Buying a home is an exciting step in life toward achieving financial stability and personal fulfillment. It's a thrilling adventure that holds the promise of creating lasting memories and building equity for the future. However, the journey to homeownership can be fraught with pitfalls, especially for those venturing into the realm of real estate for the first time.
To ensure a smooth and successful transition into homeownership, it is essential to be aware of the common mistakes that first-time home buyers can often make. By arming yourself with knowledge and avoiding these missteps, you can more confidently navigate your real estate transaction and make informed decisions every step of the way.
In this blog post, we will discuss some of the most prevalent blunders made by first-time home buyers and provide insights and guidance on how to avoid them. Whether you're in the early stages of saving for a down payment or actively searching for Dumbo homes for sale, this article will equip you with valuable tips to maximize your chances of a successful home-buying experience. So, let's dive in and uncover five common mistakes to avoid on your journey to becoming a first-time home buyer.
1. Confusing pre-qualification with pre-approval
One of the most common mistakes first-time home buyers make is the confusion between pre-qualification and pre-approval. While these terms are similar, they have distinct meanings and implications in home-buying.
Pre-qualification is the first step for many prospective home buyers. It is a preliminary assessment conducted by a lender to determine how much you may be eligible to borrow based on the information you provide. This assessment usually involves a brief conversation or completion of an online form where you provide details, such as your income, debts, and assets.
It's important to note that pre-qualification does not guarantee a loan approval or commitment from the lender. It is an initial estimate based on the information provided, and it does not involve a thorough analysis of your credit history or verification of the information provided.
On the other hand, pre-approval carries more weight and provides a stronger position for home buyers. Pre-approval involves a more comprehensive evaluation of your financial situation by the lender. You will typically need to complete a formal mortgage application and provide supporting documentation, including income verification, tax returns, bank statements, and details about your employment history.
2. Assuming you need a 20% down payment
A common assumption is that you must have a 20% down payment on the mortgage. The 20% down payment rule originated decades ago but changed in 1956. Down payments exist because most first-time home buyers don’t pay with cash. In fact, the National Realtors Association estimates an average of
87% of home-buyers finance using a mortgage.
Contrary to popular belief about down payments and percentages, no set rule requires a 20% down payment upfront amount. The average amount for down payments ranges nationwide from
6-17%. However, if you put a down payment that is less than 20% of the home price, be aware of private mortgage insurance payments (PMI), which will be tacked onto your monthly expenses. The type of loan will determine PMI, and some lenders don’t require it at all. It’s best to work with an expert agent and loan officer to determine the best down payment for your situation and financial needs.
3. Skipping the advantages for first time home buyers
As a first-time home buyer, you may be unaware of the numerous advantages and incentives available exclusively to individuals embarking on their homeownership journey for the first time. While the term “first-time home buyer” seems self-explanatory enough, the definition is for anyone who hasn’t owned a primary residence in the last 36 months. Some of the benefits under this definition include:
- First-time home buyer programs: Many programs offer assistance for first-time buyers to help reduce homeownership's upfront costs.
- Mortgage loan options: First-time home buyers often have access to specific mortgage loan options tailored to their needs. For instance, some lenders offer FHA (Federal Housing Administration) loans, which require lower down payments and have more lenient credit score requirements. VA (Veterans Affairs) loans are available to eligible military personnel and veterans, providing favorable terms and potentially zero down payment.
- Tax benefits and credits: Owning a home can come with various tax advantages for first-time buyers. For example, you may be eligible for mortgage interest deductions, which can significantly reduce your taxable income.
Because of the 36-month definition, you can be a first-time home buyer multiple times. First-time home buyer status includes a variety of benefits and cost-saving measures, so it’s critical to research the available programs before starting your search for Dumbo real estate.
4. Not allocating enough funds for closing
Another blunder first-time home buyers make is failing to set aside enough cash funds to cover closing costs. Closing costs can include fees like the loan application fee, attorney fee, closing or escrow fee, courier fee, credit report fee, pest inspection expenses, homeowners association transfer fee, and more.
In a nutshell, closing costs are set aside to pay for the process of purchasing. They pay for the labor of all parties involved in the transaction and will vary based on location, loan type, home value, and varying labor costs. On average, closing costs range between 3% and 6% of the total loan amount.
5. Working with the wrong real estate agent
Purchasing your first home is a significant investment of time, money, and emotion. It’s a complex, stressful process, especially if you don’t find the right agent. Many first-time home buyers make the mistake of using the first agent to respond to an inquiry, but the better way is to research agents first and find the right fit. The right agent in real estate values the community and family and puts their clients first. They’ll work with you to guide you every step of the way.
When you’re ready to take your
Dumbo real estate search to the next level, reach out to award-winning agent
Danielle Nazinitsky for top-tier guidance.
*Header photo courtesy of Shutterstock
