Buying your first home is so exciting. You’ve probably been dreaming about your first home for a long time, and now the time to find it has finally come. You get to search for beautiful homes online, drive around desirable neighborhoods, and finally start to view the top contenders.
Yet amid all the excitement of buying your first home, it’s easy to make a mistake or two. Here we’ve rounded up the most common mistakes first time home buyers make so that you can know what to expect and how to avoid them. Read on for our top tips!
Not Shopping Around for the Best Rates
The mortgage process can feel daunting to first time homebuyers. There’s so much paperwork to fill out, documents to gather and submit, and people to talk to. But don’t let that persuade you from finding the best mortgage loan for your financial situation.
You may also feel loyal to the bank you already use for your checking and savings accounts. While your bank is an excellent place to start when it comes to rate shopping, it shouldn’t end there.
A mortgage is quite possibly the largest loan you’ll ever receive, and it’s an important decision not to take lightly. Even a quarter or half percent lower interest rate can save you thousands of dollars in interest over the life of a fifteen or thirty year loan. Spend some time comparing different lenders in your area and even online mortgage lenders. Read reviews to get a good idea of the customer service experience others have had in the past.
Buying More Home Than You Can Afford
Once you’ve decided who you want to finance your mortgage loan through, your lender will be able to give you a dollar amount you’re approved for. The important thing to remember is that just because you’re approved for that amount, doesn’t mean you have to spend that much on your new home.
Your bank can look at your finances — mainly your income and other debts owed — and tell you how much they think you can afford, but ultimately that decision is up to you. Use a payment calculator (you can find them online on sites like Bankrate.com) and play around with the numbers. What does an affordable payment look like to you?
Many financial experts recommend keeping your housing budget around 25 to 30% of your income. This does vary some depending on where you live and cost-of-living there, but the main thing to takeaway is not over-leveraging yourself on your mortgage payments. Keep the dollar amount somewhere that won’t cause financial stress in your life.
Using the Wrong Realtor
Working with your Realtor is a huge part of the home buying process, so it’s very important that you are working with someone that you like and trust. It can be easy to stick with the first Realtor you talk to just because you think you have to, but that’s simply not true. If you’re having a hard time communicating with your Realtor, feel your concerns aren’t being addressed, or you just don’t feel like your personalities work well together, it’s OK to reach out to someone else.
Don’t know where to start? Ask family and friends for some suggestions. Once you have a few names, look over their online profiles. Take some time to explore your options, then set up a time to talk to two or three Realtors that spark your interest.
When you’re in a hurry to purchase your first home, it can be so tempting to use up all of your savings on the down payment and closing costs. But not leaving any money in your savings account is a very risky situation to be in — especially as a new homeowner.
When you become a homeowner, all of the costs of homeownership fall on your shoulders. You no longer have a landlord you can call when something breaks. That’s why it’s so important to leave some money in savings for home maintenance and repairs in case of an emergency. The last thing you want as a new homeowner is to be stressed about finances and how you’ll pay for unforeseen situations.
Having three to six months of expenses in savings is a good rule of thumb when considering how much money to save before buying a house. It can be hard to wait the extra time it takes to build up your savings account to buy your first home, but the peace of mind you’ll gain is so worth it.
Opening New Credit Accounts Before Closing on Your Home
You know how important your credit is when applying for a mortgage. It can be easy to think that once you’re approved, your credit doesn’t matter as much. But right before you close on your home, your lender will check your credit one more time to make sure no big changes have taken place.
Opening new credit cards or taking out new loans results in a decrease in your credit score, which could make your lender adjust the interest rate or fees on your mortgage. In the worst case scenario, adding more debt to your credit report could cause your debt-to-income ratio to fall below your lender’s approval standards, resulting in your mortgage being cancelled.
Be sure to avoid making any changes to your credit report before closing on your new home.
Not Planning for Closing Costs
There are many numbers involved when it comes to buying a home — the purchase price, down payment, interest rates, etc. So it can be easy to forget about another important dollar amount you have to plan for: closing costs.
According to mortgage lender Quicken Loans, closing costs typically average 3 to 6 percent of a home’s purchase price. On a $200,000 home, that comes out to $6,000 to $12,000. Usually the seller will pay some of the closing costs, and the buyer will pay some as well.
You may also be able to negotiate with the seller to pay some of your closing costs as part of the deal. This is definitely an area your Realtor will help with when it comes to negotiating the purchase price. But you can’t always count on this, especially when you’re in a seller’s market, so it’s important to plan for closing costs when you’re saving up for your new home.
You Can Avoid These Common First Time Home Buyer Mistakes
It’s easy to get caught up in the excitement when buying your first home and run into a few snags along the way. By knowing what to expect from the home buying process, you can avoid these common first time home buyer mistakes. With some preparation up front, and a great team along your side, you’ll be holding the keys to your first home in no time!