home. You need to know what drives a lending decision.
There is plenty that the listing price doesn’t include. Property insurance, taxes, homeowner’s association dues, maintenance, utility bills, and the potential fluctuation of those costs from neighborhood to neighborhood and town to town are almost never considered. Again, another reason to sit down with a lender to figure these things out.
You also have to consider your home, even if it’s your first home, as a long-term investment. How long do you plan to live there?
Don’t Go it Alone
Seek professional help…and no, we’re not saying you need to see a shrink. If this is your first time buying a home, it’s a good idea to not go it alone. You’ll likely need to contact:
- A reputable real estate agent
- A good loan officer, aka lender (like these fine folks)
- A lawyer…it’s seriously not a bad idea
When shopping for an agent, start with referrals from friends or relatives. Or, contact agents yourself and ask them to provide referrals from past clients. Same goes for loan officers and mortgage lenders.
Having an attorney on-hand to look things over is a great way to ensure everything is on the up and up, and that the agents and lenders are giving you truly independent advice. It’s likely the single largest investment you’ll ever make. Get it done the right way.
Do Not Drain Your Savings for the Down Payment
Think of how long it’s taken you to accrue the thousands you have in savings. The last thing you want to do is spend every last dime on the down payment and closing costs. Of all first-time homebuyer mistakes, this one can potentially hurt you the most further down the road.
Sure, putting down the required 20% possibly gets you out of having to pay mortgage insurance premiums. But now you’re potentially trying to maintain a home with little financial cushion. If opting for a low down payment mortgage means paying the mortgage insurance so you can have some rainy day cash on-hand, then that’s what you should do. Mostly likely, every time.
Ask anyone who’s ever bought a home how important having a rainy day fund can be, and you will hear all the reasons you’ll ever need.
Avoid Large Purchases Before the Close
So, you got prequalified, found your perfect home, signed the contract, and you’ll close in 30 to 45 days. Now would be a great time to close the checkbook and lock it down tight.
From the time you sign the contract until the moment you close, lenders are pulling your credit reports and scrutinizing your financials with hawk-like vision to make sure your financial situation hasn’t changed since the loan was approved. A new loan for a large purchase can easily put the kibosh on your closing.
So until you’ve closed and keys are in-hand, hold off on buying the new furniture and car.