When it comes to buying your first home, many decisions need to be made. It’s exciting, scary, and downright nerve-wracking at times. For those people shopping for their first home, getting caught in the process can often leave individuals making impulsive decisions that can impact their overall purchasing decisions.
If you’re shopping for your first home, making educated decisions can make all the difference. After all, the more you know, the more confident your choices will be. The more confident your choices are, the less likely you’ll wind up regretting your purchase. To help you get started, we’ve detailed first-time homebuyer mistakes to avoid.
For many first-time buyers, the desire to find their dream home is placed above anything else needed to purchase the home – including getting in front of a lender. With such a competitive market, however, many buyers should reconsider this approach. If a market is saturated with buyers, the competition for homes becomes much higher. Additionally, falling in love with a home without a pre-approval can leave you scrambling.
Not only that, but oftentimes browsing for homes without a pre-approval can leave massive gaps in what you’re looking for and what you can realistically afford. The pre-approval will set you up with an appropriate budget for your home without stretching yourself into unaffordable situations.
On average, your mortgage shouldn’t be more than 30% of your income. That includes your taxes, fees, and anything else that contributes monthly. When you wind up finding a home outside your budget, it can put you at higher risk of foreclosure when things get sticky financially. Buying a home outside your budget also leaves less room for bills, expenses, and emergencies.
Prior to visiting with a lender, sit down and determine how much you can realistically afford, rather than the maximum loan amount you qualify for. Many times a lender may authorize considerably larger amounts, making it difficult to pay long term. Always consider a change in employment (such as loss of a job, layoffs, or unemployment) and how that would impact your housing situation at the maximum value.
When you’re looking for a mortgage, it’s important to shop around at multiple vendors before signing up. That’s because many different locations will offer a wider comparison of what’s available (and what you’re approved for). Make sure you’re comfortable with the terms and the interest rates before signing. By shopping around, you’re more likely to get the best interest rates, which can save you thousands of dollars.
You’re going to need enough money for the closing costs and down payment on your home, but it’s never a wise idea to empty your account entirely when doing so. Make sure you have at least three to six months’ worth of savings in an account before purchasing your home, on top of the down payment.
Emptying out your savings can leave you open to acquiring considerable debt in the event of an emergency. Although buying a home can be a very exciting experience, it’s never a wise idea to use everything you have to purchase a home when life can be rather unpredictable.
Purchasing a home isn’t meant to be an overnight transaction, especially when you’re working through the mortgage process. When you refuse to plan far enough ahead for your purchase, you leave yourself open to failure. Having enough money in savings, collecting your down payment, and covering closing costs are all items that need due time and diligence.
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Try to aim for a year-long timeframe. It can take years to repair damaged credit, particularly if you have a bankruptcy or several collection accounts on file. It also takes a while to save for a down payment, with many homeowners only keeping $5,000 a year set aside. By spending the time ahead of your purchase to fix any credit issues and continue throwing money into your savings, you’ll be in a better financial position long term.
Having a pre-approval doesn’t mean that your final application will be approved, especially if you’re trying to secure new credit before everything has closed. New loans or accounts can flag your file with lenders, suggesting you’re high-risk. To prevent a change in your approval status, keep everything in good standing (and status quo) from the time of application to the day you finally close.
When possible, pay down all accounts to below 30 percent of your available credit and ensure that any current accounts are paid in full and on time every month.
Buying a home can be an emotionally-charged decision, especially when you’ve fallen in love with a house. The thought of your life beginning at the property, plans, and attachment can be a major influence in the buying process (especially for first-time homebuyers). When it is a seller’s market (there are more buyers than sellers), the emotional influence can drastically increase.
Buyers spend more time looking for a home, become frustrated with the lack of homes on the market, and can result in overpaying for a home. This overpayment (often going outside of your predicted budget) can take an affordable house and push it into unaffordable quickly. It’s always better to have a strict budget in mind and stick to it. Make sure the only home you become emotionally attached to is the home that you’ve already purchased.
Items like trim, tile, paint, and finishing’s can all be changed over time, but the neighborhood you choose should be a major influence. Location, schools, amenities, and culture should always take priority over the details of a home. If you wind up hating the neighborhood, it won’t matter what the house looks like long-term. You can always down-size or up-grade down the road, but the location will never change.
Make sure to talk to your real estate agent about specific amenities that are important to you. Neighborhood safety, schools, religious affiliations nearby, public transit, walkability, and other important features should be reviewed. Take time to visit the neighborhood at different times to see the traffic, congestion, interactions, and overall vibe of the home.
Everyone wants to find the perfect home; ideal finishes, beautiful design, and overall flow can influence your decisions. Many times, home buyers will have a list of preferences, must-have items, and preferred options. When a prospective home buyer has an extensive list of features they need to have; the home buying process can take forever. This is especially true when you’re on a fixed or limited budget.
Having a list of must-have items is important when you’re looking at homes, but make sure the only items on this list are non-negotiable for you. You may not like carpet but removing it is achievable with a bit of hard labor. If you’re hoping to avoid major renovations, bedroom count may become a “must-have”. Keep an open mind when shopping houses on the market, taking care to look at the bones rather than the final touches.
Pre-approvals are just one step in purchasing a new home. Many first-time homebuyers are stunned to learn of all the extra costs of buying a house. These costs can add up quickly from insurance, repairs, inspections, legal fees, and the principal amount of your mortgage.
The average homeowner will spend between $2,000 and $4,000 annually for repairs and maintenance on their new home. Make sure to budget this amount into your savings to prevent emergencies from happening.
For many first-time homeowners, there comes a harsh realization that moving takes time. From making an offer to securing your finances, from the closing costs to get your new keys – expect the entire process to take anywhere from two to six months to finalize. Some homeowners are surprised to learn the length of time it takes to close a home can be long and intense. Questions to Consider before buying home.
If you’re purchasing a new build, delays can happen that interferes with your move-in date. Always make sure to have a back-up plan in place, especially if you’re not able to extend your current lease. Make homeowners have found refuge with friends, family, or a hotel until their home closes, which can quickly add up to hundreds of dollars in unplanned expenses.
Although these aren’t the only issues new homeowners can face, they are the 11 most common issues throughout the buying process.
With a bit of time, care, and energy, you can avoid these pitfalls. Never feel like the house you’re looking at is the only home that you’re ever going to come across. Chances are several new homes will come on the market that will match your must-haves, it may just take a bit of time.