Like most mistakes in life, we usually don’t learn financial lessons until after the fact.It’s not until credit card debt has piled up that it occurs you should have spent less or budgeted more carefully. The ambitious college student may pick a field of study based on pure passion, but only after graduation comes to realize that their career prospects are lacking or low paying.First-time home buyers may have it the worst; the biggest mistakes they commit are the ones they don’t realize until the ink is dried on the mortgage contract.If you’re looking to join the homeownership club, here are some rookie blunders to avoid:
One reason why the housing bubble burst nearly a decade ago was because too many consumers bought homes they couldn’t afford in the long run. First-time home shoppers may think they know what they can afford based on the selling price of a house alone. Even if you’ve estimated that your mortgage payment will be cheaper than your current rent, that doesn’t mean homeownership may necessarily be more affordable than leasing an apartment.You’ll need to take into consideration other housing expenses, like interest on your loan, homeowners insurance and property taxes. You’ll need to pay broker’s fees and real estate agent fees. Then there are other costs, like closing and escrow fees, or HOA fees (if applicable), and even moving costs.Those costs can add up and make the home buying experience more expensive than what’s listed on the "For sale" sign. According to Zillow.com, closing costs alone range from 2 to 5 percent of a house’s purchase price: so, if your prospective home costs $200,000, closing costs may be anywhere from $4,000 to $10,000 extra.Once you’ve settled in, you’ll also be responsible for other expenses, like maintenance or home improvement costs. If your toilet floods in the middle of the night, or something major needs repair, you’ll be responsible for fixing it – or at least paying someone to do it.
The first-time home buyer may be eager to just skip all that lending stuff and go right into house hunting, believing everything will sort itself out. You might even start visiting properties, excited to get the ball rolling before you’ve begun considering your financing options, the most important being mortgage prequalification: an estimation of how much mortgage you can afford based on your financial status.Some experts claim that many young home shoppers may avoid seeking out prequalification fearing that their credit won’t be strong enough to obtain a home loan -- so, they jump right into searching and touring homes for sale, hoping to wing it without considering the financial big picture. This won’t exclude you entirely from being approved for a loan later down the line, but skipping these important steps could mean buying more house than you can afford and landing a loan with unfavorable terms and conditions.
Who needs to hire a real estate agent or broker when you can do the same job yourself? Newbie home buyers may be compelled to negotiate with sellers, attend open houses and wheel and deal with the seller’s agent all by themselves.Sure, it’s an entirely appealing idea -- and you have probably heard about plenty of experienced homeowners doing the transaction with minimal professional help. Plus, it would save you money. But hiring your own agent would certainly save you time, energy and effort, plus help you navigate the often confusing and complex world of house hunting and buying. A realtor or real estate agent will have a wider reach with access to better properties listed for sale, and they’ll have the resources to search more comprehensively than the average consumer might. They’ll also have a better, up-to-date perspective on current home values not always reflected on sites like Trulia or Zillow. Without pro help, you may be limiting your search for the right domicile.The right broker or agent will also help you decipher any contracts or specific mortgage documentation, plus they can arrange everything from touring homes for sale to brokering deals between you, the buyer, and the seller. But just like searching for a home, make sure to find an agent you can trust, since the right agent wants you to find your ideal home. Don’t settle for the first agent you find in your Google results; ask coworkers, friends and family for referrals. Another resource is the National Association of Exclusive Buyer Agents.
Picking the most expensive home you qualify for may be an unwise move for your finances. But first-time home buyers may feel like they can accept no less than the best for such a big investment. That could mean passing on a home simply because the backyard is a bit small, the garage isn’t as spacious as you’d hoped, or the house is located on a busier thoroughfare instead of a quiet cul-de-sac.If you find yourself conflicted with these types of feelings, it might be time to meet with your agent and start building out a list of your ideal wants and needs in a new home. While one home buyer may be dead set on a certain number of bedrooms or a minimum square footage, your priority might be to find a house near public transportation or one with extra bedrooms if starting a family is in the cards.Ultimately, you’ll want to decide which wants and needs will make or break your buying decision before you break your budget. This could mean compromising on a home with some must-haves in place, but passing on others you can do without for the time being. Renting for a bit longer while you save up for a house with more amenities can make sense, and it’s easier than you think to set aside cash for a down payment.
Figuring what you need in a house as a homeowner, short term and long term, is easy with some realistic examining of your lifestyle needs. Predicting how your neighborhood will change over the years can be slightly more difficult. A community can quickly go from bucolic hamlet to congested megapolis in just a few years, and that can compromise your quality of life if you’re locked into a mortgage for the next few decades.Look into the future of your neighborhood and see what changes may be on the horizon in the long term. Start checking on the status of pending developments and construction in the area. Ask if your existing street will begin seeing more traffic, or if new highways or major roads will be built around your house in the next few years or so. Looking into your town’s planning or zoning departments can also give you some insight into what to expect.Likewise, buying a new home also comes with looking into the local economy and job market. Are emerging industries setting up shop in your city, or moving elsewhere? Finding out the answer can be a deciding factor if you should stay or you should go.First-time home buyers may want to jump right into the process due to the exciting prospect of finally owning your own house. But that could cost you handsomely if you start to skip all the necessary steps important to the shopping and mortgage process. By following some of these tips as a start, the home you purchase will come with the price and features you want, bypassing those rookie mistakes like a pro.
Image: Mark Moz
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