You’ve saved up a decent sum of money for your down payment and started driving through neighborhoods looking for that perfect abode. Must mean you’re ready to go full-force into the process of buying a first home, right? Maybe not.
Many of the most important steps to buying a home entail far more than just picking out a paint color for the bedroom or deciding on what type of grass you’ll put in the front yard. In fact, the first lesson of your first time homebuyer 101 might just be to look beyond those “sexier” features of a house and dig down into the details of this property and ask yourself a few questions:
Does this deal make sense for me? Do I know everything I need to know before moving forward?
And though it’s impossible to avoid making any mistakes when buying a first home, there are actions you can take to minimize your missteps and get the best deal on your purchase. With that, here are three key mistakes to avoid when buying a home for the first time.
SKIPPING THE HOME INSPECTION PROCESS
As CNBC reported, according to Bill Loden, President of The American Society of Home Inspectors, about 10 percent of homes purchased do not go through inspections. Most of the time, the reason behind this is that the buyer wants to reduce costs, as a home inspection usually costs a minimum of $450 depending on the size of the property.
Or, in some cases, a homebuyer will have a friend or colleague simply walk through a property with a home inspection checklist and call it “good.” This is one of the biggest mistakes a first time homebuyer, or any homebuyer, can make. A proper home inspection provides huge benefits such as:
An interpretation of what you see: Provided you choose an independent and competent inspector (one that did not come from the recommendations of the selling agent), you are bound to get a 101 on the property you’re about to purchase. Are there cracks, odd smells, or water stains that you see? These experts will be able to explain to you what caused those things and how to repair them.
Financial savings: These are professionals with years of experience under their belts. Their eyes are trained to detect major and minor problems that you need to fix should you purchase the property. They can give you an estimate of how much these repairs would cost. Are they minor problems? Or are they too big you would need to shell out a huge amount of money later on?
2. Not researching the neighborhood
Yes, the house looks perfect. It has the lawn you’ve always wanted, the exterior you’ve dreamt of since you were a kid, and the right number of bedrooms to raise a family.
Most homebuyers stop there. Only later do they find out — after moving in — the neighborhood doesn’t have any good schools or that it’s a high-crime area.
During your homebuying research, make sure you spend time studying the community. Ask questions about nearby schools, crime rates, churches, malls/convenient stores; all of these should be part of your research.
Pick up a local newspaper and find out what’s going on in the neighborhood, both good and bad. Visit neighborhood schools to see first-hand what they’re like. Check out neighborhood social networks, such as NextDoor, to get a finger on the pulse of the community — before you apply for that first time homebuyer loan.
3. Forgetting hidden costs
Most homebuyers are fairly well-prepared for the initial down payment and monthly mortgage when they buy a house. They’ve debated the pros and cons of buying vs renting a home. They might even have explored the options allowed by a first time homebuyer tax credit.
However, these are not the only costs to consider when purchasing a house. There are plenty of hidden costs you may have not taken into consideration, costs that can end up overwhelming you.
Before closing any deal, do plenty of research — whether online, consulting your agent, or asking trusted advisors who’ve been through the process before — to get a clear rundown of costs that may lurk in the homebuying process.
Property taxes: Expect to pay this as long as you own the property. Your property tax is assessed based on its current value, as well as your state’s laws, and is subject to change depending on its increase and decrease in value over time. Homeowner’s insurance fees: Insurances are there to protect your home against damages brought, for instance, by fire or natural disasters. But they can ratchet up the cost of owning a house significantly.
Closing costs: Closing costs are fees you pay upon closing the transaction (the point of which the property is transferred to you). These fees include: Escrow fees, appraisal fees, pest inspection fees, and legal fees, among many others. Homebuyers are expected to pay anywhere between two to five percent of the purchase price of the home in closing costs.
Repairs and maintenance: It’s hard to find a house that is set to move into at the point of purchase. If you’re renting, any repairs can be handled by your landlord. However, now that you own a house, you need to do it yourself. These repairs may get costly (e.g. new roof, new furnace, etc), so it’s best to financially prepare for them.
There’s no question that buying a first home is an exciting time and one that should be celebrated. But after the ribbons have been cut, and the boxes unpacked, there can be real serious financial consequences if you don’t take the proper steps to ensure the property purchase is a good one.
By researching your would-be neighborhood, doing a proper inspection and making yourself aware of all hidden home purchasing costs, you’ll boost the chances of you not just enjoying your new home, but resting in the knowledge you’ve made a sound, financial decision.