When I bought my first house a few years ago, I quickly discovered that there’s nothing cheap about the process. With closing costs, the down payment, the home inspection, and the home appraisal, you can wipe out your savings before you even receive the keys to your new home.
These expenses can be particularly difficult to control for first-time home buyers, who may be naive to the process. However, by educating yourself, you can avoid common mistakes and potentially save yourself a great deal of money.
First-Time Home Buying Mistakes
Though you surely want a home that has a lot to offer, it’s imperative to keep costs to a minimum. If you rush a purchase or make unwise decisions, you could end up spending more than you budgeted for.
1. Choosing a Risky Loan
Talk to a mortgage broker or a loan officer to receive information on various types of loan products – there are mortgage loans for practically every person and situation. However, if you don’t educate yourself on the various products, this increases your chances of selecting a loan that’s too costly.
For example, some buyers choose an adjustable rate mortgage to receive a lower interest rate early on, but they fail to realize that their rate and mortgage payment can increase in the future. Likewise, some borrowers pick a 15-year mortgage to pay off the debt faster, but then realize that they can’t swing the higher payments after a shift in their income.
2. Overspending on a House
Lenders determine affordability based on the information listed on your credit report and your tax documentation. But sometimes, lenders approve applicants for a loan larger than they can afford.
Rather than being excited and accepting the higher mortgage loan, be smart and stick to your original price range. Splurging on a house provides immediate excitement and gratification – but your mood can quickly turn sour once the bills start rolling in. A big house typically equals expensive utilities, which can affect your disposable income and complicate your financial goals.
3. Skipping the Home Inspection
Home inspections are not required when buying a house, and some sellers can rush the process and discourage an inspection. But buying a house without an inspection is extraordinarily risky because serious problems can exist with the electrical wiring, the plumbing, the roof, or the foundation. An inspector can identify problems before the closing, and you can then ask the seller to fix these problems. If you buy a house and skip the home inspection, you’re financially responsible for any problems that arise after closing.
4. Not Shopping Around
Save money on your first home purchase by simply talking with different lenders. Interest rates and closing costs vary among banks, and if you want the best rate and the cheapest costs, obtain multiple quotes. You don’t have to call 10 different banks, but it’s smart to request no-obligation quotes from at least three different banks or lenders. Compare each quote to determine the best option. Factors to consider include the mortgage rate, closing costs, down payment, private mortgage insurance, and a potential prepayment penalty.
Home Searching Mistakes
First-time home buying mistakes aren’t only money related. Become a savvy buyer and avoid mistakes while conducting your property search.
5. Not Visiting the Property Multiple Times
There’s nothing wrong with bidding on the first house that you see. However, plan to visit the property at least twice before submitting your offer. If a seller is motivated and ready to sell, he or she may rush the process or try to force you to make a hasty decision. But remember, once you sign the closing papers, there’s no turning back.
After the initial visit to the property, go home, sleep on it, and return a few days later. In the meantime, drive through and check out the neighborhood during the weekends and evenings. Are the neighbors rowdy? Is there loud music? Are the children playing in the streets or being noisy? Checking out the neighborhood when the majority of the residents are home can help you determine whether the area is a good fit for you and your family.
6. Limiting Your Search
The majority of buyers have their hearts set on a particular neighborhood or city. But why limit your search area? Some buyers want to live close to their place of occupation, or keep their children in a specific school district. Regardless, it’s worth checking out other areas. It’s possible for your child to excel in another school district, and the extra time that it takes to commute to work may present the opportunity to decompress before arriving home.
7. Not Working With a Realtor
You don’t need a Realtor to buy house – but before disregarding the importance of a buyer’s agent, understand that the seller’s agent has his or her client’s best interest in mind, not yours. They’ll offer you advice and answer your questions, but ultimately, this person is there to serve the seller. For this reason, find your own Realtor.
A buyer’s agent can guide you in the right direction, help negotiate your bid, counter an offer, and organize the closing process. And since the seller pays both agent’s commissions, it only makes sense to have an agent on your side.
Buying a house is a stressful and nerve-racking time, regardless of whether you’re a first-timer or a veteran buyer. Unexpected problems can and will pop up – these can include hidden damage found during a home inspection, a low appraisal, and higher than expected closing costs. It’s an unpredictable process, but the more you know about the process, the easier it is to avoid serious mistakes.
What mistakes did you make when buying your first home?