7 Common Mistakes that First-Time Home Buyers Make
Congratulations! You've decided it's time to make the leap and buy your first home. But as you start househunting, you're beginning to realize that buying a house can be as scary as it is exciting.
Before you start mapping out paint colors, envisioning your backyard barbecues while you sip a cold one on your back porch, or picturing the cute little nook where you'll place that upcycled table, let's take a look at some common errors that first time home buyers make and pitfalls to avoid.
Mistake #1: Not having a realistic budget.
Find out what you can realistically afford before you start perusing home listings online. There are many options for online mortgage calculators to help you determine this.
Also, for military members, keep in mind that every listing on MilitaryByOwner includes a BAH (Basic Allowance for Housing) and mortgage calculator, so you can quickly determine if a particular home is in your price range or not.
Learn more: Home Ownership and Military Life.
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Mistake #2: Not correcting credit report issues.
Get a free credit report at AnnualCreditReport.com, and then dispute any discrepancies. Be sure to complete this step before applying for home loan pre-approval or pre-qualification.
Financial expert Kate Horrell, in the post Preparing Your Finances for Buying a Home, shares this advice for those finding mistakes on their credit report:
"Review your credit report carefully and dispute anything that is wrong. It’s estimated that 1 in 5 people have a confirmed mistake on their report, so don’t be surprised if you find errors. Use the process explained by the reporting agency to dispute each error. The credit bureau will return to the reporting company and ask for verification on the information. If they confirm it, and you still believe it to be inaccurate, you can submit a statement for your credit file."
Mistake #3: Not comparing mortgages.
Did you realize you can shop around for lenders? While it can be time consuming to research and submit documents, taking the time to compare rates, fees, and loan terms before landing on the best option can help save money in the long run.
Some states offer grants to help first-time home buyers with down payments or closing costs. FHA and VA loans typically have a more streamlined process as well.
See this post, Home Financing Options for Military and Veteran Home Buyers, for a detailed breakdown of home financing options, then follow up with more info:
- Rebates and Incentives for Military Home Buyers
- Buying a Home in the Military? Start with This Guide
Pay attention to how responsive the lender is to your questions, as this can portend what's ahead. And consider whether you'll use a local lender or one more nationally known. Each approach has its pros and cons. Learn more about comparing options here: Home Financing: Is it Better to Use a Local or National Lender?.
Mistake #4: Leading with emotions.
Falling in love with a home at first sight can cause you to throw all your previous caution out the window. Stick to the list of must-have's you've outlined as priorities.
Remember: location, lot size, school district, and neighborhood are not features you can change about a property, no matter how much curb appeal the house has right now.
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Even though we've been inundated with home makeover shows in recent years, it can be easy to forget that cosmetic issues such as ugly countertops, weird paint, outdated carpeting, or an unkempt yard are details you can overlook to see the real "bones" of the place. As mentioned in our post, Avoid These Emotional Mistakes When Buying a Home:
"What can you compromise on? Are you guilty of having champagne taste on a beer budget? Some of us have visions of chef-inspired kitchens complete with farmhouse sinks and white cabinets, unique loft spaces, or living rooms that somehow marry industrial and vintage designs a la "Fixer Upper" style, when the reality is that what we can actually afford is more along the lines of builder grade cabinets and a more modest neighborhood. Compromise on what you can to get the benefits that are most important to you, like an easy commute or good schools for your kids."
Mistake #5: Making big financial decisions, purchases, or applying for credit during the home buying process.
When you're buying a home, it's not the time for decisions that affect your finances negatively, such as leaving your job, buying a car, or racking up credit card debt. Any big financial changes during this time could draw questions from your lender and even halt the process. Keep your financial life steady during this time!
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Mistake #6: Waiving the home inspection.
We mention this frequently across our home buying resources, because it's important. While it's tempting to skimp in this area to save a little money, the possible downside of skipping a home inspection cannot be overstated. Spending a few hundred dollars up front has the potential to save thousands later in repairs.
Make your offer contingent on the house passing inspection. If any problems are found during the inspection, this can be used during negotiations by either asking the seller to correct any issues or settle on a lower price.
In addition, military and veteran homebuyers will need the property to pass the Minimum Property Requirements (MPR) for VA Loan approval. Keep in mind that the MPR and home inspection are important, and separate, processes.
Mistake #7: Underestimating the costs of owning a home.
Aside from monthly mortgage payments, there are hidden costs to consider when it comes to homeownership, including:
- Down payment
- Closing costs
- Property insurance
- Property taxes
- Ongoing homeowners' association dues
- Maintenance and upkeep
- Unforeseen repairs and appliance/system replacements
And, if you've take on a true fixer-upper, be realistic about how much time and money you'll need to set aside.
It's recommended to estimate at least 1% of the value of your home to spend on upkeep each year. Even if in a given year you don't end up needing it, excess funds can be set aside to use for big ticket items that might pop up later, like replacing or repairing a roof.
Wondering how much to add to your maintenance budget? Porch.com has broken costs down by location to help you estimate your yearly spending on home maintenance.
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How about what you can do RIGHT when you're buying a home?
1) Establish a long-term goal.
Will you live in the home for years to come? Start a family? Move and turn the home into a rental property? Thinking five or ten years ahead will help you with this step.
2) Like, don't love.
When you're home shopping, be willing to walk away if something falls through during the process.
3) Set a proper budget.
Be realistic with your income, current and future expenses, and debt. Factor in ongoing maintenance, a down payment, and whether you'll turn this property into a rental down the road at some point.
4) Know your home financing options.
Once you've determined that your credit is in order, start researching types of loans and what would be the best fit for your situation. See more in our article, Understanding Different Types of Home Loans.
5) Be patient!
The home buying process may take longer than you expected. You might find your dream home right away, but it could also take weeks to months. Allow time for househunting (both online and in person), finding an agent, loan preapproval, making an offer, any negotiations, final mortgage approval, home inspection, appraisal, paperwork, and closing. Whew! But at the end of it all, you'll be a homeowner.