After years of saving money and building up your credit, you are finally ready to become a homeowner. However, for first-time home buyers, the entire process leading up to the purchase can be exciting and intimidating. Notably, it is a process that can also be tricky to navigate for new buyers.
In this article, we will discuss ten common mistakes that first-time home buyers tend to make. Keep them in mind while you are going through the process of purchasing your first home and save yourself from potential headaches.
1. Not Hiring a Real Estate Buying Agent
The importance of the services provided by a real estate buying agent cannot be overstated. Your buying agent can help you find properties that meet your preferences and budget. They will also help you complete all the paperwork required to complete the process of buying a home.
Buying agents are even more helpful when you have found a property you like. Now that you have settled on a property, your agent can approach the seller and their agent and start negotiating a price. Of course, you are the one who will decide whether or not to accept an offer, but your agent can help you contextualize it.
Look to hire a real estate buying agent as soon as you can. First, seek referrals from trusted people and hone in on some candidates. Then, interview all your candidates until you find the best buying agent.
2. Neglecting to Double-Check Your Credit Reports
Unless you have plenty of savings in the bank, you will probably take out a mortgage to purchase your new home. That means potential lenders will comb through your credit reports to determine if loaning you money is in their best interests.
Before opening up your credit history to potential lenders, are you confident that it accurately reflects your financial status? Errors in your credit reports may reflect poorly on how you handle your money. Lenders may see that and penalize you with higher interest rates.
Do yourself a favor and double-check your credit reports before speaking to lenders. Perform this check as early as possible to dispute any errors and provide the best accounting of your current financial status.
3. Failing to Seek Mortgage Preapproval
Going through the mortgage preapproval process gives you access to essential information. The most important information it yields is the specific loan amount a particular lender is willing to offer. They will get to that number after thoroughly examining your finances and indicating it in a document known as a preapproval letter.
According to the Consumer Financial Protection Bureau, a preapproval letter does not equal a guaranteed loan offer. However, it indicates that you are highly likely to receive a loan if you apply.
Why is it important for you to have that preapproval letter? For starters, you can use the number in the letter as a reference point while home shopping. You already know how much your lender will hand out, so you can adjust your market accordingly.
On top of that, the preapproval letter will come in handy when it comes time for you to make an offer for a home. You can present that letter to the seller and prove you are serious about buying their property.
4. Working with Only One Mortgage Lender
Remember to go to multiple lenders when you seek preapproval for a mortgage. Even if the facts of your finances do not change, the offers you get from mortgage lenders may still vary.
Some lenders offer you more money, while others offer friendlier interest rates. Other mortgage lenders may also entice you with incentives if you work with them.
You need to know what options are available before committing to any lender. Take the time to speak with multiple lenders and get the best deal available on your home loan.
5. Passing on FHA, USDA, and VA Loan Offers
You do not need to get your mortgage from a bank. Government agencies also offer housing loans. Their offers often come with more favorable terms than what private lenders present.
Federal Housing Administration (FHA) loans have low-interest rates, and first-time home buyers do not need especially high credit scores to qualify for them. The U.S. Department of Agriculture (USDA) loans allow buyers to purchase properties in designated rural areas without requiring a down payment in some cases. Veterans Affairs (VA) loans have no down payment and low-interest rates. But, of course, access to them is limited to individuals who served in the military.
It is worth checking if you qualify for any of those loan programs because great deals may be waiting for you.
6. Not Setting Aside Enough Money for the Down Payment
Many first-time homebuyers struggle with high monthly payments. Why are their monthly obligations so high? In all likelihood, their predicament is due to the down payment they made.
Making a substantial down payment lowers your interest rates and monthly payments. Therefore, it is highly recommended that buyers make the biggest down payments they can afford to manage their debt better.
According to Bankrate, the minimum down payment for a conventional loan is about 3%, and that jumps up slightly to 3.5% for FHA loans. Do your best to make a larger down payment than those established minimums. Waiting until you can afford a larger down payment is also a good idea.
7. Failing to Take Advantage of First-Time Home Buyer Programs
Are you struggling with the money needed to make your desired down payment? If so, you should check if you qualify for first-time home buyer benefits in your state.
In Rhode Island, first-time home buyers can receive up to $17,500 in financial assistance. In addition, they can use the grant to cover the down payment and closing costs.
To qualify for the $17,500 grant, first-time home buyers must use the money to purchase a 1-4 person home or condominium. Applicants must also meet income limits and possess a credit score of at least 660. They are also required to complete a home buyer education course and to secure a RIHousing-funded first mortgage. Lastly, applicants must use the home they are purchasing as their primary residence.
8. Refusing to Pay for a Home Inspection
You are already pouring a lot of money into your home purchase. To reduce your expenses, you can decide to forgo the home inspection.
First-time home buyers who do not pay for home inspections are making huge mistakes. A home inspection is essential to the buying process, alerting you to serious property issues. During the inspection, a qualified home inspector will carefully examine the property in search of anything that could pose problems down the line.
Paying for that home inspection is an absolute must. In many cases, home inspections are also practically required. Some lenders refuse to hand out loans without conducting home inspections first.
9. Disregarding Property Tax Rates
When you commit to buying a house, you are also committing to its property taxes. Of course, no one enjoys paying property taxes, but they come part and parcel with home ownership.
Before you purchase your new home, you should look into its tax situation first. For example, you may shop in an area with high or rising property tax rates. Ask yourself if that kind of tax situation is something you can deal with. Then, consider looking at other locations and see if comparable properties come with friendlier tax rates.
You should also check if the property tax rate for the home you are eyeing aligns with the rest of the neighborhood. You can ask the local assessor about the tax rate if it seems unusually high. They may have missed something before that incorrectly raised the property’s taxes. After resolving the issue, that particular property may become more valuable.
10. Getting Stuck on One Property
One last mistake first-time home buyers tend to make is getting fixated on one property.
Your buying agent introduces you to this property with everything you are looking for. It features the décor you like; a backyard you can transform into the garden you have always wanted and is even in a neighborhood with good schools for your kids.
The only problem is that it is also owned by a seller who refuses to negotiate. They have a set price in mind for their property, and they refuse to adjust even if it is out of line with comparable properties. In that situation, you may feel like you must give in because losing your dream home is not an option.
We understand the desire to land a specific home, but paying a premium is simply unwise. Even your mortgage lender may express their disapproval by giving you a high-interest rate.
Continue shopping around because you may find something better. At the very least, the seller may change their tune once they see that you are considering other options.
First-time home buyers are more susceptible to making mistakes, but you can avoid them by heeding the tips we discussed here. You can also make buying your first home more manageable by working with us at the RI Home Store. Contact us today if you need a buying agent in Rhode Island!