Buying a home is arguably the most important purchase you'll make in your lifetime as well as the largest.
With this much money on the line, there are a ton of things you need to be aware of when purchasing real estate. As a first-time homebuyer, there’s a good chance you don’t know enough about the details.
Here are the most common mistakes that first-time homebuyers make, why you should avoid them, and some smart money moves you can make instead.
Not cleaning up your credit report
The first thing you should do before starting the homebuying process is to check your credit score and your credit report. If it’s good, you’ll sail through the process without any issues.
But if your credit is less-than-stellar, you should spend some time cleaning it up before applying for a mortgage. The better your credit, the better the interest rate you may get. There are a number of ways you could improve your credit so get on that as soon as possible.
Looking at houses beyond your budget
It can be tempting to drop by an open house in a fancy part of town. After all, it’s OK to dream a little, right?
Actually, looking at houses beyond your budget might prompt you to buy a home you can’t afford in the long run, or make you feel dissatisfied with what you actually can afford. Especially if you're looking for ways to stop living paycheck to paycheck.
Avoid this by getting pre-qualified for a mortgage, setting your budget, and sticking to the limits.
Getting only one mortgage rate quote
There are a lot of mortgage lenders out there, and some of them can offer you a better deal than others. That’s why it’s important to shop around for your mortgage instead of just accepting the first quote you get. According to the Consumer Financial Protection Bureau, nearly half of all first-time homebuyers get only one rate quote.
If you make it a point to secure five quotes and compare them, you may save around $430 in interest that first year alone.
Getting only one homeowner's insurance quote
Neglecting to get multiple quotes for their mortgage isn’t the only shop-fail of first-time buyers: a third of new homebuyers only get one homeowner’s insurance quote.
Don’t just accept the first insurance quote you get. You may save money by comparison shopping with different companies. Also, make sure that you’re buying the right policy with the best coverage for your unique needs.
Not making a big enough down payment
It’s important to make a down payment that’s big enough to ensure your monthly mortgage payment isn’t financially crippling. According to a recent survey, one in nine homeowners said they regretted not putting enough down on their home.
If possible, it’s good to have 20% of the home’s total cost to put down, which also means you won’t need to buy private mortgage insurance (PMI). That said, not everyone can afford to put down 20%, but if you can find ways to boost your bank account, it’s often wise.
Forgetting to special buyer loan options
So, who doesn’t have to put down 20% of a home’s total cost for a down payment? Folks who qualify for special loans like VA loans for veterans, USDA loans for rural properties, or mortgages from the Federal Housing Administration.
Those programs may require as little as 0% down, so don’t make the mistake of not looking into them. There may be other options for first-time homebuyers in your state, too. Ask your mortgage lender about specific programs in your state.
Depleting your savings
Speaking of down payments, while it’s usually the right move to put down as much as you can, don’t break the bank to do it. Doing so can lead you to rely on credit if an emergency pops up or may force you to have to make extra money to get by.
You may need to consider buying a smaller place or having a smaller down payment to spare your savings, but the peace of mind is worth it.
Not understanding closing costs
If you’ve never purchased a home before, you might be surprised when your lender provides you with a list of closing costs.
Closing costs include the appraisal fee, attorneys’ fees, credit report fee, title insurance, and many other fees that can total 3% to 6% of the cost of the home. Be sure you have enough funds to cover these costs when you go to closing.
Additionally, don’t forget about other expenses you need to account for, such as property taxes and your monthly bills (gas, electric, water, etc.). Doing a bit of research on these costs before you commit to a home will spare you the stress down the road.
Letting a real estate agent pressure you
A real estate agent is there to guide you through the homebuying process. However, not all agents are as capable or competent as you need them to be. But how do you know what to look for if it’s your first time buying a home?
Well, if you feel like your agent is pressuring you to make a move you don’t want to, they’re not putting your best interests first. Instead, let them give you the facts so you can come to your own decision.
Not using a real estate agent
Just because some real estate agents might not be very good doesn’t mean you should skip working with one altogether. In fact, finding the right real estate agent can help reduce the financial stress of the homebuying process thanks to their expertise, experience, and skills.
Since they have gone through this process multiple times, they can help you navigate pitfalls and ease anxiety. That’s why it’s worth the money you’ll spend on them.
Not researching the neighborhood
If you’re buying a home in a familiar place, this may not apply. But if you’re moving to a new city, don’t forget to research the neighborhood you’re moving to.
Check into the school district, crime statistics, environmental issues, and what businesses are there. Visit your prospective neighborhood at different times of the day. That way there will be no surprises in your new home when the sun has set or when you send the little ones off to school.
Not viewing a property in person
We get it: The real estate market can be tough to navigate, especially when it’s hot and houses are snatched up right away. Don’t be tempted to buy sight unseen, however, as you can’t trust the photos to be your only guide.
If you can’t see the house for yourself, have someone you trust look at the home and record a walk-through. Always visit the home before buying if you’re physically able.
There are a lot of mistakes that first-time homebuyers can and do make, but you can avoid stumbling into them. Talk to friends and family who have been through the process once or twice and see what helped them get through it, and read everything you can on the matter.
That way you can go from tenant to owner without a hitch, and you’ll never have to worry about looking for ways to pay the rent again.
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