You’re trading the world of renting for one of the biggest financial commitments of your life: Your first home. You’ve scoped out the neighborhood, saved for your down payment and found your custom kitchen and perfect bathroom tile. But you’re new to this and quickly find yourself overwhelmed and confused. As the process unfolds, you realize you didn’t account for all your closing costs, buying a new car last week spooked your credit report, and that home inspection you passed on — that was a really bad idea.
Soon enough, your dream for a first home turns into a burdensome nightmare. This scenario could have been avoided if you were aware of some of the most common mistakes committed by first-time homebuyers.
Below is rundown of some of the tips that might help you avoid headaches and heartache before you sign the dotted line.
Maybe you thought the biggest check you’d write for your lovely new house would be your first monthly mortgage payment? Nope.
First-time home buyers are notorious for constantly overestimating or underestimating what they can afford. Apparently so, a study from PricewaterhouseCoopers shows that 61 percent of misunderstandings between borrowers and lenders stem from confusion over fees, terms and ownership costs.
Experts say first-timers should save months in advance and budget for the money they’re sure to spend. Those expenses include:
Just because you get approved for a home loan up to $500,000 doesn’t mean you need to buy a $500,000 house. When choosing the maximum loan amount lenders use your DTI (debt-to-income) ratio.
Typically, your maximum DTI ratio needs to be no higher than 36%. Sometimes it can be stretched to 41%. Even though on paper it appears as if you can afford a certain payment, doesn’t necessarily mean you can. You have to factor in your other expenses that may not be included in your DTI ratio. If you have several kids, spend a lot on entertainment or other luxuries what you think you can afford, becomes unmanageable.
With everything seemingly so expensive in the real estate world, you decide to save some money by skipping to hire a real estate agent. After all, who needs an experienced real estate agent or reputable lender when you have your mouse and keyboard at your side? A lot of people.
Deciding to use a local agent can save you a lot of headache in the often stressful home-buying process. Properties listed for sale almost always are exclusively on the MLS, so agents search for houses for you saving you tons of browsing time. The agents also know the market and can provide buyers with information about the neighborhoods, such as average utility rates, schools and crime. Real estate agents are also paid for by the sellers and their commission is built into the price of the house.
As for lenders, we suggest buyers consult with them face-to-face, rather that just an online search since they will be able to explain things that are confusing and detail exactly what documentation is needed.
Hold off on that new sofa set or refrigerator until you’ve actually moved in. Why? Because lenders are going to check your debt load before closing and if you’re on the hook for a massive last-minute purchase, it could kill a deal.
Many loans are approved based on a specific debt-to-income ratio and minimum credit score. If you go purchase a new car a few days before closing, and the dealership pulls your credit, your score could be affected, your ratio thrown off balance and you’ve just blown yourself out of qualifying for your mortgage.
Keep everything status quo. Don’t change your job. Keep your money tight. Pay your bills on time and buy yourself some groceries. I just don’t want to see any new credit cards.
An enclosed deck in the backyard, a game room in the den, a sun room with bay windows, etc. In a perfect world, you’d have it all in your first home, but chances are, you won’t.
Buyers should understand that their first home is not going to be perfect, and as your search continues, you may want to compromise on those must-haves that you thought were deal breakers. Buyers should talk with your agent about amenities that are important to them, such as how many bedrooms you need or what kind of lawn you want. As an agent, you don’t want to ruin anybody’s dreams but it’s all about setting expectations.
When facing closing and moving costs, one might be tempted to skip out on paying for a detailed home inspection. Bad idea.
You may think it doesn’t matter when you first move in but a quality inspector can identify what’s causing that crack in the basement, or trace the source of those damaged roof shingles. Unlike someone who is just a roofer or just an electrician, good inspectors will climb the roof, traverse the attic and go under the crawl space to find the things the buyer won’t see on the surface. A house doesn’t have a check engine light. You might think it looks OK because there are no telltale signs but there could be a problem you’re unaware of and the inspector has to look at everything.
Everyone has seen the HDTV shows where people buy an ugly home for really cheap and invest some money into and make it into their dream home. While this is great, it rarely every happens for the average Joe. Tearing down walls and completely redoing kitchens are much more difficult, expensive, and time consuming than they appear on TV. Many people may plan on doing these upgrades but knowing the time and money investment it takes will never get around to renovating that old home. Then what happens? You’re stuck in a home you don’t like and are ready to buy a new one. Make sure you like the house how it is. If it needs new carpet or paint, that’s easy. If you need to tear down walls to make it look nice then it’s best to move on if you aren’t ready to commit your weekends for awhile.