Mistakes to Avoid as a First Time Home Buyer

February 16, 2024

Tim Clarke

Navigate your first home purchase wisely. Avoid common mistakes like skipping inspections, depleting savings, and rushing the process.

As a team of experienced real estate professionals, we understand that buying a home can be an enjoyable and exciting experience.

However, we also acknowledge that the process can be overwhelming and stressful without the proper knowledge and preparation.

We believe that educating ourselves on the ins and outs of the home buying process is crucial to make informed decisions and avoid costly mistakes.

With our extensive knowledge, we aim to provide valuable insights and advice to our clients to ensure a smooth transaction.

In this post, we will highlight some key mistakes to avoid so that you can have a positive home buying experience.

Mistakes to Avoid Before Deciding to Buy

Failing to Stay on Top of Your Credit Activity

Your credit is your personal proof of your ability to repay any loan. Those metrics are held on three separate entities called “Credit Bureaus”.

As someone serious about buying a home, it is important to be familiar with all three of those entities.

Regularly check your credit reports with all three bureaus (TransUnion, Equifax, Experian), even if you are sure you have good credit.

Credit report errors are very common and if they lead to negative marks on your credit, it can make everything difficult for you.

Poor credit could result in higher interest rates, higher loan fees, more money required for a down payment or even denial for a loan altogether.

Have routine audits of your credit report from all three bureaus. Also, make sure they are all current and accurate.

If your credit contains erroneous blemishes, get them corrected before they are examined by mortgage lenders.

Understanding Your Credit

Keep an Eye on Your Credit Score

Your credit score is like your financial report card. It shows how good you are at paying back money you borrow.

There are three big companies, called credit bureaus, that keep track of this score. They're named TransUnion, Equifax, and Experian.

If you're thinking about buying a house, you need to check your score with all three bureaus.

Even if you think your credit is good, you might find mistakes on your report.

These errors can make it harder for you to get a loan, or they might make your loan more expensive.

So, make sure your score is correct. If you find any mistakes, get them fixed as soon as possible!

Not Shopping Around for the Best Lender

For many first-time home buyers, finding the right lender can be a daunting task, and they may end up with a loan that is not financially ideal.

It is crucial to do your homework and shop around to ensure you get the best deal possible.

To start, obtain quotes from at least three different mortgage institutions and compare interest rates, fees and terms.

This allows you to make an informed decision and select the best lender that fits your financial situation.

It's important to note that within 30 days, you can have up to 3 hard inquiries to your credit without negatively affecting your credit score.

Therefore, you should take advantage of the opportunity to obtain multiple quotes before making a decision.

By doing so, you'll have a better understanding of the financial implications, while ensuring you obtain the most favorable loan that meets your financial needs.

Choosing the Best Lender

Buying your first home is a big step! But finding the right lender can be tricky. So, here's a guide to help you out.

Do Your Homework

First things first, you need to do your homework. Don't just go with the first lender you find. It's important to shop around and find the best deal for you.

Get Quotes

Try to get quotes from at least three different lenders. Look at their interest rates, fees, and terms. This will help you compare and decide which lender is the best fit for you.

Not Getting Pre-Approved

Having a pre-approval in hand is ideal before making an offer.

Although it is possible to submit an offer a with a pre-qualification letter, your chances of your offer being accepted drastically increases with a pre-approval.

Sellers need to know that their home is going to sell for their expected timeframe.

Having a pre-approval gives the seller the assurance that you could complete the purchase with minimal disruptions.

Not having a pre-approval at the time of making an offer, especially in a competitive market, can result in the seller leaning towards another buyer that is either paying cash or looks more qualified on paper.

The Importance of Getting Pre-Approved

Buying your first home? Here's a tip: Get pre-approved for a loan before you make an offer. Let's break it down.

Why Get Pre-Approved?

When you're pre-approved, it means a lender is ready to give you a loan. This is super helpful when you're ready to buy a house.

Boost Your Chances

With a pre-approval, the seller knows you're serious. It shows them you have the money to buy their house. This can really boost your chances of getting the house you want!

What Sellers Want

Sellers want to sell their house fast. If you're pre-approved, they know the sale will go smoothly. This gives them peace of mind.

Avoid Disappointment

Without a pre-approval, you might lose out to other buyers. Especially in a hot market, sellers might pick a buyer who is paying cash or has a pre-approval.

So, don't miss out - get pre-approved!

Not Knowing nor Understanding a Comfortable Purchase Price Limit

You need to have a transparent conversation with your lender about your finances.

Let the lender assess where you are and how you can move forward with a home purchase without stretching yourself too thin.

When buying a house, sticking to a solid budget will help you avoid getting in over your head. Be realistic about your take home pay and your spending habits.

A good loan officer will help you make a game plan to get you to homeownership without being “house poor”.

Being house poor means a buyer dumped all of their money into purchasing the house but doesn’t have enough money to maintain the house nor a comfortable lifestyle.

Setting Your Budget Right

When buying your first home, it's super important to know how much you can really afford. Here's why.

Talk About Money

First, have a clear chat with your lender about your money. They can help you figure out what you can afford without stretching your budget too thin.

Stick to Your Budget

When you're buying a house, it's key to stick to a budget. Be honest about how much money you make and how you spend it. This will help you avoid biting off more than you can chew.

Get Help from a Pro

A good loan officer can help you plan your path to owning a home. They can make sure you don't end up "house poor."

What Does "House Poor" Mean?

Being "house poor" means you spent all your money on buying a house, but don't have enough left for other things.

You don't want to be in a situation where you can't afford to maintain your house or live comfortably. So, make sure to plan your budget carefully!

Mistakes to Avoid When Home Shopping

Not Budgeting for All Hidden Homeownership Costs

First-time home buyers must consider the hidden costs of homeownership before purchasing a property, which include regular home maintenance, H)A fees (if applicable), homeowners insurance, and property taxes.

Ignoring these costs could result in financial hardship and surprise expenses in the future.

One of the biggest mistakes a first-time home buyer can make is assuming that the purchase price is the only significant factor when buying a house.

Instead of just accounting for the purchase price, buyers must account for additional expenses such as inspections, appraisals, any loan requirements their lender may have, required repairs, and closing costs.

Watch Out for Hidden Costs

Buying a house isn't just about the price tag. There are other costs to consider.

The Extra Costs of Owning a House

When you buy a house, there are extra costs to think about. These include things like home maintenance, homeowners insurance, and property taxes. If you forget about these costs, you could end up in financial trouble.

Beyond the Purchase Price

One big mistake first-time home buyers make is only thinking about the purchase price. But there are other costs, like inspections, appraisals, loan requirements, repairs, and closing costs. You need to plan for these expenses to avoid surprises.

Get to Know Due Diligence

In North Carolina, there's a period called "due diligence." It's when you can check out the property before you buy it.

What Happens During Due Diligence?

After your offer is accepted, the due diligence period begins. You can do inspections and assessments to make sure the house is in good shape.

You can also review documents related to the property. This period usually lasts between 14 and 30 days.

The Due Diligence Fee

In North Carolina, you pay a non-refundable fee during the due diligence period.

This is to make up for the seller taking the house off the market. If you decide not to buy the house, the seller keeps the fee. So think carefully before you pay!

Understand Earnest Money

Earnest money is a deposit you make when you offer to buy a house. It shows the seller you're serious.

What Happens to Earnest Money?

The earnest money is held in an account until the sale is final. Then, it goes towards the down payment or closing costs.

If you back out of the deal for no good reason, you might lose the earnest money.

**Note** In North Carolina, the main difference between earnest money and due diligence is their purpose and refundability. Earnest money is a deposit made by the buyer when submitting an offer to show they are serious about buying the property. It is refundable based on certain contingencies indicated within the contract if the transaction doesn't move forward. Due diligence, on the other hand, is a period during which the buyer can investigate the property before completing the purchase to ensure it is as expected. The buyer pays a non-refundable due diligence fee to the seller to compensate them for taking the property off the market during the investigation period. If the transaction moves forward, the fee is applied towards the purchase price. Overall, earnest money is used to demonstrate the buyer's interest in the property, while due diligence is focused on investigating and assessing the property before the purchase. If you would want to understand more about Due Diligence, click here.

What are Closing Costs in NC?

Closing costs are the fees charged by various parties involved in a real estate transaction when the property ownership is transferred from the seller to the buyer.

Common closing costs in the state include attorney fees, title search fees, and insurance costs, as well as transfer taxes.

Attorneys in North Carolina typically charge a flat fee for their services, which can vary depending on the specific attorney and the complexity of the transaction.

Title search fees can also vary based on the title company used and the type of insurance being purchased.

Finally, transfer taxes are a tax paid by the buyer on the transfer of ownership which is calculated based on the purchase price of the property.

It is essential to speak with your real estate agent or attorney in North Carolina to get a better idea of the closing costs that apply to your real estate transaction.

Other Home Buying Costs to Consider

Here is a list of common expenses associated with buying a home:

  1. Down payment
  2. Mortgage application fees
  3. Home inspection fee
  4. Appraisal fee
  5. Homeowner's insurance
  6. Property taxes
  7. Home maintenance and repair expenses
  8. HOA (Homeowner Association) fees (if applicable)
  9. Moving cost
  10. Furniture and decor for your home

Keep in mind that the expenses associated with buying a home can vary depending on factors like the location of the home, the type of mortgage and interest rate, and any unexpected repairs or surprises.

Making Emotional Decisions

As a common practice, I always advise my first time homebuyers to avoid making emotional decisions when house hunting and submitting an offer.

While buying a home can be an emotionally charged experience, it is essential to approach the process with a clear and level head to ensure an informed decision.

Emotional decisions can cloud judgment and lead to poor decision-making, which may result in a bad investment in the long run.

For example, a buyer may fall in love with a particular home and become so emotionally invested that they're willing to overlook flaws that could be costly to fix or negatively impact their future lifestyle.

They may end up offering more than the actual value of the property just to secure the deal or waive essential inspections that could uncover underlying problems.

Additionally, emotional decisions may result in a buyer overspending and taking on a mortgage that is outside their budget or long-term financial goals.

This could potentially impact their long-term financial stability and could cause an increased risk of foreclosure or bankruptcy.

Therefore, I always advise my clients to approach the home buying process rationally and gather as much information as possible before making an offer.

It's essential to evaluate the property's condition, location, crime statistics, schools, homeowners association regulations, future value, and legal considerations before submitting an offer.

This will ensure a well-informed and secure investment decision for my first-time homebuyer clients.

Why Emotions Can Be a Problem

When you're looking for a house, you might fall in love with one. But if you let your feelings take over, you might make bad choices.

You might ignore problems with the house. You might pay too much. Or you might skip important steps, like getting the house inspected.

The Risks of Emotional Decisions

If you let your emotions guide you, you might end up spending more than you can afford. This can lead to big problems.

For example, you might not be able to pay your mortgage. This could put your house at risk and hurt your finances.

Make Informed Decisions

When you're buying a house, it's important to think things through. You need to gather all the facts before you make an offer.

What to Look For

Before you decide to buy a house, there are things you need to consider. You need to look at the condition of the house.

You need to think about where it's located. You should check out the crime rate in the area.

You also need to think about the schools, the homeowners association rules, and the future value of the house. And don't forget about any legal issues.

By considering all these things, you can make a smart decision. This will help you make a good investment and avoid problems down the road.

Focusing Too Much on Aesthetics

When you're buying a house, it's not just about how it looks. You need to think about other things, too.

Looks Can Be Deceiving

A house might look nice on the outside. But that doesn't mean it's a good buy. The paint color, furniture, and decor can all be changed. And what you like might not be what someone else likes.

The Real Issues

If you only focus on how a house looks, you might miss big problems. There could be issues with the structure of the house. The appliances might be old and need to be replaced. And if you're not careful, you could end up paying too much for a house that has a lot of problems.

Look for Hidden Gems

Don't let small things like old appliances or shabby paint stop you from buying a house. If you can see past these things, you might find a great house that other people have overlooked. And you might not have to compete with a lot of other buyers.

Consider the Important Stuff

When you're looking at houses, there are things you need to consider. You should think about the structure of the house.

You should look at where it's located. You should check out the schools in the area.

You should also think about the crime rate.

And don't forget about the important systems in the house, like the heating, ventilation, and air conditioning (HVAC), electrical, and plumbing.

These are all things that can affect the value of the house.

By focusing on these things, you can make a good decision. This will help you find a house that meets your needs and is a good investment.

Not Being Flexible with the Criteria

When you're buying a house, it's important to be flexible.

There's No Such Thing as a Perfect House

You might have an idea of what your perfect house looks like. But the truth is, it probably doesn't exist. And even if you're buying a house for the first time, it might not be your last house. So, it's okay if it's not perfect.

The Problems with Being Too Picky

If you're not flexible, you might not find a house to buy. You might miss out on great houses that don't meet all your criteria. You might spend a lot of time looking for a house. And you might have to compete with other buyers.

The Benefits of Being Flexible

If you're open-minded, you can find a house that meets most of your needs. It might not be perfect, but it could have potential. You could find a house that's in your budget and in a good location. And you could save time and avoid competition.

By being flexible, you can find a house that fits your lifestyle and your budget. And you could get a great value for your money.

Disregarding the Area and Neighborhood

When you're buying a house, you need to think about more than just the house. You also need to think about where it's located.

The Importance of the Neighborhood

The neighborhood can affect a lot of things. It can affect how much the house is worth. It can affect how safe you feel. And it can affect how much you enjoy living there.

When you're looking at houses, you should check out the neighborhood. Look at the crime rates.

See how close it is to things like stores, schools, hospitals, and fun places to go. Think about whether it fits your lifestyle.

The Surrounding Area Matters, Too

The area around the house can also affect its value. Look at the other houses on the block. Are they well-kept? Are there any big changes planned for the area?

If you don't pay attention to these things, you might end up buying a house in a bad area. This could make it hard to sell the house later. And it could make it worth less money.

What to Do Before You Buy

Before you make an offer on a house, spend some time in the neighborhood. Drive around.

Talk to the people who live there. Check out the walk scores. And think about how long it would take you to get to the places you go often.

By doing these things, you can find a house in a great neighborhood. And that can make your house a good investment.

Mistakes to Avoid While Under Contract for a Home

Opening a New Line of Credit Before Closing

Reaching the point of "clear to close" in a loan file means that all the conditions have been satisfactorily met, and the underwriter has approved the loan for closing.

However, during the time between this approval and the actual closing, it is essential to avoid making any large purchases or opening new credit accounts.

There will be one last credit check before final closing, and any significant activity could result in the denial of the loan.

It is crucial to exercise restraint and patience during a real estate purchase transaction, and refrain from making any big financial moves.

When you're buying a house, you need to be careful with your money. This is especially true after your loan has been approved but before you've actually bought the house.

What "Clear to Close" Means

"Clear to close" means that your loan has been approved. But there's still some time before you actually buy the house. During this time, you need to be extra careful with your money.

Don't Open New Credit Accounts

Before you buy the house, your lender will check your credit one more time. If you've made any big purchases or opened any new credit accounts, your loan could be denied. So, it's important to be patient and avoid making any big financial moves.

Be Wise with Your Money

As a real estate professional, I always remind buyers to be careful with their money. It's easier to buy a car after you've bought a house than the other way around. So, plan wisely and make smart financial choices. This will help ensure that you can successfully buy your house.

Changing Jobs

I urge my clients to avoid changing jobs during the home buying process. When a buyer changes jobs during this time, it could negatively affect their loan approval process and delay or even potentially cancel the transaction.

Lenders require a stable employment history as part of the loan approval process, and changing jobs may make it difficult to demonstrate adequate employment stability.

The lender may then require additional documentation, including income verification, which could further delay or jeopardize the transaction.

Additionally, when changing jobs, there may be additional expenses associated, such as relocation or job-specific equipment costs.

These additional expenses could impact the buyer's debt-to-income ratio, making the buyer appear less attractive to lenders and potentially affect their ability to obtain financing or cause the lender to reevaluate the loan's terms and conditions, which could complicate the transaction further.

Therefore, I always advise my clients to avoid changing jobs while under contract with a home and undergoing loan approval.

It is important to maintain employment stability and avoid making big financial moves during the transaction process to ensure a smooth and successful home purchase.

Waiving Inspections

I understand if you are in a competitive market and you don’t want to lose a great house to competing buyers.

There are other ways to have a competitive offer than to waive discovery of the possible defects.

Waiving inspections or anything else required within the due diligence period can be an extremely costly mistake, which can lead to large, unexpected expenses later.

Not Using a Real Estate Agent

As a licensed real estate agent, my team and I believe it is our fiduciary responsibility, primary duty and moral obligation to protect our clients' interests as consumers and act in their best interests only.

Both buyer and seller agent commissions are typically paid by the seller in most transactions, meaning that the services of hiring a legal representative like a buyer's agent generally cost nothing for buyers.

Buying a home can be a complicated process, and it's nearly impossible to navigate it alone - especially when you are a first-time homebuyer.

Many buyers make the mistake of not seeking legal representation during a home purchase, especially when buying a new construction home.

Although the on-site agent for the builder may be friendly and appear helpful, they have a clear obligation to the builder (seller) and their interests, not the interests of the buyer.

Engaging in such an important financial transaction alone can come with risks, and many things could go wrong without the assistance of a reliable real estate professional.

Working with a buyer's agent can help protect your interests, offer valuable insights, provide expert advice, and help you make an informed decision when buying a home.

Therefore, my team and I strongly urge first-time homebuyers to never embark on a home buying journey alone.

A buyer's agent can help guide you every step of the way to find the right home for you, within your budget, and in a location that fits your needs and preferences.

Plus, obtaining legal representation may help avoid any pitfalls and mistakes that might occur along the way, making the process smoother and more successful. Contact us so we can assist you!!

Congratulations on reaching a significant milestone!

‍FAQ

What is the biggest mistake first-time homebuyers make?

The biggest mistake is often not getting pre-approved for a mortgage before house hunting.

This can lead to disappointment when they find out they can't afford the homes they're looking at.

Should I skip the home inspection to save money?

No, skipping the home inspection can lead to costly repairs in the future. It's important to know the condition of the house before buying.

Can I buy a house without a real estate agent?

While it's possible, it's not recommended, especially for first-time homebuyers. An agent can guide you through the process and help avoid common pitfalls.

Should I use all of my savings for the down payment?

No, it's important to keep some savings for unexpected expenses. You'll likely have closing costs and moving expenses, and you may also need money for repairs or updates to the house.

Is it a mistake to only look at houses in my price range?

No, it's important to stick to your budget. Remember to factor in other costs like property taxes, insurance, and maintenance.

Should I buy the most expensive house I can afford?

Not necessarily. It's important to consider your other financial goals and expenses. You don't want to be house poor.

Is it a mistake to not negotiate the price?

Yes, most sellers expect some negotiation. Your real estate agent can help you with this.

Do I need to worry about the neighborhood when buying a house?

Yes, the location is very important. Consider factors like schools, crime rates, nearby amenities, and how the area might change in the future.

Is it a mistake to rush the home buying process?

Yes, buying a house is a big decision. Take your time to make sure you're making the right choice.

Should I wait for the perfect house?

While you shouldn't settle for a house you don't like, waiting for the "perfect" house can also be a mistake.

It's important to be realistic about what you can afford and what is available in your market.

Tim M. Clarke

About the author

17 years as a Realtor in the Research Triangle, Tim seeks to transform the Raleigh-Durham real estate scene through a progressive, people-centered approach prioritizing trust & transparency.

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