When Buying for the First Time, Do Your Homework!
Buying a first home isn't without its share of potential pitfalls.
But if you approach the process with your eyes open wide, you can shop with confidence and avoid costly mistakes. Learn as much as you can about home ownership and the real estate market before you begin your search. Take a crash course in home buying at Realtor.com's "First Time Home Buyer Basics" page.
Also, avoid the following mistakes that first time homebuyers commonly make.
- Not knowing what you can afford before going
house shopping. If you make this
mistake, you risk falling in love with a house you can’t afford and attempting
to reach beyond your means to get it. Researching homes can be fun, but time must
be spent researching your financing options beforehand. Your credit score, income stability, and
other factors add up to determine how much a bank will lend you. Talk to a qualified lender and get
preapproved for a mortgage, and avoid wasting the seller’s time, the agent’s time,
and your own. You don’t want to sign a
contract only to find out afterward that you can’t get financing or an
Also, keep in mind that what the bank says
you can afford and what you know you would like to pay is sometimes quite
different. If you don’t have a budget,
make a list of your monthly expenses and major yearly expenses. Subtract this total from your pay to
determine how much you can spend on a new home each month. You might find that you need to reduce your
monthly expenses or increase your income before you even begin to look.
- Forgetting to include taxes, fees, insurance,
closing costs, and maintenance costs in your budget. On top of your monthly payment, you’ll take on these costs too. They can really add up, so find out how much they'll cost you per month. Remember that you will be responsible for cleaning gutters, replacing water heaters, buying a lawn mower, etc. on your
own, so be responsible when you select a home. Consider its age and current condition and also try to buy a little less than you can afford. That way, you’ll be able to budget any home
repairs and save up for renovations.
- Failing to find a good buyer’s agent. First time
buyers should depend on knowledgeable and experienced agents to help them get
their finances in order to secure a mortgage and then find an appropriate home. A good agent will put the buyer’s needs
first. Have a friend or relative
recommend potential agents, and interview those you’re considering to find out
how much experience they have, what services they can provide, and whether or
not they’ve worked with first time home buyers before.
- Letting cosmetic
fixes and additions that don’t add value win you over. Sellers will stage homes and make minor
upgrades that are fairly inexpensive. These just might distract you from the true factors (or lack thereof) that add value to a home, like
location, neighborhood, and condition of the home. You should also beware of extras that don’t
add value or will require more investment on your part to maintain, like a
backyard swimming pool. If you’re budget
is tight, look for homes with potential for future improvements, especially if you’re
a first time homebuyer. Adding value to
your home guarantees a bump in equity so you can ascend the property ladder.
- Overestimating the tax savings. People are often fooled into thinking that
the tax savings involved in buying a home will be a huge bonus. The tax deduction you’ll get on the mortgage
interest makes the interest a little
more affordable, but it’s still not better than paying no interest at all.
Nobody enjoys paying taxes, but most middle-income families don’t have a big
tax burden. If you don’t pay a lot in
federal income taxes, the tax savings on a mortgage won’t be all that great.
- Not thinking about the future of the
neighborhood. When you buy a house,
you’re also buying into an entire neighborhood.
Try to find as much as you can about the people that will live around
you. A number of other factors go into a
great neighborhood, like school districts and access to particular amenities. These factors will not only affect your
personal comfort, but also the resale value of your home. Ask yourself the following questions: What kind of development plans are in
the future of the neighborhood? Is the
street likely to become a major street or popular rush-hour shortcut? What are the zoning laws in the area? If there is a lot of land, what is likely to
be built there? Have the home values of the
neighborhood been declining?
- Not seeing the potential or being too picky. There may be things about a home that irk
you—like ugly wallpaper or funky light fixtures. Don’t let small physical imperfections turn
you away, especially if all the big, permanent features you need are in place. Upgrading a home yourself is often cheaper
than paying the increased value to a seller who has already done all the work. Also, don’t be too inflexible with your
home-buying wish list. First time
homebuyers do have to make a few compromises, and if you’re too picky, you
might end up renting longer than you had planned. You can of course wait for something that fulfills
your every wish. It all depends on how
important it is for you to become a homeowner now rather than later.
- Compromising on the important things. You can be too picky, but don’t be too
lenient-- You’ll probably have to make some compromises to afford the right
home, but making compromises that will jeopardize your future plans or comfort
is a bad idea. For example, if you’ll be
having kids in a few years and need three bedrooms, don’t buy a two bedroom
house just because it’s more affordable.
your eagerness to renovate. Owning a
home that needs a great amount of updating, can turn into a part-time job you
don’t get paid to do. If you don’t have
experience doing renovations or don’t like that kind of work, then you’ll be
budgeting more time into more simple chores than you think and learning as you
go. However, if you like doing renovations
go ahead and purchase the fixer-upper.
Just know what you’re getting into.
- Doing too much too fast. It’s impossible to make a house your own right
away. Don’t overextend your credit,
hoping improvements will pay for themselves by increasing home value. That’s not always the case, so make changes