5 First-time Homebuyer Mistakes
Mistake 1: Not Budgeting for Your First Home Loan
Homeownership may seem like a wise alternative to renting and if you’re like most people and need to take out a loan to buy a house. Take a good, hard look at your income and expenses to find out the truth about what you can comfortably afford to pay every month for the next 30 years.
If you have not created a budget this will be your first step. Creating a budget consists of listing all your income, and expenses then determining what you can afford on a monthly basis. Keep in mind just a month of income and expenses will only be a snapshot of your financial picture. Be sure to also track you non-living expenses like vacations, auto repair and entertainment. Determine if you can cut out non essential expenses which will help increase your monthly income towards your new home.
Mistake 2: Not Checking Your Own Credit
A three-digit summary of your creditworthiness may hold you back from buying your perfect home. If you have any negative marks on your credit from the past, it could mean you’re going to have a very hard time securing a good loan during your house hunt.
Your credit score is a number between 300 and 850 that is meant to represent how credit-worthy you are. This information about your payment history and accounts will be used to calculate your credit score and can offer it to a lender who will determine if you qualify for a home purchase. While you can’t change the past there’s a good chance your report has an error on it right now. One study found that about 79 percent of reports contain some wrong information, and as many as 25 percent have seriously damaging errors [source: CNNMoney].
Mistake 3: Not Understanding Housing Market Trends in Your Area
The housing market isn’t static — it is always fluctuating. It can favor those looking to buy – commonly known as a buyers’ market. Other times it may point in the sellers’ direction – Seller’s market. Both these trends are driven by the simple formula of supply and demand. Low supply increases demand — and prices — to favor sellers. On the other side, when supply is high and there are more houses on the market than buyers, this favors buyers.
Keeping track of all these factors can be daunting, we recommend seeking help from a qualified real estate agent who follows the market. Their expertise can be a valuable resource in purchasing your next home. They will be able to provide you with the market research which will make life easier for you to determine which market you are in, and proceed accordingly.
Researching housing trends can give you a leg up in your home search. Be sure you know which market you are in to make the right choice in your negotiation strategy.
Mistake 4: Not Getting a Preapproved Home Loan
This is by far the most important mistake you do not want to make. Many home buyers search for the home they want first, without thinking about the loan process. It’s easy to fall into this trap especially if you’ve already researched your credit. This can lead you down the wrong path.
Once you make an offer on a home and begin negotiating, sellers will want to know if you are pre-qualified or pre-approved for a loan. In some instances sellers may not consider you at all unless you’ve got a pre-approval letter from your lender. In addition, many realtors will not even show a property to a buyer without a lender pre-approval.
Contact a reputable lender and ask them to explain the process for getting pre-approved vs pre-qualified. These are vastly different process and can make or break a purchase offer.
Mistake 5: Falling In Love with a House
Falling in love with a house could be your worst financial mistake.
Think about how you will feel once the honeymoon phase’s over and you are living in the home day in and day out. Consider spending as much time as you can in the house, assuming the home is vacant, to understand the home’s idiosyncrasies now, and not develop buyer’s remorse when you must deal climbing stairs or creaky floors.
It’s been said, falling in love with a house will very likely blind you to its financial value you may be led astray and offer a bid that far exceeds the true value of the home, not ideal for getting a good investment. And, if you expose your infatuation to the seller or the seller’s agent, they’ll realize you’ll be willing to overpay.
The ideal strategy, when buying a house, is to keep a cool head and an open mind, and always be prepared for the worst.