The prospect of buying your first home has become synonymous with so many feelings: excitement, trepidation, fear, joy, and just about every other expression on the emotional spectrum. At the very least, it is an overwhelming experience for anyone that willingly has a go at it. The process is certainly magnified for first-time buyers, but even seasoned investors have found it to be challenging at times. There are so many moving parts to every deal that you are only fooling yourself if you aren’t a bit cautious.
To that end, even the best real estate investors and homebuyers experience setbacks on a deal from time to time. Mistakes are bound to happen, but it is how you deal with them that will define the end results. Better yet, preventative measures can help you avoid some mistakes altogether. Fortunately, it is entirely possible for first-time homebuyers to be proactive in their mistake mitigation efforts, despite their lack of experience. Our partners over at CT Homes have compiled a list of common first-time homebuyer mistakes, and the best ways to prevent them from happening to you. Be sure to avoid these seven mistakes when buying your first home:
1. Making An Emotional Decision
There is nothing saying you can’t establish an emotional connection with a home, but you are breaking a cardinal rule when you let that attachment dictate the underwritings of a purchase. Any transaction you purposefully walk into should be predicated on one thing: the numbers. The numbers need to reflect your budget, and what it is you are looking to get out of the property. Provided you have conducted the appropriate research, you should have an understanding of how much the property in question should sell for. By no means should your connection empower you to pay more for a home than it is actually worth. At that point, you are seeing to it that you get the raw end of the deal.
The sooner that you realize there will be other houses to come along, the less inclined you will be to let you emotions dictate your decisions. Again, it is OK to fall in love with a property, but remember not to let that love get carried away. I recommend looking at several homes that you “love,” as to prevent yourself from becoming too attached. Once there are other houses in the equation, your mind is more likely to reason with sound judgment.
2. Searching For A Home On Your Own
The advent of technology, and certainly the Internet, has made searching for a home a lot easier than it used to be. There are several sites whose soul purposes are to help you find the home of your dreams. However, their existence has simultaneously helped and hindered those looking to buy. The sheer volume of homes available at the touch of a button will certainly intimidate onlookers, and could lead to analysis paralysis.
I recommend using these sites as a research tool, as opposed to conducting a physical home search. Use them to determine what it is you are looking for, and what might be available in the area. However, when it comes down to physically searching for a home, and not searching through thousands of dead-end listings, I recommend enlisting a little help.
There is always the possibility that you will find the home of your dreams on your own, but I am afraid that is the exception rather than the rule. Instead, let your agent vet homes in your place. There is a good chance they know about listings that aren’t even on the market yet. At the very least, they will filter out homes that don’t meet your criteria, and save you countless hours of tedious searching.
3. Working Exclusively With The Listing Agent
The listing agent represents the best interest of the seller. They are an essential part of the home selling process, but – as their name suggests – they represent the person listing the property. Their soul purpose is to sell the home at a price the owner has predetermined. Subsequently, the more money the home sells for, the larger commission checks they get. For all intents and purposes, they are trying to sell the home at the highest possible price; something first-time homebuyers are probably not all that fond of. Therefore, it is ill-advised for any first-time buyers to initiate any transactions through the listing agent.
Fortunately, you are entitled to work with a buyer’s agent. Not surprisingly, a buyer’s agent represents the buyer. While their services will certainly cost you extra, their expertise can easily save you more on the deal than what it would cost to hire them. Outside of price negotiations, most buyer agency agreements include:
- Protecting their client’s financial information.
- Negotiating the best possible price for the buyer.
- They must disclose whether or not they are working with another buyer trying to get the same property.
- Show the buyer all the properties they are interested in.
- Connect buyers with other service providers: inspectors, lenders etc.
There are multiple benefits to working with a buyer’s agent, all of which are better than dealing with a seller’s agent on your own.
4. Assuming The Rules Don’t Apply To You
Homeownership represents many things to a lot of people, but first-time homeowners undoubtedly associate it with freedom. This could very well be the first time they don’t have to follow the rules set forth in a previous household; or is it? Just because you have never been a homeowner before doesn’t mean the rules of homeownership won’t apply. It is entirely possible that the home you are looking at comes complete with deed restrictions and conditions.
Deed restrictions are dependent on their particular neighborhood, and can vary dramatically. Their purpose, more or less, is to provide stability in the respective area. Some are there simply to ensure that the property holds its value. They are not necessarily a bad thing; just something that needs to be accounted for. Sometimes deed restrictions can impede the plans of perspective homeowners, and it is in their best interest to know these things before the home is purchased.
5. Not Saving Enough Money
Saving up enough money to put down on a house is quite an accomplishment. The high price of rent in today’s economy has made it difficult for anyone to transition over from renters to buyers. However, the down payment is just the beginning. Outside of the initial cost, most first-time homeowners don’t save enough for what comes next: life as owners. “Transitioning from a renter or your parents’ home to your own home has incidental costs that may be overlooked,” says Aisha Thomas, associate broker with The Thomas Agency of Georgia. More often than not, first-time buyers neglect to account for the costs that follow the closing.
It is not a bad idea to have at least two to three months of mortgage payments in reserve. That is on top of the extra money that will be needed for additional closing costs and impending property taxes. There are a lot of costs associated with owning a home, and first-time buyers need to be aware of all of them. Neglecting to account for these costs could be devastating.
6. Neglecting Loan Pre-Approval
Too many first-time homeowners make the mistake of not getting pre-approved for their purchase. To that end, a pre-approval letter from your bank goes a long way in securing the property you want. For starters, it is the best way to find out how much home you can actually afford. Secondly, sellers are more inclined to choose the offers of those that have already been approved for specific loan amount. That way there is less risk of the deal falling apart. Be sure to get a pre-approval letter from your bank no less than three months out. You will be glad you did.
“This process can take just a few days and simply means that the lender has looked through your financial situation and is comfortable with the idea of lending you a certain amount of money,” says Bianca Mitchell, an agent with Keller Williams in Santa Monica, CA.
7. Paying Too Much Private Mortgage Insurance
Lenders took note of the latest recession, and hedged their bets. In order to prevent more people from defaulting on their loans, mortgage guidelines have adapted. One of the new rules requires buyers to pay private mortgage insurance on any property that they weren’t able to put at least 20 percent down on. The private mortgage insurance, or PMI, is added on to the monthly mortgage payments.
Typically, first-time homeowners are not able to put 20 percent down on a home, and are – therefore – more likely to pay PMI. However, not enough people know to contact their lender once 20 percent of the home has been paid off. At that time, the PMI will be discontinued. Your lender will automatically cancel your PMI when you owe 78 percent, but you don’t want to pay a month more of PMI than you have to.