First Time Buyers
If you have never purchased a home before, you may be confused about the real estate terminology used. We have tried to make this web site as informative as possible and we have included a glossary of terms to help you understand the process.
It happens every day. First-time homebuyers, partly due to enthusiasm, partly due to ignorance, make costly mistakes during the home buying process, like buying more house than you can reasonably afford.
Avoid these 6 common mistakes
made by first time home buyers.
- Mistake #1:
Not planning ahead. From the moment you think about buying a home, start planning. Home buying is a time-consuming and demanding process, and you need to utilise your management skills early on. Start by requesting a copy of your credit report. Carefully examine it for errors, and clean it up before you talk to a lender.
Are you currently renting? Check your lease for an early termination clause. If you'll be subject to penalties, try to time your closing with the expiration of the lease. During this planning phase, consider your life over the next five to seven years.
Do you plan to start a family? Will an in-law eventually move in with you? Will you be working from home? The number and layout of the rooms you require will depend on your answers.
If you qualify for financing based on a dual income, will you be able to survive on one salary in order to fulfill a long-range plan, such as one parent staying home to raise a child?
Once you've answered these questions, establish a plan. Then direct the process with reference to the plan. Don't let the process dictate to you.
- Mistake #2:
Failing to understand the home buying process. First-time homebuyers need to ask questions. Lots of questions. So choose advisors and legal experts who have experience working with the uninitiated and who are willing to explain the entire home buying process-from viewing homes to negotiating, to financing, to closing-in detail, and explain it again until you understand it.
- Mistake #3:
Getting in too deep. It can happen when homebuyers shop outside their budgets or over-extend themselves. What can you do to avoid getting hooked? Monitor your expenses for a couple of months. Then, based on your findings, develop a budget that truly reflects your lifestyle.
Talk to an advisor who can provide insight into new home expenses and taxes. Then revise your budget.
It's smart to ask your lender to pre-approve, rather than pre-qualify, you for a mortgage. Pre-qualification only tells how much you can afford. Pre-approval goes a step further. Your lender will thoroughly evaluate your application-including verifying employment information and financial disposition-then clear you for a loan of a determined amount.
Having your loan pre-approved gives you a sizeable advantage: Your new status as a cash buyer makes you more attractive to the seller.
Once you learn how much of a home you can afford, stay within your budget. Just because you've been approved for a certain amount, doesn't mean you'll feel comfortable with monthly payments at the high end of the range. Ask yourself if you can live with these payments. Do they fit your established budget? If not, rethink your spending limit. Your new home should give you great pleasure, not hold you hostage. By restricting yourself, you'll avoid disappointment later on.
- Mistake #4:
Being ruled by the heart and not the head. Street appeal can be a powerful force. To counter its effect, you must be objective. Brutally objective. Look at many homes, including an assortment of types of homes. When you view a property, list the positives and the negatives. Recruit a friend to view the home and provide you with objective feedback. Also, think about how long you plan to own the house. Would it be difficult to resell? List the negatives. Could you eliminate or reduce them?
- Mistake #5:
Buying into an unknown location. Don't stop your inspection at the property line. Examine the surrounding area. Is it safe, well maintained and moderately quiet? Is it convenient to work, schools and shops? Ask about zoning and that lovely forest of vacant land across the street. Could the highway nearby be widened in a couple of years? If you're not familiar with the area, ask friends and colleagues about it. Do your research.
- Mistake #6:
Signing without understanding the financing. First-time homebuyers have to contend with an assortment of mortgage types and the associated jargon. Shop around and compare. When you decide on a lender (a bank, your credit union, or a mortgage lender) and a mortgage, get every detail in writing, in particular, the lock-in rate, points and fees. And request a copy for your file.
Inquire about prepayment penalties. Have the lender attach an addendum to your contract that specifies that no penalties will be imposed for prepaying the loan. This step could save you a good deal of money.
Before you get to the table, read all the documents related to the purchase of the property, and have a professional review them. You're signing a binding, legal document. Make certain you understand the conditions of the loan. Learn from the mistakes of others. It's the best way to ensure a first-time homebuyer a good night's sleep.