Top 5 Mistakes First-Time Homebuyers Make

With home prices and mortgages at record lows, many first time homebuyers think it is the perfect time to buy their first home. For many it is the right time to become a homeowner, but there are a few common mistakes many first-time homebuyers make. Read our top 5 pitfalls below and learn how to avoid them.

Not Researching How Much House You Can Afford

Before you search the Internet and fall in love with kitchen layouts and neighborhoods make sure to talk to a qualified lender and get preapproved for a mortgage. Preapproval helps you focus on homes you can afford. It also makes you more attractive to a buyer because nothing is more frustrating to a buyer or seller than when a deal falls through due to lack of financing. The rule of thumb is to keep your basic monthly housing cost at or below 28% of your monthly gross income (before taxes and other deductions). Basic monthly housing costs include your mortgage payment, property taxes and homeowner’s insurance.

Underestimating the Cost of Owning A Home

Many new homeowners fail to realize the additional cost of repairs and upkeep to a home. Things can and will break over time, so consider the age and condition of a home before purchasing. Owning a home means increased utilities and items you never needed as an apartment dweller such as a lawnmower and ladder. It is a good idea to set aside roughly 0.5 to 1% of the purchase price every year for repairs and upkeep.

Failing to Find a Good Realtor

Navigating the path to homeownership is tough even for experienced buyers, so finding a good licensed real estate agent representing only you, the buyer, is important. Ask friends, family and co-workers for a recommendation. Make sure the agent has access to the Multiple Listing Service (MLS), a service that lists all homes for sale by most major brokers across the country. Commissions average from 5% to 7% of the selling price of the home and are split by the seller’s agent and buyer’s agent. Be wary of agents that try to sell you their own listing since they will earn the entire commission and will have to look out for not only your best interests but the sellers as well.

Assuming Foreclosures Are a Great Deal

Price-conscious first-time homebuyers are looking for a great deal and a foreclosure may sound like a good place to start. But just because a home was worth $350,000 when purchased 4 years agao, it doesn’t mean it is worth that much now. Home values have dropped an average of 19% across the country, with some areas like Phoenix, experiencing a whopping 49% drop. Keep in mind most foreclosed home have been vacant for months and are sold “as is” sometimes with no chance of inspection. You run the risk of the former owner not fixing something that breaks or vandals coming and vandalizing the home. Weigh the costs of fixing the home versus how much money you’ll save buying a foreclosure.

Upgrading Too Much Too Fast

You may have found the perfect house, but hate the kitchen counters so you spend $3000 to have granite installed. Then there are the new ceiling fans, blinds and paint. It quickly adds up but you justify it by thinking it will pay for itself by increasing the home’s value. That is not always the case in today’s volatile market. The best thing is to make a few changes every year so you don’t over extend your wallet.

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