Buying your first home is an exciting time, but it’s also a big responsibility. It’s easy to make mistakes, especially if you don’t know what to look out for.
For example, you should never start shopping for homes before getting preapproved for a mortgage. Doing so can lead to serious financial consequences in the future.
1. Not Doing Your Research
Homeownership is a huge responsibility and it’s important to research what you are getting into before making any big decisions. This includes researching first-time homeowner programs, which are often offered by state and local governments.
New homeowners also must remember that buying a home is not just about the house, it’s about the neighborhood as well. This includes knowing how far you are from work and school, the crime rate, and the amenities that are available in the area.
2. Not Having a Budget
Purchasing a home is a big financial commitment. There are additional costs beyond the mortgage payment such as homeowner’s insurance, property taxes and utilities. Also, many homes are located within homeowners’ associations and come with monthly fees.
New homeowners are often surprised by the number of unexpected expenses that come with owning a home. It’s important to have a budget in place that includes these extra expenses. Additionally, it’s a good idea to have savings earmarked for the future.
3. Not Getting Pre-Approved for a Mortgage
Getting pre-approved for a mortgage is a crucial step in the home-buying process. It helps buyers understand the price range they can afford and shows sellers that they are serious buyers.
Lenders will look at your credit score, income, and debt-to-income ratio to determine how much you can afford to borrow. However, they won’t know how you spend money on things like eating out or traveling.
Shifting cash in and out of your bank accounts could raise red flags for lenders. Make sure you can document and explain any large deposits before applying for a mortgage.
4. Not Having a Home Inspection
Buying a new home is an exciting time, but it also comes with maintenance costs and mortgage payments. It’s important to have a home inspection to avoid costly mistakes.
Home inspectors aren’t allowed to break open walls, dig in yards or force entry into locked areas. They do a visual assessment of the property’s structure and systems and check that major appliances are functional.
Buyers can negotiate with sellers to have them make repairs or even cancel a sale if serious problems are found. It’s important to find a trusted, licensed home inspector.
5. Not Having a Home Warranty
Home warranties are service contracts that cover repairs and replacements for appliances and systems. They typically last for a year or more and can be purchased separately from other services, such as a home inspection or air conditioning maintenance.
They’re useful for new homeowners who may not have full information about the home’s appliances and systems or whose existing manufacturers’ warranties might be expired. However, they are not required by law or by most lenders. If you are asking, “Is a home warranty worth it?” Nonetheless, they’re worth the investment for many people. You would have to learn more about each warranty because every home warranty company could offer different coverages.
6. Not Having a Maintenance Schedule
As a new homeowner, you’ll quickly learn that your house requires regular maintenance. Failing to perform routine tasks like changing HVAC air filters, clearing dry leaves from gutters, or having the furnace serviced can result in costly problems down the road.
It’s also important to have a budget for homeowners insurance, property taxes, utilities, and other home expenses. Creating a home maintenance schedule can help ensure that you’re not overspending on home improvements and repairs.
7. Not Having a Backup Plan
Even if you’ve done everything right, there’s always the possibility that your home purchase will fall through. That’s why it’s a good idea to have a backup plan in place.
Jihae Shin and Katherine Milkman, two researchers at the University of Wisconsin Madison and Wharton School at the University of Pennsylvania, conducted a series of experiments to find out how people felt about having a backup plan. The results showed that simply thinking about having a backup plan could cause people to lose their focus on the primary goal.
8. Not Taking Care of Your Home
A new home is a huge investment and it’s easy to make mistakes in your early days as a homeowner. For example, over-improving your home can be expensive and, if done incorrectly, may reduce the resale value.
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Neglecting maintenance is another mistake that can be costly. It’s important to remember that you are now responsible for all repairs and maintenance of your home. This includes things like changing air filters, caulking windows, and winterizing your home. Small issues can turn into big problems, so it’s important to stay on top of them.
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