Thinking of buying your first home? Congratulations! It’s a big step in the right direction toward a stable financial future, and a place to make your most precious memories. However, there are some common first-time homebuyer mistakes that can potentially derail your plans, cost you more money, and significantly raise frustration in the home-buying process. Here are 5 common first-time homebuyer mistakes you definitely want to avoid.
Putting off saving for your down payment
The down payment is typically just a small percentage of the overall price of a home, but that doesn’t mean you should take saving for it lightly. You’re not going to be able to get that kind of cash out of your couch cushions. (& if you are able to, invite us over for movie night!)
The ideal amount to put down on your home is 20% of the purchase price, because at 20% you won’t be required to pay for private mortgage insurance (PMI). PMI typically costs about 0.5%-1% of the loan amount annually. For instance, on a $200,000 mortgage, avoiding PMI by putting down 20% or more might result in savings of over $80-$160 a month for the first 2-5 years of the loan!
It’s worth the time and effort to save as much as you can for your down payment. Start now, even if you don’t plan to buy a home for 5 or 10 years. A 20% down payment on a $200,000 home is $40,000.
Can’t hit that mark? Don’t panic, you’re not alone, and that shouldn’t discourage you from buying a house. Since 1991, the average annual increase of home values is around 3.5%, which means you’re still making gains despite the cost of PMI, and PMI doesn’t stay around forever. There are loan options out there for first-time home buyers than will allow as little as 3% down. Still have questions about mortgages? Click here to learn more, or give us a call! (734) 707-7992
Not knowing your credit status
Nothing is worse than getting excited about a house but then finding out your credit isn’t good enough to get a mortgage. Meet with a trusted lender to discuss mortgage pre-approval (which includes a credit check), just so you know where you stand. If there are errors you need to take care of, this will give you time to get things in order before you fall in love with a home. That leads us to our next avoidable mistake…
Forgetting to get a pre-approval letter
A pre-approval letter shows the seller that you have been vetted by a mortgage company and are likely to be able to get a mortgage. Most sellers will not accept an offer without a pre-approval letter.
It’s relatively easy to get a pre-approval letter. Just contact a lender and tell them that you need to be pre-approved. You’ll have to furnish documents proving your income and debt, and they’ll run a credit report. Once everything is delivered and checks out, you’ll get a letter you can use whenever you put in an offer on a house.
Not budgeting for end-of-sale expenses
When you think of buying a home, you probably think of the down payment and your mortgage payments, right? That’s certainly the biggest chunk of money, but that’s not everything you’ll need to budget for.
Closing costs, moving expenses, repairs, home inspection, homeowners insurance … there are lots of small expenses to consider that happen at the end of the process. Having a buffer of cash will make your life much easier. Keep in mind that closing costs alone tend to be between 2-5% of your loan amount.
Hiring the wrong buyer’s agent
As a first time homebuyer, you need guidance from a professional that’s empathetic to your needs. You want to look for a buyers agent that’s willing to act as a teacher, mentor and guide – educating you every step of the way and eliminating any confusion.
The best way to find the right buyer’s agent is to start reading reviews online, and then interview your candidate in-person. Always choose someone that’s not only well-reviewed and recommended, but also that you get along with well.
We want to be here to guide you through this process, so if you’re looking for more first time home buyer tips, advice or support, we’re here to listen! Schedule a no-obligation consultation with us today.