Buying a home is always an anxiety-ridden process, and that goes triple for anyone who’s embarking on homeownership for the very first time. There’s so much to do and so much you don’t know that “overwhelming” hardly seems like an appropriate description of how it feels.
Even though you don’t want to scare yourself away from the entire process, you still need to be wary of falling into a few common traps that first-time buyers generally don’t avoid. If you’re aware of these five potential mistakes -- and able to keep yourself from making them -- then you’ll be saving yourself some significant stress on your homebuying journey.
1. Not understanding your down payment options
The biggest headache for so many first-time buyers is the down payment. If you’ve ever bought a car, then you’re probably familiar with the concept -- it’s money that you contribute to the total cost of the purchase.
- A down payment of just a couple thousand dollars can get you a head start on your car. If you don’t have a certain amount to put down on your home loan, however, you might find yourself paying private mortgage insurance (PMI) on the lifetime of the loan.
- Depending on your credit score, the bank and other factors, PMI could cost between 0.5 percent to 1 percent of the total loan amount.
- Most banks require at least a 20 percent down payment before they will waive the need for PMI on the loan. And most homes in this area cost about $1,000,000, so that means a buyer would need to bring $200,000 to the table in order to avoid PMI.
- Some government organizations and lenders try to incentivize first-time homeownership by offering free down payment grants or loans to qualified buyers. Depending on your age, income level, credit score and other factors, you could qualify for free money to wrap into your down payment; a full rundown of programs is available at downpaymentresource.com.
2. Not getting prequalified for a loan
Between the amount of money you plan to put down on the home, the potential PMI and other cost factors, your monthly cost could be significantly more (or possibly less) than some of those calculators will show you online.
This means you will need to talk to a mortgage loan officer and submit documentation, from your monthly pay stub to your credit score, in order for that loan officer to tell you how much money you can get for your home loan. It’s a little bit painful, but the prequalification letter you’ll get as a result is much more credible than a quick qualification you can pull up on an app -- and that means sellers will take it more seriously when it comes time to put in an offer.
3. Not finding a qualified real estate agent
It’s so easy to find homes online these days that you may wonder why a real estate agent is even necessary. After all, isn’t the hard part -- finding the place you want to buy -- something you can do yourself.
Not only can an agent make sure you have access to listings the second they hit the MLS, but a qualified agent should also provide expertise on the area where you want to move. Whether that’s feedback on who can help you with homeowners’ insurance quotes to warnings about some of the frequent pitfalls of owning a home in that neighborhood in particular, a qualified agent is an invaluable resource.
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4. Not understanding what’s fixable and what’s a deal-breaker
Those drop panels in the ceiling are hideous, and you can’t imagine how anyone can fit into that small bathtub. Are those annoyances that can be fixed or deal-breakers that mean you should pass on the property entirely?
None of these mistakes will keep you from buying a home of your own -- but they could delay the process and cost you hundreds (if not thousands) of dollars at the end of the day. But if you’re able to avoid them, you’ll be signing the closing papers on your dream home before you know it!
