14 First-Time Home Buyer Mistakes To Avoid

First-Time Home Buyer Mistakes To Avoid

Purchasing a property, especially for the first time is a major event in anyone’s life. As exciting as it may seem, the decision is equally scary. You can easily get distracted by the charm of home shopping, neglecting the real essence of the job.

Real estate agents help buyers make a wise decision however, as a homebuyer you also need to be careful. There are certain hasty decisions that you must avoid. The best way forward is to get tips from people who are experienced.

Compiled below is the list of first-time homebuyer mistakes that many people make, you can avoid them by educating yourself. Stay tuned till the end. 

1. Do not go hunting for a home before getting your mortgage approved

Many homebuyers make the mistake of searching for homes before getting a home loan or mortgage approved. The market competition is high, there are more buyers and less affordable home options.

You may find your desired property and by the time you collect funds, it is already sold. Then you will have to begin the hunting process from scratch. If you get your mortgage or home loan pre-approved it shows you are a credible buyer who is serious about getting the property.

2. Do not talk to only one lender

The first-time homebuyers often make the mistake of talking to only one lender or bank for the home loan or mortgage. This is a bad idea. You may be neglecting thousands of do9llars up for grabs. The more loan options you have, the better you can compare and sign the loan with the lowest interest rates.

It is ideal to look for at least three potential lenders and mortgage brokers. Compare their interest rates, fee, and terms. Also, gauge their credibility by comparing their prompt services and speed of application processing.

3. Never go off your budget to buy multiple homes

If you are some who like to invest in properties that you go overboard, then you must stop and think. Do not go for buying multiple homes by going off from your budget. In the coming years, the prices of homes are only increasing, it is imperative that you do not go off-track from your budget.

Purchasing multiple homes by going off your budget might put you at the risk of bankruptcy under any financial crisis. You may also get tight on your budget for other expenses.

Come up with a value that you can easily pay in monthly installments for your mortgage and stick to it.

4. Do not rush into buying

Purchasing a home can get com[plicated, especially if you have to reply on mortgages and home loans.

If you rush into buying the first home you like, you may end up draining your savings and will not have enough for a down payment or monthly installments. Rushing into the process will also prevent you from addressing other important areas such as assessing your credit report. You may want to improve your credit history to secure better loans.

5. Never spend all your savings in one go

It is not smart to drain all your savings in making the down payment. And this is a mistake that most first-time homebuyers make. As a homebuyer, if you make a 20% down payment at least, the mortgage insurance will be waived off for you. However, this is in no way worth the risk of exhausting all your savings.

You must aim to secure three to six months of potential expenses in your emergency funds account after you have signed off on a home deal.

6. Do not get careless about your credit

When you apply for a loan, banks and potential lenders assess your credit report in detail to make sure you are eligible to pay back the loan before signing off on your loan or mortgage. They keep an eye on your credit report to check the consistency of your finances.

If your credit report shows multiple loans and new bank accounts, it will decrease your chances of getting the mortgage. First-time homebuyers often learn this art of trade the difficult way.

Hence, it is imperative you maintain a consistent credit history. Do not make the mistake of applying for new credit cards, this will decrease your credit score. Neither should you apply for multiple loans or buy expensive items on your credit cards prior to your mortgage approval.

7. You must never compromise on neighborhood

If you love your home but hate your neighborhood then you haven’t closed off on a good deal.

Make sure you tell your real estate agent to find a safe locality for you. Your residence should be close to your workplace, there must be public transport access, etc.  Before signing off on the deal, make sure you visit the neighborhood multiple times during different times of the day to get a sense of the area.

First-time homebuyers do end up compromising on the neighborhood simply because they like the house. This is a decision people usually regret later on.

8. Do not rush to make a decision on your emotions

We have already established the fact that purchasing a house is a life-changing event. It is a safe space you build for your family through your hard-earned money and savings. Hence, this decision should be made with a lot of deliberation; weighing all the pros and cons.

If you base your decision solely on emotions, you may end up regretting it later on. Do not go over your budget simply because your emotions are driving you. Make sure you stick to your budget, there is no point in attaching emotions to a home that isn’t even yours.

9. Do not assume that you need a 20% down payment ready

There is a huge misconception among first-time homebuyers that they need to keep a 20% down payment ready. This is a myth. Even though a 20% down payment helps you in the long run, it saves you from the mortgage insurance payment but it is not necessary that you manage the amount right away.

If you are thinking about delaying the purchase so that you can save 20%, then it would take you a long time. By the time you manage the savings, the property value would further be skyrocketing. Also, even if you somehow manage to pay a 20% down payment, your entire budget can get disrupted or you may end up paying high interest on your loans.

Try looking for other feasible mortgage options. Even if you can pay a 3% down payment, it is enough, to begin with.

10. Do not seek perfection

We do not live in a utopian world where everything is perfect. The same rule applies while you go looking for a home. There is no home that would tick all your boxes and seeking perfection will get you nowhere. If you keep running after perfection, you may give up good deals in the hope that a better deal may come up.

This mindset will limit your options very quickly and it is highly likely that you will pay a hefty amount even if you find something you like. At the same time, the time period for your home search will also increase.

It is best to keep all your options open and broaden your mindset. If there is a home that you like that needs a few repairs, then take the deal and make your mortgage covers these repairs.

11. Never overlook the government-insured loan options

If you are one of those first-time homebuyers who do not have much in savings to manage the down payment and neither can qualify for home loans, then government-insured loans are your safest bet. Even though many homeowners neglect this option, but you should not make this mistake.

Do not delay your home purchase simply because you cannot find a mortgage. Try applying for government-insured loans:

  • Federal Housing Administration (FHA loans)
  • U.S. Department of Veterans Affairs (VA loans)
  • U.S Department of Agriculture (USDA loans)

12. Never make the mistake of overlooking the additional costs 

New homeowners can easily overlook the additional expenses. As a result, they may never add the following expenses into their budget:

  • Property taxes
  • Mortgage insurance
  • Hazard insurance
  • Utilities
  • Repairs and replacements

You must plan out your entire budget while purchasing the property.

13. Do not forget to line up the payment sources

There are certain lenders who let you sign up their friends, family members, or employers to make the down payment on your behalf as a gift. Before using this gift money, make sure you know who will provide these finances otherwise this is not a feasible option. 

14. Do not forget to negotiate the rebates

The first-time buyers usually remain oblivious to the option of commission rebates. This rebate can be redeemed from the real estate agent’s commission. Ask your agent if he will provide the rebate when the deal is signed.