Shopping for a home can be fun, exciting, exhausting, painful and frightening all at the same time. As a potential homeowner, your aim is to end up with a home you’ll love at a price you can afford. With all the challenges and decisions that have to be made, it’s rare that a first time home buyer goes through the process without making at least one mistake. Being in the Boston real estate market for as long as we have, we’ve helped hundreds of first time home buyers achieve their dream of owning a home. These success stories did not happen without obstacles along the way, and with all this experience we’ve been able to identify a few key mistakes that we see repeated by first time home buyers time and time again.
1. Setting an unrealistic budget
Without establishing how much house you can afford, you might be wasting your time and your agents time. It’s normal for the first time home buyer to be optimistic about what they can afford, and many forget to calculate common costs added to your mortgage such as PMI insurance for FHA loans, property taxes, and homeowners insurance. It’s important to use a mortgage calculator to figure out your budget before you start looking at houses. Nothing hurts more than falling in love with a house and learning that it’s out of your price range.
2. Making a down payment that’s too little
You don’t have to make a 20% down payment to purchase a home. There are loan programs that exist which could allow you to purchase a home with zero down or 3.5% down depending on conditions. In many cases this is the only option for a buyer, but for those than can afford to put more down they may want to consider doing so to save long term.
A larger down payment allows you to get a smaller mortgage, offering you more modest monthly house payments and drastically reducing the amount paid in interest over the life of the loan. For those that are putting off buying a home until they save up 20%, they are faced with the dilemma of rising home prices and mortgage rates. The right thing to do will vary depending on the individual, but making a small down payment doesn’t usually provide the greatest long term benefits for the buyer.
3. Emptying your savings
If you’re looking at buying a previously owned home, you are inevitably going to be faced with repairs at some point. In many cases, the homeowner’s insurance company will require a repair to be made before the buyer moves in. It’s advisable to have some cash saved after closing costs to cover the repairs that will inevitably come around. Lenders will most likely provide you estimates of closing costs, so make sure you know how much your going to need to close on the house if you need cash left over to cover repairs. Just remember that if you are going to buy the fixer-upper, be prepared financially to fix it up! Savvy home buyers will get estimates on future work to be done prior to buying a home, and even use that estimate to negotiate price with the seller as well as loan amount with their mortgage provider.
4. Not opting for first-time home buyer programs
Many first time home buyers don’t have a bunch of cash lying around to be used for the down payment and closing costs. But it’s important not to make the mistake of assuming that you have to delay the ownership in the process of saving up for a huge down payment.
There are numerous cheaper down-payment loan programs available for first time buyers, which includes state programs that provide down payment support and competitive mortgage rates for first-time home buyers. Surprisingly, in a recent survey, it was found that only 11% of millennial homeowners say they regret not making a bigger down payment, which means a majority felt ok with their loan even after closing on the home. It’s important to ask a mortgage lender about your first-time home buyer options.
Purchasing a home for the first time can be overwhelming and without a doubt, it isn’t without its share of potential pitfalls. When you work with the experts in Boston real estate, you can lean on our experience to avoid these common mistakes. Don’t fret the process, get with a team that can help guide you through the process and help you realize your dream of owning a home.