When Buying for the First Time, Do Your Homework!

Buying a first home isn't without its share of potential pitfalls.

But if you approach the process with your eyes open wide, you can shop with confidence and avoid costly mistakes. Learn as much as you can about home ownership and the real estate market before you begin your search.  Take a crash course in home buying at Realtor.com's "First Time Home Buyer Basics" page.

Also, avoid the following mistakes that first time homebuyers commonly make.

• Not knowing what you can afford before going house shopping.  If you make this mistake, you risk falling in love with a house you can’t afford and attempting to reach beyond your means to get it. Researching homes can be fun, but time must be spent researching your financing options beforehand.  Your credit score, income stability, and other factors add up to determine how much a bank will lend you.  Talk to a qualified lender and get preapproved for a mortgage, and avoid wasting the seller’s time, the agent’s time, and your own.  You don’t want to sign a contract only to find out afterward that you can’t get financing or an acceptable mortgage.    Also, keep in mind that what the bank says you can afford and what you know you would like to pay is sometimes quite different.   If you don’t have a budget, make a list of your monthly expenses and major yearly expenses.  Subtract this total from your pay to determine how much you can spend on a new home each month.  You might find that you need to reduce your monthly expenses or increase your income before you even begin to look.  

• Forgetting to include taxes, fees, insurance, closing costs, and maintenance costs in your budget.  On top of your monthly payment, you’ll take on these costs too.  They can really add up, so find out how much they'll cost you per month.  Remember that you will be responsible for cleaning gutters, replacing water heaters, buying a lawn mower, etc. on your own, so be responsible when you select a home.  Consider its age and current condition and also try to buy a little less than you can afford.  That way, you’ll be able to budget any home repairs and save up for renovations. 

• Failing to find a good buyer’s agent.  First time buyers should depend on knowledgeable and experienced agents to help them get their finances in order to secure a mortgage and then find an appropriate home.  A good agent will put the buyer’s needs first.  Have a friend or relative recommend potential agents, and interview those you’re considering to find out how much experience they have, what services they can provide, and whether or not they’ve worked with first time home buyers before.      

• Letting cosmetic fixes and additions that don’t add value win you over.  Sellers will stage homes and make minor upgrades that are fairly inexpensive.  These just might distract you from the true factors (or lack thereof) that add value to a home, like location, neighborhood, and condition of the home.  You should also beware of extras that don’t add value or will require more investment on your part to maintain, like a backyard swimming pool.  If you’re budget is tight, look for homes with potential for future improvements, especially if you’re a first time homebuyer.  Adding value to your home guarantees a bump in equity so you can ascend the property ladder. 

• Overestimating the tax savings.  People are often fooled into thinking that the tax savings involved in buying a home will be a huge bonus.  The tax deduction you’ll get on the mortgage interest makes the interest  a little more affordable, but it’s still not better than paying no interest at all. Nobody enjoys paying taxes, but most middle-income families don’t have a big tax burden.  If you don’t pay a lot in federal income taxes, the tax savings on a mortgage won’t  be all that great.  

• Not thinking about the future of the neighborhood.  When you buy a house, you’re also buying into an entire neighborhood.  Try to find as much as you can about the people that will live around you.  A number of other factors go into a great neighborhood, like school districts and access to particular amenities.  These factors will not only affect your personal comfort, but also the resale value of your home.  Ask yourself the following questions:  What kind of development plans are in the future of the neighborhood?  Is the street likely to become a major street or popular rush-hour shortcut?  What are the zoning laws in the area?  If there is a lot of land, what is likely to be built there?  Have the home values of the neighborhood been declining? 

• Not seeing the potential or being too picky.  There may be things about a home that irk you—like ugly wallpaper or funky light fixtures.  Don’t let small physical imperfections turn you away, especially if all the big, permanent features you need are in place.  Upgrading a home yourself is often cheaper than paying the increased value to a seller who has already done all the work.  Also, don’t be too inflexible with your home-buying wish list.  First time homebuyers do have to make a few compromises, and if you’re too picky, you might end up renting longer than you had planned.  You can of course wait for something that fulfills your every wish.  It all depends on how important it is for you to become a homeowner now rather than later.  

• Compromising on the important things.  You can be too picky, but don’t be too lenient-- You’ll probably have to make some compromises to afford the right home, but making compromises that will jeopardize your future plans or comfort is a bad idea.  For example, if you’ll be having kids in a few years and need three bedrooms, don’t buy a two bedroom house just because it’s more affordable.  
     
• Overestimating your eagerness to renovate.  Owning a home that needs a great amount of updating, can turn into a part-time job you don’t get paid to do.  If you don’t have experience doing renovations or don’t like that kind of work, then you’ll be budgeting more time into more simple chores than you think and learning as you go.  However, if you like doing renovations go ahead and purchase the fixer-upper.  Just know what you’re getting into.  

• Doing too much too fast.  It’s impossible to make a house your own right away.  Don’t overextend your credit, hoping improvements will pay for themselves by increasing home value.  That’s not always the case, so make changes over time.