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The real estate market is a complex and finely balanced machine. To transition the ownership of a house along with the financial maneuvers necessary to do this safely requires a careful path. Buyers rely on their real estate agents and loan officers for guidance, but the more you understand of the process, the smarter choices you can make along the way. First-time home buyers are the most likely to miscalculate finances or miss an important opportunity for savings when buying a home.
Today, we're here to help you learn and avoid the ten most common mistakes made by first-time home buyers.
1. Choosing a House Before Securing a Mortgage
The housing market is big and your options for homes cycle every month. Homes can fly on and off the market in some regions or linger for years in others. However, finding your dream home means nothing if your mortgage isn't ready to go. You can't make a bid until you have a pre-approved (not just pre-qualified) loan.
2. Planning for a Small Down Payment
The standard down payment for a home is 20%. First-time home buyers can put down as little as 5% with the help of programs like FHA loans, but you may not want to take that route. Higher down payment means less interest and you can forego the cost of mortgage insurance. By paying 20% or more in downpayment, you can significantly reduce your total paid amount for the house.
3. Not Auditing Your Credit Score
A mortgage application will look very closely at your credit score, but credit scores can be wrong. Audit your score to make sure old debts, purged files, or incorrect billings are not artificially lowering your score. This will help you qualify for a better mortgage.
4. Missing Out on Incentives
There are many financial incentives available that are designed to help first-time homeowners complete the process. Even if you don't need an incentive to want a house, you should take them anyway. Save money, accept discounts, and take advantage of opportunities designed to help first-time home buyers like yourself.
- First-Home Incentives
- Look for governmental, organizational, and regional offers that help first-time home buyers. This might be discount housing, better financial services, or loan terms
- Agricultural Incentives
- In regions deemed as agricultural, the USDA will subsidize home buyers to live in these areas. Take the incentive if you would enjoy a rural home.
- VA Loans
- If you are a veteran, there are programs available to make it easier and more affordable for veterans to buy homes.
- FHA Rates
- FHA loans offer much lower rates and allow you to put down a much smaller down payment to promote housing.
5. Planning to Spend All Your Savings
It can be tempting to buy as soon as your savings could support the purchase, but wait a little longer. Don't wipe out your savings on just the house. Home purchases usually come with additional and surprise expenses. You may also need to pay for repairs and improvements once the home is yours.
6. Misunderstanding Escrow
Escrow is an out-of-pocket exchange that is new to any first time home buyer. Escrow is earnest money, money put down to show the seller that you are bidding in good faith. Ultimately, your escrow amount will go to pay your first year of property taxes, another commonly overlooked expense.
7. Underestimating Closing Costs
Closing costs are in addition to the cost of the house and processing so far. Closing costs cover final paperwork, lawyer fees, court filings for the title change, and more. You will need to have modest funds remaining after the home purchase to cover your closing costs.
8. Not Budgeting (or Knowing About) Mortgage Discount Points
Just like paying a higher down payment, you can gain additional savings on your mortgage interest rate. Mortgage discount points are officially optional fees. You can choose to pay them and in return, you get a lower interest rate and potentially lower monthly payments. Do the math. Figure out if and which mortgage discount fees could significantly improve your finances over the next couple of decades paying off the house.
9. Miscalculating your Monthly Expense
Know how much you will be paying per month after you buys the house. This includes mortgage, property taxes, and utilities all wrapped up together. If you are in an HOA, there will also be membership dues and neighborhood fees.
10. Skipping the Inspection
No matter how beautiful your dream home is, always have a home fully inspected by a professional who is also a neutral third party. Get the info on everything from the age of the pipes to the condition of the foundation. Make sure the house is in top condition and ready to become your new home.
Are you getting ready to buy a house? Reach out and talk to a local expert loan officer to discuss additional ways to make this process both easier and more affordable.