Avoid These 6 First-Time Homebuyer Mistakes

This exciting time can also be pretty nerve-wracking. Avoid these common pitfalls of young homeowners to guarantee your home buying process goes as smoothly as possible. 

1. Do Not Underestimate Yourself

A lot of young people grew up associating home-ownership with their parents. It seems like something you do in your late 30s or in middle-age, after building up a sizable nest egg.

Many young people simply believe that home ownership is beyond their reach, and something they should only pursue further down the road. Deciding it simply makes more sense to keep on renting, thus preventing themselves from acquiring an asset which can help ensure a better future for themselves and their families. 

Even if young, with a down payment of as little as 5% you can get yourself into a home of your own. Find an affordable house in an up and coming neighborhood, and by the time you get more established professionally, you can potentially sell your starter house at a profit and move somewhere bigger and better. 

2. Not Understanding the Actual Costs   

The sticker price of the house and the monthly mortgage estimates are not the only costs of owning a house, and if you do not factor in all of the expenses, you can easily find yourself getting in over your head.  

In addition to the monthly mortgage payment and the closing costs of buying a new house, you also need to factor in homeowner’s insurance, utility bills, and property tax. In addition, you should have some sort of rainy day fund set aside for emergency repairs.

3. Falling in Love With a House At First Glance

There can be pressure to become a homeowner, but it is worthwhile to take a deep breath and slow down a bit. This is a major decision and there is no reason to rush and decide to close on the first house you see. 

Yes, sometimes when you see a house, you fall head over heels in love right away. It could actually be your dream house, but chances are, with a little bit of patience, you might notice things that could be better. The bottom line is that you may truly love a place and only when you see another one will you realize what the first one was lacking. 

Make a list on your musts and your deal-breakers. You may not get everything on your wish list without being flexible with your budget, so its better that you try and weigh a number of options so you can ensure that you’re getting the right house for your budget and your needs. 

4. Going With the First Mortgage

For such a major investment this may come as a surprise, but around half of homebuyers in the US dont comparison shop for mortgages. These buyers go to their local bank branch or a lender they are familiar with and get a mortgage quote and feel they are bound to it. 

Your first move should be to change how you view the relationship between you and the lender. You are the customer and they work for you, not the other way around. The lenders need to compete for your business, and by shopping around, you can find the lender with the attractive mortgage rates and lowest closing costs. This can save you hundreds, possibly even thousands of dollars per year. 

A good idea is to compare at least three different quotes. 

5. Skipping the Inspection

Do not take the homeowner at their word about the house or its condition. A professional could uncover problems like a bad foundation that could cost thousands of dollars to fix down the road. 

Make sure to schedule an appointment with a trusted inspector, and to free up the time to be there for the visit. 

6. Skipping the Preapproval 

When you get pre-approved for a loan, the lender will tell you how much of a loan you can expect to receive and what type of payments you can expect to face. It can give you a good idea of what types of houses are in your budget. It will let you know what your monthly payments will be, and may help you adjust your expectations once you start seeing houses. 

Once pre-approved, you can show the pre-approval letter to a potential seller, to show you are serious and able to purchase the home. The seller will know that you have secured financing and that once you sign on the dotted line, you have a lender who will put up the mortgage.

A common mistake made by first time homeowners is to start looking at houses before getting pre-approved. They often fall in love with places they cannot afford, thus wasting their time.

Get pre-approved, and step up to the plate ready. 

So, What Now?

It bears repeating - buying a house is a big decision, and one that should be made wisely. There are many things to consider: your income, your expenses, and your budget, and start shopping around with lenders to find the right deal for you. 

Finally, take your time. This can be a stressful decision, but also an exciting one, and if you plan carefully, you can help ensure that your biggest financial move will also be your smartest one.