Did you know that over 30% of the people who are in the real estate marketplace are first time home buyers? Don't make the mistakes that your friends and relatives made when they bought their first home. Instead, use this simple first time home buyer guide and break the cycle. Here are the most common mistakes that they make:
Not Figuring Out a Budget
Most first timers today are in the millennial crowd so they are used to going online for everything. They know how easy it is to view properties online. That's great but it's so easy to start picturing themselves in a home without putting too much thought into a price. Figure out a monthly amount that is totally devoted to housing costs that is affordable first. This way you're not putting the horse before the cart.
Not Understanding All of the Costs to Buying a Home
The first time buyer may have "sticker shock" when they realize how much cash they may need to purchase their home. Here are typical costs to buying a home:
- Earnest Money Deposit (small "good faith" deposit given when the offer is presented) - There is no set amount but get with your Realtor to see what is traditional in your area. It could be anywhere from a few hundred dollars to a percent of the sales price. The buyer is credited back with this at closing as long as they default on the transaction.
- Home Inspection - A must have. It will run you in the neighborhood of about $400 depending on the size of the home.
- Appraisal - This is required by your mortgage company if you're getting a loan. Appraisals cost a few hundred dollars depending on the house.
- Closing costs - The buyer's closing costs usually run about 3%-4% of the sales price (rough estimate). Get with your lender and Realtor for a more precise figure.
- Down payment - Your down payment will usually be 3% or 5% of the loan amount.
Falling In Love with Only the House
One of the problems of looking at homes online is that buyers don't see the whole picture. They might find a property that has been renovated and looks sheik but there may be undesirable elements around the home like power lines running through the backyard. Always look at the big picture. Take into consideration the school district, traffic, proximity to shopping, crime, etc. When you buy a home, you're also buying the surrounding area.
Ditching the Home Inspection
This is a big one! First time buyers may want to skip having a home inspection because the home "looks great" or they don't want to spend the extra $300-$400. Always, always get a home inspection, even with new construction. You could relieve yourself of a lot of cost and frustration down the road.
Not Getting Pre-Approved
Another mistake that first time home buyers make is putting off getting pre-approved. It's highly recommended to get this done ahead of time. First, you'll be able to shop with confidence that you're in the right price range. Plus, seller want to see a pre-approval letter with your offer. It would be a shame to miss out on a property that you love because you weren't ready.
Adding to Your Debt During the Process
The best action to take after you've been pre-approved is to not only not get into more debt but also not applying for more credit. You've been approved based on one set of circumstances. Don't change those circumstances because you could lose your financing before closing.
Trusting in a Verbal Agreement
Just because the seller says he's leaving the hot tub doesn't make it legal. Everything has to be in writing including all terms and all personal property that stays with the home.
Not Thinking About Re-Sale Value
Sooner or later, you're going to move. I always advise my clients to think about how hard it will be to sell the home down the road. If you have a "slight" problem with the highway running directly behind the property, a future buyer probably will too.
The best way to avoid these mistakes is to align yourself with a seasoned Realtor and become an informed home buyer. Take your time and do your research.