5 Mistakes First Time Home Buyers Make
(GAL) – Do you think you’re ready to buy your first home? Do you understand what you need to do before you can assume the role of a homeowner? If not, you’re not alone. Many first time home buyers make mistakes because they simply don’t know.
There are a lot of things to consider, such as location if there is a particular school district that you want your children to attend. Or maybe the type of home, like a single family, a townhouse, or perhaps a condo if you have no desire to take care of a yard.
Owning a home requires some important steps that you must take:
- If not paying cash for the home, you need a mortgage pre-approval
- Find the real estate agent that fits in with the type of home you want to buy
- Find the home with the amenities you want and that is within your budget & mortgage approval
Many prospective home buyers don’t take these important steps. The following mistakes are common to first time home buyers and should be avoided.
- Don’t just consider the amount of your mortgage payment
Many are ready to buy if the mortgage payment is within their budget. Unfortunately, there’s a lot more to consider.
Depending on the type of home you’re buying, there are items such as homeowner’s insurance, real estate taxes, association dues, condo fees, maintenance, utility bills, and special assessments on a condo for instance.
A lot of those expenses usually go up each year, so just because you can afford them now, be sure you will be able to in the future. If you have an adjustable rate mortgage, your payments can go up at the first maturity. An insufficient down payment can mean mortgage insurance premiums added to each payment.
- Finding your home first and then applying for a mortgage
This is one that many first time buyers fail to do. Unless you’re paying cash for the home, you must get pre-approved for a mortgage. This means that a lender will approve you for a mortgage for a specified amount. A pre-qualification only gives an estimate of a mortgage they will consider.
Some first time home buyers simply pull a number out of the air and begin to look for a home. They may find the home of their dreams and then get declined for a mortgage because their credit and income won’t support it.
This is definitely not the correct approach to take. Some Realtors realize that looking for a home first can be a big waste of their time. They are now insisting on a mortgage pre-approval letter and will find homes within those parameters.
When you have a mortgage pre-approval letter in hand, you’ll be able to decide on your new home with a financial decision and not an emotional one.
- Don’t be afraid to get professional help
Buying a home is a major purchase and not one that you should take lightly. If you’re unsure of any of the nuances of home buying such as a real estate contract, financing, and legal issues, then it’s very important to get professional help.
To begin, try to find a real estate agent that a friend or a family member referred. The same for a lender, and maybe an attorney as well.
It usually isn’t a good idea to deal only with a listing real estate agent. They will only show you properties they have listed because the commission is much higher. Also, they tend to have the seller’s interest first, not the buyer.
When you’re presenting an offer or maybe in the final contract phase, it might be a good idea to have an experienced real estate lawyer review the documents.
An independent attorney can also review the settlement documents as well so that there are no unpleasant surprises.
- Making a down payment that uses all cash and savings
This mistake also is common with first time home buyers. They’ve been told that making a 20% or more down payment on a conventional mortgage means that mortgage insurance isn’t required. While this is true, it usually isn’t a good idea to spend all cash with no emergency fund.
With any home, be it a new one or an older one, some type of emergency can occur. Or maybe a costly medical issue may surface. If all cash is used for a down payment, there could be some serious problems.
This may be the one time that it might be better to pay the mortgage insurance for a while. When the mortgage is paid down enough, you can request that the PMI be stopped.
- Creating a new loan before settling on the home purchase
This one happens so often and has stopped many home purchase settlements. It happens like this – You had the bank pre-approve you for a mortgage. You found the home of your dreams and signed a contract to purchase. The contract specifies a settlement date, such as in 30 days.
Some buyers are anxious to get everything ready for move in and decide to buy new furniture or appliances. They finance the purchase with a new loan. Or maybe a new car is needed and they finance that with a new loan.
Very shortly before settlement on the home, the lender pulls new credit reports. This is done just to be sure the borrower’s credit hasn’t changed since the mortgage was approved. When they see a new loan listed on the report, it all comes to a screeching halt.
First time home buyers are especially guilty of this simply because they don’t know or understand how things work. Working with a professional, especially an attorney, this would have been explained.