Gearing up to buy your first home? Searching and shopping for a house can be thrilling, tiresome, and somewhat frightening. At the end of the journey, your aim is to end up with a property you enjoy at a price you can afford. Simple? Unfortunately, some people make mistakes that keep them from this humble dream. Check your home buying process with these 7 industry-related solutions for the mistakes that many first-time home buyers experience.
1. Pre-approval Early On
Getting pre-approved for a mortgage is a common oversight for many first-time home buyers. The excitement of searching for your perfect place can be distracting. By the time you find a suitable property, making an offer without a pre-approved mortgage could lessen your chances of getting what you want.
Solution: Pre-approval of a mortgage in the early stages of your home buying journey is crucial to the process because it clearly outlines a realistic understanding of how much you can spend on a house. It also shows home sellers that you're serious about investing, which gives you a better chance if you are competing for a home in a competitive market.
TIP: Seek out more than one lender to find the best fit for your budgeting needs. Make sure you have all supporting documentation necessary well-organized before meeting with lenders (bank statements, tax returns, pay stubs, credit reports).
2. Not Choosing Your Own Payment Schedule
Paying off your mortgage faster saves you interest costs, while a longer amortization period reduces your regular payment and frees up cash flow. You can save thousands of dollars in interest by opting for a shorter amortization period by paying bi weekly instead of monthly. You can also opt for increasing the amount of payment by a small amount.
Solution: Ask your lender what they have to offer you for payment plans.
TIP: Use an online mortgage calculator to check the numbers.
3. Skipping the Home Inspection
It's extremely enticing to think you're a new homeowner the very moment you go into escrow, but steer clear from this notion before you've had your soon-to-be home inspected. Before it's a done deal, you really need to know what kind of shape the house is in. It's a pity to be stuck with a money pit or with the headache of having to shell out more cash and time into unexpected repairs. Keeping your enthusiasm in check until you have a full picture of the house's physical state will help you avoid a major financial resentment.
Solution: Make and offer on the property contingent upon the results of a home inspection.
TIP: Before you make an offer, speak to your agent about the history of the property. Do some research on the type of home you are investing in to see if there are any common issues with the style of home.
4. Interviewing Only One Lender
Outside of searching for the right home, finding the right lender is one of the most important parts to research in the home buyer journey. Latching onto the first lender you come across is not a good idea because you could be missing out on something better suited for you.
Solution: With today's competitive lending market, it's in your best interested to shop around and see what's out there. Be sure to speak with an online lender, a credit union, and a regional bank.
TIP: The same goes for real estate agents! Interview more than one person and see what's best for your home buying needs!
5. Expecting the Value of Your Home to Appreciate Over Time
Many first-time home buyers sacrifice all of their life savings into a home, hoping to get a strong ROI when they sell five to ten years down the road. Of course, it's better to get home equity for the money you'd be spending on rent, however, real estate is a large asset that's not terribly liquid.
Solution: Looking at your investment objectively could save a lot of money and heartbreak. Understanding that the real estate market could drop in 2 to 10 years from now is a healthier way to plan for personal financial stability.
TIP: Ask your real estate agent for a market forecast and industry trends. Do some research on what your town or city has in store for community development over the next 5 to 10 years.
6. Forgetting About Additional Expenses
Often new homeowners forget to think into the future when it comes to additional home expenses. Being a homeowner brings new expenditures which include property taxes, higher insurance fees, upkeep costs, and emergency funds for unexpected repairs. If you purchase a condo, keep in mind that there'll be monthly HOA fees regardless of whether anything needs to be repaired.
Solution: Make sure to do your due diligence. Speak with your insurance company, lenders, real estate agents, and strata managers about the nature of all costs.
TIP: Keep an emergency account for the house.
7. Not Choosing to Hire an Agent OR Using the Seller's Agent
Many first-time buyers walk into open houses without having an agent on board. This can be like walking into a shark tank even when agents have an ethical rule that they must act in both the seller and the buyer parties' best interest. It's rare for a home buyer to have the seller's agent represent them throughout a real estate transaction. Once you begin dealing with a seller's agent, you might see how it doesn't workout in your best interest before contacting one of your own agents. It's also quite rare for these sort of real estate transactions to be fruitful for the home buyer.
Solution: Wherever you go, make sure to bring an agent with you when looking for a home.
TIP: Be sure to interview more than one agent. Choose someone who knows exactly what your needs are with a well-defined budget!