Buying your first home might be a bit scary because you don’t know what the heck you are doing! But, it doesn’t have to be a nightmare. Here are five biggest mistakes that first-time home-buyers makes (don’t worry, lots of people make this mistake).
Tip # 1: Not Budgeting for Your First Home Loan
Homeownership may seem like a wise alternative to renting, but it’s not necessarily going to be cheaper — at least in the short term. If you’re like most people and need to take out a loan to buy a house, you’ll have to make monthly mortgage payments. It’s a common mistake to assume what you can or can’t afford. Before you make this decision, take a good, hard look at your income and expenses to find out the truth about what you can comfortably afford to pay every month for the next 15 or 30 years.
The easiest way to do this is to make a budget.
Tip #2:Not Getting a Preapproved Home Loan
It’s easy to fall into the trap of thinking you first find the house you want, and then you can start thinking about the loan process, especially if you’ve already taken care of your credit. However, it’s not quite that simple.
It’s a good idea to put yourself in a seller’s shoes. As a seller, you may be taking in several bids and trying to cipher through and compare them; you may not base it solely on amount. Were you to accept a suspiciously high offer, the buyers may not be able to live up to their bid. Once the buyer actually goes through the loan application process, he may not get as much financing as he hoped, or promised. As the seller, you’ve already put a lot of time and effort into selling your home, and you’d like to finish things up without too much hassle and delay — especially before those other, more legitimate-looking bids move on.
For these reasons, sellers prefer bids from prospective buyers who already are pre-qualified or pre-approved for a loan. Some sellers may refuse to consider you at all unless you’ve got a pre-approval letter from your lender. In addition, some realtorswon’t even show a property to a buyer without this pre-approval.
To understand what this entails, let’s look at the difference between being pre-qualified and pre-approved:
- Pre-qualified: Although it’s usually free, this process is very unofficial and sometimes unreliable. To become pre-qualified, you simply inform a lender of your own credit status, your income and assets, as well as your existing debt. Based on that information, the lender will give you a ballpark figure of what kind of loan they might offer you. Getting pre-qualified may give you some peace of mind regarding what you can afford. But because it’s primarily based on your word alone, it won’t mean much to a seller.
- Pre-approved: A pre-approval is more reliable and will consequently make you look more impressive to a seller. During the process, the lender actually verifies your financial and credit information. Based on this verified information, your loan officer will give you an idea of how much the bank will loan you. However, don’t bet the farm on this figure either — the lender isn’t legally required to live up to it. The terms can depend on you taking up their offer within a specific period of time, or upon an inspection of the home you want to buy .
Although getting pre-approved may require you to pay a fee, it may make the difference between getting the house you want or not. It can give you an edge ahead of another bidder’s offer, which has no pre-approval behind it.
Now that you’ve done your homework and prepared yourself as an attractive buyer, remember that a house is a long-term investment and takes thinking ahead, which we’ll talk about next.
Tip # 3: Not Understanding Housing Market Trends
Even with a clear idea of their own financial status — what they can afford and how trustworthy they will appear to a lending institution — many people fail to pay attention to the big picture. If you’re anxious to buy now just because of your own financial situation or restrict yourself to a particular location, you may not see the forest for the trees.
The housing market isn’t static — it fluctuates. Sometimes it favors those looking to buy — a buyers’ market. Other times it favors those looking to sell — a sellers’ market. To understand why these shifts happen, let’s look at the contributing factors, like supply and demand. Inhabitable or desirable housing can be scarce or in surplus. Low supply increases demand — and prices — to favor sellers. On the flip side, when supply is high and there are more houses on the market than buyers, the situation favors buyers. Other factors include interest rates, consumer confidence and the overall condition of the economy .
Keeping track of all these factors can be daunting, but you’ll find many websites, newspapers and magazines that organize up-to-date information for you. And don’t forget…YOU HAVE ME! #Vancityagent is here to help you with any questions or concerns you may have.
Tip #4: Not Considering Home Resale Value
As a homebuyer, the process of selling a house may not cross your mind yet. After making the difficult decision to buy your first house, you may even feel obligated to live there forever.
However, life is full of unexpected changes. Job transfers, family illnesses, falling in love with someone who lives on the other side of the country — any of these might call you to pick up and leave your beloved house behind at any time. Or, say you were to fall on hard financial times and your mortgage payments, which seem reasonable now, later become a major liability. If or when the time comes, will your house be easy to sell? And will selling it give you a nice sum to put down on another home?
You’re making an investment, so it would be a mistake to ignore these questions. When you are looking at particular houses, it may be a good idea to consider the preferences of other typical homebuyers — not just your own. Maybe this means choosing a home that has several bathrooms and a nice big yard even if you have no personal preference about these features. And it helps to know about the loud factory nearby. Although you may be a sound sleeper in the early mornings, your future prospective buyers may not be. It also helps to know if developers plan to improve the neighborhood soon, which may boost the value after you purchase a home.
When you’re shopping for a house, if you already know you want to resell it later, keep in mind that you’re taking a risk. If you’ve have seen house flipping shows, where nonprofessionals intend to buy, renovate and sell a home, you have an idea about how difficult and unpredictable selling a house can be. Don’t bank on the idea that you’ll come out ahead.
Tip #5: Forgetting About the Hidden Costs of Homebuying
Besides the cost of your home, there are several hidden fees and costs involved in finalizing the purchase of your home that most first-time home buyers do not account for. These fees can cost you a few thousand dollars or up to 5 percent of the purchase price.
While there are other fees you may pay in your home purchase, here’s a list of common fees you should expect to pay:
- Home Inspection: Don’t forget about the costs of getting a house inspection… you did get a house inspection didn’t you?
- Moving Costs: This is obviously not a hidden fee, but people often forget to add the moving truck and movers’ fee, into the budget.
- Appraisal Fee: When you apply for a home loan, the lender needs to make sure everything is on the up-and-up. They want to know if you are borrowing $700,000 for a $300,000 house. That’s why you send an appraiser to estimate the cost of the house you are purchasing, and you’ll pay a fee for this.
- Notary Fee: To get the business documents notarized, you will be asked to pay the fee for a notary.
- Homeowner’s Insurance Fees: Your lender will most likely require you to purchase homeowner’s insurance which may include additional fees.
- Strata Fees
- Property taxes: If the seller has already paid property taxes on the home, you may need to reimburse him or her . See if you qualify for any property tax exemptions and register for them.
Hopefully, if you tackle these mistakes that first time home buyers often make, you can a home-buying nightmare. If you have any questions or just curious to learn more about buying your first home, give me (Emily Lim) a call at 778-881-1286.