Making the decision to buy a home isn’t one to be taken lightly. Homebuyers have a lot to think about from deciding when to buy and what home style fits their needs to saving for a down payment and keeping their credit in check. Here are some of the biggest pitfalls to avoid when buying your first home.
1. Not Getting Pre-Approved First
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Shopping for a home without a pre-approval is like going to the mall without your wallet. The vast majorities of homebuyers start their buying journey by looking at homes online, but as a first-time homebuyer, make sure you aren't putting the cart before the horse.
The first step in homebuying should always be meeting with a mortgage lender. You'd hate to fall in love with a home online only to find out it's out of your affordability range.
For even more peace of mind and the ability to act quickly on a home purchase, consider getting a loan commitment.
2. Neglecting a Home Inspection
According to the American Society of Home Inspectors, approximately 10 percent of homes purchased in 2014 were not inspected. Home inspections typically cost anywhere from $300-$500, varying by region, size and age of home, scope of services, etc. A home inspector spends several hours examining a home's structure, major systems, and physical components, flagging areas that are or could become maintenance or safety issues.
The cost of a home inspection is well worth the money if it deters you from overspending on a home with severe structural or mechanical issues, which is why some lenders and/or mortgage types require a buyer have an inspection performed.
3. Overextending On Home Budget
Mortgage affordability weighs on multiple factors in terms of loan approval, including annual gross income, mortgage rates, mortgage insurance, home type, credit history and score, fees, closing costs, etc. While you lender will use ratios, like debt-to-income, to determine how much you are allotted to borrow, it's important to determine what you are comfortable paying monthly, as well.
It's important to consider utility costs, monthly maintenance and upkeep costs, and other large expenditures necessary for homeownership, like appliances and furniture, when determining what a comfortable monthly payment looks like for you.
4. Forgetting About Closing Costs
Closing costs typically range from 3 to 5 percent of your home's purchase price. These costs and fees include items related to your home purchase. Depending on your loan type, you may have to pay these costs at closing (on top of down payment) or they can be structured into your mortgage with a lender credit.
5. Not Being Flexible With Home "Wants"
It's important to keep an open mind when searching for a home. Sit down and create a list of "must-haves", "wants" and "deal breakers". Share this list with your real estate agent so they can narrow down homes for you to view. The goal is to find a home with the majority of your "must-haves" and some of your "wants", all within your price point comfort range.
6. Picking the Wrong Real Estate Agent
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First-time homebuyers are typically more time-consuming than repeat buyers as they are still learning the steps of the homebuying process. You'll want to find a real estate agent who is available to meet your home search needs and answer any questions along the way.
Ask friends and family or your mortgage banker for a referral to a real estate agent who has a good track record and lots of experience with first-time homebuyers in your purchase area.
7. Not Looking Beyond the Home
So you've found a home with a lot of your "must-haves" and "wants", but the location isn't great. The real estate catchphrase "location, location, location" is heavily warranted because home value is largely influenced by location.
It's necessary to look past the home's physical structure to determine a smart investment. Is it in a good school district? Are there plenty of nearby amenities and job opportunities? Is it located near a busy road with lots of nighttime traffic (i.e. lots of noise)? Remember that physical structure depreciates over time and home aesthetics can be changed, but a home in a great location will give you an advantage for a profitable resale in the future.
8. Making Major Credit Decisions After Applying for a Mortgage
In between application and closing, there are several financial decisions that could affect yourcredit score and debt-to-income, and you overall ability to close on your home purchase. Avoid:
- Making late payments on credit cards
- Opening a new line of credit
- Closing old accounts or paying off old collections
- Making large purchases on existing credit accounts
Before making any credit or employment decisions after applying for a mortgage, consult with your mortgage banker so you do not offset your closing.
To learn more about buying and financing your first home, download our free Mortgage 101 Handbook, a great resource for first-time homebuyers!