The process of first time home ownership is exciting, exhausting, and at times scary. The end game of your efforts should be to end up with a home that you love at a price you can afford. To some the process is relatively simple, but unfortunately many people make mistakes along the way and end up in a situation that is drastically different from what was once envisioned. Be sure to have a look at some first-time home buying mistakes that we have detailed below to ensure you successfully accomplish your home ownership goals.
What a lender says you can afford and what you know you can afford or are comfortable with paying are not necessarily the same. List your monthly expenses (excluding rent) including auto, student loan payments, credit card payments, groceries, insurance, etc. and subtract this total from your take home pay and you’ll know how much you can feel comfortable with spending on your new home.
Try not to look at homes that you are certain are outside of your price range. You will only end up chasing after something you can’t afford, which can put you in the dangerous position of trying to stretch beyond your means financially or cause you to feel unsatisfied with what you actually can afford. You may even learn that you can’t afford the type or size of home that you desire and that you need to work on reducing your monthly expenses and/or increasing your income before buying.
Skipping Mortgage Qualification
Get preapproved for a loan before placing an offer. If you avoid this crucial step, you’ll be wasting your time and the time of the seller and agents involved if you sign a contract only to discover that later on the bank won’t lend you what you need, or that it’s only willing to give you a mortgage that you find unacceptable.
It is also important to note that even if you have been preapproved for a mortgage, your loan can fall through at the last minute if you do something to alter your debt ratio and/or credit score, like finance a car purchase or co-sign on another loan. If you cause the deal to fall through, you may not be able to recapture the thousands of dollars that you put up when you went under contract.
Underestimating Additional Expenses
After becoming a homeowner, you’ll have additional expenses on top of your monthly payment. Unlike a renter, you’ll now be responsible for paying property taxes, homeowner’s insurance (and sometimes wind & flood insurance), and making all necessary home repairs.
For condo purchasers, you will be required to pay monthly maintenance costs regardless of whether anything needs fixing. As a condominium owner you are required to be part of a homeowner’s association, which collects monthly dues from each owner in the complex to fund community projects.
Being Too Picky
Make sure that you paint a picture in your head of your perfect home, but don’t be so inflexible that you end up continuing to rent for significantly longer than you really want to. First-time homebuyers often have to compromise on something because their funds are limited. You may have to live on a busy street, accept outdated decor, make some repairs to the home, or forgo that extra bedroom. Of course you can always choose to continue renting until you can afford everything on your list – you’ll just have to decide how important it is for you to become a homeowner now, rather than in a couple of years.
If a prospective home meets your needs in terms of major things that are difficult to change, such as location and size, don’t let physical imperfections turn you away. You can always repaint walls and replace ugly flooring and wallpaper once you build up some savings. Besides, doing cosmetic upgrades on your own is often cheaper than paying the increased home value to a seller who has already done the work for you.
Neglecting to Order a Home Inspection
Prior to closing it is imperative to know exactly what kind of shape your prospective house is in. You do not want to get stuck with a money pit or with the headache of performing a lot of unexpected repairs. Keeping your feelings in check until you have a full picture of the house’s physical condition and the soundness of your potential investment will help you avoid making a serious financial mistake.
Not Thinking About the Future
It’s impossible to perfectly predict the future of your chosen neighborhood, but paying attention to the information that is available to you now can help you avoid unpleasant surprises down the road. Some questions you should ask about your prospective property include: