Getting into the housing market as a first time buyer and buying your first home can be both an extremely exciting and very overwhelming experience. It’s an exciting stage in life and can definitely help lead you to even greater financial freedom.
Before you sign on the dotted line, however, there are a number of important steps that you’re going to want to follow. There are many pitfalls for first-time homeowners, but they are quite easy to avoid if you know what you’re looking for.
From finding the right home, to financing your purchase, you’re going to want to know exactly what matters and how much. Luckily, we’ve got you covered! Continue reading to find out that mistakes you’ll want to avoid when buying your very first home.
1. Consider More than Your Mortgage
For many first-time homebuyers, they feel they are ready to buy a home when they are ready for a mortgage. Just because you can afford a mortgage, however, doesn’t mean you can afford to own a home.
Several other payments to consider include property insurance, taxes, homeowner’s association dues, maintenance, and much higher electric and water bills.
It’s also important to consider that many of these costs tend to increase overtime after you have bought your first home. Even if you can afford the additional expenses at the onset of your purchase, try to look several years into the future and figure out whether or not these costs could become a problem further down the line.
2. Don’t Start by Searching for a Home
It’s definitely more fun to search for your dream home than it is to search for the right loan, but it’s important to be responsible! Unless you have the cash to pay for your first home upfront, home buying shouldn’t begin with you looking for homes, it should be star with you seeking mortgage prequalification.
It’s not uncommon for first-time homebuyers to just pick a range that they think they will be able to take out as a loan and look for houses that they believe they’ll be able to afford without even getting qualified. That can only lead to bad things. First, you might not get approved for a big enough loan. Second, you might fall in love with a house you can’t afford and face financial trouble further down the line.
What first-time homeowners should do is get pre-approved for a loan, then go find a home that you can afford with that loan. That way you’ll make the financially sound decision, not an emotional one.
3. Get Some Professional Help
If you’re new to the world of home buying, you’re going to want to go get yourself some serious help. Consider working with a reputable real estate agent, a good loan officers, and perhaps even a lawyer.
When you are looking to buy your first home on your own could get you into some serious trouble. Don’t depend on a listing agent to give you the best insights and best houses on the market. They’re simply going to give you access to their houses.
So how do you find a real estate agent without a referral? Do some shopping online and ask any agents that you are interested in potentially working with to offer referrals from previous buyers. The same goes for lenders and mortgage brokers.
In order to find the best house at the best price you’re going to want to look for people who are in your corner and are giving you truly independent advice.
4. Be careful when using Savings on the Down Payment
Using up the lion’s share of your savings on the down payment and closing costs of your new home is one of the biggest mistakes a first-time homeowner can make.
It’s not uncommon for homebuyers to opt to use the majority of their savings to pay a 20% down payment and avoid paying mortgage insurance. That will typically translate into substantial savings on your monthly mortgage payments. It’s not worth living on the financial edge though.
Now that you own a home, it’s more important than ever to have a substantial rainy day fund. This is even more true if you have a growing family.
One possible way to reconcile this is to try to find a low-down-payment mortgage.
5. Don’t Get a New Loan Before the Deal is Close
So, you’ve prequalified for a loan, found the house you want, and signed the contract. One thing you’re definitely going to want to avoid is making yet another big purchase.
Lenders pull credit reports before the closing to make sure that a prospective borrower’s (you) financial situation has not changed since the loan was approved. Any new loans could have an impact on your credit score and could jeopardize the closing.
If you want to fill your new garage with a brand-new car or, you could find yourself losing that garage – and the house that comes with it – as a process. If the lender finds that your credit score has dipped before you fully close on the house, the deal could disappear altogether. When buying your first home, your deposit will mainly be in cash or saved up rather than the proceeds of the sale of a previous property. In cases like this it’s important to be patient and remember what matters most: closing on your new house and moving into the home of your dreams. Don’t let a car or a brand new couch jeopardize that.