Buying a home can be an exciting experience. When it is your first home, it can be even more exhilarating.
It is easy for first time home buyers to become wrapped up in the physical details of a home. They often have an idea firmly planted in their heads of what it is they want, and it is hard for them to settle for less. They want that home with the hardwood floors, granite or quartz counter tops, open floor plan, and move in ready. First time home buyers are often so wrapped up in what is really considered the minor details, they forget to look at the bigger picture. That’s when mistakes can happen.
Here are eight of the mistakes most commonly made by first time home buyers:
Failing to check credit report and score.
Did you know that roughly 42 million credit reports have errors? The error could be something as simple as a misspelling of your address – which would have no impact on your score – or it could be something worse. Some errors may show that you have late payments, when you don’t. This can have a negative impact on your credit score and even impact your ability to purchase a home.
Before you even begin to look for a home, review your credit report. If you find any mistakes, dispute them and have them corrected before you have a mortgage lender check your credit. The cleaner your credit report is and the higher your score is, the better your chances are at being preapproved for a mortgage with a low interest rate. You can obtain a free copy of your credit report once every 12 months at annualcreditreport.com.
Not getting preapproved for a loan.
When you are preapproved for a loan, a lender looks through your financial situation, usually by checking your credit, pay stubs, W-2’s and so on. They then come up with a number they are comfortable with lending you in order to purchase a home.
Once you are preapproved for a loan, you will know exactly what you are able to pay for a home. This will save you time by looking at homes you know you can afford, instead of falling in love with something out of your price range. If you end up putting in a bid with other offers, having a preapproval puts you in a better position than those who don’t have one. Buyers who have proof of income and assets in the form of a preapproval from a lender are always taken more seriously by sellers. Keep in mind that you don’t have to use the full amount that you are approved for either. That is just the maximum amount of money the lender is willing to help you with.
Not thinking about the hidden costs of home purchasing.
When purchasing a home, there are several hidden costs that first time home buyers often fail to prepare for. These things range from closing costs (between 2% and 5% of the home’s price) and appraisal fees, to escrow fees, to property taxes, to home owner’s insurance and HOA’s, to moving fees. And, let’s not forget to mention utilities and home repairs and maintenance. When you rent a property and something breaks, you call the landlord to have it replaced or fixed. As a home owner you will have to fix or replace it yourself. On top of all of that, if you have less than a 20 percent down payment, you will have to pay private mortgage insurance (PMI). Private mortgage insurance is basically protection for the lender if you should default on your loan.
After you factor in these costs, an $900 monthly mortgage payment can easily become a $1400 monthly house payment.
Failing to use the help of professionals.
It is possible to buy a home without the help of a real estate agent. But, it’s not recommended, especially for first time buyers. There is a lot of confusing paperwork that takes place during a home buying process that agents are trained in understanding. Having a real estate agent help you through the process will allow you to ask questions and gain a better understanding as to what exactly is going on. They are there to look out for your best interests. They understand contracts and have experience in negotiations. They also have access to all of the homes available for sale on the multiple listing service (MLS). This also allows them to see which homes have been sold or are under contract.
Good real estate agents are accommodating and friendly. They will only show you homes that are within your limits and guide you through the bidding process without pressuring you into anything you are uncomfortable with. First time home buyers should never have to apologize for asking questions, real estate agents are meant to be there for you.
Not using contingency clauses.
A contingency clause is a form of protection for the home buyer. If the appraisal price comes in over the purchase price or you lose your job and the loan falls through, a mortgage financing contingency clause will protect you. This clause makes it so that the buyer will get the money used to secure the property back should any of those things occur. If you don’t have the clause, you may lose that money and potentially still be obligated to purchase the house. It is important to discuss such clauses with your realtor.
Not asking for a home inspection.
Even new homes need to have an inspection done on them. Some buyers will become attached to a home and want it no matter what, so they will waive the home inspection in hopes that the seller will look favorably on this. We are here to tell you that this is never a good idea.
While house hunting the home may appear great at first glance. However, there could be some hidden issues. Home inspections protect you from these issues by finding and listing out the problems you couldn’t see before you sign any papers. A home inspector will point them out to you. Inspectors evaluate the condition of the construction, mechanical systems, and structure of the home. They will give you an estimated price of the repairs that may be needed. Sellers most likely won’t mention the poorly insulated walls or leaky kitchen sink, but a home inspector will. If there are problems upon inspection, you can have the seller fix them, or ask them to lower the asking price. Often times, the buyer who asks for more, will get more. When you make an offer on a house make sure the seller is aware that your offer is subject to the house passing inspection.
Not doing research on the location of the home.
When you house hunt, keep this in mind: you can change your house, paint it, add new carpets, fix the landscaping, etc., but you can’t change the neighborhood. Does the neighborhood feel safe? Is there a loud, busy road near me? Can I hear that road when all is quiet? How involved is the community? Is there an HOA? Can I comply with the HOA? What are the crime rates for the area? Will I hear trains? Is there a loud airport nearby? How far is the commute to work and am I willing to travel it daily? If you have small children who aren’t in school yet, or plan on having children someday, you want to remember to take the quality of the nearby schools in mind and consider having parks close by. Is there a safe place for your children to ride bikes and play outside? There is a lot of factors that you need to take into account.
Not considering the home’s resale value.
When buying a house, especially your first house, selling it is probably the furthest thing from your mind. Or maybe you think that once you buy a home, that’s it. You are planting roots and never leaving. Well life has a way of sneaking up on us and changing our plans. Job transfers, family illnesses, growing your family larger that you originally planned, and other such factors may come into play down the road leaving you packing up and moving on. If the time comes, will your house be easy to sell? Better yet, will selling it leave you with a nice sum to put down on your next house? When you purchase a home you are making an investment, so these are questions you shouldn’t ignore. There are things you could do to your home while you live there to increase its value when it comes time to sell. You should also take all of number seven in mind. If you find some things that bother you, chances are it will bother your potential buyers as well.
At Boise Real Estate Pros, we are dedicated to you! We want to make the home buying experience as stress free and fun as we possibly can. Whether you are looking for your first home, second home or so on, we want to be there for you. Please call on us if you have any questions. (208) 577-7777