Buying a home can be an anxiety-ridden process, and that potential anxiety gets amplified for anyone who’s embarking on homeownership for the very first time. There’s so much to do and so much you don’t know that “being overwhelmed” hardly seems like an appropriate description of how it feels.
And even though you don’t want to scare yourself away from the entire process, you still need to be wary of falling into a few common traps that first-time buyers generally don’t avoid. If you’re aware of these five potential mistakes — and able to keep yourself from making them — then you’ll be saving yourself some significant stress on your home buying journey.
Mistake No. 1: Not understanding your down payment options
The biggest headache for so many first-time buyers is the down payment. If you’ve ever bought a car, then you’re probably familiar with the concept — it’s money that you contribute to the total cost of the purchase.
A down payment of just a couple thousand dollars can get you a head start on your car. If you don’t have a certain amount to put down on your home loan, however, you might find yourself paying private mortgage insurance (PMI) on the lifetime of the loan. Depending on your credit score, the bank and other factors, PMI could cost between 0.5 percent to 1 percent of the total loan amount.
Most banks require at least a 20 percent down payment before they will waive the need for PMI on the loan. For example, if a home costs about $300,000, a buyer would need to bring $60,000 to the table in order to avoid PMI.
However, there are loans that allow you to put as little as 3 percent down on the home ($9,000 for a $300,000 home), which may be more reasonable for a first-time buyer, especially if you can accommodate the annual cost of $1,500 to $3,000 in PMI into your monthly payment amount. And veterans could be eligible for zero-down loan programs with no PMI through the Veterans Administration (VA) loan program, so that’s something else to think about.
There’s one more thing to know about down payment options: Some government organizations and lenders try to incentivize first-time homeownership by offering free down payment grants or loans to qualified buyers. Depending on your age, income level, credit score and other factors, you could qualify for free money to wrap into your down payment; a full rundown of programs is available at downpaymentresource.com.
Mistake No. 2: Not getting prequalified for a loan
Between the amount of money you plan to put down on the home, the potential PMI and other cost factors, your monthly cost could be significantly more (or, possibly, less) than some of those calculators will show you online.
So, before you trust those “estimated monthly mortgage loan amount” numbers that you see popping up next to your potential new dream home on Realtor.com, Zillow or a brokerage website, it pays to figure out what you can actually afford — and that means getting prequalified for a home loan.
Rob Briggs can introduce you to a mortgage loan officer who will request documentation, including financial statements and monthly pay stubs. The loan officer can then tell you how much money you need for a down payment and what price of home you can afford to purchase.
It’s a little bit painful, but the prequalification letter you’ll get as a result is much more credible than a quick qualification you can pull up on an app — and that means sellers will take it more seriously when it comes time to put in an offer. Unless you are a cash buyer, you’ll have to qualify for a loan eventually anyway, so why not get the painful part out of the way?
Be careful, however. A bank might approve you for a loan amount that’s more debt than you can carry month-to-month.
Remember to consider that you’ll need to pay homeowners’ insurance, taxes and, possibly, flood insurance on your new property or PMI on your loan. Try to make sure you’re not setting yourself up for a total monthly payment that’s more than what you can afford.
Not only will this help you set your price range for the search stage, but it will also give you confidence that you — yes, you! — can be a successful homeowner someday soon.
Mistake No. 3: Not finding a qualified real estate professional
It’s so easy to find homes online these days that you may wonder why a real estate professional is even necessary. After all, isn’t the hard part — finding the place you want to buy — something you can do yourself?
Well, maybe. But the process of buying and selling a home is filled with 100s of details that need to be planned for and navigated to a successful outcome.
Rob Briggs and the Real Estate One team will ensure that you have access to listings the second they hit the MLS, and provide expertise on the homes and areas you are considering.
And there’s more. Rob Briggs and the Real Estate One team can help on everything from inspections, homeowners’ insurance quotes to warnings about some of the challenges of owning a home.
Above all, Rob Briggs and the Real Estate One team are dedicated to protecting your interests.
Mistake No. 4: Not understanding what’s fixable and what’s a deal-breaker
Those drop panels in the ceiling are hideous, and you can’t imagine how anyone can fit into that minuscule bathtub.
Are those annoyances that can be fixed or deal-breakers that mean you should pass on the property entirely?
This is another area where Rob Briggs and the Real Estate One team can help. They see so many houses in various stages of repair and updating that they can show you where you can claim another foot or two for bathtub space (and help you figure out how much it will cost and who is trustworthy enough to take on the job) or let you know that the ceilings are too low for any changes to make much of a difference. They can also give you an idea of what’s up to code and what simply won’t pass an inspection today, so you know what concessions to request as soon as you’re ready to make an offer.
In markets like Northern Michigan where entry-level homes are getting snatched up as soon as they hit the market, knowing what’s acceptable and what you just can’t take is a huge advantage — it’ll help you make a decision, with confidence.
None of these mistakes will keep you from buying a home of your own — but they could delay the process and cost you hundreds (if not thousands) of dollars at the end of the day. But if you’re able to avoid them, you’ll be signing the closing papers on your dream home before you know it!
