{"id":63867,"date":"2019-07-25T14:18:39","date_gmt":"2019-07-25T14:18:39","guid":{"rendered":"https:\/\/blog.myewm.com\/?p=63867"},"modified":"2019-07-25T14:42:55","modified_gmt":"2019-07-25T14:42:55","slug":"13-first-time-homebuyer-mistakes-to-avoid","status":"publish","type":"post","link":"https:\/\/blog.myewm.com\/?p=63867","title":{"rendered":"13 First-Time Homebuyer Mistakes to Avoid"},"content":{"rendered":"
For first-timers, the excitement of \u201cI\u2019m buying a home\u201d can drown out details that help the process proceed smoothly \u2013 such as getting pre-qualified for a mortgage, studying only homes you can afford and doing your homework before submitting an offer.<\/div>\n
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NEW YORK \u2013 Buying your first home comes with many big decisions and can be as scary as it is exciting. It\u2019s easy to get swept up in the whirlwind of home shopping and make mistakes that could leave you with buyer\u2019s remorse later.<\/p>\n

If this is your first rodeo as a homebuyer or it\u2019s been many years since you last bought a home, knowledge is power. Here are the 13 most common mistakes first-time buyers make \u2013 and how to steer clear of these missteps.<\/p>\n

1. Looking for a home before applying for a mortgage<\/strong>
\nMany first-time buyers make the mistake of viewing homes before ever meeting with a mortgage lender. This puts you behind the ball if a home hits the market you love, or you look at homes that you can\u2019t afford.<\/p>\n

In some large markets, housing inventory is still tight and competition is fierce. You might find yourself willing to stretch your budget to buy a property or lose a property because you aren\u2019t preapproved for a mortgage, says Alfredo Arteaga, a loan officer with Movement Mortgage in Mission Viejo, California.<\/p>\n

What to do instead<\/em>: \u201cBefore you fall in love with that gorgeous dream house you\u2019ve been eyeing, be sure to get a fully underwritten preapproval,\u201d Arteaga says. Being preapproved sends the message that you\u2019re a serious buyer whose credit and finances pass muster to successfully get a loan.<\/p>\n

2. Talking to only one lender<\/strong>
\nThis one is a biggie. First-time buyers might get a mortgage from the first (and only) lender or bank they talk to, potentially leaving thousands of dollars on the table. The more you shop around, the better basis for comparison you\u2019ll have to ensure you\u2019re getting a good deal.<\/p>\n

\u201cA good mortgage loan officer can look at your situation and diagnose any potential roadblocks ahead to give you a clear understanding of your home-buying options,\u201d Arteaga says.<\/p>\n

What to do instead<\/em>: Shop around with at least three different lenders, as well as a mortgage broker. Compare rates, lender fees and loan terms. Don\u2019t discount customer service and lender responsiveness; both play key roles in making the mortgage approval process run smoothly.<\/p>\n

3. Buying more house than you can afford<\/strong>
\nIt\u2019s easy to fall in love with homes that might stretch your budget, but overextending yourself can lead to regret and worse later. It can put you at higher risk of losing your home if you fall on tough financial times.<\/p>\n

What to do instead<\/em>: Focus on what monthly payment you can afford rather than fixating on the maximum loan amount you qualify for. Just because you can qualify for a $300,000 loan, that doesn\u2019t mean you can afford the monthly payments that come with it. Factor in your other obligations that don\u2019t show on a credit report when determining how much house you can afford.<\/p>\n

4. Moving too fast<\/strong>
\nBuying a home can be complex, particularly when you get into the weeds of the mortgage process. Rushing the process can cost you later on, says Nick Bush, a Realtor with TowerHill Realty in Rockville, Maryland.<\/p>\n

\u201cThe biggest mistake that I see (first-time buyers make) is to not plan far enough ahead for their purchase,\u201d Bush says. \u201cThis doesn\u2019t allow them to save (for a down payment and closing costs), fix items on their credit report, and debunk some of the myths about the process with a Realtor and lender.\u201d<\/p>\n

What to do instead<\/em>: Map out your home-buying timeline at least a year in advance. Keep in mind it can take months \u2013 even years \u2013 to repair poor credit and save enough for a sizable down payment. Work on boosting your credit score, paying down debt and saving more money to put you in a stronger position to get preapproved.<\/p>\n

5. Draining your savings<\/strong>
\nSpending all or most of their savings on the down payment and closing costs is one of the biggest mistakes first-time homebuyers make, says Ed Conarchy, a mortgage planner and investment adviser at Cherry Creek Mortgage in Gurnee, Illinois.<\/p>\n

\u201cSome people scrape all their money together to make a 20% down payment so they don\u2019t have to pay for mortgage insurance, but they are picking the wrong poison because they are left with no savings at all,\u201d Conarchy says.<\/p>\n

Homebuyers who put 20% or more down don\u2019t have to pay for mortgage insurance when getting a conventional mortgage. That\u2019s usually translated into substantial savings on the monthly mortgage payment. But it\u2019s not worth the risk of living on the edge, Conarchy says.<\/p>\n

What to do instead<\/em>: Aim to have three to six months of living expenses in an emergency fund. Paying mortgage insurance isn\u2019t ideal, but depleting your emergency or retirement savings to make a large down payment is riskier.<\/p>\n

6. Being careless with credit<\/strong>
\nLenders pull credit reports at preapproval to make sure things check out and again just before closing. They want to make sure nothing has changed in your financial picture. Any new loans or credit card accounts on your credit report can jeopardize the closing. Buyers, especially first-timers, often learn this lesson the hard way.<\/p>\n

The goal: keep the status quo in your finances from preapproval to closing. Otherwise, you could lower your credit score, run up your debt-to-income ratio and imperil your final loan approval.<\/p>\n

What to do instead<\/em>: Don\u2019t open new credit cards, close existing accounts, take out new loans or make large purchases on existing credit accounts in the months leading up to applying for a mortgage through closing day. Pay down your existing balances to below 30% of your available credit limit, and pay your bills on time and in full every month.<\/p>\n

7. Fixating on house over neighborhood<\/strong>
\nSure, you want a home that checks off the items on your wish list and meets your needs. Being nitpicky about a home\u2019s cosmetics, however, can be short-sighted if you wind up in a neighborhood you hate, says Alison Bernstein, president and founder of Suburban Jungle, a real estate strategy firm.<\/p>\n

\u201cSelecting the right town is critical to your life and family development,\u201d Bernstein says. \u201cThe goal is to find you and your brood a place where the culture and values of the (area) match yours. You can always trade up or down for a new home; add a third bathroom or renovate a basement.\u201d<\/p>\n

What to do instead<\/em>: Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time and proximity to public transportation. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions and the overall vibe to see if it\u2019s an area that appeals to you.<\/p>\n

8. Making decisions based on emotion<\/strong>
\nBuying a house is a major life milestone. It\u2019s a place where you\u2019ll make memories, create a space that\u2019s truly yours, and put down roots. It\u2019s easy to get too attached and make emotional decisions, so remember that you\u2019re also making one of the largest investments of your life, says Ralph DiBugnara, president of Home Qualified in New York City.<\/p>\n

\u201cWith this being a strong seller\u2019s market, a lot of first-time buyers are bidding over what they are comfortable with because it is taking them longer than usual to find homes,\u201d DiBugnara says.<\/p>\n

What to do instead<\/em>: \u201cHave a budget and stick to it,\u201d DiBugnara says. \u201cDon\u2019t become emotionally attached to a home that is not yours.\u201d<\/p>\n

9. Assuming you need a 20% down payment<\/strong>
\nThe long-held belief that you must put 20% down payment is a myth. While a 20% down payment does help you avoid paying private mortgage insurance, many buyers today don\u2019t want (or can\u2019t) put down that much money. In fact, the median down payment on a home is 13%, according to the National Association of Realtors.<\/p>\n

Delaying your home purchase to save up 20% could take years, and you could limit cash flow that could be put to better use maximizing your retirement savings, adding to your emergency fund or paying down high-interest debt.<\/p>\n

What to do instead<\/em>: You can put as little as 3% down for a conventional mortgage (note: you\u2019ll pay mortgage insurance). Some government-insured loans require 3.5% down or zero down, in some cases. Plus, check with your local or state housing programs to see if you qualify for housing assistance programs designed for first-time buyers.<\/p>\n

10. Miscalculating the hidden costs of homeownership<\/strong>
\nIf you had sticker shock from seeing your new monthly principal and interest payment, wait until you add up the other costs of owning a home.<\/p>\n

As a new homeowner, you\u2019ll pay for property taxes, mortgage insurance, homeowners insurance, hazard insurance, repairs, maintenance and utilities, to name a few.<\/p>\n

A Bankrate.com survey found that the average homeowner pays $2,000 annually on maintenance services. Not having enough cushion in your monthly budget \u2013 or a healthy rainy day fund \u2013 can quickly put you in the red if you\u2019re not prepared.<\/p>\n

What to do instead<\/em>: Your agent or lender can help you crunch numbers on taxes, mortgage insurance and utility bills. Shop around for insurance coverage to compare quotes. Finally, aim to set aside at least 1% to 3% of the home\u2019s purchase price annually for repairs and maintenance expenses.<\/p>\n

10. Waiting for the \u2018unicorn\u2019<\/strong>
\nUnicorns do not exist in real estate, and finding a perfect property is like finding a needle in a haystack. Looking for perfection can narrow your choices too much, and you might pass over solid contenders in the hopes that something better will come along. But this type of thinking can sabotage your search, says James D\u2019Astice, a real estate agent with Compass in Chicago.<\/p>\n

What to do instead<\/em>: Keep an open mind about what\u2019s on the market and be willing to put in some sweat equity, DiBugnara says. Some loan programs let you roll the cost of repairs into your mortgage, too, he adds.<\/p>\n

11. Overlooking FHA, VA and USDA loans<\/strong>
\nFirst-time buyers might be cash-strapped in this environment of rising home prices and higher mortgage rates. As a result, it can be harder for them to qualify for a conventional loan and they might assume they have no financing options. That\u2019s where government-insured loans enter the picture.<\/p>\n

What to do instead<\/em>: Look into one of the three government-insured loan programs backed by the Federal Housing Administration (FHA loans), U.S. Department of Veterans Affairs (VA loans) and U.S Department of Agriculture (USDA loans). Here\u2019s a brief overview of each:<\/p>\n