Buying a house is an incredibly exciting yet overwhelming time. If new homebuyers let their emotions get the best of them or fail to do their research, there are a number of mistakes and traps they could easily fall into.
This article will be a list of mistakes first-time homebuyers tend to make, from not getting preapproved for a mortgage to not negotiating with the seller or asking them for concessions.
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1. Not checking their credit score
In order to get a home loan, all mortgage lenders will ask for a credit report and financial history. You can request a free credit report annually from Equifax, Experian and TransUnion, thanks to the Fair Credit Reporting Act Conventional mortgage lenders will typically require a credit score of at least 620. FHA loans only require a score of 580.
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2. Looking at houses before getting pre-approved for a mortgage
Getting pre-approved for a mortgage will let you know how much you can feasibly spend on a home. If you start looking at properties before taking this step, you could find yourself wanting a home that’s way out of your price range.
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3. Settling on the first house they find
Just because you like a house doesn’t mean you should stop looking for other properties. Having a backup plan could come in handy if a home inspection reveals more flaws than expected or if the seller is asking a steep price. Plus, shopping around will give you an idea of what is really out there within your price range and requirements.
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4. Being too picky
Understanding your needs is an important part of finding the right house. However, you will rarely get everything you want. If a buyer is unwilling to compromise on any of their demands, they could find themselves without a home altogether.
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5. Not having money left over for renovations
A buyer may want to remodel a bathroom or need to repair the HVAC after moving in. However, between the down payment, closing costs and other fees, buyers could forget to set money aside for renovations. If you don’t have the money for renovations, you could always consider a personal loan. Still, you should expect and budget for these repairs.
Asking the seller to provide a home warranty as part of the final sales agreement could help save headaches down the line if any appliances break.
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6. Not asking for seller concessions
Seller concessions are provided by the homeowner to help reduce the buyer’s closing costs. These concessions are typically made at the buyer’s request; therefore, if you don’t ask, you won’t receive. It is also worth noting that the seller does not have to grant the buyer’s requests, but it doesn’t hurt to ask.
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7. Not using a real estate agent
A buyer’s agent is legally bound to protect the buyer’s interests during the home sale process, and the seller’s agent has a duty to protect the seller’s interest. That is why using the same agent as the seller can be risky. For buyers who are not real estate pros, not using an agent at all can be quite overwhelming.
Agents help buyers find properties that match their needs and budget, help during negotiations, and handle the closing paperwork. Their fees range between 5-6% of the final sale price, but it is usually up to the seller to pay both agents’ commission.
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8. Not negotiating with the seller
Some first-time buyers may feel too intimidated to ask for what they want and just settle for all of the seller’s demands. However, if there is something that you want (within the realm of reason), you shouldn’t be afraid to ask!
Using an experienced real estate agent can help during negotiations because they will be able to keep a cool head. An agent is not as attached to a property as the buyer, so they will not make any brash decisions or statements. They will, however, fight to ensure your best interests are preserved in the final agreement.
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9. Not setting aside funds for closing costs
Although the seller is usually expected to pay a large chunk of closing costs, buyers also have some fees to cover before the sale can be final. Some first-timers are surprised to find out they need to prepare more than just a down payment.
Buyer’s closing costs are typically between 3-5% of the home’s final sale price. This includes lender fees, property taxes, homeowners insurance premiums and title and escrow charges.
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10. Skipping out on owner’s title insurance
Mortgage lenders typically require buyers to purchase lender’s title insurance to protect themselves against any disputes over the ownership of the property. Owner’s title insurance, on the other hand, protects the homeowner against title disputes, but it’s totally optional.
The reason you should get owner’s title insurance is to ensure your property cannot be taken away over a title defect. You may even be able to get the seller to cover this cost as part of your final deal.
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11. Not including contingencies in their offer
Contingency clauses allow the buyer the back out of a deal under certain circumstances. These clauses help protect the buyer under certain conditions. Some common contingencies include:
- Inspection contingency: States that if a professional home inspection reveals major damages that the seller will not repair, the buyer can withdraw their offer without penalty.
- Financing contingency: States that if a buyer cannot obtain a mortgage or financing by a certain deadline, they can back out of the deal without any penalty.
- Home sale contingency: Specifies that if a buyer cannot sell their current home in a certain timeframe (usually 30-60 days), they can forfeit the contract without any penalty.
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12. Buying a house that’s way over budget
Just because a lender offers you a $300,000 loan does not mean you should accept the entire loan amount. Going after homes that are at or above your price limit will leave you very little wiggle room during negotiations and will likely leave you no money for renovations.
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13. Overlooking all their loan options
Your real estate agent will likely have a lender they recommend. While using them is not a bad idea, you should do your own research as well. In addition to conventional mortgages, there are FHA loans for borrowers with lower credit scores, VA loans for military service members and veterans, USDA loans and much more.
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14. Letting their emotions get the best of them
Buying a home is incredibly exciting, but some buyers let their emotions get the best of them.
Buying a property on a whim can turn out disastrous. Always go into the home purchasing process with a plan and clear goals so you do not get steered off course.
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15. Not researching first-time buyer programs
Many states and local municipalities have programs that help first-time home buyers purchase property. These programs can come in the form of grants, tax credits, mortgages with favorable interest rates and more.
First-time home buyers can save a significant amount by simply accessing these programs. See what you qualify for and do your research.
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16. Putting too little down
There are plenty of loan programs that require less than the traditional 20% down payment. However, the less money you put down at closing, the more it could cost you in the future. Putting less money down up front will result in borrowing more from the lender and paying more interest on the loan over time.
Moreover, if you put less than 20% down, lenders will require that you pay additional private mortgage insurance premiums each month on top of your regular mortgage payments.
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17. Assuming you need a 20% down payment
While putting more money down saves you more in the long run, first-time buyers should also know that you do not necessarily need a 20% down payment to purchase a home. In fact, according to the National Association of Realtors, the median down payment for first-time buyers in 2019 was only 6%. Knowing this can make buying a home seem much more accessible.
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18. Skimming their home insurance policy
Homeowners insurance is a major necessity, as you’ll want to protect the huge investment you’ve just made after buying a home. Make sure you understand exactly what your policy covers in order to avoid any unwanted surprises down the line.
For instance, most homeowners insurance policies do not protect against flooding, and you will need to purchase a separate flood insurance policy if that is something you’ll need.
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19. Not factoring in home maintenance costs
Something that surprises many first-time home buyers is the annual cost of maintaining a property. From landscaping to the HVAC system, there is a lot that goes into keeping a house in top condition.
New buyers can expect to pay an average of $1,105 per year in maintenance costs, and they should also prepare for emergency repairs as well. The average emergency repairs cost around $1,200.
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20. Forgetting about property taxes
While the seller is expected to cover transfer taxes, buyers are expected to bring money for property taxes at closing as well. Usually, they are asked to provide two months’ worth of county and city taxes.
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21. Not setting aside moving costs
Depending on how far away you are moving and how many items you are bringing, moving costs can quickly add up. First-time buyers should keep this in mind as they are budgeting for their new place.
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22. Not reviewing public records
Reviewing a property’s public records can reveal information about the owner’s motivation for selling and previous or current problems with the property. This information could come in handy during negotiations and could also help the buyer determine whether the property is truly as good of a deal as they initially thought.
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23. Not getting a home inspection
Most lenders will require that borrowers get a home appraisal before issuing them a loan but not an inspection. Therefore, some buyers skip this very important step. A home inspection is highly recommended because it will reveal damage in the home that is not immediately obvious. Without a home inspection, a buyer could end up buying a money pit without even realizing it.
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24. Assuming the seller’s move-out date
Some first-time buyers assume that they are on the same page as the seller when it comes to move-out dates. As a rule of thumb, never assume anything in real estate proceedings. You wouldn’t want to show up with all of your furniture only to find out the seller is not moving out until later.
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25. Taking out a mortgage before paying down other debt
Many individuals are plagued by student debt and/or credit card debt. Before jumping into a mortgage, it is advisable to pay down as much of your current debt as possible. If you take on more debt than you can handle, you could end up defaulting on your loan and even losing your house.
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26. Not researching the neighborhood
Make sure to get to know the neighborhood you’re moving into! Research the crime rate, look up the school district if you have children (or are planning on having children), see what types of restaurants and activities are nearby. Otherwise, you could end up somewhere you don’t really like or feel safe in.
First-time buyers should also research how long comparable homes in the neighborhood have been on the market and their final sale price. This can help you when drafting an offer and during negotiations.
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27. Spending all their savings
Many buyers pour the majority of their savings into their new home. However, if you completely drain your funds just on the down payment, you will have a hard time if anything goes wrong after closing. Make sure you always have a rainy day fund set aside for things such as surprise repairs, emergency costs and peace of mind.
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28. Taking out new loans or lines of credit right before closing
Any time you take out a new loan or credit card, there will be a hard pull on your credit report. This can jeopardize the closing process and the final approved loan amount. First-time buyers sometimes learn this lesson the hard way.
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29. Not asking about home buyer rebates
A home buyer rebates is when the buyer’s agent refunds a portion of their commission back to their client. Usually, these rebates are capped at 1% of a home’s final sale price. Although some states do not allow this practice, you should check whether it is permitted where you live.
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30. Not budgeting for utilities
The average cost of utilities per month for U.S. homeowners is approximately $400. This includes electricity, gas, water, cable, internet, and trash/recycling. It is important not to overlook these costs when planning your home’s monthly budget.
Related:
- These fast-growing US towns also boast affordable real estate
- The ultimate home inspection checklist
This article originally appeared on ListWithClever.com and was syndicated by MediaFeed.org.
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