6 Mistakes to Avoid as a First-Time Home Buyer
As you prepare to buy your first home, you likely face the process with a mixture of fear and excitement, and for good reason.
This is a major financial step and one of the largest investments you will make, and you want to make sound financial choices. Before you start the process, make sure you are not falling victim to these common first-time homebuyer mistakes.
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1. Failing to Figure Out How Much You Can Afford
Before you even begin looking for a home, make sure you know how much you can afford. Getting a mortgage pre-approval can be a good starting point but do not base your home buying budget on this limit alone. Some lenders may be willing to lend you more than you can comfortably afford on your monthly budget.
Instead, use a mortgage affordability calculator to calculate estimated monthly payments. Make sure you are also considering property taxes, increased utilities, and increased home maintenance costs that come with owning your first home. And realistically think about your personal spending habits as you make monthly budgeting estimates.
2. Draining Savings as a First-Time Home Buyer
Draining your savings to buy your first home is not a good idea. You will face many surprising expenses as a first-time homeowner that requires some money in savings to cover.
For example, when your dishwasher breaks unexpectedly, you will be the one responsible for replacing it. Also, after you move into your home, you will find quite a few furnishings and other items that you will need to buy to make it comfortable.
Keep a little buffer of savings to help with these types of homeownership expenses.
3. First-Time Home Buyers Cannot Ignore Credit Reports
Your credit report will be a deciding factor in how much you are allowed to borrow and what your interest rate is, so you should check it before starting the mortgage application process. Sometimes credit reports can contain errors, and that can lead to an inflated interest rate that you do not deserve.
Check your credit and correct errors before starting the mortgage application process.
4. Not Getting Pre-Qualified Early
Mortgage lenders will offer pre-qualification for potential homebuyers. This process gives you an idea of how much you would be allowed to borrow and also gives you negotiating power when making an offer. Pre-qualification is not the same as the actual mortgage application, but it is an important first step and valuable negotiating tool for first-time homebuyers.
5. Talking to Just One Lender
First-time homebuyers are often so excited to find a lender willing to lend to them, that they forget to shop around for the best deal. Fees and rates for mortgages vary quite a bit from one lender to the next, as do the mortgage types offered. Talk to multiple lenders, especially regional banks or credit unions, to ensure you are getting the best loan offer for your specific financial services.
6. Waiving Contingencies
When making an offer on a home, you have the option to add contingencies, such as making the offer conditional to the results of the home inspection. Waiving contingencies may make your offer more desirable, but doing so puts you at risk.
If you don’t have a home inspection contingency and discover a serious problem with the home at some point after your offer is accepted, such as a termite infestation or serious water damage, you may not have a way out of the contract.
Buying your first home should be an exciting adventure, not a financial pitfall. Take care to avoid these mistakes, and you can move forward confidently as you make your first home purchase. As you join the ranks of first-time home buyers, be cautious to make good financial decisions, so your new home will be truly enjoyable.
For more first time home buyer tips, review our "Complete Home Buying Checklist [10 Steps to Buying a House]".