Buying your first home can be both exciting and overwhelming. Here are the most common mistakes first time home buyers need to avoid.
1. Not getting prequalified for your loan. Save yourself the disappointment of not being able to afford the home of your dreams by getting your potential lender to prequalify you for your loan. Do this before you start house hunting and picking your own price range. By talking to your lender, you’ll learn how much house you can realistically afford. Even more important, you’ll start considering the taxes, insurance, and other fees you’ll need to review. This will help you begin a realistic budget.
2. Waiting for a better interest rate. While rates have come up from their 50-year lows of 12-18 months ago, they are still really low. Trying to time the interest rates is as futile as trying to time the stock market. However, be sure to talk to your lender about locking in the rate once you have settled on the house you’ll buy so your monthly payment can be predicted.
3. Not thinking long term. Think about what’s likely to happen to the house, the neighborhood, the nearby developments, and the community in the future. While you may not be thinking about selling a home before you’ve even bought it, your plans may change. If the house is quirky or unique in some way, make sure that its characteristics have broad appeal in case you do need to sell down the road.
4. Making an emotional decision. Falling in love with the way a particular house looks or its location can leave you with blinders as to its faults. Something as charming as aged hardwood floors can be very expensive when trying to get the squeaks out. A moldy spot in the basement may be overlooked if you’re enamored with the kitchen. You want to make sure you’re investing in a home that will offer you a good return on your investment, be something you can afford to maintain and ideally have good resale value.
Create a pro and con list. Think about whether you can live with the cons or afford to fix them. You should go back to the house more than once before making an offer and take the time to inspect all aspects of the house and property to make sure you’ve considered what it will be like to live there every day for many years. Keep an open mind, but also do your homework.
5. Not nailing down your all-in budget. Not only will you have a mortgage, but you will have other direct costs of owning a home: taxes, insurance, possibly higher utility bills, and maintenance. You now get to pay for every repair and upgrade you think your house needs. Expect home maintenance to cost between 1% and 3% of the value of your home each year. When buying an older home, you may end up needing money to cover the cost of repairs and renovations. Even buying a brand new home may require landscaping, garage doors and other upgrades not provided by the builder. You might consult with a home inspector for a list of existing or potential problems that may need to be fixed in the near future
Don’t overlook moving costs. Even if you are doing the packing and having friends with pickups move you, it will cost hundreds of dollars. With a local moving company, it can be a few thousand.
6. Don’t let new furniture build up on your credit card. It’s so common it even has a name, Old Sofa Syndrome. It starts when that old sofa (or bed) doesn’t look right in its new home. There is a tendency to upgrade the sofa, but then you need a matching love seat or recliners. Then coffee tables and lamps are needed to complete the new look and also drapes and rods to make the room feel cozy. Then it hits you how much credit you’ve run up to replace that old sofa. Whenever you are moving into a larger space, you’ll have empty rooms. Get comfortable with your new expenses and how your new house feels to live in before you commit to big furniture items.
7. Short changing your life’s other goals. If you have to stop saving for retirement or education plans or forgo life insurance to afford the house, your budget is too tight. And if that also includes needing two incomes to pay for the house, you’re really in trouble. Unless you have a sure-fire plan to create extra income quickly, your plans to retire someday, send your kids to college, go on vacations, and avoid worrying when one of you loses your job even temporarily, you need to rethink your house budget before you make the offer.
Your first house is a milestone in your life and a dream of most non-home owners. Be sure you are prepared so you can be proud of your accomplishment for years to come. It may be wise to consult a certified financial planner before taking the plunge.
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