If you’re a first-time homebuyer, you’ll have a lot of important decisions to make and think about. Being a first-time buyer can be both challenging and exciting. Letting your emotions cloud your judgment will lead you to encounter a few problems along the process and make mistakes that will leave you many future regrets.
It doesn’t matter even if it’s been years since you last bought a house or this is your first time. You still have to look for a few ways to teach yourself about the mistakes you have to avoid. That will help you determine what you should avoid when buying a property.
Below are six of the common mistakes first-time homebuyers tend to make and tips on avoiding them.
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Looking for a House Before Applying for a Mortgage
Most first-time buyers tend to shop for a property before getting preapproved for their mortgage loan. In today’s real estate market, the competition is fierce because there’s more demand than affordable homes available. You’ll find it pretty challenging to talk to a seller unless you’ve applied for a mortgage loan beforehand.
That’s because they won’t be interested in an uncertain person they think can’t apply for a mortgage loan, especially when they have other exciting offers to consider. Make sure to get an underwritten preapproval before you can even start checking out the house that you’re dreaming of buying.
Getting preapproved means that you’re serious about your offer and an individual whose finances and credit profile are strong enough to successfully apply for a mortgage loan.
Buying What You Can’t Afford
Most first-time buyers tend to fall in love with a property that’s out of their budget. Don’t buy a property that you can’t afford to pay for in the future. Modern home prices are rising, so you should closely stick to your budget. Buying the house you can’t afford will increase your chances of foreclosure if you can’t pay for your loan.
You’ll also have a tight budget for your other monthly expenses and bills. Buying a home you can’t afford will also affect other opportunities such as a savings account for your dream vacation, a child’s education plan, or finances for a retirement account.
Using Up Your Savings All at Once
Using up your savings all at once is a huge mistake you have to avoid. Most buyers tend to use up their money to pay for the 20% downpayment, leaving them with nothing for mortgage insurance. Having a 20% downpayment might not require you to pay for private mortgage insurance.
Usually, that means a considerable amount of savings on your monthly payments, but you mustn’t be biting more than you can chew. Make sure to have at least three months’ worth of emergency funds even after buying a property.
Investing in mortgage insurance isn’t necessary, but you must avoid using up all of your retirement or emergency funds for a huge downpayment.
Focusing on the House Instead of the Neighborhood
Your goal is to invest in a house that fits your needs, but making a purchase decision based on the design elements will force you to live in a neighborhood or community you’re not comfortable with. Finding the right area or community is essential for your family’s overall growth and comfort.
It would help if you aimed to look for a place that fits your values and culture. You can still renovate the basement, add a new room, or downsize for a new property despite a property’s condition. In short, if you point your attention to the design elements, you’ll end up in a neighborhood or community that you’re not comfortable with.
Try to list down the things you’re looking for in your new neighborhood. Depending on your preferences and needs, you might want to learn more about commute times, local school ratings, and other aspects.
Overlooking USDA, VA, and FHA Loans
Most first-time buyers might have problems with the rising home prices. If you’ve saved up for a downpayment or don’t have a credible credit profit, you might also have a few difficulties in applying for a conventional loan. Hence, you’ll end up assume that you can’t find any financing options to help you meet your goals.
You can look into the government-issued loan options, such as the US Department of Agriculture (USDA), US Department of Veterans Affairs (VA), and Federal Housing Administration (FHA) loans.
Miscalculating the Costs of Owning Your First House
Once you’ve already bought the house of your dreams, you’ll have other things to think about, including utilities, home maintenance and repairs, hazard insurance, homeowners insurance, mortgage insurance, property taxes, and more. Your mortgage company or real estate agent can help you determine the taxes, utilities, and mortgage insurance.
Make sure to look for at least three insurance companies to compare their offers. Lastly, you should put aside at least 1% to 3% of your home’s overall price for maintenance.
Being a first-time homebuyer can be overwhelming. However, by doing your research and referring to these tips, you can avoid the common pitfalls most first-time buyers encounter throughout the process.