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Buying that first home is one of the most exciting – and nerve-wracking – of experiences. It’s also a minefield with lots of opportunities to trip the unwary.
The best way to ensure your first-time homebuying experience turns out well is by conducting research and performing due diligence. Initial home buying is a major life event, but remember that every homeowner was once a first time buyer.
Here are 10 common first time home buyer mistakes that cause prospective buyers to way overspend:
1. Not Getting Preapproved
Before you go house shopping, find out how much a mortgage broker is willing to lend you. Prequalification and pre-approval are two different things, and you want the latter. Pre-approval means a mortgage company has checked you out financially and all they require is an appraisal and the title search.
Pre-approval makes becoming a first time buyer a much smoother process!
2. Not Shopping Around for the Best Lender
While pre-approval is important for the any buyer, be sure to shop around for the best rates.
Even a quarter of a percentage point can save you thousands of dollars over the years. If you can, try to lock in a rate- with interest rates likely to rise increase in the future, locking in a low rate now will help you save money.
With websites like LendingTree, comparing lenders and interest rates is a very simple process (and free). There’s no reason NOT to shop around.
3. Buying More House than You Can Afford
Just because the bank or broker is willing to lend you a certain amount of money does not mean you have to spend that much on a mortgage.
It’s just like a credit card- your credit card company may approve you for a particular limit, but maxing out your cards isn’t usually a good idea.
Go over your monthly expenses with a fine-tooth comb and see what you can really afford without sacrificing life outside of mortgage payments. You want a nice dwelling, but you also need to sleep at night without stressing about making payments.
4. Forgetting About the Additional Fees
The monthly mortgage payment isn’t the only cost. Don’t forget the costs involved in the mortgage application process and the sale closing. Figure these costs to set you back between 2 and 5 percent of the purchase price. They include:
- Loan origination costs
- Legal fees
- Home inspection fees
- Title insurance
- Escrow charges
- Recording fee
Don’t forget points, which you pay in return for a lower mortgage rate. Expect to pay for private mortgage insurance paying a down payment of less than 20 percent of the purchase price. There are ways to waive or reduce private mortgage insurance – ask your mortgage broker if you qualify.
Related: 100+ Genius Ways to Make Extra Money
5. Not Factoring in Regular Expenses of Homeownership
Once you’ve moved in, there are still other expenses to consider with your new home.
Two big ones are property taxes and homeowner’s insurance.
If you bought a townhouse or other property with a homeowner’s association, you must pay those fees, too. Before making an offer as a first time home buyer, ask the homeowner about the water/sewer rates and average heating and electricity bills.
If the house has central air conditioning, ask about the typical electric bill during the summer months. You’ll also need to take care of basic maintenance and repairs – there’s no longer a landlord to pay for burst pipes or broken appliances. It’s all on you.
6. Not Checking the Property Thoroughly
No matter how perfect you think a house is, please check it out as thoroughly as possible before making an offer.
Professional home inspections aren’t permitted until an offer is made, but careful visual inspection – and video, if the homeowner allows – can make you aware of any red flags squelching the deal.
Some things to look out for:
- Cracks in the foundation
- Odd odors
- Any water stains
- Mud tubes near the foundation – a sign of termites
In such cases, it’s better to run, not walk, away from the property. Repairing the damage could cost a tremendous amount of money, and the bank is unlikely to approve the loan.
7. Not Doing a Zoning Check
You’ve found the home of your dreams in the midst of woodlands and open space, and love the country atmosphere. Make sure to check the zoning before making an offer.
That farm field on the corner might become the site of an office building, or the zoning may allow development that quickly changes the character of the area. The same holds true in already developed neighborhoods – find out what is and is not permitted around your potential home. Future developments, both positive and negative, affect your home’s value.
8. Not Scheduling a Home Inspection
If you’re a first time home buyer purchasing an older home, you’re probably aware of the need for a home inspection. However, a home inspection is a good idea even for new construction. Just because construction is new doesn’t automatically mean everything was done correctly. Remember that local building codes refer to minimum specs – and building code officials may also miss items.
9. Not Getting Everything in Writing
If you’re purchasing a previously occupied home, get in writing exactly what fixtures and appliances are included and which are not. State laws vary, but many states require homes sold with working stoves. You don’t want to do a walk-through before the closing and find out the high-end stove that was installed in the kitchen has been replaced by a cheap model. The same holds true for lighting fixtures and other home features.
10. Contingency Clauses
Unexpected things happen. One of more common first time home buyer mistakes is merely forgetting to cover your bases.
You might have made an offer on a house, only to find out your company is transferring you to another part of the country – or letting you go. That’s why it’s essential to have a contingency clause in a real estate contract allowing you to get out of the purchase under certain conditions.
Your real estate agent or attorney, depending on your state law, can devise a contract with contingency clauses protecting you. The home seller will also have clauses in the contract protecting them.
Once you’ve got your financing lined up and done your research, get out there and start home shopping. Before you know it, you’ll graduate from a prospective buyer to the homeowner ranks.