By Michael Davis
One of the most important, if not the most important purchase you’ll ever make in your life, is buying a home. The idea of spending hundreds of thousands of dollars of your hard-earned money can be an anxiety-ridden event. For first-time home buyers, the entire process can lead to cold sweats, shakes and outright physical pain.
Avoiding several crucial mistakes can ease the pain and make the entire adventure less stressful and more enjoyable.
Underestimating your down payment
One of the first things to look at and understand are your downpayment options. 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% to 1% of the total loan amount. Most banks require at least a 20% down payment before they waive the need for PMI on the loan. And most homes in this area cost about $300,000, so that means a buyer would need to bring $60,000 to the table to avoid PMI.
You’ll easily get pre-qualified
On many occasions, first-time home buyers go into the process thinking they have enough money on-hand to afford a luxurious home. Between the amount of money they plan to put down on the home, the potential PMI and other cost factors, monthly cost could be significantly more (or possibly less) than what some of those calculators will show online.
So, before you trust those “estimated monthly mortgage loan amount” numbers that you see popping up next to your potential new dream home on Zillow or a brokerage website, it pays to figure out what you can actually afford — and that means getting prequalified for a home loan.
This means you will need to talk to a mortgage loan officer and submit quite a bit of documentation, from your monthly pay stub to your credit score, for that loan officer to tell you how much money you can get for your home loan. It’s a little bit of work, 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.
Is a real estate agent necessary?
There are thousands of real estate websites out there that list homes for sale. They all claim to have the most up-to-date listings in the area. However, in many cases, that’s not the case. That home you just fell in love with online might be under contract before you can set up a time to tour it.
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 particular neighborhood, a qualified agent is an invaluable resource.
Not spending the night in the neighborhood
Something first-time home buyers may find unusual but valuable, spend the night, or several, in the neighborhood where you’re looking at homes. That’s right. See if you can find an Airbnb or another vacation-rental type of setup where you can stay for close to a week so you can try your new neighborhood on for size.
You’ll want to see for yourself if an 8 a.m. arrival time at work is still reasonable with this neighborhood’s commute. Where are the closest grocery stores, parks, recreation centers and biking trails? What are the overnight noise levels?
Not understanding what can be fixed and what’s a deal-breaker
The countertops are ugly. The shower is too small. Are these and similar annoyances fixable or do they mean the deal is off and it’s on to the next showing? This is another area where a good real estate agent can help. They see so many houses in various stages of repair and updating that they can show you where you can claim another foot or two for shower space (and help you figure out how much it will cost and who’s trustworthy enough to take on the job) or let you know that the countertops will cost a fortune to replace and perhaps there’s another option.
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!
