Buying a home can be a difficult and nerve-wracking process. And since it is a practice that most Americans only do two or three times in their lifetime, it is hard to ever gain proficiency in the home buying process.
Unfortunately, the process is littered with potential mistakes that you want to avoid. Luckily, I'm going to help you avoid them.
Here are 10 common first-time home buyer mistakes and how you can avoid making them.
Common first-time home buyer mistakes
Whenever you do anything for the first time, it is common to make mistakes.
Ten common first-time home buyer mistakes include:
Buying too little home
Buying too much home
Picking the wrong mortgage program
Not rate shopping
Forgetting about closing costs
Not getting preapproved for a mortgage
Skipping a home inspection
Making emotional decisions
Starting renovations too soon
Spending too much on furnishments
1. Buying too little house
The first common first-time home buyer mistake is buying too little house. Believe it or not, this is possible. Generally, it is a good idea to try to buy as much house as you can reasonably afford. This is especially true if you are looking to start a family in the short to medium term.
You don't want to buy 1,000 square feet, only to find out that you don’t have enough space two years later. This will set you up for a second stressful move and the need to pay closing costs a second time.
Because of this, it is a good idea to maximize your square footage to the greatest extent possible. This doesn’t mean that you should buy a home outside of your budget or do anything that you’re uncomfortable with. Rather, it is a suggestion to think more than two or three years down the line.
2. Buying too much house
Buying too much house is equally as risky as not buying enough. The extra square footage that you buy oftentimes leads to larger lot sizes, which in turn is likely to raise your property taxes.
Plus, your maintenance costs are likely to be much higher. Unless you know for sure that you were able to pay these property taxes and can afford any maintenance needs that may arise, you should tread lightly.
I know this makes it seem like I am contradicting myself. When my wife and I were preparing to buy our house last summer, we thought through all of these things carefully. To assure that you buy the proper sized house for your needs, I recommend that you think through the following:
How many bedrooms you want
Whether a spouse or children may be in your future
How much land you want on your property
Any features or layouts that your home must have
The main goal in deciding how much home you should buy is limiting the number of times you'll need to move, while also maintaining enough cash flow in the present.
3. Picking the wrong home loan program
Most likely, you will need to finance your home purchase. But unfortunately, many Americans see all home loans as the same. And in reality, this could not be further from the truth.
Homebuyers, for example, may choose from Conventional, VA, FHA, USDA, and other loan programs, depending on what they qualify for. Of course, some of these programs, FHA included, are designed specifically with first time homebuyers in mind.
To help you decide which home loan is best for you, I recommend you do the following:
Research your available loan options.
Reach out to a loan officer in your area
Decide which mortgage program is for you
Research your available loan options
Like I said, it is likely that you will have a whole host of mortgage options available to you. In most instances, as a first-time buyer, you will want to look at:
Conventional
Conventional 97
VA
USDA
Any special state programs
Sometimes, specific mortgage lenders offer unique programs for first-time home buyers as well. For example, TD Bank offers two unique programs known as Right Step and Home Access.
Reach out to a loan officer
With some knowledge regarding your options, you should next consider getting some help from a professional. Finding a loan officer can be a great place to start.
To find a loan officer in your area, just use Google as a starting point. You may consider talking to a couple different officers, one from a larger bank in your area, and one from a smaller bank. This way, you get as much information as you can from a couple of different sources.
Decide which program is best
Your final step will be to pick the loan program that works best for you. I encourage you to think about this decision from a few different "lenses." Beyond considering your monthly mortgage payment, for instance, you should also consider:
How long your loan term is
Whether the required down payment is appropriate for you
Any requirements you may be subject to
4. Not rate shopping
Most first-time homebuyers don’t realize that they may be able to save money on their mortgage payments by rate shopping. Rate shopping is the process of loan with multiple different lenders simultaneously in order to compare rates.
This process may impact your credit score for a period of time, but it may be worth it if you're able to save money. Whether or not it impacts your credit likely depends on whether the lender uses a soft or hard credit inquiry. As a general rule of thumb, soft inquiries do not impact your credit score.
But in terms of rate shopping, even a rate difference of 0.25% is likely to add up to well over $10,000 in savings over the life of a conventional 30-year mortgage. If you are able to find a rate 0.5% lower, then you will save even more money.
Plus, rate shopping with multiple different lenders will help you decide which mortgage company is right for you and could also open your eyes to a mortgage program that you may not have considered.
5. Forgetting about closing costs
One of the most popular home buyer mistakes is forgetting to account for your closing costs. Closing costs is just a blanket term that is used to describe those expenses that you will be responsible for paying for on the date of your closing.
These fees will be assessed by your mortgage, lender, your title company, and other involved parties. At a minimum, you will need to pay for your down payment, title search, title insurance, homeowners insurance, and a whole host of other lesser fees.
Remembering to budget for your closing costs is particularly important in expensive states, like California.
6. Not getting preapproved for a mortgage
Getting preapproved for a mortgage can be an excellent tool in a competitive real estate market. But for whatever reason, many first-time buyers elect to skip the preapproval process. And I think this is a mistake.
Don’t make this mistake. Instead, opt to get preapproved as you start searching for homes. All it takes from you is some documentation regarding:
Your income
Your savings
Your employment
Potentially your investments
Then, lenders will provide you a letter that states how much money you are eligible to borrow. There are many perks to this.
For one, you won’t waste time, looking at homes that you can’t afford to buy. Second, home sellers will see your offer as more serious, which could potentially be differentiating factor. And finally, it can help give you peace of mind.
Now, you may be able to get preapproved through the loan officer you reached out to, but you have no obligation to use his/her services. Additionally, similarly to how you can apply for loans with multiple companies, you may also opt shop around for the best preapproval deal that you can find.
7. Skipping a home inspection
Just a couple of years ago, skipping a home inspection would not have made my list. But with the real estate market as hot as it’s been for a couple years, more and more first-time home buyers agree to buy homes without having them inspected first.
In my mind, home inspections are a critical part of the homebuying process because they will turn up issues that may not appear to your untrained eye. Your home is likely to be the biggest purchase of your life, and I just would not feel comfortable buying a home without a professional's opinion on what could go wrong and what will go wrong.
After my home was inspected last spring, the inspection company provided my wife and I with a 25- or 30-page document that outlines the inspector's findings in our home. It also included the estimated useful life remaining in each system, so that I could begin to budget for maintenance, repairs, and updates.
Also, some inspectors have a specialty in inspecting homes in certain areas. Over the past 30 years, my area of Connecticut has had issues with crumbling foundations made from concrete from a certain production plant. In all likelihood, without looking for cracks, I couldn’t tell a good and bad foundation apart. This is the perfect example of why inspections are important.
8. Making emotional decisions
Another big home buying mistake is letting your emotions make your decisions for you. Shopping for a home is inherently an emotion filled process, but it is important to learn how to separate emotion from the actual decision-making process.
To help you avoid making overly emotional decisions that could lead you to buy a home that is not a good fit for you, I recommend you do the following:
Don't look at homes above your price range
Sleep on a preliminary decision and see how you feel in the morning
Talk with family and friends about your thoughts
Common mistakes after you buy your home
Unfortunately, just because you bought the right house does not mean that you are immune to making any mistakes that can be made after the fact. Here are a couple of the most common.
1. Starting renovations right away
When I moved into my new home last summer, I fully intended to start renovations and affordable remodeling as soon as possible. It didn't happen, largely because of the timing. We actually moved into our house three weeks after we got married and just a week after we returned from our honeymoon.
After months of wedding planning, we were ready to enjoy a summer. And honestly, it was the best thing that could have happened.
We quickly found that the things that we thought would bother us don't at all. We've saved frustration and money, and while we'll still do these projects at some point in the next few years, it has been great to be able to have more cash in our savings now.
2. Buying too much furniture too quickly
It is natural to want to furnish your entire home immediately, particularly if you're a first-time home buyer. But in case you didn't know, good new furniture is extremely expensive.
So, we decided to work on one room at a time, starting with the most important.
We started by buying a bedroom set, before furnishing the living room. We've been in the house for about a year, and we still don't have a family room set, but we'll take care of it at some point shortly.
We were fortunate to have a good amount of wedding money to help us out, but in the event that you didn't just get married, you may need to space your purchases out a bit further. Going into credit card or consumer debt after buying a home is probably the worst thing that you can do.
Conclusion
Recognizing many of the potential pitfalls in the home buying process can be your greatest asset in avoiding them. How many of these home buying mistakes were you already familiar with. Do you have any to add?
Tell me in the comments below!
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