Mistake 10: Not Budgeting for Your First Home Loan
Allison Michael Orenstein/The Image Bank/Getty Images Figuring out your budget ahead of time will save you headaches in the future.
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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. This entails listing all your income, including wage and investments as well as all of your expenses, from monthly payments to food and even hair cuts. To figure out how much you can afford per month on something like a mortgage, it's a good idea to measure your budget in what you make and spend in the time span of a month. But just a month of income and expenses will only be a snapshot of your financial picture. Also look at a few months of your financial activity to consider non-monthly expenses like vacations, wedding and birthday gifts.
Mistake 9: Not Performing a Credit Check Before Homebuying
Protecting your credit means more than shielding your information, but also actively making sure your potential lenders are seeing the right facts.
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So you thought you did away with grades and competitive scoring when you finished school? Turns out, a three-digit summary of your creditworthiness may be the obstacle or the key to your perfect home. Despite your present sense of financial responsibility, if you have a dark past of not always paying bills on time, it could mean you're going to have a very hard time securing a good loan during your house hunt.
Mistake 8: Not Understanding Housing Market Trends
When there are more homes for sale than buyers, prices typically go down, and this is a smart time to buy.
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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.
Mistake 7: Not Getting a Preapproved Home Loan
Getting pre-approved will mean that more sellers will take your interest and especially your bids seriously.
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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.
Mistake 6: Not Considering Home Resale Value
Put yourself in the seller's shoes and consider how easily you'd be able to turn around and sell the house yourself.
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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.
Mistake 5: Blindly Following Your Realtor's Advice
Get familiar with the role of a real estate agent to understand what his or her motivations and take their words with a grain of salt.
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As we've seen, first-time homebuyers have a lot of confusing matters to deal with. From fixing credit to trying to figure out complex housing market trends, they have a lot on their plate during what is already a stressful financial decision. This is why real estate agents, who try to facilitate the process, appear as godsends to some buyers.
Mistake 4: Trusting a Verbal Agreement When Homebuying
A handshake won't hold up in court if a seller decides to go back on his word, but a signed agreement will.
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You've jumped through all the hoops -- you did the research, got pre-approved, found the house you want and put in an impressive bid to show you're serious. After some back-and-forth haggling, finally you get the call -- the seller has accepted your bid! You crack open a bottle of bubbly to celebrate all your hard work.
A day later, you rush over to finish off the paperwork only to find when you get there that the seller has backed out. A few hours after the seller agreed to your offer, another buyer swooped in and outbid you. You've fallen for the oldest mistake in the book -- trusting a verbal agreement.
Mistake 3: Forgetting About the Hidden Costs of Homebuying
Fees often pop up in the fine print of numerous agreements homebuyers sign.
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If everything goes according to plan, you may be closing a deal and reaching the end of your homebuying journey. Even here, you could make the common mistake of thinking all of this will be painless. Closing costs, which include several fees that cover final housekeeping matters, are just one example of hidden fees that many first-time homebuyers neglect to prepare for. They can cost you a few thousand dollars or up to 5 percent of the purchase price [source: Greary].
Mistake 2: Skipping the Home Inspection
Getting a professional to inspect a house is the only way to ensure there are no major problems.
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We learned in Mistake #4 not to take someone at his or her word until you get a written, signed agreement. Likewise, when you're buying a house for the first time, you can't just depend on asking the seller or real estate agent about problems with the foundation or plumbing. Not only might the seller or agent be less than candid about the answers, but chances are they're not construction experts.
If you skip the step of getting your own professional inspection, you risk living in a home that costs almost as much in repairs as you paid for it in the first place. As much as you're attracted to unique fixtures and structures in old houses, they may turn into a major liability.
Mistake 1: Falling In Love with a House
Who ever loved that loved not at first sight? But beware what a home's love spell can do to your wallet.
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Falling in love can be an amazing thing. It makes you happy to be alive and allows you to see the inner beauty of another. Falling in love can also be a terrible thing. It makes a fool out of you and blinds you to someone's faults until the spell wears off and it's too late. Likewise, although it sounds ideal, falling in love with a house could be your worst financial mistake. It easily leads to a Mr. Blandings syndrome, where you stubbornly ignore the solid advice of friends and experts.
