Common mistakes made by first-time home buyers
Purchasing a new home can be extremely exciting. But it can also be quite stressful and first-time home buyers are very prone to making “rookie” mistakes. Some of the most common mistakes made by first-time home buyers include not saving up for a larger down payment, purchasing a home that is too expensive for them, and not getting a home warranty. Many people who avoid the last mistake make another one, which is to ignore the ratings of home warranty companies. Avoiding these common mistakes is a matter of learning from other people’s errors. And you will be able to do just that after reading this article, brought to you by the Consumer Opinion Guide.
The most common mistakes made by first-time home buyers
Here’s a quick overview of all the most common mistakes that first-time home buyers make:
- Not putting enough money into the down payment
- Purchasing a home out of your price range
- Not getting a home warranty
- Co-signing the mortgage
- Getting the wrong mortgage type
- Not hiring a real estate agent
- Not researching the neighborhood
- Failing to organize a proper home inspection
Furthermore, there is another mistake that is very easy to make and that is making decisions without regulating your emotions. This one is very hard to avoid, as buying a new home is quite an emotional experience. The best you can do is to create a list of your needs before you start looking at homes. That way, you will be able to leave the emotions out of the decision and make the purchase according to your real needs.
There are many similar mistakes, including assuming you know more than you actually do, and opening/closing new credit lines before the purchase. But those mistakes are not that common. Let’s take a look at some of the most common mistakes made by first-time home buyers and see how you can avoid them.
Not putting enough money into the down payment
Perhaps the most common (and most costly) mistake is not to save up for a large enough down payment. While you may think that a 20% down payment is standard fare, the reality is that most people do not front a down payment that large. Many people even go lower than 10%. According to the National Association of Realtors, the average homebuyer that is purchasing a home for the first time only puts down a 5% down payment. While this may make the initial purchase much more feasible, it is a grave mistake that will cost you a lot of money down the proverbial line through private mortgage insurance.
To avoid making this mistake, all you need to do is be aware of the potential costs and save up as much money as possible. If you simply cannot save up for a large enough downpayment, that may indicate that your finances are not ready for the home purchase. But if your situation demands that you make any kind of downpayment, the next best thing is to consider all the options at your disposal. There are numerous loan programs that allow first-time homebuyers to purchase a home more easily, such as the Federal Housing Administration loan. Make sure to explore all your options before settling in on a particular lender.
Purchasing a home out of your price range
This is a very common mistake. Chances are that you will be able to get pre-approved for more than you may be able to spend. And when you are in the “buying a new home frenzy” it is easy to ignore the warning signs. You need to be absolutely certain that your monthly income is more than enough to cover monthly mortgage payments. Otherwise, you may find yourself in a very difficult position. Once you are “saddled” with a mortgage, it can be extremely difficult to change your situation unless you move or sell the home. And both of those options are less than optimal.
Not getting a home warranty
Whether you are buying a brand new home or an older one, a home warranty is an essential purchase at least for the first year or two. You simply cannot know whether the in-home appliances, such as an HVAC system, do not have any underlying issues. There are many reasons why you need a home warranty plan but the most important one is to avoid potentially debilitating repair costs. You will already be setting aside a considerable portion of your finances toward mortgage payments, the last thing you need is a $10,000 repair bill. A home warranty protects you from unexpected repair costs and provides you with peace of mind, the same as homeowner’s insurance does.
Do note that every home warranty plan requires you to perform routine maintenance on your appliances. This means that you might want to create a spring home maintenance checklist sooner rather than later. If you fail to maintain the appliances accordingly, you may find yourself in the worst possible situation: Paying for the home warranty yet fronting the entirety of the repair costs. Make sure to carefully read the home warranty agreement and pay special attention to any potential exclusions.
Co-signing the mortgage
Many first-time home buyers find themselves without a good credit score, or with outstanding debt that prevents them from getting the mortgage in the first place. Or they may simply have low income. The lender then offers an option to co-sign the mortgage agreement and they take it. This is a very common mistake, and it is one you should avoid at all costs. It may sound like a great idea when you first think about it but after thinking some more, the “cracks” start to show. Co-signing the mortgage poses an extreme risk for both parties and does not provide enough of a reward. It is much better to simply save up a bit more or work on improving your credit score.
Getting the wrong mortgage type is one of the very common mistakes made by first-time home buyers
Mortgages come in numerous varieties. The most common is the fixed-rate and adjustable-rate mortgages. While choosing between the various mortgage types is important, the most important decision you will have to make is how long will the mortgage last. Basically, the shorter the window in which you are able to repay the mortgage, the better. One of the more egregious mistakes made by first-time home buyers is getting a mortgage on a 30-year fixed rate. It is much better to get your finances into a position where they are capable of repaying the mortgage in 15 years or less.
You see, the lenders would like you to sign a mortgage agreement for 100 years if they could get away with it. The longer the period in which you need to repay the mortgage, the more money you pay in interest. Of course, going with a lower mortgage period means that your mortgage payments will be larger and that you will need to front more for the down payment. But it is the smarter option. Your wallet will thank you for choosing it.
Not hiring a real estate agent
Many first-time home buyers believe that real estate agents do not bring anything to the proverbial table. It is a very common mistake. Buying a home is a lot of work and you need someone who knows all the ins and outs of the process. Your real estate agent will perform market research for you, network with other realtors, set 1 on 1 house showings, negotiate the price, handle contracts, and much more.
While a real estate agent is not necessarily required to purchase a home, especially if this is your third or fourth home purchase, these professionals are quite essential for first-time home buyers. A good real estate agent can provide a plethora of advice, such as how to avoid home warranty scams, for example. Having one in your proverbial corner is the right thing to do when you are buying a home for the first time.
Not researching the neighborhood
One of the worst common mistakes you can make is not researching the neighborhood prior to the purchase. Even if your new home is perfect in every other way, your neighborhood will dictate much of your lifestyle. Also, if you don’t do your research well enough, you might find that you simply cannot stand your neighbors. The best thing to do is do a meet and greet with potential neighbors and verify that there are enough local amenities that fit your lifestyle. While you’re at it, you might as well check the distance to the grocery store as well as the hospital. You need to know the travel times (and costs) to at least those two.
One of the very common mistakes made by first-time home buyers – Failing to organize a proper home inspection
Lastly, first-time home buyers frequently pass on the initial home inspection. It saves both time and money, after all, and might even help you win the bid on your new home. But failing to organize a proper home inspection is one of the most common mistakes made by first-time home buyers, one that can potentially cost you thousands of dollars down the proverbial road.
According to porch.com, the average cost to hire an inspector is below $400, and 86% of the time the inspector finds at least one problem with the home. Since potential repair costs can easily run into thousands of dollars, organizing a proper home inspection is always in your best interest. Even if you are planning on purchasing a home warranty plan, chances are that you will need to budget for home improvements and repairs out of your own pocket for pre-existing conditions. Therefore, the best thing to do is to ensure that there will be no large expenses in the immediate future. And the home inspection will provide you with such assurance.
For more information on home warranties, their coverage, and other intricacies, refer to the Consumer Opinion Guide. Our knowledge database is there to provide you with all the information you might need to make your first-time home purchase much smoother!