Buying your first home can be a stressful experience. As a first time home buyer, you want to make sure to do some research before you jump in head first. We have compiled a list of things to avoid when you are a first time home buyer.
1. Thinking you won’t qualify for a home loan. Many potential first time home buyers don’t even try to purchase a home because they think they won’t qualify. There are a lot of first time home buyer loans that are designed specifically for the first time home buyer. If you are interested in purchasing a home, check with a few local lenders to see if you qualify. The worst they can say is no.
2. Not getting pre-qualified before you start searching for a home. First time home buyer pre-qualificationThe last thing you want to, as a first time home buyer, is to start looking for a home before you know if you are pre-qualified. If you don’t get pre-qualified you can oversell yourself, sell yourself short, or miss out on the home of your dreams. You may be looking for homes out of your price range without knowing what your pre-qualification amount. You could be looking for homes that don’t meet your needs, but you may qualify for more. The market is moving very quickly right now, and there is a lot of buyer competition out there. If you are not pre-qualified you could miss out on a home because of other pre-qualified offers. A seller isn’t going to accept an offer without a pre-qualification letter.
3. Not interviewing several lenders. Getting pre-qualified for a loan isn’t the same as getting qualified for a car loan or credit card. You can rate shop several lenders during a short period of time, and it only hits your credit hard one time. The other hits are soft hits. Not all lenders are created equal. Their rates, fees, programs, and service are different. First time home buyer’s should interview several lenders to see what programs they provide. Sometimes a first time home buyer loan may not be your best option. You will want to speak to a lender to see what Home loan best suits your needs.
4. Choosing a lender that doesn’t do a thorough verification of your credit, employment, and income up front. Some lenders hand out pre-qualifications to first time home buyers like candy. They don’t thoroughly check their credit or finances before writing a pre-qualification letter. You may not truly be pre-qualified for a loan. Your contract could potentially fall through because of financing.
5. Making large purchases or loans after getting pre-qualified for your home loan. Once you get pre-qualified, your lender should advise you not to make any large purchases, loans, or credit cards. This will affect your credit and debt to income ratio. It can cause you to lose your qualification for your home loan.
6. Changing jobs or changing your residence after your pre-qualification. If you change jobs or residence after your pre-qualification, for your first time home buyer loan, it could potentially affect your approval for your home loan.
7. Not being 100% truthful, or accurate, about your income, assets, or bank statements. If you are not truthful about the amount of money you make, the source of your money, or any additional loans or payments you make monthly, it could affect your home loan approval.
8. First time home buyers not budgeting for unforeseen expenses. Out of pocket expenses for your first home include the Earnest Money Deposit which is generally 1% of the purchase price of the home. The home inspection is around $350-$450, depending on the size and age of the home. The appraisal is required by the lender and is generally $450-$500. If a home is flipped within a year, and is sold for over double the original purchase price, the lender may require two appraisals. If you want to test for radon, a radon inspection is not included in a regular home inspection. Additional inspections could be a structural inspection, mold inspection (if found during the home inspection), well inspection, and any other inspections the inspector may recommend. Closing costs are some other out of pocket expenses you may incur during your purchase. Closing costs are generally around 3% of the purchase price of the home.
9. Not getting a home inspection. Home inspections are not required, but they are definitely recommended. Not getting a home inspection is a bad idea that first time home buyers may make to save some money. If you don’t get a home inspection it could mean trouble down the road. There is an inspection period of 10 days after ratifying a contract on a home. You are able to inspect the home for major defects, and request repairs or credit toward closing costs from the seller.
10. Not understanding your Realtor’s role. Your Realtor is responsible for assisting you in finding your home, writing the contract, and guiding you through the home buying process from beginning to end. A Realtor is not an attorney, tax advisor, lender, surveyor, home inspector, structural engineer, appraiser, or any other service provider. If you ask a Realtor about anything to do with another field of expertise, they should refer you to an expert in that field. They legally can’t comment on such matters. They also can’t comment on crime, religion, demographics, or schools. What they can do, is provide you with the resources to find the information you are requesting.
11. Using a part time Realtor. Find out if your Realtor has another job. If they are not 100% invested into their career, they won’t be 100% invested into your purchase. The market is moving quickly, and if your Realtor is at their other job, you could miss out on the house of your dreams. If they don’t work full time they also may not have the experience or real estate market knowledge of a full time Realtor.
12. Not being realistic about what you can afford. Once you are pre-qualified you will have an idea of what you can get in the areas you are searching. You may have to compromise on some of your criteria to find a home.
13. Compromising on the important things. Even though you may need to compromise on some things, you don’t want to compromise on things that are very important to you. First time home buyers normally need to compromise on some things, but don’t compromise on major items you know will make you have buyer’s remorse.
14. Being indecisive. First time home buyers can tend to be indecisive. Know what you want ahead of time. If you are buying your first home with a spouse, or other person, make sure you are on the same page with your wants and needs. Being indecisive in a seller’s market can cause you to lose the home of your dreams.
15. Choosing a Realtor that doesn’t normally work with first time home buyers. First time home buyers tend to ask a lot of questions, and may take more time to purchase a home than a buyer who has previously purchased a home. A Realtor that works with a lot of first time home buyers will know what to expect, and will more than likely be more patient with the buyer.
16. Buying more home than you can afford. Just because you are pre-qualified for a certain amount, it doesn’t mean that you should buy a home for that amount. You don’t want to over extend yourself. Make sure you can afford the monthly payment with your current expenses.
17. Not knowing the current market trend. If it’s a seller’s market the inventory is low and the demand is high. Home’s will generally sell quickly, at or above, asking price. There may be multiple offer situations. Expect to possibly have to pay for a portion of closing costs. If it’s a buyer’s market, inventory is high, and demand is lower. You are more likely to get a better deal on a home, and negotiate closing costs into the contract.
18. Limiting your search. In a seller’s market when inventory is low, you want to keep your search as open as possible not to exclude potential properties.
19. Getting caught up in multiple offer situations. Sometimes first time home buyers can get caught up in multiple offer situations. This normally happened after a first time home buyer has lost out on a couple of properties because they weren’t aggressive enough. Don’t get caught up in a multiple offer situation, just because you want to win. Make sure you are making your offer based on market value and your criteria.
20. Not being aggressive in a seller’s market. If you are in a seller’s market and you find a home that meets most of you criteria, don’t hesitate to put a good offer on a home. If a home has only been on the market a few days with an open house scheduled over the weekend, you want to make the seller an offer that is good enough to prevent them from holding the open house. If it is a desireable property there will more than likely be multiple offers which will drive the purchase price higher.
21. Not researching things that are important to you. If schools, crime, and other criteria are important to you, make sure you do your due diligence when purchasing a home. If you are unsure about a school district, check the reviews, or contact the school to see if you can speak to the principal to take a tour. If crime is a concern, then you can search crime websites or contact the police department.
22. Using the seller’s agent. This is a big mistake that first time home buyers make all of the time. Sometimes they are unaware they don’t have to pay a buyer’s agent commission, and think they will save money by using the seller’s agent. When an agent represents both the buyer and the seller, it’s called dual agency. When an real estate agent has dual agency they cannot help the buyer or seller during any form of negotiation. This means during contract negotiations, repair negotiations, appraisal negotiations, or HOA inspection negotiations the agent has to step aside and let the buyer and seller figure it out on their own. While this is legal I personally don’t practice it, because I feel that the agent isn’t putting either client’s interests above their own.
23. Not thinking about resale. The average buyer stays in their home around 6-8 years. When making a home purchase you want to think about factors that could affect resale. You are buying your first home. It’s more than likely not your forever home. Think about things that could affect the home’s resale in 5-10 years.
24. Not getting title insurance. Title insurance can be part of your closing cost. It’s a few hundred dollars, but it protects you against monetary loss for defects on a title. Basically if someone has claim to the property or has a lien on the property that was missed during a title search it protects you from monetary loss.
25. Not asking enough questions. If you are unsure about something, ask. Your Realtor and other service providers are there to help you through the process. If they don’t have the answer, they should be able to research the answer for you. There are no dumb questions.
Richmond Home Sales
The views on this blog are that of my own and do not reflect the views of ClockTower Realty Group or their affiliates. The information on this blog is for first time home buyers in the state of Virginia. There may be information that is contrary to laws in other states.