Buying a new home can seem like an overwhelming process for first-time buyers. Paperwork, applications, and cost considerations are just the first steps in making the biggest purchasing decision of your life.
We all want that perfect home—and it is achievable with the right preparation! The more you understand about the process before beginning, the more confidence you’ll have as you move forward. Your home-buying dream is just around the corner if you avoid these 10 mistakes first-time homebuyers make.
Mistake 1: Not knowing your budget
Not having a realistic idea of budget can be a major blow to new buyers. The amount approved by the bank may not be an accurate reflection of what you can afford. Examine your existing budget—including monthly payments of credit card debt, car payments, school loans, as well as yearly costs like insurance deductibles, car maintenance, and vacations—to ensure you are accounting for all regular and emergency costs before determining your budget.
Mortgage types, loan duration, interest rates, and property taxes will all affect your mortgage payment as well, so pay close attention to those numbers and the long-term costs when considering your budget.
Mistake 2: Not planning for regular expenses of home ownership
While it is impossible to plan for every possible circumstance, there are some costs that can definitely be expected with home ownership:
– Operating costs. These can include electricity, gas, water, trash service, sewer, lawn care, HOA fees, and other monthly upkeep fees. It is acceptable to ask the current home-owner for estimates of bills to prepare your budget.
– Maintenance costs. According to The Balance, there are two methods for planning for regular maintenance. Either plan for 1 percent of your total home cost going to average maintenance per year, or plan for about $1 per square foot.
– Property taxes. These are often rolled into your mortgage payment—but be prepared for taxes to change! If you are in a new development or if the economy improves, a rise in taxes can significantly increase your monthly mortgage payments.
Mistake 3: Not knowing the neighborhood
Location, location, location. Consider your lifestyle needs before choosing your home location. These needs will vary from family to family, so you want to clearly communicate with your real estate agent before you begin your search.
Some things to consider are future family size, schools, pets, parks, running/biking trails, access to public transportation, proximity to neighbors, entertainment options, and distance to stores and restaurants.
Mistake 4: Skipping or skimping on the home inspection
Expect to spend $300–$500 on the inspection process, a non-negotiable must for homebuyers. It’s easy for the average person to be wowed by cosmetic upgrades, but a home inspection professional will find all the dirty details that the seller may not have disclosed.
In many cases, the home price can be negotiated after an inspection if something negative hasn’t been disclosed, or the seller may be required to fix some specified issues before the sale can go through. Even if you decide not to renegotiate or ask the seller to fix anything, it is still important to know what’s really going on and how to plan and prioritize future maintenance.
Mistake 5: Not getting pre-approved
“Congratulations, you’re pre-qualified!” Don’t celebrate just yet. Pre-qualified and pre-approved are distinct parts of the home-buying process. Pre-qualification is just the first step—it’s the big-picture look at your finances.
As Investopedia explains it, “Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.” Think of pre-qualification as the beginning point to determine what you can afford and what type of mortgage will be right for you.
After the initial pre-qualification process, you want to seek pre-approval. That’s where you get into the nitty-gritty of applications, credit scores, specific mortgages, exact approval amounts, and a thorough look at your financial history. Upon approval, you should know exactly what you can purchase and what the bank will be willing to lend.
Mistake 6: Making changes that affect approval
This common mistake has been a dealbreaker for many homebuyers. Once you are pre-approved, don’t make any significant changes in your financial life.
This cannot be overstated. DO NOT:
– Change jobs.
– Open a new credit card.
– Make major purchases on existing credit cards.
– Add or remove authorized users from your credit cards.
What you should do is:
– Be aware of your credit report.
– Fix errors on your credit report long before beginning the home-buying process.
– Work to improve your score before considering a home purchase.
– Establish a stable work history.
Mistake 7: Being unwilling to compromise
It’s fine to make your dream list of desirable home features, but you also need to be reasonable. Your dream list may not come to fruition immediately, and it may not even happen at all in your first home. When budget is limited, homebuyers must learn when and how to compromise.
To reach a good compromise, you may need some creativity to look past the cosmetic. Remember, paint color can be changed, wallpaper can be removed, a pool can be installed, and old fixtures can be updated. Don’t get caught up on cosmetic upgrades and staging that could convince you to spend thousands of dollars more. If you can look past that 90s carpet and see the potential, you have plenty of time to make it reflect your personality.
Mistake 8: Being too willing to compromise
It’s about balance, right? After so many searches, it may be tempting to settle for what will work right now. That can absolutely be the best option, but it’s also possible to compromise too much…
Are you planning for children or pets in the near future? Maybe you really do need that extra bedroom or a big backyard. Do you go for daily walks? Then a sidewalk is a must. Do you go to the grocery store daily? Then maybe the country life isn’t for you. Compromise on things that can be changed and updated. Don’t compromise on things that affect your lifestyle, safety, or enjoyment.
Mistake 9: Not having a real estate agent
A realtor is someone you want on your side, representing you and your interests in the home-buying process. They know how best to help you prepare, where and how to find homes and open houses, and how to complete the process in the least stressful way. From listings to viewings, negotiations to closing, you want a real estate agent as your advocate.
The best way to find a good realtor is through a referral from someone you trust, or even by attending open houses and talking with various agents. If you hit it off with someone and they appear to be highly knowledgeable while truly listening to your individual needs, they’re probably a good bet. You may want to check online reviews of agents, as well.
Mistake 10: Not considering renting as an option
Don’t throw out the option of renting just because you’re in a hurry to achieve home ownership. Renting is not a failure—and in many cases, it may be the preferable option. If you desire flexibility, are not ready to settle down, still need time to save money, or are working on your credit score, renting could be a perfectly valid option for you in the meantime.
Are you ready?
Home buying is a very individualized process that requires a lot of planning, foresight, and patience. However, when you’re ready, you shouldn’t be afraid to take the leap.
Avoiding major mistakes, learning as you go, and having friends and advisors in your corner will take you from house-hunting to housewarming in no time!