Are you looking into buying your first home? Are you excited to create some equity after years of renting? Getting your first mortgage can be your most significant financial leap. Over our first 80+ years as a credit union, we have seen many success stories. Here are five common mistakes that we would like to see all first-time home buyers avoid.
Looking For A Home Before Getting Pre-approved
Being on the hunt for a home is a challenging experience, to say the least. Challenges arise at every stage, especially when you first decide to purchase a home. The mistake many first-time home buyers make is that they immediately start looking for homes, whether on Zillow, Relator.com, in their local neighborhood, or by contacting a realtor. The hunt is a fun experience, but it can also be detrimental. Chances are, you are overestimating how much house you can afford and developing a taste for homes that are out or your price range. Our recommendation for all first-time home buyers is to start the pre-approval process. By doing this, you are limiting the risk of setting your sights too high.
Purchasing Your Pre-Approved Amount
When you are pre-Approved for a certain amount, that is how much you can afford based on your debt-to-income ratio. Often, utilities and other day-to-day expenses are not factored in. By doing this, you risk your ability to build your savings, retirement, or emergency fund. Saving for these three isn't crucial in purchasing your first home, but they are essential keys to the rest of your life, so before you buy a house that forces you to stop saving, factor those in as a necessity.
Draining Your Savings For A Down Payment
The down payment on your first home can be very intimidating. Your savings account, full of all your hard work and effort over the years, is one of the few sources you can use for a down payment. Many first-time home buyers are tempted to use their entire savings account, attempting to pay less in interest and per month on their mortgage. Imagine losing your job a few months after buying your first house and depleting your savings. Without having that cushion in place, you can be forced into things that can be detrimental to your financial success, like foreclosure and bankruptcy. A standard tip is to have at least three months of expenses as a safety net in case an issue arises.
Not Planning For Closing Costs
Many first-time home buyers forget about closing costs during the process. These fees include your appraisal, origination fee, property taxes, and many more. On occasion, these can add up to a large amount of your down payment. The key is researching the closing costs you expect and factoring them into your down payment. Doing this can help you manage stress on closing day by avoiding a significant, unexpected expense.
Underestimating the Costs That Come Along With Owning a Home
Research was crucial in your early life, and it is even more critical as you are making significant financial moves. How much will your utilities be? How much will my homeowner's insurance policy cost? Will I need more furniture or new appliances? These thoughts are often too late and end up costing you more money, or you must take out another loan to pay them. First-time home buyers forget these because they are accustomed to renting, where the landlord or the maintenance crew takes care of it. Our advice is to fit all the costs associated with owning a home into your monthly budget, as covered last month in our P1FCU Blog.
To all of you who want to buy your first home, we are here to help. We understand that it can be a very challenging, stressful, and impactful decision. With these five common missteps, we hope to get you started in the right direction.
