For many people, buying their first home elicits a wide range of feelings ranging from enthusiasm to dread to fear to joy and everything in between. At the very least, everyone who freely participates will have an overwhelming experience. Although the procedure is heightened for first-time buyers, even seasoned investors have found it difficult at times. Every deal has so many moving parts that you’re only fooling yourself if you’re not cautious.
As a result, even the most experienced real estate investors and homebuyers face difficulties on occasion. Mistakes will inevitably occur, but how you respond to them will determine the final outcome. In contrast, preventative measures can help you avoid making some mistakes altogether. Fortunately, despite their lack of knowledge, first-time homebuyers can still be proactive in their mistake reduction efforts. CT Homes, one of our partners, has created a list of frequent first-time homebuyer blunders, as well as the best strategies to avoid them. When purchasing your first house, be sure to avoid the following seven blunders:
1. Making a Decision when Emotional
There’s nothing stopping you from developing an emotional relationship to a property, but you’re breaking a cardinal rule if you let that attachment influence the terms of your acquisition. Any transaction you enter consciously should be based on one thing: the numbers. The figures should reflect your budget as well as what you want to get out of the home. To get a fair sense of how much the property will sell for, you need to perform some research. Your connection should not enable you to pay more for a home than it is genuinely worth. When you do this, you’re guaranteeing that you’ll get the slam dunk.
Your decision-making process will be less emotional if you know that there will be other properties available. It’s fine to fall in love with a property, but don’t let your feelings get the best of you. To avoid being overly involved, I recommend looking at numerous houses that you “love.” You are more likely to make a wise decision if there are other residences in the picture.
2. Home Searching on your Own
The introduction of technology, particularly the Internet, has made finding a home much easier than it was previously. There are a number of websites whose sole aim is to assist you in locating the home of your dreams. Their existence, on the other hand, has aided and hampered those trying to acquire. Onlookers will be intimidated by the sheer number of properties available at the touch of a button, which could lead to analysis paralysis.
Instead of undertaking an actual home search, I propose using these sites as a research tool. Use them to figure out what you’re looking for and what’s available in your region. When it comes to physically looking for a home rather than sifting through thousands of dead-end ads, I recommend obtaining some assistance.
There’s always the chance that you’ll find your dream home on your own, but I’m afraid it’s the exception rather than the rule. Instead, have your agent look for properties in your area. There’s a significant probability they’re aware of properties that aren’t currently on the market. They will, at the very least, eliminate residences that do not suit your requirements, saving you endless hours of looking.
3. Exclusively Working with an Agent
The seller’s best interests are represented by the listing agent. They are an important element of the home selling process, but they represent the person who is listing the property, as their name implies. Their sole purpose is to sell the house for the price set by the owner. As a result, the greater the commission checks they receive, the more money the home sells for. They are, for all intents and purposes, attempting to sell the home for the greatest possible price; something that first-time purchasers are unlikely to appreciate. As a result, any first-time purchasers should avoid initiating any transactions through the listed agency.
You have the right to deal with a buyer’s agent, fortunately. A buyer’s agent, unsurprisingly, represents the buyer. While their services will undoubtedly be more expensive, their knowledge can easily save you more money on the sale than the expense of hiring them. Most buyer agency agreements include the following items in addition to price negotiations:
- Protecting the financial information of their clients.
- Obtaining the greatest possible price for the buyer through negotiation.
- They must reveal whether they are collaborating with another buyer for the same property.
- Display all of the properties that the buyer is interested in.
- Buyers are connected to various service providers such as inspectors, lenders, and others.
Working with a buyer’s agent has a number of advantages, all of which are preferable to dealing with a seller’s agent on your own.
4. Pretend the rules don’t apply to you
Homeownership means different things to different people, but for first-time buyers, it undoubtedly means freedom. This may be the first time they are not required to follow the rules established in a previous household; or is it? Simply because you have never been a homeowner before does not mean that the rules of homeownership will not apply to you. It’s entirely possible that the house you’re eyeing has deed restrictions and conditions.
Deed restrictions vary dramatically depending on their specific neighborhood. Their goal, in general, is to provide stability in the respective area. Some are simply there to ensure that the property retains its value. They are not necessarily a bad thing; they are simply something that must be considered. Deed restrictions can sometimes stymie the plans of prospective homeowners, and it is in their best interests to be aware of these restrictions before purchasing a home.
5. Savings not enough
Saving enough money for a down payment on a house is a significant accomplishment. In today’s economy, the high cost of rent has made it difficult for anyone to transition from renters to buyers. The down payment, however, is only the beginning. Aside from the initial cost, most first-time homeowners fail to save enough for what comes next: life as a homeowner. Most first-time buyers fail to account for the costs that accrue after the closing.
It’s a good idea to set aside at least two to three months’ worth of mortgage payments. This is in addition to the funds required for additional closing costs and impending property taxes. There are numerous costs associated with home ownership, and first-time buyers must be aware of all of them. Failure to account for these costs could be disastrous.
6. Ignoring Loan Pre-Approval
Too many first-time homebuyers make the mistake of not getting pre-approved for a loan. To that end, a pre-approval letter from your bank can help you secure the property you desire. For starters, it is the most effective way to determine how much home you can actually afford. Second, sellers are more likely to accept offers from buyers who have already been approved for a specific loan amount. As a result, there is less chance of the deal falling through. Make sure you get a pre-approval letter from your bank at least three months in advance. You’ll be glad you did it.
7. Spending too much on PMI
Lenders reacted to the recent recession by hedging their bets. Mortgage guidelines have changed in order to prevent more people from defaulting on their loans. One of the new rules requires buyers to pay private mortgage insurance on any property on which they cannot put at least 20% down. PMI, or private mortgage insurance, is added to the monthly mortgage payments.
First-time homeowners are less likely to be able to put down 20% on a home and, as a result, are more likely to pay PMI. However, not enough people are aware that they should contact their lender once they have paid off 20% of their mortgage. The PMI will be phased out at that point. When you owe 78 percent, your lender will automatically cancel your PMI, but you don’t want to pay a month more than you have to.