Buying a home for the first time is a huge step. It’s a decision that can move you closer to financial stability or take you further away, depending on the choices you make during this critical time. Here are some common first-time homebuyer mistakes to avoid on your way to owning a piece of the American Dream.
Draining Savings for a Down Payment
There’s a difference between intentionally saving money to use for a down payment and using all the savings you’ve accumulated so far to fund the down payment. Intentionally setting a savings goal and reaching it before you start looking for a home puts you on more solid financial ground. You don’t want to deplete all your savings and not have anything left to fall back on in case of emergencies.
Not Getting Professional Help
When you buy a home, you are entering into a complex financial and legal arrangement. It’s not something first-time homebuyers should attempt to do on their own. At a minimum, you will need to consult a licensed real estate agent, a mortgage professional, and in some states, a real estate attorney to help you facilitate the transaction. Ask friends and family to give you the names of real estate professionals they trust to make it easier to choose.
Not Reviewing Credit Reports Before Applying
A first-time homebuyer may assume paying their bills on time and keeping their balances low means their credit reports will look great to lenders. But it’s a mistake not to check them yourself before you begin. Even if you’ve been using credit responsibly, there’s a chance your report contains errors that could hurt your chances of approval. Be sure to check your credit reports for accounts in your name that you didn’t open, and negative entries more than seven years old. You’ll also want to review all your basic information to ensure it’s current and correct. Here’s what to do if you find mistakes.
Not Getting Pre-Approved
Getting pre-approved for a mortgage is the first step in the home-buying process. There are several reasons for this. One is so you know how much house you can afford as you begin your home search. Another is because many real estate buyers’ agents don’t want to spend their time working with someone who isn’t pre-approved. You may not even be able to start looking at houses until you take that critical step.
Assuming Pre-Approval Means the Mortgage is Guaranteed
Getting pre-approved for a mortgage doesn’t guarantee you will eventually get the loan. Critical financial mistakes between pre-approval and final approval could derail the whole process. Lenders are looking for financial stability and will recheck your credit before closing. Once you’re pre-approved, be very careful not to do anything to raise a red flag with your lender. Stay the course and be hyper-aware of every dollar you have coming in and going out. It’s not the time to get a new job, open credit cards, buy a vehicle, or take on student loan debt.
Ending Up ‘House Poor’
Many first-time homebuyers end up buying more house than they need or can afford. They assume that if they can make the mortgage payment, they will be in good shape financially. They don’t take into account the many additional costs of homeownership including higher utility costs, landscaping, property taxes, ongoing maintenance, and more. Go for a little less house than you can afford and leave some wiggle room in your budget. That way, you can enjoy being a first-time homebuyer, rather than ending up financially strapped every month.
Underestimating the Costs of Renovations & Repairs
Watch a few minutes of any home renovation show and it looks like turning a “fixer-upper” into a dream home isn’t really that much work after all. But regular homeowners don’t have access to the teams of professionals and big budgets these shows do. The truth is, buying an older home in need of major repairs and upgrades takes a lot of time and even more money. First-time homebuyers are better off buying a home that’s move-in ready. This gives them a chance to save up funds to make upgrades and repairs over time.