8 Mistakes First-time Home Buyers Make and How To Avoid Them

Buying a home is a dream. But when the time comes to make it come true, a lot of people experience a nightmare instead. This can be due to the lack of research or hasty decisions made. If you’re in the market for your first home, you must avoid the common mistakes that first-time buyers make, or you’ll end up having a bad property purchase experience.

To help make your first home purchase a success, here are the things that you shouldn’t do from the time of your property hunting to the signing of the purchase agreement.

1. Buying a house you can’t afford

One of the worst mistakes that first-time buyers make is buying a property that’s not within their means. It’s easy to fall in love with an expensive home for its amazing design and features but overextending your budget will not do you any good in the long run.

The worst thing that can happen if you purchase a property you can’t afford is losing it altogether because of financial problems. You’ll also have less room on your budget for household expenses. You need to stick with your monthly budget for mortgage repayments and find the right home that fits it.

2. Looking for the perfect property

When shopping for your next home, it’s only right to find the best property you can get. After all, it’s your money, and you want to receive the most value for it. There’s nothing wrong with finding a home with the most value. The problem will arise only if you’re too picky and want the perfect property. Remember that there is no such thing.

Finding a perfect home will only narrow down your choices, which can lead you to miss out on really good properties. It will also prolong your property search and by the time you find the right one, the price has already increased significantly.

It’s best to be flexible when looking for a property. List down the features that your new home must have, those that you’d like to have, and the one that can be good additions but not so important. This way you can make a sound decision and choose the property based on your priorities.

3. Not accounting for hidden costs

One of the mistakes that first-time buyers make is not accounting for hidden costs of homeownership. The budget calculation for a home purchase doesn’t end with the monthly repayments. It should also include the other costs of owning a house, including property taxes, homeowner association dues, mortgage insurance, utilities, repairs, and maintenance.

When these hidden costs are overlooked, you’ll run short of budget and may sacrifice other important things that need money allotment. You could also end up taking out cash loans to augment your budget.

So, make sure to account for these hidden costs and add a few hundreds on your budget as a cushion for unexpected expenses.

4. Spending too much cash

One common misconception about property purchase is that you need to have a 20% down payment for mortgage approval. That’s the reason why many home buyers drain their savings just to comply with the rule. Make sure not to make this very mistake.

Spending too much cash on down payment will seriously deplete your cash reserve and will keep you constantly on the edge financially. When unexpected expenses arise or emergencies happen, you will not have enough money to spend, which will be a huge trouble for your family.

A 20% down payment is not always required in a home purchase. Many lenders are fine with a smaller deposit. You just need to put in some effort into finding them, so you can save your cash and use it for more important household expenditures.

5. Making rushed decisions

A home purchase is an exciting time for the whole family. Sometimes, this thrill makes property buyers careless and leads them to make hasty decisions. They buy a house without doing prior research on the property or building inspection to see if it’s in a good position.

Making rushed decisions will lead you to ignore your credit rating, which will lead to the decline of your mortgage application. It will also prevent you from making an informed decision, especially on the quality and value of the property.

The best thing to do is plan ahead of time and take time to do all the things needed to make your home purchase successful. Try to improve your credit score, save enough down payment, do building inspections, and conduct a lot of research on the property.

6. Not applying for a mortgage first

In a competitive property market, a pre-approved home loan is necessary if you want to win the property you are aiming for. Sellers tend to give priority to homebuyers with a pre-approved loan because the funding is readily available. Without it, you’ll be at the bottom of the seller’s list.

So, make sure not to commit the mistake of shopping around before talking to the bank or lender. Getting a pre-approved mortgage will give you confidence and bargaining power when speaking with the seller. It will also give you the edge over those prospective buyers without a mortgage pre-approval.

Other than giving you the upper hand among other home buyers, a pre-approved home loan will also let you know how much you can afford for a property. This will ensure that you will not overspend but choose the property that’s right for your budget.

7. Not taking care of credit

Sometimes, people tend to be careless about their credit profile, especially during a mortgage application. This is one of the common mistakes that first-time buyers make. They get new loans, open a new line of credit, or neglect the repayment schedules while the mortgage approval is still undecided.

Doing this will put your loan approval in danger. Even though you already received a pre-approved mortgage, the banks and lenders can still decide against your application if there’s a sudden change in your credit standing.

Avoid this from happening by maintaining the status quo in your credit profile up to the final approval of your mortgage. If there’s something you need to change, it will be for the improvement of your current finances. Settle your existing debts to less than 30% of your credit limit and pay your monthly dues on time.

8. Talking to a single lender

First-time home buyers usually talk to one lender and consider the deal done. Once they get the loan approval, they don’t bother comparing it with other banks or lenders to see if they can get a better deal. This mistake is something you must avoid at all costs because it can lose you thousands of dollars in interest savings.

By not talking to multiple banks or lenders, you’re missing out on the chance to get the lowest interest rate possible for your property purchase. It will also prevent you from choosing the best mortgage deal that’s right for your financial profile.

So, make sure to shop around with different banks and lenders. Compare their rates, loan terms, and processing fees. Ask for certain mortgage features like pre-payments and early termination of the loan. Once you compare them, you can make an informed decision on which lender is best for your home purchase.

FINAL THOUGHTS

Buying your first home is something that you must take seriously and prepare for very well. One mistake can jeopardize not only the approval of your mortgage but also your long-term finances. Keep in mind these common mistakes that first-time buyers commit and make a good effort of avoiding them all and make the right decisions towards the success of your first home purchase.