Several mistakes are made by first-time home buyers, and it’s understandable because it’s their first time buying a home. Things like looking at houses before applying for a mortgage and focusing on the house instead of the entire neighborhood aren’t too drastic, but there are several mistakes relating to money that can be more damaging.
#1: Rushing into home buying.
Buying a home is a very exciting thing to do, but it also should not be rushed. A home is a huge purchase and is one of the biggest assets that many people own. Unfortunately, too many people are so excited about buying their first home that they want to jump right into it once they think they have enough money or have found a lender. Rushing into closing on a home can result in you being unable to receive favorable loans, due to the possibility of there being unresolved items on your credit report.
Instead, future home buyers should plan to buy a home at least a year in advance. This allows time to not only repair any credit issues but also gives you more time to save on a down payment. A higher credit score and more money saved increase the chances of you getting approved for a favorable loan.
#2: Waiting too long by trying to save 20%.
Many people believe that in order to put down a down payment on a home, it must be 20% of the purchase price. While that is true in some cases, 12% is actually the median number achieved, and many first-time home buyers put down half of that. Of course, some Homeowners Associations may require more than that, so make sure to consult your realtor about what amount you should be thinking about in certain neighborhoods.
If you are not required to put down 20% of the purchasing price on a home, you shouldn’t try to as it could take years to come up with that amount of money. In some cases, you can put down an amount as small as 3%, but you are also likely to be required to pay private mortgage insurance.
#3: Going with the first lender.
It’s not uncommon for first-time home buyers to talk to only one lender/bank and go along with that lender. While the first offer may seem good, it is still important to look around and compare to make sure that you are getting the best deal with the lowest possible rates. Also, don’t hesitate to look into a private mortgage lender. Private lenders are not affiliated with banks or government agencies, and can offer you more personalized loan terms.
#4: Buying more than what’s affordable.
Just because a person has enough money to buy something, does not necessarily mean that they can afford it. Buying and affordability are actually two separate things. For example, you may be qualified to receive a home loan for a certain amount of money, but that doesn’t mean that you will be able to afford the mortgage payments each month. When you get approved for a loan of a certain amount, it doesn’t mean that you have to find a home for exactly that amount or even close to it. Doing this can increase your risk of foreclosure if you’re not able to make your payments.
#5: Spending your savings.
This is another common mistake made by many first-time home buyers. In some cases, people think it’s best to drain all of the money out of their savings account in order to be able to put down a sizable down payment. What they don’t realize is that they are actually doing more harm than good— they are left with no extra money in case of an emergency. Instead, it is better to keep that money in savings and deal with having to pay a higher monthly mortgage payment— at least there will still be some money in case of an emergency.
Buying a home should never be a rushed process, and you should talk to your realtor and also do your own research to make the best decisions for you.