Buying your first home is an important investment decision that can come with a steep learning curve. Educating yourself on the real estate market, total costs of homeownership and available financing resources can give you an edge when shopping for your dream home. So before you sign on the dotted line, consider these common pitfalls and how to avoid them:
7 Common Pitfalls To Avoid When Buying Your First Home
Learn how to avoid these seven common pitfalls as a first-time home buyer.
1. Overestimating What You Can Afford
Make sure to review the total cost of buying a home alongside your budget to avoid ending up house-rich and cash-poor. Don’t forget about expenses related to home maintenance, taxes and insurance, and consider looking into first-time homebuyer programs or special benefits you might be able to take advantage of.
2. Failing To Communicate What’s Important to You
Make your life easier by communicating your priorities. If there are any wish list items—or deal-breakers—on your list, make them known to your real estate agent from the get-go. This can help manage expectations and ensure that everyone is on the same page as you’re narrowing down your options.
3. Overextending Credit Too Early in the Process
Just because someone is willing to loan you more than you need does not mean you should take it. Interest is not your friend—make sure to think long term about how much that extra credit may cost you later on.
4. Assuming Your First Offer Will Be Accepted
Remember that you may be competing with other bidders, or the seller may come back with a counteroffer. Use your agent as a guide throughout the process.
5. Skipping the Home Inspection
It is important to be aware of the risks of owning a home. Waiving an inspection allows the seller to only share problems that are visible and of immediate risk. You may end up buying an as-is home that has significant electrical or plumbing issues, which now become your (expensive) problem.
6. Not Including a Financing Contingency in the Contract
Getting feedback that you have been pre-approved or pre-qualified for a loan does not mean that you are guaranteed the money. If your ability to purchase a home relies on securing financing, make sure your contract is contingent on loan approval. In other words, if your funding source falls through, make sure you have the option to make a clean exit.
7. Locking In Your Rate Too Soon
If you lock in your loan rate early in the process or get a rate lock for a particular amount of time, it may expire before both parties are ready to close, and extending it can be expensive.
The Bottom Line
While buying your first home may seem daunting, understanding and recognizing these potential pitfalls can help you feel empowered to make this big decision with confidence. Happy house hunting!
These recommendations from industry thought leaders Robert J. Smith and Kelly Cole originally appeared in Morgan Stanley’s “Playbook: A Millennial’s Guide to Life & Money.”
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