Buying a home can be both exciting and overwhelming for the first-time homebuyer. If you've decided to take the plunge into home ownership and have already started the search process, make sure you're not making some common first-time homebuyer mistakes.
Your upcoming investment could end up being a bad decision if you overlook some important facts about home ownership and sign that contract before you're really ready.
Here are five mistakes first time homebuyers need to avoid:
1. Searching for the dream home before getting prequalified for a loan. Save yourself the disappointment of not being able to afford the home of your dreams by getting prequalified for your loan before you start house hunting. Instead of picking out a price range and searching listings, take the time to talk to a lender about how much house you can realistically afford and what the monthly payment breakdown – with all taxes and other fees included – will be. The amount you are preapproved for will help you create a realistic budget for your home search.
2. Delaying the buying process in hopes of a better rate. Mike Schenk, vice president of economics and statistics at the Credit Union National Association, points out that adjustable rates are now at rock bottom at about 3 percent. If you really are ready to make the commitment for home ownership, talk to a lender about securing a loan at an adjustable rate instead of a fixed rate.
3. Thinking short term. It's easy to get carried away with that new home search and overlook some important information about the neighborhood you would move to, future developments in the area and the resale value of your home. As a first-time homebuyer, the idea of selling your home in the near future probably isn't at the top of the priority list, but it should be. "Buy that first house with the idea that you can resell it with some ease should your plans change in five years," says Mike Bacsi, senior mortgage loan officer and assistant vice president at Johnson Bank. "Hold off on buying the super charming or quirky house until you are financially established and can afford the charm."
You also need to think about the long-term effects of your decision to buy that home. If the neighborhood is undergoing any type of redevelopment phase, the value of your home could increase in the near future. If you end up buying an older home in hopes it will appreciate in value, keep in mind that your investment could be a risky one.
4. Making an emotional decision. While the right home for you is a matter of personal preference and affordability, you need to separate your emotions from the decision before signing the contract. Turning a blind eye on that moldy basement or creaky floorboards because you're enamored with the architectural style of the house can lead to financial troubles in the future. You want to make sure you're investing in a home that will offer you a good return on your investment and ideally has a good resale value.
Take the time to run the numbers, create a pro and con list of each property and use an objective approach for your homebuying decision. Remember that even realtors and homeowners selling a home on their own will be pitching their property to prospective buyers using all types of marketing strategies. Keep an open mind, but also do your homework to make sure you're investing in a home that you can be happy with for years to come.
5. Overlooking hidden costs. In addition to that monthly mortgage payment, you need to consider the cost of home maintenance, utilities and property taxes. If you are buying an older home, you may end up needing money to cover the cost of repairs and renovations. While the selling price can give you a fair idea of what you will be investing for your home, you also need to look at all of the extra costs required to maintain your home and cover property taxes.
Your lender or realtor may not necessarily be the best source for this type of information, so start researching costs on your own. Turn to a home inspector for a list of existing or potential problems that may need to be taken care of in the near future. Consider getting quotes from renovation specialists or builders in the area to price out potential updates and home improvement projects. Also, don't overlook moving costs and extra furniture you might have to purchase to furnish a larger living space.