Category
Buying
20 Mistakes to Avoid When Buying Your First Home
Buying your first home is an exciting step forward in life! However, it is a step that should be taken with care and consideration. Here are 20 mistakes to avoid when taking the plunge into homeownership.
1.Buying Before You’re Prepared
The last thing that you want to do is buy a home just for the sake of it. Home ownership comes with a lot of responsibility, and you need to be capable of handling it. Make sure you have a strong down payment saved, a firm grip on your monthly expenses, and a good handle on any debt before even considering buying a home.
2. Not Enough Savings
Many new homeowners underestimate how much they should have saved up prior to buying a home. You should have at least 5% of the home value saved up before buying: 2% for a down payment, 1% for closing fees, and around 2-3% for 6 months of payments in case of emergency. You will need even more for furniture, moving costs, and all the other details that come along with home ownership.
3. Poor Credit Score
Having a low credit score will negatively affect your interest rates. Work on improving your score before buying – this will improve your interest rates, which will dramatically lower your monthly costs and save you thousands of dollars.
4. Not Getting Pre-Approved
Seeing homes before getting pre-approved is like window shopping while leaving your wallet at home. Before you start shopping around – get preapproved. This is step 1 to home ownership and will help determine your price range and guide you in planning your monthly expenses.
5. Buying a Fixer-Upper
Many eager new homeowners attempt to tackle a fixer upper in an attempt to save some money. Don’t take this hassle upon yourself for your first home unless you personally know contractors who can help you along the way. Otherwise, you might end up over budget and overwhelmed.
6. Paying for Closing and Transaction Costs
Don’t let anyone fool you: the seller should pay all closing and transaction costs, including title fees, broker fees, and transfer taxes.
7. Underestimating Monthly Expenses
If you’re renting, your landlord takes care of many details you may not have considered in your budget: grounds upkeep, landscaping, cleaning, HVAC, sewage, repairs, lawn care, trash, water, and more.
Many homeowners don’t set aside enough funds for on-going monthly maintenance and ownership costs such as insurance and utilities. These are not things you want to skimp on – regular upkeep means better functioning systems and will help to decrease the rate of depreciation on your building systems. Make sure you have an accurate understanding of what the monthly costs of home ownership actually entail before buying a home.
8. Over-Leveraging Yourself
Given the chance, the bank can give you a loan for a lot more than what you are willing to spend on your mortgage. You should have special savings above and beyond your down payment, moving costs, and furniture costs. These savings will help cover any major maintenance expenses. Set aside at least 1% of your home value for these emergency repairs.
9. Not Budgeting for Future Savings
You can’t rely on home equity as the only means of savings, or as your retirement account. Factor this into your monthly financial goals. Home values fluctuate frequently and unexpectedly, and the time you sell will likely be determined by personal reasons, not market performance. You don’t want to rely on your home value as a source of savings.
10. Ignoring Home Inspections
Take home inspections seriously. Read the disclosure and talk to a friend or construction expert to help identify any red flags. Finding a red flag doesn’t mean that you can’t buy the home, but it does mean you need to adjust your offer or your expense budget. Be on the lookout for things like system warranties (the longer the better), code compliance (electrical grounding), and structural damage due to dry rot or settlement.
11. Brokering
If you are using a broker, be wary and make sure both parties are committed in the process. Set clear expectations. Changing brokers mid-way can be a hassle – so choose wisely. You won’t pay the broker but avoiding one and contacting the buyer directly might help you save 5% on a home purchase by avoiding broker fees, which are typically “built in” to the price.
12. Focusing on the Wrong Things
When buying a home, remember that there are things you can change and things you can’t. Focus on the things you can’t change: layout, traffic, noise, odor, environment, and space. Don’t worry about more minor details like appliances, furniture, or décor. These can all easily be changed.
source: Vermont Real Estate Company
13. Confusing Needs and Wants
Purchasing a home is the biggest expense you are going to undertake. Make sure you have clear criteria on things you won’t budge on – and be firm about them. These should be factors like size, location, neighborhood, commute distance, and yard space. All other factors should be secondary (finishes, curb appeal, layout, etc.).
14. Miscalculating Renovation and Repair Costs
There is nothing worse than buying a home and then being surprised by unforeseen repair costs. Be sure to get a professional estimate prior to purchase, so you can budget accordingly.
15. Not Budgeting for HOA Fees
If you are buying a condo, be prepared to deal with monthly HOA fees. In many cases, these fees increase every few years. Make sure you have some wiggle room in your budget to prepare for this.
16. Picking Any Mortgage Offer
Choose your mortgage lender wisely! You want a great rate that will prevent you from paying too much up front in interest (a good credit score will help with this). It’s always a good idea to shop around and consider multiple bids (2-3 minimum).
17. Being an Emotional Buyer
“Listen to your heart” is not the best advice when buying a home. The whole process can be an emotional roller coaster – so make sure to evaluate every decision logically, rather than emotionally. Buying a home is a massive decision and making that decision emotionally can have serious implications for your future.
18. Buying After a Major Transition
It’s best not to change jobs, make large purchases, or apply for credit right before buying a home. All of these things can have an impact on your credit score, and therefore your potential loan interest rates and underwriting. Hold off on any major expenses until you close – and until you have a better grasp on your monthly budget.
19. Getting Your Hopes Up
Not every home you look at will be “the one,” and not every offer you make will be accepted. Stay calm and be patient – there are many steps in the process, and a lot can go wrong. You’ll get your home eventually, but it’s best not to set your hopes on any one home before the deal is officially closed to avoid disappointment.
20. Not Looking at Down Payment Assistance Options
Is all of this a bit overwhelming? Don’t worry, there is help for new homeowners! There are many ways that you can receive down payment assistance to help you purchase your first home.
The FHA offers loans to those who only have a small down payment saved up – as low as 3.5%. If you are a servicemember, veteran, or surviving spouse, you may be eligible for VA loans, which help to get you better rates and terms. There are also state specific first-time home buyer programs which typically offer some form of grant or down payment assistance.
HomeLLC offers unique first-time homeowner assistance…we don’t offer loans, we actually complete your down payment. As long as you have 2%, we’ll bring you up to 20%. You owe no interest or fees. We’ll share profits or losses when you sell your home!
No matter where you choose to live, home ownership is an incredibly important decision in the life of any adult. Be sure to avoid these 20 mistakes as you look for your first home – and look for assistance to help you become a first-time homeowner!
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