Buying your first house is part of the American dream, however, it is an exciting, yet daunting experience for most. A home is usually the most expensive purchase a person will make in their entire lifetime, and because of that, it's important to be informed, educated, and under the guidance of a professional throughout the process so that you can make the safest and most rewarding choices with your hard-earned money.
Today we will discuss the most common mistakes that first-time home buyers make, and how to avoid them!
1) Not hiring a Buyer Agent
- For first time home buyers, hiring a buyer agent is imperative, especially given today's competitive market. Even for seasoned buyers who have bought and sold real estate in the past, a buyer agent is a necessary part of your team because they are a great resource, they will be your confidant and guide you through the real estate transaction by helping you manage the many moving parts such as assisting with your real estate search, coordinating showings, helping you strategically craft the best offer, and they will actively protect your best interests while getting you the house you want.
- Among the very many duties that a buyer agent performs, the most important one is listening to what you, the buyer, wants to achieve in real estate. What does your real estate goal include? A single family home – in the city – in the suburbs – in a rural area – need a nearby school – college town – first floor living – proximity to hospitals – etc. Your needs as a buyer are unique, and a buyer agent uniquely understands the market and can help you fulfill those needs.
- Buyer agents will make your search much more productive. There are many real estate search engines on the internet and many of them do not keep up with status changes so when an excited buyer inquires about a property for sale, they often learn that the property is already under contract. A buyer agent will create a search that provides accurate status information so that both of you are alerted as listings that match your criteria become available – or their status changes. This alone will remove a lot of frustration and headache.
- Buyer agents can also help you find financing. If you are moving to a new area, your buyer agent can provide some recommended lender resources in that area. They can also help you navigate the lending world for your unique home qualities. Obtaining a home loan for a house on a quarter acre lot with city water and sewer offers many loan options such as VA, FHA, and other conventional financing. But buying an antique home on 80 acres of land with a water source that is a natural spring in a rural town has fewer lending options. Your buyer agent can save you from wasting time and money that may otherwise be spent trying to get a mortgage from a lender who does not lend on this property type.
- Hiring a buyer agent to work for you is the BEST way to achieve a satisfactory and closed transaction!
2) Not getting pre-approved by a lender
- Since so many buyers are looking to change locations due to the ability to work remotely among other factors, the number of homes being sold in the Lakes Region of New Hampshire has risen dramatically over the last 18 months. This has created a lack of inventory while buyer demand persists. The competition is fierce. Sellers have the luxury of skipping over any offer that does not include a bank or lender letter proving that the buyer has the ability to buy! By having a pre-approval letter, it assures the seller that your offer is valid and that you have the funds and lender prepared to follow through on your offer. During these times, your offer is likely to fail without this.
3) Not fully understanding how much house you can afford
- When it comes to buying a house, your monthly payment consists of a lot of things on top of your mortgage. For example, the cost of homeowner’s insurance, potential Home Owner Association dues, condo fees, heat and air conditioning, energy, water, and the often surprising amount of real estate taxes, among other expenses. Real estate taxes are escrowed by the lender into the monthly payment. Depending on the town or city you live in, the monthly real estate taxes can vary widely (like by hundreds of dollars monthly depending on your zip code). Real estate taxes are a key component to your real estate search because they can make a big difference in your ideal home price.
- It’s important to understand all of your monthly costs that come with home ownership so that you can make sure the cost of your mortgage is something that doesn’t keep you up at night. Once you know this number, you can get the most bang for your buck when it comes to the amount of time spent searching for your home, at the price range that will work for you
4) Only getting one rate quote
- Speaking of determining the right mortgage for you, it’s also important to understand that there are different options when it comes to your rate quote, and it’s equally as important to shop for one that’s right for you. Mortgage lenders, like any financial institution, carry different rates, as well as closing cost structures, and discount points. By shopping and comparing rates, you may save yourself hundreds of dollars a year. Any mortgage applications made within a 45-day period are considered as one inquiry to your credit, so it’s also important to be mindful of this while shopping.
- Your credit is an important piece of you rate calculations. If you have excellent credit, you may be able to get a better rate. On the other hand if you have not so great credit, your loan options may be limited and your interest rate may be higher. It is all about the lender’s opinion of risk. It may be a good idea to sit down and review your credit for potential errors and take action to correct them before applying for a mortgage, in order to increase your likelihood of getting a better rate.
- Your buyer agent should have some great references for local lenders that will work with your home type.
5) Making a down payment that's too small
- This is a common topic of debate. Having a zero dollar or small down payment may sound enticing to a first-time home buyer, however the amount of your down payment is actually a lever for your monthly payments. The more you put down in the beginning, the lower your monthly payment. The less you put down, the higher your monthly payment. And whatever you don’t put down in the beginning, you pay interest on over time. Home buyers can end up paying hundreds of thousands of dollars in interest alone before their house is paid off, so it’s important to consider your present and future goals when making a decision about the amount of your down payment.
- You can use a simple online down payment calculator to play around different variations of down payments and interest rates to get an idea of how your down payment will affect your financial state today and 30 years from now. Using the mortgage calculator can help you understand how you can decrease your interest payments over time. If you have a 30 year mortgage, you can calculate the payment you would need to make to pay off your mortgage in 20 years or 15 years. Reducing the amount of interest you owe over time is a way to pay yourself and increase the equity in your property while decreasing the extra money you pay out in interest. Though no one has a crystal ball, and this may not be your forever home, how you choose to manage your debt can make a huge difference in your future.
- Keep in mind, a higher down payment will usually eliminate the need for down payment insurance, lowers your monthly mortgage payment, and may even score you a lower rate by having lenders compete for your business.
- In the end, it’s important to take all of these factors into consideration, and do your own research as well to determine the amount that right for you.
These are some of the most important tips we recommend to buyers, especially first-time ones. If you're shopping for a home in New Hampshire, reach out to our agents today who will not only be your confidants, but will help you make your home ownership dreams come true!