So you’ve saved, saved, and then saved again for that down payment on your first home purchase. You’ve read countless articles on how to select an agent, you’ve toured several communities, and even spent hours online doing research. You feel more prepared than ever, and now you’re finally ready to start thinking about making that piece of the “American Dream” a reality. But wait, before you make what will arguably be the most expensive purchase in your lifetime, make sure you avoid some common mistakes that, in the end, could save you some serious money and frustration. Here are five mistakes you’ll want to know you navigated around, as you pop open that bottle of bubbly in celebration of your first home purchase.
# 1. Not checking your credit report and score
You've clicked through hundreds of online listings, compared floor plans and square footage, and are eager to jump-start your search. But before you even think of setting foot in an open house, make sure you get a copy of your credit report. The cleaner your credit report and the higher your credit score, the more likely you are to be pre-approved for a mortgage at a low interest rate, which could save you hundreds each month on your mortgage payment. Review your credit report a few months before you begin your house hunt, and you'll have time to ensure the facts are correct and dispute mistakes before a mortgage lender checks your credit. You can access a free copy of your credit report at annualcreditreport.com once every 12 months.
# 2. Not getting preapproved
Once you've reviewed your credit report, it's time to work with a qualified lender and determine how much you can afford. As a first-time home buyer, you need to take the time to get an approval from a lender before looking at homes. This includes getting a credit check and giving your lender a copy of W-2s, pay stubs, and bank and brokerage statements. It’s all part of the preapproval process, and it can help you save time by looking for homes that you know you can afford instead of lusting after something out of your price range. It will also put you in a better position over another bidder with no pre-approval.
# 3. Not creating a long-term budget
One thing the housing crisis proved was that mortgages were given to buyers who clearly did not have the means to pay them back. To avoid making this mistake, create a budget before even starting your home search to determine just how much house you can actually afford. A solid, prudent guideline is to allocate no more than a third of your monthly household income to housing costs, which should include mortgage principal, interest, taxes, and insurance. There are several work sheets available online to help you figure out how your income, debts, and expenses affect what you can afford each month for either a 15 or 30 year mortgage loan.
# 4. Forgetting about the hidden costs
Although you accounted for the purchase price of the home, you didn’t factor in the cost of taxes, insurance, utilities, and fees. There are several hidden costs that first time home buyers all too often neglect to prepare for. A recent TD Bank Survey reported that millennials incurred "up to $5,000 in unexpected costs during the mortgage process." They can be anything from the closing costs to appraisal fees, escrow fees, homeowner's insurance fees, property taxes, and even moving costs. Another factor is the cost of repairs and maintenance. Unless you’re one who is handy at repairing and fixing things that suddenly stop working, you’ll find there are several items that could add up to a significant amount of money over time. To help avoid costly repairs, be sure you obtain a complete mechanical inspection from a qualified home inspector prior to moving forward.
# 5. Not researching your neighborhood
You just may have found your dream home, only to learn too late that your neighborhood is a nightmare. Or you may have children or are planning to have children in the near future, but you didn't consider the quality of the school districts or parks in the vicinity. You should ask yourself a number of questions during your home search, such as "Are there good schools nearby?" and "Do I feel safe coming home at night?" If schools are important to you, be sure to check them out personally. Speak with the principals or the parents waiting on the steps outside to pick up their kids. Learn more about the community by browsing through the local newspaper. This is a great way to find out about community events and what’s trending in a local area. Today's buyers can gather all sorts of neighborhood information from real estate blogs and websites, and you can rely on your professional realtor for answers to many of your questions. Although there are many mistakes that can be made if you’re a first time home buyer, learning what they are early in your preparation will help ensure smooth sailing as you embark on what many consider the ultimate purchase prize during our lifetime. If you’re thinking of making a move but are not sure you’re ready, then check out 5 Questions to Ask Yourself Before Moving .