Stacy-Ann Palmer

From horror stories to money-saving tips, there are ways that home buyers can prepare themselves for the home-buying process by learning from others’ mistakes. 

This guide will illustrate nine common first-time home buyer mistakes we have witnessed from countless clients and provide useful tips to help you avoid these common pitfalls. 

1. Not Contacting an Agent Early On

No one knows your vision quite like you do. However, many people are woefully unprepared for the stress and moving parts that come with buying a home.

From contacting inspectors to lawyers, your real estate agent provides several essential services that unseasoned home buyers cannot perform on their own. They can also provide invaluable advice on schools, neighborhoods, and prices in areas you want to move to. 

Ultimately, foregoing an agent early in the process, just to hire one later, will only delay the whole home buying process. 

Solution: Find An Agent You Trust

Research real estate agents in the region you want to live in and find one that you can trust. Analyze important factors, such as reviews and any past homes your realtor has worked with, to see if they will match your vision.  

2. Not Getting Pre-Approved Before Shopping

The first step of your official real estate journey always starts with a mortgage pre-approval. This simple step saves you time down the road and gives you an accurate assessment of how much money you qualify for. 

Unfortunately, without an agent, you may be unaware of this step like most people are. So before you waste your time going to open houses and making competitive offers, see what loans and price range you are pre-approved for. 

Solution: Submit a Pre-Approval Application

Contact a lender, either on your own or through your broker, and submit the necessary documents to start the pre-approval process. Most applications require:

• Proof of identity
• Employment verification
• Proof of income
• Proof of assets
• Credit score
• Proof of downpayment 

One advantage of the pre-approval process is that it will save you time later on when you make an offer from having to submit dozens of documents to your lender.

3. Only Saving for the Down Payment

Depending on what loan you are eligible for, you may only need to pay 3.5% to 20% of the home’s final price as a downpayment. However, that will be far from your only expense.

Other expenses you will have to budget for at close include:

• Closing Costs: This could amount to anywhere between 5% to 7% of the final price of the home and will include fees, such as underwriting, title, and commission fees, among others.
• Moving Costs: Costs vary by location and the size of the house. 
• Homeowner’s Insurance: This is required before closing. 
• Property Taxes: Taxes may already be paid for the year or may be required, depending on the time of year you close.
• Maintenance and Rehab Costs: Fixing any structural or material issues can burn a quick hole in your pockets. 

Solution: Create an Aggressive Savings Plan

Budget for these expenses and create a savings account just for the close and sale of your home. Another option to lessen the burden of these costs is to apply for a first-time FHA loan or to bundle your closing costs into the final loan. 

4. Not Comparing Loan Options

Fortunately, many first-time home buyers are eligible for FHA loans, which come with a low 3.5% down payment requirements. There are also several loan and assistance programs for people with low to moderate income looking to afford a home, including USDA loans and VA loans. 

Solution: Apply for Multiple Loan Types

Apply for several different loans with your lender and compare the down payment requirements with monthly rates to find a loan that is affordable to you. 

5. Prioritizing the House Over the Neighborhood

This is probably the number one mistake we witness home buyers repeatedly make, especially if they are unfamiliar with the area. Location is everything when it comes to real estate. Even a bad home in a good area will benefit from its neighbors. Just remember, improvements can always be made to a home, but you can’t change its location.

Solution: Research the Neighborhood Thoroughly

Look for several factors in the neighborhood you may be eyeing, including consumer prices, crime rate, and quality of living standards. It may be worth it to physically visit the neighborhood and walk around. Drive around at night and see if you feel safe or satisfied with the area you’ll be moving to. 

6. Making Large Transactions During the Mortgage Process

The mortgage approval process is very tedious and fragile, with a lot of moving parts. Unfortunately, one thing that may disqualify you from approval is making too large of a transaction while the mortgage is being underwritten. 

Examples include buying a new car or placing a large deposit in your bank account. Your lender will warn you of these measures beforehand, but it warrants reiterating. 

Solution: Square Away Your Finances Before Applying for a Mortgage

Buying a home can take months, so be sure to square away your finances well in advance of applying for a mortgage. This includes depositing all of your savings into a single bank account for the sale of the home and not applying for any loans or new credit within six months of applying for a mortgage. 

7. Ignoring or Waiving Inspection

Lenders and real estate brokers always recommend inspection, but it’s not always required. In hot real estate markets, inspections are waived all the time to facilitate fast transactions in order to beat the competition. However, waiving inspection can leave you liable to very expensive repairs down the road that you might not be prepared to take on. 

Solution: Research Inspectors

Your real estate agent will most likely recommend an inspector, though you can hire one personally to perform a proper inspection. It also doesn’t hurt to conduct a proper walk-through of your own, inspecting the property visually to spot anything that may be obvious to you. 

8. Not Collecting Things In Writing

Sellers are required in most states to list any known damages or defects with their home, but it’s not a foolproof defense against fraud. Instead, records from an inspector or any third-party entity will give you a better idea of any potential damages you might be liable for that a seller may be concealing. For example, they may cite previous water damage from a busted pipe, but leave out that the floors underneath were partially damaged because all of the water was cleaned up. 

Solution: Collect Records from Sellers

Ask sellers to provide any pertinent records, including permits and inspection reports for any renovations completed, damage done to the house, or assessments made of the house. This will give you better peace of mind as you close on a home. 

9. Becoming Too Invested Emotionally

Finally, one of the most common mistakes we see homebuyers make is getting too invested emotionally in a property. It may be tempting to place a highly competitive offer on your dream home, but we often warrant people to be patient before making an offer they can’t afford. 

Chances are, other houses that match your vision will come along and fit in your price range. 

Furthermore, becoming too emotional can make it difficult to back out of a bad deal even when all of the fundamentals no longer align with the underlying price. 

Solution: Lean On Your Realtor

Your realtor is there to help you find the best home for your vision and price range. They are not there to be “yes people.” With that said, listen to your realtor and your broker if they are expressing reservations about a deal. While it can be difficult to give up on a house you like, there are always other options available that will not leave you cash-strapped. 

With these common pitfalls in mind, you can navigate through the buying process more smoothly.

Homeownership is a significant step in anyone’s life that is often associated with joy and comfort. However, the ups and downs of the home-buying process can be overwhelming for interested buyers who are not prepared for the challenges they may have to face. 

By most estimates, you can expect to spend anywhere from 3-6 months buying a new home, not including potential issues uncovered during inspection or appraisal. 

To save on stress and better prepare for what’s ahead, we’ve created this 11-step homeownership guide that breaks down all the important steps you need to know to buy a home. 

Step 1: Find a Qualified Agent and Broker

Many people don’t realize it until they go through it, but real estate involves several moving parts. Just to complete a single home transaction using a conventional loan, you can expect the following entities to be involved. 

• Lenders
• Lawyers
• Appraisers
• Inspectors
• Title companies

What a real estate agent offers you is access to an inventory of tools and partners associated with their brokerage. For most homebuyers, this saves you lots of time and money having to compare quotes from different lenders, lawyers, and inspectors. 

A trusted agent will even help you search for homes in your target neighborhood and provide advice on what to look out for so you don’t encounter anything unexpected.

Step 2: Get Pre-Approved for a Mortgage

Another reason we recommend finding an agent before you actually start searching for homes is that you’ll want to get pre-approved to see what prices and loans you qualify for. 

Getting pre-approval through a lender (via your broker) will allow you to place formal offers on homes without the risk of being denied by the lender. This imparts good faith to the seller and makes it more likely that any offer you place will be accepted.  

Plus, pre-approval will save you time down the road when you place an offer because your lender will already have valuable information, such as W2s and renter’s history, that can take days to process. 

Step 3: Create a Financial Plan for a Down Payment

Once you have a realistic idea of how much you qualify for, you can start creating a financial plan for a down payment. 

Some common loan and down payment requirements you should familiarize yourself with include:

• Conventional Loans (5-20%): Traditional mortgages offered by every major bank. 
• FHA Loans (3.5-5%): Conventional loans backed by the FHA, which are only offered to first-time home buyers.
• VA Loans (0%): Conventional loans backed by the VA and only available for veterans. Veterans may be eligible for more than one VA loan over their life. 
• USDA Loans (0%): Loans backed by the USDA and intended for low-income families in rural and some suburban areas. 

Be aware that conventional loans under a 20% down payment often require private mortgage insurance (PMI), which increases monthly costs. FHA loans come with their own unique mortgage insurance (MIP), which will need to be paid in the first years of the loan. 

You’ll also need to budget for more than just the down payment. Closing costs can also amount to 2-5% of the total price amount and will not be included in the loan unless you bundle it in there. You will also need 1-3% set aside for an “earnest money” deposit, which is refundable but due once you make an offer. 

Step 4: Research the Area You Want to Live In

If you’re moving to a new state or city, you must research the area before committing to a new home. Often, the price of a home will be adjusted based on several factors that impact the home, including its nearby:

• School District
• Crime Rate
• Amenities
• Job Opportunities

Remember, finding a bad home in a good neighborhood is often a better investment than a good home in a bad neighborhood. You can always fix your home, but once you decide to move somewhere, it’s not always easy to pick up and leave. 

Step 5: Search Through Listings and Start Visiting Houses

Narrow down your search to a few select neighborhoods that fit your ideal price range and start searching through listings. Depending on the intensity of the local market, you may not always have the luxury of visiting a home, but it’s recommended nonetheless. 

Your agent will probably recommend you visit a lot of homes and place multiple offers at a time to increase the chances of getting a home you desire.

Step 6: Make an Offer and a Deposit

Once you find a home you like, contact your real estate agent to place a competitive offer. Your agent will optimize your offer based on comparable homes in the area and seller motivation. Is the seller still waiting to buy a new home and willing to wait for the right offer? Your agent might recommend you go higher. 

If an offer is rejected, you can talk through ways to renegotiate the offer or find a comparable home with your broker.

Once accepted, you’ll need to cough up that earnest money deposit. Luckily, this deposit is refundable if anything goes awry during the deal. 

Step 7: Perform an Inspection

The first thing your broker will recommend after placing an offer is performing an inspection. Most lenders will only require a standard visual inspection, which covers everything from the roof to the foundation.

Of course, you can get more detailed and order a deeper inspection to see if there are any not-so-obvious repairs that will need to be made. 

Step 8: Apply for a Mortgage

In the meantime, you’ll need to apply for a formal mortgage and wait through all of the tedious details of the underwriting process. After providing your lender with a litany of various documents, you will be approved for a loan and lock in your interest rate.

In general, homes under contract take 30-60 days to close, depending on inspection, appraisal, and underwriting. 

Step 9: Wait for Appraisal 

Before finalizing an offer, your lender will perform its own appraisal. An appraisal will view the material condition of the home after inspection and compare the price to three previous and comparable properties that have been sold in the area.  

If the appraisal finds any issues or quotes the home lower than your offer, you will be forced to renegotiate your deal. 

Step 10: Apply for Mortgage Insurance

One final step you will be required to take before signing your papers is getting your home insured. Homeowner’s insurance is a non-negotiable tool that is required by your lender to protect your home as long as it’s under loan from the bank. Your lender may require specific coverage limits, depending on the type of loan. 

Shop around to find the best quote for you. 

Step 11: Perform the Final Walk-Through 

Now it’s time to finally close on your home. Once an inspection, appraisal, and title search have been made, you will be given the keys and the deed to your new home. Now, you can breathe easy as you are finally the owner of your new home!

We hope this guide helped you and that you check out more from Selling the Southern Life to learn more about buying and selling your home. 

FAQs

What is earnest money?

Earnest money is a secure deposit placed days after an offer has been made to ensure that the buyer is capable of purchasing the home. This deposit also gives the buyer time to secure financing. 

How long does the home-buying process take?

On average, the home buying process can take up to 6 months, with contracts taking 30-60 days to close and the initial research, shopping, and pre-approval stage taking up to 4 months. 

What is private mortgage insurance (PMI)?

Private mortgage insurance protects lenders if the borrower defaults on their loan.