Common First-Time Homebuyer MistakesPosted on Dec 16, 2020
Buying a home can be a daunting task. This can be especially true for first-time homebuyers. Luckily, a little knowledge (and an awesome real estate agent!) can set you up for success. Get a head start by knowing some of the common first-time homebuyer mistakes, as well as how to avoid them!
First-Time Homebuyer Mistake #1: Spending More Than You Can Afford
Before you start home shopping, it’s best to take a good, hard look at your budget. Determine how much you can afford to pay each month. This will help you during your house-hunt, so you’re looking at homes in a price range that fits your finances.
Generally speaking, try to keep your monthly mortgage payments within about 28-30 percent of your monthly gross income. If you have a lot of other debt, that percentage should obviously be even lower. Make your estimates based on your current income, not what you anticipate making a few years from now.
Also remember not to prioritize your wish-list items, like granite countertops or stainless steel appliances, over your needs, like enough bedrooms. Insisting on searching only in one neighborhood can also lead you down a path to overspending. The key is to stay focused and flexible.
First-Time Homebuyer Mistake #2: Not Prepping for the Mortgage Process
To determine your qualification for a mortgage and what your interest rate will be, your lender will evaluate your credit report and your debt-to-income ratio. This is the relationship between how much money you have coming in, and how much you owe.
As a first-time homebuyer, taking some extra time to gather the documentation you’ll need might be necessary. You’ll need to show your lender tax returns, pay stubs, and bank statements going back a few months (or even years), so make sure you have those documents available. Do a preliminary check on your credit report to make sure there are no unfortunate surprises.
To make the process a little easier and help you get the best terms, try to improve your credit score and debt-to-income ratio before you go to borrow.
First-Time Homebuyer Mistake #3: Skipping the Inspection
Yes, a home inspection is an added expense. It might even be one that some first-time homebuyers might feel safe glossing over. After all, you’ve seen the property and nothing looks wrong with it. But remember, it’s a professional inspector’s entire job to notice things most of us don’t. This step is especially important if you’re buying a pre-existing home (as opposed to new construction, which probably comes with a builder’s warranty). If the home needs major repairs that you can’t see, an inspection can help you negotiate with the sellers to address the issues or adjust the purchase price accordingly.
First-Time Homebuyer Mistake #4: Not Budgeting for Closing Costs
Purchasing a home involves closing costs above and beyond the down payment. Often, these costs - including attorney fees and title insurance- can be substantial. You’ll have to pay these when you sign the final mortgage loan documents. On average, closing costs total 3 to 5 percent of your home’s purchase price, so be sure to figure this into your budget.
First-Time Homebuyer Mistake #5: Overlooking Homeownership’s Extra Costs
Once you are handed the keys to your new home, you’re also handed some additional expenses you probably didn’t have as a renter. On top of your monthly mortgage payment, be sure to account for extras such as property taxes, homeowners insurance, and regular maintenance. Depending on where you’re purchasing, you might also be paying fees to a homeowners’ association or a co-op board.
If you establish an escrow account with your lender, your monthly payments will include property taxes and insurance on top of your mortgage’s principal and interest. It’s also possible for your property taxes to increase slightly after closing, which can make your monthly payment just a bit larger.
When figuring out your first-time home buyer budget, be sure to build these expenses into your figures! Once you’re ready to take the plunge, our specialists here at Team Lassen can help you through every step of the process!