Buying a home is a complex process, and first-time homebuyers are particularly susceptible to certain mistakes.
Let’s count down the five most common mistakes first-time homebuyers make.
Mistake #5. Saving for a 20% down payment
Back when income kept pace with home values, it was standard for buyers to put down 20% of the purchase price as a down payment. But over the past decade, American home values have increased at three times the rate of American incomes. Most American’s can’t afford to wait until they have 20% saved to buy a home.
With good credit, you can get on the property ladder for around 3% down (around 10% down if you have credit issues). Yes, this means you’ll be taking out a larger loan than if you put 20% down, but with interest rates at historic lows, the cost of borrowing more is generally well worth it.
Mistake #4. Underestimating closing costs
The down payment may be your biggest expense when buying a home, but it certainly won’t be the only one. First-time homebuyers often underestimate how much they’ll pay in closing costs.
Transferring real estate requires many professionals to complete tasks like:
Home inspection
Loan origination
Title research
Escrow services
Notarizing documents
Document transfers
Etc., etc., etc.
Much of this important work is done behind the scenes, so you don’t have to worry about it. But you do have to pay for it. Expect closing costs to fall somewhere between three and six percent of the purchase price.
Mistake #3. Waiting for the “perfect” home
Our buyer’s agents are experts at finding homes that will be a solid fit for your lifestyle. But no home is perfect. There will always be something slightly off about the layout, the finishes, or the location. If you wait for the perfect home, you will miss the home that could have made you perfectly happy.
The good news is that you can address many of these imperfections once you buy the home. Fixtures and finishes can all be replaced. Even layouts can be changed. Focus on buying a well-built home in a good location, and you won’t be disappointed.
Mistake #2. Waiting too long to get a buyer’s agent
With listings available online, most of today’s first-time buyers spend weeks or even months searching for homes online before contacting a buyer’s agent. And while we love that buyers are so well informed today, spending any time on a home search without an agent is a big mistake. Our buyer’s agents have industry connections that often alert them to new listings several days before the listings hit the market. Getting a buyer’s agent in your corner from Day One gives you an edge over other buyers.
And remember, getting a buyer’s agent doesn’t cost you a penny! All real estate agent fees are paid by the seller. So there is no reason to wait.
Mistake #1. Starting the house hunt before getting pre-approved
Getting pre-approved for your home loan should be the very first thing you do as a first-time buyer.
Getting pre-approved does two things for you:
It tells you how much house you can afford. Knowing a hard number upfront will save you from falling in love with a home you can’t afford.
It makes your offer stronger when you find your new home. Even in a buyer’s market, sellers want assurance that you’ll be able to qualify for the home loan before they’ll accept your offer. In today’s hot seller’s market, no seller would even glance at an offer from a buyer who hasn’t been pre-qualified.
To get pre-qualified, you just need to complete an online application with the lender of your choice and provide them with your financials:
Proof of income,
Bank and investment account statements,
And authorization to complete a credit check.
By this time tomorrow, you could be pre-approved and truly ready to start your home search.
While these may be the five most common mistakes first-time homebuyers make, they are certainly not the only ones. Contact us today for a free consultation with one of our well-qualified buyer’s agents. We can alert you to possible mistakes and keep you from making them along the path to homeownership.