What are the Biggest First-Time Homebuyer Mistakes and How Do I Avoid Them?

First-time homebuyers are often confused and overwhelmed which can lead to regret, unnecessary financial strain, and stress. Being aware of frequently occurring mistakes and knowing the way to prepare or handle these situations in advance can make all the difference and create an easier, cost-effective process! Here is a list of many first-time homebuyer mistakes and what you can do to avoid them:

Not Getting Pre-Approved for a Mortgage

Prospective homebuyers can seek a pre-approval for a mortgage from lenders (like Norway Savings Bank). Without pre-approval, you don’t really know your true budget for purchasing a home and sellers might not think you’re a serious buyer. Be sure to obtain a pre-approval instead of a pre-qualification. A pre-qualification is simply a letter from a bank without an official credit check and additional mortgage qualification research. With a pre-approval, you will feel confident to make an offer when you do find the home you want, plus you’ll know exactly what you can afford. It’s important to remember that buying at the very top of your approval limit leaves no room for unexpected expenses or life changes.

Underestimating the Actual Cost of Buying a Home

This one catches even savvy, experienced homebuyers from time to time, so don’t feel badly if there are things here you haven’t thought about! Many homebuyers compute only the mortgage payment and begin house hunting accordingly, but there is so much more to consider. For instance:

• Taxes
• Closing Costs (more information later in this article)
• Moving Expenses
• Initial Repairs
• Necessary Renovations
• Utilities
• Potential Homeowner Association Fees
• Mortgage Insurance

Many financial advisors and mortgage experts recommend that you should aim for housing expenses to stay under 35% of your gross monthly income (before taxes are deducted) to make the process of moving into and living in your new home affordable.

Entering the Process with a Poor Credit Score

The best mortgage loan deals are extended to people with great credit, but that doesn’t mean you’re shut out if your credit score could use a boost. Borrowers with scores below 620 generally have trouble qualifying for a loan and might want to improve their credit score by managing their payment history and not running credit card balances too high. Ask your lender for suggestions to help improve your credit score. If your score is above that, contact a lender and start the pre-approval process. Make sure you ask to see your credit report so you can review it for errors and learn areas in which you could make improvements, if necessary.

Not Selecting the Right Real Estate Agent

You want a real estate agent that will help you find the right home for you, explain the paperwork in simple and understandable terms, and advocate for your position in the negotiation process. Talk to several agents before settling on your choice. You want to ensure your agent is experienced in the Maine and/or New Hampshire markets and checking out their online reviews can be beneficial. A respected, successful agent can guide you through the process, help you negotiate your best offer, and make the experience enjoyable. Trust your instincts and make sure it’s someone with whom you will be comfortable.

Not Taking Advantage of First-Time Homebuyer Programs in Maine and New Hampshire

Many homebuyers miss out on a wide range of opportunities that can cut down on costs related to the first-time homebuyer experience, including reduced interest rates, interest-free mortgages, cash grants, and tax credits. MaineHousing and New Hampshire Housing also help make homeownership more affordable, offering financing alternatives with little or no down payment options, along with down payment and closing cost assistance programs.. These are options that your lender can guide you through as the homebuying process continues. MaineHousing does require first-time homebuyers to complete an eight-hour homebuyer education course which covers budgeting, credit management, and mortgage options. You can take the class in person or online through the hoMEworks Program.

Getting Too Emotional

Most of us have been there: “Oh wow, this house would be perfect!” While it’s wonderful when you’ve found a potential home to purchase, be careful. Getting too attached or “locked in” to a particular house or property can lead to overpaying, ignoring issues, and poor decisions. Stay objective and be guided by the facts and your budget, not just an emotional reaction.

Ignoring Houses On the Market for a Long Time

Don’t immediately discount houses that have been on the market for a long time because “there must be something wrong with them.” Sometimes, houses are on the market for extended periods for reasons that shouldn’t scare you off: a previous buyer wasn’t able to ultimately receive financing, the appraisal halted a deal, or perhaps the house came on the market at an elevated price. In Maine and New Hampshire, an additional cause is the age of particular houses which don’t always align with the wants of some buyers.

Lack of Knowledge of the Neighborhood

Unfortunately, some buyers neglect researching the neighborhood and community they will soon be living in. Learn more about the area by driving through and talking to people outside of the open house experience, having a simulated commute experience to assess what driving to work will be like, visiting local merchants, and even attending a community event.

Down Payment Disasters

When you buy a home with a mortgage, you typically have to pay at least 3-5% of the purchase price upfront. Buyers are sometimes inclined to put a large majority of their savings into a down payment on a house, but this can be a catastrophic mistake. Buyers should consider the possibility of needing funds for the later costs associated with buying a home (listed above). Often called “carrying costs,” these ongoing expenses are simply part of home ownership. You can build these funds gradually, but if your down payment leaves you with nothing in the bank, you’ll be in trouble if an emergency occurs during your first months of ownership. MaineHousing, New Hampshire Housing, and some lenders like Norway Savings Bank offer many down payment assistance programs, and it’s always a good idea to consider additional home expenses, monthly bills, groceries, and other expenses when making a decision on what you can afford for a down payment.

Not Having a Home Inspection

Home inspections are crucial as they allow qualified professional home inspectors to evaluate your new house and inspect the property for any potential issues. Skipping this step can be a costly one as hidden problems like foundation damage, mold, structural failures, and many others can go unnoticed until you’re already living in the house and face unplanned expenses to rectify the situation. Your real estate agent can help you find an experienced inspector. Remember to read the inspection report so you can see what might be coming and plan accordingly.  

Choosing the Wrong Mortgage or Lender

Choosing the wrong mortgage can have a detrimental effect on your short-term and long-term financial situation as hidden costs, unfavorable rates, and a number of other factors can make a mortgage seem great today but not so ideal a year or two down the road. Be sure to understand the terms, what you will be responsible for, and what mortgage makes the most sense for your life. It’s also important to work with a  lender that you trust and that will be there for you when you need help or face an unexpected challenge. Working with a local community bank, like Norway Savings Bank, will provide hands on support – not only during the buying process, but through the life of your mortgage loan.

Not Considering Closing Costs

This is a common mistake that causes unnecessary strife and stress. Closing costs are the fees and expenses associated with finalizing the mortgage loan, including loan origination fees, appraisal fees, title insurance fees, local property taxes, and others. They can range from 3-6% of the purchase price. Here’s the good news: if you plan ahead and pay attention, you’ll be in great shape. The lender must disclose all fees and costs associated with the loan. There are a lot of moving parts that first-time homebuyers might not expect, so make sure you ask questions and receive firm estimates of what the closing costs might be in your transaction.

Not Asking Questions

Speaking of questions, ask a lot of them! Know that most first-time homebuyers have been in your shoes and you are not the only person confused by the many components of buying a home. Not asking questions or working off incorrect assumptions can create a wide variety of issues, so ask away.

Not Fully Negotiating

You could be leaving a lot of money on the table if you don’t ask for concessions from the seller, both in terms of purchase price and in items that need repairing before you move in. Look to your real estate agent to help you negotiate the best deal.

Norway Savings Bank MortgageGO

As you can see, there are a large number of potential considerations on the path to your new home. With Norway Savings Bank, you’ll never have to go it alone. The first-time homebuyer experience, securing a home mortgage loan, accessing down payment assistance, and even eventually knowing the benefits of mortgage refinancing, are all experiences that NSB can help you navigate. We understand every homeowner has unique needs and circumstances. With Norway Savings Bank MortgageGO, you can find a mortgage that’s just right for you. Not only will you get competitive rates, you’ll get a supportive, dedicated, local mortgage professional who will help you every step of the way. Plus, NSB’s new and enhanced technology makes going through process easy and efficient! So when you’re ready, let us help you! Check out MortgageGO or contact a mortgage loan officer in your area.