Today’s market is ripe for prospective first time homebuyers. Home prices are low and mortgage rates are still at historic lows.
Buying your first home is a major decision and it involves much more than signing a purchase contract. Here are five common mistakes that first time home buyers can avoid.
1. Not getting Pre-Qualified
A loan officer is an invaluable resource early in a first time home buyers home buying process. Generally, a pre-qualification is a review of a borrowers credit report and discussion on income and assets. A first time home buyer will learn:
- Any issues on their credit report that may limit or stop them from obtaining an ideal mortgage
- What mortgage programs and associated down payments they are qualified to obtain
- Steps that they should take to make the mortgage process as easy as possible
If done early enough, the first time home buyer will have plenty of time to rectify any negatives on their credit report, to make sure that they can qualify for the best interest rate and/or closing costs.
2. Underestimating the Cost of Homeownership
First time home buyers have a tendency to see the proposed mortgage payment, and rejoice at how much cheaper it is than their current rent. They forget all the hidden costs in homeownership.
Roof repairs, maintenance on the air conditioner, landscaping, increase in the cost of utilities, etc. are all potential costs that aren’t calculated into a mortgage payment.
A good rule of thumb is to annually set aside 1-2% of the homes purchase price for an emergency maintenance fund.
3. Not Getting a Home Inspection
I discussed this at Ohio Mortgage Solutions, Ohio Home Buyers, Should You Get a House Inspected?. Bottom line is a good home inspector will uncover many hidden issues. Better safe than sorry.
4. Looking for a Diamond in the Rough
Many home buyers (experienced and First Time) plan on finding that one in a million deal. You know, that foreclosure that is worth $200,000 but they are going to get it for $75,000. What many people overlook, is that fact that these diamonds in the rough need repairs and renovations. Make sure you do your due diligence beforehand, and know exactly what you are getting into.
5. Not Researching the Neighborhood
Safety and crime rates are an obvious concern, and generally these statistics are available online. First time home buyers should visit the home at different times of the day to get a good feel on the neighborhood, the activity, the noise (especially at night), kids out and about, etc.
These simple steps can help a first time home buyer in what will quite possibly be the biggest financial decision of their life.