Even with the advent of cryptocurrency and NFTs, a majority of Americans with enough money will invest in a house without thinking much. This is the effect of one of the most volatile markets in our economy. The COVID-19 pandemic has done much damage to it, but with extensive vaccination, things are taking a turn for good. If you are in the market for the first time to buy a house, here are some of the potential pitfalls you must avoid getting the best offer.
What mistakes do first time home buyers often make
1- Your Financial Position
When buying a house, you are pledging to pay a large sum of money with equal monthly installments (EMI). If your financial position is not sound, it is best to leave the house for the future and get a stuffed animal instead, to take your mind off of buying a new house.
Debt is the killer of dreams. And between choosing a perpetual debt or a temporary burnout, always choose the stuffed animal.
2- No Down Payment
One of the worst mistakes that people often make is not saving enough for the down payment. There are many benefits of putting down large ones in the beginning. Here are some of them:
- You get more equity in your house.
- Interests are much lesser when compared with the lower down payment.
- Lower monthly payments.
As a general rule of thumb, twenty percent of the price is considered a sufficient down payment. In practice, people pay much less. According to Zillow, paying five percent as a down payment has become a standard practice among new home buyers.
3- White Elephant
Another one of the mistakes every first-time home buyer makes is getting the wrong house for all the right reasons. It is important to figure out how much of a house they need before they start touring houses and getting pestered by agents. Lenders are happier to pre-approve a house that is too big for you. And you are only getting out of that whirlpool after moving out or selling.
It is hard to get along with a heavy mortgage and a big house that is costly to maintain on a monthly basis. So, take up a piece of paper and pencil and calculate your ideal square footage and stay true to it.
4- Market Rush
The economy is hard to understand and making a life-changing decision on only one factor can lead you down the rabbit hole. For instance, buyers rush to buy when interest rates are relatively low. In doing so, they forgo all other key indicators to research and the housing market and their financial standing.
Instead of supporting your conclusion with relevant data, it is best to let things cool down before you make your move.
Lenders give out a pre-approval to serious buyers. This is significant in accelerating your home-buying process. When you have that letter, the sellers know that you are serious about buying and that the paperwork will move much faster once your offer manages to break through the ceiling set by the sellers.
Before issuing this letter, a lender takes into account your assets, debts, income, and other key factors and you know where you stand in terms of returning that money over the decades.
6- Wrong Mortgage
Just like there are different kinds of houses and properties, so are the mortgages available for you to pick. Another slip-up by first-time buyers is to get the wrong mortgage.
There are two common kinds of mortgages depending on the time span:
- Thirty years mortgage with varying interest rates
- Fifty years mortgage with fixed interest rates.
The former is much popular among homeowners because of flexible EMI, but in reality, you are better off to get the latter one. It is because you will own your house in half the time and you would not have to pay too much interest on the loan.
7- Wrong Lender
Among the red flags you must avoid, a wrong lender is the most important one. According to experts, you must get reasons behind the recommendations of your lender. In the absence of trust and rapport between you and your lender, it is best to explore other lenders.
The best lender for you is the one who is not afraid to discuss all the nitty-gritty details with you. So, be careful when you start talking with your lender.
These are some of the mistakes that you must avoid to capitalize on your house purchase. By highlighting these slip ups, we have made it easier for you to save on your first home purchase.