Before buying a home, it is wise to learn from mistakes made by others. This can make the process a bit easier and hopefully save some trouble. Listed below are the top mistakes first time home buyers make and how to avoid them.
Finding a Home Before Getting Pre-Approved
The only people that should go looking for a home without a mortgage pre-approval are those individuals who plan to pay cash for the property. For the rest of us, it is always wiser to get pre-approved for a home FIRST, then look for a suitable property.
Why? That part is simple. How devastating would it be to find a home that meets all of your needs only to find out that your lender won’t approve a loan for the place? Randomly choosing a price range and then looking at homes without talking to a lender is a recipe for disaster.
Do Not Use All Your Money on Down Payment
Some people put together a smart plan to save up 5%, or more, for a down payment. This is really a good strategy. However, the cash needed to purchase a home and move to a new location does not end with the down payment.
Ernest money, closing costs and moving expenses are also something to consider. While it may be possible to get the seller of the home to pay some of the closing costs with certain loans, first time home buyers should not depend solely on this.
There is also the issue of maintenance and eventual repairs that come with owning a home. It is better to leave some funds in saving to help out when the repairs are needed.
Buying a Home is SO MUCH MORE Than the Monthly Payment
Many lenders will require home buyers to pay in to an escrow account. The escrow account is a holding place for funds to pay the annual property taxes as well as homeowner’s insurance. The taxes and insurance amount are on top of the interest and principal payment for the loan. Also, if the buyer does not make a 20% down payment, there is a strong likelihood that they will be paying private mortgage insurance fees. These monthly fees are on top of the interest and principal payments too.
That is just the main items that the majority of homeowners pay. There are also other possible things like dues to a local homeowner association and higher utility costs that typically come with owning a home.
Do Not Add New Debt After Getting Pre-Approved
People get really excited when they hear the news that they are pre-approved for a home loan. Suddenly it appears the whole world is open to them and they can conquer any obstacle. With this sense of euphoria, and the knowledge that they have an acceptable credit rating, many people will trade vehicles. Other people may finance the purchase of some new furniture from a local retailer. Both of these are terrible ideas.
When a lender pre-approves a person for a mortgage, the pre-approval is based on their current debt situation. Getting a more expensive vehicle or financing a new living room/dining room combo or taking out any other new loan changes the borrower’s level of debt. This new debt can actually force a lender to cancel the person’s pre-approval for the home loan. Here is the moral of the story: only apply for new debt AFTER you have moved in to the home.
Do Not Try to Save Pennies by Doing Everything Yourself
Some first time home buyers will try to handle all of the real estate negotiations themselves and avoid important things like a home inspection and maybe a property survey. This is extremely foolish.
A new buyer needs the help of a real estate agent to help them locate a home, negotiate a fair price, read & prepare a proper real estate contract with the offer and also be on standby in case of any potential issues. The real estate agent that represents the seller is trying to get the absolute best price for their client. They are not actually trying to help the buyer. This is why it makes sense for buyers to have their own agents.
Summing Up Mistakes First Time Home Buyers Make
Buying a home will be filled with lots of steps and new experiences. Taking the time to avoid pitfalls like the ones mentioned above should make the process much easier for first time home buyers.
Additional First Time Home Buyer Resources:
What You Wish You Had Known Before Buying A Home by Lynn Pineda
How to Find Down Payment Assistance Programs by Jamohl DeWald
What To Do When A Home Inspection Reveals Problems by Bob Gordon
Signs You Hired The Wrong Real Estate Agent by Michelle Gibson
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