Buying a first home is exciting, stressful and, sometimes, frustrating. Much like many other issues, first time home buyers succumb to “newbie” errors in budgeting sufficient funds to meet a homeowner budget.
There are common mistakes first-time home buyers make on a regular basis. While understandable, these errors can be costly. Avoiding these mistakes can save buyers thousands of dollars and improve their sleep quality. Consider these five typical errors first-time buyers make and avoid them.
Lacking Knowledge of “How Much” House They Can Afford
Everyone wants to own their “dream home”. A first home, however, seldom has all the features of a young buyer’s dreams. Before shopping for a first home, understand the price ranges for houses that you can afford. Also, spend more time researching financing options and how debt ratios have a greater effect on mortgage approvals than evaluating home styles, square footage or design preferences. Learn how much house you can afford, and then evaluate the home-for-sale options.
Assuming Foreclosed and Short-Sale Properties Are Always Fabulous Deals
Everyone wants a deal. Unfortunately, the real estate industry is like a massive flea market. All properties are worth only what others are willing to pay for them. Certainly, many foreclosed properties and short sales may be wonderful bargains. However, professional real estate investors know there are no “free lunches.” Many of these properties have serious structural, HVAC, plumbing or other problems. Do not assume anything.
Selecting the Wrong Buyer’s Real Estate Agent
Seller’s agents have a legal responsibility to negotiate the “best deal” (as in higher price) for home sellers. Buyer’s agents have the same fiduciary responsibility to represent only the buyer’s interests, trying to get the “best deal” for them. If you have no trusted referrals for superior agents, search the National Association of Exclusive Buyer Agents to find experienced local representation. Picking the wrong buyer’s agent to protect your interest could cost you thousands, if not hundreds of thousands of dollars, in the long-term.
Underestimating the Real Cost of Home Ownership
This common mistake is probably the most annoying, aggravating and budget-busting error of all. If you’ve been renting for some time, you may be accustomed to calling your landlord when things go wrong. Buying your first home eliminates this option. The onus and cost is on you, the homeowner. Even if you opt to buy a brand-new home, things will go wrong. Don’t bother staring at the phone. Solving the problem is up to you. There is usually a cost to fix these problems. Few people are master electricians, plumbers or construction professionals all-in-one. Plan to contribute to a fund for emergencies and repairs. You’ll need it.
Not Including a Contingency Clause in a Sales Agreement
Many standard Purchase and Sales Agreements now contain contingency clause language, but some do not. Sellers would prefer this language didn’t exist, buyers cannot do without it. Particularly important is mortgage contingency language and dates. Should you not receive the mortgage you need, the purchase is impossible (unless you have a bank account balance that rivals those of the wealthiest Americans). However, without this clause giving you a way out, sellers have the right to retain your deposit, and any other funds you may have expended for things like appraisals, home inspections and land surveys, are gone forever. Be sure there is a mortgage contingency clause in your Sales Agreement with reasonable dates before you sign on the bottom line.
The Bottom Line
Avoiding these common first-time buyer errors will save you thousands and help make the first-time home buying experience less stressful. Also, don’t forget to budget sufficient dollars to cover moving expenses when you close on your first castle!