4 First Time Home Buyer Mistakes to Avoid!
Here are the 4 most important first time home buyer mistakes to avoid!
1.) Not budgeting and saving early!
If you don’t have a budget, make one now! You’ll thank me and yourself down the road. Create a budget that allows for saving a certain amount or percentage of your net income every month. Then open an account separate from your regular account. I use a local bank for regular banking and short-term saving and an online-only bank for long-term savings.
Starting to save early is important. I can’t stress this enough. Unless you qualify for a VA Loan the chance of getting a zero-down mortgage is very slim. I recommend that you plan on putting 10 – 20% down. At 20% there is the added benefit of not having to pay private mortgage insurance (PMI) which will lower your monthly payments.
Let’s suppose you do qualify for and receive a zero-down loan. Once again, unless it’s VA loan you’re going to have closing costs which could be as much as 2-3% of the loan amount. Plus, there are always costs associated with buying a new home. From furniture to fill the added space to decorating and moving costs you’re going to need money in the bank.
Come up with a budget and start saving today!
2.) Not getting Pre-approved for a loan!
If you fail to apply for financing early, then you are setting yourself up for a fall. Obtaining financing is tougher in today market. When you are pre-approved for a mortgage, it means a lender has looked closely at your credit reports, your employment history, and your income — and has then determined which loan programs you qualify for, the maximum amount you can borrow and the interest rates you will be offered.
Armed with a pre-approval letter from a lender you know exactly what your home buying budget is and how much of a down payment you will need. Second, most sellers today will not consider entering into a contract to sell you their home without it. Third, a pre-approval letter puts you in a better negotiating position when you present your offer because the seller’s agent and seller are more confident that the sale will close. Third, experienced, real estate professionals will often require that you at least have a prequalification letter from a lender and have applied for a pre-approval before they will commit the large amount of time and effort required to find and show you property.
The pre-approval letter is your ticket to successfully to finding, contracting, and closing on your first home!
3.) Buying what you want instead of what you need!
That 3,200 square foot, 4 bedrooms, 3 baths with the bonus room looks great! And you really want it! But, do you really need it?
A bigger the house means a lot more cost. And not just the monthly PITI (principle, interest, taxes, and insurance) payment. Utility bill, especially heating and cooling can be enormous in a large house. Also, the bigger the house the more things that can go wrong and the more maintenance required.
Like I’ve always said to my friends when we they see someone cruising along in a huge powerboat and say, “What do you think that boat cost?”
“It’s not so much the price of the boat that’s impressive. It’s keeping it afloat and running it that really costs!”
If that guy with the big boat hits financial hard times, then there goes the boat. Don’t let that happen to your home.
But, this can go both ways. If you know your family is going to grow in the next couple of years, then spend a little more on a three-bedroom home. Outgrowing your home and having to move up after only a few years can cost you. There are Broker fees and closing cost to sell and loan origination, closing, and moving costs to buy. Plus, that three-bedroom house now cost more than it did a couple of years before. Did your two-bedroom home increase equally? Often not! What you saved on a couple of year’s payments could be spent many times over by having to move up. A home is a good long-term investment, but in the short term, a move could be costly.
So, what’s the answer? Balance, of course.
Make a list of what elements you really need in a home for the next 5 years (maybe that third bedroom and a two-car garage). Then, make a second list of things you really want (gourmet kitchen, home office, pool, etc.). Give that list to an experienced Buyer’s Agent and let them earn their commission by finding and showing you the homes that balance what you need with what you want. Be willing to compromise. A nice home with a yard can always have a pool, screen enclosure, and gourmet kitchen added later when you’ve built up equity and achieved a good financial position.
When choosing a home, balance what you want with what you need!
4.) Not using a Buyer’s Agent or relying on the Seller’s agent to represent your interests.
Is this one self-serving? Sure, this is how I earn a living. But, it’s very good advice for you as well especially when you’re buying you first home. Purchasing a home is unlike any purchase you’ve made before and the stakes are higher. Having an experienced real estate professional on your side is key to locating, negotiating, and successfully closing on your new home. Today it is tempting to go it on your own. The interenet offers many resources to finding a home, however it is also filled with misinformation. Many first time home buyers think that websites like Zillow and Trulia are dedicated to brining you accurate information on home values and homes for sale. In reality, these site are simply advertising platforms for Realtors, mortgage companies, etc. Their primary interest is charging for advertising and their website includes countless errors and omissions. By finding and experienced real estate agent you will get correct, up to date information on the current market, available properties, and true home values. Further, a good agent knows how to evaluate a property and negotiate the best deal for you when you are ready to make an offer. Finally, they will navigate you through the contingencies and due diligence process to get you to an on-time, successful closing all while representing your best interests. You need good, personal representation, period.
Find and hire an experienced real estate professional to represent your interests!
You’re probably thinking why only 4 mistakes to avoid? Yes, there are dozens, but these 4 are yours alone to avoid. These first steps you must take on your own:
1. Create a budget and start saving!
2. Decide what you need in a home for the next 5 years, what you want in a home, and be ready to compromise.
3. Start the process of obtaining financing and getting pre-approved. Then you know your purchasing power and you are in a position of strength when negotiating.
4. Hire an experienced professional to help you and most importantly, to represent your interests. The Real Estate Professional you hire will make sure you avoid all those other mistakes that aren’t listed here.
It’s that simple avoid these first time home buyer mistakes and with the right preparation and good representation buying your first house will be a fun adventure instead of a stressful ordeal.
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