12 Common Mistakes Made By First-Time Home Buyers and How to Avoid Them

1. Not buying a house within your budget

First time home buyers often make this mistake. They start searching for homes before they have sat down and calculated how much home they can afford. This often results in Dem spending time looking at properties that they cannot afford or not properly priced. Additionally, if these home buyers have not already accurately determined their budget it could result in them wasting their realtors time.

Smart first-time homebuyers will shoot to keep their monthly mortgage payments low and will account for unknown future curveballs such as new roofs, AC units, renovations, and the possibility of future loss of employment. The rule of thumb is for your monthly mortgage payments (mortgage interest, property taxes, and maintenance) to not exceed more than 30 percent of your monthly gross income.

We at Bankzia recommend using one of our free mortgage calculator tools to help you determine the price range in homes you should be considering.

2. Failing to get Pre-Approved before looking at homes

In today's fast-paced housing market it's a good idea to be pre-approved prior to going to look at any home. That house of your dreams might come on the market tomorrow and if you're not pre-approved and somebody else is you could miss out on it. additionally what you think you can afford might not be with the bank is willing to lend you especially if you have poor credit or unstable income.

Not all lenders and their offerings are equal and the lender you have in mind might not be the best one for you. For this reason, we recommend looking around and getting pre-approved prior to starting the home buying process.

3. Getting Just one rate quote

It helps to compare offers: shopping for a mortgage is like shopping for a car or other costly commodities. Interest rates on mortgages are different with each lender, and fees such as closing costs and discount points do as well.

4. Not checking credit reports and correcting errors

Never underestimate how important a good credit score is. Unfortunately, mortgage lenders will scrutinize your credit reports and will use them as a means to determine if they want to approve the loan and at what interest rate they want to offer. Individuals with errors in their credit history might be quoted with higher interest rates which is why we recommend reviewing your credit history prior to applying for a home loan. Getting all your ducks in order will ensure you get approved for your dream house at the percentage you deserve.

5. Not factoring in closing costs (Some lenders offer incentives)

Most first-time home buyers Fail to factor in their closing costs. These closing costs can add up to a substantial amount of money which is why we recommend looking for lenders that offer incentives. some lenders will offer to pay your closing costs entirely or could offer to pay a percentage towards your closing costs.

For example, the closing costs on a $300,000 home are anywhere between 2% - 5% of the total loan amount. Upon closer inspection, you’ll notice that this adds up to anywhere between $6,000 to $15,000 in closing expenses on a $300,000 home. For this reason, we recommend looking around to see if any lenders are offering money towards closing costs.

6. Making a small down payment

It's understandable that not all individuals have 20% put down on their new home. While some home loan programs allow you to purchase a home with zero down or as little as 3.5% down it is usually a good idea to put down as much money as you can comfortably afford. A larger down payment will ensure that you have a smaller monthly mortgage payment.

Most first-time homebuyers are unfamiliar with the term PMI which is short for private mortgage insurance. This type of insurance is relatively new and is usually required when you have a conventional loan and make a down payment of less than 20% of the home's purchase price.

For a $100,000 borrowed, most borrowers expect that they will pay $30 to $70 a month in PMI premiums. A significant effect on your PMI premiums is your credit score and loan-to-value (LTV) ratio. Generally, the higher your credit score, the lower your PMI limit.

7. Not taking advantage of first-time home buyer programs

First-time home buyers typically do not have the ability to make large down payments, however, don’t let this deter you from pursuing your home buying dreams. There are a lot of low-down-payment loan programs out there designed specifically for first time home buyers. These programs typically include down payment assistance and competitive mortgage rates for first-time homebuyers.

8. Overlooking and underestimating issues

Some home buyers are looking for homes that have yet to have their full potential realized. This is a fantastic way to build equity, however, most home buyers are not looking for a project let alone a full renovation. Don’t fall victim to reality TV delusions. Home renovations and makeovers take a lot of time, money, and work which is easy to forget about when the shows are only 30 minutes long.

The rule of thumb is to expect most repairs and upgrades to cost roughly twice as much as you initially planned. Additionally, it is safe to assume that the project will take roughly twice as long as originally planned. Many home buyers plan on doing the work themselves and quickly discover that their weekends are simply not long enough and a month quickly turns into 6. For this reason, we recommend assessing your time, budget, abilities, and patience before you consider a fixer-upper.

As for those homebuyers who are not looking for a project number 9 is for you!

9. Not finding the right home inspector

While you might look for a deal on a good home inspector we strongly encourage first-time homebuyers to shop around, read reviews, and most importantly not skimp on hiring a good home inspector. This is your last line of defense before you inherit any possibly unknown issues with your future home and the inspector could save you from dealing with the costly roof, air conditioning, plumbing, pest, and structural issues. Not all home inspectors are created equal and hiring one with a good reputation, experience, and the desire to find issues is well worth the extra money.

10. Not accessing the neighborhood and planning for the future

Not all neighborhoods are perfect and chances are your first home will not be in the most affluent neighborhood. For this reason, we recommend not just focusing on the home but instead take a look at the surrounding area.

Ask your self:

• Is the area growing? (New construction, renovations, stores, or businesses)
• Is the area likely to see more vehicle traffic?
• Are new nearby roadways in the works?
• Have home values in the neighborhood been declining or rising?
• How are the schools in the area?

11. Underestimating the costs of homeownership

Many first time home buyers do not take into consideration all of the monthly bills that come with owning a home. Many people coming from apartments might be caught off guard by the cost of oil, gas, water, sewer, garbage, eclectic, or in some cases TV and Internet. While first-time homebuyers might have paid these bills in the past many fail to take into consideration that homes on average will cost more. If utilities are of concern we strongly recommend reaching out to the utility companies to get a quote.

12. Emptying your savings

Don’t be surprised if repairs are required when purchasing a previously owned home. Additionally, homes typically come with higher monthly utility bills. While putting down as much money as possible might look good on paper we strongly encourage our readers to plan for the unexpected. Keeping enough in your savings will ensure that you don’t get stuck between a rock and a hard place immediately after becoming a new homeowner.