6 FIRST-TIME HOMEBUYER MISTAKES TO AVOID
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Buying a home is one of the biggest financial decisions you’ll make in your life — and one of the largest sources of stress for many first-time buyers is the financing process. Unless you’ve done a ton of research, getting a mortgage can feel confusing or even a bit overwhelming. The good news is you can have a smoother and less stressful experience by avoiding these common mistakes: 1. Not understanding the full cost of homeownership As a first-time home buyer, you’re probably accustomed to the monthly cost of renting, which usually includes your rent payment, some of the utilities, and your internet and cable bills. As a homeowner, you’ll be responsible for additional monthly costs that may have been covered by your landlord. That includes things like water, sewer and garbage bills, monthly HOAs (if you’re buying a condo) and the cost of lawn care. You’ll also be responsible for paying property taxes and homeowners insurance. And don’t forget the cost of maintenance. It’s recommended that you set aside 1-3 percent of the purchase price of the home annually to cover repairs and maintenance. 2. Assuming you won’t qualify Many renters think they can’t afford to buy a house because they haven’t saved enough to pay a 20 percent down payment. But you might be surprised to see what kind of house you could potentially buy based on the amount you spend every month on rent. Try plugging some numbers into an affordability calculator to get a better sense of what you need — and how much you have. Or, you can talk to a lender and find out what you might qualify for. While 20 percent is ideal, you don’t necessarily need that large of a down payment to buy a home. There are loan programs that cater to first-time home buyers, such as the FHA loan, which allow for down payments as little as 3.5%. Even some conventional loans allow for down payments as low as 3 percent. And certain loans, such as VA loans for veterans and military or USDA loans for buyers in rural areas, don’t require a down payment at all.
5. Spending your entire budget When a lender provides a pre-approval or pre-qualification letter, they’ll typically include the maximum amount they will lend you. But just because a lender will let you borrow a certain amount doesn’t mean you should spend it. There are rules lenders follow to determine what you can borrow, such as the 28/36 rule, which says that a homeowner should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on overall debt. But buying a home also comes with significant upfront costs, such as the down payment and closing costs, so you’ll want to make sure you have savings left for emergencies and other unexpected expenses after you close on your new home. 6. Not researching down payment assistance programs Saving for a down payment is often cited as the biggest hurdle to homeownership for first-time buyers. But did you know there are thousands of down payment assistance programs in the U.S.? These programs typically offer “soft” second or third mortgages or grants which allow for zero percent interest rates and deferred payments. Ask your real estate agent or lender if there are programs in your area that you may qualify for. You can also search for down payment assistance programs on sites like the Down Payment Resource Center.