Buying your first home can be stressful and overwhelming. Many first-time buyers make at least one decision they later regret.
Here are seven of the most common mistakes you should avoid as a first-time home buyer:
1. Failing to Consider Other Expenses of Homeownership
First-time home buyers, whether they're moving out of an apartment or leaving the family home, often assume that the monthly mortgage payment is all they need to consider.
The truth is buying a home comes with many hidden expenses. In addition to closing costs when your loan closes, other expenses you should consider to make sure you can afford your home include:
- Property taxes
- Homeowners insurance
- HOA dues
- Home maintenance, which average about 1-3% of the purchase price per year
- Electric and water bills, which are typically higher than any you may pay at an apartment
- Lawn care
- Moving expenses
2. Taking on Debt Before Getting a Mortgage
One of the most important aspects that determines whether you will even qualify for a mortgage is your debt-to-income ratio, or how much debt you have compared to your income.
Consumer debt is on the rise with the average household owing more than $8,000 in credit card debt alone. For first-time buyers, student loans and car payments are especially problematic.
A recent report by the National Association of Realtors found that about 30% of monthly income of 21- to 30-year-olds goes toward student loan debt, car loans and leases, and credit card debt.
For these potential home buyers, debt-to-income ratios exceeded 60% -- far higher than the 43% maximum allowable debt-to-income ratio required for a qualified mortgage.
Begin preparing for a mortgage as soon as possible by paying down any debt you may have and reducing your debt-to-income ratio.
3. Skipping the Home Inspection
Lenders typically require a home inspection to approve a mortgage, but that isn't the only reason it's important.
A home inspection is an opportunity to discover any major defects with the home that could cost thousands to repair.
First-time buyers can also learn more about the home from the inspector and ask questions, including how to best maintain the home moving forward.
The American Society of Home Inspectors has found that about 10% of homes are bought without a home inspection, usually when buyers are trying to reduce costs.
Still, the average home inspection only costs $300 to $450 -- a bargain if it turns up a deal-breaker like major foundation problems or bad electrical wiring.
4. Not Considering the Future
When buying a home, it pays to think 5 years or so into the future. After all, you don't want to buy a home you love, only to move in a few years when it no longer fits your needs.
If you plan to start a family in the near future, you may want to look for a home with more space, for example.
You can also consider whether there are development plans in the neighborhood, whether the street is likely to become a shortcut during rush hour, and what is likely to happen to any undeveloped land nearby.
5. Bringing Emotions Into the Transaction
It can be easy to fall in love with a home and end up paying more than you want or than you can afford.
Likewise, many first-time buyers pick apart everything in homes they view without considering that many issues are merely cosmetic and may be fixed with little effort or money.
Forget about the wallpaper, flooring, and decor and check your emotions at the door. Buying a home is one of the most important financial transactions of your life and emotions can temporarily cloud your judgment.
6. Expecting too Much for Your Budget
First-time buyers sometimes get hung up on their wish list when viewing homes for sale, but remember that no home will have everything on your list (unless you're willing to build it yourself).
Don't be so inflexible on your wish list that you end up renting for longer than you would like. You will likely need to make some compromises to stay in your budget.
This may be getting a 2-bedroom instead of 3 bedrooms, needing to make some repairs to the house, or not living in the neighborhood you want.
7. Not Working With a Real Estate Professional
Buying your first home can be overwhelming and complicated, but there's no reason to dive into the complex real estate market on your own.
First-time buyers are usually discouraged from working directly with the listing agent because you don't know exactly what you're dealing with and it can be easy to make mistakes.
By working with an experienced agent, you can enjoy a more stress free and smooth experience. An agent will help you every step of the way from finding a home to closing and everything in between.
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