10 Mistakes First Time Home Buyers MUST Avoid

Purchasing a home is a long-term financial investment, and most likely one of the most expensive ones you’ll ever make. Also, if you’re a first time homebuyer, even if you’ve saved enough for a nice down payment, buying real estate may be a much more complex transaction then you may know.

Your dream of owning a nice home could turn into a financial nightmare, so knowing the dangerous mistakes of the buying process may help you prevent them and turn your dream into reality.

Here are 10 of the costliest mistakes you could make as a first time home-buyer, and tips on how to get the most out of your purchase:

1. Not Budgeting for Your Loan

The truth is, what you know you can afford or are comfortable with paying and what the bank determines you can borrow are not necessarily the same. If you haven’t already, create a budget now. Make a list of all your monthly expenses, minus rent, and include vehicle costs, student loan payments, credit card payments, groceries, health insurance, retirement savings, and major expenses that only occur once a year (any insurance premiums you pay annually, annual vacations, etc.). Subtract this total from your net earnings and you’ll know how much you can spend on your new home each month. Using a mortgage calculator to research current interest rates will give you an estimate of what your total mortgage payments will be.

Often times, people look at homes that are outside of their price range, and end up desiring something they cannot afford – which can put some in the dangerous position of trying to stretch beyond their means financially, or cause them to feel unhappy with what they actually can afford. It’s much wiser to stay realistic, and work with what you are truly comfortable with at this point of your life.

2. Not Getting Pre-Approved

Since what you think you can afford and what the bank is willing to lend you may be quite different, especially if you have poor credit or unstable income, make sure to get pre-approved before putting an offer on any homes – even if they sound like the best deals. If you sign a contract only to discover that the bank won’t lend you what you need, or that they’re only willing to give you a mortgage that you find unacceptable, it will be a huge disappointment and a waste of everyone’s effort and time.

Also, know that even if you have been pre-approved, your loan can fall through at the last minute due to a change in your credit score, such as financing a car purchase. If you cause the deal to fall through, it may cost you the several thousand dollars that you gave when you went under contract.

3. Not Considering Additional Expenses

Once you become a homeowner, expenses you’ll be responsible for will arise in addition to your monthly payment, such as property taxes, insuring your home against disasters and making any repairs the house needs (which can include costly items such as a new roof or a new AC system).

If you’re buying a condo, you’ll be part of a homeowner’s association and you’ll have to pay monthly maintenance costs regardless of whether anything needs fixing. This can amount to a couple of hundred dollars a month in the form of condominium fees, and not budgeting for this can have a great impact on you.

4. Not Being Flexible Enough

As a first-time homebuyer, you often have to make compromises because your funds may be limited, or there may be time constraints. While you can create a lovely long wish list of things you’d like to have in your new home, don’t make a mistake of being inflexible and as a result continuing to rent for significantly longer than you really want to, and can realistically afford to. Being flexible may mean that you initially accept outdated decor, or say yes to a place without that extra room or bathroom.

5. Not Having a Vision

Hand in hand with not being flexible, many homeowners make a mistake of not having a vision, so remember that it might be worth it to live with the undesirable style for a while in exchange for getting into a house you can afford. If a home meets your needs in terms of the big things that are difficult to change, such as location and size, don’t let physical imperfections turn you away – instead, see the possibilities and potentials. Plus, doing home upgrades yourself, even if you have to hire a contractor, is often cheaper than paying the increased home value to a seller who has already done the work for you, and may provide even more freedom for getting things done just the way you want.

6. Not Considering Home Re-Sale Value

First time homebuyers are often too swept away to think about the home’s resale value. Instead of paying extra for a home that had minor upgrades and cosmetic fixes and ends up costing you much more, consider homes whose full potential has yet to be realized, especially if you’re on a budget. First-time homebuyers should always look for a house they can add value to, and think about if or when the time comes, will your house be easy to sell, and will selling it provide a nice sum to put down on another home?

7. Not Focusing on the Crucial Things

While you’ll probably have to make some compromises in order to afford your first home, they should not be on the very important things. For instance, unless it’s a very temporary place or bought as an investment, don’t get a two-bedroom home knowing you’re planning to have kids and will need three+ bedrooms; or, don’t buy a condo just because it may be cheaper when one of the main reasons you’re over apartment life is because you hate sharing walls with neighbors.

8. Not Hiring Home Inspection

It’s alluring to think that you’re a homeowner the moment you go into escrow – but before you close on the sale, make sure you know what kind of shape the house is in. While a place may look nice, you want to ensure you’re not getting stuck with a money pit or with the expenses and inconvenience of needing to do a lot of unexpected repairs. Hire a licensed, independent home inspector to get a full picture of the house’s physical condition, it will help you avoid making a serious financial mistake.

9. Not Hiring Your Own Agent

Get an experienced agent to represent you before you start seriously shopping around. Given the complexities associated with the process of buying a home, it’s hard to know and understand all the ins and outs of the market, effectively compete with aggressive bids, and stay protected financially and legally.

Since so much can go wrong with a home purchase that can result in long-term financial consequences, it’s wise to also hire an experienced real estate attorney, who is up to date in current real estate laws of your state. He or she will review all the terms of such an important transaction and may be able to alert you to potential issues with the deal.

10. Not Thinking About the Future

While you cannot perfectly predict the future of your new neighborhood, paying attention to the available information can help you avoid unpleasant surprises down the road.

Seek answers about your prospective property to find out what kind of development plans may be in the works for your neighborhood, what are the zoning laws in your area, if your street is likely to become a major street or a rush-hour shortcut, if a highway is likely to be built too close, what is likely to get built on the nearby undeveloped land, if home values in the neighborhood have been declining, what is the proximity of schools, shops, hospitals, etc. If you’re aligned with the answers, then your house’s location is likely to be in the neighborhood that you will enjoy living in.

Buying a first home can be very exciting, and also stressful, with potential pitfalls – do your best to protect yourself from costly mistakes and shop with more ease and confidence.

At the Levin Law Group, our real estate lawyers are here to help you navigate the complicated waters of buying a home.

Take steps to ensure your interests are protected – contact the Levin Law Group’s experienced and dedicated real estate attorneys today.