If you are a first-time homebuyer, keeping these common mistakes in mind will make the process a lot easier and help you avoid some of the problems other homebuyers run into.
Not Making the Most of an Open House
Use this as an opportunity to scope out the neighborhood and your potential neighbors. During the open house, pay close attention to the home’s overall condition and look for any smells, stains or items in disrepair. Ask a lot of questions about the home, such as when it was built, when items were last replaced and how old key systems like the air conditioning and the heating are. If several other potential buyers are viewing the home at the same time as you, don’t hesitate to schedule a second or third visit to get a closer look and ask more questions.
Looking for a Home First and a Loan Later
Unless you are paying for your first home with cash, the homebuying process doesn’t begin with looking for a home, it begins with a mortgage prequalification .
Many first-time buyers wait until they’ve found a home they want to buy before taking to a lender, but there are many benefits to getting pre-qualified early. Pre-qualification can help you shop in your price range, act fast when you find a house you want to make an offer on, and correct any errors on your credit report before they cause a problem with your loan. This could help save you thousands in the long run because an error on your credit report could result in a lower credit score, leading to a higher interest rate.
Only Worry is Mortgage Payments
Many first-time homebuyers decide to buy when they feel ready for a mortgage. But just because they can afford the mortgage payments doesn’t mean they can afford to own a home.Property insurance, taxes, homeowners association dues, maintenance, and higher electric and water bills are some of the costs that first-time homebuyers tend to overlook when shopping for a place.
Also keep in mind property taxes and insurance have a tendency of going up every year. As a homeowner, you’ll be responsible for additional monthly costs that may have been covered by your landlord. That includes things like water, sewer and garbage bills, monthly HOAs, and the cost of lawn care. And don’t forget the cost of maintenance. It’s recommended that you set aside 1-3 percent of the purchase price of the home annually to cover repairs and maintenance.
Not Getting Professional Help
New to the homebuying game? You’ll need a reputable real estate agent, a good loan officer or broker, and perhaps a lawyer. Venturing into this process alone, without professional help, is not a good idea. While every rule has its exception, generally, first-time homebuyers should not try to deal directly with the listing agent. If you hire an agent without a referral from friends or family, ask the agent to provide references from previous buyers. The same goes for loan officers or mortgage brokers.
Another option that is becoming more popular is working with a hybrid agent that helps with both real estate and financing. If you’ve found someone that is trustworthy and capable at both this can often save time, money and makes communicating throughout the process a lot easier.
Using All Savings on the Down Payment
Spending all or most of their savings on the down payment and closing costs is one of the biggest mistakes first-time homebuyers make. Homebuyers who put 20 percent or more down don’t have to pay for mortgage insurance when getting a conventional mortgage. That’s usually translated into substantial savings on the monthly mortgage payment. But it’s not worth the risk of living on the edge by emptying out your savings. While 20 percent is ideal, you don’t necessarily need that large of a down payment to buy a home. There are loan programs that cater to first-time home buyers, such as the FHA loan, and certain loans, such as VA loans for veterans and military or USDA for buyers in rural areas, don’t require a down payment at all.
Not Researching Down Payment Assistance Programs
That leads us to our next most common mistake for first time homebuyers, not researching and asking about down payment assistance programs. These programs typically offer “soft” second or third mortgages or grants which allow for zero percent interest rates and deferred payments. Ask your real estate agent or lender if there are programs in your area that you may qualify for. You can also search for down payment assistance programs on sites like the Down Payment Resource Center. Struggling to come up with enough money for a down payment? First-time home buyer programs are plentiful, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with only 3% down.
Getting New Loans Before the Deal is Closed
You are prequalified for a loan, you’ve found the house you wanted, the contract is signed, and the closing is in 30 days. Don’t celebrate by financing another big purchase. Lenders will pull credit reports before the closing to make sure the borrower’s financial situation has not changed since the loan was approved. Any new loans on your credit report can jeopardize the closing. Buyers, especially first-timers, often learn this lesson the hard way and it’s not worth it!