Excited about buying your very first home? You should be. At the same time, you should also be aware that is possibly the biggest investment decision that you could make in your life. This means that your excitement should be tempered by a solid foundation of research, as well as the right support while making a buying decision. Most importantly, this is not something you should consider as a DIY project. And much before you even short list a location where you want to look at homes, get a copy of your credit report, so that you know just where you stand when you seek a home loan.
With home prices steadily rising over the past couple of years, this definitely does seem to be a good time to think of investing in real estate. However, if you are a first time home buyer, regardless of whether you are looking at the property as your primary residence or just an investment, you need to make an informed buying decision. Here are some common mistakes that first time buyers make.
1. Not Having a Budget
One thing that the subprime crisis of 2007-2008 taught us is to not only set a budget but to stick to it, even when there are some really tempting offers. To set your budget, make a list of all essential expenses you need to take care of each month, including any ongoing loan repayments, vehicle costs, credit card payments, insurance payments, investments, monthly groceries and even eating out. You can do this by writing down each time you spend in a diary for a couple of months. You can include any annual vacations that you usually take in this. Now, subtract the total that you arrive at in terms of monthly expenses from your take-home pay. This will give you an idea of the mortgage you can repay without adding too much of a financial burden. Once you know the home loan amount that you can comfortably afford, you can decide on the price range of the homes you look at. Unless you have some sure shot way of increasing your income or reducing your monthly expenses, there is no point in looking at homes that are beyond this price range, it will only tempt you to make a mistake and end up with a home that you cannot afford.
2. Allowing Your Emotions to Make Decisions for You
Homes for sale are staged so beautifully that it is easy to get swept away. Failing to properly inspect the property could mean that you end up with a home that needs expensive repairs and completely busts your budget, without you realizing it. While it is important to fall in love with the home that you want to make your own, remember to check whether the place will be good enough for your needs with only some minor upgrades or whether it needs a big project that will add to the entire cost of the home. At the same time, you also need to maintain the right balance in terms of what you need. So, if you really need three bedrooms, don’t settle for two, thinking that you can another bedroom at some future date. Such remodeling projects can be very expensive or even not permitted under the local real estate regulations.
3. Not Hiring an Experienced Realtor
It isn’t easy to keep everything in check on your own when you are buying your very first home. This is why it is always recommended to hire the services of a realtor who is not only skilled and qualified but has experience in the locations that you are interested in. This means that they will be familiar with the going market rates, the rules and regulations, and more. They can not only help you negotiate a good deal but will also point out areas that you should inspect more closely and caution you against making an emotion-driven decision.
4. Not Checking Out Your Loan Options in Advance
Expert realtors will always advise that you get a pre-approval for a loan even before you start looking at homes. Once you know the amount of loan you qualify for, setting your total budget, understanding how much you can afford as down payment, and what kind of repairs and renovation you can agree to will all become much clearer. You are less likely to make a financial decision that you will live to regret at leisure this way.
As a last bit of advice, I would say that you should also think of your future when narrowing down your choice of homes. This not only includes things like considering whether the location is good to raise a family in but also to look into what lies ahead for the neighborhood, in terms of development plans, zoning laws, amenities, etc. All this information can be accessed through your realtor and will help you understand whether the investment you are about to make can be expected to grow in value with time.