There's nothing quite like buying a home for the first time. While there's a lot of excitement surrounding the process, there is a lot that can go wrong, too.
While experienced home buyers will be equipped with the information and knowledge to potentially avoid disastrous decisions, first-time home buyers won't. They'll be going into the home-buying process fresh, with no past experience to reference.
Avoiding mistakes as a first-time home buyer is essential. Here are some of the most common mistakes that first-time home buyers make so that you can learn how to avoid them.
1. Overextending Yourself
First-time home buyers can often fall prey to overextending themselves simply because they don't know how much home they can actually afford. They get a pre-approval for a mortgage and simply go searching for a home that fits those parameters.
You may get approved for a mortgage that's higher than you can actually afford, though. So, don't use that pre-approval as the measuring stick for the type of home you should buy.
Instead, create a detailed budget that includes all of your income along with all of your debt obligations -- including credit card payments, student loans, auto loans, food and other expenses.
Doing this will allow you see how much home you can actually afford under your budget. Then, you can work backward to figure out the maximum purchase price of a home.
2. Not Checking Your Credit Report
Lenders will use your credit report to determine the interest rate they will charge you to finance your home. The interest rate will have a huge effect on the amount of interest you pay over the life of your loan and, obviously, on how much you pay each month.
Before applying for a mortgage, you should check your credit report. Not only should you look at your credit score, but what's detailed on the report itself. If you find errors, omissions or mistakes, you'll want to get them fixed before applying for a mortgage.
You can obtain a free copy of your credit report once a year at annualcreditreport.com.
3. Not Considering All Your Mortgage Options
As a first-time home buyer, you will likely have many different options for the type of mortgage you choose. The "gold standard" of mortgages is a conventional mortgage that doesn't charge PMI, or Private Mortgage Insurance. To qualify, you'll need to meet certain benchmarks as well as put a down payment equal to at least 20% of the home's purchase price.
While this is generally considered the most desirable type of mortgage, it isn't a great fit for everyone. For example, if making a 20% down payment would drain your bank account, other options might be better.
Ask your lender about the different types of mortgages available to you. Depending on your situation and the home you're buying, you might be able to take advantage of government-backed mortgages such as an FHA or USDA loan.
4. Not Saving Enough Money
Speaking of down payments, too many first-time home buyers only consider saving to make that down payment and not for other expenses. When you go to purchase a home for the first time, realize that there are other fees associated with a home purchase. This includes title fees, appraisal fees and the cost of various home inspections you should get before signing the final paperwork.
But, you also shouldn't just put money aside to get into your home. Even if your home doesn't need significant work to make it livable, you'll want to have extra money in the bank to do things such as decorate, buy furniture and paint. And you'll also want to give yourself a cushion for unexpected expenses that are bound to come up.
As a first-time home buyer, you'll quickly learn that home ownership can be expensive when you factor in unexpected repairs and annual maintenance. Having money set aside and built into your budget to cover the cost of these is essential for your future financial health.
5. Not Hiring an Experienced Real Estate Agent
A real estate agent is one of the most important members of your home-buying team. An experienced real estate agent who knows your target community inside and out can help you find good homes for you and help you avoid homes that wouldn't work for you.
When you're looking for a real estate agent, don't just go with whoever is available at a local firm. Take a look at online reviews about the agent and their brokerage. Ask for references. And interview multiple agents.
As a first-time home buyer, you should feel comfortable with the agent you hire and confident in their ability to work tirelessly for you. You may think that a real estate agent isn't as important today since you can view all homes for sale online. But, an experienced agent can point out minute details you might miss and help you negotiate a favorable deal.
6. Not Getting a Home Inspection
In "hot" real estate markets, one way you could separate yourself from other prospective buyers is by offering to forego a home inspection. That could end up convincing a seller to go with your offer over others, but it would be a big mistake.
Home inspections will help you identify any hidden issues such as major structural problems and likely future repairs that are needed. Many of these issues the inspectors will point out will be very hard for an inexperienced person to point out.
While home inspections are not cheap, they are worth every dollar you will spend on them. If the inspections reveal something that is too big of a red flag, then you can simply walk away from the deal if the seller isn't willing to cover the cost of the repair.
7. Making an Emotional Decision
It's impossible to take all emotion out of purchasing your first home, simply because it's an emotional process. As best you can, though, you shouldn't purchase a home because of an emotional attachment. It's OK to be excited about the possibilities of buying a home for the first time, but you shouldn't let that excitement cloud your decision making.
An effective way at taking the emotions out of the decision is to make a pro and con list of the homes you're considering. If the pros greatly outweigh the cons on paper, then you'll know you're making the right decision.