The 5 Most Common Mistakes Made by First-Time Homebuyers

There’s no more an anxiety-ridden process than home buying, especially if it’s your very first time. With so much to do and so many unknowns, many describe the process as overwhelming. 

If simply hearing about the entire process is not enough to scare you away, being wary of some common traps the first-time buyer tends to fall into can be helpful in alleviating much of the stress. Being aware of these 5 most common mistakes and the ability to refrain from making them can greatly reduce your stress during this exciting journey! 

1. Lack of familiarity of your options for a down payment 

One of the largest stressors for the first-time buyer is a down payment. If you’ve ever financed anything, like a car, you’re already familiar with the concept. A downpayment is money out-of-pocket which contributes in lowering the total cost of your purchase. 

• Lack of a certain amount of a downpayment on a home loan can force you to have to pay private mortgage insurance (PMI) during the life of your loan. PMI is a security vehicle used by lenders to assure payment should you default on your mortgage. 
  
  
• PMI can potentially cost between 0.5% to 1.0% of the total loan amount. Other factors which contribute to the percentage you’ll pay are your credit score, bank and/or lender. 
  
  
• Before most banks/lenders will waive the PMI, you’ll need at least a 20% downpayment for your loan. An example home costing $300,000 means you would need to come to closing with at least $60,000 before PMI would be waived.
  
  
• The good news is there are government and other organizations which offer free down payment grants/loans for buyers who can meet certain criteria. Several factors such as age, income level and credit score are considered by these organizations before offering you the free money for your downpayment. Check out downpaymentresource.com for a comprehensive list of programs available. 

2. Failing to get prequalified for a loan 

Beware of online calculators used for this purpose. These types of programs leave out many factors in their calculations which can greatly increase or decrease the amount of money a lender will provide to you. The best way to avoid these inaccurate numbers is by getting prequalified. This generally means visiting a financial institution (specializing in home mortgages) and speaking with a loan officer. It’s at this time you will be asked to provide pay stubs, credit scores, bank statements and a slew of other documentation before the officer can tell you an exact amount which the institution is willing to lend to you. Although this can be stressful and time consuming, the pre-qualification letter you’ll receive from the lender is much more credible and considered the “gold standard” when it comes time to begin searching for your new home. 

3. Failure to find a qualified real estate agent 

Everything is online these days so why do I even need a real estate agent? Although this may be true, real estate markets run hot and cold. By hiring a qualified agent who knows the overall market as well as the area you’re searching, you can save yourself infinite time and stress by not overpaying for a home or interested in touring a home that’s already been sold or under contract. A qualified agent can give you access to the most up-to-date listings on the MLS (Multiple Listing Service) as well as provide expertise in the area your looking to move. A qualified agent is an invaluable resource one should seek as they begin the process. 

4. Failure to spend time in the neighborhood you’ve decided on 

Trying something on “for size” is always important before you make your purchase and never more important than when investing in your new home. It’s not a bad idea, if possible, to find an Airbnb in the area and spend a few nights to help you check on commute times, noise levels and neighbors in general. 

• Can you still make it to work from this neighborhood at your normal 8:00 a.m. arrival time? -How far is the grocery store, gas stations and shopping? 
  
  
• Check on the noise levels compared to what your used to. Will that train noise from a few blocks away be too much? Are you on a flight path from an airport? It’s best to make these discoveries before you make such a large investment.
  
  
• By doing this simple task, if time allows, you can make enough observations about the neighborhood to know how to readjust your search criteria if necessary. 

5. Failure to understand the difference between fixable and a deal-breaker 

Hideous ceiling drop panels and a tiny bathtub. Are these types of observations fixable for you or are they a deal-breaker which would force you to walk away from a particular property? This is just another facet of home searching where a good real estate agent can be of great value. It’s the job of these agents to see and evaluate homes in various stages of update and repair that they have the expertise to point out where space can be claimed for a larger tub or that the ceilings are too low for any change to make a substantial difference. 

 

Be encouraged! Not any of these 5 miscues should ever keep you from purchasing a home of your very own, but they could possibly delay the process and end up costing you more money than you need to spend. At the end of the day, if you can avoid any or all of them, your dream home will be yours before you know it!