It’s obvious that buying your first home is exciting. Your mind is probably swirling with the possibilities and potential. Each year over a third of all home buyers are first-timers. The decision to buy your first house also means you have reached a certain level in your life where the next step is both mentally and financially possible. Congratulations! Your first home may just be weeks away. That is, as long as you avoid the mistakes that can severely detour the process.
If you are one of the 83% of young renters who expect to buy someday, here are the six mistakes to avoid.
1. Not Fully Understanding the Impact of Time and Interest Rates on Mortgages. One of the big mistakes first time home buyers make is not being properly prepared for the relationship that time and interest rates play on payments and on the ultimate price paid for a home. They may put acquiring a home they truly love at risk by bidding $10,000 less than the current owner is asking and throwing far more than that away on financing. Using a mortgage calculator can quickly help you understand what effect even a small interest rate change can have. A one percent change from four to five percent on a 30 year $200,000 mortgage will change a monthly payment from about $955 per month to about $1,074. That is a whopping $43,000 increase you will ultimately pay for that home. In addition, a $200,000 mortgage financed at five percent for 15 years as opposed to 30 years, will save a home buyer over a $100,000 on the ultimate cost of their home. The lesson is to shop for the best rate possible and finance for the least amount of time you can afford. This is a far more important tactic than negotiating a few thousand dollars and risking losing a home you really like. At Movoto, we have plenty of tips for finding competitive mortgage rates.
2. Not Getting Pre-Approved. As a first time home buyer one of the best things you can do is get pre-approved for a mortgage. Getting pre-approved for a mortgage accomplishes several important factors. It lets your real estate agent know your upper limits for a home you can truly afford. This can help keep them from showing homes out of your price range. It also let’s them know they won’t be wasting their time with an unqualified buyer. It also adds weight to any offer you may submit on a home, especially if you are in a competitive bidding situation. There is a big difference between getting pre-approved and pre-qualified and understanding that difference can make an impact on whether you get the house you really want.
3. Not Getting a Home Inspection. Relying on an uncle, brother in-law, or best buddy to help assess the value of a property you are considering is risky business. If you have discovered a home you are seriously interested in, it is well worth investing in a professional home inspection. A complete home inspection should include a look at the house’s basement and foundation, roof and attic areas, heating and cooling systems, plumbing, electrical, appliances, and the grounds. A professional home inspection lets the sellers know what they may or may not know about the house that is being sold. A home inspection can pay for itself in negotiations before closing and can be very valuable in providing peace of mind.
4. Not Properly Preparing. Buying real state is not like buying furniture, a television or even a new car. Real estate is a legal process that involves the transfer of titled property from one person to another. It involves a viewing properties, inspecting properties, a bidding process and sometimes a lengthy closing process where everything comes together. First-time home buyers can be frustrated by the unexpected. The best way to resolve this is to fully under what lies ahead of you, including the closing process.
5. Buying as much House as You can Afford. Another big mistake of first-time home buyers is buying at their limit. This can lead to what is called becoming “house poor”. House poor is when a family is paying a far too significant portion of their income on a mortgage, property taxes, upkeep, utilities and other property related expenses. They may have the home they love, but the expenses of keeping and maintaining the home drains their resources. It can keep them from enjoying life, putting away money for college or retirement and may not allow a cushion for emergencies. Becoming house poor is one of the tragedies of the American Dream. It is especially tragic for first-time home buyers. When constructing a budget for you first home, be honest about what you can really afford, not what a mortgage company may say you can afford. Take the time to compile a realistic monthly budget on what it will cost you just to live in your new home. Does it leave you enough for improvements and repairs? Will you be trapped by the costs of living in your new home? You may be far better off purchasing a home below your means giving you more room in your budget for the other things that life offers.
6. Falling in Love. Falling in love is a beautiful thing, but falling in love too quickly with a house can lead to problems. When you get locked on a property that you just have to have it can lead to a variety of issues including ignoring property related problems, forgetting your goals, dismissing your budget and even overpaying. Falling in love with a house can lead you to make decisions that are contrary to your long-term best interests. The challenge is that real estate agents may feed into your emotional feelings of a house. They may talk about about losing this “once in a lifetime” opportunity or otherwise pressure you into making an unreasonable offer. First time home buyers in particular, can benefit from distancing themselves emotionally from a purchase, as difficult as it may be. Now, if you are a first time home buyer and feel like you have seen enough inventory to make a decision and are exited about a property, feel free to aggressively pursue it. Take your time and familiarize yourself with the market and your options.
At Movoto, we appreciate the opportunity to assist first-time home buyers through the real estate process. We present you with the information and assets you need to make the best decision for you. We want you to enjoy the process and ultimately make a choice that works best for your particular situation. If you have questions or need assistance, we encourage you to reach out.
2 Point Highlight
Your first home may just be weeks away, that is as long as you avoid the mistakes that can severely detour the process.
One of the big mistakes, first time home buyers make, is not being properly prepared for the relationship that time and interest rates play on payments and on the ultimate price paid for a home.
