Common Mistakes of First-Time Buyers
As a parent, you have some pretty good knowledge to share, despite what your kids may think. They do know more than you, right? Grinning! You probably have owned a home for many years and can remember exactly some of the pitfalls you went through. Sharing your knowledge can be very helpful to your kids as long as you are not overbearing.
The excitement of purchasing a new home for first-time buyers can be exhilarating. However, house buying can be a complicated process, and since they are new to this, they can't be expected to know all the issues and pitfalls involved. This can lead to problems that could be costly in the future.
Whether you are a parent or a first-time buyer reading this, let's review some common mistakes first-time buyers make and see how to avoid falling into that trap.
Starting Your Search Before Applying for a Loan
If you don't know how much you can afford to spend, how can you begin your search? Find out from a lender what kind of mortgage you will be able to qualify for. This way, you can avoid wasting time on properties that are out of your price range.
In more competitive local markets, it may be necessary to move quickly to get a home you like. If you don't have preapproval for a mortgage, you could miss out.
Give Yourself More Loan Options
Don't restrict yourself to talking to only one mortgage lender. The more banks and other lenders you speak to, the more likely you are to get the best deal on a loan. This could be a difference of thousands of dollars on the cost of the interest you pay.
Make a comparison of at least three lenders to find out what your best options are. Don't only consider the rates they charge, what about their fees and terms for the mortgage? You might find that one lender's interest rate is lower, but the cost of their fees makes the entire deal less attractive.
When parents are helping kids financially purchase a home, there are several considerations. These should be entirely understood before moving ahead. Co-signing a loan for kids is also an option as well when they can't make it work on their own.
Aiming Too High
When looking for a home, it can be all too easy to stretch your finances beyond their breaking point. This creates a lot of risks and less room for maneuvering, should anything go wrong.
Careful consideration should be given to the monthly payments you can afford. Work out what your current expenses are to find out what mortgage payments will be within your budget.
Remember that there are going to be additional expenses with home-ownership besides the mortgage payment. You're going to have other costs such as:
- Real Estate taxes
- Utility bills
- Ongoing maintenance expenses
If you are not truly ready to own a home, you might instead opt for a rent to own situation. It could be the best of both worlds as you will be getting out on your own but won't be committing to the long term financial burden of a mortgage. If things work out, however, you will become a homeowner for a property you really enjoy.
Not Planning Ahead
Purchasing a house can take longer than you expect. You need to bear this in mind and not try to rush through the process. If you can take your time and build up your credit rating and save for a down payment, you will be in a better situation to purchase.
Spending All Your Money
Many costs are involved in a home purchase. If you exhaust all your savings on the down payment and other purchase costs, you could find yourself in trouble with unexpected bills.
Avoid this first-time buyer mistake by saving more money than you know you need for the down payment and closing costs. Try to have at least 3 months' worth of living expenses for emergencies if you can.
Don't overstretch your savings to reach a 20 percent down payment. It is better to pay mortgage insurance than risk your financial future by having nothing to fall back on.
Buying on Credit
First-time home buyer mistakes when it comes to credit can be disastrous. The lender will check your credit when they preapprove you, but check it once again when your purchase is closing. If you have taken out any loans between these two events, your credit rating could be different which could reduce the amount they are willing to lend to you.
To avoid this trap, simply don't do anything which could affect your rating. This means not opening or closing bank accounts or taking out new loans before closing. Also, make sure you pay your bills in full each month.
Over the years, I've seen many buyers purchase a car before the closing. This has had disastrous effects. In fact, a few times, the closing was delayed because of it. Don't make this kind of financial blunder.
Don't Let Your Emotions Get the Better of You
Buying a home is the most significant investment of your life, don't let your emotions guide your decisions. It could lead to you overpaying or focusing on the right house, which is in the wrong neighborhood. Either of these first-time homebuyer mistakes will lead to regrets.
Many home buyers put way to much focus on the house and not enough on the surroundings. Make sure you understand the dynamics of the neighborhood. Is it safe and friendly?
Finding a 20 Percent Down Payment
It always used to be essential to have 20 percent of the purchase price ready as a down payment. This is no longer the case, and many lenders are happy for purchasers to find less money upfront.
There is a downside to a lower down payment, however. The lender will require you pay private mortgage insurance every month, which will add a significant extra cost. If you can come up with the larger down payment great - if not, make sure you monitor your equity so you can get the PMI removed at the first opportunity.
Waiting for Perfection
If you set your standards too high or make your requirements too exact, you will likely end up taking longer and spending more money. You need to be able to make some compromises and accept a home which isn't perfect, to get a better deal.
In a fast-paced seller's real estate market, you also need to be able to move quickly. If you don't, there will be another buyer who will jump in and beat you to the punch!
Forgetting About Government-Backed Programs
If you don't have much saved for a down payment, Government-insured loans are available through the Federal Housing Administration, the US Department of Agriculture, and the VA. These agencies can offer no and low down payment loans. FHA and VA loans are two of the most popular loan products for first-time home buyers.
Final Thoughts on Avoiding Mistakes
When buying a home, it is essential to keep your head on straight. One of the most critical things you can do is educate yourself about the home buying process in advance of your purchase. Ask a lot of questions and use the answers to your advantage. By asking the right things and getting appropriate answers, you'll find yourself in a much better place.
You will dramatically increase the odds you will make fewer first-time buyer mistakes - certainly something anyone should want!