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Buying your first home is exciting. But you’ll want to avoid these first time home buyer mistakes that even repeat buyers often fall prey to. These 15 first time home buyer mistakes could cost you thousands or tens of thousands of dollars. Get “20:20 hindsight” in advance… before you purchase. Here are MyWalletWisdom’s 15 first time home buyer mistakes and how to avoid them. Read on to save thousands of dollars.

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first time home buyer

Buying your first home is exciting… but avoid these 15 costly mistakes.

Buying your first home and being a first time home buyer can be exciting — and scary. It comes with a host of decisions that can ultimately determine whether you have peace of mind or buyer’s remorse. Those decisions can also affect your home buying costs by thousands or even tens of thousands of dollars.

As the old saying goes, knowledge is power. Unfortunately, you don’t always know what to ask… or look for. We’re here to solve that problem for you. That’s why you’ll want to pay attention to these common first time home buyer mistakes – so you avoid expensive mistakes and the disappointment of lost opportunities.

Here are MyWalletWisdom’s 15 first time home buyer mistakes. And more importantly, how to avoid them:

First Time Home Buyer Mistake #1: Looking at buying your first home before getting your financial house in order.

Getting this in the wrong order when buying your first home will only lead to disappointment. You wander through open houses and find a home you love… Only to make an offer that you lose out on because you’re not pre-approved for a mortgage. Or that you’re in no position to buy because no lender would approve a loan for you, because you can’t afford it right now. This leads to disappointment, discouragement, and a hit against your credit score if you apply and are declined.

Your solution: Before you start shopping, check your credit score and run your own calculations for what you can afford. Then get a pre-approval letter based on your income and assets. Lenders typically pull your credit report and ask for personal information to determine what you can afford. This also sends the message to sellers that you’re a serious buyer, not a tire-kicker. In a competitive market, home sellers won’t risk losing a sale to someone who’s not serious.

First Time Home Buyer Mistake #2: Only talking to one lender.

Big mistake. Many first time home buyers only go to the most obvious bank or lender. You stand to loose thousands of dollars in interest over the course of the loan by doing this. What’s more, you could also lose hundreds of dollars or more in upfront loan fees and costs.

A good mortgage loan officer will tell you what costs to expect with the mortgage, as well as what your payments will be with the best interest rate they’re able to offer you. The more you shop around, the better a handle you’ll have on what your true costs will be. And you’ll be able to compare costs.

Your solution: Consider area credit unions as well as other mortgage loan officers. Certain membership groups also offer special mortgage rates. Such as Costco or AAA.

Check out at least three different options, comparing their mortgage rates, fees, and terms. Also pay attention to their customer service and lender responsiveness. There are sure to be times when responsiveness becomes a highly-valued treasure, not to mention a stress-reliever.

First Time Home Buyer Mistake #3: Exceeding your budget and comfort level.

This first time home buyer mistake can make you miserable for years. Ever known someone who bought so much house that they couldn’t afford to do anything else in life? We’ve done it. And believe me, it’s miserable and high-stress.

In a tight market, you can find yourself compromising on your carefully planned home budget. This is also common if you get frustrated with what’s available in your price range as a first time home buyer. But think of what might happen if you fall on tough financial times… lose your job… get furloughed for a virus. It may not be worth the risk.

Your solution: Focus on how much home you think you can afford – not what the lender thinks you can afford. They may qualify you for total loans of up to 43% of your income if you don’t have other debts. But are they considering all of your expenses?

You may have a larger family than average… be committed to charitable donations… love to travel… or other factors they don’t consider. Just because a lender says you qualify for a $300,000 mortgage doesn’t mean it’s wise for you to take out a $300,000 mortgage. Factor in obligations you have that don’t show up on your credit report to determine how much house you can afford.

First Time Home Buyer Mistake #4: Not planning far enough in advance.

Skipping advanced planning steps can cost you in the long run. It can lead to disappointment because you didn’t plan how long it might take to boost your credit score and save money for down payment and closing costs.

Your solution: Give yourself at least a year (if not two) to prepare for buying your first home. It can take months or years to repair bad credit and save the necessary money. See this article on how to fix bad credit. Start today by paying down debt, saving more money, and boosting your credit score.

First Time Home Buyer Mistake #5: Going on a spending spree or applying for new credit before closing.

This can be a major deal-killer. Yet it happens over and over. You offer on buying your first home and the offer is accepted. Once you get initial approval for your mortgage loan you go on a spending spree – buying furnishings for your new home, booking a celebratory trip, buying a car, or applying for a new credit card.

Don’t do it! It’s the worst time in your financial life to do these things. This is the time to rein in spending, and put your credit cards under lock and key.

first time home buyer

Curb spending and lock up your credit cards until after closing.

Lenders consider it a material change in your financial picture. Count on them to re-check your credit within a few days of closing, if not the day-of. This is not the time to rock the boat. Any new loans or even higher credit card balances on your credit report could jeopardize your final loan approval and closing. Too many buyers learn this the hard way. Don’t be one of them.

Your solution: Put yourself on a spending freeze during this short interim to make sure you’re in the strongest financial position possible before closing. Save the furnishings till you actually get into your home. It’s easier to picture how things will work and measure spaces once you actually live in the house anyway.

First Time Home Buyer Mistake #6: Prioritizing the home over the neighborhood.

Surely you have a checklist for the home you envision spending your next years in. But don’t disregard the neighborhood.

first time home buyer

Prioritize a good ‘hood over a perfect home.

Find a good ‘hood before finding the right house in the ‘hood. You’re better off buying a so-so house in a good neighborhood than buying a great house in a terrible neighborhood. In a bad neighborhood you could find yourself suffering sleepless nights and heart-rending anxiety. You can always renovate a nominal home. That’s easier to change than the character of a neighborhood – which is critical to your life and your wellbeing.

Your solution: Check out crime stats and school ratings in several target areas before you start shopping for a home. Pretend you know nothing, as if you’re transferring into the area for the first time. Visit potential neighborhoods at various times of day and night. What’s the neighborhood vibe at 7am, noon, 3 or 5 pm, and midnight? Go to your proposed neighborhood and start your work commute from there, and see how long and crazy the commute really is.

When I sold real estate in the early 2000s, one of my clients worked downtown and wanted to buy a house 40+ miles out in the suburbs. They’d driven it during non-peak hours and thought it was no big deal. I told them to do it during rush hour before deciding. They changed their mind in a hurry.

First Time Home Buyer Mistake #7: Expecting the perfect home. [Hint: It doesn’t exist.]

We’ve lived in more than a dozen homes, plus a few temp rentals. I can assure you, there’s no perfect home out there. That doesn’t mean you can’t be completely content in an imperfect home. But to expect a perfect house is an exercise in futility.

Expect to change things. Your personal taste won’t perfectly align with the previous owner’s. Adjust your expectations during the house hunting accordingly. Looking for perfection narrows your choices too much. Plus, you might overlook a diamond in the rough if you always expect something better to come along.

This might also lead you to spend too much for a home or take forever to find a home. If you’ve looked at 20 homes in your price range and haven’t found one that’s right for you, you may need to alter your expectations, raise more down payment money, boost income, or check out a different town or suburb.

Your solution: Be a visionary. Look beyond paint colors, shabby carpeting, and other changeable things. Be willing to put in some sweat equity. Paint is cheap (if you do it yourself). And you never know how simple a great fix might be.

When we bought our first home, we removed disgusting carpeting to find pristinely finished hardwood floors hidden underneath. A radical improvement really was as simple as tearing out the carpet.

First Time Home Buyer Mistake #8: Assuming you always need a 20% down payment.

While a 20% down payment helps you avoid paying PMI (private mortgage insurance), not all buyers can wrangle that much together – at least not within their preferred time frame. In 2019, the National Association of Realtors reported that the median down payment was 12% for all buyers, and just 6% for first-time buyers. These lower down payments may be due in part to rising home prices, making it tougher for buyers to save for a down payment.

Your solution: Consider options that don’t require such a hefty down payment. Yes, you’ll pay PMI till you have a 20% stake in the house. But some government backed loans, like FHA, require just 3.5% down and are available with a minimum credit score of 580. VA loans are available for active-duty and veteran military service members and their spouses for zero down with certain restrictions.

Of course, the lower your down payment, the higher your monthly payments. But it is a way to get into your first home when you have less cash on hand. If you’re a moderate- or low-income borrower in a rural area, you may be able to buy a house with the help of a USDA loan.

First Time Home Buyer Mistake #9: Underestimating the hidden costs of owning a home.

Got sticker shock from home shopping? Wait till you factor in all the other hidden costs! As a new home owner you’ll pay property taxes, homeowners’ insurance, repairs, maintenance, and utilities, plus possibly PMI and other hazard insurance. Don’t freak out, but do plan for it.

Truth be known, you also pay for property taxes and maintenance as a renter. They’re just rolled into your rent. Your landlord factors all these costs into your rent payment – including taxes, insurance, repairs, maintenance, and any landlord-paid utilities. After all, they’ve got to make their mortgage payment too.

The difference is that as a homeowner, you pay it separately out-of-pocket. But with those costs you get more square feet, extra privacy, a yard, and the ability to personalize your own home and call your own shots. In other words, you’re probably not comparing apples to apples when you compare renting to buying your first home.

Your solution: Most home experts recommend that you set aside 1% of the value of your home annually for maintenance and repair. (You’ll likely need more if your home is very old.) On a $200,000 house, that’s $2,000 per year, or $166 per month. You could potentially lower this amount by putting in sweat equity… DIY style.

First Time Home Buyer Mistake #10: Forgoing inspections.

In an effort to shave costs, you might be tempted to forgo the inspections. After all, they can add an additional $300 to $1,000+ to your upfront costs – depending on how many specialized tests you order (radon, termites, water/sewer, etc.). Such a decision might be penny-wise and pound-foolish..

Your solution: You need to find out what’s in the house you’re buying.

first time home buyer

Big mistake: Buying your home without getting a home inspection.

Note: Inspectors always find things wrong with a house – even in the best-maintained home. Expect it. (Note mistake #7 above.) That’s what you’re paying them for. Part of their job is to find major disasters that could suck your finances dry. Another part of their job is to show you how to maintain the house and suggest little fixes that the current homeowner missed.

In other words, part financial protection, part safety, and part ongoing maintenance concerns. It’s a good idea to ask friends and colleagues if they know of a good inspector. As always, there are good and bad ones. Agents may offer recommendations too. If they do, ask why you should use that particular inspector. Realtors are not supposed to get kickbacks from home inspectors, but they often work closely with one or more of their favorite inspectors.

First Time Home Buyer Mistake #11: Not asking the seller to contribute to closing costs.

Even in a strong market, sellers often agree to contribute to their buyer’s closing costs. In the current seller’s market, it’s still common for the buyer to ask the seller to contribute roughly 1% of the home value towards buyer’s costs – and it happens. This can help a lot for all buyers, but especially for first time home buyers.

Your solution: Tell your buyer’s agent that you want the seller to provide 1% toward closing costs, prepaids, etc. Make sure it’s included on your purchase agreement.

First Time Home Buyer Mistake #12: Failing to ask the seller for a home warranty.

Home warranties can reduce your risk if something goes wrong during the first year of property ownership. This provides good financial peace of mind.

You’ll still be responsible for service fee for calls. The amount varies by provider, but it’s generally around $100 or the cost of the repair, whichever is less. Happily, in our last move, the home warranty covered changing the locks. So while chaos reigns and stacks of boxes prevail, at least you get the peace of mind of new locks that the seller doesn’t have access to.

Coverages vary by provider. But in general, they cover your furnace and air conditioner, refrigerator, range and oven, dishwasher, washer/dryer (if included in purchase), pipes, and electric. If your furnace goes on the blink, the warranty company sends a repair person to assess the problem. If they can’t fix it, they’ll replace it… protecting you from having to deal with the expense of a new furnace.

Your solution: Have your agent ask the seller to provide a home warranty as part of your offer to purchase. It’ll cost the seller around $600 and offers invaluable peace of mind for buyers.

First Time Home Buyer Mistake #13: Not negotiating a home buyer rebate or commission rebate.

Most first-time homebuyers have never heard of this rebate, but it can be worth up to 1% of the home’s sale price. It comes out of the buyer’s agent’s commission. Why would they do this? Sometimes to attract more buyers, in effect offering a “volume discount.”

Many people believe the agent’s commission is set way too high. Which is why new companies like Redfin and SimpleShowing are on the rise. They charge a lower commission to sellers and offer money back to the buyer at closing – on the premise that their tech allows greater market efficiencies.

Your solution: Before signing a buyer’s agent agreement or looking at homes with a buyer’s agent, check out the possibilities offered by Redfin and SimpleShowing. If you work with a traditional real estate agent, ask if they’ll offer you a home buyer rebate where permitted by law. Such rebates are illegal in some states: Alaska, Alabama, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon, and Tennessee.

First Time Home Buyer Mistake #14: Ignoring local first-time homebuyer programs and grants.

State and local agencies often offer first-time homebuyer programs. Check with your county’s housing authority and your state’s housing finance agency.

first time home buyer

There’s often aid available for first time home buyers. Be sure to check.

HUD also has a list of state-by-state homebuying programs.

Your solution: Check out these first time home buyer programs. When you do, pay special attention to their program requirements. Some have stringent credit score guidelines and debt-to-income (DTI) requirements.

In addition, some programs make you repay the assistance if you stay in the home less than their required time period. Plus, if you sell your home sooner than they require and you make a profit, some of your proceeds may be taxable to compensate for the home buyer assistance you received.

First Time Home Buyer Mistake #15: Failing to line up gift money far enough in advance.

Has someone offered to help you with your down payment – perhaps the Bank of Mom and Dad, an employer, friend, or charity? Discuss and resolve this early in the process, before you start looking at homes. If you assume all is well and wait, and the money fails to materialize, you may lose the home you were anxious to close on. Lenders would consider this a material change in your circumstances.

Your solution: Work out the details with any party offering help, including exactly when you’ll receive the money. Copy the check or electronic transfer showing how and when the money traded hands, as your lender will need to verify this. You’ll also need a signed gift letter.

Boom! Fifteen mistakes that could cost you thousands or even tens of thousands.

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