For many, buying a first home is one of the largest and most impactful financial decisions of their lives. As exciting as the house-hunting process is, it can also be incredibly intimidating if you don’t know where to start. If you are ready to take the next step into homeownership, avoiding these common homebuyer mistakes can help ensure you feel confident about your purchase:
1. Buying a home you can’t afford
Before you even start the house-hunting process, it’s essential to figure out what you can actually afford. It’s not uncommon for lenders to preapprove you for more than you need or would be wise for you to spend. Remember, the more money you spend, the better it is for them.
You don’t want your monthly mortgage payment to stretch you too thin – a higher mortgage means you have less money to spend or save each month. Consider what you spend each month on utilities, food and other reoccurring purchases so you know what you can afford to pay.
2. Putting down a small down payment
While it’s possible to buy a house today with a down payment as low as 3%, it doesn’t necessarily mean you should. If you’re nowhere near a 20% down payment, you may want to consider whether you need to buy a home at this time.
A small down payment means you’ll have very little equity in your home when you move in. If you end up having to sell, you’ll end up owing more than you can get out of the sale. Even if that doesn’t happen, you’ll need to pay private mortgage insurance (PMI) until your home’s equity exceeds 20%, which can take years. Saving for a down payment will get you a lower monthly mortgage and save you money in the long run.
3. Talking to only one lender
As a first-time homebuyer, it’s never a good idea to go with the first and only lender you meet for your mortgage. All lenders are different, so it’s essential to shop around with at least three different lenders to compare rates, loan terms and lender fees.
The more you meet with, the better basis you will have for comparison to ensure you are getting the best deal and the lowest rates available.
Homeownership is an exciting life milestone. By avoiding these common first-time homebuyer mistakes, you can ensure that you’re happy in your new home for years to come.
