20 Mistakes to Avoid When Buying Your First Home
No matter where you choose to live, homeownership 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 as you look for assistance to help you become a first-time homeowner!
Buying before you are prepared: The last thing that you want to do is buy a home just for the sake of it. Homeownership comes with a lot of responsibility, and you need to be capable of handling it. Make sure you have enough saved up for a strong down payment, a firm grip on your monthly expenses, and a good handle on any debt before you even consider buying a home.
Not enough savings: Many new homeowners underestimate how much they need to have saved 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 2 to 3% for six 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 homeownership.
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.
Not getting pre-approved: Shopping for a home before you are pre-approved is like window shopping while leaving your wallet at home. Pre-approval is the first step to homeownership and will help determine your price range and guide you in planning your monthly expenses.
Buying a fixer-upper: Many eager new homeowners attempt to tackle a fixer-upper in an attempt to save some money, but it’s easy to end up over budget and overwhelmed. Don’t take this hassle on for your first home unless you personally know trusted contractors who can help you along the way.
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.
Underestimating monthly expenses: If you’re renting, your landlord takes care of grounds upkeep, landscaping, cleaning, HVAC, sewage, repairs, lawn care, trash, water, and more. If the house is yours, these costs are yours, too.
Many homeowners don’t set aside enough funds for ongoing 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 decrease the depreciation rate on your building systems. Make sure you have an accurate understanding of what the monthly costs of homeownership actually entail before buying a home.
Over-leveraging yourself: You don’t just need a mortgage; you should have a special savings account to help cover major maintenance expenses above and beyond your down payment, moving and furniture costs. Set aside at least 1% of your home value for these emergency repairs.
Not budgeting for future savings: You can’t rely on home equity as your only savings, or as your retirement account. Home values fluctuate frequently and unexpectedly, and the time you sell will likely be determined by personal reasons, not market performance.
Ignoring home inspections: Take home inspections seriously. Read the disclosure statement and talk to a friend or construction expert to identify problems. Finding a red flag doesn’t mean that you can’t buy the home, but you need to adjust your offer or your expense budget. Be on the lookout for things such as system warranties (the longer the better), code compliance (for example, electrical grounding), and structural damage due to dry rot or settling.
Ignoring broker issues: If you are using a broker, be wary. Make sure both parties are committed to the process and set clear expectations. Changing brokers midway can be a hassle, so choose wisely. Contacting the buyer directly might help you save 5% on a home purchase by avoiding broker fees, typically “built-in” to the price.
Focusing on the wrong things: When buying a home, remember that there are things you can change and things you can’t. Layout, traffic, noise, odor, environment, and space are already set, but minor details such as appliances, furniture, or décor can easily be changed.
Confusing needs with 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 (size, location, neighborhood, commute distance, layout, or yard space), and be firm about them. All other factors, such as finishes or curb appeal, should be secondary.
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 before you buy to budget accordingly.
Not budgeting for HOA fees: If you are buying a condo or a home in a gated community, be prepared to deal with monthly homeowner association fees. In many cases, these fees increase every few years. Make sure you have some wiggle room in your budget to prepare for this.
Picking just any mortgage offer: Choose your mortgage lender wisely! You want a great rate that will prevent you from paying too much upfront in interest (a good credit score will help with this). It’s always a good idea to shop around and approach a minimum of two or three lenders before choosing the best one.
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 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.
Buying after a major transition: It’s best not to my home just after you change jobs, make large purchases, or apply for credit. These events can impact your credit score and therefore your potential loan interest rates and underwriting. Hold off on any major expenses until after you close – and until you have a better grasp on your monthly budget.
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 property before the deal is officially closed to avoid disappointment.
Not looking at down payment assistance options: Is all of this a bit overwhelming? Don’t worry — there are many ways that you can receive down payment assistance to help you purchase your first home.
The FHA offers loans to those with only a small down payment saved up – as low as 3.5%. If you are a service member, 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 homebuyer programs that typically offer grant or down payment assistance.
Home.LLC is different. We don’t offer loans — we actually complete your down payment. As long as you have 5%, we’ll bring you up to 20%. You owe no interest or fees. We’ll share profits or losses when you sell your home!