Purchasing a home can be both exciting and overwhelming, especially if it’s your first time going through the process.
From choosing the wrong mortgage, forgetting to include home improvements in your budget, or taking on too much debt, potential mistakes are everywhere. Fortunately, you can avoid these pitfalls if you know what to expect and the right questions to ask. Here are some common mistakes our team has seen first-time homebuyers make along with tips on how you can steer clear of them.
Mistake #1: Buying a home at the highest end of their budget
Lenders take many factors into consideration to determine how much you can afford, such as your household income, the amount of your down payment, and your debt-to-income ratio. They take all these factors in account to approve you for the maximum total you can afford. Keep in mind that this total is the maximum you should spend on a home, and not necessarily the number you should take as your target home price.
Purchasing a home at the maximum end of a budget often requires a homebuyer to empty their savings on a down payment and dedicate a majority of their monthly income to mortgage payments – leaving little opportunity for other investments. Be sure to speak with your lender about what you can expect at different home price points, and take advantage of our mortgage affordability and debt-to-income ratio calculators to help you determine what price range is affordable for you.
Additionally, your mortgage won’t be your only home expense. Keep in mind the other expenses or hidden costs that come along with owning a home, including property taxes, utilities, homeowners and mortgage insurance, maintenance and repairs costs, and more. Consider all these costs as you are building your budget.
Mistake #2: Waiving the home inspection and miscalculating maintenance costs
First-time homebuyers are sometimes tempted to waive their right to a home inspection to make their offer stand out. However, a home inspection is a critical step in the home buying process as it will point out any large repairs that need to be done before closing. Depending on the results of the home inspections, you may even have the opportunity to negotiate price reductions or needed repairs. There are many other options to make your offer more compelling without skipping the home inspection and putting yourself at a disadvantage.
First-time homebuyers often get so emotionally attached to a house, that they fail to see its flaws. It’s important to be aware of these emotions as they may lead you to wave a much-needed home inspection or miscalculate the cost of repairs and maintenance a house requires.
Additionally, it’s important to keep in mind while you’re calculating maintenance costs that the older and larger the house, the more repair and maintenance costs it will have. On the other hand, smaller homes, newer homes, condominiums and town homes often require less maintenance.
Mistake #3: Shopping before you get prequalified
The excitement of buying a new home leads many first-time homebuyers to jump right into looking at homes before meeting with a lender and getting preapproved. However, viewing houses before knowing how much you can borrow could result in disappointment, as you may later realize you were looking at the wrong price ranges or were unable to make an offer on a home you loved due to not being preapproved.
Choosing a lender and getting preapproved should be one of your first steps in buying a home. In fact, some real estate agents and sellers won’t meet with you before you have a mortgage preapproval.
Mistake #4: Not checking your credit report and being careless with credit
Although your credit report comes up during the mortgage prequalification meeting, lenders will review it again before closing. Any changes to your credit score, such as opening new lines of credit or failing to make payments on existing credit cards, could result in changes to your loan near the eleventh hour.
You should review your credit score throughout the homebuying process to avoid unexpected changes that could influence your ability to close on your loan or lead to less favorable loan rates and terms. Learn more about how your credit score may impact a mortgage.
Mistake #5: Not learning about alternative down payment options
Saving for down payments often holds people back from buying a home right away. However, there are financial options that require little or no money down. First-time homebuyers are often unaware that a 20 percent down payment isn’t always needed. Read this article to learn about other mortgage loan products to consider.
Mistake #6: Waiting too long to make an offer
While you want to make sure you don’t rush to make an offer, you also shouldn’t wait too long to make one. The market is competitive, and homes aren’t staying in the market very long. While it’s understandable to have high expectations and to want the “perfect” home, you should also consider the other good options you might miss out on.
Mistake #7: Not working with a Realtor®
Realtors® are experts in the home market. It might not be required to buy a home with a Realtor®, but having an expert guide you through your first homebuying experience helps alleviate any stress or anxiety, feel confident about the decisions you make, and make the overall process go smoother. Learn more about how a Realtor® can help you find your dream home here.
With its many steps, financial requirements, mortgage options, and all the different homes to choose from, there is no doubt that buying a home for the first time can seem like a daunting process.
However, the more you learn about the process, the more prepared you will be to avoid serious, consequential mistakes, and the smoother the process will go. As you head into the homebuying journey, remember to compromise, be aware of the emotions that might come into play, and be open to explore different options to get the best deals.