Buying a home is a complex process, and it can be especially daunting if you’re a first-time homebuyer. There are multiple factors to consider, including choosing a real estate agent, understanding the true cost of homeownership, and navigating the financing process. In this article, we’ll discuss some of the most common home buying mistakes and how to avoid them. From not getting preapproved to underestimating the cost of homeownership, we’ll cover all the common pitfalls you’ll need to watch out for when making this significant financial decision. So, whether you’re buying a condo or a single-family home, read on to find out how you can make the right choices and avoid the first-time home buyer mistakes that can cost you money and stress.
Not Getting Preapproved with a Mortgage Lender
Not being pre-approved is basically going out and shopping without knowing how much money you have. It is pointless.
I tell clients, “I can show you a hundred-thousand-dollar home or a hundred-million-dollar home.” This is pointless unless you know how much you can afford. Not just a sticker number, but what that monthly mortgage payment comes out to as well. It can be different based on taxes and HOA for every property.
Getting your financing process started lets me know you’re serious, lets the seller know you’re serious, and also lets yourself know that you are serious.
I know people who go out and search at a $500,000 budget. When we’re ready to put an offer, I put them in touch with our lender. Scottie (our lender) comes back with their preapproval, and they can only afford $350,000. Their hopes are crushed. That’s not what we’re out here trying to do.
Forgetting about the Closing Costs (Outside of the Down Payment)
Let’s say you arrive at a 10% down payment. But you neglect closing costs. Huge mistake.
A basic estimate of closing costs will be around 2%-2.5% of the purchase price. So whatever home you’re buying, add 2%-2.5% in additional fees at closing.
These fees will cover items like lending fees, appraisals, attorney fees, city fees, and more.
The fees will be a bit different depending on your loan type. Sometimes, you will have to put up either six months of HOAs or, sometimes, a year of HOAs. Sometimes it’s six months of property taxes
Not Understanding the Cost of Home Ownership
The cost of home ownership goes beyond the monthly mortgage payments.
This is a big problem for some people, especially in the single-family home game.
I’ve told most of my first-time home buyers that a condo is their safest bet because the exterior repairs such as roof, snow removal, tuckpointing, and leaks are shared across the HOA.
When it comes to homeownership, especially in single-family homes, the sewer, the plumbing, the roof, and any water intrusion are your responsibility. In many ways, owning a home is like owning a car. Even if you are the safest driver, something will happen. Someone will ding your car.
I always tell homeowners, “This is a great house, but I guarantee that sometime in the first three months, you’ll have a welcome to home ownership moment.” And that moment often comes with a hefty bill.
Picking the Wrong Real Estate Agent
Real estate is an easy industry to get into. There’s a low barrier for entry, so you don’t necessarily always know who you’re getting, and honestly, sometimes you’re just lucky to meet the right agent.
About 12,000 real estate agents hold a license in Chicago proper. Out of that pool, only about 500 of them would be considered full-time agents (3+ transactions a year). So only 500 real estate agents in the whole city are taking the job seriously. In my opinion, those are the only people worth hiring.
The problem is that buyers often don’t know they don’t have the right agent until it’s too late. Way too late. It’s not like getting a haircut or having a personal trainer where you have multiple times to vet this person.
The average buyer buys a home once every 5-10 years at most. So they don’t get the chance to experience multiple realtors and learn what works and what doesn’t and what’s the best fit for them. Having a good real estate agent can make or break your buying experience, so it’s imperative that you take the vetting process seriously.
If you’re wondering what’s the best way to hire a good real estate agent, we talk about that in depth in this article.
There might be an argument for hiring someone who’s on a team instead of a solo real estate agent. Because there are multiple layers of experience. For example, a brand-new agent on our team can’t mess up that badly. Mistakes happen, sure. But a realtor in an established team has multiple resources to ensure every base is covered.
For instance, our agents have a dedicated transaction coordinator who’ll make sure all the paperwork is handled correctly. They will also have veteran agents at their disposal to answer any questions that come up.
A solo agent might have some holes in his game. But as a team, the amount of knowledge we have collectively is hard to beat.
We just don’t see new stuff anymore.
By making informed decisions and avoiding the common mistakes we’ve discussed in this article, you can simplify the process and ensure that you’re making a sound investment in your future. If you’re a first-time homebuyer, take the time to educate yourself and work with a reputable team of experts who can guide you through the process. By doing so, you can enjoy the many benefits of homeownership, including building equity and having a place to call your own.
