We want you to feel comfortable and confident when you buy your first home, so we’re doing you a favor. We put together a list of the biggest, most common mistakes that first-time homebuyers make so that you can see them coming from a mile away and avoid them when you start your journey to homeownership.
Not Fully Understanding Down Payments
It seems simple enough, and you’re probably pretty familiar with down payments if you’ve ever purchased a car. Down payments on a home are a bit different in one particular way: private mortgage insurance. (PMI)
If your down payment isn’t large enough, you’ll find yourself paying PMI, which, depending on a variety of factors like your credit score and the bank you use, will cost somewhere around 0.5-1 percent of the total loan amount. Most banks require 20 percent down on a loan before they’ll waive the PMI. So, for example, you’d need to put $60,000 down on a $300,000 home to avoid PMI.
There are loans that require as little as 3% down, which is much more reasonable for first-time home buyers. Just keep in mind the annual cost of $1,500-$3,000 in PMI. Veterans could be eligible for zero-down loan programs with no PMI through the Veterans Administration and some government programs and lenders incentivize first-time homeownership by offering free down payment grants or loans to qualified buyers. Go to downpaymentresource.com to see if you might qualify.
Not Getting Prequalified For A Loan
Between the size of your down payment, the potential PMI, and other factors, your monthly cost could be quite different from the number you see on some of those online mortgage calculators. So before you trust the estimated mortgage amount next to your dream home on Zillow.com, you should figure out what you can actually afford, which means getting prequalified for a loan.
That means you’ll need to meet with a loan officer and submit a bunch of documents. Sounds like a headache, right? We know, but you’ll need to get qualified for a loan to buy a home anyways, so why not get the hard part out of the way now? You’ll be a more serious contender when you put in an offer and you’ll know realistically what listings you can afford.
Be cautious because a bank may approve you for a loan that’s actually more debt than you can carry month to month. Keep in mind all of the expenses you’ll have, including homeowners insurance, taxes, and maybe even flood insurance. If possible, try to set yourself up so that the total cost is less than one-third of your household’s take-home pay.
Not Using A Qualified Real Estate Professional
Hiring a real estate professional used to be a necessity just to find listings for you. With so many listings available online, is having a real estate professional by your side even worth it? Absolutely.
The process of buying your first home is filled with so many details that you’re unfamiliar with that a qualified real estate professional has navigated many times, probably for years. And when there is a lack of inventory (like we’re seeing this year) listings are usually under contract by the time you set up a tour online. Real estate professionals can get you access to listings the second they hit the MLS. But you don’t want to hire just anyone, you want to hire the right one. Here are some questions you should ask to find the right one:
- How long have you been selling real estate?
- Have you sold any listings in this area in particular?
- What do I need to know about utilities here?
- What do your other clients in this area like/dislike about it?
- Tell me about the buying process and how will we stay in communication?
An expert real estate professional will have no problem answering all of these questions. To be honest, it’s why you’re here in the first place. You feel a bit lost or overwhelmed. A qualified real estate professional will be your guide and give you the confidence to buy your first home.
As proud members of the esteemed, small-knit Eden Prairie small business community, we are active participants in everything our area has to offer. Since 1995, we’ve been committed to earning the trust of our community. With over 4,500 homes sold in our region, we have the knowledge and experience you need when you are looking to list or buy a home in Eden Prairie. Give us a call today and experience for yourself how we became the #1 sales team in Eden Prairie.