5 First Time Home Buyer Mistakes to Avoid
So you are ready to buy your first home?
Homebuying in general can be a scary ordeal, but for first-time homebuyers who are unfamiliar with the process, the challenge can be overwhelming. In fact, first time homebuyers are likely making the largest financial purchase of their lives and put simply, they don’t want to screw it up.
There are many things to do and an even greater number of things NOT to do when buying a home. A good real estate agent will guide a first time homebuyer throughout the process, but here are five mistakes that are absolutely critical to avoid as a first time homebuyer.
1. Falling in Love with a Home Before Getting Pre-Qualified
Let’s face it… searching for homes is fun. It’s easy to look at homes online and fall in love with great pictures before even stepping in a home. The Internet has made home shopping so convenient that many homebuyers often decide on the home they want to purchase before contacting a real estate agent or a lender.
However, falling in love with a home before getting pre-qualified for a mortgage is putting the “cart before the horse.” In other words, you may have set yourself up for disappointment if you can’t afford the home that you love.
As a result, if you are thinking about buying a home, contact the real estate agent you intend to use and ask for a lender recommendation. Get pre-qualified with the lender so you know how much home you can afford.
2. Making an Offer Based on Zillow’s Zestimate
Zillow is an awesome resource for home buyers. The web platform and app are easy to use and provide a wealth of information all in one location that is user-friendly.
However, while Zillow’s Zestimate can sometimes be accurate, it is really just an algorithm that computes a number based on homes sold in a radius around the subject property. As a result, the data can be skewed as the algorithm can’t account for things such as gated communities, local amenities, HOAs, and market trends. As proof that Zillow’s Zestimate is often incorrect, Zillow’s CEO had a Zestimate of $1,750,000 on his personal home. His home sold for $1,050,000, more than a third less than the Zestimate.
First time homebuyers who look to Zillow for price analysis could end up drastically overpaying for a home. This is where your local real estate agent will really dig into the numbers of comparable sales and make a recommendation for your offer price that accounts for all the market factors that Zillow’s Zestimate cannot.
3. Overlooking Closing Costs
Many first time homebuyers become so fixated on the downpayment for their mortgage that they often overlook closing cost expenses. In general terms, a homebuyer in Jacksonville can expect to pay 2.5% of the purchase price of the home in closing costs.
These closing costs include a home inspection, recording fees, note stamps, intangible tax on mortgage, mortgage origination fees, appraisal fees, underwriting fees, and HOA prorations, among others.
For example, on a $200,000 home in Jacksonville, FL, the estimated closing costs will be $5,000 for a financed home. As a result, it is important to understand and budget for these costs prior to making a decision to purchase a home.
4. Making a Major Purchase or Opening a New Line of Credit During the Loan Approval Period
Many first time homebuyers think that since they are pre-approved for a loan, they can now buy whatever they want or open up a new credit card to purchase things for the home. How can this be said nicely? DON’T!!!
Making a major purchase or opening a new line of credit can delay the closing of a home or even preclude the first time homebuyer from getting final loan approval to purchase the home. So… avoid buying that new car, big screen TV, or kitchen appliances until after closing.
5. Not Considering Resale Value
As stated previously, a home is likely the largest financial purchase most homebuyers will ever make. And since the homebuyer will likely be using some savings to provide a downpayment or pay for closing costs, it is important to look at a home purchase as an investment.
To properly look at a home as an investment, a first time homebuyer must consider the resale value of the property. Are home values expected to rise in the market? Is the home in a desirable location and neighborhood? What shopping, restaurants, and schools are nearby that would make the home attractive for future buyers? A real estate agent should be able to assist a first time homebuyer in answering these questions.
The Bottom Line
While buying a home for the first time can be daunting, an educated first time homebuyer is likely to avoid these mistakes. Additionally, a smart homebuyer uses a top real estate agent who partners with a lender to help first time homebuyers avoid these pitfalls.
Are you a first time homebuyer? Download our buyer’s guide to get more tips and information on how to purchase your first home.