3 Big Mistakes First-Time Home Buyers Make
In General Information, by Anthony Bayardelle
1) Not Knowing Your Finances
Most people think they know basically how much they can afford when it comes to buying a house. Most people are WRONG. There are a lot of factors that you should consider before you even set foot in an open house. Taking a look at your finances before you start shopping around could save you huge heartache later on.
This step is listed first for a reason. Getting prequalified is a huge and very important step in the home buying process. First, the amount you’re prequalified for will guide your home search details. You don’t want to get attached to a beautiful home that’s outside your price range, leaving you either depressed by all the houses you can afford or stuck with an unsustainable mortgage payment.
Similarly, not being prequalified could weaken your negotiating stance (sellers prefer a buyer they know can pay for the house), slow down your escrow process (if you have trouble getting a loan), or even cause a deal to fall through (if you can’t get a loan for the amount you bid for the house). Overall, having a prequalification in your back pocket as you tour houses will make the whole process smoother and less stressful.
Finally, don’t get any other big loans until escrow closes. Lenders can and will continue to check your credit score, and any major changes (such as another loan being taken out) can jeopardize your loan and (therefore) your home purchase.
Know What You Can Actually Afford
Even once you’re prequalified, there’s often a huge difference between what the bank says you can afford and what you will actually be able to comfortably pay for. You wouldn’t go shopping and max out the credit limit on all your cards, nor should you wipe out your entire savings to buy the most expensive house you are allowed to buy.
Try to mockup a typical monthly budget and see what monthly payment you would be able to manage comfortably. Don’t forget to account for other expenses that come with homeownership like home insurance or property tax (we’ll talk more about this later). Your monthly payment should still leave you with a little wiggle room in your budget for emergencies, vacations, or other little surprises life might throw at you.
There’s always “one little thing” that pops up in the bills, so having every penny you plan to earn committed to mortgage payments might put you in an uncomfortable position later on.
Finally, don’t use up your entire savings on your down payment. This is something all too many first-time home buyers. Keep a little cushion there just in case. Your future self will thank you.
Know the Other Expenses that Come with Buying a House
This one comes as a bucket of cold water to the face of many new home buyers. You budget for your mortgage, think you’ve got it all together, and then the bills start coming in. These are just some of the expenses you should make sure you can cover as you navigate the home buying process.
- Closing costs
- Loan fees
- Title fees
Repeating Home-Related Expenses
- Property taxes
- Home insurance
- Maintenance costs (if you’re buying a condo)
- Homeowners association fees
- Bills (electric, gas, water, landscaping, pool, solar, the list goes on…)
This isn’t meant to scare you, but to make sure you figure out what price range you can comfortably live with.
2) Not Seeing Your Purchase as an Investment
Don’t Let Emotions Overpower Logic
This is probably the biggest differences between first-time homebuyers and veteran real estate investors. First time home buyers find what they think is “the” house, and then fight tooth and nail to get it, often putting themselves in some pretty compromising financial positions in the process.
On the other hand, seasoned home buyers know that there are probably two dozen or so houses that could make them equally happy. With this in mind, they are able to be more cool and rational in their attitude towards the process. If it works out, great! If it doesn’t, they’re willing to walk away from a bad deal, knowing that they’ll find another house they like just as much in no time.
This is really something you’ll need to keep reminding yourself, especially as a first time home buyer, but it’s very important. Keeping a cool head will help you put in smarter offers and bids, put more effort and due diligence into inspecting the house during the escrow process, and make sure you don’t buy more house than you can actually afford (another good reason to get preapproved for a loan before you start looking).
If you don’t think you can do this, have a very real talk with your realtor about your financial limitations, your wish list, and your absolute deal breakers. Have this talk before you start looking at homes so your realtor can guide your search to homes that won’t tempt you to go outside your financial means.
Look Into the Future
Anyone who’s ever gone back to their childhood town after a long time away can tell you just how fast things can change. New construction projects can turn a vacant field into a shopping mall in under a year. Traffic patterns change when commuter trains are built or big companies move into town. Nothing stays stagnant for long.
When you’re searching for the home you could live in for the next few decades, spend a little time looking at how the area could possibly change. Are any new construction projects on the horizon? Is there undeveloped land nearby? Can you see a trend in how nearby cities are expanding?
This might sound daunting, but you don’t have to have a crystal ball in order to find the right house. Just keep in mind how things might change in the future when you’re looking for potential homes.
Also, this is another reason to work with a quality, knowledgeable realtor. Someone who’s been in the area for a while can tell you what’s on the horizon for the local community, the trends in local sales and home values, as well as a number of other factors that could affect your house in the years to come.
See Past the “Dream House” Myth
There actually is such thing as being too picky. You shouldn’t accept a house you don’t love, but chances are you won’t spend your entire life in the very first house you buy. After some time passes your tastes change, your family size could change as kids are born or leave the house, and your financial situation will most likely improve over time.
Don’t put yourself in the mindset that you have to find the exact perfect house with everything you’ve ever wanted for exactly the amount you can afford right now.
Instead, go into the process with a realistic idea of what you are and aren’t willing to compromise. Need a house with a fantastic view? That’s totally doable, but you might have to get one with fewer bedrooms or that needs a little remodeling. Want a specific floorplan? Great, but you might need to be more flexible on yard size.
No house is going to check 100% of your boxes, but if you know what’s really important and what you don’t mind bending on a little bit you will find yourself much happier in the long run.
Look at the House’s Potential, Not its Current State
There’s a difference between an awful burnt orange paint color or a ginormous mosaic of baby angels on the bedroom ceiling and a horrible floorplan or bad home location. It takes a bit of practice, but try to focus on the “bones” of the house. Things like decorations, paint color, wallpaper, and even fixtures are pretty easy and inexpensive to change.
However, if you hate the floorplan of a house, if it’s in a neighborhood you don’t like, or if there are major, costly repairs needed...those things are much harder (or even impossible) to fix.
This is also a good time to warn you to be careful about staging. Sellers work very hard to present houses in their best light, and sometimes it’s very effective. You want to picture the house with your stuff in it, not with the fancy cushions perfectly fluffed on the expensive couch the sellers have rented to make the house look like it came straight out of a magazine. Sometimes it might even be better to look for something that could be fixed up but hasn’t been.
Just make sure that you fall in love with the house itself, not the current decorations.
3) Not Having an Agent or (Worse) Using the Seller’s Agent
Don’t Get “Sold”
Realtors are hired by their client to get the best possible deal for that client. When you go into an open house, the agent there is representing the people selling that house and is duty bound to get them the highest price possible for that specific house.
As a buyer, you want someone on your side that will look out for your best interests to get you the lowest price possible on the house that best fits your needs and wishes.
It might not always seem this way, but you want to make sure you have someone negotiating in your corner. If you hire a realtor, you don’t have to worry about the seller’s agent trying to persuade you into a house that’s too expensive or not right for you. Your realtor (if they’re worth their salt) will tell you straight up when a house isn’t worth the price it’s listed for, if it doesn’t fit your price range, or if something seems off.
Capitalize on Experience
Even in the age of Zillow and Trulia, you do still need a realtor. Even with all the resources online, an agent will have years of experience in the area, access to historical data on pricing, local trends, and other information about your new neighborhood. Finally, when it comes time to negotiate, they might have more knowledge of the other agents involved than you would and they will definitely have more experience negotiating home sales.
Hiring an agent should be more than just whoever’s face you happen to be sitting on at the bus bench. This person is responsible for picking out houses to look at, evaluating the conditions and specifics of each house for potential issues, and negotiating on your behalf once it comes time to make a bid. You want someone with the same outlook as you, someone you can trust, and someone who knows the area you want to live i
Start out with an internet search for realtors in your future neighborhood. Once you’ve found a few who look like they might be good, check out their websites, social media accounts, and profiles on Zillow or Trulia. You want someone with demonstrable expertise in that geographic area.
Once you find a few you might like, reach out for an initial meeting. If you don’t know anyone who has personally worked with them, it’s totally acceptable to ask an agent for references from a previous client. Be straightforward with them if you are still interviewing other agents as well, but you should eventually work exclusively with the realtor who best fits your needs.
Once you have signed an exclusive contract with a realtor, they will know they’re the one who will get “your business” so they will focus a great deal of time and energy on finding you the exact right house for you.
The Bottom Line
Buying a house is a complicated process, even for those who have done it before. As a first time home buyer, try to do your homework ahead of time, stay rational even when things get emotional, and leverage the assistance of a qualified realtor. Armed with the right knowledge and strategy, you’ll be able to sidestep the mistakes people usually make and go straight to owning your first home!
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