Buying a new home is always exciting, but it’s especially thrilling for first-time homebuyers. As you navigate the homebuying process, you’ll likely discover there are a lot of moving parts, and it’s important to be prepared. The following tips can help you avoid some of the most common homebuying mistakes you may encounter along the way.
Mistake #1 – Waiting to get preapproved
Many sellers won’t accept an offer unless it’s accompanied by a preapproval letter. Not only that, but failing to get preapproved before shopping for homes may result in viewing homes outside of your budget. Save yourself some headaches and start the preapproval process early.
Note – Preapproval and prequalification are not the same thing. A preapproval is a conditional loan approval that takes into consideration your credit and income information. A prequalification is an initial estimate of what a lender may possibly loan you. It’s often worth obtaining a preapproval, as it will give you a better idea of what you can reasonably afford.
Mistake #2 – Getting in over your head
One of the most common mistakes first-time homebuyers make is spending more than they can afford. If we’ve learned anything from recent housing market volatility, it should be that it’s typically not a good idea to live “house poor.”
Think about it — you put everything you have toward a down payment, then something unexpected happens. Maybe you lose your job or are required to relocate for work. If the housing market has cooled since you purchased your home, you may find yourself underwater with no emergency savings. If this happens, you could be forced to sell at a loss or the house you worked so hard to save for could be at risk of foreclosure.
Protect yourself, your family and your future by working with a qualified wealth advisor to determine how much you can reasonably plan to spend without derailing your financial life.
Mistake #3 – Waiving a home inspection
A home inspection is a critical step that can help protect both you and your finances from unseen structural issues and other concerns that may end up costing you significantly down the road. During frantic sellers’ markets, it may be tempting to forego a home inspection, but this critical step is almost always worth the added time and expense.
Mistake #4 – Failing to prepare for the cost of homeownership
It’s not just the cost of purchasing a home that catches many new homebuyers by surprise — it’s also the ongoing expenses of maintaining a home. In addition to your monthly mortgage payment, you’ll be responsible for expenses such as homeowners’ insurance, property taxes, regular maintenance, utilities, homeowner’s association dues, etc.
That’s before you consider any costs necessary to make your new home fully functional, such as appliances, furniture, window treatments, yard maintenance tools (lawn mower, leaf blower, etc.) and more. Before jumping in, put together an estimate of all costs associated with your new home to ensure you’re comfortable with the added expenses.
Mistake #5 – Not checking in on your credit
Unexpected errors in your credit report could end up costing you significantly and lead to higher-than-necessary loan rates and terms. It’s important to double-check your credit report before beginning the homebuying process.
Once you’ve confirmed that everything is correct, avoid making any moves that could negatively impact your credit, such as applying for new credit cards or failing to make monthly payments on outstanding debt.
At Creative Planning, we understand how overwhelming the homebuying process can be. Our teams support you every step of the way to help ensure your home purchase is in line with your long-term financial priorities. If you’d like guidance regarding you home search, or any other financial matter, please schedule a call.