Four Costliest Mistakes by First-Time Homebuyers

Published by nora | Filed under Buyer / Seller Tips, Market Trends, Miscellaneous, Mortgage / Finance, Real Estate

Are you considering buying your first home? Then take a look at the costliest and most common mistakes committed by first-time homebuyers so you can take steps to avoid them.

1. Not Knowing Your Budget for a Home

If you’re shopping for a home without first estimating what you can afford to pay, you could be wasting your time looking at homes priced beyond what you can really pay. Worse, you could fall desperately in love with a home and make desperate measures to buy it and then regret later when almost all your money is being funneled to your mortgage payment.

List all your monthly expenses, including your student loan payments, auto loan payments, fuel and related costs, credit card payments, health insurance, food, insurance premiums and retirement fund payments. Total these expenses and then subtract the total from your net monthly pay. The difference would give you an estimate of how much you can spend for your mortgage payments.

2. Not Getting a Lender Pre-Approval

You’ve made calculations and ascertained that you have enough for monthly mortgage payments, but your bank may not look at it in the same way. To avoid wasting money and frustrating yourself, your real estate agent, your seller and other people, get first a pre-approval from your bank. Pre-approval will ensure that your bank will lend the amount you need at terms acceptable to you.

Remember also that pre-approval is not the same as pre-qualification, which is typically issued by a loan officer after interviewing you. A pre-approval gets more credence as it’s given by an underwriter after verifying your down payment, credit, employment and other financial activities. Be also aware that many lenders check again your credit score just before closing, so you should not do anything that could lower your score, such as skipping your personal loan payment or financing a new car, before your closing date.

3. Not Preparing for Other Home Ownership Expenses

In addition to your monthly mortgage payments, there are also other costs you need to pay as a homeowner. These are residential property taxes, repair costs, and premiums for home insurance you need to have to cover your loss in case of disaster. If your housing unit is a condo, you need to pay monthly homeowner association fees to cover the maintenance of common areas, the security of the whole building and other services for unit owners.

4. Not Knowing Which Aspects Are Most Important to You

Is location more important to you than number of bedrooms? Make your wish list for a home and then rank the items according to how they’re important to you. If you’ve been extremely miserable before as a renter because you share the same walls with your neighbors, then condo is not an option. If you have a definite picture of what you want and need, you’ll be able to make your best choice despite making compromises on some aspects.

By being aware of these things, you can prepare yourself and avoid making costly mistakes.