Being a first-time home buyer is an exciting time as you prepare for your future in a beautiful new home! It’s easy to get wrapped up in the fun of house hunting, that you forget to think about some important things. From hidden costs, to realtor quality, here are 10 common mistakes first-time home buyers make and ways to overcome them!
1. No Budget
Personal budgets are always important and even more so when house hunting. You need to know how much of your income you can use towards a mortgage before you can even begin the search. Take some time to write out all the bills you currently pay and your income. There are many examples of household budgets online that you can use. Here is a nice downloadable template of a household budget that Microsoft created. This is also a good time to analyze your spending habits and how to keep them on track once you own a home.
2. Forgetting to Get Pre-approved
Walking into the housing market without knowing how much you are approved for can make the process very difficult. A mortgage pre-approval is when your bank takes your financial and credit information and creates a very good estimate as to what amount they will loan you. Being pre-approved for an amount makes a buyer look much more attractive to the seller and is seen as less of a risk. Getting pre-approved requires a pull of your credit and your financials for a small fee. The bank will give you pre-approval letter to submit during a bid on a home. Note: Pre-approval letters do expire, so stay aware of the date.
3. Underestimating Closing Costs
Things like notary fees, appraisal fees, escrow fees and credit report fees, are just a few of the costs every buyer should plan on paying when closing on a home. Plan on budgeting in 2-5% of your home price in closing costs.
4. Bypassing the Home Inspection
Purchasing a home without getting a good home inspection is a big gamble to make. Many hidden problems can only be found if a professional inspector takes a close look at the home. Things like previous fires, black mold, poor electrical work and plumbing are just a handful of important things a home inspector can find. A home inspection process involves setting up a time for the home inspection and paying a fee. The inspector will tour the home and give you a detailed report of all the issues found in the home. The fee for a home inspection is money well spent rather than spending thousands of dollars on unforeseen issues.
5. Stuck in the Present
When house-hunting, sometimes buyers only view things from their buying perspective. Resale value is very important and should be taken into consideration when choosing a home. Ideally you will have the house for a good amount of time or perhaps forever. Circumstances in life sometimes call for a home move. It is important to purchase a home that is attractive to other buyers in the event you have to sell. Look at each house from a general buyer’s mindset, not just your own. Your realtor will be a good resource for determining resell value and the potential that a house has for a future sell.
6. Budgeting Only the Mortgage Payment
Many first-time home buyers spend so much time focused on budgeting the mortgage payment that they forget the costs associated with running the house. Things like utilities, home owners insurance, trash removal, regular maintenance, and unexpected issues are all things that can easily be overlooked. Quicken suggests setting aside 10% of your budget for utilities.
7. Instantaneous Gratification
After purchasing their first-home, many buyers want their new home “perfect” right away. Investing heavy amounts to design your house exactly how you want it in a short period of time can be hard on your finances. We live in a society where instant gratification is the norm, but with housing projects, the more paced you are the better. Spread your home projects out over time. Half of the fun of fixing up a house can be the process!
8. Acting as a Realtor
Cutting out realtor costs can seems like an attractive choice to many. A realtor isn’t just a person to show houses and grab a paycheck, he or she is an important resource of information. Market trends, location features and access to home databases are all important and useful information that realtors are able to give you. Another good reason to use a professional realtor is that they take the emotion and bias out of real estate transactions. They can help you sort out decisions and even guide you on effective bidding. Finding a good realtor can be as simple as asking around to friends and families. Good experience and knowledge is a must for any realtor you choose.
9. First Offer is a Winner
The first offer by a first-time home buyer can be the most exciting, however it can also be the most frustrating. Many home bids don’t work out. They may be rejected or countered. If a house has multiple offers then the stress is multiplied. It is very important for buyers to understand the negotiation process and the competitive landscape, which why having the best realtor is key. Finding the right house and the right offer takes time. Stay positive if a bid is rejected, there are many other houses to see!
10. Getting Too Attached
First-time home buyers tend to get caught up in their emotions and become very attached to one particular house. They focus so much of their energy on one home that they brush aside other good options. Real estate transactions are complex and setting your heart on one house can lead to disappointment. If you are lucky enough to find a house you really love, just keep in mind that if things don’t go as planned, there will always be other options. You may find that one of the other options may be better than the first!