Searching for your first home can be exciting and sometimes a little scary. It’s generally the largest expense most people will ever make, so it really pays to do your homework, and arm yourself with knowledge and a team of professionals who can help you avoid the pitfalls some first-time homebuyers find themselves making.
Five Mistakes to Avoid as a First-Time Home Buyer
Don’t Fall Into These Mortgage Mistakes When Purchasing Your First House
With mortgage rates still fluctuating, it’s more important than ever to understand exactly how much you will need for a down payment and for monthly payments once you move into a new home. A good rule of thumb is to spend no more than 35% of your monthly gross income – which should take into account annual property taxes, insurance and maintenance – all costs associated with owning a home.
Here are some other missteps to avoid on the path to homeownership:
Not Shopping Around for the Best Mortgage Rate
Like the song from the Miracles says, “you gotta shop around.” That means, at the very least, going online and researching lenders and rates or meeting with loan officers at no less than three financial institutions before selecting the best one for you. Why? Research shows that nearly half of those who borrow money for a home never look for a better rate. One national survey found that borrowers could save an average of $1,500 over the life of a loan by getting one additional quote and save an average of $3,000 when they received five rate quotes.
Not Getting Pre-Approved for a Loan
If you don’t plan to make an all-cash offer – something only about 25% of buyers do these days – it’s smart to become pre-approved for a loan from a financial institution. That means talking with a lender to understand how much of a loan you will qualify for before making an offer. Getting pre-approved typically requires a detailed look into your financial history. It also involves a commitment to loan you a certain amount of money which is usually subject to a sales contract and an appraisal.
Looking at Homes Above Your Budget
While the real estate market is finally cooling off in many U.S. cities, prices still remain higher than in years past. So much of the home-buying process can be emotional, so it’s better not to set yourself up for disappointment. That means not touring homes – either online and in person – that are over your budget. It’s also important to communicate this clearly to your real estate agent or broker. They need to understand that your budget is not flexible and you plan to stay within a specific amount.
Not Accounting for the Extras
When determining how much to set aside to cover total home costs each month, we recommend adding in property taxes and homeowners insurance to the mix. Depending on the age of your home, where you live, and how close you are to an area known for extreme weather events, your mortgage payment could increase by hundreds or thousands more each month. Other annual costs to consider include, homeowner association fees and the cost for lawn maintenance if you don’t already own a lawnmower. If you have a pool or hot tub, factor in the cost of water treatment throughout the year. Don’t forget to also set aside cash for other home maintenance issues that will eventually pop up such as upkeep or replacement of your HVAC system.
Waiving an Inspection
When it comes to securing your dream home, it’s best to follow your head and not your heart. That means no matter how fantastic a property looks on the outside, it’s impossible to know exactly what may be lurking behind the walls (or under the sink) of a house or apartment that’s not new construction. From wood rot, to termites to hidden water damage, your second story bathroom tub could be just one bubble bath away from falling through the ceiling. While that’s a dramatic example, a professional home inspection should be non-negotiable. If you don’t know a home inspector, ask your agent, family and friends for recommendations.