The Most Common First-Time Homebuyer Mistakes, According to Real Estate Agents
Buying your first home is as exciting as it is nerve-racking. Between finding the right property and securing a reasonable mortgage with a manageable interest rate (the Federal Reserve recently reduced it, by the way), it's a complex process to say the least.
To ensure a seamless transaction from start to finish, you need the right team in place, says New Jersey-based realtor Caterina Peters of Compass. A knowledgeable real estate agent, a good lender, home inspector and real estate attorney are key. "It’s important that these professionals work together and stay on the same page so you have a positive result — the successful closing on your dream home," Peters says.
Thorough research early on in the process is also necessary. Speaking to multiple lenders, getting information on loans you may qualify for and knowing all the upfront costs are ways to avoid unpleasant surprises and unwanted delays. But that's not all.
To help you eliminate unnecessary stress and potentially costly expenses in the future, Peters shares some additional common first-time homebuyer mistakes when navigating the home buying process.
🛑 Shopping before getting pre-approved for a mortgage
Before you start perusing Zillow, speak with a lender to get pre-approved for a mortgage. "This way, you know your budget and types of properties to view within your comfortable price range," Peters says. Having a concrete number in mind is an essential starting point, as it focuses your house search and provides a sense of future costs, including monthly mortgage payments and closing costs.
🛑 Consulting with one lender
"Speak with a few lenders to shop around and see who is a good communicator and will guide you through the process, since there will be a lot of paperwork and questions to answer," Peters advises. Just as you shop around for the right house, shop around for the right lender and compare their offers to find the best deal. "Often, when working with a large lender, you may be passed off as an anonymous number and not have a point of contact when questions or concerns come up. In this process, relationships are of the upmost importance, so you are comfortable," Peters adds.
🛑 Settling for an incapable realtor
Navigating the complex process of finding and purchasing your first home is made infinitely easier with the help of a good real estate agent. "Connect with a knowledgeable and ethical real estate agent who will guide you through the process, and suggest different types of properties and areas based on your needs and price range," Peters says. She adds that the real estate agent is also the person who sets expectations during the process and negotiates a good deal on the best property for you.
🛑 Choosing an incompetent inspector
In addition to picking the right real estate agent and lender, Peters stresses the importance of another key role on your team: the home inspector. "Your home inspector is an important person on your team, as they will thoroughly inspect the property to let you know of any potential repairs or defects." This can save you a lot of money down the line, whether you choose to walk away from a property when an inspection reveals serious concerns or you gain leverage to negotiate with the seller.
🛑 Waiving the home inspection
What's worse than choosing the wrong inspector is waiving the home inspection altogether. While it may seem like a good way to save money upfront or to get the seller to reduce the asking price, it's highly risky. You'd be purchasing the property without full knowledge of its condition, which can be costly in the long run.
🛑 Committing to high monthly payments
"Your mortgage professional will ensure that you purchase the home with a loan product that has the best interest rate and terms so the payment is comfortable," Peters says. Committing to higher monthly payments beyond your family's budget is where many people make a major mistake.
🛑 Jeopardizing your credit score during the buying process
Your credit score is an important financial component of the home buying process from start to finish. A lender will run a credit report to help determine the mortgage amount you are pre-approved for, but it doesn't end there. Before you close on the home, your credit report will be pulled again to ensure everything is in order and the sale can proceed as planned. For this reason, maintaining a good credit score is of utmost importance. Also, it's best to avoid opening or closing bank accounts, applying for new credit cards and making any large purchases during this period.
🛑 Overlooking the neighborhood
While you may have found the house, keep the whole neighborhood in mind during your search. You can renovate and upgrade a home, but you can't change the neighborhood or location. Consider the type of community you appreciate, the home's location and its proximity to your work, schools and amenities. You should also think in terms of resale value when viewing properties.
🛑 Not working with a good real estate attorney
Some states require a real estate attorney to complete the transaction, in which case it pays to do your due diligence and pick the right one. Keep in mind that this will be an additional cost. "Your real estate attorney’s role is important, as they negotiate the key terms of the contract and add clauses that will protect you during the purchase process," Peters explains. This is another reason why working with a knowledgeable real estate agent is essential, as they can recommend a trusted real estate attorney to join your team.
🛑 Failing to research loan types
People often think a 20% down payment on a home is the standard. However, that's not necessarily the case, especially if you are a first-time homebuyer. There are FHA loans, which allow you to put down as little as 3.5% if you meet certain financial requirements. There are also VA loans that don't require a down payment for veterans, and USDA loans through the Department of Agriculture that don't call for a down payment on properties within certain areas. You can also take advantage of various first-time homebuyer programs, whether they are federal, state or employer-based.
🛑 Being uninformed about the upfront costs
Get informed about the upfront costs involved in purchasing your first home. The last thing you want are surprises along the way. Ask your real estate agent for a list of costs to expect during the process and even after you purchase the home. Along with the down payment, there are other costs such as a home inspection or a real estate attorney's fee.
🛑 Using up your savings
Buying your first home is likely the biggest purchase you have ever made, but using up your entire savings to close the deal is not wise. Unexpected expenses arise even long after you close on the property. If you are transitioning from a small studio apartment, furnishing your new home may be expensive. Or, if you've never had a backyard and now have one, maintenance and new equipment will require extra purchases. Additionally, this is also where a home inspection comes in — it gives you an idea of the cost to replace or renovate things around the house, as well as a time frame for when those investments will be necessary.
🛑 Dragging your feet or moving too fast
Timing is everything when it comes to buying a home. Sometimes, first-time homebuyers wait so long to find the "perfect" house that they miss out on good homes and end up over-paying when they're suddenly in a pinch to move. On the other hand, others who make a hasty decision miss the opportunity to save more for a down payment. They might also settle on a home they don't love just because they were in a hurry.
🛑 Underestimating renovation costs
While purchasing a fixer upper may seem appealing as both an investment and an exciting project, being realistic about renovation costs is essential to avoid future frustration and debt. Speak to a knowledgeable contractor to get a ballpark estimate for the work that needs to be done, evaluate what jobs you need to hire professionals for and those you can take on yourself. Be wise about how much you invest in the property to ensure it's worth it in the long run — both in a personal sense and in terms of resale value.
🛑 Going into the home buying process without an open mind
"Do your research and explore options," Peters says. "Sometimes, when you think outside of the box, you may end up finding something that is perfect for you that was not on your radar." Instead of fixating on a specific type of house or a certain neighborhood, be a bit flexible. Visit a variety of properties within your budget to make a well-informed decision to find your dream home.
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