10 Common Mistakes First Time Home Buyers Make
1. They don’t ask enough questions of their lender and miss out on the best deal.
Making the right choice when finally signing your name to your first home mortgage can mean a difference of thousands of dollars in interest paid over the long haul. For many, this 15 to 30 year mortgage commitment is the most important financial decision they’ll ever make. When you think about it that way, it makes sense to collect as much information about the financing of your home as possible. Don’t rush into anything that involves buying a house. Take the time to thoroughly investigate all financing options available to you.
2. They don’t act quickly enough to make a decision and someone else buys the house.
The purchase of a first home can be a lifelong commitment which requires time, thought, and contemplation in order to reach a decision. At the same time, hesitation can cause you to lose the house of your dreams as someone else makes a move. In a seller’s market, buyers will tend to look at fewer homes and make a decision to buy a home quickly because other buyers could be waiting to snatch it up. In a buyer’s market, people will take their time choosing. But either way, you never know when a home is going to sell. If you find a house that you like within your price range, make an offer. If you wait, someone else may purchase it and then you’ll be back to searching for the right home.
3. They don’t find the right real estate professional who is willing to help you through the homebuying process.
It is just as important that you chose the right Realtor as it is to pick the right home. This person will be representing you and helping to lead you to the home of your dreams. Having the wrong person during this transaction can lead to stress and irritation. The right Realtor will be helpful to you throughout the home purchase process and can match you up with the right mortgage, the right neighborhood, and the right home.
4. They don’t do enough to make their offer look good to a seller.
If your offer isn't attractive to the seller, the home you seek could be sold to another buyer with a more appealing offer. Pre-qualification can give an idea of how much money you might be able to borrow, but a loan has not been applied for and your financial information has not been verified. A firm approval from your lender will let you know exactly how much you can spend on a home. It will also let sellers know just how serious you are.
5. They don’t think about resale before they buy. The average first-time buyer only stays in a home for four years.
If you don’t plan on staying in the home for more than five years, knowing what other people want in a home will make selling the home easier when it is time to move on or move up. Do some research ahead of time in order to find out what most buyers want in a home. Knowing what other people are looking for will help give you an idea on what is worth compromising on and what is not. Planning this way can also give you a little extra equity when resale time arrives.
But wait! I said that MAAR had provided five home-buying errors, but the title of this post says there are ten common mistakes. What gives? Well, we here at Barker & Hedges feel that there are a few important points which MAAR didn’t address. We’ve included them as errors 6 through 10. Here are five more common mistakes which were not covered by MAAR’s list:
6. They don’t think about paying off existing debt first.
This is one of the most common mistakes people make before buying their first home. They focus so much on saving money for a down payment that they don’t think about paying down other debts first. Your existing credit can affect your buying power just as much as your down-payment can. Eliminating high-interest debt and credit-cards is important, even if it means collecting less for your down payment. Lenders won't allow your total monthly debt service to exceed 40% of your gross income. Pay down existing debts first before taking on the immense debt of a home mortgage.
7. They aren’t the first person to look at their credit report.
You can get a free copy of your credit report once every 12 months thanks to Federal Law. Knowing what kind of information is on it before anyone else does can help you enormously when you try to discover how much you can borrow. The information in your credit report will determine your credit score, which will in turn determine how much money you can borrow. If there is incorrect information on your credit report, you can dispute it with the credit agency to have it changed or removed. Disputing errors can help raise your credit score. Generally, the higher your credit score, the better interest rate and loan you can get. If your score is low due to late or missed payments, you can take action by making your payments on time to slowly raise your score.
8. They get in too deep.
Whatever you do, do not venture outside of your budget or over-extend yourself when buying your first home. You could be disappointed you don’t get approved for that much mortgage. Or it could be worse: you could get the loan and end up in foreclosure if you are unable to make the payments later on. There are steps you can take to avoid getting in too deep. Monitor your expenses for several of months. From this information, develop a budget that reflects your lifestyle accurately. Talk to a Realtor about what expenses you can expect with a new home. Then, review the budget you made. You may find that it needs revision.
9. Waiting until you find a house to get pre-approved.
During the search for a home, in addition to finding the perfect house, buyers must take a hands-on approach to finding reliable financing. Before you start looking, move beyond pre-qualification and get pre-approved through your chosen lender. Though pre-qualification can tell you how much you can afford, pre-approval will actually clear you for a loan of a determined amount. When you find that home, you don’t want to be scrambling for pre-approval to make your offer more appealing to the seller. Someone else with more forethought can simply pounce and make an offer. By the time you’re ready, someone else could be moving into your dream home.
10. They alter their financial picture prior to closing.
Imagine this: you have been pre-qualified for a loan, found that perfect house, and closing is just one week away. Does this situation scream “Buy a new car?” No, no, no, this is not the time to be financing large purchases (besides your home) and it is not the time to open a new high limit credit card. Adding on a car payment or revolving debt which did not previously exist when you began your home search could ruin your chances when it comes to closing time. Even slight alterations in your credit ratios could cause a loan application to be denied. Wait for that new car or credit card until after the deal has been sealed.
These mistakes can be avoided as long as you are aware of them! There are others out there lurking, of course, but these are the big ones. Make your first home purchase a positive experience by researching and educating yourself. Then set out for a smooth transaction!