Buying your first home is an exciting milestone, but it’s also a huge undertaking. As one of the most significant investments you will ever make, it’s important not to get swept up by the emotions of house hunting and end up biting off more than you can chew.
Taking the plunge into homeownership can be intimidating. But by avoiding the following common homebuyer mistakes, you can help yourself to save money and prevent buyer’s remorse.
Not shopping around for a mortgage
First-time home buyers have a bad habit of choosing the first and often only lender they speak with for their mortgage. According to the Consumer Financial Protection Bureau, nearly half of all mortgage borrowers don’t shop around when they’re looking for a loan.
No two lenders offerings are the same, so it’s important to get a quote from at least a couple of different lenders. Compare interest rates, lender fees and loan terms to ensure you are getting the best deal. Taking time to shop around could save you thousands of dollars in the long run.
Not knowing what you can afford
When a lender does approve you for a loan, it’s easy to assume that you can purchase a home for that same amount. However, the amount your lender says you can afford can differ drastically from what you can actually afford. Lenders may look at your income or debt-to-income ratio for approval, but they don’t factor in your other monthly expenses.
Before you buy, be sure to calculate what you pay for things like groceries, utility bills and other recurring purchases. Your monthly mortgage payment should ideally fit comfortably into your lifestyle. A higher monthly payment could mean you have less money to save or spend each month.
Not saving for a down payment
According to Business Insider, one of the biggest mistakes a home buyer can make is not putting down a large enough down payment. A small down payment may seem like a good idea at the time, but it can end up costing much more in interest rates and the amount you borrow from a lender.
A larger down payment means a smaller mortgage and more affordable monthly payments. The downside is you may have to put off buying your dream home until you have saved enough money. In a survey of millennials who purchased a home in the last five years, it took an average of 3.75 years to save enough money to buy.
Buying your first home is a daunting decision. But with a little research and financial planning, you can feel confident in your decision when it comes time to close the deal.