Home buying is an exciting, yet complex, process that many Americans go through each year. Purchasing your first home is the biggest purchase and financial decision in your life so far. It is important that you keep a cool head and avoid these 5 common mistakes to ensure you get the best deal possible.
- Getting pre-approved for a loan too late (by searching for a home first)
Many first-time homebuyers start searching for a new home before taking with a lender. Searching for a home is more glamorous and fun, but you are wasting your time by not having a pre-approval letter from a mortgage provider.
When getting pre-approved, it is important to give the lender enough time to process your request. Many pre-approvals are straightforward, but some can take as long as 45-60 days. Once you are qualified for a loan, you’ll be able to close faster, which is extremely important in more competitive housing markets.
It can be scary to talk to a lender, since there is always the possibility they you’ll be turned down for a loan. But it is much better for everyone involved to be turned down before spending hours looking at homes and talking with sellers. Once you are pre-approved for a mortgage, you’ll know exactly what you can afford and be able to target your perfect home easier.
- Not budgeting beyond monthly mortgage payments
Affording a home means much more than simply being able to pay the mortgage each month. New homeowners are often surprised by all the additional expenses that arise once they move in. In addition to your monthly mortgage payment you’ll also have to budget for property insurance, taxes, homeowners association dues, maintenance, and higher electric and water bills (compared to renting).
The first year in your new home will also be the most costly. There are often necessary repairs that arise that were unable to be caught in a simply home inspection. And when you move in, you want to make sure you have money on hand to customize your new home based on what your family needs.
- Putting too much money into the down payment
Another common budgeting mistake is to strictly adhere to the “20% rule” (aka thinking you always need to put down 20% of your home’s value as a down payment). As we talked about above, your first year of homeownership is this most expensive, and you need to make sure your have reserve cash on hand for emergencies or improvements.
Putting less than 20% down is nothing to be ashamed of. While, private mortgage insurance may increase your monthly payments, it can be a great tool to give you peace of mind. Plus, once you pay off 20% of your home in total, you can always refinance to drop your PMI.
- Putting too much faith in online information
By now, most people know that just because you see something online, it doesn’t mean that it’s true. Zillow’s Zestimates are famous for being incorrect, often by up to 20% or more. Home information in your local MLS can be famously lacking, out of date or inaccurate.
Be sure to verify all information that you see online. A quality home inspector can save you tons of headaches down the line and verify facts about a property. Also, be sure to use a REALTOR even when buying a home. They can find comparable properties that have sold recently to have a much more accurate appraisal of a home’s true value.
- Falling in love with a house
One of the most common mistakes is getting too emotionally tied to a particular property. Strong emotions are the enemy of negotiating, and can cause you to overpay or overlook warning signs of a particular property.
Know that there will always be more homes for you to consider. Being able to walk away from a deal gives your the leverage you need to get a fair deal. So get excited about your potential new home, but check that excitement at the door when examining the details.
So by all means, fall in love with a house, just make sure your do it after closing. Of course, having an experienced buyer’s agent by your side is one of the smartest moves you can make.