5 Colossal Mistakes First Time Home Buyers Make

Summary

1. Finding a Home Before Getting Pre-Approved
2. Do Not Use All Your Money on Down Payment
3. Buying a Home is SO MUCH MORE Than the Monthly Payment
4. Do Not Add New Debt After Getting Pre-Approved
5. Do Not Try to Save Pennies by Doing Everything Yourself

[Edited transcript]

1. Finding a Home Before Getting Pre-Approved

Janice:             It’s exciting. You want to find a home. You’re going out. You’re looking. You see one you really like, and oh no, you can’t get the approval. That’s a really big one. You should have all your ducks in a row before going out, because if you think about what everyone has to go through to prep the house, and to have you go through and look at it, and get excited, you’ve kind of skipped a couple of steps first. So, it’s definitely, like you said, first get pre-approved.

Anthony:            You know also, the sellers might not take you seriously, if you don’t have your pre-approval lined up. They’ll all know, or their brokers will know, that you won’t be able to pull the trigger on an offer, even if you wanted to.

2. Do Not Use All Your Money on Down Payment

Anthony:            You might think, rule of thumb, they mention 5% of the down payment here, but I think the more traditional number is 20% as a down payment. But that’s not exactly the only number you need to think about. So, let’s say 20% is your number, and you have, let’s say, 100,000 in the bank. So, that would impute a $500,000 purchase price that you’re looking at. But not quite, because that would leave you with an absolute zero in your account. You need to account for other things such as, closing costs. What are some other things, Janice?

Janice:             Some eventual repairs, maintenance, you just take into consideration the escrow.

Anthony:            And moving costs, as well.

Janice:             Yes. Absolutely.

Anthony:            Even if you have all those, add those up and you have money for those items that we just mentioned, the bank doesn’t want to see a zero after that either. They want to see some buffer.

Janice:             I, personally, don’t want to see a zero either in the bank account, because you have to eat. You have groceries. There’s so much other things you have to plan to have more than just what you need.

3. Buying a Home is SO MUCH MORE Than the Monthly Payment

Janice:             So, I think we’ve talked about this before. You have the down payment, but there’s more than just that monthly payment. Let’s say your monthly payment is $1000, wouldn’t that be nice? But you have so much more than that. You could have a homeowners association. You have higher utility costs. There’s a lot more that goes into it that you have to factor in. Are you going from a twin to a single? That’s a huge jump when you’re talking about electricity, because you have more, maybe more square footage, maybe less. That’s stuff that you have to take into consideration, when you are planning your monthly payment.

Anthony:            So, the way I read this paragraph in the article, was that, the author seemed to mean that monthly payment meant your mortgage payment, but you need to take into account all those other bills that come with home ownership, sort of as you touched on. Just make sure you’re adding up, like you said, taxes, in some cases water, homeowners association, everything. Yeah.

Janice:             Right. Exactly. It’s definitely going to be more than you think when you get that initial number. You have to consider everything.

4. Do Not Add New Debt After Getting Pre-Approved

Janice:             When you get your pre-approval, it is for that moment in time. So, you have it. Leave everything alone. You don’t want to buy a car. You don’t want to go get your furniture, new furniture, because you’re excited. You go to the local store, and you finance it. Well, that’s bad, because now your debt/income ratio is now different. And the moral of the story is, it says, “Only apply for new debt, after you’ve moved in the home.” So, when you get that pre-approval, leave everything as it is. Freeze it in time. Then after you’re in, after everything’s finished, then get excited, and if you have the money, go do the furniture. But you have to leave it as it is.

Anthony:            On a related note, this isn’t debt, but also, try not to change jobs during this pre-approval process.

Janice:             Ah, yes.

Anthony:            If your pre-approval is based on your W-2s from last year, your taxable reported income, and you change jobs, now there’s going to be question marks. It might not throw a monkey wrench into the setup, but it creates complications for sure.

Janice:             They don’t want to take that risk once you’ve gotten pre-approved, because that’s not an easy process.

Anthony:            I mean, if you have a great job, and it behooves you to switch, then you gotta do what you gotta do, but if it’s avoidable, try to avoid it.

5. Do Not Try to Save Pennies by Doing Everything Yourself

Janice:             I agree with this one. And I’ve said this many times. Of course, online you can learn anything you’d like to learn. However, in situations like this, it is important to use a professional. Get the help of a real estate agent. This isn’t something you want to do on your own. Could you? Maybe, but with the negotiations and everything else, it’s so important to have a professional. It’s just really important, because this is what you do for your career. You know the ins and outs and how everything’s supposed to go. It’s just important to use somebody who knows really what they’re doing.

Anthony:            Yeah. What is that saying? Penny wise, pound foolish.

Janice:             Yes.

Anthony:            I mean, you may think you’re saving a couple of bucks, or even a lot of bucks. I mean, real estate brokers earn a percentage of the sale, so those can actually be large dollar amounts, but often, in terms of the amount they save you by negotiating you a great price, or on the other side, getting the best possible price for you, they often earn their keep. There’s a reason why this industry exists.

Janice:             Oh, absolutely. Absolutely. And just their knowledge alone, is worth it. There’s some things about the process you may skip right over if you’re doing it yourself, that you will regret later down the road. You know, like it comes into the whole, the home inspection. You can’t skip that. You have to talk with somebody about that. So, it’s really important. Just hire a professional.

Anthony:            I mean, that’s a great example. The home inspection, I don’t know how much it costs where you are, but it would be maybe 4-500 bucks here in the city, or in the surrounding Manhattan area, and that can reveal like a $20,000 issue. You know?

Janice:             Right. Right. That’s what I mean. Down the road if you didn’t do that, and you realize you need a new roof two weeks later, that’s a big deal.

Links

https://www.realestatemortgageblog.com/home-buyers/mistakes-first-time-home-buyers-make/

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