Buying your first home can be an exhilarating and overwhelming experience that can leave you feeling elated and exhausted at the same time. It’s like traveling down a road filled with potential potholes that may be difficult for a newbie to see! First-time home buyer mistakes are common and while many aren’t a big deal, some can be disastrous and costly.
Here are some common first-time home buyer mistakes, and more importantly, some ways for you to avoid them!
Looking for a Home Before Applying for a Mortgage
This is the most common mistake first-timers make. Buying a home is exciting but shopping for one before getting preapproval from a lender can be a big mistake. Taking the time to apply for approval up front is beneficial in several ways.
In today’s market with its tight inventory there’s more buyer demand than affordable homes on the market. You’ll likely find it almost impossible to get your offer taken seriously unless you have a mortgage preapproval. Sellers won’t want to take a chance on someone who isn’t even certain they can get financing.
Without a preapproval, you won’t really know how much home you can afford. Having a preapproval will give you a reliable price range to stay within, so you don’t set your sights too high and take on more than you can handle.
Getting Only One Mortgage Rate Quote
First-time home buyers often get a mortgage quote from the first and only lender they talk to. Although shopping around is time consuming, it gives you a better basis for comparison to ensure you’re getting the lowest rates and best terms possible.
Not Working with a Real Estate Agent.
While it’s possible to buy a home without being represented by a real estate agent, it’s certainly not recommended. Realtors® are professionals. They are experts in the local real estate market and are seasoned negotiators. From writing the offer, to helping negotiate repairs, to making sure everything is in order for closing, they can guide you through the entire complicated home buying process.
Making Decisions Based on Emotion
Buying a home is a major life milestone. This is a place where you’ll make memories and create a space that’s truly yours. It’s easy to fall in love with a home and make impulsive decisions. Emotional decisions could lead to overpaying for a home and stretching yourself beyond your financial means. Buying a home worth your entire approved mortgage amount may make it difficult for you to afford other monthly payments. It’s critical to have a budget and stick to it. Don’t let your emotions cause you to buy a home that will derail your long-term financial goals.
Being Careless with Your Credit
Your mortgage lender will pull your credit report at preapproval. They will also check it again just before closing to make sure nothing has changed in your financial profile. Changes to your credit could mean changes to your loan. Any new loans or credit card accounts on your credit report can jeopardize the final loan approval. First-time buyers often learn this lesson the hard way. It’s vital to keep the status quo in your finances from preapproval to closing. You can always finance that new furniture after closing.
Draining Your Savings
Spending all (or most of) your savings on the down payment and closing costs is one of the biggest first-time homebuyer mistakes. Draining your savings can put you in a precarious position when it comes to hidden or unexpected maintenance costs or any other type of emergency.
Homebuyers who put 20% down don’t have to pay for private mortgage insurance (PMI) when getting a conventional mortgage, which translates into substantial savings on their monthly mortgage payments. However, if it means wiping out your savings to make that down payment, it may not be worth the risk.
Other options are to aim for three to six months of living expenses in an emergency fund, even after you close. Also, consider other mortgage options. You may be able to put as little as 3% down for some conventional mortgages and FHA loans only require 3.5% down. Check with your lender to see if you qualify for assistance programs for first-time homebuyers.
Not Accounting for Other Upfront Costs
Besides your down payment there are other costs associated with your closing:
- Closing costs: These may include appraisal fees, title fees, lender fees, application fees, loan origination fees, property taxes and more. These costs can quickly add up to as much or more than your down payment.
- Homeowner’s Insurance: This insurance covers damage to your home and the assets within it. Your mortgage lender will require this insurance to be put in place prior to closing.
- Property Taxes: These taxes are assessed by the county in which the property is located and are based on the assessed value of the home. You’ll be required to pay the prorated taxes from the date of the closing.
- Title Insurance: This is an insurance policy that protects the lender in the event that the borrower defaults on the loan.
- Title Fees: These are fees charged by the title company to process your closing.
Overlooking the Hidden Costs of Home Ownership
Buying a home is costly enough, but don’t make the mistake of ignoring the other costs of owning a home. As a new homeowner, there are many other potential expenses to budget for such as property taxes, homeowner’s insurance, homeowner’s association fees and moving costs. And don’t forget maintenance and repair costs. You will likely end up paying thousands of dollars a year for these and other costs associated with home ownership.
The Bottom Line
Everyone makes some first-time home buyer mistakes at some point because buying a home involves many steps; it’s easy to get lost along the way. It’s important to have trusted professionals including your real estate agent and lender to help you navigate the process and help prevent you from hopefully making any costly mistakes.
If you are a first-time buyer in Arizona and are feeling overwhelmed, check out our other related posts that may help…or better yet, call the Donnelly Group team at 480-792-9700! Please don’t hesitate to contact us; we’d love to help you navigate the process.