First time home buyers beware; purchasing a home is a serious and long term financial investment.
Knowing what dangerous mistakes to avoid can mean the difference between digging your own grave of debt and creating a secure financial future.
Read the following 7 Sins of First Time Home Buyers to keep your home purchase process on track:
or Not Budgeting for Your First Home Loan
Taking the time to calculate your budget in advance will save you serious headaches in the future. Understand your financial obligations and monthly expenses. Remember to leave a buffer for unplanned expenses.
There are also many unexpected costs associated with the buying process. Plan for fees linked to the home purchase such as an appraisal fee, a credit report fee, escrow fee and notary fee.
When calculating the cost of home ownership, including monthly mortgage payments, estimated maintenance costs, homeowners insurance, property taxes and more.
or Forgetting to Check Your Credit Before Purchasing a Home
There is a significant 3-digit number that lenders use to determine your worthiness for receiving a mortgage loan --a credit score.
A high credit score (above 720) will reward you with low mortgage rates and loan approval. But as the value of your credit score drops, so do your chances of receiving good mortgage rates and approval for a mortgage loan.
If you plan on purchasing a home, start by obtaining a copy of your credit report to understand what your mortgage loan options are and to begin budgeting for the kinds of rates you will be offered.
If your credit is damaged, start by correcting any errors that may appear on your credit report. Then, begin by paying all of your monthly minimum balances on time. Next, pay down your debts. There is no magic cure for fixing bad credit; develop healthy financial habits and your credit score will gradually improve over time.
or Not Paying Attention to Housing Market Trends
Prospective home buyers who make an effort to budget for a home and gain a clear understanding of their financial outlook often fail to grasp the bigger picture; deciding to purchase a home simply because you are financially ready or focusing your search on one particular location may ultimately be a mistake. Here’s why:
The housing market is always changing. At times, the market favors people who are looking to buy –this is called a buyer’s market. On other occasions, the market favors people who are looking to sell –this is referred to as a seller’s market.
Supply and demand create Buyer's and seller's markets. A desireable housing may be scarce, or it may be in surplus. A low supply of homes increases demand and prices, favoring sellers. Alternately, when supply is high and many more houses are on the market than there are buyers, the housing market favors buyers.
Other important factors to consider are interest rates, consumer confidence, and the overall economic outlook.
Prospective home buyers should take the time to understand the current housing market in order to buy at a strategic time and location.
or Not Getting Pre-Approved for a Home Loan
A common mistake first time home buyers make is thinking that first they must find the home they like, and then they can start the home loan process. However, the approach should be reversed.
Home buyers can benefit from imagining the sale from the seller’s perspective. Seller’s are often taking competing bids on their house and trying to choose the best one. A high bid may mean the prospective buyer has not gone through the home loan application process and is at risk for receiving less financing than anticipated.
For this reason, sellers always prefer bids from prospective buyers who are already pre-qualified or pre-approved for a mortgage loan. Many sellers will refuse to consider a bid unless the potential buyer can show a pre-approval letter from their lender. Additionally, many realtors will refuse to show a property unless the prospective buyers are pre-approved.
Pre-qualification is a more informal process that allows the prospective homebuyer to get a ballpark estimate of the amount they will be approved for. However, this is only an estimate and primarily based on the buyer’s word and therefore is almost meaningless to the seller.
Pre-approval is a more formal process that gives prospective buyers an advantage in the eyes of the seller. Pre-approval requires actual verification of the prospective buyer’s financial and credit information, which the lender then uses to calculate about how much the bank will lend. However, don’t count on this estimate either; the lender is not legally bound to the figure quoted in the pre-approval letter, and terms may change.
or Failing to Consider the Home Resale Value
As a first time home buyer, the idea of selling your new home may not even cross your mind. However, life often brings unexpected changes such as job transfers, family illnesses, or even falling in love with someone who lives far away – these and other unexpected events could cause you to move at any time.
Another possibility is a financial hardship; mortgage payments which were once affordable could suddenly become nearly impossible to make.
If any of these scenarios occur, what will the outlook be for selling your home? Consider whether the home will be easy to sell and if it will produce enough money for you to make a down payment on another home.
Remember that your new home is an investment; wise investors consider the unexpected and have contingency plans in place that guarantee beneficial outcomes.
or Believing Everything Your Realtor Says
For many first time home buyers, a realtor can seem heaven-sent in the face of the confusing process of finding a home, negotiating a sale and getting a mortgage loan. Confused, trusting homebuyers must nevertheless be cautious of the motivations and limitations of a real estate agent.
Remember to consider whose interests the agent represents. Are they a seller’s agent, buyer’s agent, or dual agent (representing both the buyer and seller)?
A seller’s agent may gloss over a home’s negative features and play up its positive ones to encourage prospective buyers to make an offer. Prospective buyers should be wary of revealing too much financial information to the seller’s agent so as not to give the seller an advantage during the negotiation process.
A buyer’s agent can be an important ally for first time home buyers, but buyers should be wary of signing any long-term contracts. Take the time to interview several agents and find one with significant experience in the area you wish to buy a home in.
A dual agent may face a conflict of interest, but may not legally divulge confidential information about either client.
Remember: Real estate agents are not experts in financial advice. Take any financial advice with a grain of salt.
or Falling Blindly for a Home
Falling in love with a home the first time you see it can be perilous. Love is a beautiful thing, but it can also blind you to the home’s faults and cause you to make serious financial errors.
Listen to the practical advice offered by your friends and real estate experts. Consider how you will feel about the home once the ‘honeymoon phase’ is over; will you hate the tiny kitchen or always creaking floorboards?
Don’t be blind to the home’s financial value. Do not offer more than the home is worth; remember that a home is a financial investment. Revealing to the seller or seller’s agent how much you love the home can also tip them off that you are willing to pay more.
Never trust a verbal agreement until the papers have been signed. Consider the home’s resale value and always demand a home inspection.
When purchasing your first home, keep a level head and an open mind. Navigating the home buying process can be challenging, but remaining cool and calculated will help you find and purchase the home of your dreams.
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