6 first-time homebuyer mistakes that are especially costly

6 first-time homebuyer mistakes that are especially costly

If you're a first-time homebuyer like the person pictured you want to follow these tips to avoid first-time homebuyer mistakes

Being a first-time homebuyer, while exciting, can feel overwhelming just as easily. All the paperwork, home touring, and financial math can wear you down into making first-time homebuyer mistakes that can prove consequential.

We’ve developed a list of the 6 most costly first-time homebuyer mistakes below and explain how they will impact you now or in the future.

Most costly first-time homebuyer mistakes

Not researching real estate agents

Researching real estate agents before picking one is crucial. To get the best deal and find the right home for you requires an agent with experience and a good reputation.

To research local real estate agents:

  • Check your local real estate board website to verify licenses and access agent profiles with sales history
  • Read reviews on platforms like Zillow, Yelp, Google, and Realtor.com to see what past clients have said about an agent
  • Check out their website to learn about their experience, areas of expertise, and marketing strategies
  • Interview several agents beforehand over the phone or in person to discuss your needs, ask questions about their process, and assess their personality and communication style
  • Show up to open houses hosted by different agents to get a feel for their presentation style and knowledge of the property

By doing these things, you can feel better about trusting that the real estate agent you land on will help you negotiate a better deal on your new house. You’ll also likely have a better overall experience because you’ve chosen someone with a communication style you like and they’ll have a better idea of what you’re looking for.

Waiving an inspection before closing

When you rush into things you’re likely overlooking something along the way. Waiving an inspection has the potential of being one of the most costly first-time homebuyer mistakes you can make. There are so many costs that can be hidden in a house that only an experienced home inspector can unearth. If you waive the inspection and agree to purchase the home, you are now responsible for whatever needs repaired.

Why you should have an inspection of houses you may want to purchase:

  • Even if a house appears in good condition, an inspection can reveal underlying issues that the seller may not even be aware of, leaving you responsible for costly repairs after purchase
  • If the inspection finds problems, you can use the report to negotiate a lower price or ask the seller to make necessary repairs before closing
  • In some cases, waiving inspection could limit your legal recourse if major issues are discovered later

Not comparing mortgage lenders

A mortgage is one of the biggest financial commitments you’ll make in a lifetime. Therefore, it’s important to do your due diligence and compare all of your options thoroughly. The difference of a half of a percentage point in your mortgage payment can mean tens of thousands of dollars in savings across your mortgage. According to a 2023 report by Consumer Financial Protection Bureau, payments on the same sized loan across different lenders could vary by as much $100 per month or more.

In terms of first-time homebuyer mistakes, this could be among the worst in terms of financial impact.

How to compare mortgage lenders:

  • First, research what type of mortgage is right for you
  • To get an accurate quote from lenders, you’ll need your last two years of tax returns and W-2s, two months of bank statements, records of all your debt, statements for any investments, including brokerage and retirement accounts, renting history, divorce, child support and alimony documentation, if applicable, and records of bankruptcy and foreclosure, if applicable
  • Compare mortgage rates online
  • Talk with financial institutions you have relationships with and see if they can help you beat these rates since you already have accounts with them
  • Consider talking with mortgage brokers who have relationships with many lenders and wholesalers who don’t sell directly to consumers
  • Don’t forget to compare closing costs, escrow expenses, prepaid interest, and any third-party fees

Not investigating down payment assistance programs

Another one of the most common first-time homebuyer mistakes is not looking for down payment assistance. There are government programs that offer down payment assistance for first-time homebuyers among other forms of aid. It often comes down to the area you are looking to purchase your next home. Consult with your real estate agent and do some searching on your own to see if there are options for you.

One such program is the single family housing guaranteed loan program in which you do not have to pay a down payment at all. To qualify, you have to meet their income eligibility, personally occupy the dwelling as their primary residence, be a U.S. citizen, and the home must be in an eligible rural area.

Not considering monthly payment

Financial experts say your monthly housing payment should not be more than a third of your income. However, one of the most common first-time homebuyer mistakes is a house hunter making an offer on a home without knowing what the monthly payment will be. This leads to either the sale falling through or the homebuyer being “house poor” – a term used to describe a homeowner who spends too much of their income on housing costs leaving little money for living expenses, savings, and emergencies.

Always check with your mortgage lender before making an offer what your monthly payment would be on that price. Then, plug that into your monthly expenses and consider if it is affordable to you.

Not factoring in private mortgage insurance

Private mortgage insurance is a fee ranging from 0.58% to 1.86% you have to pay your lender for putting less than 20% down on a home purchase. This mortgage insurance doesn’t protect you at all. It’s to protect the lender from a financial loss in case you’re unable to repay your loan.

You’ll have to do the math to decide whether it’s worth it to you to make the 20% down payment to avoid this fee, if it’s feasible for you to do so. Don’t forget about the warning we just laid out about being house poor. You need to make sure you have enough savings in case of emergency. So, don’t empty your savings simply to avoid PMI. Maybe you can pay just a little extra down so PMI falls off earlier (you stop paying it once you reach 20% equity).

Avoid first-time homebuyer mistakes with an agent from Partin Real Estate

Our agents at Partin Real Estate have the experience and knowledge of the local housing market to help you avoid first-time homebuyer mistakes! If you’re thinking about purchasing your first home, give us a call today.

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