Buying your first house is a great experience. For many it is part of the overall American dream. But with anything new, mistakes can happen in the process. The good news is most of these can be avoided, as long as you know what they are. Here are some of the most common mistakes first time home buyers make.
Home ownership is a significant financial commitment, so itâ€™s not surprising that many first time homebuyer mistakes are related to finances.
1.Skipping pre-approval: The first mistake is starting to look for a house before applying for pre-approval on a mortgage. Pre-approval is when a loan officer assesses the financial situation of a potential buyer – income, debts, credit score, etc. – and provides a dollar range of houses you can afford. There are two primary benefits to the pre-approval process. First, it provides a realistic range on exactly how much you can afford, allowing you to narrow down your home search and ensuring you donâ€™t kick off your hunt with unrealistic expectations.
In many competitive markets, only pre-approved homebuyers are eligible to apply for available homes. Getting pre-approved is a very important step in the home buying process and signals to sellers and real estate agents that youâ€™re a serious buyer.
2.Not shopping around with rates and lenders: Another common financial mistake first time home buyers often make is not considering their options when it comes to lenders. Experts suggest talking to at least three lenders as well as a mortgage broker to ensure you are getting a good deal and the lowest rate possible. And itâ€™s not all about the money, either. Be sure to ask about ongoing customer service after you take out the mortgage with that lender to ensure youâ€™ll have continued support along the way.
3.Going all-in on the down payment: Another common financial mistake first time home buyers make is draining their savings to make the 20 percent down payment. The stretch may be financially responsible in theory. After all, putting down 20 percent means buyers do not have to pay mortgage insurance with a conventional loan. However, draining your savings to make the down payment puts you at financial risk down the road. Not only is living paycheck-to-paycheck stressful, but it leaves very little room for emergency home repairs that may pop up after you move in. Try to have three to six months living expenses in addition to the down payment before buying your first house.
Luckily, first time home buyers often arenâ€™t expected to put 20 percent down. Special programs like FHA, VA and USDA loans (for those who qualify) lower the threshold for upfront payments to make home ownership more attainable. FHA loans reduce the down payment amount and credit score needed to qualify. If you are an active-duty or veteran military service member, a VA loan may not require a down payment at all. USDA loans, on the other hand, help lower income borrowers in rural areas and require lower or no down payment.
When it comes to finances and home ownership, thereâ€™s certainly a lot to consider. Just remember: youâ€™re not on your own. Your mortgage lender should make you aware of the options available to you and provide insight on how you can get the best deal for your financial needs.
Money aside, buying your first house is an emotional experience. On one hand, you have the joy and satisfaction of home ownership, creating a space that is truly yours to make memories for you and your family. On the other hand, making one of the largest financial investments of your life comes with a fair share of stress. Making a purely emotional decision can lead to overpaying for a house and stretching your budget too far.
This often occurs when buyers fixate on the house and not the neighborhood, and end up in a home you love in a neighborhood you donâ€™t enjoy. Before making an offer on any home, be sure to research the neighborhood, crime stats, and school ratings, and consider logistical factors like commute time and proximity to places you frequently visit.
Another emotion-based first home buyer mistake is simply moving too fast. The thrill of being a homeowner can cause you to rush the process and miss key elements like repairing poor credit, saving enough money, or settling on a house you donâ€™t really love. Of course, waiting for the perfect house may lead to frustration, an extended purchasing timeframe, and overpaying for a house. Plan on the process of buying your first home taking about a year.
Enjoy the Journey
With the common mistakes first time home buyers make in mind, itâ€™s also important to remember to enjoy the journey. Buying your first home is a once-in-a-lifetime experience, full of excitement and possibility. Along the way, your home buying wish list may change, a neighborhood may not be the right fit for you and your family, or you may find the perfect community in a place you would never expect.
Wherever the road to homeownership takes you, thereâ€™s always opportunity to learn, grow, and have fun. If you still arenâ€™t sure where to get started, get to know the family-friendly amenities, excellent school systems, and available new homes that make Bluewood such a wonderful place to live. Connect with a real estate expert today.