Buying a home is a huge investment that requires due diligence and thoughtful planning. For first time home buyers, however, it is easy to make mistakes that can either jeopardize your dream of owning a home or have you living in a home you would rather not. If you are thinking about buying your first home, here are a few common mistakes many first-home buyers make that you should avoid.
1. Not Going Loan-Shopping
Sometimes, the hurry to buy a home due to excitement or fear of the real estate market changes may drive first time home buyers into settling for the first quote they get. The lack of research and comparison on various available loans lead to choosing the wrong mortgage, which paves the way for future financial regrets. Some buyers don’t bother getting more information from their lenders or mortgage brokers, causing misunderstandings and unrealistic projections.
You need to do your research and choose a mortgage option that is best for you. This will save you the consequences of dealing with burdensome financial obligations in the future. What’s more, shopping for a loan will expose you to better deals and quotes. You will be surprised how much savings you can realize just by comparing different lenders and picking the most favorable.
2. Underestimating the Cost of the Home
When looking for a house to buy, it is only normal to look at the cost of the home. However, many first-time buyers only concentrate on the down payments, mortgage installments, and closing costs, forgetting to factor in recurring expenses and maintenance, such as repairs and renovations. Eventually, they end up with a home that strains their finances.
Before getting your finances together to buy a home, make sure you crunch up the numbers and establish how much it is going to cost you; both during acquisition and when you finally move in. You can always consult your real estate agent about the estimated recurrent costs, such as insurance. If you are buying a home that was previously owned, it would help to ask for utility bills so that you can get a clear picture of what you can expect to pay.
3. Going Out of Your Financial Comfort Zone
The excitement of owning a home can lead most first-time homebuyers to blow their budget on just any home that looks nice. Most buyers don’t look at future costs and may even end up buying homes that will have them spending more than they can afford in expenses and rehabilitations. You don’t have to spend everything the bank is willing to lend you without thinking about your financial situation.
Preparing a comprehensive budget and sticking to it is a great way to avoid overstretching your finances and using up all your savings. What’s more, lenders always look at your credit score, taxes, and spending history to determine if you can afford a particular loan. If you don’t want to risk losing your home because of defaulting, ensure you take loans that you can afford and spend within your means. Look out for affordable services when moving and go for houses that need fewer repairs to keep your expenses at a minimum.
4. Applying for Credit Before the Sale is Finalized
The period between application and finalizing a loan is very critical and can cost you your dream home. However, most first-time homebuyers don’t know this and may end up getting another loan to furnish the new home. This leads to a higher debt-to-income ratio, which may result in the lender raising the loan’s interest rates.
Lenders usually re-evaluate your credit shortly before closing to check and ensure that your credit score and the debt-to-income ratio hasn’t changed. Avoid taking another loan, making purchases on credit, and even getting a new credit card if you don’t want to ruin your credit. You should also ensure that your credit details are accurate and free of errors.
5. Shopping for a House Before a Mortgage
Most first-time homebuyers are quick to go shopping for a house before knowing how much they can afford. By going house hunting without understanding your finances, you set yourself up for disappointment. This is because you may end up going for a home that is more or less expensive than what you can afford.
To avoid making this mistake, you should seek a pre-approved mortgage before going house hunting. Mortgage pre-approval lets you know how much you can spend, and also makes a good impression on the seller as you can back your offers up. If you are worried about your mortgage pre-approval expiring before you can find a house, there is always the option of renewal. This will save you the disappointment that comes with setting your heart on a home that is way above or below your spending limit.
Other mistakes to avoid include buying a home based on emotions and overlooking the neighborhood just because the house fits your needs and preferences. By avoiding the above mistakes, you can be assured of a hassle-free home buying experience.